Fuel Economy Standards Create Incentives for Larger Vehicles

Transportation Secretary Ray LaHood and EPA Administrator Lisa Jackson discuss the new fuel economy standards for cars (EPA.gov)

A University of Michigan engineering/economics study discovers incentives in the new Corporate Average Fuel Economy (CAFE) standards for auto makers to build larger vehicles allowed to meet lower targets. The work of former Michigan design doctoral student Kate Whitefoot, now with the National Academy of Engineering, appears online in the journal Energy Policy (paid subscription required).

The most recent CAFE standards, released in July, require automakers to raise the average fuel economy of new cars and trucks to 35.5 miles per gallon (mpg) by the 2016 model year and 54.5 mpg by the 2025 model year. Whitefoot points out the key word in these requirements is “average,” and the calculation of these averages changes each year determined by the footprints — defined as track width times its wheelbase — of the vehicles made by each car company.

The purpose of the footprint calculation was to prevent a repeat of the outcomes from the 2006 standards. In that year, American car companies believed the standards rewarded much smaller vehicles in a way that gave an unfair advantage to foreign manufacturers. Whitehead and co-author Steven Skerlos, a Michigan engineering professor, believe the new rules overcompensate in making that adjustment.

Whitefoot’s and Skerlos’s study developed a series of 21 scenarios involving 473 vehicles where car companies could could adjust the size of their vehicles, add fuel-saving technologies, balance acceleration performance with fuel economy, and adjust vehicle prices. In 20 of the 21 scenarios, auto makers increased the size of their vehicles.

The authors calculate that the sales-weighted average vehicle size in 2014 could increase by 1 to 16 square feet, undermining fuel economy improvements between 1 and 4 mpg. That increase in vehicle size means the industry as a whole would not achieve the fuel economy goal for 2014.

While Whitefoot and Skerlos showed the unintended incentives of the CAFE standards, they also through the scenarios provide a way to fix the problem. “This study illustrates that there may be a substantial financial incentive to produce larger vehicles, and that it can undermine the goals of the policy,” says Whitefoot. The paper also indicates, however, “that the policy can be adjusted to reduce these unintended incentives by making it harder to lower the fuel economy targets by producing larger vehicles.”

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