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The New CAFE Standards

Fuel standards will likely be achievable but won’t encourage innovation.
January 15, 2008

The 40 percent increase in the U.S. fuel-economy standard to 35 miles per gallon by 2020, which Congress passed last month, could be a significant step toward trimming U.S. drivers’ increasing greenhouse-gas emissions and dependence on imported oil. But energy experts say that the new technologies required to meet the new standards are minimal. Instead, they say that lesser-known provisions in the Energy Independence and Security Act could have a far greater impact on spurring the development of new technologies, such as plug-in electric vehicles.

Small changes: New fuel-economy standards won’t drive plug-in electric vehicles, such as this three-door hatchback from ZENN Motor Company, into the market. But lower-profile R&D incentives and manufacturing supports in the same legislation could jump-start the process.

The new law tightens Corporate Average Fuel Economy (CAFE) standards that regulate the average fuel economy in the vehicles produced by each major automaker. The current CAFE standard for cars, set in 1984, requires manufacturers to achieve an average of 27.5 miles per gallon, while a second CAFE standard requires an average of 22.2 miles per gallon for light trucks such as minivans, sport utility vehicles, and pickups. The new rules require that these standards be increased such that, by 2020, the new cars and light trucks sold each year deliver a combined fleet average of 35 miles per gallon.

Raising fuel economy by 10 miles per gallon nationwide will deliver real benefits. The Union of Concerned Scientists, for example, estimates that it will save 1.1 million barrels of oil per day in 2020–about half of what the United States imports from the Persian Gulf. That should deliver a reduction in greenhouse gases equivalent to taking 28 million of today’s cars and trucks off the road. Nevertheless, Jim Kliesch, a senior engineer with the Union of Concerned Scientists, in Washington, DC, projects that these savings will be largely negated in 2020 by increased driving.

“Fuel-economy policy in this country had been stagnating for decades, and getting a minimum of 35 mpg by 2020 is a critical first step, but if we want to achieve a sustainable transportation system, it’s going to take much more,” says Kliesch.

Analysts like Kliesch do expect automakers to produce more advanced diesel vehicles and hybrids in the coming decade, both in response to tightening fuel-economy rules and for strategic and marketing reasons. But reports by the U.S. National Academy of Sciences, think tanks, and activists show that a combination of existing efficiency options, such as continuously variable transmissions and better tires, can cheaply and easily deliver a 35-miles-per-gallon fleet. (See “Why Not a 40-MPG SUV?”)

Indeed, Europe currently requires 40 miles per gallon average fuel economy and will soon push up to 49 miles per gallon, while Japan is expected to reach 47 miles per gallon in its 2015 standard. Greenhouse-gas regulations developed by California (and adopted by many other states) may soon eclipse CAFE in the United States. Last month, the Environmental Protection Agency rejected California’s petition to impose its own standards, arguing that the state rules delivered the equivalent of just 33.5 miles per gallon, but California officials shot back with their own analysis early this month. They estimated that the state standard would yield 35 miles per gallon from new cars by about 2016–four years ahead of CAFE.

While the tighter CAFE standards will have a minimal effect on spurring the development of new technologies, other measures in the new federal energy law could stimulate more transformative, long-term change. Genevieve Cullen, vice president of the Electric Drive Transportation Association, in Washington, DC, points to the law’s support for research on, and demonstration and manufacturing of, electric-vehicle technologies such as lithium batteries and advanced motors. The law authorizes, for example, $450 million in grants to companies and state and local governments to demonstrate the use of plug-in hybrid vehicles, and up to $25 billion for direct loans to support manufacturing. “Congress needs to now provide the money for these programs,” says Cullen, referring to the separate process in which funds are appropriated for each fiscal year.

A hoped-for $3,000-to-$5,000-per-vehicle tax credit for buyers of plug-in hybrids could have further stimulated demand for advanced vehicles but was struck from the bill at the last minute, along with a tax hike for oil producers that would have funded it. Therese Langer, transportation program director for the American Council for an Energy-Efficient Economy, a Washington-based think tank, says that thanks to the high cost of batteries, the tax credit would probably have only cut in half the incremental cost of a plug-in vehicle. “That’s really nice for someone who’s prepared to shell out thousands of bucks for a plug-in,” she says, “but it’s not going to cause plug-ins to make a dent in total vehicle sales.”

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