Does CAFE Doom Us To A Hybrid Future? Not Necessarily…

If you asked an auto industry lobbyist, say, a month ago, what the big fights were over in CAFE negotiations, he probably wouldn’t have said “the number.” In the parlance of the Potomac valley, that means everyone at the table knows that at some point they’re all going to join hands and sing kumbaya over one highly symbolic number. Not surprisingly, the numbers that everyone in DC has been looking at fall right in the middle of these four scenarios… not coincidentally the tipping point where hybrids swing from a quarter to nearly half the market. But are these WSJ [sub] charts even accurate? John Krafcik, CEO of Hyundai Motor America and the industry’s CAFE contrarian implies that it’s not for everyone, telling Automotive News [sub] that

Honestly, our focus isn’t on hybrid. Our focus is on optimizing internal combustion and getting as many fuel-efficient vehicles out there, across the lineup. That’s the way you do it. If you look at the math, if you look at how CAFE math works, volume trumps everything.

But then Krafcik oversees a brand that doesn’t just sell lots of high-efficiency cars, it sells very few pickups… resulting in a sales-weighted fleet fuel economy 35.7 MPG in the first half of this year (as calculated by Hyundai). Did we mention that the 2016 passenger car standard is 37.8 MPG, at which time it figures its non-hybrid Elantra will get 50 MPG combined on the CAFE test? And nobody can look at Hyundai’s six-month sales performance (up 26%) and argue that Americans don’t want to buy fuel-efficient cars. In short, Hyundai is proving that automakers who can make money selling appealing, fuel-efficient cars need not binge on hybrids Even, according to the EPA’s final rule on standards through 2016, for manufacturers trying to sell as many pickups as possible.

GM had apparently opposed the round of emissions standards through 2016, and the EPA’s final rule [ PDF] makes an example of The General, noting

GM recommended that the agencies relax stringency specifically for large pickups, such as the Silverado… The agencies disagree with the premise of the comment that the standard is too stringent under the applicable statutory provisions because some existing large trucks are not already meeting a later model year standard. Our analysis shows that the standards are not too stringent for manufacturers selling these vehicles. The agencies’ analyses demonstrate a means by which manufacturers could apply cost-effective technologies in order to achieve the standards, and we have provided adequate lead time for the technology to be applied. More important, the agencies’ analysis demonstrate that the fleetwide emission standards for MY 2016 are technically feasible, for example by implementing technologies such as engine downsizing, turbocharging, direct injection, improving accessories and tire rolling resistance, etc.

First, GM’s argument incorrectly suggests that every individual vehicle model must achieve its fuel economy and emissions targets. CAFE standards and new GHG emissions standards apply to fleetwide average performance, not model-specific performance, even though average required levels are based on average model-specific targets, and the agencies’ analysis demonstrates that GM and other manufacturers of large trucks can cost-effectively comply with the new standards.

Second, GM implies that every manufacturer must be challenged equally with respect to fuel economy and emissions. Although NHTSA and EPA maintain that attribute-based CAFE and GHG emissions standards can more evenly balance compliance challenges, attribute-based standards are not intended to and cannot make these challenges equal, and while the agencies are mindful of the potential impacts of the standards on the relative competitiveness of different vehicle manufacturers, there is nothing in EPCA or the CAA81requiring that these challenges be equal.

We have also already addressed and rejected GM’s suggestion of shifting the ‘‘cut off’’ point for light trucks from 66 square feet to 72 square feet, thereby “dropping the floor’’ of the target function for light trucks. As discussed in the preceding section, this is so as not to forego the rules’ energy and burdensome for light trucks as compared to passenger cars. Based on the agencies’ market forecast, NHTSA’s analysis indicates that incremental technology outlays could, on average, be comparable for passenger cars and light trucks under the final CAFE standards, and further indicates that the ratio of total benefits to total costs could be

So CAFE is set up to be achievable with fuel-efficient non-hybrids and to be achievable with pickup trucks… so why does the WSJ and the auto lobby insist (using EPA data) that hybrids and plug-ins will take over the market depending on where “the number” ends up? Not because of market reaction to “the number,” but because CAFE includes special incentives for things like flex-fuel vehicles and (wait for it) hybrids and plug-ins. How does it do it? By counting EVs, FCVs and PHEVs (when running on grid power) as creating zero grams of C02 per mile driven, even though the EPA acknowledges

The zero grams/mile compliance value for EVs (and for PHEVs when operated on grid electricity, as well as for FCVs which involve similar upstream GHG issues with respect to hydrogen production) is an incentive that operates like a credit because, while it accurately accounts for tailpipe GHG emissions, it does not reflect the increase in upstream GHG emissions associated with the electricity used by EVs compared to the upstream GHG emissions associated with the gasoline or diesel fuel used by conventional vehicles.EPA explained in the proposal that the potential for large future emissions benefits from these technologies provides a strong reason for providing incentives at this time to promote their commercialization in the 2012–2016 model years. At the same time, EPA acknowledged that the zero grams/mile compliance value did not account for increased upstream GHG emissions.

Combine that incentive with another new feature:

the new program enables manufacturers to transfer credits between the two averaging sets, passenger cars and trucks, within a manufacturer. For example, credits accrued by over-compliance with a manufacturer’s car fleet average standard may be used to offset debits accrued due to that manufacturer’s not meeting the truck fleet average standard in a given year. EPA believes that such cross-category use of credits by a manufacturer provides important additional flexibility in the transition to emissions control technology without affecting overall emission reductions.standards.

And you’ve got a formula for CAFE compliance success: over-comply on cars by going big on expensive hybrid technology and you can swap the credits over to your truck fleet. Then you get to keep trucks cheap ‘n thirsty while complaining that the government’s awful regulations forced you to jack up prices on cars by “mandating” hybrid technology (or the even better-incentivized “zero emission” EV/FCV technology). And as gas prices get more expensive, the car buyers will have little choice but to suck it up and fork over for the hordes of “necessary” hybrids… or at least they would if Hyundai weren’t stepping off of the regulatory primrose path to ruin, and showing that another way is possible. In a lot of ways it’s not unlike the first-ever round of CAFE, in which Detroit overcompensated for its land yacht indulgences with disastrous results, and had its lunch eaten by the Japanese in the decades following. Let’s hope that Hyundai isn’t the only firm that’s learned from that history.