- What is CAFE?
Corporate Average Fuel Economy (CAFE) is the sales
weighted average fuel economy, expressed in miles per gallon
(mpg), of a manufacturer’s fleet of passenger cars or light trucks
with a gross vehicle weight rating (GVWR) of 8,500 lbs. or less,
manufactured for sale in the United States, for any given model
year. Fuel economy is defined as the average mileage traveled by
an automobile per gallon of gasoline (or equivalent amount of
other fuel) consumed as measured in accordance with the testing
and evaluation protocol set forth by the Environmental Protection
What is the
origin of CAFE?
The “Energy Policy Conservation Act,” enacted into
law by Congress in 1975, added Title V, “Improving Automotive
Efficiency,” to the Motor Vehicle Information and Cost Savings Act
and established CAFE standards for passenger cars and light
trucks. The Act was passed in response to the 1973-74 Arab oil
embargo. The near-term goal was to double new car fuel economy by
model year 1985.
- Who has executive
responsibility for CAFE?
The Secretary of Transportation has delegated
authority to establish CAFE standards to the Administrator of the
National Highway Traffic Safety Administration (NHTSA). NHTSA is
responsible for establishing and amending the CAFE standards;
promulgating regulations concerning CAFE procedures, definitions
and reports; considering petitions for exemption from standards
for low volume manufacturers and establishing unique standards for
them; enforcing fuel economy standards and regulations; responding
to petitions concerning domestic production by foreign
manufacturers and all other aspects of CAFE, including the
classification of vehicle lines as either cars or trucks;
collecting, recording and cataloging Pre- and Mid-model year
reports; adjudicating carry back credit plans; and providing
program incentives such as credits for alternative fueled vehicle
EPA is responsible for calculating the average fuel
economy for each manufacturer. CAFE certification is done either
one of two ways: 1) The manufacturer provides its own fuel economy
test data, or 2) the EPA will obtain a vehicle and test it in its
Office of Transportation & Air Quality facility in Ann Arbor,
MI. EPA will do actual tests on typically about 30% of the
existing vehicle lines, using the same laboratory test that they
use to measure exhaust emissions. The entire certification test
procedure, including the vehicle test preparation, the actual
running of the test on the dynamometer, the recording of the data,
etc., is specified in Title 40 of the Code of Federal
- Do NHTSA’s CAFE values differ
from EPA’s fuel economy data?
Three different sets of fuel economy values- NHTSA’s CAFE
values, EPA’s unadjusted dynamometer values, and EPA’s adjusted
on-road values exist. NHTSA’s CAFE values are used to determine
manufacturers’ compliance with the applicable average fuel economy
standards and to develop its annual report, the Automotive Fuel
Economy Program Annual Update. The EPA’s
unadjusted dynamometer values are calculated from the
emissions generated during the testing using a carbon balance
equation. EPA knows the amount of carbon in the fuel, so by
measuring the carbon compounds expelled in the exhaust they can
calculate the fuel economy. EPA’s adjusted on-road values are
those values listed in the Fuel Economy Guide and on new vehicle
labels, adjusted to account for the in-use shortfall of EPA
dynamometer test values.
- What is meant by “maximum
feasible fuel economy standards?”
Congress specified that CAFE standards must be set at the
“maximum feasible level.” Congress provided that the Department’s
determinations of maximum feasible level be made in consideration
of four factors:
(1) Technological feasibility;
(3) Effect of other standards on fuel
(4) Need of the nation to conserve
- For what years and at what
levels have the passenger car CAFE standards been set?
To meet the goal of doubling the 1974 passenger car fuel
economy average by 1985 (to 27.5 mpg), Congress set fuel economy
standards for some of the intervening years. Passenger car
standards were established for MY 1978 (18 mpg); MY 1979 (19 mpg);
MY 1980 (20 mpg); and for MY 1985 and thereafter (27.5 mpg).
Congress left the level of 1981-84 standards to the Department to
establish administratively. Subsequently, standards of 22, 24, 26,
and 27 mpg were established. For the post-1985 period, Congress
provided for the continued application of the 27.5 mpg standard
for passenger cars, but gave the Department the authority to set
higher or lower standards. From MY 1986 through 1989, the
passenger car standards were lowered. Thereafter, in MY 1990, the
passenger car standard was amended to 27.5 mpg, which it has
remained at this level.
- For what years and at what
levels have the light truck CAFE standards been set?
Congress did not specify a target for the improvement of light
truck fuel economy. Instead, it provided that light truck
standards be set at the maximum feasible level for model year 1979
and each model year thereafter. Unlike for the passenger car
fleet, there is no default standard established for light trucks.
NHTSA must set the standard for each model future model year.
Light truck fuel economy standards have been established by NHTSA
for MY 1979 through MY 2007.
Light truck fuel economy requirements were first established
for MY 1979 (17.2 mpg for 2-wheel drive models; 15.8 mpg for
4-wheel drive). Standards for MY 1979 light trucks were
established for vehicles with a gross vehicle weight rating (GVWR)
of 6,000 pounds or less. Standards for MY 1980 and beyond are for
light trucks with a GVWR of 8,500 pounds or less. The light truck
standard progressively increased from MY 1979 to 20.7 mpg and 19.1
mpg, respectively, by MY 1991. From MY 1982 through 1991,
manufacturers were allowed to comply by either combining 2- and
4-wheel drive fleets or calculating their fuel economy separately.
In MY 1992, the 2- and 4-wheel drive fleet distinction was
eliminated, and fleets were required to meet a standard of 20.2
mpg. The standard progressively increased until 1996, when the
Appropriations prohibition froze the requirement at 20.7 mpg. The
freeze was lifted by Congress on December 18, 2001. On March 31,
2003, NHTSA issued new light truck standards, setting a standard
of 21.0 mpg for MY 2005, 21.6 mpg for MY 2006, and 22.2 mpg for MY
- What is the penalty for not
meeting CAFE requirements for any given model year (MY)?
The penalty for failing to meet CAFE standards recently
increased from $5.00 to $5.50 per tenth of a mile per gallon for
each tenth under the target value times the total volume of those
vehicles manufactured for a given model year.
manufacturers have paid more than $500 million in civil penalties.
Most European manufacturers regularly pay CAFE civil penalties
ranging from less than $1 million to more than $20 million
annually. Asian and domestic manufacturers have never paid a civil
For MY 2002, five passenger car fleets
including BMW, DaimlerChrysler import, Fiat, Lotus, and Porsche
are projected to fail to meet 27.5 mpg passenger car CAFE
standard. In addition, two light truck fleets including BMW
and Volkswagen will likely fail to meet the light truck CAFE
standard of 20.7 mpg. Final Reports for MY 2002 provided by
the EPA to NHTSA in mid-calendar year of 2003 may adjust these
- What are CAFE credits?
Manufacturers can earn CAFE “credits” to offset deficiencies in
their CAFE performances. Specifically, when the average fuel
economy of either the passenger car or light truck fleet for a
particular model year exceeds the established standard, the
manufacturer earns credits. The amount of credit a manufacturer
earns is determined by multiplying the tenths of a mile per gallon
that the manufacturer exceeded the CAFE standard in that model
year by the amount of vehicles they manufactured in that model
year. These credits can be applied to any three consecutive model
years immediately prior to or subsequent to the model year in
which the credits are earned. The credits earned and applied to
the model years prior to the model year for which the credits are
earned are termed “carry back” credits, while those applied to
model years subsequent to the model year in which the credits are
earned are known as “carry forward” credits. Failure to exercise
carry forward credits within the three years immediately following
the year in which they are earned will result in the forfeiture of
those credits. Credits cannot be passed between manufacturers or
between fleets, e.g., from domestic passenger cars to light
- How is the actual Average Fuel
Economy reported by manufacturers to the
Manufacturers are required to submit three reports: 1)
Pre-model year; 2) Mid-model year; and 3) Final Report. The pre-
and mid-model year reports are submitted to NHTSA, while the final
report is submitted to and validated by the EPA.
- Who classifies vehicles for
the purposes of CAFE and how is it done?
Authority to establish vehicle classifications for the purposes
of calculating CAFE was delegated to NHTSA. Specifically, the
definitions are as follows:
1) Passenger Car – any 4-wheel vehicle not designed for
off-road use that is manufactured primarily for use in
transporting 10 people or less.
2) Truck – a 4-wheel vehicle which is designed for off-road
operation (has 4-wheel drive or is more than 6,000 lbs. GVWR and
has physical features consistent with those of a truck); or
which is designed to perform at least one of the following
functions: (1) transport more than 10 people; (2) provide
temporary living quarters; (3) transport property in an open
bed; (4) permit greater cargo-carrying capacity than
passenger-carrying volume; or (5) can be converted to an open
bed vehicle by removal of rear seats to form a flat continuous
floor with the use of simple tools.
- Are import vehicles treated
the same as domestics when it comes to CAFE?
The rules are different for passenger cars and trucks. There is
a statutory “two-fleet rule” for passenger cars. Manufacturers’
domestic and import fleets must separately meet the 27.5 mpg CAFE
standard. For passenger cars, a vehicle, irrespective of who makes
it, is considered as part of the “domestic fleet” if 75% or more
of the cost of the content is either U.S. or Canadian in origin.
If not, it is considered an import.
Beginning in 1980, light trucks were administratively subjected
to a similar two-fleet rule. However, given changes in market
conditions (the “captive import” sector of the fleet had become
insignificant), NHTSA eliminated the two-fleet rule for light
trucks beginning with MY 1996. Therefore, there are no fleet
distinctions, and trucks are simply counted and CAFE calculated as
one distinct fleet of a given manufacturer.
- How are alternative fuel
vehicles treated under CAFE?
The CAFE law provides for special treatment of vehicle fuel
economy calculations for dedicated alternative fuel vehicles and
dual-fuel vehicles. The fuel economy of a dedicated alternative
fuel vehicle is determined by dividing its fuel economy in
equivalent miles per gallon of gasoline or diesel fuel by 0.15.
Thus a 15 mpg dedicated alternative fuel vehicle would be rated as
100 mpg. For dual-fuel vehicles (vehicles that can use the
alternative fuel and gasoline or diesel interchangeably), the
rating is the average of the fuel economy on gasoline or diesel
and the fuel economy on the alternative fuel vehicle divided by
.15. For example, this calculation procedure turns a dual fuel
vehicle that averages 25 mpg on gasoline or diesel with the above
100 mpg alternative fuel to attain the 40 mpg value for CAFE
purposes. Several limitations are established for CAFE credits for
dual fuel vehicles. For MYs 1993-2004, the maximum CAFE increase
attributable to dual fueled vehicles in a manufacturer’s passenger
car or light truck fleet is 1.2 mpg.
The Alternative Motor Fuels Act (AMFA) directed the Secretary
of Transportation, in consultation with the EPA Administrator and
the Secretary of Energy, to conduct a study and submit a report to
Congress evaluating the success of the policy decision to offer
CAFE credit calculation incentives for dual-fuel and gaseous
dual-fuel vehicles. The report was transmitted to Congress in
The statutory language also requires that the Department of
Transportation either extend the incentive program for dual-fuel
vehicles beyond MY 2004 for up to four more years with a maximum
allowable increase in average fuel economy for a manufacturer of
0.9 miles per gallon; or issue a Federal Register notice that
justifies termination of the incentive program. In March 2002,
NHTSA issued an NPRM proposing to extend the availability of the
CAFE credit incentive for dual-fueled vehicles for four years,
through the end of the 2008 model year. A final rule will be
issued in 2003.
Are any vehicles exempted from
Light trucks that exceed 8,500 lbs gross vehicle weight rating
(GVWR) do not have to comply with CAFE standards. These vehicles
include pickup trucks, sport utility vehicles and large vans.
A study prepared for the Department of Energy, in February
2002, by the Oak Ridge National Laboratory found that 521,000
trucks with GVWR from 8,500 to 10,000 lbs were sold in calendar
year 1999. The vast majority (82%) of these trucks are pickups and
a significant number (24%) were diesel. At the end of 1999, there
were 5.8 million of these trucks on the road accounting for 8% of
the annual miles driven by light trucks, and 9% of light truck
How is a manufacturer’s CAFE
determined for a given model year?
manufacturer’s CAFE is the fleet wide average fuel economy.
Separate CAFE calculations are made for up to three potential
fleets: domestic passenger cars, imported passenger cars and light
trucks. The averaging method used is referred to as a “harmonic
mean”. The regulatory language describes the calculation as: “the
number of passenger automobiles manufactured by the manufacturer
in a model year; divided by the sum of the fractions obtained by
dividing the number of passenger automobiles of each model
manufactured by the manufacturer in that model year by the fuel
economy measured for that model.” The numerical example below
illustrates the process. Assume that a hypothetical manufacturer
produces four light truck models in 2004, where MPG means miles
per gallon and GVWR means gross vehicle weight rating measured in
Because the Vehicle D exceeds 8,500 GVWR, it is excluded from
the calculation. Therefore, the manufacturer’s light truck CAFE is
=Average Light Truck Fleet Fuel Economy
The 2004 model year light truck CAFE standard is 20.7 mpg
therefore the manufacturer is not in compliance.
What is the penalty for
noncompliance for a given MY and how is it
The current penalty for failing to meet CAFE standards is $5.50
per tenth of a MPG under the target value times the total volume
of those vehicles manufactured for a given model year.
Since 1983, manufacturers have paid more than $590 million
in CAFE civil penalties. Most European manufacturers regularly pay
CAFE civil penalties ranging from less than $1 million to more
than $20 million annually. Asian and most of the big domestic
manufacturers have never paid a civil penalty.
2002, five imported passenger car fleets, including BMW, Daimler
Chrysler, Fiat, Lotus and Porsche are projected to fail to meet
the 27.5 mpg passenger car CAFE standard. In addition, two light
truck fleets, including BMW and Volkswagen are projected to fail
to meet the light truck CAFE standard of 20.7 mpg.
NHTSA finds that a manufacturer is not in compliance, it notifies
the manufacturer. Surplus credits generated from the three
previous years can be used to make up the deficit. Using the
example from above, the manufacturer may use credits from any of
the previous three model years (2001, 2002, or 2003). Credits
generated in the furthest out model year (2001) would be used
first, followed by any generated in 2002 and finally 2003. If
there are no (or not enough) credits available, then the
manufacturer can either pay the fine, or submit a carry back plan
to the agency. In the example, the hypothetical manufacturer’s
CAFE was 19.27 mpg for model year 2004. In that year, the standard
was 20.7 mpg. The fine is calculated as:
(20.7 - Average
Fuel Economy)*10.0 * $5.50* Production Volume = Total
(20.7- 19.27) *10.0* $5.50 * 350,000 =
If the manufacturer decides to make up the
difference in the following three years instead, they must file a
carry back plan with NHTSA. A carry back plan describes what the
manufacturer plans to do in the following three model years (2005,
2006 and 2007) to make up the deficit credits. NHTSA must examine
and approve the plan. The total number of credits that must be
made up are:
(20.7 – Average Fuel Economy)*10.0 *
Production Volume = Total Credits
(20.7 – 19.27) *10.0* 350,000
The manufacturer can make up deficit credits
by producing a fleet of vehicles that exceeds the standard at that
time. For example, suppose the manufacturer submits plans to build
the following light trucks in 2005 model year:
In this model year, the manufacturer has quit making one
model (Vehicle C) and introduced a new model (Vehicle E). Because
Vehicle D has a GVWR in excess of 8,500 lbs, it is excluded from
the calculation. Therefore, the manufacturer’s CAFE is calculated
= Average Fuel
Since the light truck standard is 21.0 mpg in 2005, the
manufacturer has exceeded the standard and generated excess
(Average Fuel Economy –21.0) *10.0* Production
Volume = Total Excess Credits
(22.69-21.0) *10.0* 330,000 =
These excess credits generated in 2005 model
year cover the deficit from the 2004 model year with a surplus of
572,000 that can be used in later model years.