U.S. and EU Motor Vehicle Standards: Issues for Transatlantic Trade Negotiations
Released: 2014-02-18T00:00:00

Introduction

In November 2011, President Obama and leaders of the European Union (EU) named a High Level Working Group on Jobs and Growth to recommend steps to broaden transatlantic economic ties. In its final report, issued in February 2013, the working group called for a new bilateral agreement to govern transatlantic trade and investment. Such an agreement, the working group urged, should provide for "the promotion of more compatible approaches to current and future regulation and standard-setting and other means of reducing non-tariff barriers to trade."

One month later, President Obama notified Congress that the United States would enter into negotiations with the EU to seek a free trade agreement, referred to as the Transatlantic Trade and Investment Partnership (TTIP). The negotiations, the President wrote, would

seek greater compatibility of U.S. and EU regulations and related standards development processes, with the objective of reducing costs associated with unnecessary regulatory differences and facilitating trade, inter alia by promoting transparency in the development and implementation of regulations and good regulatory practices, establishing mechanisms for future progress, and pursuing regulatory cooperation initiatives where appropriate.

The formal TTIP negotiations began in July 2013. Motor vehicle safety and emissions standards are areas where the United States and the EU could break new ground. Trade in vehicles and parts between the United States and the EU reached $57 billion in 2012, and numerous companies manufacture on both sides of the Atlantic. The major U.S. and European motor vehicle manufacturer associations have called for TTIP to provide for mutual recognition of existing technical standards and the creation of a U.S.-EU process for harmonization of future vehicle regulations. Such steps, an industry alliance has contended, would "increase trade, lower costs, create jobs and improve the international competitiveness of the industry" in both North America and Europe. The alliance estimates that current non-tariff barriers on vehicles are equivalent to a 26% tariff on vehicle imports. It projects that elimination of tariffs and just 10% of non-tariff barriers could raise U.S. vehicle and parts exports to the EU by over 200% and EU parts and vehicle exports to the United States by 71%.

Safety, fuel efficiency, and emissions standards differ between the two regions (see Table 1 ), due to historical differences in producer and consumer preferences as well as the role of government in industry practices. The United States and the EU have different standards even for an item as simple as a seat belt. Some of these differences may reflect past efforts to protect domestic vehicle industries against foreign competition, and others may result from different legal traditions or divergent views as to the best way of achieving goals such as cleaner air and reduced oil consumption.

Past auto agreements have been effective in leading to a more globalized auto industry. The 1965 motor vehicle agreement between the United States and Canada and the 1994 North American Free Trade Agreement (NAFTA) removed barriers to trade and cross-border trade in autos and established a more regional motor vehicle industry in the process. The Trans-Pacific Partnership, a separate negotiation involving the United States and 11 other Pacific Rim countries, could have a similar effect. With respect to the auto industry, TTIP represents another effort to extend these regional templates to encompass a greater share of trade and investment.

U.S.-EU Vehicle Trade

The EU and the United States are the second- and third-largest vehicle producers in the world (see Figure 1 ), together accounting for nearly one-third of global auto production. In 2012, the EU 27 produced more than the United States—16.2 million vehicles compared to 10.3 million. Sales in each region were about the same in 2012: 14.8 million vehicles sold in the United States and 14.3 million in the EU. The remainder of EU production was exported, much of it to the U.S. market.

Seventeen of the EU member states manufacture vehicles. Germany is by far the largest auto producer within the EU (see Figure 2 ). The five top countries—Germany, Spain, France, United Kingdom and Czech Republic—manufacture more than 76% of all vehicles produced in the EU. In the United States, vehicles are manufactured in 15 states.

Unlike some consumer goods, such as computers and apparel, most vehicles are sold in the region where they are produced because of local consumer preferences and vehicle standards. In 2012, imports constituted about 20% of U.S. sales, and about 17% of sales in the EU.

In some cases, a vehicle that is entirely legal in one country may not be sold in another due to differing fuel efficiency, safety, and emissions standards, unless the manufacturer is willing to make major investments to bring the vehicle into compliance. For example, Ford Motor Company's ECOnetic high-efficiency diesel engine, made in Great Britain, gets up to 71 miles per gallon (mpg) of fuel. This engine is not sold in North America because it does not comply with U.S. and Canadian emissions standards. Ford has determined that expanding its Mexican engine plant to make a redesigned version of the ECOnetic for North America would cost $350 million, and it does not believe consumer demand justifies the expenditure.

Increasingly, however, auto manufacturers and their parts suppliers have sought to organize their production on a global basis. The German automaker BMW, as an example, produces sport utility vehicles for markets worldwide from a plant in South Carolina. Greater commonality in regulation would make it easier for automakers and parts makers to coordinate production across major markets. This is consistent with individual companies' efforts to reduce costs with new design and production plans, such as the following:

Reducing platforms. Automakers are developing global vehicle platforms that will reduce the number of models sold around the world, while consolidating suppliers and cutting costs. For example, the new Jeep Cherokee and Dodge Dart are based on Fiat's Compact Wide platform. The Ford Focus was developed in Europe but is built with similar components in the United States, China, Germany, Russia, and Thailand and sold in 130 countries. Joining forces to meet tightening world emission standards. Many countries, including the United States, have adopted new standards that will be costly for manufacturers to meet. Automakers have responded by creating partnerships to develop more powerful batteries, multispeed transmissions, techniques to improve engine efficiency, and other technological advances. Along these lines, BMW and Toyota have agreed to jointly develop fuel cell technology. Growing U.S. interest in diesel-powered vehicles. About half of all the passenger cars sold in Europe have diesel engines, which are more efficient than gasoline engines and emit a lower level of some greenhouse gases. Many automakers believe that offering diesels (as well as higher-performing gasoline, electric, and hybrid vehicles) will be necessary to meet higher U.S. fuel efficiency and greenhouse gas emissions standards currently projected between now and 2025. Having similar standards for diesel engines in the two regions could reduce design and manufacturing costs.

How the United States and the EU Set Standards

The processes by which the United States and the EU establish vehicle safety, fuel efficiency, and emission standards have evolved in different ways. In the United States, private standards and state regulation prevailed until the 1960s and 1970s, when federal legislation was passed. Since then, Congress has delegated vehicle regulation to federal agencies, occasionally providing specific direction through legislation. In Europe, a system of governmental control over autos was more prevalent, first in each country and later through the EU. EU directives passed by the European Parliament have the force of regulations, thereby vesting the legislators with a more direct role in the regulatory process than is the case in the United States.

Safety Standards

Evolution of U.S. Safety Standards

In the early decades of the automobile, U.S. vehicles were lightly regulated by a combination of state and private sector standards. While one industry magazine called for national motor vehicle standards as early as 1902, it did so mainly to reassure would-be buyers of the structural integrity these new, little-understood machines. Writing about this era, one author noted that

Regulating either driver conduct or vehicle design at the national level did not conform to existing political ideas about the appropriate federal division of responsibilities or to contemporary jurisprudential understandings of the federal government's constitutional power to regulate interstate commerce.... The only useful and politically acceptable action Congress might take was to help the states and localities construct more and better roads.

The Society of Automotive Engineers (SAE), a professional association founded in 1905, became the primary source of vehicle safety and emission rules for many decades. State governments often used SAE recommendations to enact requirements for vehicle equipment, such as dual brakes, headlamps, and windshield wipers. Other SAE standards were adopted directly by manufacturers.

The first step toward a nationwide system of vehicle regulation came in 1926, when a voluntary Uniform Vehicle Code was drafted to replace the many different state rules. Among other things, the code specified the types of lighting, reflectors, brakes, mirrors, and tires that cars should have. These ideas were widely accepted by the states: by 1946, 30 of the then 48 states (plus the District of Columbia) had adopted the Uniform Vehicle Code; 13 had implemented portions and only six had taken no action.

With the start of the Interstate Highway system in the 1950s, greater automobile travel, and rising highway deaths, the interest in vehicle safety grew. Between 1962 and 1964, Congress passed three safety bills into law, including a seat belt regulation. These laws set the stage for more ambitious legislation a few years later. For example, the legislation establishing safety requirements for federal fleet vehicles led to the promulgation of 17 standards by 1966, prompting some in Congress to question why similar standards did not apply to vehicles purchased by average consumers.

The most significant change in U.S. vehicle safety regulation came with the National Traffic and Motor Vehicle Safety Act of 1966. Senator Abraham Ribicoff, one of the advocates of the new legislation, said during floor debate that "this problem is so vast that the Federal Government must have a role. It is obvious the 50 states cannot individually set standards for the automobiles that come into those 50 States from a mass production industry." Curtailing auto-related highway deaths was a major impetus.

As passed unanimously by both houses of Congress and signed by President Johnson, the legislation had two parts:

the Highway Safety Act of 1966 mandated that each state put in place a highway safety program in accordance with federal standards that would include improving driver performance, accident records systems and traffic control; and the National Traffic and Motor Vehicle Safety Act of 1966 directed the Secretary of Commerce (later changed to the Secretary of Transportation when that agency was established in 1967) to issue safety standards for all motor vehicles beginning in January 1967. A National Traffic Safety Agency was established to carry out the provisions; it was renamed the National Highway Traffic Safety Administration (NHTSA) in 1970.

Senator Warren Magnuson, chairman of the Commerce Committee, argued that Congress was implementing a limited type of regulation, saying in his floor statement,

The committee also recognizes that the broad powers conferred upon the Secretary, while essential to achieve improved traffic safety, could be abused in such a manner as to have serious adverse effects on the automotive manufacturing industry. The committee is not empowering the Secretary to take over the design and manufacturing functions of private industry. The committee expects that the Secretary will act responsibly and in such a way as to achieve a substantial improvement in the safety characteristics of vehicles.

The U.S. Approval Process

Since it was established, NHTSA has issued dozens of safety standards, and it maintains an extensive database on vehicle crashes. However, the agency neither approves motor vehicles or parts as complying with its standards nor collects information from manufacturers as to compliance. The law puts the onus for enforcement of federal standards on automakers themselves. It provides that "A manufacturer or distributor of a motor vehicle or motor vehicle equipment shall certify to the distributor or dealer at delivery that the vehicle or equipment complies with applicable motor vehicle safety standards prescribed under this chapter.... Certification of a vehicle must be shown by a label or tag permanently fixed to the vehicle ..."

The law also makes manufacturers responsible for testing of vehicles and liable for recalls and penalties if they are later found not to meet NHTSA's standards. After a new model is in the market, NHTSA buys vehicles from dealers and tests them at its own facilities to determine whether they comply with current standards. If NHTSA determines there is noncompliance, it can encourage the manufacturer to recall the model to correct the problem or can order a recall.

EU Vehicle Safety Regulation

In contrast to the U.S. system of self-certification, the comparable EU vehicle system is based on government regulatory approval in advance of manufacturing.

Until the 1950s, European vehicle safety regulations developed separately in each country. Interest in harmonizing vehicle regulation emerged as part of the process of European economic integration. The European vehicle regulatory regime now includes both EU directives, which must be implemented by all member states, and standards promulgated through a United Nations (UN) organization, which may be implemented at the discretion of a national government.

United Nations Agreement

In 1952, the United Nations (U.N.) established the Working Party on the Construction of Vehicles—known as Working Party 29 or WP. 29—a subsidiary body of the Inland Transport Committee of the United Nations Economic Commission for Europe (UNECE). The objective of WP.29 is to "initiate and pursue actions aimed at the worldwide harmonization or development of technical regulations for vehicles." WP.29 administers a 1958 agreement on vehicle construction and two related agreements which were adopted by some European countries to promote EU-wide integration of vehicle design, construction and safety. UNECE standards deal with vehicle safety, environmental protection, fuel efficiency, and anti-theft performance.

Signatories to the 1958 U.N. agreement commit to mutual recognition of approvals for vehicle components, so that a component approved for use in one signatory country will be automatically approved in all others. UNECE regulations do not cover the whole vehicle, only its parts. WP.29's voting members are limited to government representatives, but automakers, trade associations, and other nongovernmental organizations also participate in its meetings.

The United States did not sign the 1958 UNECE agreement because it would require mutual recognition of standards generated outside the United States. After U.S. self-certification began in 1967, the UNECE approach was seen as incompatible with the U.S. process. Because the United States remained outside of UNECE, many U.S.-made vehicles could not be exported to many countries without modifications.

However, the United States did sign a 1998 UNECE agreement which establishes global technical regulations (GTRs), effectively transforming the U.N. body into an organization with a global approach now called the World Forum for Harmonization of Vehicle Regulations. It promulgates regulations affecting vehicle safety, environmental protection, energy efficiency, and anti-theft performance. Unlike the 1958 agreement, there is no requirement for type approval and mutual recognition of approvals. GTRs are issued in a UN Global Registry and contracting parties use their own regulatory process to implement them.

EU Directives

Alongside UNECE, the European Economy Community (renamed the European Community in 1993) and its successor, the EU, have sought to promote a single European market in motor vehicles. Tariffs on cars traded between member states were eliminated in 1968. In 1970, the European Community enacted a framework that laid the basis for vehicle approval harmonization across all member states.

Initially, European working groups on vehicle safety issues based their work on U.S. standards and practice because the United States had established a federal safety program earlier. It has been suggested that one reason for the slow development of European standards (and hence reliance on the UNECE standards process) was that some European automakers "preferred to limit the extension of standards to those that would create obstacles to the invasion of foreign vehicles into their national markets." Over time, the balance shifted to favor more similarity between U.S. and EU standards.

The EU Approval Process

Since 1970, the EU has used the Whole Vehicle Type Approval system, under which production samples of new model cars must be approved by national government authorities prior to the vehicle entering the market. An automaker must submit the "type" of vehicle it intends to manufacture and sell to the proper authority in any country that is a signatory to the 1958 UNECE agreement. All EU member states enforce the EU standards. EU member states may choose which UNECE standards they wish to incorporate into their national regulations. Unlike the UNECE standards, the EU system applies to a complete vehicle, often taking into account the UNECE standards promulgated for specific auto parts.

Nearly every EU country has either a government agency or designated privately-owned test houses that conduct testing to ensure new models will meet all standards. Once formal approval is obtained, the automaker then issues a "certificate of conformity" for each vehicle manufactured, attesting that it conforms to the approved type. Once an EU member state approves a new vehicle, it can be marketed throughout the EU.

The EU agreed in 2007 that the UNECE regulations would be incorporated into the EU type-approval procedure. Legislative work at the EU level is led by European Commission's Directorate of Enterprise and Industry. Vehicle safety promotion is also pursued by the European Commission through initiatives such as DG Transport's EU road safety action program and DG Information and Society's E-safety and Intelligent Car initiatives.

Emissions Standards

Evolution of U.S. Vehicle Emission Standards56

Programs to address air pollution in the United States originated in the first half of the twentieth century and were accelerated after World War II. A critical aspect of the air quality problem in urban areas has been ground-level ozone production, commonly referred to as "smog."

Independent analysis in the mid-1950s identified the automobile as a key source of ground-level ozone. Research has since demonstrated that cars and other mobile sources are responsible for a variety of other air pollutants, including carbon monoxide (CO), hydrocarbons (HC), nitrogen oxides (NO x ), particulate matter (PM), air toxics, and greenhouse gases (GHG). Emissions of hydrocarbons and NO x from motor vehicles are responsible for contributing to the formation of ground-level ozone. Further, motor vehicles represent the largest domestic source of air toxics, or pollutants known or suspected to cause cancer or other serious health or environmental effects. Finally, vehicles have been determined to contribute approximately one quarter of domestic GHG emissions, which trap heat in the earth's atmosphere, contributing to global climate change.

The federal government first addressed air pollution in 1955 in the Federal Air Pollution Control Act, which provided funding to state and local governments to "protect the primary responsibilities and rights of the state and local governments in controlling air pollution." In 1959, California became the first state to address pollution from cars with legislation directing the state Department of Public Health to establish air quality standards and necessary controls for motor vehicle emissions. Following California's lead, in 1960 Congress directed the Surgeon General to study the "various substances discharged from the exhausts of motor vehicles."

This regulatory pattern continued throughout the 1960s, as California authorities established control requirements and the U.S. government followed suit a few years later. For example, California required the control of crankcase emissions in 1961and set the first HC and CO emissions regulations in 1964. The federal Motor Vehicle Air Pollution Control Act of 1965 adopted both the California crankcase and tailpipe emissions standards for 1968 model-year vehicles. This act engaged the federal government for the first time in the actual regulation of vehicle emissions.

Congress's provision for national emissions standards was based primarily on testimonies by the Department of Health, Education, and Welfare (HEW) and the automotive industry about the potential problems that would be created for vehicle manufacturers by divergent state standards. Congress strengthened federal authority in 1967 by explicitly preempting states from adopting or enforcing new motor vehicle emission standards in the Air Quality Act of 1967. This preemption provision (with California as the sole exemption) remains in effect today as Section 209(a) of the Clean Air Act (CAA).

U.S. Vehicle Emission Standards and Implementation69

At present, the federal government manages vehicle emissions controls, although the state of California remains a major force in shaping national legislation and regulations. Emission standards for engines and vehicles, including emission standards for greenhouse gases, are currently established by the U.S. Environmental Protection Agency. EPA authority to regulate vehicle emissions—and air quality in general—is based on the Clean Air Act. As with safety regulations, the development of vehicle emission standards by EPA is in accordance with the federal rulemaking process. New regulations are first published as proposed rules, and following a period of public discussion may be withdrawn, approved, or amended before entering into force.

Current EPA emissions standards for vehicles (referred to as "Tier 2" requirements) regulate CO, NO x , PM, and HC emissions. Under the Tier 2 regulation, the same emission standards apply to all vehicle weight categories, (i.e., cars, minivans, light-duty trucks, and SUVs have the same emission limit). Further, the same emission limits apply to all vehicles regardless of the fuel they use. While a number of U.S. states have a significant legal basis in advancing emissions regulations to aid in their attainment of National Ambient Air Quality Standards (NAAQS), California is the only state vested by the CAA with the authority to develop its own emission regulations if EPA grants the state a waiver. California emission standards are administered by the California Air Resources Board, a regulatory body within the California Environmental Protection Agency. The CAA allows other states a choice between implementing federal emission standards or adopting the California requirements.

The evolution of U.S. emission standards for light-duty, gasoline-fueled vehicles is traced in Table A-1 of the Appendix . "Tier 2" standards—the current regulatory regime—have been in place since 2004. EPA announced proposed Tier 3 standards on March 29, 2013. In addition to exhaust emission standards, U.S. regulations address many other emission-related issues.

U.S. Certification and Test Procedures

Anyone wishing to sell an engine or vehicle within the United States must demonstrate compliance with the CAA and all applicable EPA regulations. This approval process differs from the self-certification used by NHTSA and is closer to the EU type approval system for safety and emissions regulations.

Once EPA sets emission standards for a particular engine and/or vehicle category, manufacturers must produce engines that meet those standards by a specified date. Conformity is determined under test procedures specified by EPA. The most common testing procedure used by EPA is the Federal Test Procedure, as mandated by the Energy Tax Act of 1978. Tests are based on the Urban Dynamometer Driving Schedule to reflect typical driving patterns (e.g., city, highway, aggressive, and use of air conditioning). Currently, EPA uses a three-tiered compliance strategy for light-duty vehicles: (1) pre-production evaluation to certify vehicles prior to sale; (2) a production evaluation on the assembly line for early evaluation of production vehicles, and (3) a final clearance applied to verify that properly maintained vehicles continue to meet the standards after several years of use.

EU Vehicle Emission Standards

History79

Environmental matters were not included in the EU's founding Treaty of Rome. Prior to the mid-1980s, UNECE produced regulations relating to safety, environmental protection, and energy efficiency. It was a common practice for EU member countries to adopt standards and regulations similar to those issued by UNECE, but each country retained authority to adjust the UNECE standards as it saw fit.

The member states signed the Single European Act (SEA) in 1985 with a goal of unifying the European market by 1992. Under the SEA, auto emissions regulations were harmonized across Europe in 1987. Initially, the harmonized standards were less strict than US standards. Similar to the 1970 U.S. Clean Air Act proviso for California, the SEA allows member states to enact measures more stringent than those enacted by the EU.

EU Vehicle Emission Standards and Implementation

Vehicle exhaust emissions were regulated in Europe beginning in 1970. Directive 70/220/EEC covered CO, NO x , PM, and HC emissions from gasoline-fueled light-duty vehicles. In June 1991, the Council of Ministers of the European Council adopted the Consolidated Emissions Directive (commonly referred to as "Euro 1") which ushered in the current regulatory regime for vehicle emission standards in Europe. Current standards (referred to as "Euro 5") cover CO, NO x , PM, and HC emissions, and differentiate between gasoline and diesel vehicles. Euro 6 standards are scheduled to be implemented in September 2014 (strengthening NO x standards for diesel vehicles). The evolution of EU exhaust emission standards for light-duty, gasoline- and diesel-fueled vehicles is traced in Table A-2 of the Appendix .

EU Certification and Test Procedures

Under the type approval process, emissions are currently tested using the New European Driving Cycle (NEDC) (ECE 15 + EUDC) chassis dynamometer procedure. Effective in 2000 with the Euro 3 standard, the test procedure was modified to eliminate the engine warm-up period before the beginning of emission sampling, bringing the test more in line with the U.S. Federal Test Procedure. Further, the Euro 5/6 implementing legislation introduced a new PM mass emission measurement method which is similar to the U.S. procedure introduced in 2007.

Comparison of U.S. and EU Vehicle Emission Standards

Vehicle emissions standards established by the EU and the United States are not directly comparable because of the differences in the testing procedures and approval processes.

Approval Process . Both the European and the U.S. systems of compliance are based on a version of "type approval." However, in the EU, emission standards only apply when the vehicle is produced (conformity of production). Once the vehicle leaves the factory and enters service, the manufacturer has no liability for its continued compliance with emission limits. Surveillance testing, mandatory emissions system warranties, recall campaigns, and other features of U.S. emissions regulation are not incorporated in the European regulatory structure. Test Procedure . A key difference between the EU and the United States is the test procedure, in particular the drive cycle that a car has to go through on a roller bench while the exhaust gas is being collected and analyzed. The EU uses the New European Drive Cycle (NEDC) and the United States uses the Federal Test Procedure (FTP). Differences between the two include distance, duration, and vehicle speed, as well as factors such as whether the vehicle must begin at a cold start or whether there is a warm-up period.

In terms of stringency—that is, the level of emission control technology required for compliance—some observers have noted that the European emission standards have historically lagged behind the U.S. standards. This lag may be attributed to the complex, consensus-based approach to standard setting originally used by UNECE and by the difficulty of obtaining agreement among so many individual countries. With the recent shift to decision procedures requiring less-than-unanimous agreement within the European Commission, it has been possible for the Commission to adopt more stringent emission standards. A comparison of current emissions standards for selected pollutants (including non-methane organic gases [NMOG], nitrogen oxides [NOx], and particulate matter [PM]) is shown in Figure 3 . For a more detailed survey of the standards in each region, see the Appendix .

Fuel Economy and Greenhouse Gas Emission Standards

U.S. Standards Process

In the United States, establishing fuel economy standards is a function of direct statutory authority from Congress, with NHTSA administering the congressionally established standards.

The United States first issued vehicle fuel economy standards in response to the Organization of the Petroleum Exporting Countries (OPEC) oil embargo of 1973, which caused imported crude oil prices to rise by 300% in 1974. In the Energy Policy and Conservation Act of 1975 (EPCA), Congress established Corporate Average Fuel Economy (CAFE) standards for new passenger vehicles starting with model year (MY) 1978. From 1975 to 1988, the average fuel economy of new automobiles increased 81%, from 15.8 to 28.6 mpg. EPCA prohibited states from issuing their own fuel efficiency standards. Prior to 2007, NHTSA had very little authority to modify passenger car standards without congressional direction. However, under the Energy Independence and Security Act of 2007 (EISA) —which raised the fuel economy standards of passenger vehicles, light trucks, and sport utility vehicles to a combined average of at least 35 mpg by 2020—Congress granted NHTSA broader authority to establish and modify CAFE standards.

The most significant recent change in fuel economy standards took place outside of the previous channel of congressional action. In 2009, the Obama Administration, some state regulators, and the auto industry crafted a federal program to implement new light duty vehicle fuel efficiency standards linked to greenhouse gas (GHG) emission standards. This agreement grew out of the fuel efficiency standards passed by Congress in 2007, a Supreme Court decision confirming federal authority to regulate greenhouse gas emissions of vehicles under the CAA, and GHG emission standards enacted in California and subsequently adopted by 13 other states and the District of Columbia. The agreement enabled automakers to manufacture vehicles that are in compliance with both federal and state requirements under the Clean Air Act as well as the CAFE standards. The combined CAFE/GHG standards have made standard setting more complex, as NHTSA and EPA issue separate standards but act in concert.

The combined standards call for fleet-average passenger car and light truck GHG emissions of no more than 163 grams per mile by 2025. This translates to average fuel economy of 54.5 mpg. The CO 2 emissions target for any given vehicle depends on its track width (the horizontal distance between the tires) and its wheelbase (the distance from the front to the rear axles); no specific vehicle must meet a specific target, but a manufacturer's fleet average must be below the sales-weighted average of the targets. This measurement procedure allows heavier cars to have higher emissions than lighter cars while preserving the overall fleet average. As a result, each manufacturer will have its own fleet-wide standard which reflects the vehicles it chooses to produce. For a summary of the 2012 CAFE and GHG vehicle standards, see Table A-3 of the Appendix .

The regulation also includes a system of averaging, banking, and trading (ABT) of credits, based on a manufacturer's fleet average CO 2 performance. Credit trading is allowed among all vehicles a manufacturer produces, both cars and light trucks, as well as between companies. Further program flexibilities include Air Conditioning Improvement Credits, Advanced Technology Credits, Off-Cycle Innovative Technology Credits, Early Credits, and Flex-fuel and Alternative Fuel Vehicle Credits.

CAFE and GHG emission certification is typically based on fuel economy and emission data provided by vehicle manufacturers after two laboratory test cycles dictated by EPA. This procedure is sometimes referred to as the EPA 2-cycle test. CAFE values—used to determine manufacturers' compliance with the average fuel economy standards—are generally higher than typical fuel efficiency in real-world operation or as published by the government or posted on new vehicles. This discrepancy reflects the fact that the EPA 2-cycle test is not wholly representative of vehicle operation patterns and technology as well as the fact that CAFE figures can include other credits and flexibilities.

EU Standards Process

The EU does not set fuel economy standards for vehicles directly in terms of fuel consumption for a given distance traveled. Instead, it sets standards for GHG emissions in terms of the mass of CO 2 , measured in grams, emitted from a vehicle's tailpipe per kilometer driven (g/km). These standards can be used to estimate fuel economy for vehicles sold in Europe.

The first carbon dioxide emission targets for new passenger cars in Europe were set in 1998-99 through voluntary agreements between the European Commission and the automotive industry. These agreements targeted fleet-average CO 2 emissions of 140 g/km by 2008-09. While significant CO 2 emission reductions were achieved in the initial years, after 2004 the manufacturers failed to meet their targets through voluntary actions. In response, the Commission developed a mandatory CO 2 emission reduction program, and CO 2 emission targets for new passenger cars were adopted in April 2009. The regulation established a fleet-average CO 2 emission target of 130 g/km by 2015 and defined a long-term target of 95 g CO 2 /km by 2020.

The standards include incentives for vehicles with CO 2 emissions below 50 g/km and for those running on a mixture of 85% ethanol (E85). Certain flexibilities are available for manufacturers, including credits for technology innovations, pooling between manufacturers, and exemptions for low-volume manufacturers. The regulations cover only CO 2 emissions; other greenhouse gases are not regulated. Emission limits are set according to the mass of vehicle using a fleet-average limit value curve. As with the other EU regulated vehicle emissions, CO 2 emissions are measured over the NEDC test cycle.

Comparison of U.S. and EU GHG and Fuel Economy Standards

The United States regulates the fuel efficiency of each manufacturer's new-vehicle fleet through the CAFE standards, and separately imposes standards for GHG emissions from new mobile sources. The EU does not directly regulate vehicle fuel efficiency, although regulation of GHG emissions pushes manufacturers to achieve greater fuel efficiency.

Comparing vehicle GHG and/or fuel economy standards between the two regions is challenging because these standards differ greatly in structure, form, and underlying testing methods. For example, the EU and the U.S. test cycles differ in terms of average speed, duration, distance, acceleration and deceleration characteristics, and frequencies of starts and stops—all factors which significantly affect the data returned by the tests. Further, the U.S. standard regulates all the GHG emissions from the vehicle (e.g., CO 2 , NO x , CH 4 ) in terms of CO 2 -equivalents; the EU regulates only carbon dioxide emissions. Additionally, the EU sets fleet-average GHG emissions standards in relationship to the mass of a vehicle, whereas the United States sets fleet-average standards based on the vehicle "footprint." Finally, the EU and United States use varying definitions of vehicle categories and weight classes, with proposed targets based on projected sales of vehicles in different size and/or weight classes within each region.

In general the EU GHG standards—and by extension, fuel economy standards—return a greater sales-based and fleet-wide emission reduction than those in the United States. Figure 4 represents an estimate of historical and projected fuel economy targets, adjusted for the factors outlined above.

The Role of Nongovernmental Organizations (NGOs)

In the United States and the EU, NGOs play a role in the setting of vehicle standards, including these entities:

Society of Automotive Engineers ( SAE ) remains involved in developing recommended standards for industry and has issued or updated about 2,000 motor vehicle standards in the past five years. Many address manufacturing processes, not auto safety or emissions. About 10% of NHTSA and EPA standards are based on work SAE has already done and, in those cases, NHTSA and EPA rules are based on the specific SAE standards. International Organization for Standardization (ISO) was founded in 1947 and develops voluntary international standards for many products and services. Standards are typically developed through negotiation in technical committees comprising representatives of many countries. ISO has developed nearly 20,000 standards across a range of industries. For example, a 2010 ISO standard addressed automotive crankshaft bearings. International Electrotechnical Commission (IEC) is a private organization founded in 1906 that develops and publishes international standards for electrical, electronic, and other related technologies. Its standards are voluntary and based on consensus among government, academic, industry, and consumer representatives. IEC standards related to motor vehicles concern charging system architecture, lithium batteries, and other aspects of electric vehicles.

Various other private-sector advocacy groups are engaged in identifying and publicizing new vehicle standards. In the United States, these include the Insurance Institute for Highway Safety, American National Standards Institute (ANSI), National Safety Council, the Center for Auto Safety, and Advocates for Highway and Auto Safety. In the EU, nonprofit groups such as the European Transport Safety Council and Transport & Environment participate in the EU standard-setting process.

Recent Efforts for Regulatory Convergence

European, U.S. and Japanese auto industry groups sought common regulatory ground in 1996, when they proposed that the United States, the EU, Japan, and UNECE harmonize regulation of five vehicle components, including windshield wipers, defoggers, and seat belt assemblies. They believed that these five components were functionally equivalent, although each was slightly different. The regulatory bodies did not agree to any changes, however, because the data-driven review process made it difficult to prove functional equivalency of even a standard component such as a seat belt.

This experience suggested that obtaining functional equivalency determinations from regulatory agencies might be difficult. An alternative approach was developed in the 1998 UN agreement on global technical regulations, which created a global registry of processes and common technical standards. This initiative, resulting in the creation of the World Forum for Harmonization of Vehicle Regulations, has resulted in agreement on only 13 global technical regulations to date.

Simultaneously, there has been a transatlantic dialogue on autos since the mid-1990s through the U.S.-EU High-Level Regulatory Cooperation Forum. In 1995, President Clinton signed an action plan which sought to move the United States and Europe toward regulatory conformity and to encourage collaborative testing and certification. The 1996 TransAtlantic Automotive Industry Conference on International Regulatory Harmonization produced a report on the auto sector, including ten principles to guide steps toward convergence. NHTSA sent a report to Congress in April 1997 discussing potential harmonization of U.S. and European side impact standards. A similar bilateral regulatory initiative has been under way since 2011 with Canada.

An EU initiative, the Competitive Automotive Regulatory System for the 21s Century, or CARS 21, has also explored harmonization issues. A 2012 CARS 21 report recommended exploration of ways to bring about "stronger internationalisation of the regulatory environment" related to autos. In 2006, CARS 21 called for gradually replacing some EU laws with UN regulations, and more than 40 EU directives have been replaced with corresponding UN regulations since that time.

Pathways to Convergence

There are different ways in which the United States and the EU could address convergence of automotive regulations under TTIP. These include the following:

H armonization of rules . Harmonization need not mean having identical rules in both regions. From the viewpoint of auto manufacturers, it means minimizing unnecessary differences in regulations so that a "single vehicle standard can be built to satisfy all requirements." C omprehensive mutual recognition . This approach would permit automakers to sell vehicles in either market if they meet either a U.S. standard or a standard accepted in the EU. A car certified as compliant with U.S. safety, emission, and fuel efficiency standards would be accepted as compliant in the EU, and vice versa. This approach is how the EU certification process works. S elective mutual recognition . This approach would identify certain major standards for which TTIP could provide mutual recognition, rather than providing mutual recognition of all standards. U.S. and European automakers have identified occupant crash protection, side impact protection, child restraint systems, and some emissions standards as priorities for selective mutual recognition. F orward-looking rules . A fourth option would be to forge an agreement on emerging regulations, such as those dealing with electric and fuel cell vehicles, rather than focusing on existing regulations. Under this approach, the United States and the EU would commit to jointly develop standards covering new issues or technologies.

The pending free trade agreement between the EU and Canada may influence the direction of TTIP. The full text of the agreement has not been released, but according to an EU statement, "Canada will recognise a list of EU car standards and will examine the recognition of further standards. This will make it much easier to export cars to Canada." The agreement is also said to allow Canadian vehicles to be certified in Canada for the EU market.

Convergence of vehicle standards has potential drawbacks. One aspect pertains to the lack of speed with which governmental agencies—whether in the United States or Europe—can address new technologies and vehicle innovations. The rule-making process is already lengthy, and the need for international coordination could make it even longer. This raises the prospect that technologies that could reduce accidents—such as new types of headlamps that can illuminate the road better without blinding oncoming drivers—may be delayed in reaching the market. Additionally, the EU acknowledges that if vehicle standards become international, there could be less room for legislative scrutiny and for involvement by regional and national interest groups .

U.S. consumer advocacy groups have raised similar concerns, writing U.S. and EU leaders in July 2013 that TTIP "must not limit the United States or the EU (or its member states) from adopting and enforcing standards that provide higher levels of consumer, worker, and environmental protection."

Congress could play an important role if a TTIP agreement contains significant provisions related to auto safety, emissions, and fuel economy regulations. Congress established the U.S. government agencies whose regulations are the focus of the negotiations on automobile standards, and it has retained a strong oversight interest in vehicle safety and emissions. If the TTIP effort to obtain mutual recognition or harmonization affects agencies' authority or changes the ways in which automotive regulations are developed and implemented, Congress may well be asked to modify the underlying statutes that govern motor vehicle safety, emissions, and fuel efficiency.

Appendix. Detailed Comparison of U.S. and EU Vehicle Emissions Standards

Emission Standards

U.S. Vehicle Emission Standards and Implementation

The Clean Air Act Amendments (CAAA) of 1990 ( P.L. 101-549 ) established standards to limit tailpipe emissions from new motor vehicles effective in 1994. These Tier 1 standards applied to all new light-duty vehicles, such as passenger cars, light-duty trucks, sport utility vehicles (SUVs), minivans, and pick-up trucks, and covered the four major pollutants (CO, NO x , PM, and HC [subdivided as Total Hydrocarbons (THC) and Non-Methane Hydrocarbons (NMHC)]). Separate sets of standards were defined for each vehicle category, with more relaxed limits for heavier vehicles. The CAAA also required EPA to study the need for more stringent "Tier 2" emission standards. Subsequently, EPA promulgated "Tier 2" standards on February 10, 2000.

The Tier 2 regulations introduced more stringent numerical emission limits and a number of additional changes that tightened the standards for larger vehicles. Under the Tier 2 regulations, the same emission standards apply to all vehicle weight categories. Further, the same emission limits apply to all vehicles regardless of the fuel they use. Since light-duty emission standards are expressed in grams of pollutants per mile, vehicles with large engines (such light trucks or SUVs) were required to use more advanced emission control technologies than vehicles with smaller engines. To provide flexibility to vehicle manufacturers, the Tier 2 emission standards were structured into eight permanent and three temporary certification levels of different stringency, called "certification bins." Manufacturers had a choice to certify particular vehicles to any of the available bins, but were required to meet a fleet-average requirement for NO x emissions in any given model year.

U.S. emissions standards are shown in Table A-1 . (Note that Tables A-1 and A-2 are not strictly comparable because U.S. standards are based on grams per mile and EU standards are based on grams per kilometer.

EU Vehicle Emission Standards and Implementation

In June 1991, the Council of Ministers of the European Council adopted the Consolidated Emissions Directive (commonly referred to as "Euro 1") under which exhaust emission standards for all passenger cars, including diesels, were certified. The Council of Ministers has since adopted several stricter revisions to the Euro 1 standards; and, in September of 2014, Euro 6 standards will be introduced.

EU emission limits for each "Euro" stage are summarized in Table A-2 .

Fuel Economy and Greenhouse Gas Standards

U.S. Fuel Economy and GHG Standards and Implementation

The 2012 CAFE and GHG vehicle standards call for combined passenger car and light truck greenhouse gas emissions of no more than 163 grams per mile by 2025. This translates into a 54.5 mile-per-gallon equivalent. The GHG standards are based on CO 2 emissions-footprint curves, where each vehicle has a different CO 2 emissions compliance target depending on its "footprint" value, related to the size of the vehicle—an approach first introduced in the reformed CAFE (2008-2011) standards for light trucks. Table A-3 shows the projected fleet-wide CO 2 emission and fuel economy requirements. The EPA CO 2 -equivalent fuel economy figures are different from the CAFE figures because the EPA allows additional CO 2 credits for air conditioning improvements and other flexibilities.

In addition to the fleet-average CO 2 emission targets, the rule also includes emission caps for tailpipe nitrous oxide and methane emissions (N 2 O: 0.010 g/mile and CH 4 : 0.030 g/mile). The regulation also includes a system of averaging, banking, and trading (ABT) of credits, based on a manufacturer's fleet average CO 2 performance. Credit trading is allowed among all vehicles a manufacturer produces, both cars and light trucks, as well as between companies.

EU GHG Standards and Implementation

The EU does not issue fuel economy standards similar to the U.S. CAFE standards. As shown in Table A-4 , EU fleet-average CO 2 emission targets as required by EU Regulation (EC) No 443/2009 are 130 g/km to be reached by 2015 and a long-term target of 95 g/km to be reached by 2020.