Tag Archives: EPA

Corporate Average Fuel Economy

The National Highway Traffic Safety Administration (NHTSA) is part of the Department of Transportation. One of its main functions is to administer CAFE.

Administering Corporate Average Fuel Economy (CAFE).

The Corporate Average Fuel Economy (CAFE) are regulations in the U. S. first enacted by the U. S. Congress in 1975 in the wake of the Arab Oil Embargo and were intended to improve the average fuel economy of cars and light trucks sold in the United States. Historically, it is the sales-weighted harmonic mean fuel economy, expressed in miles per U. S. gallon (mpg) of a manufacturer’s fleet of current model year passenger cars or light trucks with a gross vehicle weight rating (GVWR) of 8, 500 pounds (3, 856 kg) or less, manufactured for sale in the United States. If the average fuel economy of a manufacturer’s annual fleet of vehicle production falls below the deferred standard, the manufacturer must pay a penalty, currently $5.50 per 0.1 mpg under the standard, multiplied by the manufacturer’s total production for the U. S. domestic market. In addition, a Gas Guzzler Tax is levied on individual passenger car models (but not trucks, vans, minivans, or SUVs) that get less than 22.5 miles per U. S. gallon.

Historically, it is the sales-weighted harmonic mean fuel economy, expressed in miles per U. S. gallon (mpg) of a manufacturer’s fleet of current model year passenger cars or light trucks with a gross vehicle weight rating (GVWR) of 8, 500 pounds (3, 856 kg) or less, manufactured for sale in the United States. If the average fuel economy of a manufacturer’s annual fleet of vehicle production falls below the deferred standard, the manufacturer must pay a penalty, currently $5.50 per 0.1 mpg under the standard, multiplied by the manufacturer’s total production for the U. S. domestic market. In addition, a Gas Guzzler Tax is levied on individual passenger car models (but not trucks, vans, minivans, or SUVs) that get less than 22.5 miles per U. S. gallon.

Started in 2011 the CAFE Standards are newly expressed as mathematical functions depending on vehicle “footprint”, a measure of vehicle size determined by multiplying the vehicle’s wheelbase by its average width. A complicated 2011 mathematical formula was replaced in 2012 with a simpler inverse-linear formula with cut off values.

CAFE footprint requirements are set up such that a vehicle with a larger footprint has a lower fuel economy requirement than a vehicle with a smaller footprint. CAFE has separate standards for “passenger cars” and “light trucks” despite the majority of “light trucks actually being used as passenger cars. The market share of “light trucks” grew steadily from 9.7% in 1979 to 47% in 2001 and remained in 50% numbers up to 2011. More recently, coverage of medium duty trucks has been added to the CAFE regulations from 2012 and now in 2014, heavy duty commercial trucks have also been added.

President Barack Obama announced plans for a national fuel-economy and greenhouse-gas standard that would significantly increase mileage requirements for cars and trucks by 2016. Obama called it “an historic agreement to help America break its dependence on oil, reduce harmful pollution and begin the transition to a clean energy economy”.

The new requirements mark the first time there has been a nationwide standard for emissions of greenhouse gases. They require an average mileage standard of 39 miles per gallon for cars and 30 mpg for trucks by 2016. This is a jump from the current average for all vehicles of 25 miles per gallon.
Furthermore, Obama said “In the past an agreement such as this would have been considered impossible. It is no secret these are folks who have been at odds, even decades. The status quo is no longer acceptable.”

The new standards cover the model years 2012 to 2016 and are expected to add about $600 to the cost of a new car, the White House said. Administration officials hope the added costs will be recouped by savings in gasoline costs from the higher mileage requirements.

Auto manufacturers have fought past attempts to raise mileage standards but came to the table this time out of fears of patchwork of national standards, particularly because California has been trying to create a more aggressive benchmark for decreasing greenhouse gases. Obama’s moves give the companies certainty in what they must achieve for all models nationwide.
The policy for autos will link together the corporate average fuel economy, or CAFE, standard and the Environmental Protection Agency’s greenhouse-gas standard. That way industry will not have to worry that the administration will regulate those on separate tracks. The standards will be gradually increased each year until they hit Obama’s target in 2016.

The White House predicted significant environmental benefits from the program, with a projected savings over the life of the program of 1.8 billion barrels of oil, and reductions of 900 million metric tons of greenhouse-gas emissions. White House officials called it the equivalent to taking 177 million cars off the road or shutting down 194 coal plants. Obama called the tailpipe emission announcement historic because it avoids a patchwork of standards and has won agreement from so many stakeholders, including automakers, state governments, the Department of Transportation and the EPA.

The U. S. Environmental Protection Agency (EPA) measures vehicle fuel efficiency. Historically, the EPA has encouraged consumers to buy more fuel efficient vehicles, while NHTSA expressed concerns that smaller, more fuel efficient vehicles may lead to increased traffic fatalities. Thus higher fuel efficiency was associated with lower traffic safety, intertwining the issues of fuel economy, road traffic safety, air pollution and climate change. The EPA says fuel economy last year (2013) rose one-half-mile per gallon over the 2012 model year,use automakers have improved gas engines and transmissions and added turbochargers to give smaller motor more power. Although last year’s gain fell short of the 1.2 mpg improvement from 2011 to 2012, fuel economy is up almost 5 mpg since 2004. The EPA is predicting slower growth for this year, but officials still expect the industry to meet government standards that require the fleet to average 54.5 mpg by 2025.

Chris Grundler, head of EPA’s office of transportation and air quality, said the auto industry is ahead of what the EPA expected at this point and he expects improvements to vary from year to year depending on the new models that are introduced.

For example. the aluminium Ford F-150 pickup could raise the average mileage by itself because the F-150 is the top-selling vehicle in the nation. The truck’s reduction in mass is likely to yield significantly better mileage and reduced emissions over the current trucks.

Mazda led all automakers with an average 28.1 mpg. Honda was second at 27.4 mpg, Chrysler, General Motors and Ford were at the bottom of the rankings, because they sell more pickups and SUVs. The midsize Mazda 6 already meets its fuel economy targets for 2019 mainly by reducing wind drag and using lighter weight materials and a turbocharged engine.

Cheating Emissions Tests

Volkswagen, the German Car Giant has admitted cheating emissions tests in the U. S. According to the Environmental Protection Agency (EPA), some cars being sold in America had devices in diesel engines that could detect when they were being tested. This therefore changed the performance accordingly to improve results.

VW has had a major push to sell diesel cars in the U. S..  This was backed by a huge marketing campaign trumpeting its cars’ low emissions. The EPA’s findings cover 482,000 cars in the U. S. only. This included the VW manufactured Audi A3 and the VW brands Jetta, Beetle, Golf and Passat. However VW has admitted that about 11 million cars worldwide are fitted with the so-called “defect device”.

Full details of how it worked are sketchy. The EPA has said that the engines had computer software that could sense test scenarios by monitoring speed, engine operation, air pressure and even the position of the steering wheel.

In addition the cars were operating under controlled laboratory conditions. This involved putting them on a stationary test rig.  The device appears to have put the vehicle into a sort of safety mode.  The engine then ran below normal power and performance. Once on the road, the engine switched from this test mode. The result? The engines as a result emitted nitrogen oxide pollutants up to 40 times above what is allowed in the U. S.

With VW recalling almost 500, 000 cars in the U. S. alone, it has set aside €6.5 billion to cover costs. However that is unlikely to be the end of the financial impact. The EPA has the power to fine a company up to $37, 500 for each vehicle that breaches standards – a maximum fine of about $18 bn.

At this time, only cars in the U. S. named by the EPA are being recalled.  Owners elsewhere need take no action. About 11 million VW diesel cars are potentially affected by this cheating.  Of this 2.8 million cars are in Germany itself.  Further costly recalls and refits are possible.

California’s Air Resources Board is now looking into other manufacturer’s testing results. Ford, BMW and Renault said they did not use  cheating”defeat devices”.   Other firms had yet to respond or simply stated they had complied with the laws.

A legal source says it is unlikely that the company will be able to turn for product liability or product recall insurance to cover losses related to the scandal. Insurance industry insiders say Directors and Officers Liability insurance (D & O) are likely to see the biggest damage claims.

It stems from an unfolding scandal around Volkswagen’s cheating of U. S. emissions tests.  This situation has therefore prompted the German car maker’s chief to resign.

D & O insurance is taken out by companies to cover claims against senior executives for the decisions and actions they take as part of their management duties. While insurers and brokers as per industry custom declined to give details about Volkswagen specifically, they said a German blue chip manufacturer of its size would typically buy around 500 million euros ($560 million) in D & O cover each year.

That money would be used to pay claims against VW executives from shareholders. There has been a 30 percent drop in VW’s share price, as well as legal expenses.  The the cost would typically be spread among more than a dozen insurers and reinsurers, industry officials said.

Volkswagen would thus have to foot the bill once the limit is reached on the D and O insurance.  This does not normally cover fines and penalties.

Insurers would be off the hook for costs related to any recall of the cars affected. Any cover would likely be negated by their own knowledge or cause, as it is just for accidental or negligent damage.

As a result, the implications for D and O insurers are potentially wide:

VW and its executives can be expected to face criminal and/or regulatory investigations for cheating in the U. S., Europe and in other jurisdictions.

VW and its executives can be expected to face myriad civil claims globally.  This would be class action claims by investors alleging that a failure to disclose the cheating emissions tests led investors to buy or to hold onto VW shares.

Companies that VW may have used to design, manufacture and/or install the devices behind the alleged deception, and their directors, may also find that they are the subject of similar investigations and civil claims.