Examining Fuel Economy and Carbon Standards for Light Vehicles

Under the European Union’s Voluntary Agreement with car manufacturers, average light vehicle CO2 emissions in 2004 were 12.4% below 1995 levels but appeared unlikely to achieve the 25% reduction needed to reach the 140 g/km target for “per vehicle” CO2 emissions for 2008. The EU is now considering a regulatory approach to further reduce average vehicle emissions, in the form of CO2 emission or fuel economy standards. Such standards have been used by a number of countries, including the United States (although U.S. standards have been little-altered since their 1975 promulgation), Japan, China, and several others, and those that have been in existence for some time – e.g., those in the United States and Japan –have been successful in achieving their targeted levels of new vehicle fuel economy. The purpose of this paper is to examine various aspects of fuel economy and carbon standards for light vehicles, including their rationale, methods of establishing stringency, regulatory structure, and timing, with the hope of assisting the decision process for new standards. Because the Corporate Average Fuel Economy (CAFE) standards adopted by the U.S. in 1975 are the longest-standing and most studied of the various standards now in existence, much of the focus of this paper will be on the U.S. standards.