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measures to promote travel demand reduction, low-carbon fuels, more efficient freight movement, and slower growth in air travel should also be pursued (Energy Innovations 1997).

Barriers

The barriers to vehicle fuel economy improvement include: (1) gasoline prices are at an alltime low; (2) fuel prices do not fully reflect environmental, social, and national security costs associated with oil consumption (i.e., the externalities); (3) fuel costs are a relatively small portion of the total cost of owning and operating a vehicle, and the net value to consumers of higher fuel economy is not very great; (4) consumers lack all the necessary information to optimize their fuel economy decisions, and (5) manufacturers obtain higher profits from selling inefficient sport utility vehicles than they do from selling more fuel-efficient cars (Greene 1998). The significant technological advances made during the past decade have gone to increasing power and performance, not to increasing fuel economy.

But the principal barrier to implementing the opportunities for more efficient vehicle technology is the lack of regulatory guidance, through strengthened Corporate Average Fuel Economy (CAFE) standards. The CAFE standard for cars is the same as it was in 1985, and for light trucks, it is just 0.2 mpg above the 1987 level. Compounding the problem is increasing sales of light trucks, which topped 45 percent of total passenger vehicle sales in 1997. The result is that fleet-wide new vehicle CAFE in 1996 was 24.6 mpg, the same as in 1983 and down from a high of 25.9 mpg in 1988 (EPA 1996), While automakers may sell several hundred high-tech electric vehicles in 1998, they will also sell over two million sport utility vehicles. The experience of the last 10 years clearly shows that without increases in CAFE standards, aggregate fuel economy performance will not improve and carbon emissions will continue to rise.

Strategy

Our vehicle fuel economy strategy combines mutually reinforcing policies and programs for improving the energy and emissions performance of cars and light trucks. A goal of this package is to engage competitive forces in the automotive industry to induce continuous progress in energy and environmental performance, analogous to the market-driven progress that already occurs for other vehicle features. This strategy will stimulate the widespread adoption of incremental energy efficiency improvements (e.g., engine improvements and weight reduction) as well as "leapfrog" technologies such as hybrid drivetrains, fuel cells, and new lightweight materials. Elements of this strategy include the following:

Strengthening CAFE standards on cars and light trucks in order to achieve new-fleet fuel economy of at least 41.7 mpg by 2010. In addition, raise CAFE standards to achieve 75 mpg by 2030, along with ongoing improvements of emissions control requirements for noxious pollutants.

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Expanding the federal “gas guzzler” tax to a revenue-neutral fee and rebate (feebate) system to motivate sales of cleaner and more efficient vehicles in all classes. Such vehicle-price incentives could be tied to both GHG and criteria emissions, with appropriate adjustments for vehicle size or equity among manufacturers. Above-average vehicles in each class would receive rebates, while below-average vehicles would be assessed fees.

Establishing a market creation program for highly efficient vehicles, involving tax incentives such as those recently proposed by the Clinton Administration, plus coordinated, voluntary purchasing of advanced vehicles by public and private fleets and individuals.

Encouraging state-based incentive programs for cleaner and more efficient vehicles, converting sales taxes or vehicle fees to feebates favoring greener vehicles, and promoting state and local government participation in a nationwide market creation program.

Refocusing R&D for "next-generation" vehicle technologies, particularly lightweight designs, fuel cells, and hybrids; coordinating federal and state efforts to reduce both GHG and criteria air pollution, while continuing to enhance safety.

Within this package, the regulatory measure (stronger CAFE standards) acts as the determining factor for inducing fleet-wide efficiency improvements. We modeled an annual ramp-up of 1.5 mpg between 1999 and 2010 (for the average combined new car and light truck fleet) based on efficiency levels estimated to be achievable and cost-effective using available technologies (DeCicco and Ross 1996). After 2010, we model a 1.67 mpg per year increase to achieve 75 mpg by 2030. Vehicle price incentives and programs for market creation would support the standards on the consumer side, addressing concerns that standards alone do not generate sufficient customer interest in environmentally improved vehicles (DeCicco 1997; DeCicco, Geller, and Morrill 1993).

Analysis

The EIA Reference Case Forecast assumes the average fuel economy of new cars increases slightly (0.4 percent per year) during 1996-2020 while the average fuel economy of new light trucks dips during 1996-2010 but then recovers to reach the level in 1996 by around 2017. With these assumptions, the average fuel economy of the on-road fleet remains essentially flat during 1996-2010 and then rises about 1 mpg between 2010 and 2020 (see Table 4). Furthermore, the Reference Case Forecast assumes that light duty vehicle-miles of travel (VMT) increases 1.5 percent per year on average during 1996-2020 (ELA 1997a). With these assumptions, energy use by light duty vehicles increases from 14.0 Quads in 1996 to 19.2 Quads in 2020 in the Reference Case, 1.3 percent per year average growth.

To analyze the policy package, CAFE levels were specified as inputs to a vehicle stock model, which projects vehicle sales and replacement, energy consumption, and carbon emissions. The standards are assumed to be binding and thus subsume the vehicle efficiency effects of other

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policies and programs. Starting from a base level of 23.7 mpg (9.9 liters per 100 kilometers) (EPA unadjusted composite urban/highway average of car and light truck fleets), improvements were assumed to begin in 1999 and reach a new fleet average of 41.7 mpg (5.6 liters per 100 kilometers) by 2010 (see Table 4). The details of the fuel economy analysis are presented in Appendix D.

For the post-2010 period, we link efficiency improvement rates to the tripled fuel economy goal of the Partnership for a New Generation of Vehicles (DOC 1994). With a vigorous R&D effort along with tax incentives to stimulate commercialization and early sales, we believe that mass-produced advanced-technology vehicles could be introduced into passenger cars in the 2005-2010 time period. Allowing another 10 years for the technology to diffuse to all other segments suggests that average fuel economy for the new fleet could triple, reaching 75 mpg (3.1 liters per 100 kilometers) as soon as 2020. A number of analysts project that high-efficiency fuelcell vehicles could be competitive with gasoline vehicles on a life-cycle cost basis sooner than that (DeLuchi 1992; Mark 1996; Williams et al. 1995).

Table 4: Comparison of Light-Duty Vehicle Fuel Economy, Energy Use, and Carbon Emissions in the Reference and Policy Cases.

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We assume that full transformation of the market to next-generation vehicles of tripled fuel economy takes until 2030. This trajectory is compatible with an evolutionary strategy. Vehicles using various non-conventional designs, providing a distinct step forward but less than tripled efficiency, could be phased into the fleet sooner, leading to a gradual, mixed-technology transition to next-generation vehicles over three decades, from 2000 to 2030. Over a 31-year horizon (1999 to 2030) this degree of new-fleet efficiency increase would average 3.8 percent per year, in line with the improvement trajectory deemed feasible over the next 12 years using conventional technologies alone. Any increase in driving that might be induced by the vehicle efficiency improvements is assumed to be offset by intermodal and other transport system improvements, leading to reductions in light duty vehicle use.

The fuel economy trajectory that would result from the policy package is shown in Figure 4. The on-road values estimate real-world fuel economy for all cars and light trucks (new and used) in a given year. Relative to 1998, the policy package would attain a 32 percent improvement in on-road fuel economy by 2010 and a 92 percent improvement by 2020.

Increasing vehicle efficiency requires investments in improved technologies, implying slightly higher average costs for new vehicles. Near-term improvements will entail refinements to conventional vehicle designs, which are likely to dominate the market through 2010. Over time, advanced designs such as electric hybrids and fuel-cell powered vehicles with low-mass structures would increase in market share.

We estimate that in 2010, the retail price increment averages $767 per vehicle in order to achieve an average fuel economy of 41.7 mpg. By 2020, assuming success of the PNGV bolstered by ongoing market-pull policies, new vehicles are assumed to cost about $1,900 more on average than today's vehicles of comparable size and performance. These incremental costs are based in part on the economies of scale that will result if the fuel economy of all new vehicles is steadily improved.

The combined impacts of the fuel economy strategy leads to substantial energy and GHG emission reductions that deepen over time. Lags in stock turnover delay the start of significant energy savings until around 2005, but savings grow as newer, higher-efficiency vehicles replace older ones. Energy use by light-duty vehicles dips by 2010 to 13.5 Quads and continues to decline to 10.4 Quads by 2020 (see Table 4). Energy use is 20 percent below the baseline level of 17.8 Quads in 2010 and 52 percent below the baseline level of 21.1 Quads in 2020.

In the policy case, light vehicles emit 340 MMT of carbon per year in 2010, 108 MMT below the baseline forecast. By 2020, carbon emissions are reduced to 262 MMT, 10 percent lower than in 1990, and over 46 percent below the 2020 baseline of 484 MMT (see Table 4). It should be noted that these values assume continued reliance on petroleum as the dominant fuel source. A shift towards less carbon-intensive fuels would result in even lower carbon emissions.

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Figure 4: Average Fuel Economy of Light Duty Vehicles

New fleet MPG is the composite EPA city/highway unadjusted average of the new car and new truck fleets. On-Road MPG is average of all new and used vehicles adjusted to reflect real-world driving conditions.

Technology improvements offering higher fuel economy should be pursued hand-in-hand with efforts to greatly reduce criteria emissions. Advanced technologies, particularly electric drivetrains using hybrid or fuel-cell designs, offer major reductions of VOC, CO, NOx, and PM emissions. Although not estimated here, clean air benefits of the advanced vehicle strategy outlined here will be substantial.