In April, the National Highway Traffic Safety Administration (NHTSA) announced the new Corporate Average Fuel Economy (CAFE) standards that automobile manufacturers must adhere to through 2026. Unfortunately, the new rule is likely to lead to a shortage of new gasoline-powered cars in the coming years while massively hiking the price of battery-powered electric vehicles (EV) as well as cars powered by internal combustion engines (ICE).
In 1975, CAFE standards were created by the Energy Policy Conservation Act in response to the oil embargo imposed by the Organization of Arab Petroleum Exporting Countries in 1973. CAFE imposes fines on car and truck manufacturers if they fail to achieve minimum targets for sales-weighted average fuel economy, which is expressed in miles per gallon (mpg).
NHTSA’s new rule requires a massive 40 percent increase in mpg from now to 2026. Fuel efficiency must rise 8 percent in 2024 and 2025 model year automobiles, and 10 percent in 2026 model year automobiles, to a 49-mpg car and truck fleet average. Historically, the most manufacturers have been able to increase mpg year-over-year is about 3 percent. So, surging average mpg by a whopping 10 percent is a tall order.
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