National Research Council Study Shows 2025 Fuel Economy Standards on Course

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A new National Research Council (NRC) study on fuel economy released today is a good, early indication that automakers can meet 2025 clean car standards on time, using known technologies, and at reasonable cost. [1] The dramatic reductions from the NRC's previous fuel economy study--completed just four years ago--demonstrates how technological innovation is working to bring down the cost of meeting long-term standards.

The committee of experts, established by the NRC of the National Academies of Sciences, evaluated more than 120 separate combinations of fuel-saving technologies and vehicle classes. Reflecting the differing views of its members, the committee created two different sets of possible direct manufacturing cost and effectiveness estimates.

Applying these technology estimates to a midsize car, the NRC study found that the 2025 standards could be met at reasonable cost, either $1,181 or $1,689. The lower estimate matches well with regulators' results that underpin the final clean car rule for model years 2017 to 2025. Both estimates are substantially lower than the NRC's previous study from 2011, which yields a cost of about $3,200.

Overall, today's study provides an early indication that the historic clean car program is on course for 2025 and should help narrow the debate over the cost and feasibility of meeting the 2025 standards.

The study, which I participated in as a committee member, was commissioned by the National Highway Traffic Safety Administration (NHTSA) to provide a data point for its mid-term evaluation of the historic 2025 fuel economy standards. NHSTA developed the standards in partnership with the U.S. Environmental Protection Agency (EPA) and corresponds to EPA's carbon dioxide tailpipe standard that was established under the Clean Air Act of 163 grams of carbon emissions per mile, equivalent to 54.5 mpg. The final fuel economy rule requires these agencies to complete their mid-term evaluation by November 15, 2017.

Figure 1. New Cost Estimates Dramatically Lower than 2011 NRC Study

Figure 2. 2025 Standards Can Be Met with Known Technologies at Reasonable Cost

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Study's Methodology

The NRC's committee of experts evaluated over 120 combinations of fuel-saving technologies and vehicle classes available to automakers by 2025. Since the committee members held different view on the best estimate of cost and effectiveness for some of the technologies, it created two sets of alternative estimates for some technologies. To illustrate the implications of its evaluation of individual technologies for meeting 2025 standards, the NRC study applied these technologies to a midsize car using a simple spreadsheet model (see Figure 2).

As noted in the report, the NRC committee did not estimate actual fleet-wide compliance costs because of its "limited ability to model fleet and vehicle models in a more detailed manner." Notably it lacked the ability to fully consider the substantial amount of flexibility given to manufacturers, which can significantly lower compliance costs, such as credits for advanced technology vehicles and improving the efficiency of air conditioners. Also the committee did not estimate the retail price to consumers from compliance because there is not a standard method to calculate marked-up manufacturing costs.

Key Finding: Automakers can achieve 2025 standard with known, conventional technologies

As shown in Figure 2, the 2015 NRC study confirms the NHSTA's and EPA's assessment that a midsize car can comply with 2025 standards using just conventional gasoline engine technologies such as downsized turbocharged engines, 8-speed automatic transmissions, and a 7.5 percent weight reduction (which the committee believes is well in-line with what manufacturers are likely to implement). Electrified powertrains--including stop/start systems, conventional hybrid electric vehicles, and battery electric vehicles--were found to be unnecessary for a midsize car to meet the vehicle's 2025 fuel economy target.

Key Finding: Automakers can achieve 2025 midsize car standard at reasonable cost

The study developed two possible direct manufacturing costs for a midsize car to meet 2025 standards of either $1,181 or $1,658 more than a 2016 baseline midsize car (see Table 8.5 of the study). For comparison, the study also estimated the cost using the values from NHSTA's and EPA's final rule for the 2017 to 2025 standards to be $1,060. The lower of the committee's possible estimates, $1,181, is consistent with the regulator's cost estimate of $1,060.

Importantly, even the higher estimate is dramatically lower than the 2011 NRC study, bringing the latest NRC estimate in much greater agreement with the cost estimate using the regulators' values. As shown in Figure 2, using data from the 2011 NRC study results in a manufacturing cost increase of roughly $3,200, compared to a baseline car.

The dramatic reductions from the NRC's previous fuel economy study--completed just four years ago--demonstrates how technological innovation is working to bring down the cost of meeting long-term standards. The 2011 NRC study was limited to assessing technologies and costs in the near-term (2015) and consequently found much higher costs. [2]

The history of auto industry regulation shows car makers are typically able to innovate to meet standards on time and often at even lower cost than what regulators predicted. In fact, this new study agrees with regulator estimates for the cost to achieve 2016 standards. For the near-term 2016 standards, the latest NRC estimates of costs to meet the target -- $312 or $343 -- are virtually identical to the agencies' cost estimate of $312. If past trends hold, future NRC cost estimates will likely decrease the closer the industry gets to the 2025 compliance date.

The new study also identifies a number of new technologies not assessed in the regulators' final rule adopted in 2012, such as high-compression ratio engines (such as Mazda's SkyActiv) and electrically assisted variable speed superchargers (such as Eaton's "EAVS"). These and other new innovations are likely to continue to drive down the costs of compliance.

NRC Study an Important Data Point for Regulators' Mid-term Evaluation

Despites its limitations, the NRC study serves as an important data point for the regulators' mid-term evaluation of the model years 2022-2025 standards, due in late 2017. The study will be useful to help prioritize for greater evaluation the technologies the regulators relied upon to demonstrate that the 2025 standards are technically feasible and cost-effective. Importantly the study also identifies innovative, new technologies that some automakers will likely use to meet the standards. Overall, the study is an important, early indicator that the automakers are on course for meeting 2025 standards.

[1] 6/19/15 (3 pm pdt). Author's interpretation of the overall findings of the NRC study.

[2] 6/19/15 (3 pm pdt). The NRC 2011 study did not include many of the conventional gasoline engine technologies that the NRC 2015 found would be available in the 2025 timeframe.