Corporate Average Fuel Economy (CAFE) standards set minimum limits for the average miles per gallon that all cars and light trucks must achieve. These standards are intended to reduce gasoline consumption, and thereby limit greenhouse gas emissions and dependence on foreign oil imports. CAFE standards have changed very little over the past 20 years, but they will tighten substantially for the 2012-2016 model years, to an average of 35.5 mpg by 2016, and planning is underway for even stricter standards for 2017-2025. Other important new provisions base standards on a vehicle’s “footprint” and allow trading of fuel economy credits.
How do current and future CAFE standards compare to other nations’ fuel economy standards? What challenges will automakers face in meeting the new standards? What is the cost of higher CAFE standards, and how does it compare to the cost of alternative policies to reduce gasoline consumption?