"Super Credits": The CAFE Loophole That Might Have Been (And Could Be Again)

The Michigan Congressional delegation’s letter, stating that the Detroit-based automakers are not technologically capable of serving the market while complying with a proposed 2025 CAFE standard seemed strange to me in light of the recent progress made by Ford and GM on fuel economy. Why, I wondered, would these firms boast of their fuel econmy efforts on the one hand while allowing their congressional representatives to portray them as unable to build a CAFE-compliant fleet on the other. Why, I wondered, don’t Ford and GM come out and angrily insist that they can build the most fuel efficient cars in the world? My guess: because they know that they can probably wheedle a loophole out of the feds if they keep pleading inability. Yes, everyone knows they can comply with CAFE… but even the UAW knows that when the government asks you to do something, you ask for something back. Which in turn made me wonder: what might the OEMs want? And, turning to the 2012-2016 CAFE Final Rule [go on, give it a read in PDF format here], I found a glaring loophole that all the manufacturers seemed to want, but which the feds turned down. I have no evidence that this is back on the table for 2017-2025, but I thought I’d put it out there to give a sense of what the OEMs may be pushing for by pleading inability to comply with the proposed 2025 standard.

In the section of the final rule discussing “flexibilities,” the same section that grants EVs, FCVs and PHEVs a zero-carbon rating, and allows automakers to apply over-compliance credits to its truck fleet, another credit loophole is mentioned: the “super credit.”

In the Joint Notice of Intent, EPA stated that ‘‘EPA is currently considering proposing additional credit opportunities to encourage the commercialization of advanced GHG/fuel economy control technology such as electric vehicles and plug-in hybrid electric vehicles. These ‘super credits’ could take the form of a multiplier that would be applied to the number of vehicles sold such that they would count as more than one vehicle in the manufacturer’s fleet average.

Following through, EPA proposed two mechanisms by which these vehicles would earn credits: (1) A zero grams/mile compliance value for EVs, FCVs, and for PHEVs when operated on grid electricity, and (2) a vehicle multiplier in the range of 1.2 to 2.0.228

The proposed vehicle multiplier incentive would also have operated like a credit as it would have allowed an EV, PHEV, or FCV to count as more than one vehicle in the manufacturer’s fleet average. For example, combining a multiplier of 2.0 with a zero grams/mile compliance value for an EV would allow that EV to be counted as two vehicles, each with a zero grams/mile compliance value, in the manufacturer’s fleet average calculations. In effect, a multiplier of 2.0 would double the overall credit associated with an EV, PHEV, or FCV.

Sounds pretty nice doesn’t it? Not only would automakers get to pretend that plug-ins create no upstream C02 for the purposes of CAFE, but they would also get to count those “carbon-free” vehicles as more than one vehicle. And since CAFE is based on fleet averages, that would make a huge impact: in theory a zero-carbon car with a 2.0 multiplier could offset some seriously non-compliant trucks. And not only did the automakers love this proposal, but they all put their own unique spin on it:

Most vehicle manufacturers were supportive of both the zero grams/mile compliance value and a higher vehicle multiplier. Automakers universally supported higher multipliers, many higher than the maximum 2.0 level proposed by EPA. Honda suggested a multiplier of 16.0 for FCVs. Mitsubishi supported the concept of larger, temporary incentives until advanced technology vehicle sales achieved a 10% market share. Finally, some commenters suggested that other technologies should also receive incentives, such as diesel vehicles, hydrogen-fueled internal combustiengines, and natural gas vehicles.

Boy, I bet Honda wishes a fuel cell vehicle could be worth 16 zero-carbon cars… but why would it be? It’s not as if fuel cell cars take carbon out of the air, is it? Meanwhile, the Detroit booster brigade will be thrilled to see it reported that “foreign brand” automakers try to manipulate CAFE just like everyone else. Speaking of which, it was a Japanese automaker rather than the traditional Detroit boogeyman who was used as the example for why “super credits” shouldn’t be included in the 2012-2016 rule.

Although some environmental organizations and State agencies supported the principle of including some type of regulatory incentive mechanism, almost all of their comments were opposed to the combination of both the zero grams/mile compliance value and multipliers in the higher end of the proposed range of 1.2 to 2.0…

The Natural Resources Defense Council (NRDC) stated that the credits could ‘‘undermine the emissions benefits of the program and will have the unintended consequence of slowing the development of conventional cleaner vehicle emission reduction technologies into the fleet.’’ NRDC, along with several other commenters who made the same point, cited an example based on Nissan’s public statements that it plans on producing up to 150,000 Nissan Leaf EVs in the near future at its plant in Smyrna, Tennessee. NRDC’s analysis showed that if EVs were to account for 10% of Nissan’s car fleet in 2016, the combination of the zero grams/mile and 2.0 multiplier would allow Nissan to make only relatively small improvements to its gasoline car fleet and still be in compliance.

This, in essence is a more extreme version of the basic problem with CAFE loopholes: they underestimate the carbon output of so-called “advanced technology vehicles” and apply the overcompliance credit to trucks, SUVs and other cars. But with the “super credit’ multiplier, this is simply taken to extreme levels. As a result, the 2012-2016 rules state

the incentive program will not include any vehicle multipliers, i.e., an EV’s zero grams/mile compliance value will count as one vehicle in a manufacturer’s fleet average, not as more than one vehicle as proposed. EPA has concluded that the combination of the zero grams/mile and multiplier credits would be excessive. Compared to the maximum multiplier of 2.0 that EPA had proposed, dropping this multiplier reduces the aggregate impact of the overall credit program by a factor of two (less so for lower multipliers, of course).

It’s impossible to know what’s going on behind closed doors in DC, but it wouldn’t be all that surprising to see this loophole return as a way for Obama and California to keep the 56.2 MPG number while conceding to the Michigan delegation’s argument that the standard can’t be reached without killing off a large part of the market.Another possibility could be the UAW’s proposal for more retooling loans which would shuffle a few billion off to the automakers to lower the cost of retooling for new, CAFE-compliant products. Either way, Detroit wouldn’t be playing opossum on CAFE if it didn’t expect something for its trouble… and this is just a taste of how crazy the loopholes can get. Maybe we’ll look at flex-fuel credits next…