An Assessment of Corporate Average Fuel Economy Standards for Passenger Cars in South Korea

The shift in consumer preferences for large-sized cars has increased the energy intensity (EI) of passenger cars, while growth in battery electric vehicle (BEV) sales has decreased EI in recent years in South Korea. In order to lower passenger cars’ EI, the South Korean government has implemented the Corporate Average Fuel Economy (CAFE) standards with a credit system, in which the sale of one energy-efficient car (for example, a BEV) can get multiple credits. This study analyzes CAFE standards in terms of both the EI improvement sensitivity scenarios and the degree of credits for BEVs and fuel cell electric vehicles (FCEVs) by using the Global Change Assessment Model (GCAM). In this study, passenger cars include small, medium, and large sedans, sport utility vehicles (SUVs) of internal combustion engine vehicles (ICEVs), BEVs, and FCEVs. The findings of this study are as follows: First, from the policy design perspective, a proper setting of the credit system for BEVs and FCEVs is a very important variable for automakers to achieve CAFE standards. Second, from the technology promotion perspective, active promotion of fuel efficiency improvements through CAFE standards are important since Better-EI and Best-EI scenarios are found to achieve CAFE standards even when a BEV or a FCEV receives a credit of one car sale in 2030.

A Lifecycle Analysis of the Corporate Average Fuel Economy Standards in Japan

This study estimated the corporate average fuel economy (CAFE) and CAFE targets of Japan’s domestic automobile manufacturers and evaluated whether manufactures have achieved these estimated CAFE targets. Furthermore, an analysis framework was proposed for estimating what impact the introduction of the CAFE standards in Japan will have on motor vehicle-derived lifecycle CO2 emissions. As a result, the following was found: (1) Automobile manufacturers can maximize their sales under the constraints of the CAFE standards, but vehicle sales plans based on sales maximization will lower their CAFE standard scores. (2) Economically optimal automobile manufacturer behavior—striving to achieve CAFE standards while maximizing sales—will increase the manufacturers’ overall carbon footprint and actually worsen the environment.

Isn’t There a Better Way? (No, There Isn’t)

This chapter reviews alternative approaches to putting a price on pollution to control greenhouse gas emissions. It reviews the history of the Clean Air Act and Corporate Average Fuel Economy (CAFE) standards and demonstrates that these policies cut pollution at a much higher cost than by simply putting a price on pollution. It also reviews subsidies for clean energy, state-level renewable portfolio standards, and information and voluntary programs and demonstrates that a carbon tax is superior to any of these alternatives.

Robustness and Real Options for Vehicle Design and Investment Decisions Under Gas Price and Regulatory Uncertainties

Manufacturers must decide when to invest and launch a new vehicle segment or how to redesign vehicles existing segment under market uncertainties. We present an optimization framework for redesigning or investing in future vehicles using real options to address uncertainty in gas price and regulatory standards like the U.S. Corporate Average Fuel Economy (CAFE) standard. In a specific study involving a product of gasoline, hybrid electric, and electric vehicles (EV), we examine the relationship between gas price and CAFE uncertainties to support decisions by manufacturers on product mix and by policy makers on proposing standards. A real options model is used for the time delay on investment, redesign, and pricing, integrated with a robust design formulation to optimize expected net present value (ENPV) and net present value (NPV) robustness. Results for nine different scenarios suggest that policy makers should consider gas price when setting CAFE standards; and manufacturers should consider the trade-off between ENPV and robust NPVs. Results also suggest that change of product mix rather than vehicle redesign better addresses CAFE standards inflation.