Corporate Average Fuel Economy - Effect On Automotive Fuel Economy

Effect On Automotive Fuel Economy

In 2002, a committee of the National Academy of Sciences wrote a report on the effects of the CAFE standard. The report's conclusions include a finding that in the absence of CAFE, and with no other fuel economy regulation substituted, motor vehicle fuel consumption would have been approximately 14 percent higher than it actually was in 2002. One cost of this increase in fuel economy is a possible increase in fatalities, estimated to be 1,300 to 2,600 increased fatalities in 1993, albeit with certain of the committee members dissenting.

A plot of average overall vehicle fuel economy (CAFE) for new model year passenger cars, the required by law CAFE standard target fuel economy value (CAFE standard) for new model year passenger cars, and fuel prices, adjusted for inflation, shows that there has been little variation over the past 20 years. Within this period, there are three distinct periods of fuel economy change:

1. from 1979-1982 the fuel economy rose as the CAFE standard rose dramatically and the price of fuel increased;
2. from 1984-1986 the fuel economy rose as the CAFE standard rose and the price of fuel decreased rapidly;
3. from 1986-1988 the fuel economy rose at a significantly subdued rate and eventually leveled off as the price of fuel fell and the CAFE standard was relaxed

before returning to 1986 levels in 1990. These are following by an extended period during which the passenger car CAFE standard, the observed average passenger car fuel economy, and the price of gasoline remained stable, and finally a period starting about 2003 when prices rose dramatically and fuel economy has slowly responded.

The law of supply and demand would predict that an increase in gasoline prices would lead in the long run to an increase in the average fuel economy of the US passenger car fleet, and that a drop in gasoline prices would be associated with a reduction in the average fuel economy of the entire US fleet. There is some evidence that this happened with an increase in market share of lower fuel economy light trucks and SUVs and decline in passenger car sales, as a percentage of total fleet sales, as car buying trends changed during the 1990s, the impact of which is not reflected in this chart. In the case of passenger cars, US average fuel economy did not fall as economic theory would predict, suggesting that CAFE standards maintained the higher fuel economy of the passenger car fleet during the long period from the end of the 1979 energy crisis to the rise of gasoline prices in the early 2000s. Most recently, fuel economy has increased about one mpg from 2006 to 2007. This increase is due primarily to increased fuel efficiency of imported cars. Similarly, the law of supply and demand predicts that due to the US's large percentage consumption of the world's oil supply, that increasing fuel economy would drive down the gasoline prices that US consumers would otherwise have to pay. Reductions in petroleum demand in the United States helped create the collapse of OPEC market power in 1986.

The "CAFE" and "CAFE standard" shown here only regards new model passenger car fuel economy and target fuel economy (respectively) rather than the overall US fuel economy average which tends to be dominated by used vehicles manufactured in previous years, new model light truck CAFE standards, light truck CAFE averages, or aggregate data.