Passenger Vehicle Fuel Economy
Preliminary Observations on Corporate Average Fuel Economy Standards
Gao ID: GAO-07-551T March 6, 2007
Concerns over national security, environmental stresses, and economic pressures from increased fuel prices have led to the nation's interest in reducing oil consumption. Efforts to reduce oil consumption will need to include the transportation sector. For example, several Members of Congress have introduced bills proposing changes to the corporate average fuel economy (CAFE) program. This program includes mile per gallon standards for light trucks and cars that manufacturers must meet for vehicles sold in this country. This testimony is based on ongoing work for this committee. This testimony describes (1) recent and proposed changes to CAFE standards; (2) observations about the recent changes, the existing CAFE program, and NHTSA's (National Highway Traffic Safety Administration) capabilities to further restructure CAFE standards; and (3) initial observations about how the CAFE program fits in the context of other approaches to reduce oil consumption. To address these issues, we reviewed program legislation, rule makings, and operational documents. Also, we interviewed officials from NHTSA, the Department of Energy, Environmental Protection Agency, the auto industry, labor unions, and the insurance industry. Finally, we contacted several recognized experts in fuel economy and safety. Our report will be issued in July 2007.
The National Highway Traffic Safety Administration (NHTSA), the agency responsible for setting CAFE standards for cars and light trucks--such as sport utility vehicles, minivans and pickup trucks--recently raised CAFE standards for light trucks to reduce oil use and restructured this part of the program to help address safety, among other issues. However, the CAFE standard for cars has changed little over the past 2 decades. In 1975, Congress established CAFE standards for cars rising to 27.5 miles per gallon (mpg) by 1985 but did not allow NHTSA to restructure how car standards are applied. As part of the administration's plan to meet the President's recently stated goal to reduce oil use by 20 percent over the administration's projected levels by 2017, the NHTSA Administrator submitted a plan to Congress that would allow NHTSA to reform the car CAFE program in a manner similar to NHTSA's recent changes to the light truck program. The majority of experts with whom we spoke stated that CAFE standards are an important approach to reducing oil consumption and NHTSA's recent reform of light truck standards addresses previous safety and competitive concerns, among others. However, they also identified some ways to further refine the CAFE program such as considering harmonizing light truck and car standards. Further, NHTSA officials identified ways to improve the agency's capabilities to administer the program. For example, the agency would benefit from some additional expertise on automotive engineering. Finally, several experts observed that the model that NHTSA uses to help set CAFE standards does not fully account for the impact of greenhouse gas emissions. While the CAFE program is an important program in the nation's efforts to reduce oil consumption, other policies and programs exist to help the nation reduce oil consumption in the transportation sector. We will report on how these programs align with the CAFE program in our report to be issued in July 2007. For example, according to experts with whom we spoke, CAFE's effectiveness in reducing oil consumption is hampered by a provision granting manufacturers a 1.2 mpg CAFE credit toward meeting its fuel economy standard for selling flexible fuel vehicles, even though these vehicles are not often run on fuel other than gas.
GAO-07-551T, Passenger Vehicle Fuel Economy: Preliminary Observations on Corporate Average Fuel Economy Standards
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Testimony:
Before the Committee on Commerce, Science, and Transportation, U.S.
Senate:
United States Government Accountability Office:
GAO:
For Release on Delivery Expected at 10:00 a.m. EST:
Tuesday, March 6, 2007:
Passenger Vehicle Fuel Economy:
Preliminary Observations on Corporate Average Fuel Economy Standards:
Statement of Katherine Siggerud, Director:
Physical Infrastructure:
GAO-07-551T:
GAO Highlights:
Highlights of GAO-07-551T, a testimony before the Committee on
Commerce, Science, and Transportation, U.S. Senate
Why GAO Did This Study:
Concerns over national security, environmental stresses, and economic
pressures from increased fuel prices have led to the nation‘s interest
in reducing oil consumption. Efforts to reduce oil consumption will
need to include the transportation sector. For example, several Members
of Congress have introduced bills proposing changes to the corporate
average fuel economy (CAFE) program. This program includes mile per
gallon standards for light trucks and cars that manufacturers must meet
for vehicles sold in this country.
This testimony is based on ongoing work for this committee. This
testimony describes (1) recent and proposed changes to CAFE standards;
(2) observations about the recent changes, the existing CAFE program,
and NHTSA‘s (National Highway Traffic Safety Administration)
capabilities to further restructure CAFE standards; and (3) initial
observations about how the CAFE program fits in the context of other
approaches to reduce oil consumption. To address these issues, we
reviewed program legislation, rule makings, and operational documents.
Also, we interviewed officials from NHTSA, the Department of Energy,
Environmental Protection Agency, the auto industry, labor unions, and
the insurance industry. Finally, we contacted several recognized
experts in fuel economy and safety. Our report will be issued in July
2007.
What GAO Found:
The National Highway Traffic Safety Administration (NHTSA), the agency
responsible for setting CAFE standards for cars and light trucks”such
as sport utility vehicles, minivans and pickup trucks”recently raised
CAFE standards for light trucks to reduce oil use and restructured this
part of the program to help address safety, among other issues.
However, the CAFE standard for cars has changed little over the past 2
decades. In 1975, Congress established CAFE standards for cars rising
to 27.5 miles per gallon (mpg) by 1985 but did not allow NHTSA to
restructure how car standards are applied. As part of the
administration‘s plan to meet the President‘s recently stated goal to
reduce oil use by 20 percent over the administration‘s projected levels
by 2017, the NHTSA Administrator submitted a plan to Congress that
would allow NHTSA to reform the car CAFE program in a manner similar to
NHTSA‘s recent changes to the light truck program.
The majority of experts with whom we spoke stated that CAFE standards
are an important approach to reducing oil consumption and NHTSA‘s
recent reform of light truck standards addresses previous safety and
competitive concerns, among others. However, they also identified some
ways to further refine the CAFE program such as considering harmonizing
light truck and car standards. Further, NHTSA officials identified ways
to improve the agency‘s capabilities to administer the program. For
example, the agency would benefit from some additional expertise on
automotive engineering. Finally, several experts observed that the
model that NHTSA uses to help set CAFE standards does not fully account
for the impact of greenhouse gas emissions.
While the CAFE program is an important program in the nation‘s efforts
to reduce oil consumption, other policies and programs exist to help
the nation reduce oil consumption in the transportation sector. We will
report on how these programs align with the CAFE program in our report
to be issued in July 2007. For example, according to experts with whom
we spoke, CAFE‘s effectiveness in reducing oil consumption is hampered
by a provision granting manufacturers a 1.2 mpg CAFE credit toward
meeting its fuel economy standard for selling flexible fuel vehicles,
even though these vehicles are not often run on fuel other than gas.
Figure: 2005 U.S. oil Consumption within the Transportation Sector:
[See PDF for Image]
Source: Department of Energy.
[End of figure]
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-551T].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Katherine Siggerud on
(202) 512-2834 or siggerudk@gao.gov.
[End of figure]
Mr. Chairman and Members of the Committee:
We appreciate the opportunity to provide testimony on the nation's
approach to reducing oil consumption through fuel efficiency standards.
Concerns over national security, environmental stresses, and economic
pressures from increased fuel prices have led to the nation's interest
in reducing oil consumption. Several Members of Congress have
introduced bills proposing to mandate fuel economy increases, such as
increasing car standards from the current 27.5 miles per gallon (mpg)
to 40 mpg within 10 years. In addition, the President recently
announced a nationwide goal to reduce oil consumption 20 percent from
the levels that the administration projects would otherwise occur by
2017.
Efforts to reduce oil consumption will need to include the
transportation sector, because transportation in the United States
currently accounts for 68 percent of the nation's oil consumption. And,
within the transportation sector, 60 percent of the oil consumed is
consumed by cars and light trucks. In the aftermath of the energy
crisis of the early 1970s, Congress developed the Corporate Average
Fuel Economy (CAFE) program to help reduce the fuel used by light
trucks and cars. Under the CAFE program, manufacturers must ensure that
the vehicles in their fleets, on average, meet a specified mpg standard
or pay a penalty. The National Highway Traffic Safety Administration
(NHTSA) within the Department of Transportation (DOT) is primarily
responsible for setting and enforcing CAFE standards. Many changes in
automotive technologies and the auto industry have occurred since the
program was designed in the 1970s. These developments, along with the
concerns mentioned above, have led to some changes in the CAFE program,
along with calls to further alter the program, including raising CAFE
standards or revising how the program applies the standards.
My testimony today will discuss (1) recent and proposed changes to the
CAFE standards; (2) observations about the recent changes, the existing
CAFE program, and NHTSA's capabilities to further revise CAFE
standards; and (3) observations about how the CAFE program aligns with
other approaches and options for reducing oil consumption. My comments
are based on ongoing work for this committee, and therefore my comments
reflect our preliminary observations. We plan to issue our report in
July 2007. To obtain information on the CAFE program and recent and
proposed changes to the program, we reviewed relevant U.S. code and
program guidance, including rule making documents, and interviewed a
wide range of program stakeholders, including NHTSA, the Environmental
Protection Agency (EPA), the Department of Energy (DOE), the applicable
automobile workers trade union (UAW), industry groups representing the
automobile manufacturers, automotive safety experts, insurance industry
representatives, and environmental advocates. To obtain information
about recent program revisions and NHTSA's plans and capabilities to
further revise CAFE standards, we interviewed NHTSA officials, experts
in fuel economy and safety as well as reviewed CAFE program budgets,
key studies, and other documentation. To obtain information on how the
CAFE program aligns with other approaches and options for reducing oil
consumption by cars and trucks, we interviewed experts in fuel economy
and other industry stakeholders. We selected these experts by
contacting officials who worked on a 2002 National Academy of Sciences
report on CAFE standards. During conversations with these experts, we
asked them for additional experts we should contact. We also contacted
officials in selected foreign countries with programs designed to
reduce oil consumption for passenger vehicles. We conducted our work
for this statement from September 2006 through February 2007 in
accordance with generally accepted government auditing standards.
In summary:
* In 2003, NHTSA raised light truck CAFE standards from 20.7 mpg in
2004 to 22.2 mpg in 2007. Subsequently, NHTSA restructured the CAFE
program for trucks using a method that categorizes light trucks based
on their size. This new method is meant to help address potential
safety consequences and other issues that had previously been cited as
negative consequences of raising CAFE standards. The nation's CAFE
standard for cars has changed little over the past 2 decades, for
example CAFE standards for cars have not risen above 27.5 mpg since
1990. Furthermore, Congress included provisions in DOT's appropriations
acts from fiscal years 1996 through 2001 preventing NHTSA from spending
any funds to change CAFE standards. The Secretary of Transportation
recently asked Congress for the ability to restructure CAFE standards
for cars. More recently, as part of the Administration's plan to meet
the President's oil reduction goal the Secretary of Transportation
submitted a plan to Congress that would allow NHTSA to restructure the
car CAFE program based on an attribute of the vehicle, such as size.
This plan mirrors NHTSA's recent changes to the light truck program. In
addition, several Members of Congress have introduced legislation to
raise CAFE standards.
* The majority of experts with whom we spoke believe that CAFE
standards are an important approach to reducing oil consumption; and
NHTSA's recent reform of the light truck standards addresses other
concerns, including safety and competition among individual car
companies, among others. However, these experts also identified some
further revisions to the CAFE program that could be considered in
determining ways to further optimize the CAFE program, including:
- evaluating a size-based approach for cars similar to the one
implemented for light trucks to address safety and other concerns and
encourage fleet-wide improvements in fuel efficiency;
- considering harmonizing light truck and car standards to have an
integrated program and reduce incentives to classify vehicles as light
trucks;
- reassessing the length of time for which standards are set to reduce
costs for manufacturers;
- allowing trading of CAFE credits between vehicle classes and among
manufacturers to provide additional incentives and flexibility in
meeting CAFE standards; and,
- evaluating the need for the distinction between domestic and foreign
vehicles when calculating CAFE to simplify the program and recognize
changes in where automobiles are manufactured.
Further, experts and NHTSA officials also identified ways NHTSA could
improve its capabilities to revise CAFE standards including:
- obtaining additional expertise on automotive engineering to review
product plans automakers submit in the CAFE rule-making process;
- updating a 2002 National Academy of Sciences study that included
information on the potential impact of technologies that could improve
fuel economy; and:
- identifying a valuation of greenhouse gas emissions used in analysis
to estimate the costs and benefits of changes to CAFE standards.
* Finally, while the CAFE program is an important program in the
nation's efforts to reduce oil consumption, other policies and programs
exist or have been proposed to help the nation reduce oil consumption
by the transportation sector that could complement CAFE. We will be
reporting in more detail on how these options align with the CAFE
program in July 2007. We will also identify policies that potentially
decrease the effectiveness of the CAFE program in reducing oil
consumption. For example, experts with whom we spoke identified the
program that grants manufacturers a 1.2 mpg CAFE credit toward meeting
its fuel economy standard for selling flexible fuel vehicles, even
though these vehicles are not often run on fuel other than gas.
Background:
Congress enacted the 1975 Energy Policy and Conservation Act (the
Energy Act) during the aftermath of the energy crisis created by the
Arab oil embargo of 1973 and 1974 to reduce oil consumption by the
transportation sector in the United States.[Footnote 1] The act
established what is commonly known as the CAFE program, which requires
that manufacturers meet separate fuel economy standards for passenger
cars and light trucks.[Footnote 2] To reduce oil consumption, the
program uses fuel consumption standards--measured in mpg--that cars and
light trucks must meet. In addition to decreasing oil consumption by
increasing the mileage driven on a gallon of gas, an increase in the
standards also decreases tailpipe emissions, including greenhouse
gases.
A manufacturer's compliance is based on a comparison of a
manufacturer's fleet-wide fuel economy average against the appropriate
CAFE standard.[Footnote 3] The Energy Act grants NHTSA the authority to
calculate a car and light truck figure for each manufacturer, measuring
compliance of domestically produced and imported cars, separately. The
law considers a vehicle domestic if at least 75 percent of the cost of
the vehicle to the manufacturer is attributable to value added in the
United States, Mexico, or Canada.
Congress set a standard for passenger cars (currently 27.5 mpg) but did
not establish specific CAFE standards for light trucks in the Energy
Act. Instead, the Energy Act grants NHTSA authority to establish both
the structure of the CAFE program and the fuel economy standards for
different classes of light trucks. Rather than Congress specifying a
mpg target for light trucks as it did for passenger cars, NHTSA is
required to set standards at the maximum feasible level using the same
criteria and lead-time requirements used in setting standards for
passenger cars. However, appropriations acts restricted NHTSA from
increasing or otherwise changing CAFE standards from fiscal year 1996
through 2001. For fiscal year 2002, Congress did not renew the
multiyear freeze on NHTSA's CAFE rule-making responsibilities and the
agency resumed efforts for future rule makings to raise CAFE standards
for light trucks.
The CAFE program is generally considered to have contributed to
increasing the nation's fuel economy. For example, a 2002 NAS report
found that the CAFE program has been particularly helpful in keeping
fuel economy above levels to which it might have fallen due to the low
and declining real price of gas. The NAS study estimated that if fuel
economy had not improved, gas consumption and oil imports would have
been about 14 percent higher than they were in 2002.
To help meet CAFE standards, manufacturers may earn credits that can be
used to help them meet fuel economy standards. For instance, if a
manufacturer exceeds the required fuel economy in a certain year, it
earns credits that can be applied to past or future model-year fuel
economy numbers. Credits, however, cannot be passed between
manufacturers or among fleets. In addition, the Alternative Motor Fuels
Act of 1988 encourages the use of alternative fuels by giving credits
to manufacturers toward meeting CAFE standards for producing cars that
can run on alternative fuels[Footnote 4] in addition to gas. Under the
resulting "Dual Fuel" program, manufacturers may earn up to a 1.2 mpg
credit for producing vehicles through model year 2010 that are capable
of using both regular gasoline and an alternative fuel.[Footnote 5] If
a manufacturer does not meet the standards and has no credits to apply,
it must pay a civil penalty.
In addition to CAFE standards administered by NHTSA, Congress and other
federal agencies have established programs to reduce oil consumption in
the transportation sector. These programs include (1) vehicle
acquisition requirements at federal agencies to purchase alternative
fuel vehicles, (2) research and development of alternative fuels and
new vehicle technologies, and (3) tax incentives for consumers
purchasing fuel efficient vehicles like hybrids.
In addition to NHTSA, other federal entities contribute to the nation's
efforts to reduce oil consumption. For example, DOE coordinates federal
research on strategies for reducing oil consumption; developing
advanced technologies such as fuel cells; producing and using
alternative fuels and more fuel efficient vehicle technology, as well
as providing grants for research into such areas as plug-in
hybrid[Footnote 6] technology and ways to expand the production and use
of ethanol. In addition, the National Economic Council assists the
administration in developing its energy initiatives.
NHTSA Recently Raised and Restructured Light Truck CAFE Standards and
Has Not Raised the Car CAFE Standard Since 1990, but Has Requested
Authority to Make Changes:
NHTSA has recently raised the light truck CAFE standard and reformed
the program using a method that categorizes light trucks based on their
size, doing so in part to address potential safety concerns. CAFE
standards for cars have not changed since 1990. This is due, in part,
to past congressional prohibitions against NHTSA using any of its
appropriation to raise fuel economy standards and, more recently,
NHTSA's preference to tie raising the car standard to restructuring the
program. Recently, the administration has submitted a proposal to
restructure and increase passenger car CAFE standards. Members of
Congress also have submitted proposals to change the CAFE standards.
NHTSA Recently Increased Standards and Reformed the Light Truck CAFE
Program:
In April 2003, NHTSA released a final rule increasing light truck CAFE
standards from 20.7 mpg in 2004 to 22.2 mpg in 2007. As part of this
rule making, NHTSA explained the importance of increasing the CAFE
standards for light trucks because of the growing market share of these
vehicles. The impact of the light truck market on overall oil
consumption in the United States had grown since the beginning of the
CAFE program as market share for these vehicles has increased.
Specifically, in 1980, shortly after the program began, light trucks
composed about 20 percent of the new passenger vehicle market in the
United States. By 2005, light trucks, including minivans, pickup
trucks, and sport utility vehicles, accounted for about 50 percent of
the new passenger vehicle market in the United States. The overall fuel
economy of the U.S. vehicle fleet declined in the 1990s, in part due to
the increased market share of light trucks. (See fig. 1 showing share
of fleet composed by light trucks).
Figure 1: Increased Share of Light Trucks in the U.S. Passenger Vehicle
Market:
[See PDF for Image]
Source: GAO analysis of data from DOE/Transportation Data Energy Book,
edition 25.
[End of figure]
While NHTSA took these steps to raise CAFE standards for light trucks,
the agency also began investigating reforming the light truck CAFE
program in part to address safety concerns. A 2002 National Academy of
Sciences (NAS) report[Footnote 7] on the impact of CAFE
standards[Footnote 8] stated that because the easiest way for an
automobile manufacturer to increase vehicle fuel economy is to decrease
vehicle weight, increases to CAFE standards were likely to have a
negative impact on safety and result in more highway fatalities. The
report recommended that NHTSA investigate implementing a CAFE system
based on the attributes of a vehicle, such as size and/or weight, where
there would be separate standards for vehicles with similar attributes.
In response, NHTSA released a rule in April 2006 that reforms the
structure of the CAFE program for light trucks and continues to
increase light truck CAFE standards for model years 2008 to 2011. Under
the new rule, fuel economy standards are established based upon truck
size instead of having one average standard for all light trucks. Each
truck is assigned a fuel economy "target" based on a measure of vehicle
size called "footprint," the product of multiplying a vehicle's
wheelbase (the distance from front to the rear axles) by its track
width (the horizontal distance between the tires). (See fig. 2 for a
display of how the standard applies to trucks of different sizes).
Figure 2: Application of Reformed Light Truck CAFE Standards to Light
Trucks of Different Sizes for Model Year 2011:
[See PDF for Image]
Source: NHTSA.
[End of figure]
According to NHTSA officials, the reformed CAFE approach may enable the
country to achieve larger reductions in oil consumption, while
enhancing safety and preventing adverse economic consequences. Under
the current standard, manufacturers of smaller light trucks may already
exceed the fleet CAFE standard and, therefore, have little incentive to
increase fuel economy. However, under the reformed standards, the
required overall fuel economy of the light truck fleet will rise over
time. In addition, the reformed standards include larger vehicles such
as sport utility vehicles, but not pickup trucks, weighing between
8,500 and 10,000 pounds that previously were exempt from the CAFE
program. NHTSA estimates that including these vehicles in the CAFE
program will save 7.8 billion gallons of fuel over the life of the
vehicles sold between 2008 and 2011.[Footnote 9] In addition to these
expected fuel savings, the reformed CAFE standards offer enhanced
safety by discouraging downsizing of vehicles since, as vehicles become
smaller, the applicable fuel economy target becomes more stringent. In
addition, according to NHTSA, the reformed CAFE standards spread the
regulatory cost burden for fuel economy improvements more broadly
across the industry instead of concentrating it more exclusively on the
manufacturers who may produce heavier, less fuel efficient vehicles.
NHTSA Has Not Raised the Car CAFE Standard Since 1990 but Has Requested
Authority to Make Changes:
The 1975 Energy Act established CAFE standards for passenger cars for
model years 1978 to 1980 and 1985 and thereafter. The standards called
for manufacturers to produce vehicles averaging 18 mpg in 1978, rising
to 27.5 mpg by 1985.[Footnote 10] In the 1980s, NHTSA reduced the CAFE
standard for cars, and the agency did so for model years 1986 to 1989.
NHTSA raised the car CAFE standard back to 27.5 mpg for the 1990 model
year and has made no changes to the standard since then. See table 1
showing CAFE standards over time.
Table 1: Fuel Economy Standards for Passenger Cars and Light Trucks,
Model Years 1985 through 2007, in miles per gallon:
Model year: 1985;
Passenger cars: 27.5;
Light trucks: 19.5.
Model year: 1986;
Passenger cars: 26.0;
Light trucks: 20.0.
Model year: 1987;
Passenger cars: 26.0;
Light trucks: 20.5.
Model year: 1988;
Passenger cars: 26.0;
Light trucks: 20.5.
Model year: 1989;
Passenger cars: 26.5;
Light trucks: 20.5.
Model year: 1990;
Passenger cars: 27.5;
Light trucks: 20.0.
Model year: 1991;
Passenger cars: 27.5;
Light trucks: 20.2.
Model year: 1992;
Passenger cars: 27.5;
Light trucks: 20.2.
Model year: 1993;
Passenger cars: 27.5;
Light trucks: 20.4.
Model year: 1994;
Passenger cars: 27.5;
Light trucks: 20.5.
Model year: 1995;
Passenger cars: 27.5;
Light trucks: 20.6.
Model year: 1996;
Passenger cars: 27.5;
Light trucks: 20.7.
Model year: 1997;
Passenger cars: 27.5;
Light trucks: 20.7.
Model year: 1998;
Passenger cars: 27.5;
Light trucks: 20.7.
Model year: 1999;
Passenger cars: 27.5;
Light trucks: 20.7.
Model year: 2000;
Passenger cars: 27.5;
Light trucks: 20.7.
Model year: 2001;
Passenger cars: 27.5;
Light trucks: 20.7.
Model year: 2002;
Passenger cars: 27.5;
Light trucks: 20.7.
Model year: 2003;
Passenger cars: 27.5;
Light trucks: 20.7.
Model year: 2004;
Passenger cars: 27.5;
Light trucks: 20.7.
Model year: 2005;
Passenger cars: 27.5;
Light trucks: 21.0.
Model year: 2006;
Passenger cars: 27.5;
Light trucks: 21.6.
Model year: 2007;
Passenger cars: 27.5;
Light trucks: 22.2.
Source: NHTSA.
[End of table]
NHTSA officials cited several reasons for not raising the CAFE standard
over 27.5 mpg. First, for several years, Congress specifically
prevented NHTSA from making any adjustments to CAFE. Beginning in
fiscal year 1996 and lasting through fiscal year 2001, Congress
included language in DOT's appropriations acts preventing NHTSA from
expending any appropriated funds for rule makings to adjust CAFE
standards, for either cars or trucks. Second, although NHTSA officials
state that the agency has the legislative authority to raise CAFE
standards for cars above 27.5 mpg, as specified by the Energy Act,
these officials stated the Energy Act prevents NHTSA from restructuring
the program, for example, by developing a size-based standard as it
recently did for light trucks.[Footnote 11] NHTSA is reluctant to raise
the car standards without restructuring the program as it is concerned
about the effect on safety, competition between auto manufacturers, and
other issues.
However, in 2007 the NHTSA Administrator submitted proposed legislation
to Congress that, if enacted, would give the Secretary of
Transportation the authority to restructure and increase CAFE standards
for cars. The proposal calls for the fuel economy standard to be the
maximum level that NHTSA believes the manufacturers could achieve in a
specific model year. The proposal would also give NHTSA the power to
base the standard on one or more vehicle attributes similar to the
light truck standard. In addition, the proposal calls for a credit
trading system among manufacturers. If a manufacturer exceeds the
mileage standard, it can sell its credits to another manufacturer or a
broker. The proposal does not provide a specific goal or mpg standard;
but, like the light truck standard, it sets an average fuel economy
standard that is the maximum feasible average fuel economy level that
the Secretary of Transportation decides the manufacturers can achieve
in a specific model year. NHTSA officials indicate that they may follow
a process similar to the rule-making process they followed to recently
reform and set new light truck standards.
In addition to this proposed legislation, several Members of Congress
have submitted bills that have some similarities to the Secretary's
proposal but, if enacted, would set a specific fuel economy mpg
standard for manufacturers to meet, rather than allow NHTSA to
determine the maximum feasible level. For example, one bill calls for
cars and light trucks achieve a combined CAFE average of 35 mpg by
2019.[Footnote 12] Another bill would raise CAFE standards for
passenger cars to 40 mpg by 2017.[Footnote 13] These are only selected
examples of the many bills currently pending in Congress on this topic.
A Majority of Industry Stakeholders and Experts Support NHTSA's Recent
CAFE Revisions, While Recommending Further Refinements to the CAFE
Program and Ways for NHTSA to Improve Its Capability to Revise
Standards:
The majority of industry stakeholders and experts with whom we spoke
supported NHTSA's revisions to the light truck standards, and many of
them specifically stated that NHTSA should consider further refinements
to the CAFE program, such as restructuring the car CAFE standards based
on the size of the vehicle. In addition to these refinements,
stakeholders and experts identified issues about both the appropriate
information for NHTSA's rule making deliberations and NHTSA's
capabilities to most effectively revise car CAFE standards. For example
the model that NHTSA uses to estimate the impact that changes in CAFE
standards will have on oil consumption does not currently place a
dollar value on the reduction of carbon emissions. If NHTSA is able to
revise car standards, it may be an opportunity to consider how to value
greenhouse gas emissions. Furthermore, many experts indicated that the
agency would benefit from some additional expertise, for example, on
automotive engineering to, among other duties, review product plans
automakers submit in the CAFE rule-making process.
Stakeholders and Experts Support Recent Restructuring of Light Truck
Standards:
While it is impossible to determine the extent to which NHTSA's recent
restructuring of the light truck CAFE standards will reduce oil
consumption since the standards will not take full effect until vehicle
model year 2011, experts and industry stakeholders whom we interviewed
generally praised the restructuring. Many, including representatives
from the insurance industry, specifically praised the restructured CAFE
program for removing most incentives manufacturers may have had to
reduce vehicle weight in order to meet CAFE standards, and thereby make
vehicles less safe. A number of experts also noted that the
restructured standards treated all manufacturers more equitably, in
that each company would now have an incentive to use additional fuel
efficient technologies across its light truck fleets, rather than only
in selected vehicles needing a boost to meet CAFE standards.
Auto industry representatives with whom we spoke also supported the
restructuring because it seemed to spread the burden of compliance
evenly across the industry. Also, industry representatives stated that
the reformed light truck standard did not favor big or small vehicles,
so manufacturers could produce a range of vehicles that appeal to
different segments of the market.
A few experts with whom we spoke expressed concern regarding the
reformed standards, stating that NHTSA did not raise CAFE standards far
enough or that the system could not guarantee oil savings because
manufacturers could choose to build--and consumers might elect to buy-
-trucks with the largest footprints, which must meet lower fuel economy
standards than smaller trucks.
Experts Have Recommended Further Refinements to the CAFE Program:
Many of the experts with whom we spoke identified several refinements
to the CAFE program that could improve the program by improving safety,
making the program more equitable for manufacturers, or reducing the
costs that manufacturers incur to comply with the program. In addition
to increasing fuel efficiency standards to reduce oil consumption,
further refinements may help address safety concerns and improve the
efficiency of the CAFE program. Some of these potential changes include
the following:
* Evaluating footprint approach for cars: Currently, the car standard
uses a single, mpg standard as opposed to the recently reformed light
truck standard, which uses a footprint-based standard. The majority of
the experts with whom we spoke believed that changing the structure of
the light truck program to a footprint-based standard was positive, and
many of them specifically stated that NHTSA should be allowed to
evaluate a similar structure for the car program. They believe that
such a structure will provide similar safety benefits to those expected
with the revised truck program and would also treat car companies more
equitably.
* Harmonizing light truck and passenger vehicle standards: Currently,
light truck and car standards are separate. However, of those experts
that expressed an opinion, almost all thought the car and light truck
CAFE programs should be harmonized if a footprint system was instituted
for cars as it has been for light trucks. Experts noted several
advantages of harmonizing the programs, including reducing the current
incentive for manufacturers to reclassify vehicles from cars to light
trucks in order to be able to comply with a lower CAFE standard. One
expert also noted that harmonizing cars and light trucks was
appropriate, given that light trucks are now primarily used as
passenger vehicles rather than as cargo and agricultural vehicles, as
was the case when CAFE was instituted.
* Reassessing the length of time for which CAFE standards are set:
Currently, NHTSA sets new CAFE standards generally for 2 to 4 years at
a time with the first new year of standards beginning 18 months after
the completion of a rule-making process. Of those that expressed an
opinion, almost all the experts with whom we spoke stated that setting
standards for about 7 to 10 years out reduces costs for manufacturers
by allowing the manufacturers to capitalize on normally scheduled plans
to redesign models.
* Allowing CAFE credit trading between vehicle classes and among
manufacturers: Currently, if manufacturers exceed the required fuel
economy in a certain year, they earn credits that can be applied to
past or future model-year fuel economy numbers. Such credits applied to
previous model years are known as "carry-back" credits, while those
applied to future model years are known as "carry-forward" credits.
These credits cannot be traded among manufacturers or between fleets
(that is, between cars and trucks). Of those who expressed an opinion,
many of the experts with whom we spoke thought that the manufacturers
should have greater flexibility in trading CAFE credits than is now
afforded under the "carry-forward carry-back" approach. Economists in
particular noted that credit trading both between vehicle classes
within a manufacturer' own fleet and credit trading among manufacturers
would reduce the compliance costs of CAFE for manufacturers, since
manufactures for whom it would be very costly to achieve a CAFE
standard for a particular line could trade with another line where
exceeding the standard would be less costly.
* Removing the distinction between domestic versus import vehicles to
calculate CAFE standards: Currently, the CAFE program determines a
manufacture's compliance with CAFE car standards for its domestic-and
foreign-made fleets, separately. According to a labor union official,
this distinction was designed as a way to keep some small car
production within the country and thus protect workers that produce
small cars domestically. Of those who expressed an opinion, almost all
the experts we spoke to believe that CAFE compliance should no longer
be calculated separately for domestic and import fleets. Industry
representatives noted that cars produced in Canada and Mexico count as
domestic vehicles and that many foreign manufacturers make vehicles in
the United States, thus the distinction is not as meaningful as it once
was. However, the union believes that if this incentive is removed,
automakers will continue producing small cars in foreign markets, but
close domestic plants producing small cars, thus adversely impacting
U.S. jobs.
NHTSA and Experts Identified Ways to Improve NHTSA Capabilities to
Reform the CAFE Program:
As discussed above, the Secretary of Transportation has submitted
legislation to Congress that, if enacted, would give the Secretary of
Transportation the authority to revise CAFE standards for cars. Many of
the experts with whom we spoke raised some concerns about NHTSA's
capabilities to revise CAFE standards. These experts identified several
ways NHTSA could improve its capabilities to revise CAFE standards in
the future. In some instances, NHTSA officials acknowledged the benefit
of these potential improvements.
* Expanding staff expertise and levels: Two experts with whom we spoke
cited the congressional prohibition on any work at NHTSA to increase
CAFE standards in the 1990s as a reason the agency lost qualified,
experienced staff. An expert stated that in the past, NHTSA was more
aggressive at critiquing cost estimates and product plans that
automakers submitted when the agency was determining how much of an
increase in CAFE standards the auto manufacturers could handle
technologically. Several experts believed that NHTSA currently does not
have the capacity to do this sort of checking. NHTSA officials
disagreed with this assessment but stated that additional staff with
automotive engineering skills would help them in future CAFE rule
makings and that they will hire an additional person with an automotive
engineering background. NHTSA officials agreed that they are, to a
degree, dependent on the information automakers provide them about
product plans and future technological capabilities in enhancing fuel
economy.
* Updating the NAS report: NHTSA officials involved in setting the
reformed light truck standard told us they relied extensively on the
2002 NAS report that evaluated CAFE standards. Specifically, these
officials cited the report's assessment of the impact on fuel economy
and cost of emerging automotive technologies as crucial to their
decision making about how high to raise future CAFE standards and how
quickly to require future increases. Also, NHTSA officials stated that
because the report had been peer reviewed, it was even more useful and
mitigated criticism regarding the agency's assumptions. NHTSA officials
and several experts whom we interviewed supported updating the study,
as the original information is now 5 years old and rapidly becoming
outdated, since technologies on automotive technologies change quickly,
and cost information also varies over time. For example, NHTSA
officials pointed out that the study did not include an assessment of
alternative technologies, such as electric hybrids. These officials and
experts stated that it would be ideal to complete such an update before
NHTSA issues a new car or light truck fuel economy standard, and NHTSA
has request funding for such a study in its 2008 budget proposal to
Congress.
* Identifying a valuation for greenhouse gas emissions: Several
stakeholders and experts told us they were concerned about certain
inputs that NHTSA officials used in the computer model maintained by
DOT's Volpe Research Center. NHTSA uses this model as a tool to help
estimate the fuel savings that will result from CAFE increases and to
estimate how likely it is that the manufacturers will comply with
future CAFE standards.[Footnote 14] Specifically, some experts were
critical of the fact that NHTSA and Volpe staff assigned a "zero"
dollar value to the benefit of reductions in greenhouse gas emission
that would result from an increased standard. NHTSA officials stated
they did this because the scientific community had not reached a
consensus on the value that should be assigned to carbon dioxide,
though researchers have developed a range of values that could be
considered in giving a dollar value to greenhouse gas reductions.
Therefore, according to one expert, the results of the model may
underestimate the total dollar benefits to society of raising CAFE
standards, since the dollar value of reduced greenhouse gas emissions
was not included in the model's results. If the car CAFE program is
revised, it may provide an opportunity to revisit how to value a
decrease in greenhouse gas emissions through improved fuel efficiency.
Other Federal Programs Also Seek to Reduce Oil Consumption in the
Transportation Sector:
While the CAFE program is an important program in the nation's efforts
to reduce oil consumption, other policies and programs currently exist
to help the nation reduce oil consumption in the transportation sector.
The White House National Economic Council's 2006 Advanced Energy
Initiative and the Department of Energy's Strategic Plan both highlight
a number of ongoing programs and initiatives in the transportation
sector, such as developing and deploying alternative fuels that can
help reduce oil consumption. Other existing programs include CAFE
credits for manufacturers of "flex fuel" vehicles capable of running on
gasoline or alternative fuels, a federal vehicle acquisition program
requiring federal agencies buy vehicles capable of running on
alternative fuels,[Footnote 15] tax incentives for consumers purchasing
fuel efficient vehicles like hybrids, and taxes to discourage the
purchase of cars with low fuel efficiency, known as the "gas guzzler"
tax. We will be reporting in July 2007 on the extent to which these
programs complement or contradict the goals of the CAFE program. We
will also report on other proposals to reduce oil consumption by cars
and light trucks and their potential effects.
However, many of the experts with whom we spoke have pointed out that
the program granting manufacturers a maximum of 1.2 mpg CAFE credit
toward meeting fuel economy standards for flex-fuel vehicles, currently
may be actually increasing oil consumption among passenger vehicles.
Specifically, the credit allows manufacturers to build these vehicles
to meet a lower CAFE standard, and this credit is granted regardless of
whether consumers are actually running the vehicles on gas or E85 (a
blend of 85 percent ethanol).[Footnote 16] As a result, flex fuel
vehicles fueled with gasoline are generally less efficient than non-
flex fuel models because these vehicles have to meet a lower fuel
efficiency standard than non-flex fuel models. Also, manufacturers have
generally put this flex-fuel capacity in their larger, less efficient
models. NHTSA officials pointed out, however, that they view this
credit as providing an incentive to auto manufacturers to bring
vehicles to the market that can run on E85 and other alternative fuels,
which would help expand the infrastructure to make these fuels
available to consumers.
Mr. Chairman, this concludes my statement. I would be pleased to answer
any questions that you or other Members of the Committee may have at
this time.
Contact Information:
For further information on this statement, please contact Katherine
Siggerud at (202) 512-2834 or siggerudk@gao.gov. Individuals making key
contributions to this testimony statement include Farah B. Angersola,
Catherine Colwell, Colin Fallon, Joah G. Iannotta, Elizabeth A.
Marchak, and Raymond Sendejas.
FOOTNOTES
[1] Pub. L. 94-163.
[2] For CAFE purposes, NHTSA currently defines light truck as a four-
wheel vehicle which is designed for off-road operation or which is
designed to perform certain functions such as transporting more than 10
people or transporting property in an open bed. This includes most
pickup trucks, minivans, and sport utility vehicles. The most recent
standards NHTSA set will apply to trucks up to 10,000 lbs. and pickup
trucks up to 8,500 lbs.
[3] For example, manufacturers meet the standard if the average mpg of
all the vehicles they manufacture in a year meet the CAFE standard for
that year. Manufacturers have had to meet mpg of 27.5 for cars since
1990. EPA performs the tests that determine what mpg each
manufacturer's model obtains. A model's CAFE figure generally differs
from the window sticker a new vehicle displays showing its fuel
economy. The window sticker mpg is determined through a different
methodology than the CAFE figure.
[4] Alternative fuels are fuels other than conventional fossil fuels
and include ethanol, hydrogen, and batteries.
[5] NHTSA has the authority to continue this credit through rule
making.
[6] Hybrid technology refers to vehicles that run on both a gasoline-
powered engine and an electric battery. Plug-in hybrids are vehicles
that recharge their battery at battery charging stations.
[7] "Effectiveness and Impact of Corporate Average Fuel Economy (CAFE)
Standards," National Academy of Sciences (Washington, D.C.: 2002).
[8] Congress requested that the National Academy of Science, in
consultation with DOT, conduct a study to evaluate the effectiveness
and impacts of CAFE Standards.
[9] 71 Fed. Reg. 17566 (2006).
[10] The Secretary of Transportation issued interim standards for 1981
to 1984.
[11] The Energy Act includes a so-called legislative veto provision
allowing either the House of Representatives or the U.S. Senate to
disapprove any attempt to increase CAFE standards above the current
27.5 mpg level (or decrease them below 26.0 mpg). However, since the
Energy Act was passed, the Supreme Court has held that such legislative
vetoes are unconstitutional.
[12] S. 357, 110th Congress.
[13] S. 183, 110th Congress.
[14] NHTSA also uses the model to predict the effect of efficiency-
increasing technologies on specific vehicle models and to calculate the
resultant CAFE levels among vehicle manufacturers resulting from
changes in CAFE standards. The model also predicts impact on energy
use, and other monetary and nonmonetary externalities.
[15] We recently issued a report on the U.S. Postal Service's attempts
to comply with this federal requirement. GAO, U.S. Postal Service:
Vulnerability to Fluctuating Fuel Prices Requires Improved Tracking and
Monitoring of Consumption Information, GAO-07-244 (Washington, D.C.:
Feb. 16, 2007).
[16] In 2006, there were about 1,000 E85 stations across the country
(mostly in the Midwest) compared with 176,000 stations selling gas.
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