Diesel Incentives on Table as 2025 CAFE Talks Enter Final Weeks

WASHINGTON – Federal regulators may tweak future U.S. fuel-economy rules to put more muscle behind the proliferation of diesel engines after sellers and makers of the technology lobby the Obama Admin.

Margo Oge, director-Office of Transportation & Air Quality at the Environmental Protection Agency, says talks continue with the diesel contingent, including auto makers Volkswagen and Daimler, after the proposed 54.5 mpg (4.3 L/100 km) by 2025 rules shut out the technology in favor of hybrid-electric, plug-in electric and battery-electric vehicles.

The new light-vehicle rules offer credits to auto makers for bringing to market new technologies, such as HEVs, but ignore fuel-efficient diesel on the grounds it does not push the needle far enough in moving the fleet toward zero emissions.

Talks with the German auto makers could yield “potential incentives” to spur the use of diesel powertrains, Oge tells WardsAuto here.

“That would be music to the ears of the people who have invested so much in the technology,” says Allen Schaffer, executive director of the Diesel Technology Forum, and a lobbyist for the diesel industry.

It is unclear whether the diesel incentives might be in the form of credits to the auto makers selling the cars, as HEVs and PHEVs are treated in the 2025 CAFE rules, or outside of the bounds of CAFE entirely in the form of a tax break or rebate to consumers.

“VW and Mercedes are pretty important stakeholders in this country, so we have discussions with them as part of the public comments and we will continue discussions to see if we can come up with some options to address some of the issues they have,” Oge says.

Diesel fuel is more energy-dense than gasoline, which means vehicles can travel at least 30% farther and deliver a per-gallon fuel-efficiency improvement of 25%. Since diesel-powered vehicles get better fuel economy, they emit fewer of the carbon-dioxide emissions the CAFE rules seek to eliminate.

However, diesel engines also require additional technology, such as a selective catalytic reduction system, to absorb the higher levels of harmful oxides of nitrogen it emits compared with gasoline. The NOx absorption technology can add as much as $2,000 to the cost of a diesel vehicle.

Credits to auto makers or incentives to consumers would help reduce that cost penalty, a sticker premium already considerably lower than that of emerging hybrid technology. But in writing the 2025 rules, regulators chose to put the emphasis on electrification.

For example, for every one BEV or PHEV an auto maker sells, it counts for up two vehicles sold, allowing a manufacturer to hit its respective CAFE number more easily.

The rebuff by regulators, given diesel’s efficiency advantages over gasoline, led Volkswagen and Daimler to withhold endorsing the rules, while 12 other major auto makers selling in the U.S. supported the rules.

Jonathan Browning, president and CEO of Volkswagen Group of America, says U.S. regulators deserve kudos for bringing the federal government and the state of California together for one national standard, instead of presenting auto makers with the prospect of adhering to rules on a state-by-state basis.

At the same time, he argues the rules favor one technology over another.

“There is a lot of emphasis on electrification, (and) the real opportunity for delivering affordable improvements in terms of emissions is diesel technology,” Browning says on the floor of the capital’s recent auto show.

“It is a very viable, immediately available and widely available solution,” he adds. “So we’re continuing to have that discussion and see where it takes us.”

Browning declines to offer any details of the talks.

The diesel option figures into auto makers’ plans to meet current fuel-economy and emissions improvements peaking at 35.5 mpg (6.6 L/100 km) in the ’16 model year. General Motors and Chrysler, for example, have announced plans for diesel-powered light vehicles within the next two years.

Auto makers also plan to use diesel technology in their trucks to meet the even-stricter standards for 2025.

Sources tell WardsAuto regulators stepped in with the hybrid credits intending to alter those plans.

According to the 2025 rules, an auto maker employing light-hybrid or strong-hybrid technology in a minimum portion of its truck fleet, the manufacturer will receive up to a 20 g/mile credit toward the greenhouse-gas-emissions standard in that segment.

As a giveback, regulators made the march to the 2025 rules easier for trucks by putting the bigger fuel-economy steps in the final four years of the standard’s phase-in so the hybrid technology could be implemented.

The consideration given to trucks is seen as favoring the Detroit Three, which sell more trucks in the U.S. than other auto makers. Obama has made his 2009 rescue of the Detroit auto industry a key point of his re-election campaign.

Roland Hwang, director-Transportation Program at the Natural Resources Defense Council, a Washington lobbyist and research group, says federal regulators consider diesel a mature technology. The goal of the rulemaking was to compel auto makers to bring new ideas to a portion the U.S. fleet needing this most.

“This was good policy,” Hwang says of the 2025 rules. “We want to make sure we meet our 2025 standards, and we want to encourage advanced technologies in this most difficult part of our fleet. And the Germans perceive that as a slight.”

Particularly Volkswagen, which has invested billions of dollars into a new assembly complex in Chattanooga, TN. Plans called for 30% of its Passat midsize cars coming out the facility to be diesel-powered.

Obama spoke in his State of the Union address last week of pursuing an “all-of-the-above” strategy toward fuel-economy and emissions improvements.

But critics argue his policy takes another direction, picking and choosing technology. “There appears to be a disconnect,” Schaeffer says.

A final rule for 2025 is expected sometime around July 31, which gives diesel-vehicle makers a few more weeks to bend the ears of regulators. “When the final rule comes, we could be surprised,” Hwang says.

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