Drivers of Transportation Fuel Demand: Aligning Future Scenarios and Policy Expectations

Key Points:

The U.S. light-duty vehicle market represents a key test bed for some of the world’s leading vehicle regulatory policy programs. At the federal level, standards for model years 2022-2025 were established in 2012 under the Greenhouse Gas (GHG) Emissions/Corporate Average Fuel Economy (CAFE) program. At the state level, the Zero Emission Vehicle (ZEV) mandate portion of California’s Advanced Clean Cars program, adopted by nine other states, was most recently revised at about the same time. Although both are emissions-related policies, they are concerned with different time frames and aspects of the vehicle market. The forthcoming mid-term review for both programs presents an ideal opportunity to reassess likely outcomes in light of new information and changing market conditions and to align them with policy expectations.

Perhaps the single biggest change since 2012 is the unexpected drop in fuel prices. Low fuel prices imply low fuel cost savings, which reduces the incentive for consumers to pay up front for fuel efficient technologies. This could shorten the time horizon under which meeting GHG/CAFE standards via technology improvements is economically feasible.

The ZEV mandate currently straddles the line between an innovation policy and a technology-forcing policy. The near-term goal is to foster innovation and introduction of ZEV technologies in a way that accelerates both cost reduction and consumer familiarity, while the long-term goal is to achieve extensive GHG reductions.

GHG/CAFE and ZEV place different types of requirements on manufacturers simultaneously. It is worth exploring whether their goals could be achieved through a single, unified policy, given the ultimate goal of cost-effective GHG reduction over the longer term. This could require a combination of more stringent performance standards with an appropriately designed system of credits for new technologies