Potential for Meeting Light - duty Vehicle Fuel Economy Targets , 2016 - 2025

................................................................................................................................................ 2 Proposed Rulemaking ........................................................................................................................... 3 Meeting the 2016 and 2025 U.S. fuel economy targets ...................................................................... 4 Methodology ........................................................................................................................................ 5 Likelihood of meeting average fuel economy targets in 2016 and 2025 ............................................. 6 Plausible-ambitious Scenario ........................................................................................................ 7 High ERFC Scenario ...................................................................................................................... 11 EPA/DOT Preferred Alternative Scenario .................................................................................... 15 Impact of proposed regulations on fleet fuel use .............................................................................. 21 Impact of proposed regulations on fleet GHG Emissions .................................................................. 24 Strategies for meeting fuel economy targets in 2016 and 2025 ........................................................ 25 References .......................................................................................................................................... 30 U.S. CAFE STANDARDS: Page 2 of 30 Abstract In August 2011, NHTSA published the EPA and DOT notice of intent to propose further regulations for the lightduty vehicle fleet which mandate foot-print based corporate average fuel economy and GHG emissions standards for model years 2017 to 2025. Policy makers are setting more stringent fuel economy and emissions targets out to 2025 in a context of significant uncertainty, especially in the rate of improved mainstream technologies progress, the development and market deployment of alternative technologies, the supply of alternative fuels, and the evolution of travel demand over the next few decades. These uncertainties need to be quantified and taken into account systematically when evaluating policies, to quantify the probability of meeting the targets, and identify the key areas in which we need to develop knowledge to reduce uncertainties. This research aims to help decision making using quantitative risk modelling, given that decision makers are always faced with uncertainties as they look to set targets into the future. A stochastic technology and market vehicle fleet analysis is carried out, using the STEP (Stochastic Transport Emissions Policy model), to assess the probability of meeting the proposed CAFE targets in 2016 and 2025, and identify factors that play key roles in the near and midterm. The analysis further identifies what other measures could be taken in parallel with CAFE to increase the probability of a greater reduction in the U.S. fleet fuel use and GHG emissions. Our results indicate that meeting the proposed targets requires (a) aggressive technological progress rate and deployment, (b) aggressive penetration of advanced engines and powertrains in the market, (c) aggressive vehicle downsizing and weight reduction, and (d) a high emphasis on reducing fuel consumption (ERFC). Three scenarios are examined to assess the likelihood of meeting the proposed targets under uncertainty. The targets examined here are 32.5 and 34.1 mpg in 2016 and 44 and 54.5 mpg in 2025. We have assessed these reduced targets from the nominal CAFE values after allowing for the various credits in the proposed rulemaking. These numbers are combined sales-weighted averages for cars and light trucks. Cars will need to meet higher mpg targets, and light trucks lower targets, depending on the relative percentages of these two vehicle categories. The results show that there is about a 42.5% likelihood of the passenger cars average fuel economy being less than 32.5 mpg and a 5.3% likelihood of it exceeding 34.1 mpg in 2016, and about a 4% chance of it exceeding 44 mpg in 2025, under the plausible-ambitious scenario. The likelihood of meeting or exceeding the combined CAFE targets of 32.5 mpg in 2016 and 44 mpg in 2025 drops to less than 0.5%, once light trucks are included in the mix, under the plausible-ambitious scenario. Under the EPA/DOT preferred alternative scenario, the likelihood of passenger cars average fuel economy meeting or exceeding 34.1 mpg in 2016 and 44 mpg in 2025 increases to about 74% and 34.5% respectively. Similarly, the probability of meeting these combined CAFE targets drop to less than 1% in both near and mid terms, once light trucks are included in the mix, under the EPA/DOT scenario. The results further indicate that in the presence of other policies in addition to CAFE, there is a 20% increase in the likelihood of reducing the fleet fuel use by 10% in 2025: highlighting the need for complementary policies to CAFE standards to make a meaningful reduction in the U.S. fleet fuel use and GHG emissions into the future. This analysis quantifies the probability of meeting the targets to enable risk-based contingency planning, and identifies key drivers of uncertainty to promote research and develop knowledge in these areas, such as: naturally-aspirated spark ignition (NASI) engine technology development, ERFC, market acceptance of turbo SI characteristics, cost reduction of batteries and penetration of BEVs, vehicle scrappage and demand dynamics. U.S. CAFE STANDARDS: Page 3 of 30 Proposed Rulemaking DOT and EPA jointly announced their intent for proposed rulemaking of light-duty vehicle fuel economy standards for 2017 through 2025 (NHTSA, 2011). The aim of this paper is to evaluate the proposed standards and quantify the likelihood of achieving such targets, given technological and market uncertainties. The proposed standards are foot-print based and increase in stringency over time, on average about 5% per year from the CO2 footprint based curves for passenger cars from the model year 2016 to 2025 and 3.5% per year for light-duty trucks from 2017 to 2021. EPA currently intends to propose standards which would achieve, on an industry average new vehicle basis, 54.4 mpg in year 2025, while NHTSA intends to propose standards that would achieve an average industry new vehicle fleet-wide fuel economy of 40.9 mpg in 2021 and 49.6 mpg in 2025. The annual increase in stringency between model years 2017 to 2021 is expected to average 4.1 percent, and to average 4.3 percent between model years 2017 and 2025 for passenger cars. NHTSA is further considering allowing manufactures to include air conditioning system efficiency improvements as a means to comply with fuel economy standards. The regulatory bodies believe that these standards can be met through improving conventional gasoline and hybrid vehicle technologies and an increased market share of more advanced technologies including electric vehicles and plug-in hybrid electric vehicles. Given the long time horizon of the new rulemaking, EPA and NHTSA intend to propose a comprehensive mid-term evaluation to reassess the proposed standards and their impact. The agencies have also proposed including off-cycle credits to encourage penetration of advanced technologies, but intend to propose a limit on these credits. Automakers can apply for additional credits beyond the minimum credit value of listed technologies if they have sufficient supporting data. In addition, the agencies are planning to propose that companies may also apply for off-cycle credit for technologies that are not on the predefined list, based on the submission of sufficient supporting data. Moreover, to encourage electrification, EPA intends to propose an incentive multiplier for all electric vehicles (EVs), plug-in hybrid electric vehicles (PHEVs), and fuel cell vehicles (FCVs) sold in years 2017 to 2021. This multiplier approach would count each EV/PHEV/FCV as more than one vehicle in the manufacturer’s compliance calculation. Additionally, EPA intends to propose allowing a value of 0 g/mile for the tailpipe compliance value for EVs, PHEVs (electric miles) and FCVs for 2017 to 2021, with no limit on the quantity of vehicles eligible for 0 g/mi tailpipe emissions accounting. There will be a sales cap for this 0 g/mile from year 2022 to 2025, however, as manufacturers’ sales increase. The agencies furthermore intend to propose credits for manufacturers that employ significant quantities of hybridization on full size pickup trucks, by including a per vehicle credit available for mild and strong hybrid electric vehicles (HEVs). This is to reward the challenges of fuel economy improvement with “game changing” technologies on full size trucks. As in previous years, manufacturers can also earn credits for improvements in air conditioning (A/C) systems, both for efficiency improvements (reduced tailpipe CO2 and improved fuel consumption) and for leakage or alternative, lower GWP (global warming potential) refrigerant use (reducing hydrofluorocarbon (HFC) emissions). EPA further intends to propose additional CO2 credits for plug in hybrid electric vehicles (PHEVs) and bi-fuel compressed natural gas (CNG) vehicles, and to continue the previous credit procedure for the flex fuel vehicles through 2019. Credit banking and trading is intended to be continued with the exception of a one time credit carry forward beyond 5 years, and the exclusion from GHG standards of small businesses (as defined by the Small Business Administration) is intended to continue. U.S. CAFE STANDARDS: Page 4 of 30 Meeting the 2016 and 2025 U.S. fuel economy targets This analysis examines the likelihood of achieving the 2016 and 2025 average fuel economy targets , and what factors play a key role in meeting these proposed fuel economy standards in the near and mid terms. In the light of the details of the proposed credits and the possibility of implementation deviations, this analysis refers to both the nominal targets of 34.1 mpg in 2016 and 54.5 mpg in 2025, as well as, reduced targets of 32.5 mpg in 2016 and 44 mpg in 2025, we judge to be the actual implementation levels after allowing for credits of many kind in the rulemaking. The results presented in this paper can be readily interpreted, however, to obtain the likelihood of meeting other average fuel economy targets in 2016 and 2025. A stochastic analysis methodology is used to define a technology and market operational space derived from technical simulations and market deployment assessments in the authors’ earlier study Bastani, Heywood, Hope, 2012 (Bastani, 2012) is used here to examine three different scenarios including uncertainty, and assess the likelihood of meeting the targets under each scenario. The scenarios are: 1. Plausible-ambitious scenario: a plausible yet ambitious pathway that achieves 50% fleet fuel use reduction by 2050, developed in the author’s earlier study (Bastani, 2012) 2. High ERFC scenario: a scenario with a high emphasis on reducing fuel consumption, with the same market assumptions as the plausible-ambitious scenario but with more aggressive fuel consumption reduction from engine and powertrain technologies (ERFC is assumed to be 100% over time, indicating that all technological progress in the future will be used to improve fuel economy instead of increasing vehicle size, weight, or performance) 3. DOT/EPA preferred alternative scenario: the agencies proposed preferred scenario, described in detail in the rulemaking document (NHTSA, 2011) Meeting the average fuel economy standards is strongly sales mix dependent, and particularly sensitive to the penetration and the rate of deployment of turbo-charged gasoline and HEV vehicles. These factors in turn are dependent on market readiness and acceptance for these new technologies, and incentives that would make turbo-charged gasoline and HEV vehicles most attractive to consumers. Average fuel economy standards in 2025 are not only demanding on the absolute market share of advanced technologies but also require 8-10% deployment rate per year, much higher than historical trends on new technology uptake rate (Zoepf, 2011). For the purpose of CAFE, battery electric vehicle (BEV) and PHEV (electric miles) vehicles fuel economies are converted on a fuel energy density basis. Such conversion, however, overstates the benefit of BEVs and PHEVs, which are highly dependent on the greening of the electricity grid , notwithstanding the current dominance of coal and expected penetration of natural gas in the U.S. electricity supply mix in the near and mid terms. Meeting the proposed fuel economy targets requires substantial changes from today’s situation in various areas, these include: 1. Aggressive deployment rate of new technologies in the market on the order of 10-20% for HEVs, BEVs, and PHEVs, higher than historical market uptake rates of new technologies (Zoepf, 2011). 2. Aggressive weight reduction and downsizing to achieve high average fuel economy levels: the fleet needs to be downsized with substantial additional weight reduction per vehicle on average: this would require a shift to new light weight materials, fleet downsizing, and vehicle redesign (Cheah, 2010) U.S. CAFE STANDARDS: Page 5 of 30 3. Significant technological progress in implementing higher efficiency technology, both for conventional and advanced engine and powertrain technologies: relative fuel consumption improvements of 1.5-3% per year, which is higher than historical trends (Knittel, 2012) 4. High emphasis on reducing fuel consumption (ERFC=100%) in the near to long term, much higher than the historical trends and present value of about 50% (MacKenzie, 2009, Knittel, 2012): ERFC characterizes what percentage of technological gains is used towards improving fuel economy rather than increasing vehicle performance and weight (Figure 1). An ERFC value of 100% implies immediate and complete focus of every technological improvement on maximizingfuel consumption reduction instead of offsetting any increases in vehicle performance, size, or weight (Cheah, 2009) The impact of the proposed fuel economy standards on greenhouse gas emissions reduction is not clear. A substantive positive impact would require demanding coordinated fuel standards (such as EISA) and clean energy source mandates for upstream emissions from non-conventional oil supply and the electricity grid, to have a meaningful impact on the fleet greenhouse gas emissions Figure 1-Tradeoffs between acceleration performance, weight, and fuel consumption: average car and light truck (Cheah, 2010)