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Winners and Losers in EPA Fuel Economy Scores

John Gartner — April 28, 2014

The U.S. Environmental Protection Agency (EPA) last week issued its first report detailing the performance of automakers in meeting fuel economy standards enacted in 2010.  The report shows the 11 companies that met the fuel economy standards and the 9 that didn’t, based on the performance of their own vehicles and on the net result after companies purchased credits from each other or transferred them from other years.

As seen in the table below, Toyota generated the most credits for reducing greenhouse gas emissions, which is unsurprising since it sold the second most vehicles after General Motors (GM) and sells by far the most hybrids.  Honda, Ford, and GM also earned more than 1 million credits, which can be pushed forward to future years or sold to competing automakers.

Chrysler led the list of losers, with a deficit of nearly 1.9 million credits, which is not shocking considering the company’s lack of fuel efficient models and total void of plug-in or hybrid models offered.  Also with a substantial credit deficit were Mercedes-Benz, Nissan, and Volkswagen.  Nissan had a negative tally despite offering the all-electric LEAF and several high-mpg hybrids.

(Source: U.S. Environmental Protection Agency)

A Market Emerges

The EPA designed the credit system to encourage the private sector to trade credits or make up for deficits in subsequent years to minimize the likelihood that automakers would actually pay penalties to the EPA.  Three companies – Honda, Nissan, and Tesla Motors – sold credits between 2010 and 2012, while Chrysler, Ferrari, and Mercedes-Benz purchased them.

For low-volume automaker Tesla Motors, the credits represented a substantial contribution to the company’s bottom line.  Between 2011 and 2013, Tesla pocketed more than $237 million in credits from sales through this EPA program, as well as through California’s Zero Emissions Vehicle program and the National Highway Traffic Safety Administration’s Corporate Average Fuel Economy (CAFE) standards.  That’s a significant boost for Tesla, which had total revenue just shy of $2 billion in 2013.

Overall, automakers surpassed the EPA’s requirement for reducing carbon dioxide emissions, which indicates that the companies are taking the rules seriously in their vehicle design plans and will make significant efforts to continue to meet or surpass the increasingly stringent requirements in future years.

The EPA program, which allows automakers to trade credits and shift them between years, provides flexibility and creates revenue for companies that are leaders in fuel economy.  At the same time, it penalizes those that continue to operate with indifference toward the environmental impact of their products.  With the recent report from the United Nation’s Intergovernmental Panel on Climate Change (IPCC) providing greater clarity on humans’ contribution to climate change, it’s encouraging to see that the U.S. government and the automotive industry are doing something to mitigate the environmental impact.

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