Auto: CAFE standards and alternative energy

From the following wikipedia article on CAFE standards:

The Corporate Average Fuel Economy (CAFE) regulations in the United States, first enacted by Congress in 1975,^[1] are federal regulations intended to improve the average fuel economy of cars and light trucks (trucks, vans and sport utility vehicles) sold in the US in the wake of the 1973 Arab Oil Embargo. Historically, it is the sales-weighted harmonic mean fuel economy, expressed in miles per gallon (mpg), of a manufacturer's fleet of current model year passenger cars or light trucks with a gross vehicle weight rating of 8,500 pounds (3,856 kg) or less, manufactured for sale in the United States. This system would have changed with the introduction of "Footprint" regulations for light trucks binding in 2011, except that the 9th Circuit Court of Appeals has returned that rule to NHTSA for reconsideration for, among other things, being "arbitrary and capricious"^[2]. Light trucks that exceed 8,500 lb GVWR do not have to comply with CAFE standards; SUVs and passenger vans are exempt up to 10,000 lb. In 1999, over half a million vehicles exceeded the GVWR and the CAFE standard did not apply to them.^[3] In 2011, the standard will change to include many larger vehicles. ^[4] The United States has the lowest average fuel economy among first world nations; the European Union and Japan have fuel economy standards about twice as high as the United States.^[5]

The National Highway Traffic Safety Administration (NHTSA) regulates CAFE standards and Environmental Protection Agency (EPA) measures vehicle fuel efficiency. Congress specifies that CAFE standards must be set at the "maximum feasible level" given consideration for 1) technological feasibility; 2) economic practicality; 3) effect of other standards on fuel economy; and 4) need of the nation to conserve energy. Historically EPA has encouraged consumers to buy more fuel efficient vehicles while NHTSA expresses concerns that smaller, more fuel efficient vehicles may lead to increased traffic fatalities.

If the average fuel economy of a manufacturer's annual fleet of car and/or truck production falls below the defined standard, the manufacturer must pay a penalty, currently $5.50 USD per 0.1 mpg under the standard, multiplied by the manufacturer's total production for the U.S. domestic market. Historically, higher fuel efficiency has been associated with lower traffic safety, intertwining the issues of fuel economy, road-traffic safety, air pollution, global warming and greenhouse gases, although this relationship is falling increasingly into dispute.^[6]

And, interestingly...

Fuel economy calculation for alternative fuel vehicles multiplies the actual fuel used by a "Fuel Content" Factor of 0.15^[17] as an incentive to develop alternative fuel vehicles.^[18] Dual-fuel vehicles, such as E85 capable models, are taken as the average of this alternative fuel rating and its gasoline rate. Thus a 15 mpg dual-fuel E85 capable vehicle would be rated as 40 mpg for CAFE purposes, in spite of the fact that less than one percent of the fuel used in E85 capable vehicles is actually E85.^[7]

Manufacturers are also allowed to earn CAFE "credits" in any year they exceed CAFE requirements, which they may use to offset deficiencies in other years. CAFE credits can be applied to the three years previous or three years subsequent to the year in which they are earned. The reason for this requirement is so that manufacturers are penalized only for persistent failure to meet the requirements, not for transient noncompliance due to market conditions.

This "alternative energy clause" has resulted in GM and Ford installing flex fuel capabilities in their larger trucks to make them cafe compliant. It was only recently though that GM and Ford started marketing their cars as flex fuel capable. Apparently though, as per this article, for years cars were sold that were capable of running on E85, though they were never advertised as such.

The fuel works in more than 30 models, including General Motor's Yukon, Chevrolet's Silverado, and Ford's Taurus, but many people don't know it. Ford and GM have only recently begun national ad campaigns to promote their vehicles' flex-fuel capabilities, trying to lure consumers skittish over gas prices.

Drivers can see if their vehicle will run on E85 by checking the owner's manual or a Web site, e85fuel.com, that lists compatible models. Ethanol promoters say motorists are often stunned to learn their cars will run on the fuel, but even those well-schooled in E85 may need to drive hundreds of miles to buy it.

As such, the one positive of this regulation is that there is now a much larger installed base of cars that can run on E85 than one would expect. However, in the short run, much value was eliminated by the regulation. Car companies installed devices worth 70 to 100 dollars that didn't provide any consumer value - this meaning the cars could have been sold at a marginally lower value. And, in general, fuel efficiency was allowed to be much lower than otherwise expected as a result.