How will off-cycle credits impact U.S. 2025 efficiency standards?

Published: 2018.03.27

Nic Lutsey, Aaron Isenstadt

This white paper analyzes the U.S. off-cycle credit program within the 2025 greenhouse gas regulations. Specifically, the paper analyses the predicted and actual use of the off-cycle provisions based on 2015-2016 data and petitions by automakers for additional off-cycle credits.

The analysis finds:

Off-cycle credit use is likely to greatly increase by 2025. Average off-cycle credit use was 3 g/mi in 2016. Individual automakers, led by BMW, Fiat Chrysler, Ford, and Jaguar Land Rover, have received credits in 14 separate areas. Requests for additional credits proliferate, indicating automakers are looking to increase their use. Based on our analysis, off-cycle credit use could increase to an average of 10–25 g/mi in CO2 reduction by 2025.

Existing off-cycle credits have not been sufficiently validated. There are numerous issues with the off-cycle program. These include the use of absolute credits instead of percentage reductions, allowance of credit for technologies that occur regardless of the off-cycle program, lack of transparency regarding which vehicle models contain the technologies, unknown synergies between associated credits, and lack of empirical data to validate manufacturer claims.

Off-cycle credit use greatly reduces the deployment of other efficiency technology. Off-cycle credits, under current trends, could amount to a substantial portion of industry compliance action in the later years of the 2025 regulations. This means that a large amount of credit for emissions standard compliance will be based on technologies whose benefits are not verified by current testing models or sufficient compliance data.

The off-cycle program offers an important tool with well-intentioned goals, but the program has proceeded without the data necessary to reliably show real-world benefits. Two policy recommendations in particular follow from this analysis:

In the near-term, a more transparent system with clear constraints would lead to off-cycle program credibility. Without transparent data regarding which vehicle models contain the technology used to claim the off-cycle credits, the real-world benefits of the credits are impossible to calculate, creating doubt regarding if emission reduction standards are being met through the program. A clearer statement of principles and constraints on credits, for example minimum data requirements, will help ensure that petitions can be accurately appraised.

A viable long-term off-cycle program should show a clear commitment to comprehensive real-world data validation. A program with comprehensive, statistically sampled data that covers representative nationwide vehicles and year-round driving and environmental conditions would be able to demonstrate much greater fidelity between the off-cycle program and real-world results. An improved off-cycle program would standardize off-cycle credits, transparently share data, ensure consistent calculations of off-cycle technology benefits, and lead to better credit certainty and quicker approvals for manufacturers. Without improvements, the U.S. CO2 program runs the risk of a much greater issue—that a new testing procedure will be the only viable correction to the continued divergence between the regulatory goals and real-world outcomes.

New vehicle consumer label fuel economy from 2015 to 2025, based on four scenarios with varying levels of off-cycle credit use.