CAFE Credits for Flex Fuel Vehicles Undermine Improvements in Fuel Economy

As three amendments to the Corporate Average Fuel Economy (CAFE) standards are being considered in the Senate, much is being said about closing the “SUV loophole” – the consideration of SUVs as light trucks for CAFE purposes.  While closing this loophole is important, as well as fighting the proposal of a “sliding scale” for CAFE standards based on vehicle weight (which will merely maintain the effect of the SUV loophole by giving manufacturers an incentive to build heavier vehicles), another problematic loophole exists in the CAFE system: credits assessed to manufacturers for building flex fuel vehicles.

What It Is

Flex fuel vehicles are vehicles that are capable of running on conventional gasoline as well as a blend of 85% ethanol and 15% gasoline, generally referred to as E85.  Credits for flex fuel vehicles began in 1993, and the manufacture of flex fuel vehicles has increased sharply since.  For model years through 2004, manufacturers were given a 1.2 mile per gallon (mpg) credit, and for model years through 2008, the credit was 0.9 mpg. 

The Mistake at the Root of the Policy

The assessment of these credits was based on the assumption that flex fuel vehicles would run on E85 50% of the time; however, estimates suggest that flex fuel vehicles are run on E85 less than 1% of the time.

Availability of E85 is certainly a factor in preventing consumers from using E85 as a fuel – in 2002 there were just 121 fueling stations that carried E85, as of the most recent figures from the Department of Energy, there are currently 841 fueling stations that carry E85.   This represents only 0.5% of the 176,000 fueling stations in the United States.

A Mistake the Government Keeps Repeating

What is more confusing, though, is why the CAFE credits for flex fuel vehicles were extended to model year 2008.   A report by the Office of Planning and Consumer Standards in 2003 did a study on the impact of flex fuel vehicles for years that they had been available, as well as projections for model years 2005-2008.  The study showed that if flex fuel vehicles were run on E85 1% of the time:

  • An additional increase 9 billion gallons of petroleum fuel were used
  • An additional increase of 28 MMTCE (million metric tons of carbon equivalent) of greenhouse gases were released.

If flex fuel vehicles were run on E85 50% of the time:

  • The decrease in petroleum fuels observed was 5 billion gallons; however, this represents a less than 1% impact on the use of petroleum fuels.

If flex fuel vehicles ran on E85 100% of the time:

  • A decrease of 9 billion gallons of petroleum fuel would be observed
  • This still represents less than 1% of total petroleum fuel consumption

Following these grim projections, the report somehow concludes that maintaining the CAFE credit is still advisable, since it would promote the use of alternative fuels.

The same strange conclusion is drawn from an equally grim report by the Department of Transportation, Department of Energy and Environmental Protection Agency, which looked at a number of studies concerning the advisability of issuing CAFE incentives for alternative fuel vehicles.   They cite a National Academy of Sciences study which recommended: “CAFE credits for dual fuel vehicles should be eliminated.”  And the report cites that the group’s preliminary conclusions regarding CAFE credits were:

  • To examine alternatives to the credit program to possibly structure it to reflect actual alternative fuel use
  • To develop and implement policies that promoted actual use of alternative fuel,
  • To develop and implement policies and programs that facilitated rapid expansion of infrastructure (emphasis added).

The report also exposes the possible collusion between agricultural interests and such CAFE credits, because it points out that the Alternative Motor Fuels Act (AMFA) does not asses credits for use of electricity, liquefied propane gas (LPG), or biodiesel.

CAFE credits for flex fuel vehicles are touted by ethanol producers and advocates, auto manufacturers, and representatives from districts and states where a large portion of the economy comes from agriculture, particularly corn, from which ethanol is currently derived.   The 2003 Office of Planning and Consumer Standards report notes that CAFE credits for flex fuel vehicles make it easier for auto manufacturers to meet the fuel economy requirements, and it is unknown what changes manufacturers would have made to the fleet to meet the standard. 

A Problem for Energy Policy

While considering and using alternative fuels is certainly important, these CAFE credits undermine progress by providing no incentives for actual use of alternative fuels, and, like the SUV loophole, they actually decrease the effective fuel economy by allowing manufacturers to delay putting more fuel efficient vehicles on the road.

That the currently recommended amendments to the CAFE regulations do not address ending this credit program is a grave omission.

--Sept. 27, 2006

In depth:

Links to Senate amendments on CAFE standards:

Feinstein-Snowe “Ten-in-Ten Fuel Economy Act”:

Obama-Lugar “Fuel Economy Reform Act”:

Lott-Pryor “Corporate Average Fuel Economy Reform Act of 2006”:

Links to reports:

NHTSA report to Congress “Effects of the Alternative Motor Fuels Act
CAFE Incentives Policy”:

Office of Planning and Consumer Standards report: “Final Environmental Assessment of the Dual Fuel Vehicle CAFE Credit Incentive”: