The stringent fuel economy standards announced today will make existing auto technologies, such as start-stop hybrids, commonplace and push the industry to cut the cost of electric vehicles.
President Obama today unveiled new corporate average fuel economy (CAFE) standards which will require automakers to achieve an average of 54.5 miles per gallon by 2025. The national agreement, which builds on a landmark compromise deal from 2009, will reduce oil imports, cut greenhouse gas emissions, and save consumers on average $8,000 per vehicle by 2025, the White House said in a statement.
The new standards are considered aggressive--the average fuel economy for cars and light trucks this year is 27.3 miles per gallon--but automakers said that they are achievable with a combination of design improvements and emerging technologies.
"While future fuel economy targets are ambitious, the proposed CAFE rule represents a national approach and provides regulatory certainty for our industry. The proposed rule includes flexibility that recognizes consumer needs and potential changes in technology and economic conditions," General Motors said in a statement.
Rather than a dramatic shift to electric vehicles, the standards will prod automakers to consider technologies not yet used en masse, such as alternative engine designs or microhybrids. Least visible to consumers will be improvements to internal combustion engines and lighter vehicles. Traditional hybrids, which couple a gasoline engine with an electric motor, and diesels are poised for broader use as well.
A microhybrid has a small battery or ultracapacitor to power a car's electrical systems while it's sitting idle, allowing the gasoline engine to turn off. The battery also aids when accelerating and recharges when the car slows down. It's a feature in today's hybrids, but could be incorporated into more cars to improve fuel economy without adding significantly to costs, according to analysts.
The Center for Automotive Research (CAR) last month did an analysis of the impact of CAFE standards and predicted that start-stop technology will be a feature in 36 percent of vehicles by 2025 to meet a 56 mpg CAFE standard, slightly more than the agreed-upon number.
It estimated 35 percent of vehicles in 2025 will be hybrids. Plug-in hybrids would be due for a huge jump from just a few thousand vehicles to 19 percent in this scenario, with less than 1 percent being all-electric cars.
Those targets will require significant cost reductions in the auto and battery industries, CAR said. "To achieve a CAFE target of 56 mpg, the estimated market penetration by each technology would exceed most expectations of a 2025 market and would require a significant advancement in battery manufacturing technology beyond what is known today," it said in its analysis. (Click for a PDF of the report.)
Boost for plug-ins?
But in a separate analysis, the Boston Consulting Group this month said that electrification will play a minor role in meeting fuel efficiency and emissions mandates from the U.S., Japan, the European Union, and China by 2020. Instead, automakers will mainly rely on improved aerodynamics and advanced internal combustion engine technologies, such as smaller engines, turbocharging, direct injection, and variable valve timing.
The large automakers have consistently been making improvements to internal combustion engines, such as Ford's EcoBoost, which adds a turbocharger to boost the efficiency and power. At the same time, there are a handful of start-up engine companies, including the Scuderi Group, Pinnacle Engines, and EcoMotors, which could now get a closer look by automakers.
Plug-in electric vehicles will still serve consumers willing to pay a higher upfront cost for the most-efficient vehicles but the high cost of batteries will mean automakers will pursue more cost-effective measures first, Boston Consulting Group said.
The actual costs to consumers of the proposed rules are still not clear, with different estimates being offered. The CAR analysis estimated the average cost increase by 2025 would be over $6,700 due to a big jump in electric vehicles.
The Boston Consulting Group, though, estimated an added cost of $2,000 per vehicle from internal combustion engine technologies by 2020, translating into a fuel economy improvement from 26 miles per gallon today to 39 miles per gallon by 2020, according to a Bloomberg report.
Toyota North America, said to be the last hold-out in a deal with the Obama administration, said that the company is exploring multiple technology pathways, including hybrids, electric vehicles, and fuel cells, which use hydrogen to make electricity on board to propel a vehicle.
"Obviously, there is still a great deal of uncertainty as to how the market will respond and what vehicle technologies consumers will embrace, which is why we are rolling out and testing a range of alternative fuel options," said James Lentz, the president of Toyota Motor Sales USA.
The compromise announced today will be followed by a full proposal from the Department of Transportation and the EPA and a final rule in 2012. One of the proposals is that automakers will receive incentives to encourage acceptance of advanced technologies, such as EVs, plug-in hybrids, and fuel cell vehicles.
In practice, consumers will actually see lower mileage than the target of 54.5 miles per gallon because those are based on laboratory conditions. Also, automakers could "erode" the standard during the rule-making process and during a planned reevaluation in 2021. But the mandate still represents a 75 percent increase over 2010 levels, according to the American Council for an Energy Efficient Economy.
"This is a major step in reducing our oil dependence and consumers' vulnerability to high gasoline costs," ACEEE Transportation Program Director Therese Langer said in a statement. "By 2030, this round of standards could save more oil than we currently import from Saudi Arabia and Iraq, combined."
Automakers in the past have fought raising fuel economy, saying that consumers are unwilling to pay for the new technology for fuel efficiency. But CEOs of the largest automakers in the U.S, representing 90 percent of vehicles sold, joined Obama and other cabinet members today, reflecting a global shift toward better efficiency. Importantly, the targets create a relatively long-term policy horizon which gives assurances to automakers and technology developers that there will be demand for fuel-saving technologies.
The agreement "promotes American manufacturing of advanced technology vehicles. And it gives American auto manufacturers the certainty they need in to invest in the future," said Michigan Rep. John Dingell, a longtime advocate for the auto industry.