Study concludes US CAFE regulation can accelerate EV market penetration

Study concludes US CAFE regulation can accelerate EV market penetration

9 July 2017

In a new study, a team from the University of Central Florida and MIT has found that the US Corporate Average Fuel Economy (CAFE) Standards is an effective policy solution
that does increase the adoption of EVs, whether it is implemented alone or in conjunction with another
policy such as government incentives.

In a study published in the journal Energy Policy, the researchers developed an agent-based model to estimate the potential future market shares of EVs considering the existing inherent uncertainties under different policy scenarios, including the current footprint-based CAFE regulation.

Under the current CAFE standards, the determination of a manufacturer’s
compliance is based on the
annual production volume-weighted average fuel economy of a manufacturer’s
vehicle fleet. If the
average mpg of manufactured vehicles cannot satisfy the standards, the manufacturer is fined for each 1 mpg that falls below the CAFE

… recent scientific research has revealed that the
footprint-based standards might lead manufacturers to make design
changes in favor of increasing the vehicle’s footprint in order to reduce
the stringency of the applicable requirements, which might influence
vehicle size and also eventually influence production costs (Ullman,
2016). Hence, there is a chance that, in the long run, the CAFE
standards incur a “co-impact”, resulting in consumers not being able to find or afford a vehicle that best meets their needs. One reason therefor
is the hypothesis that consumers may focus more on visible attributes
of vehicles such as size when purchasing a vehicle.
Another reason why this may be the case is the increased costs of more
fuel-efficient vehicles as a result of the implementation of CAFE
Furthermore, auto manufacturers may attempt to meet the CAFE
standards by lightweighting their vehicles, which may result in
consumers having concerns over vehicle safety, and thus negatively
affect consumers’ preferences.

Despite evident discussions on the environmental benefits of fleet
electrification, there are several barriers to their widespread adoption. One of these barriers is, without a doubt, the
consumer behavior, which, once accounted for, can provide useful
insights into the market responses to CAFE regulation. Additionally … further research
on the impacts of CAFE standards on the vehicle market is significant
to enable improved policy analysis of the implications of CAFE.
Furthermore, the time that it takes vehicle manufacturers to switch
their vehicle portfolios to the ones with electric powertrains, and that it
takes consumers to adopt to such a transformation presents another
barrier. Hence, using the agent-based modeling
technique, this study aims to contribute to the relevant literature by
investigating the consumer behavior as well as the manufacturers’
reaction to CAFE standards, and by estimating the market penetration
of EVs under various real-life scenarios.

—Sen et al.

Agent-based modeling (ABM) is a method used for studying systems comprising interacting agents and that exhibit emergent properties arising from the interactions of the agents. ABM is a bottom-up approach; i.e., the behavior of agents at the micro-level determines system behavior at the macro-level.

The researchers in the current study extended their previously developed Electric Vehicle Regional Market Penetration (EVReMP) model to be able to analyze EV market penetration under the
influence of CAFE regulation and existing government incentives.

The EVReMP model with the added extensions. Sen et al. Click to enlarge.

The researchers ran their stimulations under four different scenarios: no policy; government incentives only; CAFE only; and incentives and CAFE combined. The results for EVs
include PHEVs, EREVs, and BEVs.

Among their findings:

  • The no-policy scenario results in an EV market share of 4%. Hybrid sales steadily increase, with market share steadily increasing from 3.1% in 2016 to almost 10% in 2030.

  • Under the government incentives scenario, EV market share climbs up to 25% in the year 2030. HEV
    market share is lower compared to the no-policy scenario, but the number
    of HEV sales still more than double in 2030 compared to HEV sales in
    2016. BEVs, with market share of 11% by
    2030, reached a higher number of sales than PHEVs (6%) and EREVs
    (7%) by 2030

  • Under the CAFE only scenario, EVs achieve 29% market share by 2030. EREV
    and BEV market shares both increase more rapidly after 2024, with
    their total market shares comprising more than 75% of the total EV market
    share by 2030. ICE Vehicle market share decreases more
    rapidly after 2023, reducing ICEV market shares by almost
    64% by 2030. When only CAFE regulation is implemented, EV
    market penetration increases further compared to when
    only government incentives are implemented.

  • CAFE in
    conjunction with continued financial support for EVs was the most effective policy measure for EV market penetration. In this
    scenario, EV market shares reach more than 30% by 2030, with the increased
    shares of all-electric vehicles making up almost 80% of all EVs
    compared to all other scenarios. Like in the CAFE-only scenario, this increase accelerates after 2024.

a) Number of vehicle sales under the “Incentives Only” scenario (millions); b) Number of vehicle sales under the “CAFE Only” scenario (millions); c) Number of vehicle sales
under the “Incentives and CAFE” scenario (millions); and d) Comparison of EV adoption rates under different scenarios. Sen et al. Click to enlarge.

Based on the simulation results under the scenarios in which
governmental intervention was accounted for, the years 2023 and
2024 are estimated to be a major turning point with significant
increases in progress with respect to EV adoption and particularly for
the adoption of all electric vehicles. One likely reason for this
observation is that increasing the fuel economy and/or changing the
design (i.e. increasing the footprint) of conventional vehicles to comply
with the CAFE regulation is expected to become as costly for vehicle
manufacturers (if not more so) as manufacturing more EVs in a vehicle
fleet by 2023 or 2024. This means that manufacturers will invest more
in EV manufacturing so as not to lose their profits by risking regulatory
violations. This observation based on the findings is consistent with the
fact that it also takes time for both manufacturers to change their
vehicle portfolio and for consumers to adopt new technology vehicles,
i.e. AFVs.

… although the impacts of technological
advancement regarding EVs and the associated potential decline in
the cost of EVs are not considered in the model, it can be inferred that
EV market penetration will likely increase more rapidly with a greater
deployment of recharging stations in the US, as confirmed in the
results of the sensitivity analysis. The results of this study also indicate
that the government should be persistent in the implementation of
CAFE regulation, and that the CAFE standards work best when
implemented in conjunction with the availability of financial support
for at least 10 years, especially from now until 2025.

—Sen et al.


  • Burak Sen, Mehdi Noori, Omer Tatari (2017) “Will Corporate Average Fuel Economy (CAFE) Standard help? Modeling CAFE’s impact on market share of electric vehicles,” Energy Policy, Volume 109, Pages 279-287 doi: 10.1016/j.enpol.2017.07.008

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