Understanding Proposed CAFE
Reforms for Light Trucks
By William A. Pizer and Madeleine Baker
On August 23, 2005, the National Highway Traffic Safety Administration (NHTSA) released a Notice of Proposed Rulemaking (NPR) on corporate average fuel economy (CAFE) standards for light trucks along with a Preliminary Regulatory Impact Analysis (PRIA). Relative to the existing 2007 standard of 22.2 miles per gallon (mpg), the proposed changes include fuel economy standards of 22.5-23.5 mpg over 2008-2010 using the current program design.
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More notable, however, are proposed changes to this design. Under the proposed changes, each manufacturer would still need to meet a single overall standard for their light truck fleet, but that standard would differ across manufacturers based on their production of different sized vehicles. Vehicles with different footprints (wheelbase times track width) would have different fuel economy targets and a manufacturer's overall standard would be based on these size-differentiated targets averaged over their specific fleet. During 2008-2010, manufacturers would have a choice of complying with either the old (unreformed) or new (reformed) CAFE standards.
Importantly, the fuel economy standards starting in 2011 would be set explicitly to maximize net benefits to society - including fuel savings, safety, security, and environmental concerns. Among other things, this shift implies that those standards will rise along with the price of oil. While the proposed 2011 targets assume $25-30 per barrel crude oil prices (based on available government forecasts) and are estimated to achieve a 24-mpg fuel economy, we estimate that an additional $20 per barrel (in line with recent long run private-sector forecasts) would raise the proposed targets by perhaps 4-5 mpg.
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Download printer-friendly PDF of "Understanding Proposed CAFE
Reforms for Light Trucks" (includes Tables and Figures)
Download Technical Appendix (PDF)
Listen to presentations from RFF's October 20, 2005 Workshop on "Understanding Proposed CAFE Reforms for Light-Duty Trucks" 
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The proposed reforms also erase the current disparity between passenger automobile and light truck standards, as the smallest light truck category would have a target exceeding the current 27.5 mpg for passenger automobiles. This would remove the incentive for automakers to effectively design passenger cars that can be categorized as a light truck (by raising the height, making the seats removable, etc.) in order to face an easier fuel economy standard.
From an economic perspective, these reforms represent a remarkable shift toward a more efficient regulatory system. Still, potentially valuable, further improvements remain - trading of CAFE credits across manufacturers and between passenger cars and light trucks, for example. The proposed reforms also fail to address the larger economic questions of whether taxes or tradable permits (for gasoline usage) would be a better policy than a CAFE performance standard, and whether consumers and manufacturers are really making bad fuel economy decisions absent government intervention. The latter question could also have significant implications for whether technology costs and fuel economy benefits are correctly valued in the CAFE analysis.
In "Understanding Proposed CAFE Reforms for Light Trucks," Billy Pizer and Madeleine Baker walk through essential elements of the reform package, provide a quick economic analysis, and summarize the economist's perspective.
Additional CAFE Resources:
Light Truck Average Fuel Economy Standards, Model Years 2005-2007,
Final Rule
Final Economic Assessment, Light Truck Average Fuel Economy Standards, Model Years 2005-2007
Environmental Protection Agency Light Truck Fuel Economy Trends
National Academy of Sciences. Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) Standards (2002)
Vehicle Weight, Fatality Risk and Crash Compatibility of Model Year 1991-99 Passenger Cars and Light Trucks. National Highway Traffic Safety Administration, October 2003.
National Highway Traffic Safety Administration Summary of Fuel Economy Preferences, March 2005.
