WASHINGTON—The world of fuel economy standards for motor vehicles is fast evolving and entering new phases in the United States. Changes to the joint Corporate Average Fuel Economy (CAFE) regulations for light-duty vehicles administered by both the National Highway Traffic Safety Administration (NHTSA) and the US Environmental Protection Agency (EPA) mean manufacturers will face increasingly strict limits on both fuel use and greenhouse gas (GHG) emissions for vehicles produced for model years 2012 through 2025. And to lower the costs of meeting the new standards, the new rules allow manufacturers the flexibility to bank, borrow, and trade credits.
In an updated and revised version of an earlier report posted today by Resources for the Future (RFF), RFF Fellow Benjamin Leard and Senior Fellow Virginia McConnell present insights and analysis of the emerging GHG and fuel economy credit markets that will allow manufacturers to comply with the new rules in a cost-effective way. They particularly note that although the NHTSA and EPA regulations are supposed to be harmonized, some important differences exist in how credits are defined and how they can be traded, creating added costs for manufacturers. Using recent data, the paper identifies how well the credit markets are working and how they can be made more efficient.
Also posted today is a new blog on the topic by Leard, McConnell, and RFF Senior Fellow Joshua Linn.