When it comes to understanding complex regulations, there’s no better source than the experts on Fuel Freedom Foundation’s policy team. We sat down with President and CEO Joe Cannon, and Vice President of Policy and the Environment Robin Vercruse, to ask them to tell us more about the CAFE standards, why they’re important, and how they can benefit consumers. Video and transcript below:
Landon Hall: Joe, talk a little bit about the history of the CAFE standards, how they came to be, and why they’re so important today.
Joe Cannon: They’re important today for the original reason but they’re more important the environmental reasons today than they were when they first came out. This was in the 1970s, and we had the Arab oil embargo, and everyone was worried because we’re so dependent on these foreign sources of oil. What do we do? Well we have all these cars, so if we made them more fuel-efficient, make them use less fuel, we’d be less oil dependent.
But even in the ’70s people were conscious that the main source of pollution people are exposed to comes from automobiles. So it was kind of a two-fer: we can deal with an energy security issue and we can also deal with an environmental issue because the fewer vehicle miles traveled the less emissions from tailpipes there would be, and that would be better for pollution. It’s not a coincidence that California is a lot cleaner, Los Angeles for example is a lot cleaner than it was in the 70s, and a big reason for that is CAFE.
LH: What’s the level of cooperation [between automakers and the EPA] like now, because not only are the automakers on board but it seems like the government has gone out of their way to make sure everyone buys into [CAFE]. There doesn’t seem to be the level of opposition that you see in other federal programs.
Robin Vercruse: Definitely. The CAFE standards, for environmental regulations, are one of the least controversial regulations. And that’s because there are actually benefits for average consumers. As Joe mentioned, in the state of CA you’ve seen dramatic reduction in air pollution in cities. I grew up in Southern California and I couldn’t breathe on certain days. The state, in conjunction with the federal government, decided to be very aggressive with automobile emission standards to reduce them. There are health consequences to that. So there’s a measurable and discernible difference for consumers.
Number two, you have a cost benefit. When you get more miles per gallon you get more miles per dollar, and that translates to everyone who’s on the road. They’re saying, ‘hey it costs me less to fill up my car.’ And even as oil prices rise, as you get more miles per gallon, you’re still paying less than you otherwise would if you had a less efficient car.
So I think both of those mean that there is real benefit for your average consumer, and then from a congressional standpoint and a bipartisan standpoint you have the environmental benefits, and you have the national security benefits. You’re also creating jobs in the U.S. by having feedstocks and fuels that aren’t from foreign countries, and then overall you’re decreasing the oil consumption [by making vehicles more efficient]. So there’s something in it for everyone and I think that gets a lot of unification around the standards.
LH: Consumers, when they go to shop for a new car, the way they see this progress is the number on the window sticker on the car. Does that reflect the real world miles per gallon you get? And how does that differ from the formula that’s involved in CAFE?
JC: Good question. The number itself is not directly related to the CAFE standard. What it says is this vehicle under ideal circumstances (by the way, not actually road circumstances) will get X. So it’s not connected directly.
CAFE stands for Corporate Average Fuel Economy so that [number] applies to the whole range of vehicles by that particular manufacturer. But from a consumer standpoint, if you’re interested in efficiency, you want to buy a cleaner, more efficient car [the window sticker] gives you a way to compare. So that sticker is different on an F-150, than it is on a Honda Accord, than it is on a Prius, than it is on a Volt. Those are all different numbers and they are relatively correct, so you can be pretty confident that if you have a higher number that car is likely to get better gas mileage. But it’s not directly connected to the CAFE standard. It is however a requirement of the regulatory process to have [the window sticker].
RV: One other thing I would add to that is under the CAFE program there are incentives for certain technologies, to accelerate the adoption of new, more efficient technologies on vehicles. And so when the automakers produce these cars they get the equivalent of a miles per gallon credit which gets them a CAFE number for a particular vehicle that would not be the one you see on the sticker. So there are two things going on there.
LH: Give me an example of a vehicle that would get a special credit like that. Do electric vehicles get a higher priority?
RV: Electric vehicles, flex-fuel vehicles (ones that use more than one fuel), compressed natural gas vehicles, there are a number. There are also technologies. There are air-conditioning technologies, there are light-weighting technologies, there are turbo-charging and super-charging technologies. There are a number of technologies at any given time that might receive a credit.
LH: This might help explain why you’re seeing a lot of alternative fuel technologies on the road. It seems like the CAFE standards have spurred this innovation, not only in engines, fuels, and electrification, but also the things you mentioned: making cars lighter, dealing with the climate controls to get them more efficient so that they end up using less fuel. It’s really kind of spurred this innovation.
JC: Well you wouldn’t have flex-fuel vehicles on the road if it weren’t for the CAFE standard, basically. That’s how American automakers in particular are able to keep producing trucks and SUVs, because they get a credit for putting flex-fuel vehicles on the road.
LH: The stated goal of the CAFE standards is to get to 54.5 MPG across the fleet by 2025. That sounds like a big number compared to where we are now. How do automakers hope to get to that number? How can they?
JC: The fact is there’s a fair amount of optimism that we can get a lot further than we are today. So I think all automakers feel like there is a pathway to move down the road. The actual 54.5 miles per gallon — which again it comes from an algorithm, that’s why it’s a weird number — that’s gonna be really hard unless there’s a really strong increase in the number of electric vehicles and plug-in hybrids.
But it’s gonna be hard. It’s going to be very hard and I’m just going to go out on a limb and say they’re not going to be able to get there without some kind of credits. Now, already built into the proposal are credits for electric vehicles and plug-in hybrids, so that gives you a big advantage. But automakers can’t make people buy various vehicles. So they’re gonna have to have some flexibility in getting some credits to do that.
RV: I think one of the important features of CAFE is what you said Joe: that consumers need to buy the cars. It’s not the ones that are produced, it’s averaged across the vehicles that manufacturers actually sell.
LH: They don’t get credit just for having put the time into making them.
RV: Correct, or just sitting them on the lot. Exactly. So you need, from an automaker’s perspective, to make sure that you’re providing cars that consumers actually want, that meet their needs, and that are affordable. And so the CAFE standards need to account for that when they’re developing the newest rules. They need to make room for that diversity of consumer choice.
LH: I’ve heard this is a big year for the CAFE standards. What happens in the course of making these rules to ensure that they’re on the right path? What’s going to happen this year in this process?
RV: [This year] there’s what’s called a midterm evaluation. CAFE standards are developed in four-year increments. In 2012 they developed an extended range of four-year periods. So for 2022 to 2025 they built in a midterm review process to ensure that they’re on track, and able to actually get to that 54.5 MPG by 2025. That process is called the midterm evaluation. It’s a partnership between the Environmental Protection Agenct (EPA), the National Highway and Transportation Safety Administration (NHTSA) and the California Air Resources Board (CARB).
They kick off this year — it’s a 2 year process — with what’s called a Technical Assessment Report (TAR). That report is basically a look at the landscape of vehicle technologies that are in the marketplace today and those that are on the cusp of being introduced into the marketplace. What are they? Where should the incentives go? What are the economic implications of the various things? It’s basically a holistic analysis of the state of the automotive market today.
LH: Consumers rightly be worried that maybe what comes out of the standards might limit their choice of vehicles, that they might be forced to buy small, fuel efficient cars when the current landscape is all about crossover SUVs, big trucks, and SUVs. Those are the vehicles Americans really like and have shown that they want to buy.
RV: There’s a tension there for sure because you have certain segments of the population who want the standards to go much further, and you have others saying, ‘I want my SUV!’ But the CAFE standards have, built-in, two separate sets of standards. You have one for light-duty passenger vehicles and another for what’s called light trucks which are SUVs, minivans, and actual trucks, like Ford F-150s, for example. So these have differing expectations for their ramp up of the number of miles per gallon or equivalent grams per mile. And so they’ve built in the ability, with those tiers, to preserve consumer choice in the marketplace.
JC: But it’s a fear.
JC: If you take the top ten selling vehicles in the United States of America, number one is an F-150, number two is a Chevy Silverado, number three is a Dodge Ram — one, two, three — by quite a bit. Then you get into passenger cars and even the most popular cars (the Toyota Camry, the Honda Accord), are not the most efficient vehicles that either of those companies make.
RV: And to that point you have a tension between Japanese automakers and U.S. automakers. Japanese automakers by and large make smaller cars, and U.S. automakers offer a lot of the bigger cars that consumers seem to like quite a bit. So how do you make room for both of those and preserve that choice? It’s going to be something that needs to be front and center, as well as the economic implications for your average consumer.
LH: What’s the best way to squeeze more efficiency out of these bigger engines that do use a lot of gasoline. They’ve lightened vehicles — the Ford F-150 was switched to an aluminum body, and that helped. How else can we continue an upward trend among those vehicles that are so popular?
JC: We have a strong view on this, it turns out, and that is that in order to be able to keep bigger cars on the road, you need higher compression engines. Higher compression engines are more efficient. So with a higher compression engine you have more efficiency, obviously you get better mileage, and there are some pollution benefits too. The problem is high compression engines require high octane fuel, and right now Americans are used to buying low octane fuels for cheaper prices
Something has to come together with engines, engine technology, and fuel in the market that would encourage automakers to make higher compression engines.
RV: There’s a lot of discussion going on around this right now. There’s a multimillion dollar multi year initiative going on at the Department of Energy on this notion of matching the vehicles with the fuels. They call it the Co-optimization of Vehicles and Fuels. And they’re looking at if you introduce a new fuel to the market, i.e. a high octane fuel, what sort of vehicle technologies would you enable, what sort of benefits would you have, and how does that happen?
I think that’s the most important thing is a lot of times you have things in government that aren’t bringing it down to the practical level and the actual implementation. And the fact that that’s a huge piece of this initiative from the Department of Energy is very powerful. I really hope that we as a nation can benefit from that in these CAFE standards really accounting for that in a meaningful way and and introducing or spurring action to actually get the fuels you need to be able to introduce those technologies.
LH: Most people only know octane from the numbers they see at the pump. The minimum they see is usually 87, the mid-grade is usually 89, and then there’s the premium with 91. To them that’s high-octane fuel, but currently that’s reserved mainly for higher-end, high-performance vehicles. Does it have to be that way? It sounds like high-octane fuel has a lot of benefits, for all Americans not just people who drive more expensive cars.
RV: We were at a presentation about a month ago and Ford was talking about just using 91 octane fuels in virtually any car on the road today, and they can see a 1-2% performance benefit. Now that’s small compared to the price differential, so there’s no value in that at the moment the way the fuels are priced, because there’s such a premium on “premium” fuel. But that just shows that even in existing vehicles you would see a benefit if we had a higher minimum [octane standard]. And you could do it a lot more affordably than they do now. They charge a premium just because they can, because it’s used only for expensive vehicles. You can overcome that issue and you can not only develop better engines but you can certainly have engines today that perform better than we’re used to.
JC: There’s another point to the high-compression engine. We’ve been talking just about CAFE and that’s fine, but if you have a high-compression engine with a very small amount of hybridization or electrification (so that it’s a lot cheaper so consumers can buy it) you can get a significant reduction of greenhouse gases over time, too. That supercharges the reductions that you get (it’s not supercharging in the auto sense), it’s a dramatic improvement in the efficiency. But you need the high-compression engine plus the small hybridization to do that. So really you can attack two problems at once, the fuel efficiency, which of course has environmental benefits by itself, but in addition you can get significant CO2 reductions.
RV: And I think that’s important in the wake of Paris where transportation was virtually ignored, particularly light-duty transportation. This could be a powerful and affordable way to drive consumer behavior to get reductions rather than a top-down approach.
JC: Just to put some numbers around that: right now today 25-27% of greenhouse gas emissions come from cars. That’s expected to grow by 120% between now and 2050, at least. Maybe it’s more but it’s a lot. So leaving that piece of the puzzle out of a climate strategy is not a good idea.
LH: A lot of people are concerned about climate change and reducing greenhouse gas emissions, but it has to make economic sense. People are motivated by the price at the pump when they fill up. How do you reduce the cost structure of high-octane fuels so that more people have access to them?
JC: It turns out that there is a cheaper solution, because to get high octane — a high-compression engine requires high-octane — the cheapest form of octane is alcohol, and today most of that alcohol can come from corn in the form of ethanol.
Ethanol is a very well-established fuel, 10% of the fuel in the country is already ethanol and you mentioned earlier flex-fuel vehicles? They can go up to 85% ethanol, which again is alcohol, and alcohol has a higher octane number than gasoline. So it’s a cheap way to increase the octane.
Over and above that we have vast reserves of natural gas, and ethanol can be made from natural gas. So we have cheap natural gas, which is far cheaper than petroleum on an energy unit basis, so if we can get that natural gas into the transportation fuel system, it’s all domestic so it goes right back to the roots we talked about early on in terms of energy security. It’s all here. We have natural gas for at least a century. And it’s cleaner, and it’s cheaper. So this octane enhancing thing can kill many birds with one stone. While improving the environment, while improving automobile efficiency. So yeah we have a nice package that can solve lots of problems.
RV: Lots of jobs here. And elsewhere.
JC: There’s another benefit, too. Ethanol as an octane-enhancer is itself much cleaner — forget about greenhouse gas emissions, CO2 emissions.
Right now, as much of a third of a gallon of your gasoline is going to have aromatics in it, benzene, toluene, xylene, those are all needed to increase the octane number. Well alcohol does the same thing and it won’t hurt you. I mean, benzene, xylene, ethyl-benzene, toluene, those aromatics, they’ve been identified as carcinogens or toxins. We don’t need to do any more studies to find out that benzene is bad for you. You can substitute that for alcohol which doesn’t have any of those toxic characteristics when it’s actually burned.
LH: The midterm evaluation is happening this year. The first part of that process is the Technical Assessment Report. How do people make their voice heard? How do they weigh in on this? Because this obviously affects a lot of people. Consumers who care about clean air and some of the other issues we’ve been talking about. How do they provide their feedback?
RV: So when EPA publishes rules and something like this Technical Assessment Report, they are required to provide a comment period of — it differs depending on the particular rule but it’s anywhere from 30 to 90 days — where any citizen can comment on the substance of the proposal that EPA puts out. So that’s a way to get your voice heard, and we certainly would encourage that. Because citizens don’t know that they actually could have a voice in this. It’s important that it’s a substantial contribution, not just something that is uninformed. You want to make sure that it actually relates to the content of what EPA has proposed, but it is a really great way for informed citizens to make their voice heard.
LH: There’s been a lot more attention in the last few months about [CAFE] considering how important this is, and I think a lot of people assume that these kinds of laws and regulations get cooked up behind closed doors and the public doesn’t have a say. But this is an example where the EPA really does listen to people.
JC: I think so. I think in this particular case because so much of the implementation of this thing is going to be dependent on consumer behavior, that’s just a fact. Some people are going to want small cars, some people are going to want electrification, some people are going to say, ‘don’t touch my SUV!’ There’s a whole market, and the market is made up of all those people with different views, and they should make them known.
LH: Not only is car choice a bedrock of the standards, but safety as well. We talked about some of the ways that manufacturers can squeeze more efficiency out of these cars by using lighter materials. Will that compromise driver safety and passenger safety?
RV: One of the things that’s really important to CAFE, and integral to the analysis when they’re developing the standards is the implications for consumer safety. Because you have NHTSA involved, and that’s their bailiwick right there. They’re focused on safety in transportation.
LH: Safety is in their name.
RV: Exactly. So it is important and it’s integrated into the CAFE considerations. It’s not something where they’re just going to regulate safe vehicles out of existence. Or willfully increase fatality rates, for example.
JC: In any case, all the evidence says that safety is getting better and better at the same time that fuel economy is getting better. There are people who want to make a big issue of that — that they’re at war with each other — but the reality is that in addition to the improvements manufacturers are making to engines they’re making all kinds of safety improvements. It’s actually all working together in a pretty nice way. And in fact traffic deaths are coming down pretty dramatically over time.