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The Dual-Fuel Vehicle Incentive Program

The dual-fuel vehicle incentive program was established in the late 1980s to stimulate the use of alternative fuels by increasing the production and sale of alternative fuel vehicles. It gives automakers extra credit toward meeting fuel economy standards in exchange for manufacturing vehicles that can run on alternative fuels. This program, which increased U.S. oil dependence and enabled automakers to avoid millions in CAFE fines, will be phased-out by model year 2020. 

Dual-Fuel Vehicle Incentive Program

The dual-fuel vehicle incentive program allows manufacturers to produce, without penalty, fleets of cars and trucks that average as much as 1.2 miles per gallon (mpg) below the required Corporate Average Fuel Economy (CAFE) standards. In return, they must sell duel-fuel vehicles—cars and trucks that can run on both gasoline and an alternative fuel. The source of the loophole is the assumption that if vehicles are capable of running on an alternative fuel, they will actually use that alternative fuel 50 percent of the time. This assumption translates into roughly a 65 percent bonus in credited fuel economy (Figure 1).

Figure 1: Measured vs. Credited Fuel Economy Values for Select Model Year 2006 Flexible-Fueled Vehicles


CAFE Test Result

Credited Fuel Economy

 Chevrolet Impala



 Chevrolet Tahoe



 Ford Taurus



 Ford F-150



 Chrysler Sebring



 Dodge Durango



 Nissan Titan



More than a decade after the program was introduced, government data showed that dual-fuel vehicles used an alternative fuel less than one percent of the time. This is hardly surprising considering that only about 1,200 of the nearly 200,000 gas stations in the United States carry the fuel that most dual-fuel vehicles could use: E85 (a blend of 85 percent ethanol and 15 percent gasoline)—and over a third of those are in just two states: Minnesota and Illinois. As a result, this loophole increased U.S. oil dependence by about 80,000 barrels per day in 2005 and has enabled automakers to avoid as much as $1.6 billion in CAFE fines to date (Figure 2).

Figure 2: CAFE Fines Avoided Through Dual-Fuel Loophole


Dual-Fuel Credit Phase-out

Under provisions established by the 2007 Energy Bill, the current fleet average maximum dual-fuel credit, 1.2 mpg, will be maintained through model year 2014. Thereafter, the credit will decrease by 0.2 mpg per year until model year 2020, when the phase-out is complete. The eventual elimination of the credit will contribute to decreasing U.S. oil dependence.

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