TAFVTAFV

The Production ofAlternative Fuel Vehicles

for CAFE Credits.Jonathan Rubin and Paul Leiby

University of Maine and Oak Ridge National Laboratory(jonathan.rubin@umit.maine.edu, LeibyPN@ornl.gov)

Transportation Research BoardWorkshop on Air Quality Impacts of Conventional and

Alternative Fuel VehiclesA1F03/A1F06 Joint Summer Meeting

August 2-4, 1998Ann Arbor, MI.

Plan of Talk

n Review history of CAFE,standards and achieved

n Examine laws giving CAFEcredits for AFVs, estimateimpact and value of credits

n Use Transitional AFV model(TAFV) to look at possibleproduction of AFVs for CAFEcredits

Historical New VehicleCAFE vs Standard

Autos vs Light Trucks,Domestic and Import Combined

CAFE_mfg_TEDB17.xls

Corporate Average Fuel Economy (CAFE)

15.0

20.0

25.0

30.0

35.0

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

Year

MPG

AchievedStandard

Autos

Trucks

Historical New AutoCAFE vs Standard

Automobiles Only,Domestic vs Imports

CAFE_mfg_TEDB17.xls

Corporate Average Fuel Economy (CAFE)Automobiles (Domestic vs Imports)

15.0

20.0

25.0

30.0

35.0

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

Year

MPG

DomesticImportsStandard

Historical New TruckCAFE vs Standard

Light Trucks Only,Domestic vs Imports

CAFE_mfg_TEDB17.xls

Corporate Average Fuel Economy (CAFE)Light Trucks

15.0

20.0

25.0

30.0

35.0

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

DomesticImportsStandard

Observations fromCAFE History

n On average, autos exceed stdn But only by small margin for

domesticn Domestic trucks have difficulty

meeting std due to mix changesn Domestic “Big Three” operating

at edgen Tightest constraint is LD trucks

for domestic “Big Three”

Domestic AutomobilesCAFE vs Standard

Automobiles Only,Domestic “Big Three”

CAFE_mfg_TEDB17.xls

Automobile CAFE relative to the Standard

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

1992 1993 1994 1995 1996 1997

ChryslerFordGM

Domestic Light TruckCAFE vs Standard

Light Trucks Only,Domestic “Big Three”

CAFE_mfg_TEDB17.xls

Light Truck CAFE relative to the Standard

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1992 1993 1994 1995 1996 1997

ChryslerFordGM

CAFE Civil Penalties

n $5.5/0.1 MPG below standard,per vehicle

n Credits may be banked orborrowed for 3 years

n Long history of penaltypayments but not for domesticmanufacturers

n Common observation:– Domestic manufactures eager to

avoid stigma of penalty– Civil penalty is lower bound of

violation cost

CAFE Fines Collected

Table: CAFE Fines Collected (Thousands)

Model Year Current Dollars 1990 constant dollars

1983 58 76

1984 5,958 7,496

1985 15,565 18,908

1986 29,872 35,603

1987 31,261 35,945

1988 44,519 49,181

1989 47,381 49,946

1990 48,449 48,449

1991 42,243 40,511

1992 38,287 35,645

1993 28,688 25,693

1994 31,474 27,760

1995 39,985 34,267

Sources: Davis (1997, Table 3.41)

Rules Giving AFVsCAFE Credits

n Treat Dedicated AFV as if using15% gasoline

n Treat Dual/Flex as if usinggasoline half time, 15%gasoline other half

n Dual/flex credits expire 2005n Max CAFE increase from AFVs

– 1.2 MPG

CV

CVCV

F MPG

MPGMPG

MPG 74.1

15.0

5.05.01 ≅

+=

CVCV

D MPGMPG

MPG 67.615.0

≅=

Manufacturers Plan toProduce FFVs

Fuel Economy of Vehiclesfor CAFE Compliance

AFV Fuel Economy

Gasoline 23.82Alcohol Ded. 158.80Alcohol Dual 41.43LPG Ded. 158.80LPG Dual 41.43CNG Ded. 158.80CNG Dual 41.43Electricity* 154.00

Per AMFU 1988, Sec. 503.*Based on the EV1.

Fuel Economy of Vehiclesfor CAFE Compliance

AFV Fuel Economy

Gasoline (average) 23.82

Dual/Flexible AFV 41.43

Dedicated AFV 158.80

Per AMFU 1988, Sec. 503.

Basic Math of AFVs forCAFE Credits

n CAFE is sales-weighted“harmonic average” of MPGs

n CAFE PenaltyP = $55*max[(CAFE-Std)QT - Credit, 0]

n Marginal value of AFV forpenalty avoidance

FD

CV

F

F

D

D

CV

CV SSMPG

MPGS

MPGS

MPGS

CAFE425.085.01

1−−

=++

=

425.055

85.055

2

2

CVF

CVD

MPGCAFE

QP

MPGCAFE

QP

−=∂∂

−=∂∂

CAFE Increase FromAFV Production

CAFE Increase From AFV Production (Pure Dedicated or Pure Dual/Flex cases)

0.00

0.50

1.00

1.50

2.00

2.50

0% 2% 4% 6% 8% 10%AFV Share

CAFE

Incr

ease

(M

PG)

Dual/Flex

Dedicated

CAFE03.xls

Marginal AFV Value(for CAFE Penalty

Avoidance)

(Compare to unit vehicle costs)

Marginal Value of AFV Production (for CAFE Penalty Avoidance)

$0$200$400$600$800

$1,000$1,200$1,400

0% 2% 4% 6% 8% 10%AFV Share

$ Pe

nalty

A

void

ed/A

FV Dual/Flex

Dedicated

CAFE03.xls

Use TAFV to ModelKey Transitional

Phenomenan Capital stock turnover

– vintaged vehicles– durable production plants

n Costs to consumers of limitedretail fuel availability

n Production scale economiesn Limited vehicle model diversity

– Costs to producers– Value to consumers

n Various policy handles(EPACT, CAFE, fuel taxes)

Conceptual Diagram ofTAFV Model

Feedstock Supply

Fuel Retail

Vehicle Services Demand

Fuel Production

Vintaged Vehicle Stock

New Vehicle Demand and

Choice

Fuel Demand/ Choice

Vehicle Production

Greenhouse Gas Emissions

Fuel Usage

TAFVDIA1.AF3

No TransitionalBarriers

(Counterfactual Case)

S89B0RLRHigher LPG Costs

Fuel Demand Shares

0%

5%

10%

15%

20%

25%

1996 1998 2000 2002 2004 2006 2008 2010

Year

Fuel

Dem

and

Shar

es

M85

E85

CNG

LPG

Electric

Total AF

Vehicle Production Shares

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

1996 1998 2000 2002 2004 2006 2008 2010Year

Veh

icle

Pro

duct

ion

Shar

e

Alc DedAlc FlexCNG DedCNG FlexLPG DedLPG FlexElectricTotal AFV

With TransitionalBarriers (Base Case)

S89B0C01Higher LPG Costs

Fuel Demand Shares

0%

5%

10%

15%

20%

25%

1996 1998 2000 2002 2004 2006 2008 2010

Year

Fuel

Dem

and

Shar

es

M85

E85

CNG

LPG

Electric

Total AF

Vehicle Production Shares

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

1996 1998 2000 2002 2004 2006 2008 2010

Year

Veh

icle

Pro

duct

ion

Shar

e

Alc DedAlc FlexCNG DedCNG FlexLPG DedLPG FlexElectricTotal AFV

Base Case VehicleDemand Shares

(Expanded)

Vehicle Production Shares

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

2.0%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010Year

Veh

icle

Pro

duct

ion

Shar

e

Alc DedAlc FlexCNG DedCNG FlexLPG DedLPG FlexElectricTotal AFV

R89B0R01:R89rslt5v97.xls

Increased CAFEStandards Case:

Vehicle Production

R89B0RCA:R89rslt5v97.xls

Vehicle Production Shares

0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%

10.0%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Year

Vehi

cle P

rodu

ctio

n Sh

are

Alc DedAlc FlexCNG DedCNG Flex

LPG DedLPG FlexElectricTotal AFV

Increased CAFEStandards Case:

Fuel Use

Fuel Demand Shares

0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%

10.0%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Year

Fuel

Dem

and

Shar

es

M85E85CNGLPGElectricLPGTotal AF

R89B0RCA:R89rslt5v97.xls

Results and Insights

n Transitional impediments mattern Limited retail fuel availability and

vehicle production scale-economiesimportant

n May be hard for the vehicle/fuelmarket to get started

n AFV sales encouraged by CAFEcredits, but may be little fuel use

n Larger gap between CAFE andstandard could begin (alcohol) fueluse in private LDVs

TRBSummerBrf0898e.ppt