Corporate Average Fuel Economy (CAFE)

One proven way to improve energy efficiency in the U.S. transportation sector is the Corporate Average Fuel Economy (CAFE) program. The program was established by the Energy Policy and Conservation Act of 1975, and was one of the main forces behind a 35 percent increase in new vehicle (cars and light trucks) fuel economy between 1978 and 1985.¹ Without these improvements, the U.S. would be consuming an additional estimated 2.8 million barrels per day of gasoline, or about 25 percent of current demand.

While the CAFE program is not without controversy, it clearly achieved its goal of saving petroleum even in times of low gasoline prices. Since 1985, however, standards have not increased and there has been a slow, but steady decline in average vehicle efficiency.

The debate over raising CAFE requirements is a classic public policy issue that has been controlled by political interests. Done correctly, the economic costs of producing more efficient vehicles is quite manageable, despite the rhetoric voiced by U.S. manufacturers. In fact, a strong case has been made that Detroit’s current financial problems are due to the fact that they were protected for too long through successful lobbying against higher CAFE requirements. There are some safety and consumer choice concerns that accompany an increase in CAFE requirements, but these are relatively minor given the overall national public interest of energy security and climate change.

Envelope-pushing revisions to the standards could again have a meaningful impact on U.S. liquid fuel consumption, although the effect would not be immediate. Replicating the success of the CAFE program from 1975, car mileage would need to increase from 27.5 mpg today to about 42 mpg in 2025. Light truck mileage would rise from 20.7 mpg today to 32 mpg by 2025. These new standards could save the country about 3 million barrels per day and reduce oil consumption by nearly one-quarter. Benefits from this policy action are the most cost-effective step the U.S. could take to improve energy security, stop the financing of radical terrorists, slash greenhouse gas emissions, and help make U.S. vehicle manufacturers more competitive.