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It was big news when the Obama Administration updated CAFE requirements in May to a new and higher national MPG standard of 42 mpg for cars (26 mpg for light trucks) by 2016. The higher standards will start increasing with 2011 model year vehicles. But what is CAFE? And how do these new numbers – before the raise, cars needed to average 27.5 mpg and trucks 24 mpg – change what will be available in dealerships in the coming decade?

Let's start with the official government wording. The National Highway Traffic Safety Administration (NHTSA) is in charge of establishing CAFE standards, so let's use their definition:

Corporate Average Fuel Economy (CAFE) is the sales weighted average fuel economy, expressed in miles per gallon (mpg), of a manufacturer's fleet of passenger cars or light trucks with a gross vehicle weight rating (GVWR) of 8,500 lbs. or less, manufactured for sale in the United States, for any given model year. Fuel economy is defined as the average mileage traveled by an automobile per gallon of gasoline (or equivalent amount of other fuel) consumed as measured in accordance with the testing and evaluation protocol set forth by the Environmental Protection Agency (EPA).

Clear as mud? We break it down after the jump.

[Image: Tim Boyle/Getty]

A super short History of CAFE

CAFE rules, officially called the "Energy Policy Conservation Act," became law in 1975 as a response to the 1973-74 Arab oil embargo. The stated goal was to double new car fuel economy by model year 1985. This did not happen. Starting with the initial average of 18 mpg (for cars) in 1978, the standard increased by about one or two mpg per year until 1985 when it reached 27.5. For 1986-1988, the number actually dropped to 26 mpg and then it sat quietly at 27.5 from 1989 until earlier this year.

Establishing a vehicle's MPG

CAFE is based on those little stickers that are plastered on every new car sold in the U.S. (an example label is pictured above) The miles per gallon numbers are, in turn, based on ratings calculated by the EPA and the DOE and available at FuelEconomy.gov. Well, that's only 10 percent true. It's actually theautomakers themselves that conduct laboratory tests based on federal regulations and give the resulting mileage data to the EPA. The EPA then re-tests about ten percent of the models to confirm that what the manufacturer reported was accurate. Interestingly, the EPA doesn't directly measure the fuel that was burned; instead it measures the amount of carbon that came out of the vehicle's tailpipe during the test. The EPA claims that this method is more accurate than using a fuel gauge.

The tests are done on a dynamometer (pictured at right) by professional drivers using a standardized routines. As hypermilers and leadfoots can attest, the official rating doesn't always match a vehicle's performance on the road, but it does provide a baseline to compare different vehicles with one another – and all sorts of promotional opportunities – and gives the CAFE rules something to go on.

Establishing a fleet's MPG

Armed with the EPA's MPG numbers, automakers have to make sure that the vehicles that they make and sell (those under 8,500 lbs.) attain the CAFE limit for a particular year. So, for example, for model year 2011, the average for cars and trucks will be 27.3 mpg and that means that all of the vehicles that each automaker sells needs to average out to at least 27.3 mpg. Some vehicles can be less, obviously, but each company needs to make sure that it offers – and manages to sell – enough vehicles over 27.3 mpg to get the average up.

What about alternative fuels?

Here's where it gets a bit complicated, and somewhat dispiriting. Here's what NHTSA has to say about alt fuels:
The CAFE law provides for special treatment of vehicle fuel economy calculations for dedicated alternative fuel vehicles and dual-fuel vehicles. The fuel economy of a dedicated alternative fuel vehicle is determined by dividing its fuel economy in equivalent miles per gallon of gasoline or diesel fuel by 0.15. Thus a 15 mpg dedicated alternative fuel vehicle would be rated as 100 mpg. For dual-fuel vehicles (vehicles that can use the alternative fuel and gasoline or diesel interchangeably), the rating is the average of the fuel economy on gasoline or diesel and the fuel economy on the alternative fuel vehicle divided by .15. For example, this calculation procedure turns a dual fuel vehicle that averages 25 mpg on gasoline or diesel with the above 100 mpg alternative fuel to attain the 40 mpg value for CAFE purposes. Several limitations are established for CAFE credits for dual fuel vehicles.
Got that? What this means is that a "25 mpg" alternative fuel vehicle can be counted as a 40 mpg vehicle under CAFE. This is called the ethanol loophole, and is one reason why there are so many E85 vehicles on the road in America, even though most don't ever burn much, if any, ethanol. Car And Driver explained in 2006 how flex-fuel's big payoff works:

With fewer than 600 stations selling E85 fuel in 37 states, why have GM, Ford, and DaimlerChrysler been cranking out these flex-fuel vehicles by the millions?

The answer is the mandatory Corporate Average Fuel Economy (CAFE) standards. Federal law requires that the cars an automaker offers for sale average 27.5 mpg; light trucks must achieve 22.2 mpg. Failure to do so can result in substantial fines. However, relief is available to manufacturers that build E85 vehicles to encourage their production.

The irony here is that although E85 in fact gets poorer fuel economy than gasoline, for CAFE purposes, the government counts only the 15-percent gasoline content of E85. Not counting the ethanol, which is the other 85 percent, produces a seven-fold increase in E85 mpg. The official CAFE number for an E85 vehicle results from averaging the gas and the inflated E85 fuel-economy stats.

What happens when a company doesn't meet CAFE?

The short answer is that the automaker needs to pay a fine. This is calculated by taking the amount that an automaker missed the target by and multiplying each tenth of a MPG missed by $5.50 and then multiplying it again by the total number of vehicles the company manufactured for a given model year. Historically, European automakers have had to pay CAFE fines (often ranging from $1 million to $20 million per year) while Asian and big domestic automakers usually manage to conform to the standard. Since 1983, over $590 million in CAFE civil penalties have been paid.

Another option for non-compliant automakers is to use CAFE credits. If a company beat the CAFE standard in any of the previous three model years, the amount they went over can be used to offset the failure to meet a current year's standard. A final option is for the automaker to submit a "carry back plan" that explains how they will make up this year's loss by exceeding the standard in the coming three years. These credits can not be traded or sold between automaker or between the car and truck fleets within a company.

The future

CAFE looks to be a settled issue for now. Everyone – the federal government, California (which pushed for a long time to set its own standards), and the automakers – have agreed to the higher standards announced in May. How the car companies go about meeting them is another issue entirely.

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    • 1 Second Ago
      • 5 Years Ago
      A couple of other corrections to the article, in addition to the point others have made that CAFE is based on laboratory-tested fuel economy, which is about 30% higher than the EPA values we see on window stickers and at www.fueleconomy.gov

      1. Under the changes made in the 2007 Energy Independence and Security Act, manufacturers can now trade credits between fleets and among themselves, subject to some restrictions.
      2. Under the attribute-based standards first introduced for light trucks a couple of years ago (and now proposed or in use for both cars and light trucks), each manufacturer is required to meet a unique standard based on the size mix of vehicles they sell. If the overall figure provided is 30 mpg, then the manufacturers who make larger vehicles will have to meet a more lax target, while those who make smaller vehicles will have to meet a more stringent target.
      • 5 Years Ago
      Not even close to being accurate..

      "With fewer than 600 stations selling E85 fuel in 37 states, why have GM, Ford, and DaimlerChrysler been cranking out these flex-fuel vehicles by the millions?"

      Not sure what year you all are living in but in Oct of 2009 there are officially 2200 Total E85 Stations in the United States across 1568 Cities selling E85 in the United States

      source: e85prices.com
        • 5 Years Ago
        You'll note that the quote is from 2006, and that the issue is the CAFE credits, not the number of stations.
        • 5 Years Ago
        Hello Sebastian.

        CAFE standards in relation to alternative vehicles was designed as an incentive (to the auto industry) for the manufacturing of alternative fuels so that alternative fueling stations would be added. It isn't a "loophole"

        It's purpose has been to get Flex fuel vehicles on the road..despite initially whether it uses ethanol or not.

        CAFE has worked just as intended ..and because FFVs are being built .. e85 Station growth has followed.. no FFVs would mean no E85 Stations.

        The 2 are intertwined ..

        Yes now we have millions of FFVs on the road and by 2015 805 of all vehicles coming off the assembly lines at Ford and GM will be FFVs .

        In a couple years anyone can pull up a Station with a blender pump and use whatever fuel they wish.. Unleaded, E20, E30 , E50, E60 or E85 .. because CAFE standards identified the manufacturing of Flex Fuel Vehicles.

      • 5 Years Ago
      Also see my post 35 at http://green.autoblog.com/2007/12/18/what-cars-can-we-get-today-with-35-mpg/2 for an example of where to get unrounded/unfudged EPA dyno numbers (that are used for CAFE purposes).
      • 5 Years Ago
      CAFE is what's causing manufacturers to "recommend" 5w-20 in their fleets when the stuff is too thin and will lead to premature engine wear and reduced engine life.

      They do this to eek out slightly higher numbers at a dire cost to the consumer.

      Mazda was recommending 5w-20 in their RX-8's and engine failures were too common. That's why folks switched to 10w30, 10w40, or 20w50, despite the slight hit in the MPG department.
      • 5 Years Ago
      There is a direct benefit to using the same measurement techniques for CAFE over the generations of automobiles. It allows us to see just how far we have come. When CAFE started, the average American car obtained 7 mpg. And polluted terribly.

      Today that car has been downsized externally, but remains essentially the same passenger and cargo volume, and toxically cleaned up to the point that even Fossil fuel powered cars can be and often are Zero Pollution emitting cars. On average they obtain well over 30 mpg, versus the 7 mpg at the beginning. Even those not rated as Zero Pollution are much cleaner. Between 1000 and 10,000 of new cars together, produce the same pollution as a single car at the beginning of CAFE. We are on the verge of seeing realistic triple digit mileage figures with relatively ample sized interior p[passenger volumes in automobiles too.

      And despite the smaller exterior dimensions they are safer too. Anyone who saw the recent IHSI video of the '59 Chevy full sized versus a modern Chevy mid-size in a crash, knows the modern driver survives with nary a scratch, as the '59 driver is taken to a closed casket funeral, if they can actually find all his body parts.

      At the same time be prepared to have the automakers be pilloried for being unable to fully comply with the new CAFE standards, raised from 35 to 42 mpg only a year after the 35 mpg standards went into effect. And only two years from the date of adoption. Only fools and Obamacites, think auto models can be completely re-designed and built in two years. It takes almost that long to simply revise a grill. So the designs for 2012 are virtually frozen today; and many for 2012, were even last year.
      • 5 Years Ago
      CAFE is backwards. They should just tax gasoline and let the market figure it out. Will never happen, of course.
        • 5 Years Ago
        Yes, because the tax on my income, house, water, electricity, schools I don't even go to or have children to attend, anything I buy, the actual car, the gas that's already taxed, the insurance, etc. is totally NOT enough. WE NEED MORE!
      • 5 Years Ago
      One important detail has been left out on the calculation of 'average'. The actual required MPG curve is more like an s-curve. For instance a larger car that now gets 20mpg would need to be increased to about only 26mpg by 2016 (about 30%). Not the weighted average. I haven't seen too much details on that. Would be interesting to see more info on that.
      Charlie Peters
      • 1 Year Ago
      Does ethanol CAFE credits increase Big oil and Government motors oil use?
      • 5 Years Ago
      "The irony here is that although E85 in fact gets poorer fuel economy than gasoline, for CAFE purposes, the government counts only the 15-percent gasoline content of E85. Not counting the ethanol, which is the other 85 percent, produces a seven-fold increase in E85 mpg."

      Which is how that Auto X-Prize contestant claimed his modded Ford Mustang got 110 mpg. But the X-Prize commitee obviously disagreed and he dropped out never to be heard from again:

      • 5 Years Ago
      Geez..nothing like typos..

      Sebastian that should of course read
      "80% of all vehicles coming off the assembly lines at Ford and GM will be FFVs ."

      And " incentive (to the auto industry) for the manufacturing of FLEX FUEL VEHICLES so that alternative fueling stations would be added. It isn't a "loophole"

      BTW.. ethanol now replaces 7% of our gasoline needs..directly taking 7% of Oils gasoline Market and helping at keeping all fuel prices low.

      CAFE standards the Promote and reward those building FFVs ends up rewarding all Americans no matter their personal choice of fuel
        • 5 Years Ago
        I live in the "ethanol belt." Sure, they pretend to "replace oils," but they are zero sum. Most of our ethanol is made not just with corn, but with genetically modified corn crops. The cost (in energy) to plant, grow, harvest, and refine that corn into ethanol is not even close to being "carbon neutral" or energy efficient.

        The only reason ethanol is "keeping prices low at the pump," as you say, is because the hidden tax of government subsidies pay the difference. Farmers who grow corn get a subsidy and then a second subsidy if that corn is sold to a refinery to make ethanol. Those aren't "tax breaks," those are direct payments from the government coffers.

        The only reason corn ethanol even exists in this country is because of that government largess, paid for by us, to keep Big Agra in the business of growing corn.

        Remove those subsidies and maybe other, realistic alternatives like algae and so forth will have a chance. Until then, we'll be committing Al Gore jet plane acts of greenery ad infinitum.
      • 5 Years Ago
      Look, I'm flat out anti-ethanol subsidy. And the 0.15 thing is a gal-darn joke.

      But let's try to keep this in perspective:
      1. The fleet increase in mpg for alt-fuel vehicles is capped to a 1.2mpg total increase in fuel economy across a manufacturer's fleet. So as big a scam as it is, it doesn't add as much to the companies credits as it might seem from the 0.15 math.
      2. Comparing mpg straight across between E85 and gas isn't valid, since E85 contains less energy. So yeah, you want to take into the lower mpg when talking about the cost to run the vehicle on a number of gallons basis, but you can't say that means the vehicle is less efficient. So saying it gets poorer fuel economy on ethanol doesn't mean a ton.

      One big thing you missed in this article is that the CAFE regulations are based upon the old EPA fuel economy measurements, the ones that rated the Prius gen 2 at 60mpg city, not the current ones that rate it at 48 city! So a 24mpg car that seems like a problem for a car company actually can be turning 27.3mpg, making it CAFE-neutral.
      • 5 Years Ago
      The purpose of CAFE was to promote the progress of technology. Increase efficiency of the average of your vehicles or pay the penalty.

      It IS A LOOPHOLE because instead of making them more efficient, they simply made a few factory mods (which can be done aftermarket) to allow the vehicle the ability to burn E85. That is not increasing efficiency. That is cheating. Big Auto and Big Agro pulled together to add that BS 15% loophole so that new technology wouldn't be needed and money wouldn't have to be spent.

      E85 is not more efficient, it is cleaner but the car is still the same old internal combustion inefficiency.

      The loophole only serves the agro corps and the automakers and somewhat helps air quality. But it harms us in the bigger picture because it means automakers don't spend R&D money on PHEV, BEV or even Hydrogen fuel cells. All of which WOULD be more efficient than burning anything.
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