New standards for passenger cars and light-duty trucks 63 will roughly double the fuel economy of model year 2025 vehicles, while delivering lower costs to consumers, improved air quality, and increased energy security because of lower oil demand. Once fully implemented, owners are expected to save on average $3,400 to $5,000 (net) over the life of the vehicle (compared with model year 2016 vehicles).
Meanwhile, steady advances in electric vehicle battery technology and the anticipated roll out of fuel cell vehicles in the 2015–17 timeframe hint that the automobile industry may be on the brink of an even greater transition. For example, battery prices have fallen by more than 40 percent since 2010. Some industry analysts are predicting that long-distance electric vehicles will be cost-competitive with internal-combustion-engine vehicles (because of fuel price savings) by the early 2020s, even without federal incentives. 64 Meanwhile, several large automakers continue to pursue fuel cells for light-duty vehicles, with commercialization expected in 2015–17.
However, for these next generation technologies to fully take hold, they need to overcome a variety of barriers, including a lack of charging infrastructure, drivers’ range anxiety, and higher upfront costs (even if lifetime costs are lower). This will likely require continued support at the local, state, and federal levels as these new technologies mature through initiatives such as continued research and development, vehicle incentives and mandates, expansion of fuelling and charging stations, and technology standardization.
Summary of Findings
New greenhouse gas and fuel economy standards established by the EPA and the U.S. Department of Transportation (DOT) will make model year 2025 vehicles roughly twice as fuel efficient as similar sized vehicles sold in the United States today. The resulting lower fuel costs will save model year 2025 vehicle owners on average $3,400 to $5,000 net over the life of their vehicle com- pared with model year 2016 vehicles. 65 The entire program for model years 2017–25 builds on standards set for model years 2012–16 and is estimated to produce net savings of $186 to $291 per metric ton of CO2 reduced in 2030 and 2050, respectively.
These standards will also help reduce America’s dependence on oil by more than 2 million barrels per day in 2025 (which could help reduce U.S. oil imports) and result in $3.1 to $9.2 billion in benefits (net present value) from reducing non-greenhouse gas air pollutants. 66 Notably, the EPA and DOT standards will leverage technical progress being made abroad because other countries are requiring large increases in fuel economy over time—the European Union and Japan, for example, have more ambitious standards.
The rapid change in vehicle fuel efficiency required under the EPA and DOT greenhouse gas emissions and fuel economy standards is not new to the automobile industry. Over the past 40 years, engine efficiency has improved considerably. 67
Since the new vehicle standards went into effect, improvements have taken place across vehicle types. The number of sport utility vehicles with a fuel economy of at least 25 miles per gallon has doubled, while the number of car models with a fuel economy of at least 40 miles per gallon has increased sevenfold. 68
Beyond conventional cars, next-generation technologies, such as electric and plug-in hybrid electric vehicles, have begun entering the marketplace at a significant rate. At the end of 2013, electric and plug-in hybrid electric vehicles accounted for about 1.3 percent of total passenger car sales, almost double the number sold in 2012. 69
While electric and plug-in hybrid vehicle sales may seem modest compared with the size of the U.S. fleet, the uptake of electric vehicles has been much faster than the initial uptake of hybrid vehicles in the United States. Looking forward, sales of these vehicles are likely to increase—a multistate zero-emission vehicle mandate and memorandum of understanding among California, Connecticut, Maryland, Massachusetts, New York, Oregon, Rhode Island, and Vermont (accounting for 23 percent of the U.S car market) is projected to put at least 3.3 million zero- emission vehicles on the road by 2025. 70 To ensure this target is met, the states will coordinate on key actions, such as educating consumers; providing driver incentives; increasing the number of zero-emission vehicles in state, municipal, and other public fleets; and promoting work- place charging, among other actions.71
Increased deployment of electrified vehicles, along with technological improvements, has helped drive a rapid decline in the price for advanced battery systems. This trend is likely to continue as Tesla Motors plans to build facilities by 2017 that reportedly will produce batteries that are 30 percent cheaper than today’s batteries.72 Some electrified vehicle models now have lifetime costs lower than comparable conventional vehicles when including federal incentives of $7,500 per vehicle. 73 Because battery costs make up a large portion of the upfront costs for plug-in hybrids and electric vehicles, both the upfront costs and total cost of ownership of electric vehicles could come down significantly as battery prices decrease. Some industry analysts predict that long-distance electric vehicles will be cost-competitive (when taking into account fuel savings over five years) with conventional combustion engine vehicles, even without federal incentives, by the early 2020s.
Hydrogen fuel-cell vehicles are beginning to show potential as well. Several large automakers are pursuing fuel cell powered vehicles, with early commercialization expected in 2015–17.74 Hydrogen fuel cell systems can achieve greater energy density than lithium ion batteries, theoretically allowing them to achieve longer ranges than electric vehicles and making them a better fit for larger vehicles that require more power. In addition, their use of a liquid fuel gives them a fueling time similar to conventional vehicles. While prices for these vehicles have yet to be released, the costs for fuel cells continue to decline. DOE expects prices to hit $40 per kilowatt by 2020 with an ultimate goal of $30 per kilowatt, 75 at which point DOE expects fuel cells to become cost competitive with internal combustion engines. 76
Despite this progress, challenges remain for alternative fuel vehicles. Electric vehicles have limited range and charging infrastructure, as well as longer charging time than consumers are used to spending refueling gasoline or diesel vehicles. Electric vehicles currently on the market have a range of 84 to 265 miles, 77 which can be affected by driving style, cargo load, and weather conditions, especially cold weather. 78 These shorter ranges can induce anxiety among drivers, particularly when the charging infrastructure is limited. While there were over 8,500 public electric charging stations as of July 2014, 79 this is only a small fraction of the number of gasoline stations in the United States (roughly 160,000). 80
Limited range and long refueling times are not a problem for fuel-cell vehicles, but they too face challenges of limited fueling infrastructure because of the network effects of alternative fuel vehicles. There are currently only 12 public hydrogen filling stations, 10 in California and 1 each in South Carolina and Connecticut. 81 But steps are being taken to address this limitation. California expects to have 51 stations operating by the end of 2015, and other states are making progress as well.82
The actual greenhouse gas benefit of electric and hydrogen vehicles compared with gasoline and diesel fuels could be big or small depending on the carbon intensity of the production of those fuels. By comparison, natural gas vehicles could actually be worse from a greenhouse gas perspective because of methane emissions from natural gas production, processing, and transmission. Even if the rate is reduced considerably, the benefit of switching cars from gasoline to natural gas will remain more limited than the benefit of switching electricity generation from coal to gas.
The current standards (finalized in 2012) will roughly double the fuel economy of new cars by 2025. If techno- logical progress continues, it should be easier and more cost-effective to meet the model year 2025 standards, and might be possible to achieve even deeper reductions than required by current standards. Technological progress could also lead to greater improvements in fuel economy beyond 2025. The National Academy of Sciences found that working toward reducing light-duty vehicle CO2 emissions by 80 percent below 2005 levels could lead to $670 billion to $2.3 trillion in net savings from reduced fuel costs (net present value). 83 Realizing these goals depends heavily on the rate of technological progress, which the academy concludes will require “strong and effective policies emphasizing research and development, subsidies, energy taxes, or regulations in order to over- come cost and consumer choice factors.”
Recommendations in Brief
- Corporate average fuel economy (CAFE) standards and greenhouse gas emissions standards are poised to deliver significant benefits to consumers as a result of lower ownership costs and improved air quality. Depending on the progress of technology over the coming years, these standards may warrant strengthening.
- In the meantime, complementary policies by federal, state, and local governments can help promising technologies realize their potential:
- Increase the number of alternative fuel stations (e.g., electricity and hydrogen) to help ease drivers’ range anxiety and provide the certainty auto companies need to commit to manufacturing alternative-fuel vehicles.
- Charging options should be improved by eliminating barriers to access and adopting communication standards for controlled charging by grid operators. This would allow electric vehicle charging to better align with periods of high generation from variable renewable resources and provide low-cost grid stabilization as well as reduce charging costs for electric vehicle owners.
- Research and development for next-generation technologies should be expanded to help the United States take a leadership position in alternative vehicle manufacturing.
- Federal and state mandates and incentives to promote sales of alternative vehicles should be sustained and expanded to help accelerate the technology learning curve and bring lower-cost alternative vehicles to market faster.