25 U.S. Energy Information Administration | Annual Energy Outlook 2011 Issues in focus 

### 3. Increasing light-duty vehicle greenhouse gas and fuel economy standards for model years 2017 to 2025 EPA Notice of Intent to conduct a joint rulemaking In September 2010, the EPA and NHTSA issued a Notice of Intent to issue a proposed rule that will set GHG emissions and fuel economy standards for LDVs for MY 2017 through MY 2025 [ 45 ]. The LDV standards cover both passenger cars and light trucks. The notice provides an initial GHG emissions assessment for several potential levels of stringency, representing decreases of 3, 4, 5, and 6 percent per year in GHG emissions and corresponding increases in mpg equivalent fuel eUciency levels from the MY 2016 fleetwide average of 250 grams per mile. For each level of stringency, four technological pathways were analyzed, corresponding to diYerent penetration mixes of advanced gasoline technologies, vehicle mass reductions, and advanced hybrid electric, plug-in hybrid electric, and plug-in electric vehicles. The four technological pathways were not meant as requirements but were used to show that the potential levels of stringency examined by the EPA and NHTSA are technically feasible. Although the notice provided an initial evaluation of a potential range of increases in stringency, it recognized that much more technological and economic analysis would be needed before a specific standard could be released. The EPA and NHTSA expect to release a proposed rulemaking in September 2011 and to issue a final rulemaking by July 2012. 

### Sensitivity cases Two sensitivity cases were used to analyze the impacts of more stringent GHG emissions and fuel economy standards on LDVs in MY 2017 through MY 2025. Fuel economy and GHG emissions standards for MY 2011 through MY 2016 have been promulgated already as final rulemakings, and are already represented in the Reference case; they were, therefore, not modified in these sensitivity cases. The CAFE 3% Growth (CAFE3) case is a modified Reference case that assumes a 3-percent annual increase in fuel economy standards for MY 2017 through MY 2025 LDVs, starting from the levels for MY 2016 LDVs, with the subsequent post-MY 2025 standards held constant. In 2025, the combined LDV fuel economy standard, at 46.1 mpg, is 29 percent higher than the standard assumed in the AEO2011Reference case. The CAFE 6% Growth (CAFE6) case assumes a 6-percent annual increase in fuel economy standards for new LDVs from MY 2016 levels for MY 2017 through MY 2025, with the subsequent standards held constant. In 2025, the LDV fuel economy standard, at 59.3 mpg, is 66 percent higher than the standard assumed in the Reference case (Figure 16). For new passenger cars, the fuel economy standard in 2025 is 40.4 mpg in the Reference case, 53.5 mpg in the CAFE3 case, and 75.4 mpg in the CAFE6 case. For new light-duty trucks, the fuel economy standard in 2025 is 29.7 mpg in the Reference case, 38.1 mpg in the CAFE3 case, and 45.5 mpg in the CAFE6 case. The standards enacted for MY 2011 through 2016 are attribute-based, using vehicle footprint, and allow credits for alternative technologies and fuels to be applied toward compliance. The Notice of Intent for MY 2017 through 2025 does not address the type of attribute standard that would be employed or the structure of credits allowed toward compliance. The sensitivity cases examined here assume a continuation of the current footprint-based attribute standards, as well as credit banking.



### Results In view of the substantial rate of fuel economy improvement required, compliance with the more stringent CAFE standards cases would require a rapid increase in sales of unconventional vehicles (those that use diesel, alternative fuels, and/or hybrid electric systems) and significant improvement in the fuel economy of conventional vehicles that continue to rely solely on gasoline spark-ignited engines for motive power (Table 4). Such rapid changes are likely to challenge the financial, engineering, and production capabilities of the automotive industry. In addition, increased costs for vehicles that employ technologies unfamiliar to consumers could result in lower new vehicle sales relative to the Reference case. Although this analysis does not address those potential issues, it does project the levels of market penetration by unconventional vehicles and advanced technologies that would be needed for compliance with the more stringent standards, and it estimates the costs of compliance given Reference case assumptions for technology eUciency improvement and cost. The resulting impacts on new LDV sales, stocks, energy demand, and CO 2emissions are discussed below. Sales of unconventional vehicles, which will be cri tical to achieving the required fuel economy improvements, a re projected to grow to 70 percent of total new LDV sa les in 2025 Reference CAFE3 CAFE6

0 20 40 60 80

2005 2010 2015 2020 2025 2030 2035 

### Figure 16. Combined CAFE standards for light-duty vehicles in three cases, 2005-2035 (miles per gallon)U.S. Energy Information Administration | Annual Energy Outlook 2011 26 Issues in focus in the CAFE3 case and nearly 90 percent in the CAFE 6 case, as compared with 40 percent in the Referenc e case. In the CAFE3 case, the largest increases in new sales market sha res are among hybrid electric, diesel, and micro hy brid systems in conventional gasoline vehicles (Figure 17), all of which are more fuel eUcient than their conventional gasoline cou nterparts. The increase in hybrid and diesel vehicle sales displaces sales of both co nventional gasoline and flex-fuel vehicles. The morestringent standards in the CAFE6 case cause an even greater reduction in conve ntional gasoline and flex-fuel vehicle sales, signifi cantly expanding the market adoption of plug-in hybrid and all-electric vehicle s, which are more fuel eUcient than their unconvent ional counterparts, and even greater sales share for hybrid electric and diesel vehicles. While declining as a share of total new vehicle sales, sales of conventional gasoline vehicles without micro hybrid systems still account for a significant percentage (30 percent) of new vehicles in the CAFE3 case and a less, but still important share (11 percent)in the CAFE6 case. Conventional gasoline vehicle fuel economy increases in both cases through the introduction of new fueleUcient technologies and improved vehicle designs. In order to meet the increased fuel economy requirements, conventional vehicle subsystems (engine, transmission, aerodynamics, vehicle weight, and horsepower) would have to be modified to ensure compliance. Included in conventional gasoline vehicle technologies but counted separately in the discussion above are micro hybrid systems, which are present in 36 percent of conventional gasoline vehicles in the CAFE3 case and 58 percent in the CAFE6 case in 2025, compared with 12 percent in the Reference case. The market adoption of unconventional vehicles and inclusion of additional technologies that improve the fuel economy of conventional gasoline vehicles results in higher average prices for new LDVs compared to the Reference case. As a result, while vehicle operating costs would fall (see below), consumers would need to purchase more expensive vehicles (Figure 18). A distribution of vehicle sales by price in 2010, derived from Ward’s Automotive data [ 46 ], shows that 31 percent of the new vehicles purchased by consumers were within a price range of $10,000 to $25,000, 49 percent within $25,000 to $35,000, and 19 percent at prices above $35,000. In the CAFE3 case, the distribution in 2025 shifts to 15 percent within $10,000 to $25,000, 61 percent within $25,000 to $35,000, and 24 percent above $35,000 (all 2009 dollars). The sales distribution in 2025 shifts even more in the CAFE6 case, with 9 percent within $10,000 to $25,000, 56 percent within $25,000 to $35,000, and 35 percent above $35,000 (all 2009 dollars). The cases estimate a demand response for new vehicle sales as a result of changes in average new vehicle price by employing a price elasticity of demand of -1. While this measure attempts to quantify the potential impact of the increase in vehicle price on sales, it is not intended to be inclusive of all the potential factors that could aYect new vehicle purchase decisions made by consumers. As a result of higher vehicle prices, total new LDV sales in 2025 are 8 percent lower in the CAFE3 case and 14 percent lower in the CAFE6 case than in the Reference case. As vehicle attributes change to meet more stringent CAFE standards, such as decreased average vehicle horsepower and weight, some consumers switch from passenger cars to light-duty trucks, which in the CAFE3 case have average fuel economies in 2025 comparable to those for passenger cars in 2016. The share of total new LDV sales made up by light-duty trucks is 40 percent in the CAFE3 case and 41 percent in the CAFE6 case in 2025, up from 38 percent in the Reference case, but still far lower than their share (more than 50 percent) in 2005. Note, however, that consumer incentives to switch from cars to light trucks are sensitive to the assumed relative stringency of cars versus light truck CAFE. Although the CAFE sensitivity cases allow for fluctuation in new LDV sales and switching between purchases of passenger cars and light-duty trucks, additional impacts on fuel demand would be associated with the continued use of existing vehicle stocks. As consumers defer new vehicle purchases, the utilization of older, less fuel-eUcient vehicles increases relative to the Reference case. 

### Table 4. Unconventional light-duty vehicle types Unconventional vehicle type Description Micro hybrid Vehicles with gasoline engines, larger batteries, and electrically powered auxiliary systems that allow the engine to be turned oY when the vehicle is coasting or idle and then quickly restarted. Regenerative braking recharges the batteries but does not provide power to the wheels for traction.Hybrid electric (gasoline or diesel) Vehicles that combine internal combustion and electric propulsion but have limited allelectric range and batteries that cannot be recharged using grid power.
Diesel Vehicles that use diesel fuel in a compression-ignition internal combustion engine.Plug-in hybrid electric (10- and 40-mile allelectric range) Vehicles that use battery power to drive for some distance, until a minimum level of battery power is reached, at which point they operate on a mixture of battery and internal combustion power. Plug-in hybrids also can be engineered to run in a “blended mode,” where an onboard computer determines the most eUcient use of battery and internal combustion power. The batteries can be recharged from the grid by plugging a power cord into an electrical outlet. Plug-in electric (100- and 200-mile range) Vehicles that operate by electric propulsion from batteries that are recharged either from the grid exclusively or through regenerative breaking.
Flex-fuel Vehicles that run on gasoline or any gasoline-ethanol blend up to 85 percent ethanol.27 U.S. Energy Information Administration | Annual Energy Outlook 2011 Issues in focus The demand for mobility and the stock of vehicles available in the Reference case are maintained over the projection period in the CAFE cases, but the two CAFE cases assume longer vehicle survival rates and more intensive use of older vehicles. The United States currently has a total LDV stock of around 230 million vehicles. That number grows to over 300 million vehicles by 2035 in the Reference and CAFE cases. Although the introduction of more stringent fuel economy standards in the CAFE cases stimulates sales of more fuel-eUcient new vehicles, it takes time for the new vehicles to penetrate the vehicle fleet in significant numbers to aYect the average of fuel economy of the entire LDV stock. In the CAFE cases, the trend is even slower, as a result of reduced scrappage and increased travel of older vehicles. Consequently, the average on-road fuel economy of the LDV stock, which represents the fuel economy realized by all vehicles in use, increases from 22.4 mpg in 2016 to 28.6 mpg in 2025 in the CAFE3 case and 30.2 mpg in the CAFE6 case, as compared with 25.7 mpg in the Reference case. In 2035, the average on-road fuel economy of the LDV stock increases to 34.0 mpg in the CAFE3 case and 39.4 mpg in the CAFE6 case, 22 percent and 41 percent higher, respectively, than the Reference case average of 27.9 mpg (Figure 19). In the two CAFE cases, more stringent fuel economy standards lead to reductions in total delivered ene rgy consumption, including all fuels. Fuel bills fall by a similar a mount. Total cumulative delivered energy consumptio n by LDVs from 2017 to 2035 is 10 percent lower in the CAFE3 case than in the R eference case and 13 percent lower in the CAFE6 cas e. In 2025, total delivered energy consumption by LDVs is 19 percent lower in t he CAFE3 case and 27 percent lower in the CAFE6 cas e than in the Reference case. Total liquids fuel consumption in 2035 is 1.9 million barrels per day lower in the CAFE3 case an d 2.8 million barrels per day lower in the CAFE6 case than in the Reference case (Figure 20). Reductions in total delivered energy c onsumption and liquids fuel

0 5 10 15 20

2005 2010 2015 2020 2025 2030 2035 Reference
CAFE3
CAFE6 

### Figure 20. Total liquid fuels consumption by light-duty vehicles in three cases, 2005-2035 (million barrels per day) Flex-fuel Plug-in electric Plug-in hybrid electric

Diesel Hybrid electric Micro hybrid Conventional gasoline

0 25 50 75 CAFE6 CAFE3 Reference 

### Figure 17. Model year 2025 light-duty vehicle market shares by technology type in three cases (percent of total sales)

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### Figure 18. Distribution of new light-duty vehicle s ales by vehicle price (2009 dollars) in 2025 in the CAFE3 and CAFE6 cases (percent of total sales compared to 201 0)

0 10 20 30 40

2005 2010 2015 2020 2025 2030 2035 Reference CAFE3 CAFE6 

### Figure 19. On-road fuel economy of the light-duty vehicle stock in three cases, 2005-2035 (miles per gallon)U.S. Energy Information Administration | Annual Energy Outlook 2011 28 Issues in focus consumption are more pronounced later in the projec tion period, when a greater percentage of the total vehicle stock consists of vehicles with higher fuel economy. The declines in total LDV energy demand in the CAFEcases lead to large reductions in motor gasoline c onsumption—from 98 percent of total LDV energy use in 2016 to 84 percent in 20 25 and 77 percent in 2035 in the CAFE3 case, as com pared with 91 percent in 2025 and 89 percent in 2035 in the Reference case. The m ore stringent fuel economy standards called for in the CAFE6 case lead to even greater reductions in motor gasoline consumption, t o 83 percent of total LDV energy use in 2025 and 69 percent in 2035. Despite the overall decline in energy consumption by LDVs, the changing composition of the fleet by vehicle fuel type leads to increased consumption of some fuels. Lower demand for motor gasoline reduces the amount of ethanol that can be blended into the motor gasoline pool as either E10 or E15. As a consequence, more fuel containing up to 85 percent ethanol (E85) is sold to meet the RFS. E85 accounts for 11 percent of total LDV energy use in 2035 in the CAFE3 case and 14 percent in the CAFE6 case, compared with 7 percent in the Reference case. Diesel fuel consumption increases to 11 percent and 15 percent of total LDV energy use in 2035 in the CAFE3 and CAFE6 cases, respectively, compared with 4 percent in the Reference case. Electricity use by LDVs remains less than 1 percent of total LDV energy use in both the Reference and CAFE3 cases but reaches 3 percent of the total in the CAFE6 case, where sales of plug-in vehicles and all-electric vehicles expand. Reductions in LDV delivered energy consumption lead to lower GHG emissions from the transportation sector. Cumulative CO 2 emissions from transportation over the period from 2009 through 2035 are 2.2 billion metric tons lower in the CAFE3 case and 2.6 billion metric tons lower in the CAFE6 case than in the Reference case, reductions of 6 percent and 7 percent, respectively. CO 2emissions decline from 1,927 million metric tons in 2016 to 1,826 million metric tons in 2025 in the CAFE3 case and to 1,815 million metric tons in the CAFE6 case, as compared with 1,940 million metric tons in the Reference case. In 2035, CO 2emissions from transportation fuel use total 1,859 million metric tons in the CAFE3 case and 1,788 million metric tons in the CAFE6 case, compared with 2,080 million metric tons in the Reference case (Figure 21).
CO 2emissions from the electric power and refinery sectors also are aYected by increased electricity use for plug-in vehicles. Cumulative emissions from the electric power sector over the period from 2017 to 2035 are 118 million metric tons higher in the CAFE3 case and 416 million metric tons higher in the CAFE6 case than in the Reference case—increases that are equal to 0.3 percent and 0.9 percent of total CO 2emissions from electricity generation, respectively, over the same period. More stringent fuel economy standards reduce motor gasoline demand by more than they increase demand for diesel and E85 fuels. As a result, cumulative CO 2emissions from refineries between 2017 and 2035 decline by 359 million metric tons in the CAFE3 case and 471 million metric tons in the CAFE6 case from the Reference case level—declines of 8.8 percent and 11.6 percent, respectively.



### Issues Setting LDV fuel economy standards 6 to 14 years in to the future is a diUcult undertaking, given the u ncertainties associated with technology availability and cost, consumer acc eptance and willingness to pay for unfamiliar techn ology, and fuel prices. The availability and cost of advanced vehicle technolog ies are critical in determining the ability of manu facturers to meet more stringent standards, but there is a high degree of uncertaint y regarding the cost and availability of key techno logies so far into the future. For example, battery technologies used in plug-in v ehicles are important in meeting more stringent sta ndards in the CAFE3 case and are critical to compliance in the CAFE6 case. The f uture cost and performance of battery technologies in 2025 cannot be known with confidence. If there are limited breakthroughs in th e cost, safety, or life of batteries, then the abil ity to meet, for example, the levels of stringency called for in the CAFE6 case, which w ill very likely necessitate plug-in vehicles, will be extremely cha llenging. On the other hand, a breakthrough in battery techno logy or another known technology, or the introduction ofa new unforeseen technology, could dramatically lessen th e burden on manufacturers of meeting more stringent CAFE sta ndards in terms of both cost and availability. When manufacturers bring an advanced vehicle technology to market, consumers must be willing to buy it. There is a high level of uncertainty about consumer willingness to pay significantly higher prices for more fuel-eUcient vehicles. In recent history, consumers have tended to value upgrades in performance, vehicle size, and other attributes at the expense of fuel economy. For example, assuming an annual vehicle use of 14,0 00 miles per year, a fuel price of $4 per gallon, and no dis count rate, a consumer would save 117 gallons of fuel worth $467 each year by driving a vehicle with a fuel economy of 40 mpg instead of 30  mpg. However, purchasing a vehicle that gets 70 mpg 0 ")!! "*!! "+!! %"!!! %" !!

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### Figure 21. Total transportation carbon dioxide emis sions (million metric tons carbon dioxide equivalent)29 U.S. Energy Information Administration | Annual Energy Outlook 2011 Issues in focus instead of 60 mpg would save only 33 gallons, worth $133 (Figure 22). This is important, because the c ost of adding technology to an already fuel-eUcient vehicle tends to get increasin gly expensive (for example, changing a conventional gasoline vehicle to a plug-in hybrid electric vehicle). As manufacturers strive t o improve fuel economy, the least costly technologi es that reduce fuel consumption will be incorporated first. Employing additional tec hnology to increase fuel economy further will requi re the use of more expensive technologies. Consumer willingness to pay for improved fuel econo my changes dramatically with diYerent potential fue l prices, which are highly uncertain. If the price of fuel in 14 years is sign ificantly higher than today’s prices, a cost-conscio us consumer may be willing to pay much more for a vehicle with higher fuel economy, p erhaps even without increases in CAFE and GHG stand ards. Conversely, if fuel prices in the future are relatively low, it may be diUcult to convince consumers to pay for fuel econo my improvements if the savings from improving fuel economy have only a small impac t on their annual fuel expenditures. The willingnes s of consumers to purchase vehicles with higher fuel economy could also aYect both new vehicle sales and scrappage rates. 

### 4. Fuel consumption and greenhouse gas emissions standards for heavy-duty vehicles The proposed rulemaking The EPA and NHTSA in November 2010 jointly issued a proposed rulemaking that would, for the first time , establish greenhouse gas emissions and fuel consumption stand ards for heavy-duty vehicles (HDVs) [ 47 ].The proposed standards separately address three discrete vehicle categorie s: combination tractors, heavy-duty pickup trucks a nd vans, and vocational vehicles (Table 5). The final regulation s are scheduled to be issued by July 2011. For combination tractors, standards are proposed bycab type, roof type, and engine type. For heavy-du ty pickups and vans, the proposed standards are categorized by diesel or gas oline engine and are set as total vehicle gallons p er 100 miles, or grams per mile, based on a vehicle’s “work factor”—a weig hted average of payload and towing capacity. For vo cational vehicles, the standards are proposed for diYerent chassis types, according to gross vehicle weight rating (GVWR) and engine type. Standards for combination tractor cabs and vocational vehicle s are set as gallons per 1,000 ton-miles or grams p er ton-mile, and engine standards are set as gallons per 100 brake horsepow er-hours [ 48 ] or grams per horsepower-hour. 

### Heavy-duty vehicle fuel economy standards AEO2011 includes a sensitivity case that analyzes the estimated impacts of the proposed fuel consumption and GHG emissions standards for heavy-duty trucks. However, because of data and modeling limitations, impacts of the standards for specific truck types or engines could not be represented. Instead, the HDV Fuel Economy Standards case approximates the proposed fuel consumption and GHG emissions standards by increasing the on-road fuel economy of new heavy-duty trucks by approximately 8.5 percent in MY 2017 from MY 2010 levels. The increase in on-road fuel economy for heavy-dutytrucks in MY 2017 in the sensitivity case is based on estimates developed from the U.S. Census Bureau’s 2002 Vehicle Inventory and UseSurvey (VIUS) [ 49 ] and from Ward’s Auto [ 50 ], which together provide data on vehicle body type, tractor cab type, and engine typ e by GVWR classification. The estimated vehicle dist ributions were combined with the EPA and NHTSA estimates of reductions in fuel c onsumption in MY 2017 for combination tractors and vocational vehicles and in MY 2018 for heavy-duty pickups and vans, compared t o a MY 2010 baseline [ 51 ]. Using data from VIUS and Ward’s Automotive, fuel consumption reductions provided by EPA and NHTSA were combined and aggregated into the reported categorization of heavy-duty trucks used in AEO2011 : medium heavy-duty trucks (includes Class 3 through Class 6 trucks with GVWR 10,001 to 26,000 pounds) and heavy heavy-duty trucks (Class 7 and Class 8 trucks with GVWR greater than 26,001 pounds), regardless of vehicle body or engine type. This weighting and aggregation showed an approximately 10 percent reduction in fuel consumption for both categories of heavy-duty trucks in MY 2017 from MY 2010 levels, relative to a simulated fuel economy estimate. The reduction in fuel consumption was modeled as an increase in on-road new vehicle fuel economy to account for the potential variation of simulation-tested fuel economy from expected on-road performance. Increases in fuel economy begin in MY 2014, the first year that GHG emissions standards are binding (Figure 23). Between MY 2014 and MY 2017, the new heavy-duty tru ck standards lead to the adoption of technologies to i mprove fuel economy that otherwise would not have been purchased. Miles per gallon

Gallons of fuel consumed Annual fuel expenditures

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### Figure 22. Total annual fuel consumption (gallons) for consumers driving 14,000 miles per year and annual fuel expenditures at a $4.00 per gallon fuel price (2009 dollars)