Proposed Vehicle Fuel Economy Standards in the United States for 2017 to 2025

Increases in the U.S. Corporate Average Fuel Economy (CAFE) standards for light-duty vehicles for the 2017 to 2025 model years are currently under consideration. This analysis used an economywide model with detail in the passenger vehicle fleet to evaluate the impacts of economic, energy use, and greenhouse gas (GHG) emissions associated with year-on-year increases in new targets for vehicle fuel economy of 3%, 4%, 5%, and 6%, which corresponded to the initially proposed rates of increase for the 2017 to 2025 CAFE rulemaking. The results revealed that, across the range of targets proposed, the average welfare cost of a policy constraint increased nonlinearly with target stringency because the proposed policy targets would require increasingly costly changes to vehicles in the near term. Further, the results showed that the impacts on the economy and GHG emissions of combining a fuel tax with fuel economy standards could be positive or negative, as those impacts would depend on underlying technology costs. Finally, the results suggested that over the period from 2015 to 2030, a 5% CAFE policy could reduce gasoline use by about 25 billion gal/year, reduce CO₂ emissions by approximately 190 million metric tons per year, and cost $25 billion per year (net present value in 2004 dollars), relative to a no-policy baseline.