US CAFE Standards Rolled Back

At the end of March 2020, the Trump administration announced the final version of the Safer Affordable Fuel-Efficient (SAFE) Vehicles Rule that sets new Corporate Average Fuel Economy (CAFE) and carbon dioxide standards. The new rule rolls back the standards implemented under the Obama administration that required US automaker fleets to have an average efficiency of 54.5 mpg by 2025. Under the SAFE rule, the standards would be decreased to roughly 40 mpg under the same time horizon. Instead of a 5% annual increase in fuel economy, the new rule calls for a 1.5% increase. The US Environmental Protective Agency states that the SAFE rule will increase US competitiveness by reducing regulatory costs and believes that the rule will cause 3,300 fewer crash fatalities; however, this assumption is disputed.

History of the Standards

The CAFE standards were first enacted in the US in 1975 as a reaction to the oil crisis. The standards are weighted by sales and met based on a manufacturer’s entire fleet (i.e., some vehicles may have lower fuel efficiency but the manufacturer’s fleet as a whole meets the requirements). When enacted, the standards aimed to increase the fuel economy of new vehicles to 27.5 mpg by 1985. In July 2011, the fuel economy standards were increased to 54.5 mpg for light duty vehicles by model year 2025. If a manufacturer’s fleet does not meet the requirements set by the CAFE standards, it must pay a penalty of $5.50 per 0.1 mpg under the standard for every vehicle the manufacturer produced that year in the US market.

In August 2018, the current US administration proposed freezing fuel efficiency standards at 2020 levels through 2026. After a 17-month process, the final SAFE rule results in a decrease in emissions targets and yearly fuel economy requirements, but it did not freeze the standards at 2020 levels as originally proposed. The changes in fuel efficiency standards are expected to result in 900 million additional tons of carbon dioxide being released into the atmosphere with 78 billion gallons of fuel.

Moving Forward with the New Standards

After the announcement of the new rule, California Attorney General Xavier Becerra announced that the state would be going to court over the rule. Under the Clean Air Act, the California Air Resources Board (CARB) currently has a waiver to invoke higher fuel efficiency standards in its state, and the state will fight to maintain its higher standards. If California is successful, automakers will likely continue to increase efficiency to meet the standards. Automakers are unlikely to manufacture a vehicle with less fuel efficiency for markets outside of California at the same time as a vehicle with higher efficiency within California. Furthermore, even if the Trump administration is successful in removing the waiver, Canada (whose fuel efficiency regulations largely mimic the US’s) may adopt California-style fuel efficiency standards. This would maintain the patchwork of regulations for the automotive industry in North America.

Automakers have already reached out to CARB to discuss voluntary emissions agreements in lieu of the new federal efficiency requirements. Volvo, Ford, Honda, Volkswagen, and BMW are either in talks with or have already committed to voluntary agreements with CARB. These commitments will likely mean little to no changes in the automakers’ current fleet plans through model year 2025, which include the rollout of fuel-efficient vehicles and electrified vehicles.