The 1973-1974 energy crisis prompted the development of policies to encourage energy conservation and promote alternatives to petroleum. The LDV fleet became a key target, and vehicle efficiency standards known as the Corporate Average Fuel Economy, or CAFE, standards, were enacted as part of the Energy Policy and Conservation Act of 1975 (P.L. 94-163). A “gas-guzzler” tax followed in 1978 with passage of the Energy Tax Act (ETA; P.L. 95-618).

The 1970s also saw the development of policies to support alternatives to petroleum ranging from synthetic fossil fuels to biofuels. The ETA also introduced an excise tax exemption for gasohol,1 which subsequently was extended and transformed into a tax credit for ethanol, the volumetric ethanol excise tax credit (VEETC), which until recently stood at $0.45 per gallon of ethanol. A tariff was imposed on imported ethanol to foster domestic biofuel production. Both the tax credit and the tariff expired at the end of 2011.

The CAFE credits program for alternative fuel vehicles (AFVs) was created by the Alternative Motor Fuels Act of 1988 (P.L. 100-94). It provided credit incentives for the manufacture of vehicles that used alcohol or natural gas fuels, either exclusively or as an alternative to gasoline or diesel fuel. This program induced automakers to sell a large number of dual-fuel vehicles capable of running on E85. However, for a variety of reasons including limited availability of E85 retail outlets, the program has not fostered significant use of alternative fuels (DOT-DOE-EPA, 2002). The Energy Policy Act of 1992 (EPAct; P.L. 102-486) established an expanded set of incentives and programs to promote alternative fuels and AFVs. They include mandates for AFV use in the federal fleet and certain state and utility fleets, and authorization for federal support of voluntary AFV deployment programs, which were subsequently implemented by DOE through the Clean Cities program.

Among the most recent developments in U.S. energy policy with respect to the LDV sector is the Renewable Fuel Standard (RFS) instituted as part of the 2005 EPAct (P.L. 109-58). The RFS put in place for the first time a nationwide mandate for use of a fuel other than petroleum. The 2005 EPAct also included expanded incentives for the production and commercialization of a range of AFV technologies. It included tax incentives for AFVs and infrastructure for alternative fuels that are not drop-in fuels. Incentives were provided on a graduated scale to encourage the production of different AFVs (DOE-EERE, 2011a; TIAP, 2012). Metrics related to technical fuel efficiency were used to determine the level of incentives. The incentives were limited to the first 60,000 qualifying vehicles produced by any one automaker.

Tax credits initially were for hybrid-electric, battery-electric, and fuel-cell electric vehicles and for qualified diesel and natural gas LDVs. Numerous modifications have occurred over the years and Congress allowed the tax credits for hybrid electric vehicles, and diesel and natural gas vehicles to expire at the end of 2010. Tax credits for battery-electric motorcycles, three-wheeled electric vehicles, and low-speed neighborhood-electric vehicles expired at the end of 2011, as did a credit for converting conventional gasoline and diesel vehicles to plug-in hybrid or all-electric propulsion systems.

Currently, under the American Recovery and Reinvestment Tax Act and the Emergency Economic Stabilization Act of 2008, the United States uses a program that extends a federal tax credit of up to $7,500 to buyers of qualified plugin hybrid and battery-electric LDVs. The credit is applicable in the year of the vehicle’s purchase. Subsequent legislation limits the credit to the first 200,000 eligible vehicles from each qualified automaker. When that threshold is reached, the tax credit for subsequent vehicles sold is reduced in stages, disappearing completely after six calendar quarters.2 Fuel-cell electric vehicles remain eligible for a federal tax credit of $4,000-$8,000, depending on their fuel economy ratings, but it is scheduled to expire in 2014.

In December 2007, the Energy Independence and Security Act (EISA; P.L. 110-140) expanded the RFS to target 35 billion gallons of ethanol-equivalent biofuels plus 1 billion gallons of biomass-based diesel by 2022, with life-cycle GHG emissions stipulations designed to foster cellulosic and other advanced biofuels. The same legislation raised the combined light-duty fleet CAFE standard to a 35 mpg level by 2020 while authorizing other structural reforms in the standards. The EISA also established a loan guarantee program for construction of manufacturing facilities for advanced-vehicle batteries and battery systems and requires a phase-out of the dual-fuel vehicle CAFE credit program by 2020.

6.1.4 Environmental Policy

Because automobiles and their supporting infrastructure impact the environment in numerous ways, many aspects of environmental policy come into play. However, it is control of the direct emissions from motor vehicles that is most relevant.

The history of Los Angeles smog, the pioneering work of Arie Haagen-Smit in linking smog to tailpipe pollution, and the subsequent development of emissions regulations first in California and then federally with the broad authority established by the Clean Air Act (CAA 1970) all are elements of one of the iconic stories of U.S. environmental policy (Mondt, 2000; CARB, 2011). At the beginning of this process in the 1960s, air pollution science was in its infancy and controls were rudimentary. As development continued, progressively tighter standards were set for restricting tailpipe emissions, prescribing fuel formulations, and limiting fuel evaporation from vehicles and fuel pumps.

The most stringent regulations for combustion-based vehicles, such as California’s partial zero emission vehicle


1A fuel consisting of a blend of gasoline and ethanol.

2This tax credit is described in greater detail at, accessed February 6, 2012.

The National Academies | 500 Fifth St. N.W. | Washington, D.C. 20001
Copyright © National Academy of Sciences. All rights reserved.
Terms of Use and Privacy Statement