Daniel K. InouyeSenatorThe Corporate Average Fuel Economy Program, or CAFE, has proven to be an effective tool to decrease the consumption of fuel in the passenger fleet. The National Academy of Sciences found in its 2002 CAFE study that the CAFE program has significantly contributed to increased fuel economy of the nation’s passenger fleet since its inception in 1975. From the time CAFE was implemented until 1985, passenger cars achieved a 75 percent increase in fuel economy. Light truck CAFE standards led to a fuel economy increase of 50 percent.The National Academy also found that improvements to vehicle design between 1975 and 1985 improved fuel economy by an average of 62 percent for all vehicles without loss of performance.Despite past progress, a lack of will and years of inaction in improving CAFE has led to increased fuel consumption in the passenger fleet, thereby increasing the rate of global warming and making us more dependent on foreign oil. Passenger car CAFE standards have remained stagnant for more than 20 years.
The light truck standard was not improved by the Department of Transportation until 2003, and those efforts have been criticized as insufficient by many constituencies and Members of Congress.We cannot turn back the clock to reclaim lost opportunities, but we must take the necessary steps to reduce fuel consumption in the passenger fleet now. Several Senators have introduced legislation to improve CAFE standards, including the Vice Chairman. Several Members of this Committee have joined me in support of S. 357, the Ten-in-Ten Fuel Economy Act.
It is also encouraging that the President announced in his State of the Union Address that he would set a goal of improving fuel economy by four percent annually, the same percentage increase proposed by S. 357.I look forward to today’s testimony, and the opportunity to work with Members of this Committee to move CAFE legislation to the floor and ultimately to the President’s desk.
Ted StevensSenatorMR.CHAIRMAN, THANK YOU FOR CALLING THIS IMPORTANT HEARING, AND I THANK THE WITNESSES FOR THEIR WILLINGNESS TO APPEAR.THE ISSUE OF FUEL ECONOMY OF OUR CARS AND LIGHT TRUCKS IS SIGNIFICANT AS OUR COUNTRY FACES AN ENERGY CRISIS. THE SEPTEMBER 11 TERRORIST ATTACKS AND THE CURRENT STRUGGLES IN THE MIDDLE EAST HAVE BROUGHT INTO FOCUS THE NEED TO REDUCE OUR DEPENDENCE ON FOREIGN OIL. BUT ADDRESSING THIS PROBLEM WILL REQUIRE A COMBINATION OF INITIATIVES. CONSERVATION, DOMESTIC PRODUCTION, AND THE DEVELOPMENT OF ALTERNATIVE ENERGY SOURCES ARE ALL PART OF THE SOLUTION.IN JANUARY, I INTRODUCED LEGISLATION THAT WOULD ADDRESS CONSERVATION, AND WITH IT, A REDUCTION IN GREENHOUSE GAS EMISSIONS – AS THE IMPACTS OF CLIMATE CHANGE ARE MORE EVIDENT IN ALASKA THAN ANYWHERE IN THE COUNTRY.THE BILL, S. 183, THE IMPROVED PASSENGER AUTOMOBILE FUEL ECONOMY ACT, WOULD MAKE CLEAR THE DEPARTMENT OF TRANSPORTATION’S AUTHORITY TO REFORM FUEL ECONOMY STANDARDS FOR PASSENGER CARS, AND REQUIRE THAT THE DOMESTIC PASSENGER CAR FLEET ACHIEVE A MINIMUM FUEL ECONOMY OF 40 MILES PER GALLON BY MODEL YEAR 2017.HOWEVER, THE LEGISLATION DOES NOT CONTEMPLATE AN INCREASE IN FUEL ECONOMY STANDARDS FOR LIGHT TRUCKS GIVEN THE RECENT REFORMS MADE BY THE SECRETARY OF TRANSPORTATION TO THE LIGHT TRUCK CAFE PROGRAM. I APPLAUD THE SECRETARY FOR TAKING THAT ACTION, AND BELIEVE THAT CONGRESS SHOULD ALLOW THE REFORMED PROGRAM TO TAKE EFFECT BEFORE TAKING MORE ACTION.WHILE I AM FULLY AWARE OF THE AGGRESSIVENESS OF THE TARGET STANDARD SET FORTH IN S. 183, IT IS DESIGNED TO BEGIN A DISCUSSION THAT I LOOK FORWARD TO HAVING WITH THE CHAIRMAN, AND THE REST OF THE COMMITTEE, AS WE DEVELOP A THOUGHTFUL BIPARTISAN PRODUCT.
Witness Panel 1
The Honorable Nicole NasonAdministratorNational Highway Traffic Safety AdministrationSTATEMENT OF THE HONORABLE NICOLE R. NASONADMINISTRATORNATIONAL HIGHWAY TRAFFIC SAFETY ADMINISTRATIONREGARDINGCORPORATE AVERAGE FUEL ECONOMYCOMMITTEE ON COMMERCE, SCIENCE AND TRANSPORTATIONUNITED STATES SENATEMARCH 6, 2007Mr. Chairman, thank you for inviting me to discuss Corporate Average Fuel Economy standards (CAFE) for passenger cars.In January, the President announced in the State of the Union address his “20 in 10” proposal that would reduce domestic gasoline consumption by twenty percent in 2017. A key component of the President’s “20 in 10” plan is to significantly boost fuel economy standards for cars. Towards that end, last month the Administration forwarded draft legislation at the request of Representatives Dingell and Boucher that would give the Secretary of Transportation the statutory authority to reform and raise fuel economy standards for passenger cars.The Bush Administration already has a history of reforming and raising fuel economy for light trucks. Consider our record: this Administration has raised the CAFE standard for light trucks for seven consecutive years, from 2005 to 2011. Our 2006 light truck rule not only will save a record amount of fuel, it also regulates for the first time fuel economy for some of the heaviest light trucks, such as the Hummer H2. This rule also boosted the CAFE target for some light trucks to a level that exceeds the congressionally-mandated passenger car standard of 27.5 miles per gallon.While these are notable accomplishments, the method by which they were achieved is probably the most important. In its landmark 2002 study on CAFE by the National Academy of Sciences, the NAS found that while the CAFE program did fulfill its original goals, it contained flaws that were preventing the program from living up to its potential.For example, one of the NAS criticisms was that the program concentrated most of the regulatory requirements on a few full line manufacturers. This resulted in some manufacturers who produced primarily smaller vehicles not being required to make any further improvements in fuel efficiency.Additionally, the study found that having a “one-size-fits-all” standard allowed some automakers to produce fleets that met the standard even though many of the cars in the fleets were relatively fuel inefficient. This meant that we were, and still are, losing fuel savings from a significant part of the fleet.Finally, and most disturbingly, the study estimated that CAFE probably had cost between 1,300 and 2,600 lives in one year alone, 1993, because the standards were structured in a way that enabled automakers to meet much of their compliance obligations by downsizing cars.NHTSA carefully considered the NAS study, and methodically developed a new structure for light truck CAFE standards that addressed each of these criticisms.This new system, called “Reformed CAFE,” is based on requiring automakers to achieve improved fuel economy not by downsizing, but by adding fuel-saving technologies. Basing CAFE standards on adding fuel-saving technology instead of downsizing vehicles has a number of benefits. First, by setting fuel economy targets for every size of vehicle, this ensures that vehicles small, medium and large have to improve fuel economy.Second, under Reformed CAFE there is no longer an incentive for automakers to improve their fleet average by downsizing. Accordingly, no longer will raising the CAFE standard mean a decrease in safety.Third, since Reformed CAFE demands greater fuel efficiency from every model of vehicle affected, every automaker will share the regulatory burden for improving fuel economy, not just a few.Finally, the Administration’s draft bill contains a CAFE credit trading provision. The NAS study pointed out how the current CAFE system makes it more expensive than necessary to achieve a given level of fuel economy in the vehicle fleet. Because one company may find it less expensive than another company to increase the fuel economy of its fleet, there are further cost-savings to be gained from allowing credit trading across companies.CAFE already allows a manufacturer to accumulate credits if its fleet mix exceeds the standard. These credits may be carried forward or “banked” and used to offset future CAFE deficits by the same manufacturer. Credit trading is a natural extension of this framework.Credit trading would be purely voluntary, and we believe it will help lower the industry’s cost of complying with CAFE.In 1975 when Congress wrote the original CAFE standard, it did so by taking the average fuel economy number for the fleet and doubling it over a ten-year period. Today, NHTSA can perform a much more sophisticated analysis on how to determine the CAFE standard. We can do this because we have the benefit of individualized data on the fuel-saving capabilities of each car.Accordingly, there is no need to set an arbitrary fuel economy standard, there is no need to sacrifice safety for better fuel economy, and there is no reason why some auto companies have to shoulder nearly all the regulatory burden. Our light truck rule demonstrated that all of these problems can be overcome.Mr. Chairman, the President indicated in his State of the Union address his desire to raise the fuel economy standard. We believe that having experts develop the standard, using sound science and hard data, in an open and reviewable rulemaking process, is the most responsible way to determine a new CAFE standard.If Congress authorizes the Secretary to reform CAFE for passenger cars, we will immediately begin a rulemaking to boost passenger car fuel economy. If the Administration’s draft legislation is enacted soon, cars rolling off the assembly line for the 2010 model year will have to meet a higher CAFE standard.Mr. Chairman, given NHTSA's recent experience with setting the fuel economy standard for light trucks, which comprise half the vehicle sold today, we believe we have demonstrated our capability to set balanced standards for passenger vehicles, given the authority for reform.
Ms. Katherine SiggerudDirector, Physical Infrastructure TeamGovernment Accountability Office
Witness Panel 2
Ms. Elizabeth LoweryVice President, Environment and EnergyGeneral MotorsTestimony of Elizabeth LoweryBefore the Senate Commerce CommitteeRegarding CAFE(March 6, 2007)Good morning. My name is Elizabeth Lowery and I am Vice President for Environment and Energy at General Motors. I am pleased to be able to speak to you today regarding GM’s technology plans for the future.Today’s automotive industry provides more in the way of opportunities – and challenges – than we have seen in its entire history. On the challenge side, there are serious concerns about energy supply, energy availability, sustainable growth, the environment, and even national security issues that, collectively, have come to be called “energy security.” And the fact of the matter is that it is highly unlikely that oil alone is going to supply all of the world’s rapidly growing automotive energy requirements. For the global auto industry, this means that we must – as a business necessity – develop alternative sources of propulsion, based on alternative sources of energy in order to meet the world’s growing demand for our products. The key is energy diversity, which can help us displace substantial quantities of oil that are consumed by U.S. vehicles today.This is a huge assignment. But it’s also an extraordinary opportunity.By developing alternative sources of energy and propulsion, we have the chance to mitigate many of the issues surrounding energy availability. We will be able to better cope with future increases in global energy demand. We will minimize the automobile’s impact on the environment.This means that we must continue to improve the efficiency of the internal combustion engine, as we have for decades. But, it also means we need to dramatically intensify our efforts to displace petroleum-based fuels by building more vehicles that run on alternatives, such as E-85 ethanol, and, very importantly, by significantly expanding and accelerating our commitment to the development of electrically driven vehicles.First let me speak about bio-fuels. One of the greatest opportunities for displacing U.S. gasoline is to ramp up the usage of bio-fuels. There are already over 6 million E-85 capable vehicles on America’s roads. If all flex-fueled vehicles on the road today ran on E-85, we would displace the need for over 3.8 billion gallons of gasoline annually.Last year, we committed to double our production of vehicles capable of running on renewable fuels by 2010. That’s almost one million E-85 capable vehicles a year by the end of the decade Late last year, we also said that we are prepared to make fully half of our annual vehicle production biofuel-capable by 2012 -- provided there is ample availability and distribution of E-85, as part of an overall national energy strategy. If all of these flex-fueled vehicles ran on E-85, by 2017 we would displace the need for over 22 billion gallons of gasoline annually. As a nation, we need to be developing the necessary sources of these bio-fuels to make sure we can produce the volumes that can have this dramatic an impact.But as you know, flex-fuel vehicles alone will not get the job done. Right now, there are about 170,000 gas stations in the United States, but only slightly more than 1,100 E-85 pumps. So, we are also partnering with government, fuel providers, and fuel retailers across the U.S. to help grow the E-85 ethanol fueling station infrastructure. Since May of 2005, we’ve helped add 200 E-85 fueling stations in 13 states with more to come.Now let me turn to potentially the even more exciting opportunity for the future of our products -- electrification of the automobile. Over the last few months, GM has made several announcements related to our commitment to electrically driven vehicles. The benefits of electricity include the opportunity to diversify fuel sources “upstream” of the vehicle. In other words, the electricity that is used to drive the vehicle can be made from the best local fuel sources – natural gas, coal, nuclear, wind, hydroelectric, and so on. So, before you even start your vehicle, you’re working toward energy diversity. Second, electrically driven vehicles -- when operated in an all-electric mode -- are zero-emission vehicles. And when the electricity itself is made from a renewable source, the entire energy pathway is effectively greenhouse gas emissions free. Third, electrically driven vehicles offer great performance -- with extraordinary acceleration, instant torque, and improved driving dynamics.There is a continuum of electrification of vehicles – and we are working along that entire range. For example, there are what most people think of as “electric vehicles” – pure battery-powered vehicles, such as GM’s EV1. The EV1 ran solely on electricity that was generated outside the vehicle and was stored onboard the vehicle, in lead-acid and nickel-metal-hydride batteries.Then there are gas-electric hybrids -- which are not, per se, electric vehicles -- but which are, in part, electrically driven. This type of conventional hybrid vehicle has both an internal combustion engine and an electric drive. And, it can be powered by both systems simultaneously or by either system independently. The electric energy in a conventional hybrid vehicle is generated by the vehicle itself and stored onboard in a battery.We have several kinds of hybrid vehicles, either on the road or under development – from the heavy duty hybrid that is used in more than 550 transit buses – to the Saturn VUE and Aura Green Line models (which use our high-value “belt alternator starter” system) -- to our advanced “two-mode” hybrid system (which will begin to show up on our full-size SUVs and pickups later this year).At the Los Angeles auto show, we announced work on another type of hybrid, the Saturn VUE “plug-in hybrid.” A plug-in hybrid will be a conventional hybrid vehicle with an important difference – the battery will be much more advanced – storing significantly more energy and, of course, being able to be plugged into a standard outlet to recharge it. The result will be significantly better “fuel economy” -- based on the petroleum consumption of the vehicle -- and the ability to use diverse energy sources.No major OEM has built a plug-in hybrid for retail sale because the required battery technology doesn’t yet exist. In fact, given what we know today, it’s pretty clear that it will take several years to see if the battery technology will occur that will let us bring to market a plug-in hybrid that will meet the expectations and real-world performance standards that our customers expect -- things like safety, reliability, durability, driving range, recharge time, and affordability.The Saturn VUE plug-in hybrid will use an advanced battery, like lithium-ion. Production timing will depend on battery technology development. But, based on our work with EV1 and our different conventional hybrid-electric vehicles, we already have a lot of experience developing and integrating advanced battery technology into our vehicles, and we’re already working today with a number of battery companies to develop the technology necessary to build a plug-in hybrid. The technological hurdles are real, but we believe they’re also surmountable. I can’t give you a date certain for our plug-in hybrid, but I can tell you that this is a top priority program for GM, given the huge potential it offers for oil consumption improvements.Earlier this year, we unveiled the Concept Chevrolet Volt at the North American International Auto Show in Detroit. The Chevrolet Volt is designed to be powered by GM’s next-generation electric propulsion system, the E-flex System. The E-flex System can be configured to produce electricity for mechanical propulsion from gasoline, ethanol, biodiesel or hydrogen. The Volt uses a large high energy battery pack and a small, one liter turbo gasoline engine to produce electricity.The Concept Chevrolet Volt can be charged by plugging it into a 110-volt outlet for approximately six hours each day. When the advanced lithium-ion battery pack is fully charged, the Volt is expected to deliver 40 city miles of pure electric vehicle range. When the battery pack is close to depletion, the small engine spins at a constant speed to create electricity and replenish the battery pack.One technological breakthrough required to make this concept a reality is the large lithium-ion battery pack. This type of electric car, which the technical community calls an “EV range-extender,” would require a battery pack that weighs nearly 400 pounds.There are other types of electrically driven vehicles that we expect to see in the future as well, including hydrogen fuel cell vehicles, such as the Chevrolet Sequel concept vehicle. A hydrogen fuel cell vehicle is, in fact, an electric vehicle. It drives on electricity that is created by the fuel cell. The fuel cell is little more than a battery that stores electricity in the form of hydrogen. The beauty of a fuel cell vehicle like the Sequel is that the electricity is generated onboard the vehicle without using petroleum-based fuel, and without emissions. And like electricity, hydrogen can be made from diverse energy sources before it ever powers a vehicle. As part of a comprehensive deployment plan dubbed Project Driveway, we are building more than 100 next-generation Chevrolet Equinox Fuel Cell vehicles that will operate and refuel with hydrogen in California, New York, and Washington D.C.GM is developing a prototype fuel cell variant of the Chevy Volt that mirrors the propulsion system in the Chevrolet Sequel (fuel cell vehicle). Instead of a big battery pack and a small engine generator used in the Volt concept vehicle, we would use a fuel cell propulsion system with a small battery to capture energy when the vehicle brakes. Because the Volt is so small and lightweight, we would need only about half of the hydrogen storage as the Sequel to get 300 miles of range. In fact, we continue to make significant progress in this area, and we continue to see fuel cells as the best long-term solution for reducing our dependence on oil.Since I have mentioned that advanced technology vehicles that can promote the development of biofuels and electrification are “the answer” to displacing and diversifying U.S. fuel sources – let me share our view on what is not the answer. Over reliance on CAFE is not the answer to U.S. oil dependence. Now don’t misunderstand what I am saying here. We agree with the need to reduce the Nation’s dependence on petroleum. And the objectives for the original CAFE program were to: 1) reduce U.S. gasoline consumption and 2) reduce U.S. imports of petroleum. But despite dramatic increases in vehicle and fleet fuel economy over the 30 year existence of the CAFE program, U.S. gasoline consumption and oil imports have not declined.Since the CAFE program was enacted, U.S. consumption of gasoline has increased by 60% and U.S. imports of petroleum have increased from 35% of our supplies to over 70% of our supplies. At the same time, new vehicle fleet fuel economy has more than doubled for passenger cars and increased 60% for light trucks. But these increases have been overwhelmed by the increases in the size of the vehicle fleet and the number of miles traveled by Americans annually.There are four factors that drive U.S. light duty gasoline consumption: 1) purchasing decisions of American consumers - sales mix, 2) total vehicle miles traveled, 3) size of the overall fleet, and finally 4) individual vehicle fuel economy. CAFE only affects one of these four factors – only vehicle fuel economy. Data from the government’s own Energy Information Administration shows that CAFE requirements alone cannot overcome our increases in petroleum demand -- due to the continued increase in vehicle miles travels and the increasing size of the fleet. Even so, increases in CAFE standards continue to be one of the major focuses of how to address energy security issues.We understand, of course, that increasing vehicle fuel economy does play a role in helping address U.S. gasoline consumption. As competitive automakers looking to win consumer purchases of vehicles in the marketplace, we look for opportunities to increase the fuel economy of our new products each time they are introduced. But many of the recent legislative proposals to increase CAFE requirements (by 4% or more) are not based on any realistic measure of what is technically achievable and economically practicable.Rather than having Congress try to pick an arbitrary rate of increase for CAFE standards, we believe that the regulatory process at the Department of Transportation should be used. That way, the agency can collect and review confidential and proprietary company product plans and consider the opportunities to increase the fuel economy levels consistent with consumer needs and choices, competitive implications, vehicle and highway safety, and the impact on U.S. jobs. This Administration has twice undertaken such rulemakings for the light truck CAFE levels. The most recent fuel economy rule for light trucks has now set in place increases for 7 consecutive years (2005-2011) – increasing the standards by 16 percent (about 2% per year) and for the first time adding to the regulated fleet the largest SUV’s in the market. These challenging increases in the CAFE requirements allow the automakers to make the progress that they can with conventional technology vehicles, and still focus increasingly on the advanced technology systems and vehicles that can really make a difference in addressing U.S. gasoline consumption.In addition, before any increases are undertaken for the passenger car fleet, the agency should be given authority to establish a reformed, or attribute-based system, similar to what was done for the light truck CAFE system. This will help reduce the competitive disparities as well as avoid other consequences of raising fuel economy levels - like vehicle mass and size reductions that can adversely affect vehicle and highway safety.Technology, biofuels and energy diversity are the best answers to oil security concerns. And, as we pursue these technologies – and more energy diversity – there are steps the government can take to help.· First, the government should fund a major effort to strengthen domestic advanced battery capabilities. Advanced lithium-ion batteries are a key enabler to a number of advanced vehicle technologies - including plug-in hybrids. Government funding should increase R&D in this area and develop new support for domestic manufacturing of advanced batteries.· Second, biofuels production and infrastructure should be significantly expanded. The market response to renewable fuels is encouraging, but it needs to reach a self sustaining level that is not lessened when gasoline prices fall. Steps to increase the availability of biofuels should help increase its use. Government should continue incentives for: the manufacture of biofuel-capable flex fuel vehicles; increases in biofuels production; increases for R&D into cellulosic ethanol; and increased support for broad-based infrastructure conversion.· Third, government funding should continue and expand development and demonstration of hydrogen and fuel cells. Tremendous progress has been made this decade on fulfilling the promise of hydrogen powered fuel cells. The U.S. needs to stay the course on the President’s hydrogen program and begin to prepare for the 2010-2015 transition to market phase. Funding should continue for hydrogen and fuel cell R&D and demonstration activities at DOE. The government should also commit to early purchases by government fleets and support for early refueling infrastructure in targeted locals in the 2010-2015 timeframe.· Fourth, government purchasing should set the example. Government fleets can help lead the way to bringing new automotive technology to market and bringing down the cost of new technologies. The government should continue to purchase flex fuel vehicles; demand maximum utilization of E-85 in the government flex fuel fleets; use federal fueling to stimulate publicly accessible pumps; provide funding to permit purchase of electric, plug-in and fuel cell vehicles into federal fleets as soon as technology is available.· Finally, there should be further incentives for advanced automotive technology so that these technologies may be adopted by consumers in large numbers to help address national energy security. Well crafted tax incentives can accelerate adoption of new technologies and strengthen domestic manufacturing. Consumer tax credits should be focused on technologies that have the greatest potential to actually reduce petroleum consumption and provide support for manufacturers/suppliers to build/convert facilities that provide advanced technologies.In summary, we believe tomorrow’s automobiles must be flexible enough to accommodate many different energy sources. And a key part of that flexibility will be enabled by the development of electrically driven cars and trucks. From conventional gasoline and diesel fuel -- to biofuels that can displace them, like E-85 and biodiesel -- to electricity – whether it is stored or generated on the vehicle, with an internal combustion engine or a hydrogen fuel cell – we see a logical journey from stand-alone, largely mechanical automobiles to vehicles that run on electricity.
Dr. David GreeneCorporate Research Fellow, Oak Ridge National LaboratoryNational Transportation Research CenterTestimony to the Senate Commerce CommitteeCORPORATE AVERAGE FUEL ECONOMY (CAFE) STANDARDS10:30 am, Tuesday, March 6, 2007Russell Senate Office Building, Room 253David L. GreeneCorporate FellowEngineering Science and Technology DivisionOak Ridge National LaboratoryGood afternoon. Thank you for inviting me to discuss the Corporate Average Fuel Economy Program and its current and prospective effectiveness. The views I express today will be entirely my own and do not necessarily reflect the views of Oak Ridge National Laboratory or the Department of Energy.Energy ChallengesOur nation and our world face crucial energy challenges. Our nation’s oil dependence costs our economy hundreds of billions of dollars each year and undermines our national security (Greene and Ahmad, 2005). The threat to the global environment from human induced climate change fed by increasing emissions of carbon dioxide from the combustion of fossil fuels becomes clearer with each passing day. With demand for mobility growing rapidly around the world, sustainable sources of energy for the world’s growing mobility demands must be found. There is no quick, easy solution. Strong, comprehensive, sustained policies are required. Significant technological advances are also essential. The fuel economy policies we address today are by themselves not enough to solve these energy challenges. But they are the cornerstone of any sufficient strategy.We can do thisFuel economy standards have been successful in the past, not just in this country but around the world. They can take many forms. The EU has industry-wide voluntary standards. Japan and China have mandatory weight-based standards. The United States has mandatory Corporate Average Fuel Economy (CAFE) standards. What all these standards have in common is that they have successfully raised the energy efficiency of motor vehicle fleets and saved enormous amounts of energy without significant negative side effects. Our own CAFE standards brought about a 50% increase in on-road fuel economy over a period of 20 years. This improvement saves American consumers more than 50 billion gallons of gasoline every year (Figure 1).Figure 1. U.S. CAFE Standards Decoupled Fuel Use and Vehicle TravelSource: U.S. DOT/FHWA (2004)How High Should We Go?Fuel economy standards should be set at a level consistent with the urgency of our energy problems, at or an appropriate distance beyond what can be achieved cost-effectively with proven technologies that do not require significant changes in the size and performance of light-duty vehicles. Timing is also an important consideration. Manufacturers should be given sufficient lead time to redesign their entire product lines (approximately 10 years). In this way the full impact of proven fuel economy technologies can be realized and manufacturers can be given a clear, long-term goal around which to plan.The National Research Council (NRC) Committee on the Impacts and Effectiveness of CAFE Standards, on which I was privileged to serve, defined the “cost-efficient” level of fuel economy as the level at which the marginal present value of fuel savings to the consumer of the next increment in fuel economy exactly equals the marginal cost of technology added to the vehicle to produce those savings (NRC, 2002). Further, the Committee’s definition allowed no change in the size, weight, or performance of vehicles over a base year level. In my opinion, fuel economy standards should be set at least as high as the cost-efficient level but not a great deal higher. Figure 2 illustrates for an average passenger car the trade-off between increased price as a result of adding fuel economy technologies and the present value of fuel savings, based on the National Academies’ panel’s assessment. The difference between the value of savings and increased price, the net value, is what an efficient market would maximize (all other things equal). The difference between the lines graphed in Figure 2 and the NRC Committee’s cost effective analysis is that a higher price for gasoline, $2.00 per gallon, is assumed in Figure 2. The cost-efficient level, the maximum net value to the consumer, is reached at 36 miles per gallon (MPG), 28% higher than the base year passenger car fuel economy.Figure 2. The Trade-off between Fuel Economy and Purchase Price Based NRC (2002)Why doesn’t the market produce this level of fuel economy without being compelled by fuel economy standards? I addressed this question in my January 7, 2007 testimony to the Senate Energy Committee. Like the market for most other energy using consumer durable goods, the market for automotive fuel economy is not efficient. At the time of vehicle purchase, consumers do not fully value future fuel savings and therefore manufacturers, in general, do not make vehicles as energy efficient as they would if the market itself were efficient. It is more effective to sell cars based on other features that excite car buyers. And, of course, few new car buyers will voluntarily and on their own initiative pay more for the public benefits of reduced U.S. oil dependence or greenhouse gas emissions.Figure 2 also shows that it is possible to push beyond 36 MPG, to 40 or even 42 MPG with little loss of net value ($100 to $300 per vehicle). This range of 36 to 42 MPG, approximately a 30% to 50% increase in fuel economy, is where judgment about the importance of reducing oil use and carbon dioxide emissions should be exercised.In June of 2006, in response to a request from Senators Obama, Lugar and Biden, I calculated cost-efficient levels of light-duty vehicle fuel economy increases at higher gasoline prices than assumed in the NRC (2002) report. The results are summarized in Table 1 below. I used the NRC “average” fuel economy cost curves for all the numbers presented in Table 1. Cost and savings estimates are in 2005 dollars. The calculations in Table 1 apply to passenger cars and light trucks combined, unlike Figure 2 which applies only to passenger cars.Table 1. Summary of Fuel Economy Calculations UsingNRC Cost-Efficient Methodology at Higher Fuel PricesLight-duty Vehicles (Passenger Cars and Light Trucks Combined)Cost of GasolineFuel Economy MPGFuel Economy Increase (%)Consumer Savings at the PumpNew Vehicle Price ChangeNet Consumer SavingsBase 1999 Vehicle24.00%$0.00$0.00$0.00$2.5033.941%$4,173$1,835$2,338$3.0536.050%$4,698$2,310$2,387$3.5537.657%$5,913$2,723$3,190$4.0539.263%$7,170$3,120$4,050$5.0541.975%$9,784$3,877$5,907Costs and savings are in current dollars.Total gasoline taxes are assumed to be $0.45 per gallon.Fuel economy increases at $3.55 per gallon are just beyond the upper limit of the NRC technology cost curves, andfuel economy increases at $4.05 and $5.05 per gallon are beyond the upper limits of the NRC cost curves.As with all such analyses, there are some caveats. The NRC study is now five years old, and there have been significant technological developments since its publication. Some of the technologies used to construct the NRC fuel economy cost functions have already been adopted in existing vehicles but have been used to increase power and weight rather than fuel economy. On the other hand, important new technologies have also been developed. Second, at fuel costs above $3.50 per gallon the indicated cost-efficient fuel economy levels are beyond the range of what could be achieved using the fuel economy technologies considered by the NRC study. These numbers are printed in italics in Table 1.The cost-efficient analysis assumes constant light-duty vehicle weight and performance. Fuel economy technology can also be used to increase horsepower and weight while holding fuel economy constant. Setting fuel economy standards involves an implicit judgment about the importance of having even heavier and more powerful vehicles than we have today versus reducing oil dependence and mitigating greenhouse gas emissions.The cost efficient analysis is limited to existing, proven fuel economy technologies. There is no doubt that technological advances will be made over the next ten years. This fact allows decision makers to have greater confidence that the targets set can be achieved without harm to the automobile industry or to motorists. Indeed, when the NRC committee finished its study just five years ago, it concluded that neither hybrid nor clean diesel engines could be considered proven technologies. Today there are a dozen hybrid models to choose from and clean diesels will soon be available. The cost-efficient method does not rely on technological progress but it does expect it.Market-Based Alternatives to CAFEFuel economy standards are not the only effective way to realize greater fuel economy. Feebates are a way to emphasize the value of reducing petroleum via the purchase price of vehicles rather than future fuel savings. Feebates give a rebate to purchasers of low fuel consumption vehicles and impose a fee on buyers of high fuel consumption vehicles. While feebate systems can take many forms, perhaps the most appropriate formulation bases the rebate or fee on fuel consumption (gallons per mile), thereby giving equal value to every gallon of fuel saved.Feebate systems consist of a pivot point and a rate. Vehicles whose fuel consumption is below the pivot point receive a rebate while vehicles with fuel consumption above the pivot point are charged a fee. There can be a single pivot point or different pivot points for different types of vehicles. The rate specifies the additional value of saving fuel. Feebate rates on the order of $1,000 to $1,500 per 0.01 gallons per mile should achieve fleet average fuel economy improvements of 30% to 50% (Greene et al., 2005). The feebate rate determines the incentive to use fuel economy technology to increase fuel economy. The pivot point determines which vehicles gain (receive a rebate) and which vehicles lose (pay a fee).Feebates have two important advantages over fuel economy standards. First, they are a continuing incentive to adopt energy efficient technologies and use them to increase fuel economy. Once a fuel economy standard has been met, there is no additional incentive for manufacturers to increase fuel economy beyond the value of future fuel savings to consumers. A feebate system (especially if indexed for inflation) provides a continuing added incentive. There is always a rebate to be gained or a fee to be avoided. Second, feebates put a cap on the costs manufacturers will have to incur to increase fuel economy. Manufacturers are required to meet fuel economy standards regardless of the cost. There is no reason why a manufacturer would spend more to gain a rebate or avoid a fee than its value. Thus, the feebate rate puts a cap on the economic costs that might be incurred to increase fuel economy.The chief disadvantage of feebate systems is that they do not guarantee that a desired level of fuel economy improvement will be achieved. Feebates depend on manufacturers and consumers efficiently trading off the higher cost of fuel economy technology and the value of rebates or fees. Since both affect the purchase price of a vehicle, there is good reason to expect markets to respond efficiently, but there is no guarantee.Today, we have half of a feebate system for passenger cars in the form of the Gas-Guzzler Tax. There is no comparable policy for light trucks. I can think of no good reason for taxing inefficient passenger cars but not light trucks. Furthermore, half of a feebate system is less than half as effective as a full feebate system. I urge you to consider a complete well formulated feebate system for all light-duty vehicles. Should you decide not to implement a complete feebate system, I would urge you to abolish the gas-guzzler tax for passenger cars in favor of higher fuel economy standards for all light-duty vehicles.What Form?Critics of the CAFE system have raised many objections to it over the past thirty years. Two criticisms have been especially potent in preventing progress: CAFE is unfair. CAFE is unsafe. The first is accurate. The second is incorrect. I have addressed the safety issues in other testimony and other publications (Greene, 2005; Greene and Keller, 2002; Greene, 2007). Regardless of one’s viewpoint on these two issues, the reformed CAFE standard adopted by the National Highway Traffic Safety Administration (NHTSA) for light trucks nullifies both criticisms. It adjusts each manufacturer’s standard according to the size mix of vehicles it produces. It removes any incentive for downsizing that an unreformed CAFE system might create. At the same time, it keeps nearly all significant fuel economy technologies in play. It also creates the opportunity to finally eliminate the distinction between cars and light trucks in a unified set of footprint-based standards. I congratulate the staff of NHTSA for this important innovation.However, there is one loose end that needs to be tidied up. The NHTSA should have done a careful automotive engineering analysis of the potential for a footprint based standard to have unintended consequences. Is it likely to cause design changes that could be undesirable with respect to safety, consumer satisfaction, or roadway geometry? I doubt it. But prudent regulation requires that such possibilities be expertly examined. And so, if the Senate decides to proceed with a footprint-based fuel economy standard, I urge you to require that such a study be done.Let me add that feebates can take as many forms as fuel economy standards. There is no reason, for example, why a footprint-based feebate system could not be implemented. Instead of basing the feebate rate on gallons per mile, it would be based on gallons per footprint mile (square feet × miles).Who Should Decide?An important issue that has received too little analysis is who should set the fuel economy standards? Should it be the Congress or the Executive Branch? If it is the executive branch, should it be the Department of Transportation, the Department of Energy or the Environmental Protection Agency? In 1975, Congress set ambitious standards for passenger cars and left the establishment of standards for light trucks to the NHTSA. The result was less ambitious standards for light trucks. Yet over the past few years, NHTSA has raised the light truck standards twice by modest but meaningful amounts and has instituted important changes in the form of the standards. Congress has not raised the passenger car standards in more than 30 years. In my opinion, a one time increase in fuel economy standards will not be adequate to address the problems of climate change and of oil dependence. A 50% increase in fuel economy by 2020 would need to be followed by an increase of 100% over current levels by 2030.I don’t claim to know who should set fuel economy standards but I do have some observations that I believe are relevant. First, oil dependence is a problem that we “solved” temporarily and incompletely twenty years ago. And when we “solved” the problem we seemed to lose interest in the policies necessary to keep it solved. And so it has come back. We will be struggling with the problem of climate change, in my opinion, for decades, much as we have done with urban air pollution. Indeed, climate change appears to be even more difficult and has a much longer time horizon. Twenty years from now, I think that it will still be clear that we have not solved the problem of climate change and that we must keep working at it. In my view, this argues for locating the authority over fuel economy standards with the agency that has the greatest interest in and responsibility for addressing climate change.Congressional guidance is neededIf Congress elects not to set fuel economy targets itself, it is absolutely critical that Congress give clear and strong guidance about the importance of fuel economy standards to addressing the problems of oil dependence, greenhouse gas emissions and sustainable energy for transportation. There are many ways that strong guidance could be given. It could take the form of statements about the importance of the problems fuel economy standards help solve. It could be in the form of recommended targets.Regardless of the form of its guidance, Congress should clearly express to the regulating agency how important increasing fuel economy is to solving our oil dependence problem, mitigating carbon dioxide emissions to reduce the probability of dangerous climate change, and developing sustainable energy sources for transportation. Congress’ guidance should be clear and emphatic enough to sustain progress when some might think the oil dependence problem is solved. It should give clear direction to regulators about the importance of mitigating greenhouse gas emissions versus continuing the horsepower race. As the 2002 NRC report pointed out, Congress has both the authority and responsibility for establishing the priority of these societal goals.Thank you for this opportunity to present my views. I hope they are helpful as you pursue your important work. I look forward to your questions.ReferencesGreene, D.L. 2007. “Policies to Increase Passenger Car and Light-Truck Fuel Economy,” testimony to the U.S. Senate Committee on Energy and Natural Resources, January 30.Greene, D.L. 2005. “Improving the Nation’s Energy Security: Can Cars and Trucks be Made More Fuel Efficient?” Testimony to the U.S. House of Representatives Committee on Science, February 9, Serial No. 109-3, U.S. G.P.O., Washington, DC.Greene, D.L. and S. Ahmad. 2005. Costs of U.S. Oil Dependence: 2005 Update, ORNL/TM-2005/45, Oak Ridge National Laboratory, Oak Ridge, Tennessee.Greene, D.L. and M. Keller. 2002. “Dissent on Safety Issues: Fuel Economy and Highway Safety” in National Research Council’s Impacts and Effectiveness of Corporate Average Fuel Economy (CAFE) Standards, National Academies Press, Washington, DC.Greene, D.L., P.D. Patterson, M.Singh and J. Li. 2005. “Feebates, Rebates and Gas-Guzzler Taxes: A Study of Incentives for Increased Fuel Economy,” Energy Policy, vol. 33, no. 6, pp. 721-827.(NRC) National Research Council. 2002. Impacts and Effectiveness of Corporate Average Fuel Economy (CAFE) Standards, National Academies Press, Washington, DC.(U.S. DOT/FHWA) U.S. Department of Transportation, Federal Highway Administration. 2004. Highway Statistics 2004, table VM-1, Washington, DC.(U.S. EPA) U.S. Environmental Protection Agency, Office of Transportation and Air Quality. 2006. Light-Duty Automotive Technology and Fuel Economy Trends: 1975 through 2006, EPA420-R-06-011, Ann Arbor, Michigan.
 Fuel economy standards may include flexible provisions to limit excess costs. For example, the CAFE standards allow the NHTSA to grant a measure of relief to manufacturers by temporarily reducing the fuel economy standards in the event that unanticipated circumstances make it especially difficult to meet the CAFE requirements.
Mr. Tom StrickerDirector, Technical and Regulatory AffairsToyota Motor North America
Mr. Alan ReutherLegislative Director, International UnionUnited Auto Workers