1. Should Corporate Average Fuel Economy (CAFE) Standards be Changed? Stuart Evans Chemistry 127: The Art of Negotiation, Beloit College Draft of February 15, 2006 Abstract With the increasing usage of foreign sources of oil in the United States, reliance on this nonrenewable resource is a potential future problem for American citizens. Deciding whether or not to revise the Corporate Average Fuel Economy (CAFE) standards is a very important part of a solution for the United States. Environmentalists and auto manufacturers need to come together in a neutral setting to solve this problem. Whether by maintaining the status quo, expanding the credit aspect of CAFE, or shifting the required mark, a joint agreement on this topic would be a catalyst for a comprehensive change. Most importantly, economic and environmental impacts should be key in determining a solution. The final decision should include a reduction in U.S. reliance on imported oil, but also be based on the most economical solution that takes into consideration the real cost of energy on healthcare, the environment, and communities. Introduction On average, the United States import about 12 million net barrels of crude oil each day and with nearly 20% of that oil coming from the Persian Gulf region [i]. Corporate Average Fuel Economy (CAFE) regulations were first introduced in the United States in 1975 by Congress in an effort to curb oil dependence in the wake of the 1973 Arab Oil Embargo [ii]. A car manufacturer’s CAFE rating is determined by the number of cars in each category’s average mpg (see Figure 1). In 2006 CAFE standards for cars are set at 27.5 miles per gallon (mpg) and 21.6 mpg for light trucks, which include trucks, vans, and sport utility vehicles [iii]. Vehicles that are exempt from CAFE standards include those over 8,500 lbs gross vehicle weight rating (GVWR). These vehicles include some pickup trucks, sports utility vehicles, and large vans [iv]. If the average miles per gallon fall below standards, manufacturers must pay a penalty of $5.50 per 0.1 gallon under the standard, which is then multiplied by the manufacturer’s total production for the U.S. domestic market to determine the penalty [v]. Additionally, CAFE standards require that the average fuel economy of domestic and import fleets be calculated separately. Domestic fleets are defined as vehicles that contain 75% parts from the U.S. or Canada, and recently Mexico after the signing of NAFTA [vi]. This addition was originally introduced to protect American auto workers from more efficient, imported cars, but is widely considered obsolete today. Manufacturers may also earn CAFE credits, which are awarded for exceeding CAFE standards. These credits can be used to offset deficiencies in other years, which apply up to three years in the past or future [vii]. [i] [ii] [iii] [iv] [v] [vi] [vii] Those who oppose CAFE standards often point to the “rebound effect” which suggests that drivers will spend more time on the road with more efficient cars, causing more congestion, accidents, and pollution [viii]. Advocates of CAFE standards suggest raising the miles per gallon requirement, especially because of the growing number of heavier, less efficient sports utility vehicles on the road. [viii] Resources [i] [i] U.S. Energy Information Administration. “International Petroleum Information.” [ii] [ii] Spitz, Joe. The story of the US government's Cafe Corporate Average Fuel Economy standards Passenger car and truck, hybrid and alternative fuel vehicle standards. [iii] [iii] U.S. Department of Transportation. “Summary of Fuel Economic Performance.” March 2005. <http://www.nhtsa.gov/staticfiles/DOT/NHTSA/Vehicle%20Saftey/Articles/Associated%20Files/Summa ryFuelEconomyPerformance-2005.pdf. [iv] [iv] National Highway Traffic Safety Administration. “CAFE Overview.” http://www.nhtsa.dot.gov/cars/rules/cafe/overview.htm [v] [v] Spitz, Joe. The story of the US government's Cafe Corporate Average Fuel Economy standards Passenger car and truck, hybrid and alternative fuel vehicle standards. [vi] [vi] National Research Council: Committee on Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) Standards. “Federal Fuel Economy Standards Program Should Be Retooled.” 31 July 2001. [vii] [vii] National Research Council: Committee on Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) Standards. “Federal Fuel Economy Standards Program Should Be Retooled.” 31 July 2001. [viii] [viii] Parry, Ian W.H. Economics of Corporate Average Fuel Economy (CAFE) Standards. Climate Policy Center. 29 Oct. 2003. The People Involved Auto-Manufacturers: Representatives from both domestic and foreign manufacturers, specifically including BMW and Volkswagen who traditionally have problems meeting CAFE standards, should be present Environmentalists: A combination of groups ranging from the Sierra Club to Earth First should be present to give this side legitimacy within the entire Environmental movement. The Interests they Share 1. Profit 2. Lowering U.S. consumption of foreign oil 3. Preserving the environment Options for a Solution: 1.Keeping CAFE standards the same, at 27.5mpg for cars and 21.6mpg for light trucks. 2.Keeping the miles per gallon aspect of CAFE the same, but expanding the tradable credit aspect of CAFE. 3.Abolish the two classification of vehicles and switch to a weight based system. 4.Eliminate the dual fleet rule and increase CAFE standards. 5.Lower or eliminate CAFE standards, leaving decisions to consumers and manufacturers. 6.Include cars weighing over 8,500, like Hummers and Excursions, in current CAFE standards. 7. Raise the gasoline tax to encourage the purchase of more efficient cars and less gasoline. Objective Criteria to help the Parties make the right decision 1.The annual amount of emissions that would be cut by each tenth (0.1) of a mile per gallon increase in CAFE standards. 2.The average cost increase to each vehicle for consumers for every additional 0.1 miles per gallon increase in CAFE standards. 3.The amount of oil imported each year by the United States. 4. The annual amount of oil saved by each 0.1 miles per gallon increase in CAFE standards. Figure 1: How to determine a fleet’s fuel economy [i] [i] [i] National Highway Traffic Safety Administration. “CAFE Overview.” http://www.nhtsa.dot.gov/cars/rules/cafe/overview.htm Figure 2: Imports of U.S. Crude Oil Figure 3: Where U.S. Oil is Used (source: http://www.eia.doe. Gov/neic/infosheets/petroleumproductsconsumption.htm)