Whew! The Stakeholders Pole Position on Fuel Economy

Whew, it’s been quite a week for declarations, announcements and analyses on future fuel economy standards in both the U.S. and timely, too, as U.S. EPA’s technical assessment report on fuel economy is due any time now. To briefly recap the major elements of the program, these standards passenger cars, light-duty trucks, and medium-duty passenger vehicles, in MYs 2017-2025.

The final standards as currently set are projected to result in an average industry fleetwide level of 163 grams/mile of CO2 in model year 2025, which is equivalent to 54.5 miles per gallon (mpg). A summary of the standards follows below:

Source: EPA

a) The Alliance of Automobile Manufacturers: Mid-Term Evaluation

Earlier this week the Alliance released its findings and recommendations on the future of CAFE, which included among others:

• Automakers are producing and offering for sale more fuel-efficient vehicles than ever before.
• Meeting MY 2025 targets will require the average vehicle in 2025 to be more efficient than some modern hybrids. Real world, holistic, modeling predicts up to 47 percent of the U.S. car fleet will need to be as efficient as modern hybrids.
• Fuel prices directly affect sales of alternative powertrains and also impact the car/truck fleet mix. (And indeed, current sales data show consumers favoring larger vehicles, influenced by lower gasoline prices.)
• Even when using agency-assumed costs, the payback period for alternative technologies extends beyond the timeframe most consumers consider; it is likely to remain that way.

The Alliance recommended that the midterm review should, among other things:

• Consider how lower fuel prices impact consumer buying decisions and the standards’ achievability. This review should compare past predictions for technology development and technology uptake against the agencies’ most recent predictions in this area.
• Account for the higher level of electrified vehicle (EV) sales needed to meet future standards.

The Alliance also cited the impact of California zero emission vehicle (ZEV) requirements, adopted by nine other states, that by 2025 a projected 15.4% or more of new-vehicle sales be zero-emissions models, powered by batteries or fuel cells.

b) World Energy Council/Accenture: The World Energy Perspective 2016: ‘E-mobility: Closing the Emissions Gap’

The figure cited by the Alliance above aligns with an analysis released this week by the World Energy Council, which stated that EVs will need to increase their combined market share to 16% by 2020 to achieve the aggressive fuel efficiency standards set by regulators in the U.S., EU and China.

Noted the report, “While EVs currently represent less than 1% combined market share across the world’s largest markets for new passenger cars, they should be considered central to any policy and technology portfolio designed to lower transport emissions.” The push for EVs continues.

c) Ceres: Economic Implications of the Current National Program vs. a Weakened National Program in 2022-2025 for Detroit Three Automakers and Tier One Suppliers

Ceres, a nonprofit that works with business on improving sustainability, found that even with fluctuating gasoline prices, The Detroit Three U.S. automakers (Ford, GM and the Chrysler division of FCA) will remain profitable under the current planned corporate average fuel economy (CAFE) standards.

Five fuel price scenarios were modeled to project what would happen to automakers’ profits and suppliers’ orders if current fuel-efficiency targets requiring real-world fleet averages of 37 to 39 miles per gallon by 2025 were to stay in place, and what would happen if the government were to weaken the standards during the current statutory midterm review of the policy. The outcome of these analyses are summarized in the following chart:

Impact of National Regime & Fuel Price on Detroit 3 in 2025

Source: Ceres

No matter the scenario, the auto companies would be profitable if CAFE remains as it is, but if they were relaxed the bottom line would be negatively impacted because they would be less competitive against other manufacturers. The current standards could also insulate the three automakers against gas-price spikes.

Even the “Three Amigos” weighed in on fuel efficiency this week, with Presidents Obama and Nieto and Prime Minister Trudeau agreeing to align fuel efficiency and/or GHG standards out to 2025 and 2027, respectively. This is no surprise as the Mexican and Canadian governments had already announced their intention to follow the U.S.’ lead.