[Senate Hearing 107-1133]
[From the U.S. Government Printing Office]



                                                       S. Hrg. 107-1133
 
 NATIONAL SECURITY, SAFETY, TECHNOLOGY, AND EMPLOYMENT IMPLICATIONS OF 
                     INCREASING THE CAFE STANDARDS

=======================================================================

                                HEARING

                               before the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                               __________

                            JANUARY 24, 2002

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation



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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

              ERNEST F. HOLLINGS, South Carolina, Chairman
DANIEL K. INOUYE, Hawaii             JOHN McCAIN, Arizona
JOHN D. ROCKEFELLER IV, West         TED STEVENS, Alaska
    Virginia                         CONRAD BURNS, Montana
JOHN F. KERRY, Massachusetts         TRENT LOTT, Mississippi
JOHN B. BREAUX, Louisiana            KAY BAILEY HUTCHISON, Texas
BYRON L. DORGAN, North Dakota        OLYMPIA J. SNOWE, Maine
RON WYDEN, Oregon                    SAM BROWNBACK, Kansas
MAX CLELAND, Georgia                 GORDON SMITH, Oregon
BARBARA BOXER, California            PETER G. FITZGERALD, Illinois
JOHN EDWARDS, North Carolina         JOHN ENSIGN, Nevada
JEAN CARNAHAN, Missouri              GEORGE ALLEN, Virginia
BILL NELSON, Florida
               Kevin D. Kayes, Democratic Staff Director
                  Moses Boyd, Democratic Chief Counsel
      Jeanne Bumpus, Republican Staff Director and General Counsel


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on January 24, 2002.................................     1
Statement of Senator Allen.......................................    49
Statement of Senator Dorgan......................................     3
Statement of Senator Kerry.......................................     1
Statement of Senator McCain......................................     2

                               Witnesses

Claybrook, Joan, President of Public Citizen.....................    13
    Prepared statement...........................................    15
Dana, Greg, Vice President, Environmental Affairs, Alliance of 
  Automobile Manufacturers.......................................    83
    Prepared statement...........................................    85
Eizenstat, Ambassador Stuart E., Partner, Covington & Burling....     4
    Prepared statement...........................................     8
German, John, Manager, Environment and Energy Analyses, American 
  Honda Motor Corporation, Inc...................................    72
    Prepared statement...........................................    74
Hoerner, J. Andrew, Director, Research Center for a Sustainable 
  Economy........................................................    39
    Prepared statement...........................................    40
Lund, Adrian K., Chief Operating Officer, Insurance Institute for 
  Highway Safety.................................................    31
    Prepared statement...........................................    34
Ross, Marc, Professor of Physics, University of Michigan.........    68
    Prepared statement...........................................    70
Schaeffer, Allen, Executive Director, Diesel Technology Forum....    63
    Prepared statement...........................................    65


 NATIONAL SECURITY, SAFETY, TECHNOLOGY, AND EMPLOYMENT IMPLICATIONS OF 
                     INCREASING THE CAFE STANDARDS

                              ----------                              


                       THURSDAY, JANUARY 24, 2002

                                       U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 9:55 a.m. in room 
SR-253, Russell Senate Office Building, Hon. John F. Kerry, 
presiding.

           OPENING STATEMENT OF HON. JOHN F. KERRY, 
                U.S. SENATOR FROM MASSACHUSETTS

    Senator Kerry. The hearing will come to order. I would like 
to welcome our first panel, Ambassador Eizenstat, Ms. 
Claybrook, Mr. Lund and Mr. Hoerner. We have a lot of business 
to cover. I appreciate everybody's patience.
    We now are convening the full Committee for a hearing on 
national security safety technology and employment implications 
of increasing the CAFE standards. We have had three prior 
hearings. The most recent one was in December, when we heard 
from those in the industry and others about their views on 
aspects of the CAFE standards, and we reserve this final 
hearing to really analyze the feasibilities and the rationale. 
Why is this compelling? Is this compelling? Are there reasons 
for us to consider this as a matter of policy now? The staff 
has done an extraordinary amount of work in the last few 
months. We've been talking with literally dozens of different 
people who are impacted by or have an impact on this particular 
issue, and I think we have come to have a pretty good 
understanding of choices not made and choices yet that we face 
with respect to it, and we will be making some recommendations 
in the next few days.
    One of the dynamics in this issue that makes it complicated 
is, frankly, the lack of effort in past years by the industry 
itself to adopt different practices, so we are confronted with 
one of those Hobson's choices where the industry comes in and 
says, well, if you force us to do X, Y, or Z, it is going to 
have the following impact on us, and of course we are put into 
the quandary of having some impact, but as a consequence of 
their own lack of having made some wiser choices. Our job is to 
make good policy choices for the country and to protect our 
citizens and to make some tough judgments about what we think 
is feasible, and also to be sensitive. I am not trying to 
suggest we should do it without sensitivity to what impacts may 
occur, and we are not going to be insensitive. I think we are 
going to do this in a thoughtful way, but at the same time 
there are some facts that tell different stories. Let me just 
point one out to everybody as just sort of framing this 
discussion. Here is a graph. You cannot see it--I regret it is 
not blown up--but you can see a huge part of the graph here and 
four components of it.
    This is how new technology has been used from 1988 until 
the year 2001. 53 percent of new technology since 1988 has gone 
into horsepower, 18 percent has gone into acceleration, 19 
percent has gone into weight in one form or another, fuel 
economy minus 8 percent, so the industry has been pushing 
horsepower and acceleration while the national urgency with 
respect to emissions and fuel consumption has been waning, and 
I could show you another graph where it has just been going 
down. We are at an all-time low since 1970.
    That cannot continue, and I made it clear in my comments on 
energy on Tuesday that many of us feel we need to do something 
on the CAFE standard. We will be meeting as a committee, and I 
am not going to suggest it by myself. We are going to meet in 
the next days, talk to Senator McCain, to Republican Members of 
the Committee and to Democratic members and try to see if we 
can find some consensus, and at that point we will have a 
markup sometime shortly after we have done the internal work of 
the Committee Members themselves, so that is where we are in 
the process today.
    We really look forward to examining what is feasible, what 
can be achieved, what are the realities of the science, what 
are the compelling considerations here as a matter of national 
policy, and try to sort our way through those as well as we 
can.
    Let me ask Senator, if anyone else has a statement. Senator 
McCain.

                STATEMENT OF HON. JOHN McCAIN, 
                   U.S. SENATOR FROM ARIZONA

    Senator McCain. I thank you for convening this hearing, Mr. 
Chairman, on Corporate Average Fuel Economy (CAFE) standards. 
This is an important issue for future generations of the 
country, and I hope today's testimony will assist the Committee 
as we work together to develop a balanced approach to address 
this complex issue.
    While I applaud the Administration's recent commitment to 
developing hydrogen-powered fuel cell vehicles, and its 
``Freedom CAR'' partnership with private industry, I do not 
believe it would be sound policy for the Federal Government to 
place all of its eggs in the basket of the hydrogen fuel cell 
program. As we eagerly anticipate the results of that program, 
we must, at the same time, take necessary steps to improve fuel 
efficiency without unduly compromising safety.
    Last year, the National Academy of Sciences (NAS) report 
concluded that the benefits resulting from CAFE clearly warrant 
government intervention to ensure fuel economy levels beyond 
what may result from market forces alone. The NAS committee 
found that CAFE has caused marked improvements in reducing 
greenhouse gas emissions, fuel consumption, and dependence on 
foreign oil. The NAS warned, however, that CAFE standards have 
probably resulted in increased traffic fatalities due to 
downsizing and downweighting of vehicles by manufacturers in 
their efforts to comply with the standards. As the Commerce 
Committee further examines this issue, it is imperative that we 
account for any unintended consequences. As the NAS committee 
suggests, we can achieve better fuel economy without having to 
compromise passenger safety.
    The Debate over CAFE is complex, because it requires 
striking a careful balance among many factors, and this debate 
is long overdue.
    I thank you, Mr. Chairman, and look forward to the 
testimony.
    Senator Kerry. Thank you very much, Senator McCain. Senator 
Dorgan.

              STATEMENT OF HON. BYRON L. DORGAN, 
                 U.S. SENATOR FROM NORTH DAKOTA

    Senator Dorgan. Mr. Chairman, let me just briefly make a 
couple of comments. I serve on the Energy Committee, as well as 
the Commerce Committee. This is an important issue. If you look 
at energy demand, a substantial increase in demand over a long 
period of time has come from the transportation sector. You 
must, it seems to me, with respect to an energy policy, deal 
with not only increased production but also conservation, 
increased efficiency, and renewable and limitless resources, so 
all of this is important.
    I would be remiss if I did not say I come from a state that 
has more miles of roads per person than anyone else in the 
country. We pay nearly the highest amount of money for fuel tax 
per person. We drive a substantial number of pickup trucks. It 
is a rural state with farmers and so on. We need to have a 
thoughtful and balanced approached with respect to these 
efficiencies, but I want to make one final point. I have made 
it before, but it is worth making again.
    My first automobile was a car that I bought for $25 when I 
was a teenager. It was 1924 Model T Ford, and I bought it and 
restored it at age 14. It was a wonderful experience. I put 
gasoline in the 1924 Model T Ford the same way I put gasoline 
in my 1997 car. You just take the hose and stick it in the 
tank, and you pump gas. Nothing has changed in 77 years. 
Nothing.
    That is why I believe that the fuel cell and other 
approaches also makes sense. If we do not proceed to deal with 
technology and begin to wean ourselves from the internal 
combustion engine and gasoline in the long term, we are simply 
talking about policies that have serious implications for this 
country, and so yes, I want to deal with the issue of 
efficiency in a thoughtful, careful way, but I also want us to 
be understanding that over 75, 80 years ago we should have been 
able to develop some new technologies that address some of 
these issues as well.
    And Mr. Chairman, thank you for holding this hearing. We 
will be holding similar inquiries, in the Energy Committee and 
talking about these issues as well, but thanks for your 
leadership.
    Senator Kerry. Thank you very much, Senator. I might just 
comment that interestingly, you were talking about things that 
have not changed, only 15 percent of the chemical energy in 
gasoline is used to propel a typical vehicle. 85 percent is 
gone. I mean, that is why the industry respondents themselves 
have agreed by 5 to 1 that the internal combustion engine still 
has very significant room for increases in overall efficiency, 
and there are many technologies--we are going to listen to some 
of them this morning--that could enhance that.
    We have a very distinguished panel. I welcome you. Thank 
you for taking time to be here today. Ambassador, or Deputy 
Secretary--I am not sure which title he prefers, but he comes 
with an extraordinary background in these issues and I must say 
I have personally witnessed his negotiating skills on difficult 
issues. I think we have been well-served to have his counsel 
involved in Government for a long period of time. He was 
President Carter's chief domestic policy advisor at a time when 
the energy issue first surfaced.
    We welcome Ambassador Eizenstat here. Joan Claybrook, a 
long-time involved in these issues, of Public Citizen, Mr. 
Adrian Lund, the chief operating officer of the Insurance 
Institute for Highway Safety, and Andrew Hoerner, the Center 
for Sustainable Economy, director of research.
    Thank you all for being here today. We will start off, 
Ambassador, with you. Thank you.

STATEMENT OF AMBASSADOR STUART E. EIZENSTAT, PARTNER, COVINGTON 
                           & BURLING

    Ambassador Eizenstat. Thank you, Mr. Chairman, Senator 
McCain, Senator Dorgan, Senator Breaux. I have been asked to 
speak primarily about the national security implications of our 
dependence on foreign oil, and before I begin my formal 
remarks, Chairman Kerry, let me applaud your alternative energy 
plan that was unveiled earlier this week.
    The lessons of the impact of our dependence on foreign oil 
supplies were first taught to us back in 1973-1974, with the 
initial Arab oil embargo, when crude oil prices quadrupled from 
1972 to 1974. In large measures spurred by that embargo, 
Congress in 1975 passed the Energy Policy and Conservation Act, 
which included provisions for establishing CAFE standards. I 
was in the middle of that debate as chief domestic policy 
advisor to President Carter, and remember very well being part 
of the team that developed CAFE standards and a meeting we had 
in the Cabinet room with President Carter and the heads of the 
three big automobile manufacturers. They said that it was 
impossible to reach the standards that we were considering, 
starting at 18 miles per gallon in 1978 to 27\1/2\ miles per 
gallon in 1985. The technology did not exist. It was simply 
impossible and too costly.
    And yet, once the CAFE standards were implemented, all 
three companies met and, indeed, exceeded those standards, so 
as you embark upon this important process, I feel confident 
that automobile manufacturers do have the ability to achieve, 
and even surpass considerably, the standards that have been 
previously set.
    In terms of the national security implications, at present 
we import about 51 percent of our oil, and that is projected to 
increase to 64 percent within 20 years. This places us in a 
precarious national security position. Each year, we import 16 
percent of our oil from Saudi Arabia and an additional 9 
percent from other States in the Persian Gulf. Our dependence 
on oil from the Middle East is fraught with insecurity and 
danger. These were horrible reminders, of course, on September 
11, when terrorist threats both at home and abroad showed 
linkages, direct or indirect, with oil-producing States in the 
region.
    Our reliance on States that are unstable or in some cases 
even hostile to the United States presents a very real national 
security dilemma. Some countries like Iran and Iraq are 
actively hostile. Others, like Saudi Arabia, have been and 
remain historically friendly to us, but rest on power bases 
that might not have broad public support and that have their 
own internal fundamentalist threats.
    While we have a national security interest in the stability 
of those regions and those regimes, we must remain aware of the 
possibility that they could fall into hostile hands. I can 
assure you that we had no anticipation that the Shah of Iran 
would be toppled so quickly during the Carter years. No one 
could have forecast the Iranian revolution. The rise to power 
of Ayatollah Khomeini, the first radical fundamentalist, 
altered our relationship with Iran and led to one of the most 
difficult events of the past 25 years, the Iran hostage crisis. 
At the time of that revolution, oil production from Iran 
dropped precipitously and oil prices in the U.S. skyrocketed.
    The Iranian revolution resulted in the loss of 2 to 2\1/2\ 
million barrels of oil per day from November 1978 to June 1979, 
and during a 1-year period, from the beginning of 1979 to the 
beginning of 1980, oil prices rose by 120 percent, delivering a 
knock-out blow to the U.S. economy.
    Another smaller supply interruption occurred during the 
Iran-Iraq war from 1980 to 1988. The impact was certainly more 
mild, but still worrisome. Today Iran supports terrorist 
organizations like Hezbollah, who seek to destroy the Middle 
East peace process, and is also on a crash course to develop 
medium-range missiles with potential chemical or nuclear 
warheads able to reach Israel in a few years. There is no 
reason to think they will stop there, and we must be concerned 
by the possibility that they will try to develop long-range 
missiles that can hit the United States. Clearly, and obviously 
Iraq is not a reliable partner, either.
    Our dependence on oil from the Middle East profoundly 
influences our economy and our foreign policy. Our decision to 
take military action against Iraq after the invasion of Kuwait 
was, at a minimum, heavily influenced by our dependence on oil 
from the Persian Gulf. It led us to commit more than 500,000 
American troops during the gulf war, more than 600 of whom were 
killed or wounded. At present, we have 4,500 troops in Saudi 
Arabia and 12,500 naval personnel at sea in the Persian Gulf. 
The presence of these troops is intended, of course, to protect 
the governments in the region, but it also leads to resentment, 
resentment that was at the heart of the September 11 attacks.
    The U.S. now finds itself torn between its interests in 
supporting stable governments in the gulf, and the hostility 
and danger present to American troops on foreign soil. I for 
one believe it is critical that we remain, and continue to have 
a military presence there, but in the end, our dependence on 
Persian Gulf oil and Saudi oil, in particular, leaves us 
vulnerable to attack at home and abroad.
    The lessons of the past 25 years in the gulf are clear. 
Regional instability there is real, with tangible effects here 
in the United States. If we do not take action at home to 
reduce our reliance on oil from abroad, we run the risk of 
falling prey to the very same problems we have lived through in 
the past. We have remained dependent on a region where, in the 
past 2 decades, we have fought 2 wars, and the tide of anti-
Americanism continues to rise. Tension between modern and 
radical Islam threatens the ruling elites of the governing 
regimes and yet, in spite of all of this, we continue to import 
25 percent of our daily supply from the gulf. From a national 
security perspective, this makes no sense.
    One further point is that the Persian Gulf is not the only 
region where our dependence on foreign oil renders us 
vulnerable. Nigeria, a major supplier of almost a million 
barrels of oil per day, has regional and religious animosities. 
The Caspian Sea region is also an area of instability. Getting 
Caspian oil to international markets will require overcoming 
enormous hurdles, since it must travel by pipeline through some 
of the most volatile areas of the world, including Chechnya, 
Georgia, Armenia, and Iran.
    By raising CAFE standards, you will reduce our 
vulnerability to national and regional instability in oil-
producing areas. CAFE standards have already saved 3.9 million 
barrels a day, and a rise in minimum CAFE standards over time 
to 40 miles per gallon would represent a savings of almost as 
much, or more than, the oil we import from Saudi Arabia.
    In addition to these national security concerns, a 
reduction in our dependence on foreign oil would have a 
substantial effect on our foreign trade deficit. Oil is our 
biggest natural resource import, and one of the single largest 
contributors to our trade deficit. Throughout the 1990's, that 
deficit rose each year, and our reliance on foreign oil was a 
primary cause of it. Therefore raising CAFE standards, not only 
would we be reducing our dependence on volatile areas of the 
world, but also reducting the trade deficit.
    As chief U.S. negotiator for the Kyoto Protocol on global 
warming, I have a particular interest in the environmental 
effects of our oil dependence. Senator Kerry was in Kyoto 
during our negotiations. To the extent that we want to reduce 
the threat of greenhouse gases our reduction of oil consumption 
is essential. Transportation is responsible for one third of 
the release of greenhouse gases into the earth's atmosphere, so 
by raising CAFE standards, we will not only reduce our 
dependence therefor on volatile markets, but we will be taking 
steps to reduce our role in the decay of the environment.
    With respect to the dependence of consumers on automobiles 
and costs, I do not believe there is an either-or proposition 
between conservation and production. We need conservation, we 
need to increase domestic production, and we need increased 
research and development on new technologies. I recently test-
drove the new Toyota Prius hybrid that gets 52 miles a gallon, 
and I know that Senator Kerry's alternative energy plan would 
provide tax incentives for such cars.
    I believe that there is a positive impact, in terms of 
making our industry more competitive, to increasing CAFE 
standards. For example, Japanese auto makers today are 
developing technologies at a faster rate than our American 
counterparts. The Germans are revealing a diesel-powered car 
that will soon get 35 to 40 miles per gallon. Simply put, U.S. 
auto makers must be able to compete with their foreign 
counterparts. Having a fleet that is more fuel-efficient will 
allow our auto makers to do it.
    As you consider the specific numerical targets and 
timetables, it is important to take into account the findings 
of the recent National Academy of Sciences report, particularly 
with regard to the long lead times required for technology 
changes to be implemented. The report concludes that the 
widespread penetration of already existing technologies will 
themselves require 4 to 8 years, and thus, while you should 
move aggressively in the pursuit of new CAFE standards, it is 
important to maintain the long-term vision that new technology 
demands.
    Just last week, the Bush administration announced it would 
not take advantage of congressional action that opened the door 
to higher fuel efficiency requirements for 2004 model year 
pickup trucks, minivans, and sport utilities. This is 
regrettable. I hope the administration will push to review the 
standards so that, at a minimum, higher requirements can be 
implemented by the 2005 model year.
    With relation to the cost to consumers, I believe these 
costs will be more than offset by fuel savings. Indeed, it has 
been estimated that with higher fuel efficiency standards in 
place, consumers buying cars in 2012 would save a net of $2,200 
over the lifetime of their cars.
    Let me conclude by reiterating the lessons of the past. In 
the seventies and eighties, Japanese auto makers gained a 
foothold in the U.S. by providing higher fuel efficiency cars. 
The U.S. auto industry continues to suffer from the failure to 
recognize the trend before it happens. Cars of the future will 
have higher, much more fuel-efficient systems. You should not 
wait until the next run-up in oil prices or until Japanese 
manufacturers have arrived even more fully before we act.
    Closing the loophole under which SUV's and minivans are 
allowed to meet lower standards than other passenger cars 
would, by early in the decade, save roughly a million barrels 
of oil a day, and according to a recent study by the National 
Academy of Sciences, the distinction between cars for person 
use and trucks for work and cargo has been stretched well 
beyond its original purpose. We can improve the efficiency of 
SUV's and minivans with available technology at no cost to 
consumers over the life of the car.
    Last, in considering how to close the SUV loophole, the 
committee should balance its interests in raising the SUV 
standard itself against the additional flexibility that the 
automobile industry would be given if SUV and passenger vehicle 
standards were to be merged into a single category. I would 
favor the approach, providing maximum flexibility to the 
industry. As one who helped champion the creation of tradable 
emissions credits in the Kyoto Protocol for CO2 
emissions, I would hope the Committee would also consider the 
National Academy of Sciences' recommendation and idea of 
creating tradable fuel economy credits. This can lead to higher 
standards with more flexibility and less cost to the industry.
    To sum up, the national security costs of our petroleum 
dependence have never been more clear.
    Thank you, Mr. Chairman.
    [The prepared statement of Ambassador Eizenstat follows:]

    Prepared Statement of Ambassador Stuart E. Eizenstat, Partner, 
                        Covington & Burling \1\
---------------------------------------------------------------------------
    \1\ Stuart E. Eizenstat heads the International Trade and Finance 
Group at Covington & Burling. This testimony reflects his personal 
views and not those of Covington & Burling or any of its clients. From 
1977 to 1981 he served as President Jimmy Carter's Chief Domestic 
Policy Adviser and Executive Director of the White House Domestic 
Policy Staff. He has also served as Deputy Secretary of the Treasury, 
Ambassador to the European Union, Under Secretary of State for 
Economic, Business and Agricultural Affairs and Under Secretary of 
Commerce for International Trade. He has had a prominent role in the 
development of key international initiatives, including the negotiation 
of the Kyoto Protocol on global warming.
---------------------------------------------------------------------------
    Chairman Hollings, Chairman Kerry, Senator McCain, and Members of 
the Committee, good morning. I have been asked to speak today on the 
national security implications of America's dependence on foreign oil. 
I am honored that you have asked me to address this issue. The 
questions that you will be asking this morning and again next Tuesday 
will have repercussions long beyond our lifetimes. These issues will 
impact generations to come, in terms of the effects on our national 
security, our standard of living and our commitment to the environment. 
Thus, this Committee is engaged in a critical task as it considers what 
would be the appropriate levels for increased Corporate Average Fuel 
Economy (``CAFE'') standards.
    Before I begin my formal remarks, I would like to applaud Senator 
Kerry for the alternative energy plan that he unveiled earlier this 
week. I believe that his proposal strikes a healthy balance between the 
conservation and production concerns that are at the heart of the 
energy debate.
    The lessons of the impact of our dependence on foreign oil supplies 
were first taught to us back in 1973 and 1974, when the initial Arab 
oil embargo (the ``Arab Embargo'') on the United States occurred. At 
that time, the Federal Government imposed domestic price and allocation 
controls on petroleum. The results of this policy, as many of you will 
remember, were widespread gasoline shortages and long gas lines, as 
well as rapid price increases. The economy as a whole suffered greatly 
as a result.
    In 1975, in large measure spurred by the Arab Embargo, Congress 
passed the Energy Policy and Conservation Act (``EPCA''). The EPCA 
included provisions that established the CAFE standards for new 
passenger cars. Given the oil crisis at that time, it appeared that the 
CAFE standards would be quickly implemented.
    However, in spite of the obvious merits of the standards, the 
American automobile manufacturers were opposed to the regulations. I 
remember their opposition well. In my role as Domestic Policy Advisor 
to President Carter, I was part of the team that developed the first 
CAFE standards. Those standards set the necessary fuel economy levels 
for the period from 1977 to 1985, starting at 18 miles per gallon 
(``MPG'') in 1977 and rising to 27.5 MPG in 1985. I specifically 
remember a meeting in the Cabinet office with President Carter and the 
heads of the big three automobile manufacturers--Ford, General Motors 
and Chrysler--in which all three strongly opposed the imposition of 
fuel economy standards. They claimed that their companies lacked the 
technology to reach the standards that the Administration had in mind. 
And yet, once the CAFE standards were implemented, all three companies 
met and exceeded the standards.
    I can imagine the pressure that you are under from those same 
companies and others as you consider raising the standards. But as you 
embark on this process, I strongly urge you to recall our experiences 
in developing the first set of CAFE standards. You should feel 
confident that the automobile manufacturers do have the ability to 
achieve and in fact surpass whatever standards you set.
    National Security Implications of Reliance on Oil Imports. At 
present, the United States imports more than 51 percent of its oil. 
That number is projected to increase to 64 percent by 2020. Such heavy 
reliance on foreign oil places the United States in a precarious 
position. Already, oil has played a central role in one recent 
conflict--the Gulf War--and, over the past quarter century, it has been 
an influential ingredient of American foreign policy more broadly.
    Each year, the United States imports 16 percent of its oil from 
Saudi Arabia and an additional 9 percent from other States in the 
Persian Gulf. As you all know, this is a consistently volatile region, 
and our dependence on oil from the Middle East is fraught with 
insecurity and danger. As we were so horribly reminded on September 
11th, terrorist threats both at home and abroad have links, whether 
direct or indirect, with the oil-producing States in the Gulf region.
    Our reliance on States that unstable or even hostile to the United 
States, presents a very real national security dilemma, a dilemma that 
must be addressed immediately. Some States, like Iran and Iraq are 
actively hostile to the United States. Others, like Saudi Arabia, have 
historically been friendly to us, but they are often autocratic 
regimes, which rest on power bases that may not have broad public 
support, and that have their own internal fundamentalist threats. While 
we have a national security interest in the stability of these regimes, 
we must remain aware of the possibility that they will fall into 
hostile hands. I certainly can say that, given my experience with Iran 
during the Carter Administration, no one would have forecast that the 
Iranian Revolution would topple the Shah of Iran, given the military 
support he appeared to have.
    Potential threats in Iran, Iraq, and elsewhere in the region 
constantly jeopardize the stability of the Persian Gulf. In 1972 the 
price of crude oil was about $3.00 per barrel and, by the end of 1974, 
the price of oil had quadrupled to $12.00. The price rise was almost 
exclusively the result of the embargo by Arab oil-producing states in 
response to Western support of Israel in the Yom Kippur War. The Yom 
Kippur War started with an attack on Israel by Syria and Egypt on 
October 5, 1973. The United States and many countries in the western 
world showed strong support for Israel. As a result of this support, 
Arab exporting nations imposed an embargo on any nations supporting 
Israel in the war. Arab nations curtailed production by 5 million 
barrels per day. Approximately 1 million barrels per day were recovered 
by increased production by other countries. The net loss of 4 million 
barrels per day extended through March of 1974 and represented 7 
percent of the free-world production.
    Our national security concerns are not restricted to regional 
action. Since the 1970s, Iran and Iraq have been involved in a number 
of cataclysmic events that have shaped not only their countries, but 
ours, as well. Indeed, our reliance on oil from Iran left us vulnerable 
to that nation's problems at the end of the 1970s. I was serving in the 
Carter White House at that time and lived through the implications of 
the Iranian revolution on our economy and, more broadly, our society.
    The rise to power of Ayatollah Khomeini altered our relationship 
with Iran and led to one of the most difficult events of the last 25 
years, the Iranian hostage crisis. At the time of the Iranian 
Revolution, oil production from Iran dropped precipitously and oil 
prices in the United States skyrocketed. The Iranian revolution 
resulted in the loss of 2 to 2.5 million barrels of oil per day between 
November of 1978 and June of 1979. Moreover, after the United States 
Embassy in Tehran was occupied in November 1979, President Carter 
halted all oil imports from Iran. During the one year period from the 
beginning of 1979 until the beginning of 1980, oil prices rose by 120 
percent. That increase was a knockout blow to the U.S. economy, 
aggravating inflationary pressures and increasing unemployment at the 
same time. In fact, from 1978 to 1981, crude oil prices rose by two and 
a half times, from $14 per barrel to $35 per barrel.
    Another, smaller supply interruption occurred during the Iran-Iraq 
War from 1980 to 1988. During the Iran-Iraq War, Iraq's crude oil 
production fell 2.7 millions of barrels per day, and Iran's production 
dropped by 600,000 barrels per day. The impact of this event was much 
milder, but still worrisome.
    Iran presents a great policy dilemma for the United States, with 
its Janus-like policy towards us, with one part of the government 
advocating improved relations with the United States, while the other 
and more dominant faction supports positions that are inimical to 
America. In Iran, we are presented with a reformist president, Mohammad 
Khatami, who is supported by the majority of the people and appears to 
be sympathetic to some improved relations with the United States. 
However, he clearly does not have control of the security and defense 
apparatus in Iran, as well as other sectors of the Iranian government, 
which support terrorist organizations like Hezbollah, seek to destroy 
the Middle East Peace Process and are on a crash-course to develop 
medium-range missiles with potential chemical or nuclear warheads that 
will be able to reach Israel in a few years. There is no reason to 
think that the Iranians will stop there, and we must be concerned by 
the possibility that they will try to develop long-range missiles that 
can hit the United States. And, clearly, Iraq is not a reliable partner 
either. At present, we do not import any oil from Iran and, in 2001, we 
imported approximately 600,000 barrels per day from Iraq. To place 
these numbers in perspective, Iranian oil production capacity is 
estimated to amount to 3.9 million barrels per day and Iraqi production 
capacity is estimated to be 2.8 million barrels per day. In light of 
our relations with Iran and Iraq, we find ourselves largely dependent 
on others in the region for our oil.
    Our dependence on oil from the Middle East profoundly influences 
our economy and our foreign policy. In fact, our decision to take 
military action against Iraq after the invasion of Kuwait was, at a 
minimum, heavily influenced by our dependence on oil from the Persian 
Gulf. The threat--not only to Kuwait but to others in the Gulf region--
posed by Saddam Hussein's expansionist pretensions led us to commit 
more that 500,000 American servicemen and women during the Gulf War. 
More than 600 of our troops were killed or wounded in battle. Many more 
continue to suffer from a variety of illnesses since their return home.
    At present, we have more than 4,500 troops stationed in Saudi 
Arabia, and more than 12,500 Navy personnel at sea in the Persian Gulf. 
The presence of these troops is intended to protect the governments in 
the region, but it also leads to resentment in the region, resentment 
that was at the heart of the September 11th attacks. The United States 
now finds itself torn between its interest in supporting stable 
governments in the Persian Gulf and the hostility and danger attendant 
to the presence of American troops on foreign soil. In the end, our 
dependence on Persian Gulf oil in general and Saudi oil in particular 
leaves us vulnerable to attack, both abroad and at home.
    It is also worth mentioning that unconfirmed reports in The 
Washington Post suggest that Saudi Arabia may ask the United States to 
withdraw its military personnel. Nevertheless, our troops remain 
deployed there, in large measure to protect the Saudi Government and 
its primary asset: oil. Moreover, I would note that, while at one level 
the withdrawal of our troops from Saudi Arabia will reduce the threat 
posed to our servicemen and women, it also threatens to make Saudi 
Arabia more unstable.
    The lesson of the past 25 years in the Persian Gulf is clear: 
regional instability there has real, tangible effects here, in the 
United States. If we do not take action at home to reduce our reliance 
on oil from abroad, we run the risk of falling prey to the very same 
problems we have lived through in the past. Indeed, we have seen fit to 
fight a war in effect to protect our oil interests. And, in placing the 
lives of American servicemen and women in harm's way in the Gulf War, 
we have signaled the dangers of our reliance on oil from that region.
    Nonetheless, we remain dependent on a region where, in the past 
decade, we have fought two wars, where the tide of anti-Americanism 
continues to rise, and where the tension between modern and radical 
Islam threatens the ruling elites of the governing regimes. In spite of 
all of these risks--each in itself sufficient to threaten our oil 
supply from the region--we continue to import 25 percent of our daily 
supply of oil from the Persian Gulf. Strictly from a national security 
perspective, this policy does not make sense.
    One further point bears mention: I do not mean to single out the 
Persian Gulf region as the only area where dependence on foreign oil 
renders the United States vulnerable. Obviously, that region has been, 
over the past quarter century, the primary source of national security 
concern with regard to foreign oil production. But other areas engender 
similar concerns. Nigeria, which boasts Africa's largest population and 
a wealth of religious and regional animosities, supplies the United 
States with 900,000 barrels of oil per day. The Caspian Sea region 
remains a relatively small producer, but its potential reserves make it 
one of the most anticipated oil resources worldwide. Indeed, the 
Caspian Sea region is generally considered to represent one of the 
largest untapped oil resources in the world. And yet, the region 
itself--and the surrounding areas that would be essential for 
extraction of the oil--like the Persian Gulf, has an uncertain future.
    The Caspian Sea is located in northwest Asia, landlocked between 
Azerbaijan, Iran, Kazakhstan, Russia and Turkmenistan. Since the 
breakup of the Soviet Union in 1991, the Caspian Sea--as well as the 
region surrounding it--has became the focus of much international 
attention due to its huge oil and gas reserves. The Caspian Sea, which 
is 700 miles long, contains six separate hydrocarbon basins, and most 
of the oil and gas reserves in the Caspian region have not been 
developed yet. Ongoing legal wrangling over rights to the oil continues 
to stunt the development of the reserves.
    To give some sense of the potential importance of the Caspian oil 
fields, I would note that, in May 2001, oil industry officials reported 
sizable oil deposits in an area known as East Kashagan, in the Caspian 
Sea off the Kazakhstan coast. Initial estimates indicate that that 
field alone could contain as much as 50 billion barrels, and at least 
20 billion barrels, of crude oil. By comparison, the United States has 
known reserves of 21 billion barrels.
    Aside from ongoing issues over who retains the rights in the 
Caspian, U.S. national security is threatened by instability in the 
areas surrounding the Caspian. Getting the Caspian oil to international 
markets will require overcoming enormous obstacles since it must travel 
by pipeline through one of the most politically volatile areas of the 
world. Because the Caspian Sea is landlocked, oil and natural gas must 
be transported by pipeline to a terminal on the open sea, where it 
would be pumped into tankers and shipped to customers. Long distances 
over often inhospitable mountain and desert terrain, prone to 
earthquakes, and vulnerable to attack, would make pipeline construction 
and operation extremely difficult. Proposed pipelines might run through 
Chechnya, Georgia, Armenia and Iran, among other hot spots. Recent 
instability in those areas is only one concern. We must also consider 
the potential for upheaval after the pipeline has been constructed. As 
our reliance on particular oil deposits grows, our vulnerability to 
such upheaval grows apace.
    By raising the CAFE standards, you will reduce our vulnerability to 
national and regional instability in oil-producing areas. According to 
the Union of Concerned Scientists, CAFE has already saved 60 billions 
of gasoline (3.9 million barrels per day). A rise in the minimum CAFE 
standards to 40 MPG would save 125 billion gallons of gasoline by 2012. 
This represents approximately 1.9 million barrels per day, or more than 
the total amount of oil we import from Saudi Arabia. And, at the end of 
the day, by reducing our consumption of foreign oil, we will shield 
ourselves from many of the threats posed by our current level of 
dependency.
    Impact of Oil Dependence on the U.S. Trade Deficit. In addition to 
the national security concerns that I have just discussed, a reduction 
on our dependence on foreign oil would have a substantial effect on our 
foreign trade deficit. Oil is the United States' biggest natural 
resource import and one of the single largest contributors to our trade 
deficit. According to the Department of Energy, in 2001, the United 
States imported an estimated $110 billion in petroleum products. At the 
same time, our trade deficit last year was an estimated $350 billion. 
One year earlier, in 2000, our trade deficit reached an all-time high 
of $375 billion. Indeed, throughout the 1990s, our trade deficit rose 
each year, and our reliance on foreign oil was a primary cause of the 
rising deficit.
    By way of example, I would point out that, in November 2001, our 
monthly trade deficit was $1.4 billion lower than our trade deficit one 
month earlier. The largest single contributor to that drop was a 17 
percent reduction in oil imports. Even with that reduction, oil 
represented more than six percent of U.S. total imports in the month of 
November.
    The volatility of the world oil market leaves the U.S. economy 
vulnerable to price fluctuations. For example, world oil prices tripled 
between January 1999 and September 2000 due to strong demand, OPEC 
production cutbacks, and other factors, including weather and low oil 
stock levels. Our reliance on foreign oil challenged our economy and 
increased our trade deficit. Thus, by raising CAFE standards and 
reducing domestic oil consumption, not only would we be reducing our 
dependence on volatile areas of the world, but we also would be 
contributing to the reduction of our trade deficit.
    Impact of Oil Dependence on Global Warming and Pollution. As the 
Chief U.S. Negotiator for the United States for the Kyoto Protocol on 
Global Warming, I have a particular interest in the environmental 
effects of our oil dependence. Therefore, I must also mention, at least 
briefly, the impact of our oil dependence on the environment. To the 
extent that we want to reduce the threat of greenhouse gases, a 
reduction in oil consumption is essential. Transportation is 
responsible for one-third of the release of greenhouse gases into the 
earth's atmosphere. And, although the United States accounts for three 
percent of the world's population, we are responsible for over 20 
percent of greenhouse gases worldwide. Thus, by raising the CAFE 
standards, we will not only reduce our dependence on volatile foreign 
markets but we will be taking steps to reduce America's role in the 
decay of the environment. As I mentioned at the outset, our 
responsibility to tackle these difficult issues goes far beyond our own 
generation. The CAFE standards represent just one of the means by which 
we can take action.
    Impact of Oil Dependence on the American Automobile Industry and on 
Consumers. I am not one who believes in an either/or proposition 
between conservation and production. I believe that we need 
conservation, increased domestic production, and increased research and 
development on new technologies. On this point, I should mention that I 
recently test drove the new Toyota Prius hybrid that gets 52 miles per 
gallon of gas in the city. The engine is part fuel cell and part 
internal combustion engine. I found the car to be very impressive. I 
know, Senator Kerry, that your alternative energy plan would provide 
tax incentives to speed production of hybrid-fuel engines. I firmly 
agree with this proposal. U.S. automakers must jump on the hybrid-fuel 
train before it has left the station. Already Japanese automakers have 
begun developing the technology at a faster rate than their American 
counterparts. In addition, the Germans have revealed a diesel-powered 
car that will get 35-40 miles per gallon. Simply put, U.S. automakers 
must be able to compete with their foreign counterparts. Having a fleet 
that is more fuel efficient will allow our automakers to do just that.
    Just last week, the Bush Administration announced that it will not 
take advantage of congressional action that opened the door to higher 
fuel efficiency requirements for 2004-model-year pick-up trucks, 
minivans and sport-utility vehicles. This is regrettable. Although the 
National Highway Traffic and Safety Administrator announced that he 
will continue to consider higher fuel efficiency standards, he added 
that an April 1, 2002 deadline does not provide sufficient time to 
review the issue. I would hope that the Administration will push to 
review the standards so that, at a minimum, higher requirements can be 
implemented for 2005-model-year vehicles. The NHTSA's recent action 
also places an additional burden on you to move expeditiously in 
setting higher CAFE standards, so that they can be implemented as soon 
as possible.
    In the meantime, President Bush's proposed energy plan would 
include controversial drilling in the Arctic National Wildlife Refuge 
(``ANWR'') in Alaska. While the President's proposal would not provide 
for drilling of the entire region, it is noteworthy that, even if 
drilling took place in the entire ANWR reserve, according to the 
Department of Energy, there is a 95 percent probability that at least 
5.7 billion barrels of oil are technically recoverable. At the other 
end, there is only a 5 percent probability that there are more than 16 
billion barrels of oil that are recoverable. The mean estimate is that 
10.3 billion barrels of oil are recoverable. To place those numbers in 
perspective, the United States consumes about 19.4 million barrels of 
oil per day, meaning that the ANWR reserves would only be able to 
supply full consumption for less than a year-and-a-half. Of course, the 
reserves would not be used to supply full consumption, but the fact is 
that ANWR would only add 0.3 percent to the world oil supply. Thus, the 
Administration's Plan with regard to ANWR simply does not itself 
relieve our dependence on foreign oil supplies.
    With relation to the costs to consumers that would come from rising 
car prices to accommodate new technology, I believe that those costs 
will be more than offset by fuel savings. Indeed, it has been estimated 
that, with higher fuel efficiency standards in place, consumers buying 
cars in 2012 would save a net of $2,200 over the lifetime of their car.
    I would reiterate that we must learn the lessons of the past. In 
the 1970s and 80s, Japanese automakers succeeded in gaining a foothold 
in the U.S. auto market by providing a benefit to consumers that 
American auto manufacturers had simply overlooked. Starting in the 
1970s, while American automakers stood on the sidelines, Japanese 
manufacturers introduced smaller, more economical vehicles to the U.S. 
market. By the time American manufacturers entered that market, the 
Japanese makers had already cornered it. The U.S. auto industry 
continues to suffer from the failure of American manufacturers to 
recognize the trend in the market before it happened. Cars that require 
less gas are the wave of the future. We must ride that wave. We should 
not wait until the next run-up in oil prices or until Japanese 
manufacturers have arrived before we take action. There is no lack of 
technology to meet higher standards. The issue is whether the will to 
implement change exists.
    Simple steps to improve automotive fuel efficiency would pay 
enormous dividends. Closing the loophole under which SUVs are allowed 
to meet lower standards than other passenger cars would, by early in 
the next decade, save roughly one million barrels of oil per day, 
helping to provide clean air and protecting Americans from disruptions 
in oil supply. According to a recent study by the National Academy of 
Sciences, this advance could be accomplished with available technology 
and at no cost to consumers over the life of a car.
    Conclusion. To sum up: America's reliance on foreign oil imports 
presents an ongoing threat to the stability of our economy and 
continues to exert undue influence our foreign policy. The national 
security costs of our petroleum dependence have never been more clear. 
As you probably know, I am by no means an advocate of protectionist 
trade policies. What I do advocate, however, is a reduced dependence on 
foreign oil, both for its effects on our economy and on our national 
security. By raising the CAFE standards, you will reduce our dependence 
on foreign oil. The benefits of a reduced dependence will be felt not 
only by us but also by future generations. I urge you to fight the 
resistance of the automobile industry and others who fear the potential 
short-term costs of increased fuel efficiency. The benefits of fuel 
economy are simply too great to ignore. Enactment of the Kerry energy 
proposal would be a good step forward and would be in the interests of 
our national security, our trade deficit, and the environment.
    Thank you very much. It is a pleasure to be here and to contribute 
to the Committee's work. I would be happy to answer your questions.

    Senator Kerry. Thank you very much, Mr. Ambassador, for 
that important testimony.
    Ms. Claybrook.

                 STATEMENT OF JOAN CLAYBROOK, 
                  PRESIDENT OF PUBLIC CITIZEN

    Ms. Claybrook. Thank you, Mr. Chairman. I am Joan 
Claybrook, president of Public Citizen, a national consumer 
organization, and the former administrator of the National 
Highway Traffic Safety Administration. I issued the first fuel 
economy standards in 1977.
    As reported by Keith Bradsher in the New York Times, Ford 
Motor Company admitted in its corporate citizenship report in 
May of 2000 that SUVs, which generate much of the company's 
profit, ``contributed more than cars to global warming, emitted 
more smog-causing pollution, and endangered other motorists, 
and that the company faced an awkward situation, because its 
most profitable products do not meet its goals for social 
responsibility.'' However, Bradsher reported that Ford still 
has no plans to halt or reduce production of their massive SUV, 
the Ford Excursion, which gets 10 miles per gallon in the city, 
13 on the highway, and weighs as much as two Jeep Grand 
Cherokees.
    Congress must require manufacturers to change the fuel 
economy performance of their vehicles because in the 17 years 
that have passed since 1985 they have failed to do so on their 
own--in fact, they have gone backward--and if they do not, 
America will continue to suffer the consequences of short-term 
industry thinking and long-term damage to this country.
    Americans support, with their pocketbook if necessary, 
strong fuel economy standards, according to a Harris poll and 
other polls that have been done, as a way of reducing our 
economic dependence on the vagaries of foreign oil and 
protecting our environment by cutting emissions of greenhouse 
gases. Congress must now limit U.S. oil consumption. Raising 
fuel economy standards is the most reasonable and the most 
cost-effective way to accomplish this goal.
    The CAFE standard that was devised by the Congress in 1975 
has been a smashing success, but it is now outdated due to 
inactivity at the congressional and NHTSA level, and 
improvements are needed. NHTSA is charged by statute with 
administering both the highway safety and the fuel economy 
program and, in view of this dual mission, I would like to help 
debunk the industry canard that fuel economy and safety are a 
tradeoff. That has never been the position of the agency among 
its technical staff, at least, and it is incorrect.
    The argument has been made by the auto industry so many 
times it is now a cliche, but fortunately, it is not true. 
First, historically, weight reductions in the smallest vehicles 
did not occur with the 1978-1985 CAFE standards and it is not 
likely to happen in the future, and the reason why not is that 
it is not cost-effective for the industry. When they remove 
weight, they take it out of the behemoths, they do not take it 
out of the little guys, because that is what is worthwhile in 
terms of saving fuel and the investments they have to make.
    In 1974, Ford claimed that fuel economy standards, ``would 
require a Ford product line consisting of either all sub-Pinto-
sized vehicles or some mix of vehicles ranging from a 
subcompact to a Maverick.'' That prediction was wrong, and 
their predictions today about safety and fuel economy, are 
wrong as well.
    In fact, what happens is that after the CAFE standards were 
issued, the lightest vehicles, those under 2,500 pounds, were 
pretty much eliminated, and they comprise a smaller percentage 
of the fleet than they did earlier.
    The original passage of CAFE standards did not result in 
the lighter cars becoming lighter or less safe. For example, 
the Honda Civic gained 800 pounds, and went from failing the 
NHTSA crash test to receiving five stars, so it shows that 
through technology these companies were able to improve their 
vehicles and also achieve their fuel efficiency.
    In addition, the Department of Energy study of the original 
CAFE standards shows that 85 percent of the gains in fuel 
economy came from technological advances, not weight changes, 
so most of it is through technology, and to the extent that 
weight is taken out, it is taken out of the big vehicles, and 
what does that do? It makes the fleet more compatible, and so 
these big vehicles are less likely to do damage to the smaller 
cars because it is a more compatible fleet, and that is 
actually what happened for a short period of time, until the 
auto industry started taking advantage of the light truck 
loophole which allowed SUVs to become very prominent in our 
fleet.
    Some of the analyses that have been done on the results of 
the CAFE standards have been done based on averages, for 
example, Charles Kahane at the NHTSA did an analysis that 
looked at taking 100 pounds out of vehicles across the fleet. 
When you do that, and it is inherently in the auto industry's 
argument, you ignore the fact that it is the bigger cars or the 
bigger vehicles that lose weight and go on a diet, and not the 
small ones.
    In addition, of course, Dr. Kahane's study is only based on 
1993 data and before, and ignores many of the important 
improvements in standards, some of which have been mandated by 
this committee, including side impact protection and head 
injury protection, as well as dual airbags.
    If you hold crashworthiness improvements constant, then you 
undermine, of course, the safety improvements that are 
available to be done, and there are two major ones that are 
really important for this Committee to consider. Kahane's study 
focused on the fact that from small vehicle crashes in roll-
overs there would be an increase in deaths, but roll-overs are 
one of the most achievable types of crashes in which you can 
improve safety, and I believe that the Committee in your 
legislation should require two important changes in safety to 
accompany your fuel economy requirements, and they are (1) a 
roll-over crash worthiness standard. That would mean stronger 
roofs, padding, pre-tensioned belts that hold you in your 
seats, the seat structure, and side-impact head airbags. 
Virtually you could have survival of a majority of roll-over 
crashes if this was done.
    The second is an anti aggressive standard, so that these 
larger vehicles cannot roll over the smaller vehicles. There 
are always going to be smaller vehicles, because the 
manufacturers are going to make smaller, cheaper vehicles for 
some portion of the population that cannot afford the unimogs 
and the other huge Excursions which are their cash cows.
    The NHTSA in 1974 began building something called a 
research safety vehicle. It was a car about the size of a 
Pinto, weighed 2,500 pounds, and when you crash-tested it in a 
frontal crash there was no injury virtually at 50-mile-an-hour 
crash test and side and roll-over at 40 miles an hour. I would 
like your indulgence, when I finish in just a second, to show a 
1-minute clip of what this vehicle looked like and what it was 
able to do.
    The recommendations that we have for improvement in fuel 
economy are the following, very quickly. One is to close the 
light truck loophole so that all vehicles are measured under 
the same standard, second to set an appropriate goal for 
improvement of 40 miles per gallon beginning in 2005 for 10 
years, third is to adjust the gas guzzler tax to cover trucks 
and cars, and have it apply when it is 5 miles per gallon or 
more below the average, fleet-wide, for that year.
    We must require truth in testing, because there is a big 
differential between testing and actual highway use, get rid of 
bogus credits like the dual fuel vehicles, tighten the 
requirement for credits on carry-back and get rid of them, and 
eliminate the preemption clause, in current CAFE law, to allow 
states to have a feedbate program.
    And finally, and very importantly, the reason that Mr. 
Eizenstat said that the NHTSA did not increase the fuel economy 
standard, there is a very good reason why it did not. It does 
not have any money and any staff working on this because of the 
prohibition in the appropriations bills for the last 6 years; 
zero, it has zero. NHTSA has no capacity, and I would urge that 
in the supplemental appropriations bill that is coming up, that 
you put $5 million and 10 staff positions at least, which is 
very modest in the scheme of this government, so that they can 
get started on evaluating fuel economy and have the capacity to 
issue those standards.
    I would now like to show the clip. It is a 1-minute clip of 
the research safety vehicle. It is 1977 technology that crashes 
safe at 50 miles an hour, and it would get 50 miles per gallon.
    [A videotape was shown.]
    Ms. Claybrook. Do not call the 800 number today because 
this was made in the Carter administration. That number is no 
longer available, and neither is the car, but it is the model 
of what can be achieved by this industry.
    Thank you, Mr. Chairman.
    [The prepared statement of Ms. Claybrook follows:]

   Prepared Statement of Joan Claybrook, President of Public Citizen

    Thank you, Mr. Chairman and Members of the Senate Committee on 
Commerce, Science and Transportation, for the opportunity to testify 
before you today on the safety implications of raising fuel economy 
standards for the United States vehicle fleet. My name is Joan 
Claybrook and I am the President of Public Citizen, a national non-
profit public interest organization with 150,000 members nationwide 
that represents consumer interests through lobbying, litigation, 
regulatory oversight, research and public education. Public Citizen has 
a long and successful history of working to improve consumer health and 
safety. I am also the former Administrator of the National Highway 
Traffic Safety Administration, where I issued the first U.S. fuel 
economy standards in 1977.

I. Introduction

Increasing consumption of fuel and industry manipulation of the CAFE 
        system threaten our safety, security, and the environment
    The Corporate Average Fuel Economy (CAFE) system that was 
instituted in 1975 is sorely in need of a Congressional upgrade. CAFE, 
which was crafted in view of the vehicles and technology available at 
the time, was a smashing success, raising average fuel economy 
performance for the entire fleet in the U.S. 82 percent between 1978 
and 1985. \1\ Its primary feature is a 27.5 miles per gallon (mpg) 
standard for passenger automobiles, set by statute. There is no minimum 
standard for light trucks, but the National Highway Traffic Safety 
Administration (NHTSA) is instructed by law to set a standard every 
year according to what is ``maximally feasible.''
    CAFE currently saves us 118 million gallons of gasoline every day 
and 913 million barrels of oil each year, or about the total imported 
annually from the Persian Gulf. \2\ It was a major factor in breaking 
the stranglehold of the Organization of the Petroleum Exporting 
Countries (OPEC) on oil prices and cutting rampant U.S. inflation in 
the early 1980s. Since 1985, no major congressional initiative or 
agency action has been taken to update CAFE standards to reflect 
current technology, shifting vehicle use, or the need to address global 
warming and foreign oil dependency. As SUVs have come to dominate our 
highways, the American public has recognized that the program is 
outdated.
    One obvious deficiency with the current CAFE system is that it 
holds so-called ``light trucks''--such as minivans, pickups, and SUVs--
to a lower fuel economy standard than passenger cars. This distinction 
may have been valid in 1975, as light trucks were a small portion of 
the vehicle fleet and were generally used for farming and commercial 
purposes. However, automakers have since turned this into a loophole in 
CAFE, shifting their marketing and production of passenger vehicles to 
push light trucks. At present, nearly 50 percent of personal vehicles 
sold qualify as light trucks under the present system. \3\ The 
bifurcation of the standard has created huge problems with vehicle 
compatibility, resulting in countless lost lives and injuries as not-
so-light trucks crash with smaller vehicles. This is also a problem 
that Congress must address.
    The problem of global warming is a key reason to improve fuel 
economy. Human emissions of carbon dioxide through power plants and 
motor vehicles are the primary sources of this problem, with U.S. motor 
vehicles generating 5 percent of total global carbon dioxide emissions. 
\4\ The American public recognizes that the future of the earth is at 
stake when we discuss solutions to this problem, and wants Congress to 
act to preserve the delicate balance of life on earth for our 
grandchildren and beyond.

A consensus for change
    Americans do want Congress to require improvements in fuel economy, 
and consumers are willing to pay for such improvements. A poll 
conducted in July 2001 for Public Citizen by Lou Harris asked Americans 
whether they would be willing to pay 3 percent (or about $900 on a 
$30,000-vehicle) more for their sport utility vehicles in order to 
solve emissions problems stemming from their use, and 63 percent of 
respondents answered yes. \5\ In a separate Gallup poll a decade ago, 
61 percent of Americans favored increasing the fuel efficiency 
requirements to 40 miles per gallon (mpg), even if it increased the 
price of cars. \6\ Other Gallup polls conducted over the years support 
this result. Ninety-three percent of Americans believe the United 
States should require cars to get better gas mileage to reduce our 
dependence on foreign oil, \7\ and 61 percent believe that greater 
conservation of energy supplies is an important piece of the solution 
to our energy problems. \8\ In the face of such strong and consistent 
public opinion over the years favoring significant improvements in fuel 
economy, it would be irresponsible for Congress not to act.
    The automakers will not solve the problem on their own. Recent 
statements, such as the promise by Ford to improve the fuel economy of 
its SUVs by 25 percent, or the copycat claims made by Daimler-Chrysler 
and General Motors, should not be interpreted as an industry solution. 
Despite long being in the best position to improve the efficiency of 
the vehicle fleet, automakers have long taken the opposite tack. 
Manufacturers chose to spend dollars and earn profits in the SUV market 
segment, which lowers safety for all Americans and reduces overall fuel 
economy, and to advertise these vehicles' powerful engines and speed, 
making their claims of social consciousness not credible.
    The problems with SUVs are no secret to their manufacturers. As 
reported by Keith Bradsher of The New York Times, Ford Motor Company 
admitted in its ``corporate citizenship'' report in May 2000 that 
sports utility vehicles, which generate much of the company's profits, 
``contributed more than cars to global warming, emitted more smog-
causing pollution and endangered other motorists'' and that the company 
faced an `'awkward situation'' because ``its most profitable products 
do not meet its goals for social responsibility.'' \9\ However, Ford 
still has no plans to halt or reduce production of its massive SUV, the 
Ford Excursion, which gets just 10 mpg in the city and 13 mpg on the 
highway and weighs as much as two Jeep Grand Cherokees. Congress must 
set fuel economy goals to be achieved and require manufacturers to 
change the fuel economy performance of vehicles, or America will 
continue to suffer the consequences of short-term industry thinking and 
actions.

Missed opportunities
    Twelve years ago, Senator Richard Bryan of Nevada introduced 
legislation, the Motor Vehicle Fuel Efficiency Act of 1990, that would 
have raised average fuel economy for the overall vehicle fleet by 40 
percent. That legislation accrued 57 votes, not quite enough to defeat 
a filibuster, and its failure has resulted in a downward trend in fleet 
fuel economy performance. Had the bill passed, Americans would have 
saved billions of dollars and today we would have a safer, more 
environmentally sustainable and less costly vehicle fleet. Congress 
should seize the opportunity for action now, and enact strong fuel 
economy standards.

II. What Should Be Done on Fuel Economy
   Close the ``light truck loophole'': Count all passenger 
        vehicles under a single fuel economy standard. Phase light 
        trucks into the CAFE program over time, by requiring that 
        manufacturers include an increasing percentage of their 
        manufactured vehicles when calculating their fleet average for 
        passenger cars. Increase the maximum weight covered under the 
        standard to 10,000 lbs.

   Set realistic but appropriate goals for improvement: Raise 
        total fleet fuel economy to 40 mpg over ten years beginning 
        with model year 2005, and setting targets to be met every other 
        year thereafter.

   Tax the major offenders: Adjust the Gas Guzzler tax with 
        each increase in CAFE so that it affects all vehicles sold with 
        fuel economies 5 mpg or more below that model year's fleet-wide 
        CAFE standard.

   Require truth in testing: Require the Environmental 
        Protection Agency (EPA) to adjust its testing procedures in 
        order to narrow the gap between real-world fuel economy 
        performance and tested performance to below a 10 percent margin 
        of error within 5 years of initiation of new CAFE standards and 
        below a 5 percent margin of error by completion of the CAFE 
        program in 2015. Testing accuracy has eroded from 3 percent at 
        the program's inception to 17 percent today.

   Get rid of bogus credits: Eliminate the dual-fuel credit 
        program, which extends CAFE credits for the production of dual-
        fuel vehicles, even though gasoline is almost always used to 
        power these vehicles.

   Tighten enforcement: Eliminate the ``carryback'' provisions 
        in the CAFE credit system, which encourages manipulation and 
        missed targets by manufacturers.

   Allow states to reward leaders: Clarify the preemption 
        clause in current CAFE law to allow states to enact ``feebate'' 
        programs, which reward manufacturers and consumers for fuel 
        economy performance exceeding federal standards.

   Allocate meaningful funding for NHTSA research: Congress 
        should immediately appropriate a $5 million supplemental 
        appropriation for NHTSA and 10 staff positions for research, 
        evaluation and rulemaking for fuel economy standards on cars 
        and light trucks, in order to allow the agency to prepared for 
        the issuance of new standards. In its rulemaking, NHTSA made it 
        clear that it did not have the staff or funds to issue new 
        light truck standards, as required by law, this spring.

   Solve safety problems by addressing safety: Require NHTSA to 
        set new safety standards in the areas of rollover 
        crashworthiness protection and limits on aggressivity. On 
        rollover, Congress should require:

     A dynamic roof crush standard;
     Roof energy absorbing protection to reduce injuries from 
        contact with the roof;
     Safety belt pretensioners that are triggered in a rollover 
        crash;
     Improved seat structure to keep occupants in position 
        during a roll;
     Side impact head protection air bags that are triggered in 
        a rollover crash.

    On vehicle aggressivity, Congress should require a crash safety 
standard to reduce the damage caused by light truck-type vehicles in 
crashes with smaller vehicles by 30 percent compared with model year 
2000 vehicles.

III. The Real Safety Problem

A. The Myth of the Safety Tradeoff

Industry's claims that fuel economy measures reduce safety are wrong
    The auto industry has argued, time and again, that raising fuel 
economy standards will adversely impact safety by causing the increased 
production of smaller vehicles or by reducing vehicle weight. In fact, 
there is no evidence that establishes a clear correlation between 
vehicle weight and increased fatalities--some heavier cars are far more 
dangerous to both their occupants, and to others on the highway, than 
are lighter ones. Across many measures of crashworthiness, the newest 
fuel guzzlers--the SUVs--are the worst performers. What matters most 
for safety are the crashworthiness protections and the compatibility 
that is designed and built into vehicles, and these must be enhanced as 
critical parts of any comprehensive highway safety and fuel economy 
program.
    The use of the time-worn safety canard by industry is a cynical 
attempt to frighten consumers and Congress in an attempt to deflect new 
requirements, and appears most appallingly hypocritical when we 
consider that industry has acted to obstruct safety improvements 
whenever possible. Industry deploys a misleading safety ``red herring'' 
only because it hopes that it will offer a modicum of political cover 
for its unwillingness to act responsibly.
    Public Citizen has a long record of working for safer cars--most 
often in opposition to the powerful efforts of the auto industry to 
squelch or resist them--the analysis we present today shows that 
raising fuel economy standards, if accompanied by appropriate and 
reasonable safety measures, will not hurt highway safety and in fact 
will even save lives by creating a more compatible vehicle fleet. It is 
important to note that NHTSA administers both the safety and fuel 
economy programs, so it can coordinate this work, as I did as NHTSA 
Administrator in the 1970s.
    The following points will, I believe, put the industry's 
hypocritical arguments to rest at last.

Historically, the auto industry and the National Academy of Sciences 
        (NAS) are wrong that CAFE standards reduced vehicle weight and 
        endangered motorists

        ``[CAFE standards] would require a Ford product line consisting 
        of either all sub-Pinto sized vehicles or some mix of vehicles 
        ranging from a sub-sub-compact to perhaps a Maverick.''--Ford 
        Motor Company, 1974 \10\

    Some members of the panel that published the July 2001 NAS report 
on fuel economy contend that raising CAFE standards would increase the 
occupant fatalities in crashes due to a connection between vehicle 
weight and fatality crash rates. As a strong NAS panel dissent by David 
Greene and Maryann Keller and other critics have pointed out, this 
conclusion is problematic because the panel was:

   Using outmoded data on crashworthiness: The data used by NAS 
        is from 1993 and before, and therefore fails to account for 
        recent advances in occupant protection from new government 
        standards, such as dynamic side impact protections, dual air 
        bags, and head injury protections. In holding crashworthiness 
        constant, the panel overlooked crucial, compensating safety 
        improvements that are possible in the areas of rollover and 
        aggressivity, thus overstating the negative safety effects. 
        This oversight is particularly troubling given the high 
        survivability of rollover crashes and the panel's reliance on 
        data from the study for NHTSA by Kahane. Kahan hypothesized 
        that the largest increase in fatalities by CAFE would come from 
        deaths in small vehicle rollover crashes, deaths which would be 
        avoidable with proper crash protections;

   Perpetuating cause-correlation confusion in vehicle size and 
        weight as factors: The changes in fuel economy standards will 
        not result in a fleetwide, uniform reduction of vehicle 
        weights; postulating that a possible weight-fatality 
        correlation is not the same as demonstrating that improving the 
        average fuel economy of vehicles will actually cause increased 
        fatalities. In fact, history shows that weight reductions will 
        occur only in the largest vehicles, where it is most cost-
        effective. Also, there was no attempt by the majority panel to 
        account for confounding factors such as vehicle size and driver 
        characteristics;

   Overlooking harm from the light truck loophole: The panel 
        ignored some implications of the main study by Kahane that it 
        prominently cited, which suggested that proportional changes in 
        both cars and trucks causing the down-weighting of the entire 
        vehicle fleet would have zero safety impact, because relative 
        weight, rather than absolute weight, is the crucial factor. 
        Kahane's figures actually bear this out, although in drawing 
        his conclusions Kahane changed the weight of cars while keeping 
        weights for light trucks and other vehicles unaltered, and vice 
        versa, producing confused results;

   Understating the risks of incompatibility: The panel 
        overlooked the results from several studies which suggest that 
        disparities among vehicle weight are the cause of devastating 
        crashes, thus suggesting that instead of causing harm, any 
        convergence effect on vehicle weights from CAFE standards would 
        actually yield safety benefits.

    In fact, the link between CAFE standards and reductions in vehicle 
weight at the low end of the vehicle weight range simply does not 
exist: while the heaviest vehicles were put on a diet and lost a 
thousand pounds, the lightest vehicles today are considerably heavier 
than their pre-CAFE counterparts. As was pointed out in the December 6, 
2001, testimony of Clarence Ditlow of the Center for Auto Safety, the 
original passage of CAFE standards did not result in light cars 
becoming lighter or less safe. In fact, the Honda Civic gained 800 
pounds and went from failing NHTSA crash tests to receiving the best 
possible rating for crashworthiness--5 stars. Moreover, the Ford Pinto 
and Chevrolet Chevette, notably unsafe vehicles, were replaced by the 
safer models of the Ford Escort and Chevrolet Nova. \11\
    Looking at the CAFE-weight relationship more broadly, as fleet fuel 
economy increased over time, vehicle weights did not move in any one 
direction. In 1975, cars weighing less than 2,500 pounds made up 10.8 
percent of the new-car fleet, but only 2.6 percent in 2000. By 
contrast, cars in the over 4,500 pound weight class made up 50 percent 
of the new-car fleet in 1975 but only 0.9 percent in 2000. These data 
show that CAFE standards did not cause a uniform reduction in vehicle 
weight at the light vehicle level (although CAFE may have caused a 
reduction in average weight, as more cars were built in the 2,500-4,500 
pound category). \12\ Because automakers could get proportionally more 
fuel savings from reducing the weight of the heaviest class of cars, 
those were the first targets for fuel economy improvements, and 
production numbers for cars in the lightest class actually decreased.
    Any improvement in the CAFE standards made today will likely have a 
similarly small impact on the weight or production levels of the 
smallest cars. It is not cost-effective to reduce their weights by very 
much, given the limited fuel economy improvement from doing so and the 
relatively higher cost of vehicle redesign.

Major improvements in fuel economy are possible using currently 
        available technology without any reduction in safety protection
    A Department of Energy (DOE) study found that 85 percent of the 
fuel economy gains made following the 1975 CAFE law were from 
improvements in vehicle technology rather than weight reduction. \13\ 
The evidence strongly suggests that similar technological leaps are 
currently available or just around the corner, and that the recent 
stagnation and even backsliding in overall fuel economy is a trend that 
must be stopped.
    The Union of Concerned Scientists (UCS) pointed out in a report 
released in 2001 that today's vehicles could become more fuel efficient 
at a price that would easily be made up in savings on fuel costs, and 
the necessary changes would have no negative impact on safety. 
Technologies currently used in portions of today's fleet, if adopted 
fleetwide, could make vehicles more streamlined, less fuel intensive, 
and more efficient. A partial list of these technologies includes the 
following:

   Aerodynamic improvements--reducing vehicle drag by reducing 
        their profiles;

   Rolling resistance improvements--changing tread designs and 
        rubber quality on tires;

   Safety enhancing mass reduction--increasing the use of 
        plastics, aluminum and high strength steel;

   Accessory load reduction--using more energy efficient 
        electric accessories that draw less power from the battery;

   Variable valve control engines--used in Honda VTEC engine, 
        allowing valves to be adjusted for better engine performance;

   Stoichiometric burn gasoline direct injection engines--
        introducing fuel directly to the engine cylinder;

   Integrated starter generators--allowing engines to turn off 
        rather than idling when the car is not in use;

   5- and 6- speed automatic transmissions--increasing 
        opportunities for engines to run at their efficiency ``sweet 
        spot;''

   5-speed motorized gearshift transmissions--mimics the 
        performance of a manual with the ease of an automatic;

   Optimized shift schedules--using electronics and sensors to 
        improve automatic transmission performance;

   Continuously variable transmissions--providing complete 
        control over the relationship between engine speed and vehicle 
        speed. \14\

    The UCS has not limited their research to the hypothetical realm. 
With technologies currently used in mass production by at least one 
company, and basing their design on the current Ford Explorer, the UCS 
designed a new vehicle that increased the real world fuel economy of 
the Explorer by 50 percent while improving zero to sixty performance by 
1.7 seconds and saving 4 percent ($1,577 in gasoline costs) over the 
lifetime cost of the unimproved vehicle (See Table 1). Adding 
technologies currently entering the market to their design, they were 
able to improve fuel economy by 75 percent, creating a vehicle that 
would test at 34.1 mpg and save 6 percent ($2,163) over the lifetime 
cost. \15\

                               Table 1: Union of Concerned Scientists' Greener SUV
----------------------------------------------------------------------------------------------------------------
                                                                                                   UCS Exemplar
                                                                Ford Explorer     UCS Exemplar         Plus
----------------------------------------------------------------------------------------------------------------
Curb Weight (lbs)............................................             4146             3525             3525
0-60 Performance (secs)......................................             12.4             10.7             12.2
Fuel Economy (mpg)...........................................             19.3             28.4             34.1
Vehicle Price................................................          $28,830          $29,545          $29,765
Lifetime Fuel Costs..........................................           $7,253           $4,961           $4,155
----------------------------------------------------------------------------------------------------------------
Total Cost...................................................          $36,083          $34,506          $33,920
----------------------------------------------------------------------------------------------------------------

    Ford's Explorer currently fails to meet the very modest 20.7 mpg 
CAFE standard for light trucks, getting just 19 mpg. With the 
improvements implemented by the UCS using currently available 
technology, the same vehicle surpassed the current 27 mpg CAFE standard 
for passenger cars. Given the challenge of a higher CAFE standard to 
meet, auto manufacturers, with their considerably larger resources, 
could certainly far surpass the 34.1 mpg performance achieved by UCS 
within a ten year time-frame.
    As a final point, it is clear both historically and legally that 
the Motor Vehicle Information and Cost Savings Act, like the National 
Traffic and Motor Vehicle Safety Act, is technology-forcing. It 
requires the Secretary of DOT to set the ``maximum feasible'' standard 
while considering, among other factors, the energy needs of the nation. 
\16\ Any sensitive consideration of our energy needs would lead one to 
conclude that reducing our dependency on foreign oil is a high national 
priority.

B. The Real Story on Safety

Vehicle size and design, not weight, are the critical factors for 
        safety
    None of the research that attempts to establish the industry 
argument has thus far sufficiently isolated the confounded effects of 
vehicle size and vehicle weight in terms of safety implications for 
occupants or other motorists. Even the landmark study by Charles Kahane 
for NHTSA did not isolate the different implications of shifts in 
vehicle size and weight, \17\ a problem which the recent NAS study 
literally glosses over in their attribution of overblown fatality 
figures to CAFE.
    However, vehicle size, design and relative crashworthiness are the 
crucial factors in safety outcomes, for several reasons. While 
increases in weight irrefutably export an externality of threat to 
other motorists, increases in size and improvements in design and 
crashworthiness have the potential to save lives, both as net impacts 
and for the drivers of larger vehicles. Vehicle size, as distinct from 
weight, is pertinent to safety, and confounds the analysis of fuel 
economy effects for several reasons. Larger vehicles provide additional 
room for occupants' torsos and limbs to avoid contact with the area of 
crash impact, and there is space to design the vehicle frames of large 
vehicles to better absorb crash forces, so that occupants' bodies do 
not.
    The real solution to CAFE may be to emphasize the use of innovative 
and lightweight crash materials, such as those employed in the Research 
Safety Vehicle designed by Don Friedman of Minicars for NHTSA in the 
1970s. For another example, while the UCS in the above experiment 
involving the retrofitted Explorer did remove weight from the vehicle 
to improve fuel economy, the size of the vehicle and all of its safety 
features were left intact.
    Honda has emphasized this point in a letter sent December 19, 2001, 
to the Committee, which I urge Members to closely read. In the letter, 
Honda demonstrates that many of its most fuel efficient vehicles are 
extremely good performers on safety as well, thereby answering the 
misleading arguments put forward by Ford at a prior hearing December 6.

C. The SUV Safety Myth

Many factors affect safety, creating hazards for drivers of SUVs
    The prevailing concept of the connection between light trucks and 
safety is wrong. Light trucks are more dangerous to other drivers than 
their passenger car counterparts, but are not necessarily any more safe 
for their own occupants. The Chevrolet Blazer, for example, has a per 
million vehicle year driver death rate that is more than three times 
higher than the Honda Civic's death rate. \18\ The chart of driver 
death rates compiled by the Insurance Institute for Highway Safety is 
proof that crashworthiness and crash survival vary widely within 
vehicle classes. Other research by David Greene, a dissenter on the NAS 
panel, has pointed out that there is no correlation between vehicle 
weight for passenger cars, for example, and a car's crashworthiness 
crash test ratings in the New Car Assessment Program administered by 
NHTSA. \19\
    Another insight from Greene is that SUVs and heavier vehicles may 
face particular safety obstacles, including longer braking distances on 
both wet and dry pavement. \20\ Ford has admitted that many drivers of 
SUVs alarm company engineers by failing to adjust their driving habits 
to the different handling characteristics of SUVs, including a 
propensity to rollover in emergency maneuvers. Ford has thus begun 
contracting with a national driving school to teach special safety 
skills to drivers of their SUVs. \21\ Because Ford's own marketing data 
show that drivers behind the wheel of an SUV operate under a false 
impression of enhanced safety and drive more aggressively than they 
otherwise would, accounting for such differences in the safety data 
used to study the implications of fuel economy is crucial. The NAS 
majority and Kahane were unable to do so.

SUVs have a high propensity to roll over and poor crashworthiness for 
        rollovers
    The 2001 Blazer received only one star on NHTSA's rollover 
resistance rating system, while the 2001 Toyota Corrola, a small car, 
received a high score of four stars, and the midsized Chrysler Sebring 
received five stars. \22\ Based on these ratings, the Blazer is four 
times or more as likely to roll over in an emergency maneuver than is 
the Sebring. Sixty percent of deaths in light trucks (vans, pick-ups 
and sports utility vehicles) occur in rollover crashes. \23\ The good 
news is that rollover crashes are among the most survivable type of 
crash.
    The Ford Explorer is a case in point for lessons in the importance 
of crashworthiness. \24\ Post-hoc accounting showed that while tread 
separations for the Firestone tire used on Explorers were 
extraordinarily common, most of the fatalities which occurred following 
a tread separation were directly attributable to a rollover of the 
vehicle. Subsequent tests of the Explorer's rollover crashworthiness 
undertaken in preparation for litigation by safety expert and engineer 
Don Friedman show that the Explorer was equipped with an extremely 
flimsy roof which is incapable of bearing up under the weight of the 
rolling vehicle after the windshield is broken. Because a vehicle's 
windshield typically shatters after one roll, the Explorer's occupants 
were basically left unprotected from roof crush injuries, which are 
often devastating or fatal.
    To address this safety problem, then, improvements are needed not 
only to the vehicle's tire and rollover propensity, but also to its 
roof strength and rollover crashworthiness in general. The point is 
that the human suffering caused by a failure to design a safe vehicle 
was entirely unnecessary given the survivability of rollover crashes. 
The high cost to Ford's economic well-being and reputation for safety 
that were caused by over 200 fatalities and 700 serious injuries 
appears particularly unfortunate when we consider that most of them 
could have been avoided by a safer design.
    The NAS majority reached its conclusion by holding vehicle 
fatalities constant, ignoring the lifesaving possibility contained in 
measures such as rollover protections. But the main data relied on by 
the NAS, the 1997 Kahane study, found that single vehicle rollover 
crashes involving the greater number of small cars predicted to enter 
the highway under CAFE were the swing factor in producing net increases 
in fatalities. As we argue below, however, to fix this problem we 
should, as a policy matter, address rollover crashworthiness first, 
last and foremost. In so doing, we can wipe out the auto industry 
argument that fuel economy threatens safety.

D. Solving the Rollover Problem

The need for rollover crashworthiness standards
    The auto industry should begin their campaign for safety by 
addressing vehicle rollover. Rollovers now kill more than 10,000 people 
each year, a sum that is fully one-third of all vehicle deaths, yet the 
causes of death in such a crash are largely preventable. The forces 
exerted in a rollover crash are small, less than 10 mph in many cases. 
Like professional race car drivers that survive such crashes, if 
vehicle occupants are sufficiently protected from the hazards of a 
rollover crash they can escape death or serious injury.
    The auto industry has been so laggard over the years, causing 
thousands of needless deaths and injuries, that federal motor vehicle 
crashworthiness standards are needed. One of the primary elements of 
protecting occupants in a rollover crash is a roof that is resistant to 
crushing as the vehicle rolls. Currently, roof crush standards do not 
adequately measure the way a roof is likely to respond in a real world 
rollover crash because:

   The test used by NHTSA is static rather than dynamic;

   The force measured for passage is less than that actually 
        experienced in a rollover; and

   The windshield, which breaks on the first roll in an actual 
        crash, is left in place for the test and supplies about one-
        third of the measured strength of the roof in the test NHTSA 
        uses.

    With protections, rollovers are highly survivable crashes with low 
gravitational forces. The following measures will provide basic 
occupant protection:

   A dynamic roof crush standard, which measures roof crush 
        without the windshield in place;

   Safety belt pretensioners which trigger in a rollover crash;

   Improved seat structure to keep occupants in position during 
        a roll, including seat belt anchors on the seat structure;

   Side impact head protection air bags which are triggered in 
        a rollover crash and reduce the ejection of occupants;

   Roof injury protection to protect occupants in the event of 
        contact with the roof structure; and

   Improved door locks and hinges to keep doors from becoming 
        ejection portals in a rollover.

E. Improving Compatibility and Reducing Fatalities from Aggressive 
        Vehicles

Fixing CAFE to reduce fatalities
    The current structure of CAFE contributes to highway deaths not 
because vehicles are too light, but because of the dual standard 
created for cars and light trucks, including SUVs. The current system 
of CAFE standards pretends that there are two vehicle fleets: cars, 
which must meet a statutorily required 27.5 mpg standard, and ``light 
trucks'' and their progeny which meet the 20.7 mpg standard set by 
NHTSA. The safety consequences of the bifurcation of the standard have 
been disastrous as manufacturers have marketed heavier and heavier SUVs 
as family vehicles.
    The erosion of CAFE will continue as manufacturers keep ramping up 
SUV size to produce truly massive passenger vehicles in the absence of 
new fuel economy standards. For just the latest example, in February 
2001, DaimlerChrysler announced that the company would be marketing a 
new mega-vehicle, named the ``Unimog,'' that will be 20 feet long and 
nearly two feet wider than a typical car, weigh 12,500 lbs., and get 10 
mpg on diesel fuel. \25\

Light trucks, particularly SUVs, are very dangerous for other drivers 
        on the highway
    Study after study shows that heavier vehicles, and especially SUVs, 
are a threat to other drivers in vehicles they hit, especially in their 
heaviest and most aggressive versions. A 1998 report by Hans Joksch for 
the Department of Transportation (DOT) showed: (1) that the risks 
imposed by heavier cars on lighter car occupants outweigh the safety 
benefits to the heavier car occupant across the entire vehicle fleet on 
the highway and (2) that greater variability in the distribution of 
weights increases fatalities. \26\ A paper by Alexandra Kuchar of the 
DOT's Volpe Institute concluded that shifting the fleet from cars to 
light trucks--at each increment of the shift--increases serious 
injuries and fatalities, partly because of the greater stiffness of 
light trucks. \27\
    Despite the perception that light trucks are safer for the 
occupant, total highway safety is made worse by the presence and weight 
of these vehicles. Over 11,000 light truck-type vehicle occupants were 
killed in crashes in 1999, and crashes involving light trucks killed 
another 4,896 people, for a ratio of .44 non-truck occupant fatalities 
for every 1 occupant fatality. This should be contrasted with passenger 
cars, which killed just .08 non-occupants in crashes for each passenger 
car occupant killed. \28\ The NAS report last year concluded that a 
reduction in the mass of the light truck fleet would result in a net 
reduction in the number of fatalities on our highways, because the 
reduced-mass light trucks would kill fewer of the occupants of the 
vehicles into which they crash. \29\
    All the research points to conclusions that are precisely the 
opposite of the myths promoted by manufacturers about CAFE and safety. 
As David Greene has argued, the risk to other drivers posed by SUVs and 
other larger vehicles is a way of ``exporting'' risk as a market 
externality that should be corrected by government action. Given the 
high societal costs of automobile crashes, the increased fatalities and 
injuries that result are costs that all of us bear. Closing the light 
truck loophole and new requirements under CAFE would likely have the 
happy consequence, as did those passed in 1975, of increasing the 
number of mid-sized vehicles in the fleet and bringing about greater 
convergence in vehicle weight across the fleet.

F. The Need for Aggressivity Standards
    Sports utility vehicles now constitute 50 percent of new vehicle 
sales, yet SUVs are almost three times as likely as cars to kill the 
other driver in a collision. The scope of the problem is well-known. 
Even some manufacturers, such as Toyota, Nissan and Renault, have 
called for regulations to make all passenger vehicles more compatible 
in crashes. \30\ In a corporate report, Ford has admitted that SUVs are 
an anti-social vehicle type, and this is certainly the case from a 
vehicle dynamics standpoint.
    Light trucks tend to have higher bumpers and structures, which can 
override the body of a smaller car and fail to engage the crash 
protections built into both vehicles. Light trucks are also typically 
built with stiffer frames that fail to absorb crash forces, causing 
damage to other vehicles as well as their own occupants. Finally, most 
light trucks are substantially heavier than passenger cars, thus 
exerting more mass in a crash with a lighter vehicle.
    NHTSA has begun studying the problem of vehicle aggressivity, and 
their results have suggested some major areas for improvement. Vehicle 
aggressivity, as presently understood, relates generally to three 
factors: vehicle weight, structural stiffness of the vehicle, and 
height of center of force. This last factor shows the importance of 
vehicle design factors--the height of a vehicle's ``center of force'' 
reflects the design distribution of its mass and is a primary indicator 
of the amount of damage that will be inflicted on another vehicle 
during a collision. \31\
    All things being equal, a heavy vehicle will be more aggressive 
than a lighter one. When weight is controlled for, however, other 
factors relating to vehicle design become important. Small pick-ups and 
mid-sized cars have approximately the same curb weight (3,000 lbs.), 
yet a NHTSA study found that small pick-ups caused roughly 50 percent 
more fatalities to occupants of other vehicles than did mid-sized cars 
on a per-vehicle basis. \32\
    NHTSA should be directed to issue an aggressivity reduction 
standard as a top priority given the rapidly increasing population of 
light trucks mixing with cars on our highways. \33\ By raising CAFE 
standards, Congress would encourage automakers to take weight out of 
the aggressive vehicles at the high end of the fleet weight range--
saving both fuel and human life. By requiring NHTSA to issue standards 
that reduce the likelihood of struck driver death in an accident, 
Congress can dramatically reduce the harm caused by our largest 
vehicles.

G. Believe What Industry Does, Not What It Says

The industry's solicitude for safety in the context of the fuel economy 
        debate is disingenuous and should not mislead Congress or the 
        public
    The concern for safety expressed by automakers in the fuel economy 
debate is a red herring. Historically, the auto industry has protested 
one safety requirement after another for 35 years, using Congress, the 
courts and its administrative access to avoid costs associated with 
vehicle redesign while the safety of the public suffers. Among many 
other battles over safety measures, the industry:

   Fought efforts to place seat belts and shoulder harnesses in 
        all vehicles;

   Remained silent in the debate over raising the speed limit--
        increased speeds in states which raised their speed limits 
        cause over 500 deaths per year; \34\

   Fought mandatory air bags on cost grounds;

   Fought side impact and fuel system standards;

   Currently is battling to prevent effective dynamic rollover 
        tests and an improved roof crush standard;

   And now are also fighting new requirements for a dashboard 
        tire pressure monitoring system on cost grounds, which saves 
        fuel economy and improves safety.

    In addition, it is well documented that the industry resisted any 
attempt by NHTSA to publish rollover resistance ratings for years, 
until the Ford/Firestone disaster forced them to back away from their 
public opposition to ratings. \35\ The cumulative death toll from these 
delays and the continuing battles far exceeds even the industry's 
claims about the so-called risks resulting from fuel economy standards.
    As another one example of industry relentlessness in pursuit of 
profit, I cite the epic struggle over air bags. With the exception of 
General Motors in the early 1970's under its president Ed Cole and 
Mercedes in the 1980's, the manufacturers generally opposed a federal 
standard requiring air bags from 1969 until it finally took effect in 
1988. In 1983, the Supreme Court ruled that the Reagan administration 
had improperly revoked the rule. Justice White, writing for the Court, 
stated that the industry had waged ``war'' on air bag regulation and 
that NHTSA's regulatory actions under the Safety Act could be 
``technology forcing:''

        The automobile industry has opted for the passive belt over the 
        airbag, but surely it is not enough that the regulated industry 
        has eschewed a given safety device. For nearly a decade, the 
        automobile industry waged the regulatory equivalent of war 
        against the airbag and lost--the inflatable restraint was 
        proven sufficiently effective. Now the automobile industry has 
        decided to employ a seatbelt system which will not meet the 
        safety objectives of Standard 208. This hardly constitutes 
        cause to revoke the standard itself. Indeed, the Motor Vehicle 
        Safety Act was necessary because the industry was not 
        sufficiently responsive to safety concerns. The Act intended 
        that safety standards not depend on current technology and 
        could be ``technology-forcing'' in the sense of inducing the 
        development of superior safety design. \36\

Industry advertising sells speed and demonstrates a lack of concern for 
        safety
    Fuel economy levels, like our larger economy, are in recession. 
Despite their potential for tremendous impact on our environment and 
safety, more fuel efficient vehicles may never come to market unless 
Congress acts. Why? Because automakers have chosen to focus on the 
production of generation after generation of larger and powerful, 
faster vehicles, despite their knowledge that these are just the 
vehicle features which increase fatalities.
    Recent motor vehicle television ads have begun to once again 
resemble the ``speed ads'' of the early 1990s, which persisted until 
safety advocates shamed the auto industry into a temporary ceasefire. 
The Insurance Institute for Highway Safety has pointed out the 
marketing strategy that accompanies this approach, citing commercials 
that ``either ignore safety or undermine it by obscuring the fact that 
driving fast or aggressively increases motorists' crash risk.'' \37\ 
While automakers build ever faster and more powerful vehicles, they 
waste the opportunity and resources to make passenger vehicles that are 
safe and socially responsible.

IV. Fixing the CAFE System Will Save Both Lives and Fuel

A. The existing structure of the CAFE system should be used to produce 
        more fuel economy gains
    Despite the manufacturers' outcry about technological limitations 
when CAFE was initially introduced as part of the Energy Policy and 
Conservation Act in 1975, fuel economy performance rose substantially 
in the seven years after the legislation took effect. Manufacturers 
retooled their engines and drivetrains, adjusted the mixture of their 
fleets, took advantage of unused technological advances, and resized or 
eliminated their most fuel-thirsty vehicles to produce cars that were 
more socially responsible. This period of change, and the exciting 
directions in which it took the auto industry, were summed up in a 1977 
speech made by Robert B. Alexander, then Vice President of the Car 
Product Development Group at Ford. His response to the challenges of 
posed by the new fuel economy standards and emissions standards of that 
period was to declare the era ``the age of the engineer--and I, for 
one, couldn't be happier.'' \38\
    Even some in the auto industry agree that the CAFE system has been 
effective in meeting its goals. In his testimony of December 6, 2001, 
Bernard Robertson, Senior Vice President of Engineering Technologies 
and Regulatory Affairs for DaimlerChrysler stated that ``the industry 
achieved significant gains during the past twenty-five years'' and said 
that alternatives to the CAFE system are ``either politically 
unacceptable or have significant `unknowns' or problems.'' Jaime 
Auffenberg, chairman of the American International Auto Dealers 
Association recently said that ``we are going to have to find ways to 
improve fuel efficiency . . . I think there's opportunity to improve 
CAFE numbers, and we need to be responsible and address them.'' \39\ 
While some in the industry may quibble about the specifics of the CAFE 
system, none of them has advocated a viable replacement.
    Because of CAFE requirements, the United States has saved 3 billion 
barrels of oil a day and saved consumers more than $20 billion each 
year. At the same time, we have avoided sending billions of dollars 
overseas to pay for oil, and prevented the release of tons of 
greenhouse carbon dioxide into the atmosphere. The program, however, 
has stagnated and must be updated to account for technological changes, 
energy concerns and environmental imperatives. While Public Citizen 
does not recommend significant changes in the overall structure of the 
system, a few critical modifications must be made.

B. Close the light truck loophole
    As currently structured, the CAFE system has separate targets for 
cars and light trucks. The standard for cars, set by statute, is 27.5 
mpg. The standard for light trucks, which NHTSA is responsible for 
adjusting each year to account for improvements in what is the maximum 
feasible, is set at 20.7 mpg and has not been adjusted for 7 years. 
Since 1994, appropriations riders have prevented NHTSA from expending 
any funds to adjust of the standard, a provision secured by the auto 
industry that has detrimentally affected safety, gasoline expenditures, 
and our environment.
    As a result, NHTSA has had no money for staff research on CAFE. 
Moreover, the Gas Guzzler tax, which penalizes manufacturers for 
selling vehicles that fall extremely far below the CAFE standard, 
shockingly only applies to cars as it is currently drafted, and 
provides a weak penalty that today is out-of-date. One CAFE standard 
and one Gas Guzzler tax system should be applied to all light duty 
passenger vehicles in a manufacturer's fleet.
    In 1975, when the distinction between light trucks and passenger 
cars was adopted and favored by the auto industry, light trucks 
accounted for just 20 percent of the vehicle fleet, and were largely 
used for off-road and commercial purposes. \40\ Light trucks were also 
not redesigned as frequently and often used older technologies. Thus, 
Congress felt it could not anticipate the minimum mpg numbers for these 
vehicles and asked NHTSA to set the standard by regulation.
    However, a separate standard makes no sense in a world where SUVs 
carry millions of Americans back and forth to work each day. SUVs and 
other light trucks are simply not used as Congress anticipated in 1975, 
and there is no basis for maintaining their status as a special part of 
the vehicle fleet. Moreover, many manufacturers have introduced 
crossover models built on a car chassis but have a truck body or other 
features, and are therefore counted under the truck CAFE standard. One 
particularly egregious example of this is Chrysler's PT Cruiser, which 
is counted as a truck for CAFE purposes simply because the back seats 
are removable and it has a hatchback trunk. The PT Cruiser cannot be 
used off-road due to its low (6.5") ground clearance, has a towing 
capacity of only 1,000 lbs., and lacks 4-wheel drive. Yet the current 
CAFE system counts it as a light truck, raising Chrysler's overall 
truck fleet fuel economy average and enabling the production of other 
extremely inefficient vehicles. The ability of manufacturers to play 
this game of ``light truck'' qualification makes the higher CAFE 
standard for cars far less meaningful.
    In addition, the safety implications of the two fleet split are 
obvious to anyone who has ever stared up at the massive grill, high 
bumper, and heavy, stiff body of one of the largest SUVs. Two standards 
means two fleets--one of which is hazardous to the other. By closing 
the ``light truck loophole,'' which has become big enough to drive the 
19-foot Ford Excursion through, Congress would force manufacturers to 
reduce the size and aggressivity of their largest vehicles, rendering 
them less of a hazard to other drivers and improving fleetwide fuel 
economy.
    NHTSA just issued its rulemaking on the light truck standard 
(Docket No. NHTSA-2001-11048) for 2004 and announced their plans to 
leave the 20.7 mpg standard unchanged. The agency explains in its 
rulemaking that the Congressional appropriations riders which froze 
adjustment of this standard from 1995 to 2001 left NHTSA unable ``to 
lay the factual or analytical foundation necessary to develop a 
proposed standard other than the one at 20.7 mpg.'' \41\ This 
embarrassing situation must be corrected by the same Congress that 
imposed it on NHTSA every year since 1994.
    Closing the light-truck loophole will require a phase-in of some 
sort, so as not to cause undue disruption in the auto industry by 
allowing adequate planning lead time for design adjustments. 
Manufacturers should be required to count an additional 20 percent of 
their vehicles under a combined standard every two years, until all of 
their vehicle fleet is counted under a single standard after 10 years.

C. Other Important Changes to CAFE Are Justified and Necessary

Fleet fuel economy should be raised to 40 mpg over ten years, starting 
        in model year (MY) 2005
    At the same time as light trucks are being phased into the vehicle 
fleet, Congress should set targets to increase overall fleet fuel 
economy. Model year 2001 total fleet fuel economy is just 24.5 mpg, a 
6.5 percent decline from the high of 26.2 mpg achieved in 1987. 
Manufacturers were able to improve fleet fuel economy by 80 percent 
from 1978 to 1987, and they have had 15 years to develop new 
technologies that could achieve a similar improvement given enough lead 
time and appropriate penalties for failing to comply with the standard. 
While manufacturers may argue that the opportunities for technological 
improvement are exhausted, the work of the UCS explained above and the 
emergence of the hybrid engine prove these arguments wrong.
    The NAS report did not advocate any fleetwide fuel economy number 
as the appropriate one, but its Path 2 and 3 calculations and 
assumptions suggest that a fleetwide fuel economy of 37 mpg by 2015 is 
achievable using only conventional gas engines. \42\ Their original 
report estimated much higher achievable mileages, but they revised 
these estimates downward after receiving pressure from the auto 
industry in two waves, once before the official publication of the 
report, and in another round after the auto industry privately appealed 
to the NAS and a subsequent public hearing. \43\ The NAS also failed to 
account in their estimates for the potential of hybrid engines to raise 
fleetwide fuel economy.
    Moreover, the NAS analysis did not project what was possible over 
the long run or cost-effective from an environmental or societal 
viewpoint, and instead focused only on what was next-dollar 
``efficient'' in narrow, consumer-defined economic terms. Many vehicles 
that were considerably more fuel efficient than those considered 
optimal by the NAS panel would still be cheaper, over the life of the 
vehicle, than the vehicles in today's fleet they would replace. \44\ 
Phasing in a new fleet fuel economy of 40 mpg would save an estimated 2 
million barrels a day by 2012, or more oil than we currently import 
from both Saudi Arabia and Kuwait. America would take a giant step 
toward untying our hands on foreign policy and enriching our 
environmental future by implementing this standard.

Testing procedures must be made more accurate
    When CAFE was first implemented in 1978, the testing procedures 
used by the Environmental Protection Agency (EPA) predicted real world 
fuel economy performance within a margin of 3 percent. Currently, the 
tests predict performance within a 17 percent margin of error. \45\ 
This is unacceptable. The overstated values that emerge from these 
tests are used to calculate a manufacturer's fleetwide fuel economy to 
determine whether or not they are meeting the CAFE target. Congress 
should require the EPA to issue a rulemaking that adjusts its testing 
procedures in order to narrow the gap between real-world fuel economy 
performance and tested performance to below a 10 percent margin of 
error within 5 years after the initiation of new CAFE standards, and 
below a 5 percent margin of error after 10 years. Adjusting these 
procedures would improve real world fuel economy, because companies 
would be performing to the standard, rather than to 83 percent of the 
requirement. It would also give Americans an accurate yardstick by 
which to judge our progress against our fuel reduction goals.

End the dual-fuel credit program
    The duel fuel credit program is an embarrassing waste of taxpayer 
dollars and is a prime example of corporate welfare. It should be 
eliminated. Under this program, manufacturers are rewarded for not 
limited to, ethanol and other alcohol-based fuels), though only 1 
percent of the miles driven in these vehicles are ever powered by such 
a fuel. \46\ Consequently, manufacturers are able to build vehicles 
that emit more carbon dioxide than they otherwise would, simply by 
making cheap modifications to their engines that subsequently go 
unutilized. The result: U.S. gasoline consumption increased by 473 
million gallons in 2000 because of this program. \47\ The cost of 
building an infrastructure to support alternative fuels would far 
outstrip the tiny benefits in emissions reduction we could achieve 
through its use.
    Tellingly, H.R. 4, introduced by Billy Tauzin (R-LA), which extends 
the dual-fuel credit program, also extends by four years the deadline 
by which the Secretary of Transportation must report on the 
effectiveness of the program. \48\ No manufacturer even attempted to 
offer a reasonable defense of this program in their testimony of 
December 6th, 2001, suggesting that even its beneficiaries understand 
they are getting something for nothing. The NAS condemned the program 
as having had ``a negative effect on fuel economy.'' \49\

Eliminate the carryback provision in the CAFE credits system
    Today, if a manufacturer fails to meet its CAFE requirement, it can 
submit a plan for improving vehicle fleet efficiency in three future 
years and then earn credits in those years that will negate the earlier 
year's delinquency. This loophole, the so-called ``carryback'' 
provision, invites abuse and dishonesty by the manufacturers by 
effectively delaying the deadline by which they must meet their fuel 
economy targets. Consequently, domestic manufacturers never pay any 
fines, and it is difficult to tell from year to year which companies 
are actually in compliance. In fact, no member of the Big Three 
domestic manufacturer group has ever paid a fine under the CAFE system, 
though foreign manufacturers have paid fines of as much as $26 million. 
\50\
    In order to simplify this system, Congress should amend 49 U.S.C. 
32903(a)(1) to eliminate the carryback provisions. Retaining the 
``carryforward'' provisions at 49 U.S.C. 32903(a)(2) is desirable. 
These provisions allow manufacturers to apply credits earned in the 
present year to any of the three following years, rewarding them for 
exceeding their mandated CAFE performance.

The preemption provision in the CAFE regulations should be clarified so 
        it does not preclude state-run ``feebate'' programs
    There is some evidence, as expressed in the NAS report, that a 
feebate program, wherein manufacturers (and consumers) are rewarded for 
selling cars that are more fuel efficient than CAFE requires, would 
produce benefits beyond a straightforward CAFE system. While Public 
Citizen does not advocate implementing this program on a national level 
due to the large number of unknowns involved, we believe there is 
enough potential merit in such a system that states should be allowed 
to experiment with it. Currently, the preemption clause at 49 U.S.C. 
32919 rules out this possibility, thereby preventing useful 
experimentation. Congress should pass language that specifically 
excludes these programs from preemption, so long as the program only 
rewards manufacturers for selling vehicles with tested fuel economies 
at or above the applicable CAFE standard in the year they are 
manufactured.

V. Reaping the Benefits of Solid Energy, Safety and Environmental 
        Planning

Improving fuel economy benefits the American economy in both the short 
        and long run
    Automobile manufacturers have argued that improving fuel economy 
will cripple their ability to do business by preventing them from 
giving the customer what she wants. They argue, further, that because 
the automobile industry is so critical to the health of the American 
economy it would be destructive to the economy as a whole if Congress 
were to prescribe new fuel economy standards. Their conclusion 
shortchanges their own talented engineers and runs contrary to economic 
history.

Reducing dependence on oil will protect our economic stability and 
        growth
    Unstable oil and gas prices destabilize the American economy. Each 
of the three major oil price spikes of the last 30 years (1973-74, 
1979-80, and 1990-91) was followed by an economic recession in the 
United States. Because so much of our oil must be imported, we are at 
the mercy of OPEC and foreign governments should they choose to act to 
rapidly raise oil prices as they did two years ago. Our economy, as it 
is currently structured, requires the importation of over $100 billion 
dollars of crude oil and petroleum products each year, which accounts 
for 29 percent of our trade deficit and totals $378 for every man, 
woman, and child in the U.S. \51\ American spending on gasoline 
consumption--$186 billion dollars in 2000--renders consumers vulnerable 
to sudden price spikes over which they have no control. \52\
    The economic cost of U.S. oil dependence over the past 30 years has 
been estimated at $7 trillion dollars of present value \53\--an amount 
approximately equal to the combined 2000 Gross Domestic Product (GDP) 
of France, the United Kingdom, Germany and India. \54\ If we were to 
reduce our use of oil substantially, this wealth would remain within 
the United States and we would have greater control over economic 
growth.

Economic health and environmental health are closely linked
    The long-run economic health of the United States depends on the 
stability of our climate. Our contributions to global warming through 
vehicle use are substantial. Vehicle carbon dioxide emissions account 
for nearly a quarter of total U.S. emissions, and are a whopping 5 
percent of the global total. The catastrophic environmental effects of 
continued warming have been well documented--I will cite just a few. If 
our carbon dioxide use continues unabated, we can expect:

   Epidemics of tropical diseases like malaria and encephalitis 
        in the United States;

   Extreme heat waves that will kill hundreds and devastate 
        agriculture;

   Uncontrolled flooding of our coastal cities;

   Extreme weather patterns, resulting in massive property 
        damage and insurance costs. \55\

    We must treat global warming as a threat to our long-term security 
and wealth. The actions we can take now to reduce emissions will have 
positive impacts for generations to come.
Weak fuel economy standards hamper U.S. competitiveness
    While some foreign auto manufacturers invested considerable money 
and human capital and built safe, affordable, fuel-efficient vehicles 
of all sizes, domestic auto manufacturers secured appropriations riders 
barring increases in fuel economy for the last seven years. By stifling 
fuel economy improvements, U.S. manufacturers looked to Congress to 
protect them from competing, rather than using their resources to build 
socially responsible vehicles.
    Each year that goes by without an increase in CAFE standards 
represents another year of backsliding by the Big Three. As just one 
manifestation of this trend, Honda and Toyota released vehicles powered 
by hybrid engines in the United States in 1999 and 2000 respectively, 
while Detroit (led by Ford) will not release its first hybrid vehicle 
until 2003. \56\ If U.S. auto companies are to remain competitive, they 
must have the blinders of environmental and economic reality removed 
and join the rest of the globe in producing fuel efficient and safe 
vehicles.

Beware the auto industry tactic of promoting future ``SuperCars'' to 
        avoid new CAFE standards now
    The Bush Administration recently announced that it plans to abandon 
the Clinton-initiated Partnership for a New Generation of Vehicles 
(PNGV) program, on which $1.5 billion was spent over 8 years. This 
program was the excuse for failing to increase fuel economy in the 
early Clinton years. Now, in league with the auto industry, President 
Bush is vowing to commit large sums of federal money, spaced out over a 
decade, to research fuel-cell powered automobiles, for another long-
term project that will, it is hoped by industry, supplant feasible fuel 
economy standards today.
    Fuel cell cars would theoretically produce no carbon dioxide 
emissions from the exhaust system of the car (though manufacturing 
their fuel would still require upstream emissions). \57\ While fuel 
cells hold tremendous potential for improving the environmental impact 
of America's vehicle fleet, the timing and political impact of this 
recent announcement should be understood as yet another industry delay 
tactic.
    Although the PNGV program was flawed, there is little evidence that 
these flaws are being corrected in the proposed design for the proposed 
Bush administration fuel cell program, so this new program may also 
have limited impact on advances in the vehicle fleet. Similar risks 
attend this new program as plagued the old: the PNGV program was overly 
controlled by the auto industry itself; it shut innovative suppliers 
out of the process; it focused on long-term goals rather than 
achievable improvements; it relied on competitors sharing research with 
one another, inherently limiting its usefulness; and it failed to set 
any mid-point goals so that the program could be evaluated. It is not 
coincidental that President Bush is scuttling the program just two 
years before its only goal (an 80-mpg passenger vehicle) was to have 
been achieved.
    The recently announced program to fund fuel cell research is based 
on the same premises as the PNGV program. The proposed program will do 
nothing to improve fuel economy in the short run, and may do very 
little to improve it in the long run. Mass production of fuel cell 
powered vehicles is many years away. \58\ There are a number of 
technical hurdles that must be cleared before fuel cells are powerful, 
safe, and compact enough to be used in passenger vehicles. There is 
also a strong possibility that this program will be dominated by the 
manufacturers and their interests in the way that the PNGV program was, 
and therefore fail to make much material progress. Most importantly, 
without a federal mandate for the auto industry to improve fuel 
economy, there is no guarantee that manufacturers will implement any of 
the developed technology. This program is clearly not a substitute for 
raising CAFE requirements, although its long-term research potential is 
certainly important.

In many ways, the car of the future was built in 1978
    If automakers truly cared about producing socially responsible 
vehicles they need look no further than the Research Safety Vehicle 
(RSV), designed and assembled between 1975 and 1978, for ideas on how 
to improve both safety and fuel economy. The RSV was built in the late 
1970s under a NHTSA contract with Don Friedman, a former GM engineer 
who won a competition for the contract against much larger companies. 
The finished vehicle weighed 2,450 lbs., got 32 miles to the gallon in 
1978, and safely protected its occupant in crash tests. \59\ The 
vehicle was able to protect its occupants in a full frontal barrier 
impact at 50 miles per hour (mph), and in side impact and rollover 
crashes at 40 mph, without significant risk of occupant injury. Current 
statements from Friedman indicate that, if equipped with the hybrid 
engine technology currently being used in the Honda Insight, this 
vehicle would achieve a fuel economy today of between 50 and 60 mpg.

VI. Conclusion: Upgrading Fuel Economy is A Win-Win for Congress, 
        Public Safety and the Economy
    At this moment, Congress has an historic opportunity to require a 
more socially responsible vehicle. Public opinion strongly supports 
higher fuel efficiency, and our environment, national, and economic 
security demand it. Improvements in fuel economy, vehicle rollover 
crashworthiness, and reductions in vehicle aggressivity will save both 
gas and human life. Congress should jump at this win-win opportunity 
with a definitive schedule for the phase-in of vehicle fuel economy 
standards up to 40 mpg for a combined fleet of cars and trucks.
    Thank you so much for the opportunity to speak with you today. I 
look forward answering any questions you may have.
ENDNOTES
        \1\ Ann Mesnikoff, Testimony before the Senate Committee on 
        Commerce, Science, and Transportation, December 6, 2002, 
        Washington, DC.
        \2\ National Environmental Trust, America, Oil, and National 
        Security, (Washington, DC 2001) 40.
        \3\ Earle Eldridge, ``Trucks likely edged cars in 2001 sales,'' 
        USA Today, January 2, 2002.
        \4\ Mesnikoff.
        \5\ Lou Harris, Conducted by Peter Harris Research Group, July 
        2001.
        \6\ Gallup Poll, for CNN/USA Today, September 11-15, 1992.
        \7\ Gallup Poll, Conducted for Chicago Council on Foreign 
        Relations, October 23-November 15, 1990.
        \8\ Gallup Poll, May 7-9, 2001 (61 percent result achieved by 
        adding the percentages of those who responded ``More 
        conservation'' (47 percent) and those who responded ``Both/
        Equally'' (14 percent), referring to both ``More conservation'' 
        and ``More production'').
        \9\ Keith Bradsher, ``Ford is Conceding SUV Drawbacks,'' The 
        New York Times, May 12, 2000.
        \10\ Sen. John Kerry, Congressional Record, Sept. 25, 1990, at 
        S13696 (citing Ford).
        \11\ Clarence Ditlow, Testimony before the Senate Committee on 
        Commerce, Science, and Transportation, December 6, 2002, 
        Washington, DC.
        \12\ Union of Concerned Scientists, Drilling in Detroit, 
        (Cambridge, MA:UCS Publications June 2001) 51, 53.
        \13\ Mesnikoff.
        \14\ Union of Concerned Scientists, Drilling in Detroit 18, 
        Appendix B.
        \15\ Union of Concerned Scientists, ``Greener SUVs: A Blueprint 
        for Cleaner, More Efficient Light Trucks,'' Summary available 
        on the World Wide Web at 
        http://www.ucsusa.org/vehicles/greener.SUVs.html
        \16\ See Motor Vehicle Information and Cost Savings Act, Sec. 
        502 (3)(A).
        \17\ Charles J. Kahane, ``Relationships Between Vehicle Size 
        and Fatality Risk in Model Year 1985-1993 Passenger Cars and 
        Light Trucks,'' (1997).
        \18\ Insurance Institute for Highway Safety, ``Driver Death 
        Rates,'' Status Report Vol. 35, No. 7 (August 19, 2000) 4-5.
        \19\ Greene, David L., ``Fuel Economy, Weight and Safety: Its 
        What You Think You Know That Just Isn't So,'' for Oak Ridge 
        National Laboratory, presentation at the Automotive Composites 
        Conference, Society of Plastics Engineers, Sept. 19, 2001.
        \20\ Id.
        \21\ Keith Bradsher, ``Ford Wants to Send Drivers of Sport 
        Utility Vehicles Back To School,'' New York Times, July 4, 
        2001.
        \22\ National Highway Traffic Safety Administration Crash 
        Testing Website: http://www.nhtsa.dot.gov/cars/testing/NCAP
        \23\ According to 1999 DOT statistics, 19.7 percent of all 
        fatal crashes had a rollover.
        \24\ Keith Bradsher, ``Risky Decision: A Special Report. Study 
        of Ford Explorer's Design Reveals a Series of Compromises,'' 
        The New York Times, December 7, 2000.
        \25\ Keith Bradsher, ``For the Megagrowth Family, Daimler to 
        Offer a Bigger-Than-SUV,'' Feb. 21, 2001.
        \26\ Hans Joksch, Vehicle Aggressivity: Fleet Characterization 
        Using Traffic Collision Data (Ann Arbor. MI: University of 
        Michigan Transportation Research Institute, February 1998).
        \27\ Alexandra Kuchar, A Systems Modeling Methodology for 
        Estimation of Harm in the Automotive Crash Environment 
        (Cambridge, MA: Volpe National Transportation Systems Center, 
        2001) 10.
        \28\ National Highway Traffic Safety Administration, Traffic 
        Safety Facts 1999 (Washington DC: Government Printing Office 
        2000) 107-108.
        \29\ National Research Council, Effectiveness and Impact of 
        Corporate Average Fuel Economy (CAFE) Standards, (Washington, 
        DC: National Academy Press, 2001) 2-24.
        \30\ Keith Bradsher, ``Carmakers to Alter SUVs to Reduce Risk 
        to Other Autos,'' The New York Times, March 21, 2001.
        \31\ See, e.g., Keith Bradsher, ``High Fatality Rate Found in 
        Cars That Crash with Explorers,'' The New York Times, Feb. 14, 
        2001 (documenting that Explorers, due to their force 
        distribution, killed 10 car drivers for every 1,000 crashes 
        between Explorers and cars, in comparison with other midsize 
        SUVs that kill five to seven drivers per 1,000 crashes, and 
        with cars, which inflict six-tenth of a death per 1,000 crashes 
        with other cars); Keith Bradsher, ``Study Says Height Makes 
        SUVs Dangerous in Collisions,'' The New York Times, May 16, 
        2001 (documenting new, but insufficient, aggressivity 
        modifications in some newer SUVs).
        \32\ William Hollowell and Hampton Gabler, ``NHTSA's Vehicle 
        Aggressivity and Compatibility Research Program,'' Paper No. 
        96-S4-0-01.
        \33\ This body of research exists: NHTSA has collected vehicle 
        aggressivity information as crash test profiles on its crash 
        barriers as part of its testing for the New Car Assessment 
        Program.
        \34\ Insurance Institute for Highway Safety, ``Limits up, 
        speeds up, deaths up'' Status Report Vol. 32, No. 8 (October 
        11, 1997) 1.
        \35\ Keith Bradsher, ``Auto Industry May Ease Safety-Ratings 
        Stance,'' New York Times, Sept. 19, 2000.
        \36\ See Motor Vehicle Manufacturers Association of U.S., Inc. 
        v. State Farm Mutual Auto Insurance Company, 463 U.S. 29, 49, 
        103 S.Ct. 2856, 2870 (1983) [emphasis added].
        \37\ Insurance Institute for Highway Safety, ``Car Ads,'' 
        Status Report Vol. 35, No. 8 (September 30, 2000) 2.
        \38\ Robert B. Alexander, speech before the Management Briefing 
        Seminars sponsored by the Michigan Chamber of Commerce and the 
        University of Michigan (Traverse City, MI) August 4, 1977.
        \39\ ``AIADA will focus on funding,'' Automotive News, 21 
        January 2002, 32i.
        \40\ Congressional Budget Office, ``President Carter's Energy 
        Proposals: A Perspective,'' Staff Working Paper (Washington, 
        DC: Government Printing Office June 1977) 55.
        \41\ National Highway Traffic Safety Administration, Notice of 
        Proposed Rulemaking, ``Light Truck Average Fuel Economy 
        Standard, Model Year 2004,'' http://www.nhtsa.dot.gov/cars/
        rules/rulings/Cafe/LightTruck/NPRM.html
        \42\ National Research Council, 3-24.
        \43\ Compare Bradsher, Keith, ``A Panel Backed by Bush Urges 
        Higher Fuel Efficiency For Cars,'' The New York Times, July 17, 
        2001 with Bradsher, Keith, ``Panel Tones Down Report on Fuel 
        Economy Increases,'' The New York Times, July 27, 2001; 
        Bradsher, Keith, ``Report on Fuel Economy is Less Optimistic in 
        Final Form,'' The New York Times, July 31, 2001; and Jeffrey 
        Ball, ``Estimates Are Cut for SUV, Truck Fuel Efficiency,'' 
        Wall Street Journal, January 17, 2002. My letter protesting the 
        NAS revisions of their report in response to this industry 
        pressure is attached to this testimony.
        \44\ David Friedman, Union of Concerned Scientists Testimony 
        before the Senate Committee on Commerce, Science, and 
        Transportation, December 6, 2002, Washington, DC. Vehicles 
        where an additional dollar spent on the sticker price did not 
        result in an additional dollar of gasoline savings were 
        excluded from consideration by the NAS. The UCS rejects this 
        approach in favor of one which includes all vehicles that are 
        cheaper over their lifetimes than the vehicles they replace.
        \45\ Friedman 8.
        \46\ Ethanol is sold in only 108 of the nation's 178,000 
        service stations. Keith Bradsher, ``With Loophole, Carmakers 
        Post Mileage Gain,'' The New York Times, June 2, 2000.
        \47\ Keith Bradsher, ``Ethanol Plan Fails to Reduce Use of 
        Gasoline,'' New York Times, June 21, 2001, A1.
        \48\ HR 4, ``Securing America's Future Energy Act of 2001,'' 
        Section 203.
        \49\ National Research Council, 6-2.
        \50\ National Highway Traffic Safety Administration, ``Summary 
        of CAFE Fines Collected,'' Jan. 18, 2002.
        \51\ Natural Resources Defense Council and Union of Concerned 
        Scientists, Dangerous Addiction (New York, NY 2002) 10.
        \52\ Union of Concerned Scientists, Drilling in Detroit, Table 
        1.
        \53\ David Greene and Nataliya Tishchishyna, ``Costs of Oil 
        Dependence: A 2000 Update,'' (Oak Ridge, TN: Oak Ridge national 
        Laboratory May 2000) 21.
        \54\ CIA World Factbook: http://www.cia.gov/cia/publications/
        factbook.
        \55\ Sierra Club, ``Global Warming Impacts,'' http://
        www.sierraclub.org/globalwarming/health/disease.asp
        \56\ Frank Swoboda and Dina ElBoghdady, ``U.S. Backs Fuel-Cell 
        Cars,'' Washington Post, 10 January 2002, E1.
        \57\ Id.
        \58\ Union of Concerned Scientists, Dangerous Addiction, 26.
        \59\ Minicars Inc, Research Safety Vehicle promotional material 
        (Santa Barbara, CA 1978).

    Senator Kerry. Who did that car?
    Ms. Claybrook. The Department of Transportation. We did it 
with a gentleman named Donald Friedman, who is a former General 
Motors engineer, at a small company named Minicars. There was a 
big competition for doing this in 1974, and he won the 
competition and produced it in 1977, and that was one of the 
models on which we based the 1977 fuel economy standards.
    Senator Kerry. Did they attach a retail consumer available 
price to it?
    Ms. Claybrook. We did. We had it evaluated by Budd Company, 
and it was about the same price as a car of that era like a 
Pinto, for example. It was in mass production.
    Senator Kerry. Mr. Lund, why don't we go to you.

STATEMENT OF ADRIAN K. LUND, CHIEF OPERATING OFFICER, INSURANCE 
                  INSTITUTE FOR HIGHWAY SAFETY

    Mr. Lund. Thank you, Senator. As chief operating officer of 
the Insurance Institute for Highway Safety, I welcome this 
opportunity to discuss the important relationship between 
vehicle fuel economy and safety.
    Ms. Shelly Martin, the Institute of Government Affairs' 
representative, will assist me with my presentation. Also, note 
that my oral remarks are abbreviated from the text provided 
separately to the Committee, finally, note also that I am a 
member of the National Academy of Sciences Committee that 
reviewed CAFE this past year, and though I am not speaking as a 
representative of that committee today, I have borrowed 
liberally from our report.
    The institute is concerned that mandatory increases in fuel 
economy under current CAFE structure could increase the risk of 
serious injury in crashes. We are concerned because reductions 
in vehicle size and weight are obvious means to improve fuel 
economy, but at the same time, smaller, lighter vehicles do not 
protect occupants as well in crashes.
    Future improvements in safety technology, driven by safety 
standards and consumer testing, may hide or offset the safety 
cost of future downweighting, but those lighter vehicles would 
afford less protection than heavier vehicles with the same 
technology. This concern does not mean that enhanced fuel 
economy and safety are inherently incompatible. Some 
downweighting of the heaviest vehicles in the fleet could 
reduce injury risk when all road users are considered, and 
there is developing fuel efficiency technology that for a price 
could increase fuel economy without downweighting of vehicles.
    However, the evidence is clear that any regulatory action 
that increases the sale of smaller, lightweight cars, or light-
duty trucks, for that matter, will increase injury risk in 
crashes. Moreover, CAFE as currently structured provides an 
incentive for the sale of the smallest, lightest vehicles, 
thus, an alternative structure, perhaps one that indexes fuel 
economy to vehicle weight, is necessary to avoid negative 
consequences.
    The institute's concern about a potential increase in small 
car sales is illustrated in Figure 1 here. We see that the risk 
of occupant crash fatality per vehicle on the road increases as 
vehicle weight decreases, going from right to left across this 
figure. For example, the risk of fatal injury per registered 
vehicle is about twice as high for the lightest car as compared 
with the heaviest ones.
    Now, the protective factor of vehicle weight is not the 
full story. Vehicle weight can also increase the risk of injury 
to other road users. Figure 2, for example, shows that as the 
weight of the vehicles increases, the fatality risk increases 
in other vehicles that collide with them. These two effects of 
weight; greater protection for the vehicle's own occupants plus 
increased risk to other road users, are combined in Figure 3, 
which shows the total number of crash tests involving these 
vehicles, including pedestrians and cyclists. We see increasing 
vehicle weight to about 3,500 or 4,000 pounds reduces total 
fatality risk.
    However, beyond 4,000 pounds, increasing vehicle weight 
results in a net increase in fatalities as the risk to other 
road users more than offsets the increased occupant protection 
of the additional weight. Note that any decrease in weight 
below 4,000 pounds results in an increase in fatality risk, 
whether we are talking about cars, or SUV's, or pick-ups, but 
above 4,000 pounds, decreases in vehicle weight can reduce 
total fatality risks.
    To put this another way, Figure 3 illustrates that some 
vehicle downweighting could occur without a net safety cost to 
society as a whole, if it involved only the heaviest vehicles. 
There are other ways to increase fuel economy without negative 
safety consequences. For example, there is developing 
technology that could increase fuel efficiency and achieve 
large increases in fuel economy without reducing vehicle weight 
or altering current vehicle performance. However, this brings 
us to the problem of the current CAFE structure. Nothing about 
it encourages manufacturers to achieve fuel economy by reducing 
the weight of only their largest vehicles, or by installing 
expensive developing technology.
    Senator Kerry, you mentioned all of the fuel efficiency 
technology that has gone into horsepower vehicle weight, 
instead of fuel economy. However, CAFE is structured so an 
increase in the sales of small, lightweight, and fuel-
economical vehicles is an obvious way to offset the low fuel 
economy of large, heavy vehicles.
    Figure 4 illustrates this by showing the distribution of 
1999 model cars by weight and fuel consumption in gallons per 
100 miles traveled. Figure 4 also shows the mandated CAFE 
standard, but as the horizontal line at 3.64 gallons per 100 
miles. As car weight increases, fuel consumption also 
increases, and many heavier cars consume more than the CAFE 
target. This is allowable with corporate averaging, because any 
manufacturer with a heavy model that consumes fuel much above 
the required level, like vehicle A here, can still satisfy CAFE 
by also producing lightweight and fuel-economical models like 
vehicle B, because usually there is much more profit to be made 
from larger, feature-laden vehicles. Lowering the allowable 
fuel consumption further may not result in downweighting or 
improved fuel economy of the heavier vehicle A, but rather, in 
increased sales of the less profitable and less safe vehicle B.
    CAFE need not be structured this way. The standard could 
promote fuel economy and safety if the fuel economy 
requirements were indexed to vehicle weight. Figure 5 shows the 
fuel economy of all passenger vehicles in 1999, and a single 
alternative CAFE requirement is plotted for light cars and 
trucks, the solid line that increases until about 4,000 pounds 
and then flattens out. The idea is that allowable fuel 
consumption would decrease for vehicles lighter than 4,000 
pounds, so their higher fuel economy would no longer provide an 
offset for lower fuel economy of heavier vehicles. Thus, there 
is no incentive to down-weight lighter vehicles.
    Ending the sliding fuel economy requirement at around 4,000 
pounds further enhances the potential safety benefits by 
holding all vehicles above this weight to a common value. There 
would be an incentive for manufacturers to reduce the weights, 
and therefore the aggressivness of the heaviest vehicles. The 
better fuel economy of lighter vehicles could not be used to 
offset that high fuel consumption. NHTSA, we believe, should 
investigate this enhanced CAFE structure and, if its promise is 
confirmed, it should be seriously considered as an alternative 
to the current structure.
    In summary, improved fuel economy and safety are not 
inherently incompatible, but there is a problem. The current 
CAFE structure allows, and market economics encourage, the sale 
of small, lightweight, and less protective vehicles in order to 
offset the fuel consumption of large, heavy, and profitable 
ones. Simply ratcheting up current CAFE requirements for cars 
or light duty trucks will increase motor vehicle fatality risk 
by increasing the sales of lightweight cars and trucks.
    Based on the best evidence available, the NAS CAFE 
Committee concluded that the vehicle weight reductions that 
occurred between 1976 and 1993, at least partially in response 
to the initial fuel economy standards resulted in about 2,000 
additional fatalities in 1993. Congress should be guided by 
this history. World events and environmental concerns may well 
require improved fuel economy as part of our U.S. response. If 
so, I urge Congress to direct NHTSA to consider new CAFE 
structuring that could improve both fuel economy and safety. We 
must ensure that the fuel economy improvements that might save 
lives in the far future do not result in avoidable crash 
fatalities in the very near future.
    Thank you.
    [The prepared statement of Mr. Lund follows:]

    Prepared Statement of Adrian K. Lund, Chief Operating Officer, 
                 Insurance Institute for Highway Safety

    The Insurance Institute for Highway Safety is a nonprofit research 
and communications organization that identifies ways to reduce motor 
vehicle crashes and crash losses. I am the Institute's chief operating 
officer, and I am here to discuss the important relationships between 
vehicle fuel economy and safety. The Institute is particularly 
concerned that mandatory increases in fuel economy could increase the 
risk of serious injury in crashes or, at the very least, reduce the 
societal benefits of future vehicle safety improvements.
    This concern is based on the inherent physical relationships 
between vehicle mass, fuel consumption, and safety. Larger, heavier 
vehicles consume more fuel to travel the same distance as smaller, 
lighter cars. At the same time the larger, heavier vehicles protect 
their occupants better in the event of a crash. This is true in both 
single- and multiple-vehicle crashes. Reductions in vehicle size and 
weight can improve fuel economy but only at the cost of reduced 
occupant protection. Simultaneous improvements in safety technology to 
protect occupants can hide or offset the safety costs of downweighting, 
but the basic fact remains that, for a given level of safety 
technology, heavier vehicles afford greater protection than lighter 
vehicles. No safety technology can be added to lighter vehicles that 
will offset their inherent disadvantages in protecting occupants in 
crashes. The protective effects of mass are independent of, and 
additive to, other safety factors.
    This relationship is described in much greater detail in the recent 
report by the National Academy of Sciences (NAS) Committee to Review 
the Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) 
Standards, July 31, 2001. I was a member of that committee, and the 
Institute largely agrees with the report's majority position on safety, 
so I will not repeat the details. I will instead focus on the primary 
implications of the report:

   Any regulatory action that increases the sale of small, 
        lightweight vehicles, whether cars or light-duty trucks, will 
        increase injury risk in crashes.

   This inherent relationship does not preclude the improvement 
        of fuel economy without adverse safety consequences.

   As currently structured, CAFE standards provide an incentive 
        for the sale of the smallest, lightest vehicles.

   Alternative CAFE structures that index fuel economy 
        requirements to vehicle weight can mitigate or even reverse the 
        negative safety implications of increased fuel economy 
        requirements.

    Before elaborating on these points, we first need to review the 
relationship between vehicle mass and motor vehicle crash injury risk. 
In Figure 1, we see the risk of occupant crash fatality per vehicle on 
the road for 1990-96 model cars, sport utility vehicles (SUVs), and 
pickups during 1991-97, the most recent year for which the Institute 
has conducted these analyses. (Note: In contrast to the National 
Highway Traffic Safety Administration (NHTSA), the Institute classifies 
minivans, which typically are built on modified car platforms, as cars 
rather than trucks.) For each of these vehicle types, the risk of 
occupant death increases as vehicle weight decreases. The risk of fatal 
injury per registered vehicle is about twice as high for the lightest 
cars com-pared with the heaviest ones. Similar relationships occur for 
SUVs and pickups, although the typical SUV or pickup has a higher 
fatality risk than the typical car of similar weight. This is largely 
due to the increased risk of single-vehicle crashes, particularly 
rollover crashes, among light-duty trucks. So what we see from this 
figure is the basic protective effect of vehicle size and weight. We 
also see a diminishing protective effect as vehicle weight approaches 
3,500 to 4,000 pounds.



    This protective effect of vehicle weight is not the full story. 
Many crashes involve more than one vehicle, and in multiple-vehicle 
crashes vehicle weight can increase the risk of injury in other 
vehicles at the same time it limits the risk to its own occupants. 
Figure 2 shows the number of occupant fatalities that occurred in other 
vehicles that collided with 1990-96 models during 1991-97, per 
registered 1990-96 vehicle. What we see from this figure is that the 
risk of fatality in other vehicles increases with increasing vehicle 
weight.



    From a societal perspective, the effect of vehicle weight includes 
both of these effects--the protective benefits for a vehicle's own 
occupants plus the increased risk to other road users. In Figure 3, the 
total number of crash deaths involving 1990-96 models during 1991-97 is 
shown by vehicle weight. These fatality counts include pedestrians and 
cyclists but exclude deaths in crashes involving three or more 
vehicles, which are relatively few and in which the implications of 
vehicle weight would be difficult to isolate. This figure illustrates 
that, from a societal view, increasing vehicle weight to about 3,500 or 
4,000 pounds reduces total fatality risk. Beyond about 4,000 pounds, 
increasing vehicle weight results in a net increase in fatalities, as 
the risk to other road users more than offsets the increased occupant 
protection afforded by the additional weight.
    To put this another way, Figure 3 illustrates that reducing the 
weight of midsize cars or small SUVs will increase the total fatality 
risk. However, reducing the weight of the heaviest SUVs and pickups 
could result in a net societal safety benefit. So some vehicle 
downweighting need not result in a net safety cost if it involves the 
heaviest vehicles.



    Besides downweighting the heaviest vehicles, there are other ways 
to increase fuel economy without negative safety consequences. The NAS 
committee's report notes the existence of technology that could 
increase fuel efficiency and achieve large increases in fuel economy 
with-out reducing vehicle weights or altering current vehicle 
performance. However, nothing about the current CAFE structure 
encourages manufacturers to achieve fuel economy by reducing the weight 
of their largest vehicles or by installing expensive technology. In 
fact, CAFE is structured so that increasing the production of small, 
lightweight, and fuel economical--but less safe--vehicles can offset 
the production of large, heavy vehicles, which offer manufacturers much 
greater opportunity for profit.
    Figure 4 illustrates this. It shows the distribution of 1999 model 
cars by weight and fuel economy (in gallons per 100 miles traveled). It 
also shows the mandated CAFE standard of 27.5 miles per gallon (the 
horizontal line at 3.64 gallons per 100 miles). For a manufacturer, 
CAFE is computed by taking the difference between each vehicle's fuel 
economy and the required level and aver-aging across the various 
vehicles. Note that any manufacturer with a heavy model that consumes 
fuel much above the required level (vehicle A in Figure 4, for example) 
can satisfy CAFE by also producing small, lightweight, and fuel 
economical models (like vehicle B). Because there usually is much more 
profit to be made from larger, heavier, feature-laden vehicles, this 
aspect of CAFE can be detrimental to safety by providing an incentive 
to develop and sell small, less protective vehicles. The danger is 
twofold--the number of small, lightweight vehicles on the road 
increases and, because those vehicles permit manufacturers to increase 
production of large, heavy vehicles, the overall incompatibility of the 
passenger vehicle fleet increases. Essentially, the sale of the 
lightweight vehicles permits the sale of the heavy vehicles that pose 
the greatest danger to the occupants in the lightweight vehicles.



    As the NAS committee reported, CAFE need not be structured in this 
manner. The standards could promote fuel economy and safety, if the 
fuel economy requirements were indexed to vehicle weight. Figure 5, 
which appears in the NAS report labeled ``Enhanced CAFE Targets,'' 
shows the fuel economy of all passenger vehicles in 1999, and a single 
CAFE requirement is plotted for cars and light trucks. The idea is that 
fuel economy requirements would increase as vehicles become lighter. 
Thus, there would be no incentive to downweight the lightest vehicles 
because their fuel economy requirements would simply increase. 
Increased sales of such light-weight vehicles could not be used to 
offset the fuel requirements of heavier vehicles.



    To further enhance the safety effect of modifying the current CAFE 
structure, the NAS committee considered that the sliding fuel economy 
requirement could end at around 4,000 pounds. Above this, the societal 
consequence of increasing vehicle weight appears to be negative as 
vehicle aggressivity effects outweigh occupant protection effects. By 
holding all vehicles above this weight to a common value (shown here as 
the current fuel economy level for light trucks), there would be an 
incentive for manufacturers to reduce the weights, and therefore the 
aggressivity, of the heaviest vehicles. The Institute believes strongly 
that NHTSA should investigate this enhanced CAFE structure and, if its 
initial promise is confirmed, it should be seriously considered as an 
alternative to the current CAFE structure.
    The Institute is concerned that current efforts to increase the 
fuel economy of the U.S. vehicle fleet could result in more deaths and 
injuries in crashes. However, the Institute does not view improved fuel 
economy and safety as inherently incompatible goals. The chief problem 
is that the current CAFE structure encourages the sale of small, 
lightweight, and less protective vehicles in order to permit the sale 
of large, heavy vehicles. Although the heavy vehicles are more 
protective of their occupants, the additional protective effect of 
weight diminishes at greater weights while the aggressive effect 
increases. Thus, simply ratcheting up current CAFE requirements for 
cars or light-duty trucks would be expected to increase motor vehicle 
fatality risk by increasing the sales of lightweight cars and trucks.
    The NAS committee identified a number of vehicle and engine 
technologies that could increase fuel economy without downweighting or 
losing vehicle performance characteristics. But these technologies come 
at a cost, and nothing in the current CAFE structure encourages 
manufacturers to adopt fuel efficiency strategies as opposed to the 
potentially cheaper and less safe strategy of downweighting. In 
contrast, incentives do exist to add weight-increasing features to 
large, profitable vehicles while subtracting features and weight from 
small, cheap vehicles. The risk is compounded by the likelihood that 
younger, riskier drivers who cannot afford the protection of the 
heavier vehicles will drive the small, cheap vehicles.
    Congress should be guided by history as it considers this issue. 
The first fuel economy standards were imposed in the 1970s after the 
oil crisis. In response, new technologies were introduced, but a large 
proportion of the resulting improvements in fuel economy came from 
vehicle weight reductions. Cars in 1993 were, on average, 700 pounds 
lighter and light-duty trucks were 300 pounds lighter than in 1976. 
NHTSA has estimated that in 1993 each 100-pound decrease in car weight 
was associated with a 1.13 percent increase in fatality risk in 
crashes. This suggests, as the NAS report concludes, that if car 
drivers in 1993 had chosen vehicles as heavy as those in 1976, there 
would have been fewer sales of the lightest vehicles and more sales of 
the heavier ones. This would have meant 2,100 fewer fatalities in 
crashes. The NHTSA analysis also indicates that, because light-duty 
trucks were 300 pounds lighter in 1993, there were 100 fewer fatalities 
in truck crashes. This effect of truck weight reduction occurs because 
light-duty trucks, on average, are heavier than most other passenger 
vehicles and the aggressive effect of additional mass outweighs the 
protective effect.
    Simply ratcheting up fuel economy requirements within the current 
CAFE structure could cause a repeat of this negative effect. Although 
the technology exists to improve fuel economy without downweighting the 
smallest, lightest vehicles, economic forces may argue against the 
adoption of such technology. Certainly, the current CAFE structure does 
nothing to prevent the increased sale of small, lightweight, and less 
safe cars and light trucks. The Institute understands that Congress may 
decide that current world events as well as environmental concerns 
require im-proved fuel economy as part of the U.S. response. However, 
we urge Congress to direct NHTSA to consider new CAFE structuring that 
could improve both fuel economy and safety. Such consideration is 
necessary to ensure that the fuel economy improvements that might save 
lives in the distant future do not result in vehicle downsizing and 
downweighting that surely will result in needless fatalities in the 
near future.

    Senator Kerry. Thank you very much, Mr. Lund. Mr. Hoerner.

STATEMENT OF J. ANDREW HOERNER, DIRECTOR, RESEARCH CENTER FOR A 
                      SUSTAINABLE ECONOMY

    Mr. Hoerner. Good morning, Mr. Chairman and Members of the 
Committee. I want to thank the Committee for inviting me to 
testify this morning on the economics of increasing CAFE 
standards. I am Andrew Hoerner, director of research for the 
Center for a Sustainable Economy. The center is a nonprofit 
research institute.
    My testimony today focuses on the consequences of increased 
CAFE standards on employment. It is based on a series of 
economic simulations we did jointly with the Economic Policy 
Institute. Our findings are rooted in one simple observation, 
every dollar of the cost of producing a car is paid to 
somebody. The reason cars are more expensive when you increase 
efficiency standards is because you are using more labor or 
more expensive materials, or both. We find that higher CAFE 
standards, which increase the price of automobiles, would also 
increase employment in the U.S. auto industry.
    My testimony will be based on a reference scenario in which 
the car and light truck fleets are combined, and the combined 
CAFE is increased from its current level of 24 miles per gallon 
to 50 miles per gallon over 20 years. This is a realistic 
scenario, in that the rate of improvement in CAFE is roughly 80 
percent of the rate that was maintained in the previous period 
of CAFE increases. Our costs and technology assumptions are 
taken from estimates by the U.S. Department of Energy National 
Labs.
    In our scenario the average cost of passenger cars and 
light trucks increases relative to the baseline approximately 1 
percent per year, starting in year five. These cost estimates 
were then used to estimate employment, trade, and other 
economic consequences, using a University of Maryland 
macroeconomic model, the lift model.
    How would such standards affect employment in the auto 
industry? Employment is the product of two factors, first, the 
number of domestically produced automobiles and, second, the 
number of workers needed to produce each car. We estimate that 
the increase in the cost of vehicles caused by a higher CAFE 
standard would decrease the output of the U.S. auto industry by 
an average of 1.4 percent in the first decade and 5.5 percent 
in the second decade. The bulk of this decrease, more than 90 
percent in both decades, is due to increased imports of foreign 
cars. On the other hand, we estimate increased labor 
requirements per vehicle to average 2.2 percent in the first 
decade and 6.1 percent in the second decade.
    The combined effect of the decrease in output and the 
increase in labor requirements per car is a small net 
employment increase averaging about 0.8 percent in the first 
decade and 0.6 percent in the second decade. These job gains 
could be more than tripled if policies could be devised to 
avoid the loss of market share to imports.
    One approach to reducing the negative impact of increased 
CAFE standards on market share is to provide production tax 
credits for U.S. producers of superefficient vehicles. If 
properly designed, production tax credits could offer several 
benefits. They would provide incentives to accelerate the 
introduction of new technologies, they would increase the stock 
of vehicles exceeding the CAFE standard, thus providing slack 
to reduce the cost of CAFE for other new vehicles, and they 
would mitigate the increase in vehicle price and thereby 
maintain market share for the U.S. industry.
    We believe that such credits are appropriate to the extent 
that CAFE offers benefits such as reduced global warming and 
reduced exposure of the economy to global oil price shocks that 
flow to the public at large.
    We note that in order to offset competitive burdens on U.S. 
producers, these tax credits must be on production rather than 
purchase or consumption. Purchase credits would reduce the cost 
of higher efficiency autos to consumers, but would not help to 
preserve U.S. market share. Most economists would agree that 
such tax credits, whether on production or purchase, are best 
financed through either increased fees on low efficiency 
vehicles, or a small increase in gasoline taxes.
    The estimated real rate of return to the consumer 
investment in auto efficiency averages more than 10 percent per 
year. This is more than a third higher than the long-term 
average real rate of return on corporate stocks. Returns of 
this magnitude imply that consumers have more money to spend, 
increasing personal income.
    In summary, we have found that increased CAFE standards 
would increase employment in the U.S. auto industry, but erode 
the market share of U.S. producers. The negative effects of 
CAFE on output can be reduced or eliminated and the positive 
effects greatly enhanced if tax credits are used to share the 
increased cost of superefficient vehicles between the purchaser 
and the public.
    Finally, increased CAFE standards provide a high rate of 
return to the consumer investment and energy efficiency, and 
increase personal income.
    Thank you. I would be happy to take any questions.
    [The prepared statement of Mr. Hoerner follows:]

Prepared Statement of J. Andrew Hoerner, Director, Research Center for 
                         a Sustainable Economy

    Good morning Mr. Chairman and Members of the Committee. I want to 
thank the Committee on Commerce, Science and Transportation for 
inviting me to testify this morning on the economics of increasing 
Corporate Average Fuel Economy (CAFE) standards.
    I am Andrew Hoerner, Director of Research for the Center for a 
Sustainable Economy. The Center is a non-profit, non-partisan research 
and policy organization devoted to promoting innovative, market-based 
approaches to achieving an economy that combines long-term economic 
prosperity, environmental quality, and social fairness.
    The issue of CAFE is a complex one. It involves policy issues in 
national security, environmental quality, consumer safety, trade and 
competitiveness, and the economic health of an important industry. My 
testimony today focuses primarily on the consequences of increased CAFE 
standards on employment. It is based on a series of economic 
simulations that we did jointly with the Economic Policy Institute as 
part of an effort to model labor impacts of a comprehensive climate and 
energy policy.
    Our findings are rooted in one simple observation: every dollar of 
the cost of producing a car is paid to somebody. The reason cars are 
more expensive when you increase efficiency standards is because you 
are using more labor or more expensive materials or both. We find that 
higher CAFE standards, which increase the price of automobiles, would 
also increase employment in the U.S. auto industry by a modest amount, 
despite significantly increased imports of foreign cars and lower 
purchases of cars by U.S. consumers.
    My testimony will be based on a reference scenario in which the car 
and light truck fleets are combined, and the combined CAFE is increased 
from its current level of approximately 24 MPG to 34 MPG after 10 years 
and 50 MPG in 20 years. This increase is phased in over a 15-year 
period, starting in 5 years. These fleet average numbers are 
approximately equivalent to auto standards of 48 mpg in 2010 rising to 
68 mpg in 2020 and light truck standards of 30 mpg in 2010 and 42 mpg 
in 2020.
    We do not allege that this scenario is in any sense optimal. It is 
a realistic scenario in that the rate of improvement in CAFE is roughly 
80 percent of the rate that was maintained in the previous period of 
CAFE increases, 1978 to 1985. The specifics of our results depend on 
the exact scenario that we analyze. However, we believe that the 
qualitative features described below would be maintained over quite a 
wide range of CAFE increases, including any increases smaller than 
those we examine. These qualitative features include increased auto 
cost, reduced fuel consumption and expenditures, consumer impacts that 
are positive over the life of the car at auto-financing discount rates, 
a decrease in the number of domestically produced autos sold together 
with an increase in the total value of those autos, and an increase in 
domestic auto industry employment.
    Our cost and technology assumptions are taken from estimates by the 
U.S. Department of Energy national labs. \1\ They are similar to those 
used in the recent National Academy of Sciences assessment of CAFE, \2\ 
though the policy package we analyze is more aggressive in some other 
dimensions, such as public funding of energy research.
---------------------------------------------------------------------------
    \1\ Specifically, from the CAFE sensitivity case in chapter six of 
Interlaboratory Working Group. 2000. Scenarios for a Clean Energy 
Future. LBNL-44029 and ORNL/CON-476. Washington DC: U.S. Government 
Printing Office. 
    \2\ National Academy of Sciences, Committee on the Effectiveness 
and Impact of Corporate Average Fuel Economy (CAFE) Standards, Board on 
Energy and Environmental Systems, Transportation Research Board, 
National Research Council, Effectiveness and Impact of Corporate 
Average Fuel Economy (CAFE) Standards, Washington DC: National Academy 
Press (2002), .
---------------------------------------------------------------------------
    These cost estimates were then used to estimate employment, trade, 
and other economic consequences of the scenario using the LIFT (Long-
term Interindustry Forecasting Tool) model of the Inforum academic 
research and consulting group at the University of Maryland. Inforum 
has a well-respected, 20-year track record performing macroeconomic 
modeling. The LIFT model is a 97-sector inter-industry macroeconomic 
model. It tracks more than 800 macroeconomic variables, and is unique 
in the extent to which it builds up aggregate demand from individual 
industry demands at a high level of industrial detail.
    It is generally agreed that substantial increases in CAFE will 
increase the cost of motor vehicles, all other things held constant. In 
our scenario, the average cost of passenger cars and light trucks 
increases relative to the base price by 1 percent in year five, rising 
steadily to 15 percent in year 20. This increase in auto price and fuel 
efficiency has a number of effects.
    For consumers, the estimated fuel savings offset the increase in 
cost of the vehicles. All of the increased cost, however, occurs up 
front when the consumer purchases the vehicle; while the fuel savings 
occur over the vehicle's life. Thus, whether the net result is positive 
or negative depends on the rate at which you discount the fuel savings. 
For reasons that are not well understood, but which may relate to 
imperfect information in the auto market, consumers appear to discount 
energy efficiency savings at a higher rate than most other credit 
transactions. At a 15 percent discount rate, similar to the rate 
consumers appear to employ for these transactions, the result is a net 
benefit for car purchasers in 2010 and a small net burden for car 
purchasers in 2020. On the other hand, it would appear to be more 
rational to use a rate similar to the typical automobile financing 
rate. If such a rate (roughly 9 percent for bank-financed car loans 
\3\) is used, the reference CAFE scenario would provide a net benefit 
to consumers in every year.
---------------------------------------------------------------------------
    \3\ See, e.g., .
---------------------------------------------------------------------------
    How would such standards affect domestic employment in the auto 
industry? Employment is the product of 2 factors, the number of 
domestically produced automobiles and the number of workers per car.
    We estimate that the increase in the cost of vehicles meeting a 
higher CAFE standard will slightly decrease the output of the U.S. auto 
industry. Over the first decade, the average decrease relative to the 
baseline is 1.4 percent (not 1.4 percent per year). In the second 
decade, this average decrease rises to 5.5 percent. A small portion of 
this decrease is due to consumer responses to higher prices. However, 
the bulk of the decrease--more than 90 percent in both decades--is due 
to increased imports of foreign cars.
    We assume that foreign producers have the lead on U.S. producers in 
the manufacture of high-efficiency vehicles. To capture this in our 
modeling framework, we assume that foreign producers are able to supply 
vehicles meeting the higher CAFE standards at half the incremental cost 
of U.S. producers. The cost advantage assumed here is probably at the 
high end of what most industry experts would estimate. If the cost 
advantage of foreign producers in producing highly-efficient vehicles 
is assumed to be lower, the negative impact on output would be lower 
and the employment benefit would be higher.
    According to the Department of Energy estimates we used, the cost 
of achieving our reference CAFE standards would amount to 15 percent of 
vehicle cost in year 20. This cost is divided between increased labor 
and increased materials costs, and is born partly by consumers and 
partly by producers. Increased materials costs provide employment 
benefits to other industries, but not to the auto industry itself. We 
estimate increased labor requirements per vehicle to average 2.2 
percent in the first decade and 6.1 percent in the second decade.
    The combined effect of the decrease in domestic output and the 
increase in domestic labor requirements per car is a small net 
employment increase, averaging about 0.8 percent (5500 jobs) in the 
first decade and 0.6 percent (4400 jobs) in the second decade. These 
job gains could be improved by a factor of approximately 2 in the first 
decade and 10 in the second decade if policies could be devised to 
avoid the loss of market share to imports. I will suggest one such 
policy in a moment.
    We did not model the effect of an increase in CAFE standards on 
exports of U.S.-made vehicles. The rest of the industrialized world is 
moving rapidly to adopt increasingly tight auto efficiency standards. 
It seems clear that if the U.S. is alone or nearly alone in maintaining 
lower efficiency standards, U.S. manufacturers will find it 
increasingly difficult to sell their cars in foreign markets. Thus it 
appears reasonable to assume that increased CAFE standards in the U.S. 
will increase exports of U.S.-made autos. However, we were not able to 
quantify this effect. If this effect could be estimated, it would 
mitigate the loss of auto industry output and further increase the auto 
industry job gain.
    One possible approach to reducing the negative impact of increased 
CAFE standards on market share is to provide production tax credits for 
U.S. producers of super-efficient vehicles that exceed the CAFE 
standard. Assuming that the CAFE standards are binding, such credits 
would not further improve auto efficiency (unless vehicles receiving 
the credit are excluded from CAFE calculations). This is because, for 
each vehicle that exceeds the CAFE standard, manufacturers can produce 
offsetting vehicles below the standard. However, if properly designed, 
production tax credits could offer several other benefits. They could:

   provide incentives to accelerate the introduction of new 
        technologies; \4\
---------------------------------------------------------------------------
    \4\ For an estimate of the magnitude of this effect, see Hoerner, 
J. Andrew and Avery Gilbert, Assessing Tax Incentives for Clean Energy 
Technologies: A Survey of Experts Approach, Washington DC: Center for a 
Sustainable Economy (April 2000) .

   increase the stock of vehicles exceeding the CAFE standard, 
        thus providing ``slack'' to reduce the cost of CAFE for other 
---------------------------------------------------------------------------
        new vehicles not receiving the credit;

   mitigate the increase in vehicle price and help maintain 
        market share for the U.S. industry; and

   share the incremental cost of super-efficient vehicles 
        between the purchaser and the public.

    We believe that cost-sharing with the public is appropriate to the 
extent that CAFE offers benefits--such as reduced air pollution, 
reduced global warming, and reduced macroeconomic exposure to global 
oil price shocks--that flow to the public at large.
    Note that in order to offset competitive burdens on U.S. producers, 
these must be production, rather than purchase or consumption, tax 
credits. Purchase tax credits go to U.S. consumers of high-efficiency 
vehicles, regardless of where those vehicles are produced. Production 
tax credits go to U.S. producers of high-efficiency vehicles, 
regardless of where those vehicles are purchased. Purchase credits 
would reduce the cost of higher-efficiency autos to consumers, but 
would not help to preserve U.S. market share. Production credits are 
particularly appropriate to the extent that CAFE standards are intended 
to reduce global warming, as super-efficient vehicles produce an 
equivalent reduction in CO2 emissions whether they are 
purchased domestically or abroad. Most economists would agree that such 
tax credits, whether on production or purchase, are best financed 
through either increased fees on low-efficiency vehicles or a small 
increase in gasoline taxes.
    For the economy as a whole, the impact on personal income of the 
CAFE program we studied is unambiguously positive. Increased CAFE 
standards essentially constitute a program of forced investment in auto 
efficiency. The return comes in the form of energy savings. The 
estimated real rate of return to this consumer investment in auto 
efficiency in our reference scenario varies with the period and vehicle 
type. But the return averages more than ten percent over the entire 
period and vehicle stock. This is more than a third higher than the 
long-term average real rate of return on corporate stocks. \5\ It is 
even higher when compared to the average consumer's investment 
portfolio, which typically includes securities such as bonds and bank 
accounts with lower risks and returns. Returns of this magnitude imply 
that consumers will have more money to spend, increasing personal 
income. \6\
---------------------------------------------------------------------------
    \5\ Roger Ibbotson, Stocks, Bonds, Bills, and Inflation: Classic 
Edition Yearbook Chicago: Ibbotson Associates (2002).
    \6\ Some of this benefit may be offset in terms of economic welfare 
(but not in terms of personal income) if high-efficiency vehicles have 
lower performance on other dimensions important to consumers, such as 
performance or carrying capacity.
---------------------------------------------------------------------------
    In summary, we have found that increased CAFE standards raise the 
price of domestically produced autos and the labor requirements per 
car. The net effect of this is to increase employment in the U.S. auto 
industry slightly, but erode the market share of U.S. producers. The 
latter effect would be smaller if the foreign cost of energy efficiency 
improvements were more similar to the U.S. cost, or if increased CAFE 
standards cause an increase in exports. We recommend that further 
research in these areas be undertaken.
    The negative effect of CAFE increases on output can be reduced, and 
the positive effect on employment increased, if tax credits are used to 
share the increased cost of super-efficient vehicles between the 
purchaser and the public. These must be production credits to be 
effective. They are best financed with charges on low-efficiency 
vehicles or a small increase in motor fuels taxes. Finally, increased 
CAFE standards provide a high rate of return to consumer investment and 
increase personal income.
    Thank you. I would be happy to take any questions.

    Senator Kerry. Thank you very much, Mr. Hoerner. Thank you 
all for your testimony.
    Let me begin, if I may. Ambassador, do you see some 
parallels, or is there a distinction between the national 
security imperatives of the period when you all confronted this 
and what we see today?
    Ambassador Eizenstat. No. I think, if anything, the 
national security imperative has become heightened. The 
instability in the gulf, the threat to moderate Arab regimes 
from Islamic fundamentalism in the very regions on which we are 
increasingly dependent for imports, all to me heighten the 
national security concerns that we faced in the seventies, 
rather than diminish them.
    Senator Kerry. What do you say to somebody in the industry 
who might say to you, well, wait a minute now, we are going to 
go from 51 percent to 64. You are going to make some savings in 
CAFE. I do not know what you are going to do to the industry as 
a whole, but even when you finish doing whatever you do to us, 
we are still going to be pretty dependent on foreign oil, 
including the Middle East.
    Ambassador Eizenstat. That is absolutely true. President 
Nixon talked about energy independence in the early 1970's, and 
that is a chimera. It is not going to happen, we are going to 
continue to be dependent. The question is, how much, and what 
we want to do as rapidly as possible is reduce that dependence, 
so instead of having a curve in which we go from 51 to 64 
percent, we begin to take that curve downward and keep it flat 
at least initially and then have it go downward, but Senator, 
you are quite right, for a very long time we are going to be 
dependent on oil from very volatile regions.
    Senator Kerry. I assume that your strategy in adopting the 
notion that you want to try to hold it down and sort of reduce 
your exposure would also predicate that you would want a very 
serious effort to be moving down the road toward complete, sort 
of independence from that kind of constraint, or do you see 
that, or is that simply pie in the sky?
    Ambassador Eizenstat. I think it is pie in the sky in any 
reasonable timeframe. I do not think it is pie in the sky to 
suggest that we can level off that dependence and begin to 
reduce it by an aggressive program which includes CAFE 
standards, increased production and, in particular, the kind of 
research and development incentives you have championed. That 
is not at all pie in the sky. If we look out 10 to 15 years, 
there is no reason why, with a very aggressive research 
program, strong CAFE standards, and as much increase in 
production as we can get domestically, and that obviously is 
fairly limited because we simply do not have the kind of 
reserves other countries do, that we can begin to reduce that 
dependence.
    Senator Kerry. When you struggled with the three chief, the 
big three sort of sitting in front of you in the White House, 
and there you are being told, impossible, cannot do it, we are 
going to lose jobs, and so forth. Maybe you might share with us 
how you saw through that cloud of negativity so as to take the 
step with a conviction that, in fact, you were not going to be 
doing harm to the economy and buying into the political 
maelstrom?
    Ambassador Eizenstat. Well, frankly, I remember that 
meeting as if it were yesterday. Tom Murphy was the chairman of 
GM. He was the chief spokesman, because GM was by far the 
largest of the big three, and he was the most aggressive in 
simply saying to the President, Mr. President, we do not have 
the technology to make this possible.
    There was from our perspective a certain leap of faith. We 
believed at that time that the CAFE standards would themselves 
drive that technology. We also saw that the Japanese were 
beginning to develop cars that were more fuel-efficient, and 
that in the end it would be beneficial for the industry to be 
more competitive. I shudder to think where we would be had we 
not taken that leap of faith.
    We also had from Jones Agency studies that did indicate 
that the technology could be done, but there was obviously to 
some extent a leap of faith, and it was one that was fully 
justified, because once the standards were set and industry 
shifted its investments, as you suggested, from the increase in 
horsepower and other items to fuel efficiency, in fact we came 
a long way and met those standards.
    Now we have the possibility of going forward. I mentioned 
that I myself test-drove just a few months ago this Toyota 
Prius that gets 52 miles a gallon in the city. It is a hybrid 
car. The State of Maryland provides a tax incentive for that. 
It costs $30,000 to make but Toyota, to try to establish a 
market, is selling them for $20,000 a car. With the kinds of 
credits that you are suggesting and that were just suggested 
here, those kinds of technologies will be improved.
    So we had some data from NHTSA, but we also believed in a 
leap of faith, that with a mandate, the industry would, in 
fact, make--to some extent the analogy, build a stadium and 
they will come was our philosophy.
    Ms. Claybrook. Mr. Chairman, can I comment on that one? One 
of the things that was available to the Department of 
Transportation and to the White House was a very substantial 
amount of work that was done over a 2-year period to document 
all of the engine plants, the transmission plants to make an 
evaluation of the capacity of the industry, and $10 million was 
spent doing this and also subpoenas were sent to the companies 
to demand that they supply certain kinds of information that 
would make it possible to do the analysis that allowed us to do 
this. That was one point.
    The second is, there were 40 people working on it, and the 
third issue is, there was a statutory mandate, and that 
statutory mandate meant the agency had to act. It was just a 
matter of how we spaced out those standards, and that gives a 
great deal of confidence, because Congress has made 
adjustments. This was a national priority.
    Senator Kerry. When you describe it as a leap of faith, it 
was a leap of faith based upon the judgment that Ms. Claybrook 
has just described that you had a certain amount of technology 
there, you had a certain trend being evidence din the Japanese, 
you knew what was achievable. The leap of faith was when you 
put American ingenuity to work it was going to respond, I 
assume.
    Ambassador Eizenstat. Exactly, and again we did not throw a 
dart at a dartboard and come up with a number. The agency 
provided us data which gave us confidence that that 27\1/2\ 
miles per gallon by 1985 was technologically achievable, and 
again, by setting it, it drove the incentives, and because oil 
prices did decline during the early to mid-eighties. Again, had 
we not had that in effect, we would have been even more 
dependent on oil from volatile regions.
    Senator Kerry. Ms. Claybrook, you heard Mr. Lund describe 
the balance here between sort of 4,000 pounds and light 
vehicles versus high. I mean, I assume it stands to reason that 
a lighter vehicle crashing into a heavier vehicle by and large, 
people in the lighter vehicle are going to be at risk. It is 
one of the reasons people are running out to buy cars. It is a 
defensive measure. I have heard countless families tell me, 
well, somebody else has a behemoth, I have to get one. It is 
sort of a defense when saying it is their preference.
    But do you disagree with this? You have a feeling, I think, 
there is a divergence here as to where the cut may be, whether 
there will be an automatic reduction in weight that comes with 
the standard, or do you think you have to make a standard that 
in fact excludes, as Mr. Lund has suggested, the lighter 
vehicle so that they do not get factored in and, in effect, you 
make it harder, I suppose, to reach it. I mean, it is a more 
dramatic change.
    Ms. Claybrook. There are a number of different ways of 
structuring the fuel economy program. The fact is that in 1977, 
when the auto industry saw these new standards they had to 
meet, what they did, and what I described, is they took the 
weight out of the larger vehicles. They did this, because that 
was the only thing that was cost-effective. It is not cost-
effective for the industry to save weight by redesigning a 
smaller car to be 100 pounds lighter, so they take the weight 
out because that is what makes sense to this industry. And they 
used mostly technology. 85 percent of the improvement came from 
technology, so I thought it was a very sensible approach that 
they took in order to achieve these goals.
    The reason that we have gone downhill is because, starting 
in 1986, 1987, the industry started putting faster engines, 
bigger engines, and designing larger vehicles.
    Senator Kerry. They would respond as they did--I mean, I 
have been through this with them, and we have sat privately and 
we have listened here. The response is, well, that is what the 
consumer wants. We provide what the consumer wants, and the 
consumer wants to buy those vehicles.
    Ms. Claybrook. The larger vehicles, yes, but they buy a lot 
of small cars, too. The consumer buys a lot of small cars. That 
is part of the answer. Part is that you can design safety into 
a vehicle far superior to what it is today. But the increase in 
deaths alleged by the manufacturers and the Insurance Institute 
for Highway Safety because of CAFE in fact would be mostly in 
roll-over crashes, and you can virtually stop deaths and 
injuries in roll-over crashes if you have properly designed 
cars.
    There is a huge unused bank account of safety technology 
that the manufacturers still have not put in their cars despite 
35 years since the passage of the auto safety law, and I 
remember, for example, in 1977, when we issued the fuel economy 
standards we also issued the passive restraint airbag 
requirements simultaneously, within 3 weeks of each other, and 
the reason was, we wanted to see safer cars as they went to put 
the fuel efficiency provisions into effect.
    The manufacturers fought the airbags, delayed them another 
7 years, so they are crying wolf, in my view, when they say, 
``Well, the problem with fuel efficiency is, it hurts safety.'' 
If you have a roll-over crash worthiness standard that really 
protects people in roll-over crashes, which are not high force 
crashes--a high force crash is 60 miles an hour into a 
barrier--the roll-over crashes are in the 10 to 20 mile an hour 
speed, so if you have a well-padded, well-controlled vehicle 
with a proper roof and so on, you do not have much injury in a 
roll-over crash. Today 10,000 out of 40,000 deaths, or one-
third of all occupant deaths today, occur in roll-over crashes.
    Ambassador Eizenstat. Senator, on the notion of making cars 
consumers want, this is where government policy comes into 
effect, because you have externalities, as economists would 
call it, that consumers do not take into account. They cannot, 
when they make a purchase, take into account the national 
security implications of being dependent on oil from volatile 
regions, potential threats. They cannot take into account the 
implications of greenhouse gases. That is not what a consumer 
thinks about when he or she buys a car. That is where 
government policy and CAFE standards come in to take those 
externalities into account.
    Ms. Claybrook. And also the aggressivness of these 
vehicles, the larger vehicles, that is where there should be a 
government policy to reduce the aggressivness of these 
behemoths so that they do not do harm to the lighter weight 
vehicle.
    The research safety vehicle you saw crashes safer than any 
car on the road today. It is a 2,500 pound car, and that is 
entirely feasible to make. The way they made it lightweight was 
that they took the steel and they had it hollowed, and poured a 
styrofoam-like liquid material in that hardens so that when it 
crashes, it collapses evenly like an accordion, but it does not 
weigh very much.
    There are all sorts of technologies that are unused in the 
industry today, and the only way they are going to put their 
ingenuity into it is to have government requirements. In 1978, 
a speech was given by a Ford vice president that said, ``This 
is the age of the engineer.'' Fuel economy, emissions and 
safety standards all had to be met simultaneously by this 
industry, and he viewed it as a fabulous challenge.
    That is the way the industry should look at the 
requirements that we are talking about, and that is one of the 
reasons why I hope that in your fuel economy bill you will put 
several safety provisions that will completely obliterate any 
likelihood that there would be increased injuries.
    Senator Kerry. Some of the recommendations I heard you say 
seemed to smack when you spoke of a lighter vehicle in this 
test vehicle--when you started talking a moment ago about roll-
over capacity and other things, are you adding weight? I mean, 
are all of those going to involve weight which then runs 
counter to any quick gains, easy, low-picking fruit gains from 
fuel efficiency?
    Ms. Claybrook. A small amount of weight. It will add a 
small amount of weight.
    Senator Kerry. Does that put greater pressure on the 
industry with respect to what technologies they have to come up 
with to get their fuel savings, if they are adding the others?
    Ms. Claybrook. A little bit, a very minor amount. It is a 
very minor amount. They took out 1,500 pounds, Senator, out of 
the large cars in 1977 to 1985. We are talking about maybe 50 
pounds or 100 pounds that we are going to add back in.
    Senator Kerry. Their argument would come back to you to 
say, yes, we did, we took it out because we had not done 
anything, and now we have done a lot, and therefore you can 
only make these gains at the margins. You cannot grab as much 
or as easily, because we have done so much.
    Ms. Claybrook. Much of what they did was use fuel efficient 
technologies as opposed to weight change. Eighty-five percent 
of the improvement came from technologies. That was 1977 to 
1980. That was 20 years ago. The advancements that have 
occurred since then are enormous in terms of those 
technologies.
    Second, yes, they did take the weight out. Now they have 
put it back in, because now they have gotten an even better 
improvement from technology, they just put that weight back in, 
and particularly with the SUVs and these larger vehicles, so 
there is tons of weight to be taken out of these vehicles, and 
it should be, as Mr. Lund has now said, and this is a new 
position of the institute.
    Senator Kerry. What are the economics of doing that with 
respect to foreign competition? The industry again would say to 
you, well, most of our profits at this point are coming from 
those larger vehicles, and if all of a sudden we become 
noncompetitive, then the industry is hurt. I mean, I can think 
of 10 answers, but I would like to hear them from you.
    Ms. Claybrook. Well, first of all the--I think others on 
the panel should answer, too, but the foreign industry, of 
course, has made their larger cars as well, their larger 
vehicles, and so it is not as though they do not have any work 
to do, but it is true that they have spent the last 20 years 
doing more work in fuel efficiency technologies that they are 
offering for sale than our manufacturers have, and they are 
going to have to do some catch-up, and that is really most 
unfortunate, because they should not have let that time pass.
    Ambassador Eizenstat. One of the positive things positive 
things from the original CAFE standard, 1975 to 1985, Senator, 
was the fact that our industry actually became more competitive 
relative to the Japanese than they otherwise would have been 
had they gone on a business-as-usual cycle, and the same will 
be true here, as I mentioned.
    The Germans, for example, are coming up with a 35-to-40 
mile per gallon passenger car diesel. The Japanese are 
developing much more energy-efficient cars, and so to be 
competitive over time it will be essential for the U.S. 
industry to produce cars that can match that kind of foreign 
competition.
    Ms. Claybrook. I would like to say one more thing, and that 
is that oil crises are devastating for the U.S. auto industry. 
They are totally devastating, and if the industry does not 
understand its own self-interest here in trying to reduce our 
dependence on foreign oil so that we do not have gas lines and 
higher interest rates and all the other things that come along 
with higher gas prices and cutoff of oil, then they are making 
a tremendous mistake not looking at the long term. They are 
looking at the very, very short-term in the policy 
recommendations they make.
    Senator Kerry. The car companies say that consumers do not 
care about fuel economy. I have found, in fact, that consumers 
are somewhat contradicted by what Ford has decided to do, 
because increasingly the dealers reported to them that the 
people were concerned about SUV economy and therefore they have 
set a goal of increasing their fuel economy by 25 percent by 
the year 20005. It seems to be a kind of blatant contradiction. 
Do consumers care about fuel economy? Would more people buy? Is 
that a marketing point? Is that something you could actually 
market to Americans?
    Ms. Claybrook. I think that it does depend upon the price 
of oil, there is no question about it, and when prices are very 
high, people think about it more, when prices are lower, they 
go with the flow, but if you look at public opinion polls and 
you say, what should be the policy of this country, 63 percent 
in the Harris poll said that they wanted more fuel-efficient 
vehicles even if they had to pay up to 3 percent more to buy 
that vehicle, so they understand it costs something. They 
understand it gets paid back over time, and that they do want 
it.
    There is another issue, which is that the industry does not 
market fuel-efficient vehicles. This is an industry that knows 
how to market, and if it really wanted to do the marketing of 
fuel-efficient vehicles and other reasons why you should have 
them, the public would be much more responsive, but they have 
never really done that.
    The automobile industry finally started selling safety in 
the early eighties when the public was exposed to things like 
the RSV in crash tests and all of those issues on television 
and they could all understand why it was important, the public 
started to shift, and the industry then started to sell, and 
they continue to this day to try and sell safety, but they have 
never really sold fuel efficiency.
    Senator Kerry. I do have a few more questions, but let me 
turn to Senator Allen, who has been very patient over here.

                STATEMENT OF HON. GEORGE ALLEN, 
                   U.S. SENATOR FROM VIRGINIA

    Senator Allen. Thank you, Mr. Chairman.
    If I could use some of this time to give my perspective and 
then ask a question--I am sorry I was not here for the 
beginning. I have been listening to our distinguished panel, 
and Dr. Lund, who I remember from our previous panel back in 
August. I have been listening to the testimony of this very 
well-educated and distinguished panel, and it strikes me that 
there is little faith in free people.
    I am one who philosophically puts a great deal of trust in 
free people, free markets, and free enterprise, and allowing 
people to make their own free choices. Especially in a very 
competitive motor vehicle manufacturing market, which is 
international in scope, I think that the marketplace can meet 
the demands of consumers, as there is a wide variety of 
consumers who demand things such as fuel economy. They care 
about the size of the cargo capacity, the towing capacity, the 
seat arrangements, and the style of a vehicle.
    Now, today I think we are the beneficiaries of many 
innovations in passenger vehicle technology, all talk about 
technology, which is good, and our engineers in this country 
have been in competition with others, whether they are from 
Sweden, Japan, Korea, Germany, France or elsewhere in the 
world, and they have made some unbelievable and very good 
advances in automobiles as far as increasing horsepower--I 
always have to convert these liters, multiply it by 61 to get 
it to the cubic inches to understand the size of an engine. It 
is amazing how smaller engines can give you the horsepower that 
back in the seventies took longer, whether it is 25 percent or 
33 percent more size in an engine, and increasing the overall 
performance.
    We have seen an increase in fuel efficiency through 
technology. We have seen fuel injection, increased air flow, 
and also improved exhaust systems and transmissions that helped 
provide these advances. The modern engines are burning fuel 
more efficiently. They are burning it cleaner, and it results 
in an overall reduction in tail pipe emissions. I think the 
auto manufacturers have responded to the desires of consumers 
here in this country by providing more choices in the form of 
new designs for cars and trucks, and there has been the advent 
of the minivan and the sport utility vehicle or the SUV, which 
seems to be a dirty word around here today.
    But let us just use some common sense. Vehicle 
manufacturers have two choices to improve fuel mileage. One, 
use technological innovation, and certainly we have seen that 
in the past several decades, and there is no reason why that 
would not continue.
    The second choice is to decrease the weight of their 
vehicles, which is an easier and more cost-effective way to 
ensure increasing fuel mileage in the future.
    Now, this boils down to the concept that to me is simple 
physics. It takes less energy and therefore less fuel to propel 
a lighter and also smaller, less safe vehicle. Our engineers 
have certainly applied this scientific principle to conform to 
the mandates of CAFE. It is no surprise that most of the 
increase in fuel mileage is attributed to the declining weight 
of vehicles.
    Now, the proposals that are being put forth here say 
implicitly that government policy should be designed to take 
choices away from consumers. It restricts the ability of auto 
manufacturers to respond to market forces and consumer demand. 
Most important, it forces mothers and fathers to compromise the 
safety of their families and put their children at risk.
    Ms. Claybrook, who is highly respected, talked about safety 
and advertising for safety. Volvo led the way, and people were 
wanting safety. My general view is, as people saw the value of 
airbags, they demanded airbags, and I remember someone crashed 
off a road in Virginia, hit a tree going 65 miles an hour, had 
an airbag, was not wearing a seat belt but had an airbag, and 
survived. That will be the best advertising for airbags anybody 
would ever want, and people demanded airbags, and not just for 
the driver, they wanted them for the passenger. They wanted 
them regardless of what government required. Those would have 
been accessories that consumers wanted for themselves and their 
passengers.
    Now, through all of this, the average vehicle weight over 
the years has declined approximately 23 percent since the 
adoption of the CAFE standard in 1975. This is a direct result 
of the government-imposed fuel economy standard. the studies 
from the National Academy of Sciences concluded as a result 
somewhere between 1,326 additional traffic fatalities occur 
each year.
    Now, back in August, August 2, I remember asking Dr. Lund 
about this issue from the insurance point of view, because they 
take into account all these facts, and I will requote from that 
testimony. ``There are many studies which have looked at the 
relationship between car-size, car weight, and the risk of 
serious injury or fatality. Without exception, those studies 
find that, as you decrease the size of a vehicle, you increase 
the risk of injury. This is one of the best-known facts in 
highway safety.''
    So let us understand this, and the studies have shown that 
approximately--and I am off your quote--the studies show that 
approximately 46,000 people have lost their lives due to the 
imposition of the CAFE standard on vehicles sold in the United 
States.
    Dr. Leonard Evans, president of the Science Serving Society 
in Michigan, has performed numerous studies on the effects of 
CAFE on safety, and illustrates this phenomenon through his 
study that showed that adding the weight of that one passenger 
will reduce the driver fatality risk by 7\1/2\ percent.
    Now, it does not take a scientist to understand that 
passengers in, say, a Chevrolet Suburban crashing with a Geo or 
a Geo Metro, that the Suburban is more likely to survive, or if 
passengers in a Suburban versus a Geo Metro crash into a tree 
off the road, or a fire hydrant, or whatever they may run into, 
they are more likely to survive and have less injury if they 
are in the larger vehicle. That makes sense.
    Now, this government proposal is intended to limit consumer 
choices, and especially eliminate the size of pick-up trucks, 
vans, and SUV's. Doing this not only increases the likelihood 
of death or injury in a traffic accident, but it can also cost 
jobs to hard-working people, and these are good-paying jobs 
over the years. Virginia is not like Michigan, but 
nevertheless, we have some good facilities, the Ford pick-up 
plant in Norfolk, where there are over 2,300 people working and 
the Fredericksburg area--I was just down there a few weeks ago. 
They have a power train facility that employs 300 people. They 
make the torque converter clutches for the General Motors vans 
and trucks and cars, and they were saying they would lose about 
25 to 30 of their employees out of that 300.
    Now, that is not a big facility, but if you extrapolate all 
of that, that is 25 people who would lose their jobs, and they 
are good-paying jobs, and they said that would be if they just 
increased the CAFE standard by 1 mile per gallon, if that were 
imposed on the industry.
    Now, if you took this into consideration, let us say you 
all wanted to go down there to the Ford assembly plant for 
pick-up trucks in Norfolk, you bring all the folks out there 
and you say, well, the government wants to do something here. 
Yes, we know mothers and fathers and other individuals like to 
buy your SUV's or your pick-up trucks, or your minivans, but 
the government says they cannot buy them any longer, so we are 
going to have to decimate this workforce. Everyone stand up and 
one of every 10 of you step forward and lose your job.
    I certainly would not want to do something to take away 
their jobs, and I do not think you would, either, so there 
needs to be some sense as to what this will do to our economy.
    Now, here is where I think we can find some philosophical 
agreements as to what we ought to do, rather than being 
punitive and officious in preventing individual choice. Now, 
the solutions to the problems I think are fairly logical. If 
the goal is to decrease dependence on foreign oil, I think we 
need to increase our domestic supply. I agree with you all that 
the demand-side approaches are very important. However, we 
should not impose harmful policies that harm people or punish 
people by increasing the cost of their cars, lowering the 
safety of their vehicles, and ultimately cause them to lose 
their jobs.
    The philosophical compatibility I think, Mr. Chairman, at 
least with me and these panelists, and I think with the 
Chairman as well, is that Congress should be in the business of 
providing incentives to manufacturers for innovations that do 
not compromise safety and do not cost the loss of jobs or 
diminished choice on the part of the American consumer.
    I think we should establish policies that enable consumers 
to choose alternative-fuel vehicles that reward industry for 
their production, whether they are hybrids, electric-powered 
vehicles, natural gas, or fuel cells. I think they are 
absolutely exciting for the future. They should be a part of 
the solution, also, new technologies for direct injected 
gasoline and the integrated starter-generator and the variable 
displacement engine may also prove very valuable.
    Unfortunately, I think once again we are facing the 
possibility that the free market and the natural evolution of 
business and consumer choice will be hindered by the officious 
hand of government, so the consequences of whatever policy we 
adopt are very significant to our economy, the people, and 
their safety.
    I think with some of these ideas it is very clear on what 
the harm would be, and I very much look forward, Mr. Chairman, 
to finding some common ground on some of these incentives and 
continue this discussion as we go forward on energy security 
legislation. What we need is balance. We need to have common 
sense, and I will advocate that we should be trusting free 
people to make the right choices for themselves and for their 
families, and I thank you, Mr. Chairman, for bringing these 
panelists once again on this very important subject. I just 
want you all to know what base I am coming from philosophically 
on it, and I would conclude, if I may, by asking a question to 
Ms. Claybrook.
    Senator Kerry. Sure. Let me just say to the Senator that I 
really appreciate the comments he has made, because I think it 
is helpful to us to kind of lay out here publicly and to give 
the panel an opportunity to respond to some of the things you 
said. I mean, I think there is this balance, and the Senator is 
sincere, I understand, and committed in his feelings about the 
free market choices.
    At the same time, we have a long history--and I am sure the 
Senator, even while he was Governor, enforced some of those 
limitations. We put a speed limit on the roads. You enforce 
that as a Governor.
    Senator Allen. I would have liked them to be higher.
    [Laughter.]
    Senator Kerry. We have seat belts in the cars, and everyone 
in America has come to accept that seat belts save lives. The 
fact is, when Ralph Nader showed us the problems with the 
Corvair he made cars safer, and it was a government response 
that made them safer. Nobody would argue that today. Children 
sit in car seats today, and children's lives are saved. 
Government intervened.
    I do not think you would have voted against any of those 
things today, so I think there is a balance here, and the 
Senator himself, who talked about limiting choice, turns around 
and suggests we ought to have the government create behavior by 
having a series of tax credits that I happen to agree with 
completely, but that is a limiting choice. It is limiting the 
choice of somebody to go out and buy a car that is completely 
the antithesis of that, and there is a reason you are limiting 
that choice, so I think there is a marginal contradiction in 
where you are drawing the line here.
    I would like to hear from the panel, though, because I 
think the Senator has raised some genuinely felt ideological 
and in some cases practical reservations that some people on 
both sides of the aisle may have about how we approach this, 
and I would like particularly those who have been involved in 
this policy (because you have heard these arguments before) to 
address the concerns of the Senator with respect to his 
opening, and then we will go to the question.
    Senator Allen. Before you answer, just so you know, there 
are certain policies that I think the government has taken that 
are good policies. Some of them come from consumer choice on 
safe vehicles. People will not buy them, whether it was the 
Corvair or the Pinto, and some of it was litigation. I am not 
saying that policy should always be by litigation, but that is 
also a concern, and I am not going to argue all of those 
others. Just for the record, on the speed limits I was one in 
the legislature who was trying to get it to 65, and as Governor 
I would have liked to see 70 on the interstates, but the 
legislature disagreed. That is the balance of power, so to 
speak, but in a place such as Europe, where they artificially 
increase the cost of gasoline by high taxes, you would think 
these sort of ideas obviously propel manufacturers for the 
European market, and obviously there is--Volvo and Peugeot and 
Fiat and BMW and Volkswagen, of course, sell in this country as 
well.
    My field commander for Southside Virginia is so proud of 
his Volkswagen Jetta diesel and the great gas mileage he gets 
in that vehicle.
    So wouldn't a lot of these ideas and innovation come from 
Europe just because, I think, of their punishing policies as 
far as gas taxes, but why wouldn't those vehicles be sold in 
this country?
    Ms. Claybrook. Well, first of all you have raised a whole 
lot of issues. You mentioned the Pinto. In the era when the 
Pinto was in the United States in the 1970's, Ford was selling 
a car in Europe that had a far superior fuel tank design for 
safety than the Pinto, and finally out of disgust with the 
problems with the fuel tanks here in the United States the 
government set a safety standard to require the better fuel 
tanks they were then selling in Europe. They did not sell them 
here.
    You mentioned airbags. You could not buy an airbag until 
the Government standard came into effect, except for Mercedes 
Benz, so essentially what you had was a very, very high end of 
the vehicle population. You could buy an airbag beginning in 
1982, but until the standard was issued you could not buy an 
airbag in an American car except for a very brief period in 
1974 to 1976, when General Motors, under Ed Cole, the 
president, who was a great safety advocate who loved airbags, 
offered them for sale. When he retired, they stopped making 
them.
    So there are reasons for government standards, and they are 
performance standards, at least on the safety side they are 
performance standards, so that the companies have a lot of 
choice about how they go about achieving that level, but they 
are minimum standards. They set a minimum below which you 
cannot go when you sell that particular vehicle.
    In terms of the fuel economy standards, the corporate 
average fuel economy system was designed by the auto companies. 
They did not want any standards, but when the government said, 
we have to have some standards, we cannot deal with this 
variability in gas prices and the heavy importation of fuel, 
the companies said, we would like the corporate average fuel 
economy because it allows us a great deal of flexibility. We 
can sell larger vehicles, smaller vehicles, and we can put 
technology in different ones, and we will decide how we are 
going to do that.
    What they did decide was to install technology for most of 
their fuel-efficiency achievement, not weight reduction. You 
had mentioned most of it came from weight. That is not true. 
Eighty-five percent of the improvement in fuel efficiency came 
from technology. That is, engines, transmissions, aerodynamics, 
tires and the rest of it. Fifteen percent came from weight 
reduction, and almost all of it, came out of the larger 
behemoths. It came out of the 5,000 pound vehicles that were 
reduced to 3,700 pounds, so that is where they did the weight 
reduction, and they did it that way because that was what was 
cost-effective for them.
    Weight reduction is very expensive. You have to use new 
materials, and you have to redesign the whole vehicle. It is 
complicated. So it was very expensive, and they decided to do 
it only for about 15 percent of their savings.
    So that is what happened in meeting the government 
standard. I agree with you, regulation is a blunt instrument, 
there is no question about that. But what happens is, 
regulation emerges when you have a long period of time when the 
companies do not do it voluntarily, in whatever field that you 
are talking about.
    Senator Allen. Why wouldn't consumers demand it? There are 
small cars available, are there not?
    Ms. Claybrook. Lots of them are sold. Lots of consumers buy 
small cars, partly for price, partly for efficiency.
    Senator Allen. Then why do people, in your view, buy 
minivans and SUV's?
    Ms. Claybrook. They buy them because of the false belief 
that they are safer. An SUV is a very stiff vehicle, and when 
you crash what you want that vehicle to do is to absorb the 
energy of the crash so that less of that force is transmitted 
to you. The SUV is a very, very stiff vehicle.
    Senator Allen. It is larger, though.
    Ms. Claybrook. It is larger, and there is an advantage to 
that, but I will tell you on the statistics that a four-wheel-
drive Suburban has a higher death rate than the Honda Civic, 
and I will tell you that a Ford Expedition crashed in exactly 
the same way as a GM Saturn, the Saturn did better, so it 
depends upon how you design the car for safety, and it is not 
necessarily so that a larger vehicle or heavier vehicle, per 
se, is better. Larger is better, but heavier is not necessarily 
better. It depends upon how you design the protection.
    SUV's roll over. 66 percent of the deaths, or 65 percent of 
the deaths in SUVs are from roll-over. Roll-over is a bad type 
of crash today, because the roofs crush in and crush your 
brain. They could make better roofs, they could have pre-
tension seat belts, they could have side-impact airbags and 
padding on the roof, and a roll-over crash is one which you 
would survive easily, but the companies do not do that.
    Senator Kerry. Can I just intervene in the question, just 
for a moment. Ms. Claybrook, I assume you would concede that 
that is not the only reason people buy SUVs and minivans. 
People buy minivans because they have got to pile a family in 
the car.
    Ms. Claybrook. Absolutely.
    Senator Kerry. And people buy SUVs because of this in many 
cases--not all. I mean there is an absurdity in a lot of the 
SUVs that go 20 miles from work to home in urban settings, 
except for the degree to which they choose them to also 
sometimes perform some other needs, but an awful lot of people 
in this country,particularly in rural areas, et cetera, have 
real needs for the large vehicle that has four-wheel capacity, 
whether it takes them hunting or whether it takes them up into 
outlying areas, or on a farm, or whatever. Those are very 
practical vehicles. I assume you allow for that kind of 
variation within the marketplace.
    Ms. Claybrook. Oh yes, of course, and I am not saying the 
corporate average fuel economy system is the only way to design 
a fuel economy standard program, but that program does allow 
for a great deal of variability and choice by the manufacturers 
in what they offer to the consumers.
    One of the problems is, when you talk about the 
marketplace, consumers are relatively uninformed, because there 
is a lack of information there for them about what is the 
safest vehicle, and what is the least-safe vehicle. There is 
information available, but it is hard to find and put together, 
so only the most industrious consumer will put a whole package 
of information together to figure out what makes the most sense 
for their needs, measuring fuel efficiency and safety and all 
of those things, so it is a hard job to buy a new vehicle, and 
it is not just something where you can walk in and you can ask 
the dealer, is this the best vehicle to buy. He is going to say 
yeah, yeah. You know that.
    So it is hard to be a good consumer, and we do not have a 
sticker on the windshield, which I believe we should have, 
which says, when this vehicle rolls over, what is the result, 
and when this vehicle crashes at 50 miles an hour, what is the 
result?
    You also cannot buy--you know, you mentioned child 
restraints. You cannot buy, except in very limited vehicles, a 
built-in child restraint. Now, why don't manufacturers make 
cars safe for kids? Why don't they build a car restraint like 
the Volvo does? You mentioned Volvo, which has an arm rest that 
pulls down and there is a child restraint. Those are the kind 
of things that really frustrate the consumer and frustrate 
safety advocates like myself, who, by the way, do not believe 
in 70-miles-an-hour driving because it is bad for fuel 
efficiency, and it is bad for safety, even in an SUV.
    But those are the problems that we face in the marketplace, 
unless we ask the government to make these things available to 
us, often they will not be there.
    Senator Allen. Mr. Chairman, I would say to Ms. Claybrook, 
number one, the interstates are engineered and designed and 
constructed for 80 miles an hour.
    Ms. Claybrook. No, no, no, no, 70 maximum.
    Senator Allen. No, 80, but you set the speed limit at 70 or 
75 because folks will instinctively not like limits, which I 
think is healthy. I have a libertarian streak in me, as you 
might guess.
    At any rate, in purchasing vehicles over the years 
personally, and this is nothing scientific. I suppose we have 
not had a study on it, but in purchasing vehicles, everything 
from a Volkswagen diesel Rabbit to pick-up trucks to SUV's and 
vans and all the rest years ago, I think for consumers, all you 
had was Consumer Reports, and you would have to order those 
Consumer Reports and get all the details, and if you are trying 
to compare vehicles it was even more costly. Now you get on 
Yahoo Cars and put them side by side.
    I had a Ford Explorer, now I have a Durango, and the reason 
is, I think that I do not like the gas mileage, and generally 
you go south of Bull Run or the Occoquan and gas prices are 
less than in Northern Virginia, and I know where all the least-
expensive gas stations are everywhere in Virginia, and I go to 
them and fill up before I get to Northern Virginia or DC.
    Regardless, you can compare all of that, and there are 
reports on safety for people who care about safety. Those are 
published in the newspapers. You can get them over the Internet 
as well, so I think there is even more access to information 
now for people. Actually I think it is tough on the car dealers 
when you can figure out what the cost is of every accessory to 
them, so you can determine how much of a percentage they are 
marking up, obviously, for them to stay in business, so I think 
consumers have a great deal of ability to decide things.
    And again, you talk about the roll-over on SUV's. I like 
the wider track on the Durango. It holds the road better on 
turns, I thought. I very much like the comfort of the seats on 
the Explorer, and you compare all the cargo for our three 
children that the chairman talked about, my wife likes the 
minivan. It is easier to keep the kids from hitting one another 
than in the SUV.
    But regardless of all of these demands, again back to 
Europe, Europe where they have high gas prices, why would not 
those people in Europe, where they have the high gas prices, 
why would they not be demanding the type of vehicles you would 
have people in this country driving and restricting their 
choices in this country to buy the vans or the SUV's or pick-up 
trucks they so desire?
    Ms. Claybrook. I do not think there is a restriction in 
choice. One of the problems is, you can only get an SUV that in 
most cases in the larger ones are fuel-inefficient. Why can't 
you buy, as the Union of Concerned Scientists showed in their 
report--which I believe is a part of this committee's record, 
and if it is not, it should be--showed that you can take the 
Ford Explorer, the car you like, and you can make it far more 
fuel-efficient than it is today. Why hasn't the industry done 
that?
    Why have they made these large vehicles so that you have to 
go to every gas station in Southern Virginia? In order to save 
fuel, why didn't they make you a Ford Explorer that is fuel-
efficient, because they could have, and it would not have 
increased the prices very much at all, and if it did, you are 
going to get that back in your fuel savings.
    So that is our concern, is that in fact there is not 
consumer choice, often, in our marketplace, and you cannot buy 
a Ford Explorer that has a safe roof for crushing. In fact, in 
most SUVs you cannot, so that is the concern that we have, that 
these government requirements come after long periods of time 
when the industry does not take advantage of technology that is 
available to them and does not really offer a wide consumer 
choice in the marketplace for the kinds of things that most 
people want, which is fuel-efficient vehicles that serve their 
purposes.
    Senator Allen. I guess that is just a basic disagreement. I 
think there is more vehicle choice than ever. I look at what 
Toyota has out in SUVs. They must have three or four different 
types of SUVs, from the Land Cruiser to the Fourrunner, to 
whatever these other ones are that are smaller, and that have 
better fuel-efficiency.
    Ms. Claybrook. They are smaller, but they do not 
necessarily have to be to have the fuel efficiency.
    Senator Allen. But they are--the point is, if you have to 
carry more weight, it is not going to be as fuel-efficient. 
That is just basic physics. My general view is that we do not 
have restrictions on cars coming in here from Japan and from 
Korea and all over the world, and it seems to me----
    Senator Kerry. Sure they do. They have to live up to our 
standards. Absolutely they have to have restrictions.
    Senator Allen. Yes, they do. Yes, they do, they have to 
meet our standards, you are right, our safety standards. 
However, look at the variety of choices, and I guess that is 
just the basic difference is, I think consumers have a lot of 
choices now, and they are not just restricted to the big three 
auto makers of the United States and, indeed, because of that 
competition from the Japanese, even if you did have CAFE 
standards, people, especially when fuel prices went up, clearly 
they had to react to it because people did not want to be 
driving around in those things that look like yachts and get 8 
miles a gallon.
    Senator Kerry. Mr. Ambassador, you are waiting to say 
something I think.
    Ambassador Eizenstat. I was waiting, yes. I am glad Joan 
came up for breath.
    [Laughter.]
    Ambassador Eizenstat. Just a couple of points. First of 
all, the National Academy of Science report, which was an 
exhaustive report, indicated that improved CAFE standards and 
fuel economy standards can be achieved without job loss, 
without compromising safety, and without increasing consumer 
cost. Indeed, they indicate that the consumer in 2012 buying a 
more efficient car will save over $2,000 over the lifetime of 
the car.
    Second, I lived in Europe, Senator, for 2 years as 
Ambassador to the European Union. I was privileged to be 
confirmed by the Senate for that position in 1993, and the fuel 
efficiency in Europe comes at a very significant price, because 
gasoline is 4 times more expensive than it is here, which no 
one would, I think, want for the American consumer.
    That has driven, to use a euphemism, Europeans into 
purchasing very tiny cars that would have no market here, so 
when you ask, why don't those cars sell here, and those small 
cars--and in part they are small because of the huge cost of 
gasoline, but also because Europe is very compact, and with 
people not going across national borders, there is simply not 
the demand for the kinds of cars we want to drive long 
distances.
    Third, you are quite right that consumer choice is a 
tremendously important item on any national agenda. The fact 
is, in a low gasoline price, low oil price environment, people 
generally will not demand fuel-efficient cars. It is not their 
priority, and that is where I believe government policy comes 
into effect. It is not a question of denying consumers a 
choice, because they will always have that choice. It is 
looking at what is good for the Nation as a whole and, as I 
mentioned earlier, when a consumer makes a choice, the consumer 
does not look at, as the Congress and the President must, the 
national security implications of being more and more dependent 
on foreign oil.
    The National Academy found, for example, that had we not 
had the original CAFE standards, we would be importing 2.8 
million barrels of oil per day more than we are now. We would 
be even more dependent. The consumer does not look at the 
impact that greater fuel efficiency would have on reducing 
greenhouse gases, and the consumer does not look at the impact 
that more and more imports have not only on national security 
and greenhouse gases, but on our trade deficit. The largest 
single component of our trade deficit in terms of natural 
resource imports is oil.
    So those are, again, using an economic term, externalities 
which have to be factored in when one considers what is best 
for the country.
    And last, if I may also say, I think market incentives are 
tremendously important. I strongly support your concept of 
greater, and Senator Kerry's, greater tax incentives for these 
technologies, but the technologies will not be driven fast 
enough without additional things besides the incentives.
    And may I say again that I think we should look, and the 
Committee should look at the National Academy of Sciences' 
recommendation of providing, as an alternative regulatory 
system, the concept of fuel economy credits we again attempted 
to put into the Kyoto Accords. This would give you more market-
driven choices and less of a heavy regulatory burden.
    I am not prepared to say that that, in and of itself, 
should substitute for CAFE standards, but it is certainly 
something that over time one should look at.
    Senator Allen. Thank you, Mr. Ambassador.
    On your point--this is where I think there is, Mr. 
Chairman, some common ground. There is a national interest, 
first of all, in the long run, and as quickly as possible, of 
use of other methods of propulsion, other than the internal 
combustion engine. One, they are cleaner, and obviously we do 
not have sufficient petroleum supplies in this country to not 
import from elsewhere.
    So the point is, though, that you are saying the incentives 
are not enough. You have to put in the restrictions. I would 
just like to use carrots rather than sticks, and I think people 
can make decisions, especially when making major purchases of 
an automobile, which is probably the second largest purchase 
they will ever make in their life, second only to their home, 
and I do think there is an interest in getting more domestic 
supply for petroleum in this country, which is a whole other 
issue we do not need to get into here.
    But again, I think if we can find some common ground on the 
proper incentives for fuel cell technology, electric vehicles 
and so forth, I think that is where we could do a good service 
to the country, and then expand the choices, or maybe those 
incentives, rather than taking away the freedom of an 
individual to choose for their family or for themselves what 
size or kind of vehicle they want to drive.
    But thank you, Mr. Ambassador.
    Senator Kerry. I need to turn this back a little bit. The 
weight and size component of this is an important component, 
but it is really not the whole story at all, and there are 
other significant technological ways in which some of these 
gains can be made.
    Second, let me just emphasize, in whatever this Committee 
proposes, we are not going to take any choice away from the 
American people, and I made it very clear in the comments I 
made on Tuesday, nobody is going to mandate that you cannot 
have variation. All of the choices available today, you can 
drive a big car, you can drive an SUV, but they can be more 
efficient. There is no question of that.
    The National Academy of Sciences, and I want to ask you, 
Mr. Lund--you guys have been very patient over there--page 414, 
this is the conclusion of the National Academy, it is 
technically feasible and potentially economical to improve fuel 
economy without reducing vehicle weight or size and therefore 
without significantly affecting the safety of motor vehicle 
travel. Is that correct, Mr. Lund?
    Mr. Lund. That is correct.
    Senator Kerry. So let us keep in mind what we are talking 
about here. You can have all the choice in the world. You can 
buy every single different kind of SUV that is on the road 
today. It just can be configured differently, and every family 
that needs to pile in six kids and five dogs, or whatever, to 
drive 15 miles can do it, but you do not have to do it with the 
consumption levels we have today.
    Mr. Lund. That is correct, Senator Kerry. I would just, 
again, reiterate the remarks I made in my opening, that we are 
concerned about the structure of CAFE. Simply increasing CAFE 
standards, if we just do it with the current structure, there 
is a danger of repeating the negative experience we had in 
terms of safety from the 1970's.
    Senator Kerry. Now, let us stay focused on that for a 
minute. Ms. Claybrook, would you respond to the notion, if you 
can, and Ambassador Eizenstat or anybody on the panel, are you 
coming back to this 4,000 concept? Is that where your----
    Mr. Lund. The 4,000-pound concept is what I am talking 
about in terms of restructuring. What you can see from looking 
at the fatality experience of cars on the road is that there is 
a tradeoff. Occupant protection always increases with heavier 
vehicles. Joan, it is simply not correct that a family is as 
safe transporting their children in a Civic as they are in a 
Suburban. Increased size is protective.
    But at around 4,000 pounds, we see there is an offsetting 
effect. Joan talked about how the aggressiveness of vehicles is 
also an issue. Above that, you start seeing there are more 
fatalities being caused by vehicles in this weight range than 
are being saved, that is being caused among other road users, 
other vehicle occupants, pedestrians, cyclists, than are being 
saved by the additional mass of the vehicle, so there is a 
complex relationship between vehicle weight and safety.
    Ms. Claybrook. I would agree, compatibility of the size of 
vehicles generally, the weight of vehicles generally on the 
highway is advantageous, and that is actually what started to 
emerge with the CAFE standards that were issued in the 1970's.
    Senator Kerry. Because it began to bring more vehicles 
down?
    Ms. Claybrook. They brought the smaller ones up from about 
2,000 to about 2,300, 2,400, and they got rid of the great big 
ones, and then they started introducing SUVs and we had this 
great differential again, so I agree that compatibility is 
highly advantageous. The GAO did a study and showed this, and 
so on.
    But the fact is that when you look at the statistics on the 
highway today, you are not looking at what safety can be built 
into these vehicles. Roll-overs are one-third of all occupant 
fatalities. If you substantially increase the roll-over 
protection, the crashworthiness in a roll-over, which is not a 
horrendously high velocity type of crash, you could save huge 
numbers of lives.
    Senator Kerry. Let me come to another point if I can for a 
moment. I do not disagree with that, but what really happened 
was, you had a compatibility that was being created within all 
the vehicles that are on the road, and then people stopped 
focusing and enforcing.
    We had a downward trend for the last 12 years or so, which 
reflects the sort of--I hate to say it, but it is a reflection 
of what Senator Allen is talking about that has taken place, 
where people have been left completely to their own devices, 
with the result that the compatibility that we had achieved 
with the sort of reasonableness of consumption has now gone 
backward, and the very policy imperatives that drove us in the 
first place to adopt this standard, which has resulted in lower 
costs to consumers, ultimately, and safer cars, which reduces 
insurance costs, which reduces a whole bunch of other things or 
a lot of other ways consumers benefit, not to mention hospital 
cost and long-term recovery cost, and all of that, that we have 
in fact had enormous gains societally from that.
    Now, what is really important here as we think about what 
we may do is that the recommendations of the National Academy 
of Science saying, we could gain somewhere up to--well, they 
had one standard for light trucks and one standard for 
passenger vehicles, but I think the upper limits were about 
37.2 over 10 years, 12 years. Is that right?
    Mr. Lund. It is over an extended timeframe.
    Senator Kerry. I am going to the back end. I am not trying 
to force the envelope, but if you go to the back end it was 
37.2, or it was a 10 to 15 variation. 15 was the upper end, and 
that was 37.2, but that standard, when they arrived at that 
scientifically, technically feasible standard, it did not 
factor in hybrids, and other potential savings that could come, 
so I do not disagree with the Senator from Virginia.
    I think that what we may or may not be able to do here with 
respect to credits and market incentives at the same time as we 
also consider what is a reasonable standard may be a good 
combination, and could facilitate this significantly for the 
industry.
    Ms. Claybrook. I just wanted to mention, though, the issue 
of the 4,000 pounds.
    Senator Kerry. We need to wrap up, because we have another 
panel.
    Ms. Claybrook. Fine, but the issue is that you can make 
cars much safer than they are today. The National Academy did 
focus on that piece of it, so if you look at what the 
statistics are today, you have to adjust that for what you can 
do in terms of the way you design and improve vehicles, so that 
is the only point I wanted to make, so you do not have to have 
4,000 pounds to have that same level of safety. It is the 
design of the vehicle that matters for safety.
    Senator Kerry. I understand. Let me just ask Mr. Hoerner 
something quickly, if I can. I read through your analysis, and 
appreciate it very much, and you saw a downturn momentarily, 
but that would then be made up in terms of foreign competition, 
is that correct?
    Mr. Hoerner. We saw that a CAFE standard alone, a fairly 
aggressive CAFE standard would increase employment in every 
year.
    Senator Kerry. Increase employment in every year?
    Mr. Hoerner. In every year, modestly. It would have 
increased employment substantially, except that increase in 
employment was somewhat offset by the increased penetration of 
foreign cars.
    Senator Kerry. And that is because there is an adjustment 
taking place in the marketplace by virtue of choices people are 
making?
    Mr. Hoerner. It is basically because we think that right 
now, foreign producers have an advantage over U.S. producers in 
producing these high-efficiency cars. We think they have a 
lead.
    Now, we assumed, and I think this was a pessimistic 
assumption, we assumed that they would maintain that lead over 
the entire 20-year period. If you do not make that assumption, 
we get a much larger employment benefit than we saw.
    Senator Kerry. In point of fact, the history of the CAFE 
implementation negated that pessimistic assumption. It in fact 
showed that we became more competitive more rapidly and moved 
to compete against the cars that Europe at that time also had 
an advantage on.
    Mr. Hoerner. Well, I think it is true that the increased 
CAFE improved the competitiveness of U.S. cars in world 
markets. However, foreign cars were also improving their energy 
efficiency over the same period. We recommended that further 
research be done in the relative cost benefit, cost advantage 
of foreign and U.S. producers in producing more efficient cars, 
but I think the important conclusion from our study is that 
even if you make these very pessimistic assumptions about 
foreign advantage, it is still the case that there would be a 
net employment gain every year throughout the forecast period.
    Senator Kerry. I appreciate it. Thank you all very much.
    Senator Allen. If I could ask a followup question, Mr. 
Chairman, that is all very interesting, but let us be realistic 
here on the folks who are actually in the business.
    It seems like every manufacturer in this country, as well 
as those who are headquartered in other countries, are opposed 
to some of these proposals, and it is not just management, it 
is not just the sales force, it is United Auto Workers as well, 
and these are the folks whose jobs are on the line, or their 
business, and they all are opposed to this, and they all say it 
is going to be harmful to their jobs, and obviously I was 
talking more on the consumer approach, but regardless, it is 
nice to talk about theory, but how do you answer the fact that 
all of these people, these workers, whether they are union or 
management, say this is going to be harmful for their jobs, 
notwithstanding whatever theories you may have? Are they all 
wrong?
    Mr. Hoerner. Sir, we have been talking to the United Auto 
Workers about this question, and we are in ongoing discussion 
with them about the research they have been looking at and the 
research that we have been looking at.
    Certainly there are concerns there, but it is worth 
recognizing that the United Auto Workers have a resolution 
which is still in place that states that increased auto 
efficiency standards are good, provided they can be done in a 
way which does not reduce jobs in net, and I think that what we 
are looking at here is a careful economic analysis that asks, 
can we achieve those efficiency standards in a way that does 
not reduce jobs in net, and I think the answer to that is 
certainly yes.
    It is true with CAFE standards alone, but it is more true 
with the combination of CAFE standards and energy efficiency 
credits. That combination can guarantee that no net jobs would 
be lost to the increased efficiency standards.
    Senator Kerry. Mr. Ambassador, you had to confront that 
same issue.
    Well, thank you very much on this panel. We appreciate it. 
If we could shift to the next panel, I would appreciate it.
    We have Professor Marc Ross of the Physics Department at 
the University of Michigan, Mr. John German, American Honda 
Motor Corporation, manager of environmental and energy 
analysis, Mr. Allen Schaeffer, executive director of the Diesel 
Technology Forum, and Gregory Dana, vice president of 
environmental affairs, Alliance of Automobile Manufacturers.
    [Pause.]
    Senator Kerry. Thank you all very, very much for your 
patience. I am going to try if I can hold--the statements to 5 
minutes, if you can sort of watch the lights.
    Mr. Schaeffer, why don't you lead off.

   STATEMENT OF ALLEN SCHAEFFER, EXECUTIVE DIRECTOR, DIESEL 
                        TECHNOLOGY FORUM

    Mr. Schaeffer. Good morning. I want to thank the Committee 
and Senator Kerry for this opportunity to appear today. My name 
is Allen Schaeffer. I am the executive director of the Diesel 
Technology Forum, and my remarks will be abbreviated from those 
the Committee has in their hands.
    First, a word about the Forum. We are a unique organization 
of leaders in the diesel technology industry. Our members 
include diesel engine and vehicle manufacturers, diesel 
refiners, manufacturers of emissions treatment systems, and key 
suppliers in the diesel industry. We appreciate the opportunity 
to be here this morning.
    I would like to cover three main areas with the Committee: 
First, the nature, importance, and inherent benefits of diesel 
technology, second, the important role of light duty diesel 
engines in meeting energy refinement goals in Europe, and 
third, how diesel engines can play a major role in meeting U.S. 
energy goals.
    First of all, the nature of the diesel engine. Diesel 
engines are the most inherent efficient internal combustion 
engine, converting more of the chemical energy that is fuel 
into chemical energy with less energy wasted. The combination 
of unique compression ignition cycle, and the fact that the 
fuel contains more power, more BTU's per gallon, as it were, 
makes the diesel a highly efficient power system. The inherent 
performance advantages include more power at lower engine 
speeds, better fuel efficiency, more durability, and more power 
from a given engine size, and lower greenhouse gas emissions.
    Today's diesel technology is perhaps best known as the 
technology source that powers over 90 percent of all commercial 
trucks, nearly all fire and rescue equipment, two-thirds of all 
farm equipment, 100 percent of all railroads and commercial 
barges and boats. Diesel power also plays an important role in 
the economy, and as an industry it contributes $85 billion each 
year, more than the iron and steel industries.
    I am here today to explain to you why diesel technology is 
an untapped potential for helping the Nation achieve greater 
energy security and meeting its energy and environmental goals. 
First of all, we can learn a lot from the experience in Europe, 
which has been covered here this morning, and the U.S. and 
Europe are taking very different approaches to the use of clean 
diesel technology to improve fuel economy. Diesel automobiles 
are extremely popular in Europe, and demand continues to grow. 
One in every three cars sold in Europe today is powered by a 
diesel engine. In some countries, it exceeds 40 percent. 
Experts predict that diesels will soon gain about 40 percent of 
the entire European market.
    Why is it, that Europeans favor diesel engines? There are a 
series of reasons, including better fuel efficiency, 
durability, and lower greenhouse gas emissions, along with the 
performance advantages. This information is covered at length 
in the study that we have provided for the Committee and the 
record here. It is clear, then, that the Europeans are able to 
reap the environmental and energy benefits of clean diesel 
technology.
    I would also like to point out to you why diesel engines 
can play a key role in the U.S. by reducing consumption in our 
transportation sector, and there are several key indicators of 
why that is.
    First of all, the July 2001 National Academy of Sciences 
report that evaluated fuel economy standards noted the 
possibilities of reducing petroleum consumption with the use of 
clean diesel technologies, and I quote, ``direct injection 
diesel engines are among engine technologies with high 
potential with improved fuel consumption, and the application 
of small turbo-charged direct injection diesel engines has seen 
tremendous expansion in passenger cars and light duty trucks in 
Europe.''
    A second indicator of the importance of diesel technology. 
Last October, as every October, the Department of Energy 
releases its annual fuel economy rankings, ranking the cars and 
light duty trucks from the most fuel efficient to the least 
fuel efficient. This year again diesel-powered vehicles 
garnered three of the top five rankings, with only the gasoline 
electric hybrids beating those three diesel engines.
    I would point out for the Committee's consideration that 
advanced European diesel technology vehicles exceed those U.S. 
hybrid models that are at the top of the list today by over 60 
percent.
    One of the greatest opportunities for clean diesels is in 
the light duty truck and sport utility vehicle categories, and 
now those categories exceed 50 percent of annual sales, as the 
Committee is aware, we believe that the use of advanced clean 
diesel engines in these vehicle categories offers a cost-
effective and efficient near-term alternative that can reduce 
fuel consumption by 30 to 60 percent. Coupled with the 
tremendous advances in exhaust emissions controls and after-
treatment technology, today's clean diesel's also have 
significantly lower emissions.
    According to the Department of Energy, diesel is a proven 
and readily available technology. The power and efficiency of 
diesels can also be used to reduce Nation-wide fuel consumption 
without the safety compromises associated with building lighter 
vehicles. Because diesel engines are more powerful and more 
fuel-efficient at the same time, the use of diesel allows these 
fuel economy improvements to be realized without building 
lighter and less safe vehicles.
    And finally, according to the U.S. Department of Energy, if 
diesel engines were to penetrate the light duty market to 30 
percent by the year 2020, the U.S. would have a savings of 
700,000 barrels a day of crude oil, and that is equivalent to 
cutting in half the total energy consumption used each day in 
California.
    In conclusion, we believe there are significant 
opportunities for advanced clean diesel technology engines to 
play a much larger role in boosting the fuel efficiency of 
popular sport utility vehicles and light trucks. In the State 
of California right now, the California Energy Commission and 
Air Resources Board are preparing a report to the legislature 
that identifies clean diesel technology in light duty 
applications as one of the 26 strategies that can help that 
state reduce its petroleum consumption.
    In May of this year, the Diesel Technology Forum and the 
U.S. Council for Automotive Research, USCAR, will bring 
advanced clean diesel technology cars, trucks, and sport 
utility vehicles here to the U.S. Capitol for you to have an 
opportunity to experience the technology first-hand. We hope 
that you will join us.
    In conclusion, members of the Diesel Technology Forum, 
while not taking a position on specific aspects of corporate 
average fuel economy ratings, believe that clean diesel 
technology can and should play a greater role in reducing 
energy consumption in personal transportation.
    Thank you, and we would be happy to answer any questions.
    [The prepared statement of Mr. Schaeffer follows:]

   Prepared Statement of Allen Schaeffer, Executive Director, Diesel 
                            Technology Forum

    Good morning. My name is Allen Schaeffer and I am the Executive 
Director of the Diesel Technology Forum.
    The Forum is a unique organization of leaders in the clean diesel 
technology industry. Our members include diesel engine and vehicle 
manufacturers, diesel fuel refiners, manufacturers of emissions 
treatment systems, and key suppliers to the diesel industry.
    We appreciate the opportunity to appear before the Committee today 
on the important issue of energy consumption in the transportation 
sector, and would like to make three key points:

        (1) the nature, importance and inherent benefits of diesel 
        technology;

        (2) the role of light-duty diesel engines in meeting energy and 
        environmental goals in Europe, and

        (3) how diesel engines can play a greater role in meeting U.S. 
        energy goals.

I. Nature and Importance of Diesel Engines
    Diesel engines are the most efficient internal combustion engine, 
converting more of the chemical energy (or fuel) to mechanical energy, 
with less energy wasted. The combination of the unique compression-
ignition cycle, and the use of diesel fuel, which packs more energy per 
unit volume than gasoline results in a highly efficient power system.
    Diesel's inherent performance advantages include more power at 
lower engine speeds; better fuel efficiency; greater safety; more 
durability; and more power from a given size engine.
    Today's clean diesel technology is perhaps best known as the 
technology source that powers over 90 percent of all commercial trucks, 
nearly all fire and rescue equipment, two-thirds of all farm equipment, 
100 percent of all railroads and commercial barges and boats. Diesel 
power plays an important role in the economy, and as an industry it 
contributes $85 billion each year--more than the iron and steel 
industries.
    Diesel technology also has untapped potential for helping the 
nation achieve greater energy security and energy efficiency in the 
transportation sector.

II. U.S. Falls Behind Europe In Use of Clean Diesel Cars
    The United States and Europe are taking very different approaches 
to the use of clean diesel technology to improve fuel economy in 
passenger cars and light-duty trucks. Diesel automobiles are extremely 
popular in Europe, and demand continues to grow. One in every three 
cars sold in Europe today is powered by a diesel engine. Experts 
predict that diesels will soon gain about 40 percent of the European 
market. There are several reasons why diesel cars have won such 
approval in Europe. These include:

   Inherent Performance Advantages of Diesel. Europeans have 
        found that light-duty diesel vehicles--cars and small trucks--
        offer significant inherent performance advantages over 
        gasoline-powered vehicles. These include:

     Better Fuel Efficiency. Light-duty diesels use 30-60 
        percent less fuel than gasoline engines of similar power. Some 
        of the most advanced models are attaining astonishing fuel 
        efficiency, such as the European-market Audi A2 that achieves 
        87 mpg on the highway.

     More Power. Diesels produce more drive force at lower 
        engine speeds than gasoline engines.

     More Durability. A typical light-duty diesel engine is 
        built to last well over 200,000 miles. Diesel engines also 
        require less maintenance and have longer recommended service 
        intervals than gasoline engines.

     Fewer Greenhouse Gas Emissions. Because diesels burn less 
        fuel than gasoline vehicles, they also produce significantly 
        lower emissions of greenhouse gases such as carbon dioxide.

     Clean and Quiet Technology. Use of the latest diesel 
        technology has nearly eliminated the noise and smoke that many 
        Americans remember from early diesel cars. With the application 
        of advanced technologies such as direct injection lean-burn 
        combustion, particulate traps and catalytic converters, diesel 
        vehicles are now a clean and quiet alternative to less 
        efficient gasoline powered cars.

    These and other findings came out of our study entitled ``Demand 
for Diesels: The European Experience'', * that highlights the dramatic 
differences in clean diesel technology use and consumer acceptance of 
light-duty automotive applications between the two continents. The 
Europeans are able to reap the efficiency and environmental rewards of 
clean diesel technology.
---------------------------------------------------------------------------
    * The information referred to has been retained in Committee files.
---------------------------------------------------------------------------
    The contrast in diesel usage between the U.S. and Europe is stark: 
In Europe--one of every three new cars sold today is powered by clean 
diesel technology and in the premium and luxury categories, over 70 
percent are clean diesels. But in the U.S.--light-duty diesels account 
for only about 0.26 percent of all new cars sold, with only slightly 
higher figures in the light-duty truck markets.

III. Diesel Engines Can Play a Key Role in the U.S. By reducing energy 
        Consumption in the Transportation Sector
    Given the inherent energy and efficiency benefits and the existing 
fueling infrastructure, clean diesel technology can help the U.S. meet 
its energy and environmental goals.
    The July 2001 report by the National Academy of Sciences evaluating 
fuel economy standards noted the possibilities for reducing petroleum 
consumption with the use of clean diesel technologies
        ``direct-injection diesel engines are among engine technologies 
        with high-potential for improved fuel consumption and ``the 
        application of small, turbocharged direct injection diesel 
        engines has seen tremendous expansion in passenger cars and 
        light-duty trucks in Europe.'' \1\
---------------------------------------------------------------------------
    \1\ Effectiveness and Impact of Corporate Average Fuel Economy 
(CAFE) standards; National Academy of Sciences, Washington DC July 
2001, pp 3-11.
---------------------------------------------------------------------------
    There are other more direct indications of the role that diesel 
engines can play in reducing energy consumption here in the U.S.. Last 
October, the Department of Energy issued its annual fuel efficiency 
ratings of new vehicles. This year like previous years, diesel-powered 
vehicles captured three of the top 5 ratings, exceeded only by the 
gasoline-electric hybrid vehicles. Advanced European diesel technology 
passenger vehicles exceed today's U.S. hybrid fuel efficiency by over 
60 percent.
    One of the greatest opportunities for clean diesel technology is in 
the light-duty trucks and sport utility vehicle categories. In 2001, 
light-duty truck and SUV sales exceeded 50 percent for the first time 
ever. The use of advanced clean diesel engines in these vehicle 
categories offer a cost-effective and efficient near-term alternative 
that can reduce fuel consumption by 30 to 60 percent. Coupled with the 
tremendous advances in exhaust emissions controls and after-treatment 
technology, today's clean diesels also have significantly lower 
emissions.
    According to the U.S. Department of Energy, diesel is a proven and 
readily available technology. The diesel has been tested and refined 
for more than a century and its versatility and reliability are 
legendary.
    While technology is constantly evolving, the few models of diesels 
available to American consumers today demonstrate that light-duty 
diesel vehicles can have economic benefits for consumers through 
reduced fuel costs over current technology gasoline vehicles. For 
example:

        A 2001 turbo-diesel Volkswagen Jetta GLS costs $500 dollars 
        less than the turbocharged gasoline powered Jetta GLS \2\ and 
        the owner of a diesel Jetta can expect to save over $2300 in 
        fuel costs over a 100,000-mile vehicle life at year 2000 fuel 
        prices. \3\
---------------------------------------------------------------------------
    \2\ Based on Manufacturer's Suggested Retail Prices available at 
http://www.vw.com/jetta/engspec.htm
    \3\ Based on U.S. Dept. of Energy's weekly Petroleum Status Reports 
average U.S. retail fuel prices for August, 2000 (Diesel $1.46/Gasoline 
$1.50) and MY 2001 U.S. EPA Fuel Economy Ratings.

    Fuel cost savings with diesel are proportionally greater for larger 
vehicles handling heavier loads. The owner of a 1999 diesel Ford F-250 
Super-duty pickup truck would pay $1,650 more for a diesel powered 
version, but because the diesel gets 46 percent better mileage under 
towing conditions, the diesel owner would save over $8,000 in fuel 
costs over the course of 100,000 miles. \4\
---------------------------------------------------------------------------
    \4\ ``Diesel Technology and the American Economy,'' Charles River 
Assoc. (Oct. 2000)

    It is important to note that both of these examples for 
illustration only and are a snapshot in time. As technologies improve 
and strategies for regulatory compliance evolve for both gasoline and 
diesel engines, these comparisons will necessarily change.
    The proportional effect of these fuel savings is particularly 
significant in the context of the U.S. auto market where now over half 
of all new vehicles sold are SUVs, vans or pickups. \5\
---------------------------------------------------------------------------
    \5\ ``Drilling in Detroit: Tapping Automaker Ingenuity to Build 
Safe and Efficient Automobiles,'' Union of Concerned Scientists & 
Center for Auto Safety (June 2001)
---------------------------------------------------------------------------
    Because diesel engines are more powerful than gasoline engines, 
producing more torque at lower engine speeds, they are perfectly suited 
for improving the fuel economy of this burgeoning U.S. light truck/SUV 
market. Nearly all of the growth in U.S. vehicle sales over the past 25 
years has been in light trucks. Since 1975, light trucks, which include 
SUVs, pick-ups and vans, have seen annual sales growth from 2 million 
to nearly 7.5 million. The average new SUV/light truck currently gets 
20.7 mpg compared to 28.1 for the average new car. Application of 
diesel technology in the SUV market could immediately increase the 
nation's average fuel economy by targeting a large market share of 
vehicles that currently achieve lower fuel economy ratings due to their 
size.
    The power and efficiency of diesels can also be used to reduce 
nationwide fuel consumption without the safety compromises associated 
with building lighter vehicles. Numerous studies by the National 
Highway Traffic Safety Administration, the National Academy of 
Sciences, the Harvard Center for Risk Assessment, and the Insurance 
Institute for Highway Safety have found that vehicle weight reductions 
in the early 1980's tended to reduce vehicle safety and led to 
thousands of additional vehicle fatalities. \6\ Because diesel engines 
are more powerful and more fuel efficient at the same time, the use of 
diesel allows fuel economy improvements to be realized without building 
lighter, less safe vehicles.
---------------------------------------------------------------------------
    \6\ http://www.vehiclechoice.org/safety/size.html
---------------------------------------------------------------------------
    Because of the size of vehicles driven in the United States and the 
popularity of automobile transportation, the United States has the 
potential to reap substantially greater fuel and emissions savings than 
the less automobile-oriented European countries. In 1992, automobile 
miles-per-capita in the U.S. were nearly four times the per-capita 
automobile miles traveled in France, Italy, the former West Germany and 
Great Britain combined. \7\ The number of vehicle miles traveled in the 
U.S. has doubled since 1970 and is expected to rise by an additional 50 
percent by 2020. The average fuel economy for all passenger vehicles on 
the road in the U.S. is 20.6 mpg. Thus, American drivers on average use 
many more gallons of gas than their European counterparts. Because 
Americans burn more fuel, the potential for fuel savings and 
corresponding CO2 emissions savings from increased use of 
diesel is much greater than the savings experienced in Europe.
---------------------------------------------------------------------------
    \7\ Schipper, L. ``Determinants of Automobile Use and Energy 
Consumption in OECD Countries,'' Annu. Rev. Energy Environ. (1995)
---------------------------------------------------------------------------
    More specifically, the U.S. Department of Energy has estimated that 
increasing the market share of light-duty diesel technology to 30 
percent would reduce net crude oil imports by 700,000 barrels per day 
by 2020--an amount equivalent to cutting in half the total energy used 
each day in the state of California. \8\
---------------------------------------------------------------------------
    \8\ ``The Impacts of Increased Diesel Penetration in the 
Transportation Sector,'' Office of Integrated Analysis and Forecasting, 
Energy Information Administration, U.S. Department of Energy (Aug. 
1998); ``Diesel Technology and the American Economy,'' Charles River 
Assoc. (Oct. 2000)
---------------------------------------------------------------------------
Conclusions
    We believe there are significant opportunities for advanced 
technology clean diesel engines to play a much larger role in boosting 
the fuel efficiency of popular sport-utility vehicles and light-trucks.
    In May of this year, the Diesel Technology Forum and the U.S. 
Council for Automotive Research (USCAR) will bring advanced clean 
diesel technology cars, trucks and SUVs here to the U.S. Capitol for 
you to have an opportunity to experience the technology first hand. We 
hope that you will join us.
    In conclusion, members of the Diesel Technology Forum--while not 
taking a position on the specific aspects of Corporate Average Fuel 
Economy Ratings, believe that clean diesel technology can and should 
play a greater role in reducing energy consumption in personal 
transportation.
    Thank you and I would like to ask that our written statement be 
included in the record, and would be happy to answer any questions.
    Forum members are the nation's most progressive manufacturers and 
suppliers of diesel fuels, engines, and components, along with their 
partners in finance and business. Members include Caterpillar, General 
Motors, Cummins, Robert Bosch, Detroit Diesel, BP, ExxonMobil, Eaton, 
Delco-Remy, Honeywell-Garrett and the Donaldson Company. For more 
information, contact the forum at 703-234-4411 or visit our website at 
www.dieselforum.org.

    Senator Kerry: Thank you very much. Mr. Ross.

  STATEMENT OF MARC ROSS, PROFESSOR OF PHYSICS, UNIVERSITY OF 
                            MICHIGAN

    Mr. Ross. Yes, Mr. Chairman. I would also like to thank you 
for the opportunity to discuss improving automotive fuel 
economy. It is a very important topic. There are actually many 
different technologies that could increase automotive fuel 
economy by 50 percent or more without changing the size and 
performance of cars and light trucks. What I present in my 
printed testimony is an existence proof. It shows one way to do 
it.
    Senator Kerry. When you say many, how many?
    Mr. Ross. Well, I would say half-a-dozen different 
possibilities. Diesels is one. Another is hybrids. I am not 
going to talk about hybrids, nor will I talk about diesels or 
remote things like fuel cell cars.
    If the manufacturers were motivated to increase feul 
economy they would choose the technologies and the technologies 
would undoubtedly, in my opinion, be different from most of the 
specific things that will be suggested to you, because there 
are so many possibilities. I am presenting one way to do it, by 
making modest changes in the existing engine and system, 
primarily using smaller engines, sophisticated controls, and 
reducing the weight of the heaviest vehicles along the lines of 
some of the discussion we had a few minutes ago. The primary 
reason for reducing the weight of the heaviest vehicles is 
safety, and detailed suggestions, maybe too many details for 
most people's taste, are in my printed testimony.
    The advantage of the approach I will discuss is that it is 
based on today's conventional vehicles, it can be applied to 
all cars and light trucks, and although there would be 
development costs to refine the control systems to make a 
satisfactory product for all customers, the incremental 
manufacturing costs would be small. So once refined, this 
approach is inexpensive and can be applied to all cars and 
light trucks. The problem with something like alternative fuels 
is that it applies to a tiny group of cars and light trucks, 
and although it is exciting and challenging, glamorous, it is 
not the way to make progress with our oil and greenhouse gas 
problems in a foreseeable timeframe.
    Why aren't more conventional technologies already being 
adopted? We had a lot of discussion about that with the first 
panel. Of course, they are being adopted to a degree, but at 
the same time, mass and power are being increased. It seems 
like the CAFE standard has become a ceiling for most 
manufacturers.
    I think, as a variation on some of the discussion we had 
this morning, that while buyers have some interest in fuel 
economy, they are interested in many characteristics of an 
automobile and, in that kind of a market, manufacturers have 
found they do not have to go to the trouble of improving fuel 
economy. They can focus on other aspects of marketing, and 
there are many aspects, as has been mentioned. The result has 
been that we do not have middle of the market vehicles with 
high fuel economy. With a couple of exceptions, we only have 
small cars, cheap cars with high fuel economy.
    I have asked people from General Motors about that. They 
say they assume the only people who care enough about fuel 
economy want a really cheap car.
    I am not a policy person, but I have three general remarks 
about policy. I do agree with people who see some difficulties 
with CAFE as a number that you would just increase. First of 
all, we care about fuel, and so we should be regulating gallons 
per mile, in analogy with what the Europeans do, instead of 
miles per gallon. A large increase in fuel economy in miles per 
gallon corresponds to a smaller percentage decrease in gallons 
per mile, and we should talk about what is really relevant.
    Second, we care about safety as well as fuel, so we should 
be motivating, through our policies, technologies that reduce 
the weight of the heavier light trucks. I have a study with a 
collaborator from Lawrence Berkeley Laboratory on ``losing 
weight to save lives'', along those lines.
    Third, coming from Michigan, I care about our domestic 
industries, as I am sure that many people do. And I care about 
the UAW. We want to help the big three remain competitive, but 
they are not going to innovate on fuel economy unless they are 
pushed, and pushed hard. So it is an awkward situation. My own 
thought here is not detailed. It is simply to set ambitious 
goals, but to be generous about the amount of time that is 
allowed for the progress.
    Senator Kerry. Which means?
    Mr. Ross. Well, it means that you need 10 to 15 years to go 
to 40 miles per gallon, in my view. It takes a lot of time to 
develop and introduce new engines. You can do some things in 
shorter time, and so I think a progression is very sensible, 
but to get all the way there would take a lot of time.
    And finally, I would suggest that we should incorporate the 
occasional review of technological progress, as we do with the 
appliance standards. It should be a formal requirement to do 
so, and that might help avoid the bind we are in now.
    Let me finish by saying for the last dozen years I have 
been going to the Society of Automotive Engineers Annual 
Congress. It is just overwhelming how much technology has 
changed during that period, and yet we do not have a higher 
expectation for our automotive fuel economy. I recommend to the 
staff, look at the current (January) Automotive Engineering 
Magazine. There is an article on gasoline engines and new 
technologies, including astonishing progress, for example, at 
Honda. It is an entirely different world out there, and yet we 
are still talking about the same standards that we had in the 
mid-eighties.
    Thank you.
    [The prepared statement of Professor Ross follows:]

 Prepared Statement of Marc Ross, Professor of Physics, University of 
                                Michigan

Efficient Automotive Propulsion
    I want to thank the Committee for giving me this opportunity to 
discuss improving automotive fuel economy.
Developmental Concept
    I am not going to discuss revolutionary technologies like fuel-cell 
propulsion or high-voltage hybrid propulsion (although there are two 
outstanding hybrid cars sold in the U.S.). The proposed improvements 
are based on evolution, not revolution, and have two advantages:

   The technologies can be implemented in all new light-duty 
        vehicles; and

   the incremental manufacturing cost would be low, less than 
        the value of the fuel savings.

    Although more than a decade would be needed to fully achieve these 
changes in a way satisfactory to all customers, substantial 
improvements in fuel economy could be made sooner.

Technological Goal
    The goal of the proposed propulsion technologies is:

   high efficiency in typical low-power operation, while 
        retaining the capability for high power.

    Present automotive propulsion systems have high-power capability, 
but are inefficient in ordinary driving. High power driving is rare 
(mainly high-speed hill climbing and acceleration at high speed); 
almost all fuel is consumed in low-power driving. For example, high 
speed driving on a level road does not involve high power compared to 
today's engine capabilities.
Physical Concept
    Today, friction is used to control the use of energy in 
automobiles. It is used to smoothly shift gears in automatic 
transmissions (with a torque converter), to regulate the flow of air 
into the engine (with a throttle), and to adjust the output of the air 
conditioner. It's analogous to dimming lights with a variable resistor. 
The way that was done, the energy used in the light was reduced with 
the resistor, i.e. by heating it. Now we dim lights by controlling the 
system electronically, rapidly switching the electricity on and off 
such that the on-time yields the desired amount of lighting. Very 
little energy is wasted.
    There are two advantages to sophisticated control of automotive 
propulsion: Friction is reduced. And the improved controls enable 
efficient technologies to be designed so they are satisfactory to 
customers.

Technologies
1) The basic change is to smaller higher-speed engines coupled with 
        sophisticated transmission.
    A smaller engine has less internal friction. In today's typical 
engines, while the work done on the pistons by the hot combustion gases 
is about 38 percent efficient (thermodynamic efficiency), the work done 
overcoming internal friction introduces, on average, another 50 percent 
efficiency factor in the Urban Driving Cycle, for an overall engine 
efficiency of only 0.38 *0.50 = 19 percent. Smaller engines are more 
efficient because they involve less friction, while, if they have high-
speed capability, they can provide the same maximum power. An excellent 
example of such an engine is the 1.7 liter engine of the Honda Civic 
EX. Scaled to 2.0 liters, it would have the same power capability as a 
typical 3.0 liter engine with two-thirds as much friction.
    Either continuously variable transmission or motor driven gear 
shifting can enable rapid and controlled changes in engine speed. These 
technologies are now available on a few production cars. With good 
design, the torque converter can be eliminated, so that engine speed 
and vehicle acceleration are smoothly controlled through intelligence 
rather than friction. In this way, a smaller engine can be made fully 
satisfactory to customers even though it involves more gear shifting 
and higher engine speeds. Further work is needed in this area, but it 
is engineering of the kind the industry regularly does, and does very 
well.
    After development, such propulsion systems would cost less than 
what they replace.

2) Sophisticated controls and high-efficiency accessories enable 
        turning the engine on-and-off.
    With modern controls the engine can be turned off and on with 
almost no noise or vibration. However, enhanced electrical capability 
and high efficiency accessories, like air conditioning, are needed to 
enable turning the engine off for most of the time when the vehicle is 
stopped or in braking. The industry move to 42 Volts instead of 12 
Volts will help engine on-and-off capability happen as a by-product. 
For air conditioning, what is needed is high efficiency in normal low-
demand situations, combined with the capability to handle extreme 
situations. Air conditioning for electric vehicles has provided some 
experience in this area. This improvement would increase costs, but the 
increase would not be large in the overall picture.

3) Weight reduction can be used to make heavier vehicles lighter to 
        enhance safety.
    Traffic safety can be greatly enhanced by systematic changes in 
design. One part of this safety strategy is to redesign the heaviest 
vehicles, decreasing their weight, while maintaining the weight of the 
lightest vehicles. The smaller engine and simpler transmission 
discussed here would enlarge the design opportunities. To make a 
definite projection, the weight reduction in the calculation that 
follows is taken to be 10 percent. More than this reduction could be 
accomplished with increased use of high-strength steels or other 
materials, and with the smaller engine and simpler transmission. It 
would be wise to make larger weight reductions for typical light trucks 
and no reductions among the lightest cars. A 10 percent reduction in 
aerodynamic and tire loads is also assumed, perhaps less than might be 
expected normally over the next decade.

4) Sophisticated engine controls offer engine efficiency benefits
    Valve controls enable decreased frictional loss in air management 
by substituting valve action for the throttle. (The action is closely 
analogous to light dimming.) This has been fully implemented in a BMW 
production engine. Less-ambitious variable valve timing, already 
implemented in several engines, improves efficiency at low and high 
engine speeds.
    The above technologies have been grouped so they address different 
energy opportunities. The first involves reducing engine and 
transmission friction; the second, turning off the engine; the third, 
load reduction; and the fourth, residual engine efficiency 
opportunities.

Potential Gains in Fuel Economy
    Consider a recent midsize sedan similar to Ford Taurus with its 
standard engine. First I establish a reasonable limit: the fuel economy 
that could be achieved strictly through propulsion system efficiency 
improvement--without reducing mass or tire and aerodynamic loads (Table 
1). For this exercise, I assume that all engine and transmission 
friction is eliminated (certainly not practical), while, 
conservatively, I assume that the engine's ``thermodynamic efficiency'' 
is at today's optimal of 38 percent and that the accessory load is 
reduced by one-third.


           Table 1. ``Test'' Fuel Economies of a Recent Car, & a Very Efficient Car with the Same Load
 
                                                                                      Highway
                                                                  Urban  Driving  Driving  Cycle     Composite
                                                                    Cycle (mpg)        (mpg)        Cycle (mpg)
 
late 1990s base car.............................................           22.2            35.3            27.0
``limit'', car w/ same load.....................................           56.3            64.2            59.6
 


    Now consider implementing the four types of technologies 
sequentially. (See Table 2.)


               Table 2. Projected Fuel Economies from Implementing the Four Types of Technologies
 
                                                                                      Highway
                                                                  Urban  Driving  Driving  Cycle     Composite
                                                                    Cycle (mpg)        (mpg)        Cycle (mpg)
 
base car plus step (1)..........................................           29.6            42.9            34.4
w/ steps (1) and (2)............................................           33.3            42.9            37.0
w/ steps (1), (2) and (4).......................................           35.0            43.9            38.5
include 10% lower load..........................................           37.7            48.5            41.9
 


Summary of the Fuel Economy Projections
    The fuel economy gain projected here is 41.9/27.0 or 55 percent. 
This corresponds to a fuel saving at the same number of miles of 27.0/
41.9 of 35 percent. Our study of light-truck fuel economy shows larger 
gains than I have projected here. The major point is that savings on 
this scale could apply to all new light-duty vehicles, albeit more for 
heavier light trucks and less for lighter cars.

Why aren't such technologies being adopted?
    Some speculations: (1) All the manufacturers are adopting some of 
these measures, but they tend to simultaneously increase vehicle mass 
and engine power. (2) Most manufacturers prefer to sell vehicles like 
those they already produce, emphasizing changes in style rather than 
technology. (3) The manufacturers know that buyers are interested in 
many vehicle attributes, and they know it's hard for buyers to select 
for fuel economy in those circumstances. (4) Large, heavy and expensive 
vehicles are the most profitable (because the market is moving to 
higher income buyers, and because competitors are more numerous among 
smaller, lower-priced vehicles).
    Finally, while these fuel economy technologies offer the same 
maximum-speed and acceleration-times, they have subtle disadvantages, 
somewhat uneven acceleration and somewhat more noise. Unless 
engineering efforts are made to moderate these disadvantages, the 
changes would not be satisfactory for some customers.
Policy.
    I am not a policy specialist, but I have three general suggestions: 
(a) We care about fuel. Let's regulate gallons per mile instead of 
miles per gallon. (b) Motivate reducing the weight of the heavier light 
trucks. That's also justified by safety. (c) Strive to enable the old 
``Big-Three'' to remain competitive. This requires pushing them 
strongly to be innovative, but not too hard. I think a good combination 
is to set ambitious goals, but to be generous with the rate of 
progress.

Citations to Our Recent Work in This Area
    DeCicco, J, F An & M Ross, 2001. Technical Options for Improving 
the Fuel Economy of Cars and Light Trucks by 2010-2015, American 
Council for an Energy-Efficient Economy.
    An, F, J DeCicco, & M Ross, 2001. Assessing the Fuel Economy 
Potential of Light-Duty Vehicles, Society of Automotive Engineers Paper 
No. 2001-01-2482.
    An F, D Friedman & M Ross, 2002. Fuel Economy Potential for Light-
Duty Trucks, Society of Automotive Engineers 2002-01-xxxx (to be 
published).
    M Ross & T Wenzel, 2001. Losing Weight to Save Lives: A Review of 
the Role of Automobile Weight & Size in Traffic Fatalities, American 
Council for an Energy-Efficient Economy.

    Senator Kerry. Thank you very much, professor. We 
appreciate it. Mr. German.

   STATEMENT OF JOHN GERMAN, MANAGER, ENVIRONMENT AND ENERGY 
                ANALYSES, AMERICAN HONDA MOTOR 
                       CORPORATION, INC.

    Mr. German. Thank you. I am the manager for environment and 
energy analyses, in the Product Regulatory Office for American 
Honda Motor. I testified before this Committee on July 10, and 
I am pleased to be invited back to further discuss technology 
feasibility. I will summarize my prepared statement and ask the 
full statement be printed in the hearing record.
    Even though car and light truck CAFE have remained constant 
for the last 15 years, there was a substantial amount of 
efficiency technology introduced during this period. However, 
this new technology was usually introduced to respond to 
vehicle attributes demanded by the marketplace, rather than to 
increase fuel economy.
    For the past two decades, consumers have insisted on such 
features as enhanced performance, luxury, safety, and greater 
utility. As reflected in my prepared statement, vehicle weight 
increased 12 percent from 1987 to 2000, zero to 60 acceleration 
time improved by 22 percent from 1981 to 2000, and average 
horsepower increased by more than 70 percent, all while 
maintaining the same CAFE level.
    The bottom line is it is these other attributes, not fuel 
economy, which influence customer decisions in the marketplace. 
Given the low price of gasoline in the United States, this 
should come as no surprise. Since 1987, technology has gone 
into the fleet that could have improved fuel economy by almost 
1\1/2\ percent per year if it had not gone to other attributes 
demanded by the market. Thus, while fuel economy did not 
increase, the fuel efficiency of these vehicles did.
    We see four pathways to improve fuel efficiency. First, in 
the near term, we believe that the 1.5 percent annual 
efficiency improvements from conventional technology 
introduction could continue into the future. There are a number 
of technologies that are just beginning to penetrate the 
market, including 5-speed automatic and 6-speed manual 
transmissions, continuously variable transmissions, cylinder 
cutoff during light load operation, direct injection gasoline 
engines, and idle-off features.
    In addition, many existing technologies have not yet spread 
to all vehicles, such as four-speed automatic transmissions, 
four valves per cylinder, variable valve timing, and reduced 
friction. The challenge is applying these new technologies 
toward fuel economy instead of vehicle attributes more highly 
valued by the customer.
    Second, vehicle loads can be reduced. This can be effective 
in both the short term and the long term. Examples include use 
of materials for weight and strength optimization, measures to 
reduce friction and accessory losses, and aerodynamic designs. 
Honda's superior fuel economy performance is a direct result of 
our decision to aggressively incorporate advanced technology 
across our product line. Just a few examples; Honda pioneered 
variable valve timing in the early 1990's and now use it on 
over 80 percent of our vehicles. Virtually all of our engines 
are aluminum block with overhead cam shafts and four valves per 
cylinder, and all of our automatic transmissions have at least 
four speeds.
    Third, over the next 5 to 15 years, the most promising 
opportunities will come through hybrid technology, vehicles 
which employ two power sources. Two such vehicles are sold in 
the U.S. today, the Honda Insight, and the Toyota Prius. Honda 
will also sell a hybrid version of our five-passenger Honda 
Civic sedan this spring.
    Hybrid technology can markedly reduce fuel consumption in 
three ways. First, by using an electric motor to provide a 
power boost when needed, a smaller, more fuel-efficient 
gasoline engine can be used. Second, the electric motor can 
recharge the battery by capturing the energy that would 
normally be lost during deceleration and braking. Third, the 
electric motor can rapidly restart the engine, facilitating 
engine shut-off at idle.
    Hybrids do not require a new refueling infrastructure, and 
do not need to be plugged in for recharging. However, hybrids 
currently cost at least several thousand dollars more than the 
equivalent conventional gasoline vehicle, with the cost 
increasing proportionately for larger vehicles. With fuel costs 
so inexpensive in the U.S., absent incentives, hybrid costs 
must dramatically decrease before hybrids will be accepted in 
the mass market.
    In the long term, fuel cells are extremely promising. Honda 
and other manufacturers are actively working on both direct 
hydrogen fuel cell vehicles and on reformers, which convert 
fuel to hydrogen on board the vehicle. However, major hurdles 
remain. Reformers are expensive, take up valuable space in the 
vehicle, are slow to warm up and respond to transient driving 
conditions, and reduce the efficiency of the vehicle. There are 
significant technological challenges with on-board hydrogen 
storage, in addition to the formidable challenge of developing 
an entirely new refueling infrastructure. It is highly unlikely 
that a consumer market will develop for fuel cells within the 
timeframes currently being evaluated by Congress.
    The NAS report did a good job in laying out the different 
technology options and it presented a reasonable framework for 
assessing the cost and feasible fuel economy gains available 
from the application of new technology. Congress should follow 
the NAS analyses and recommendations when balancing the 
Nation's need to conserve energy with market acceptance.
    A related issue is the safety impact of increasing fuel 
economy requirements, which was talked about extensively 
earlier. With respect to safety, Honda supports the dissenting 
opinion expressed by NAS committee members David Greene and 
Maryann Keller that existing data is insufficient to conclude 
that overall safety is compromised by smaller vehicles. Honda 
recently retained a contractor, Dynamic Research, Incorporated, 
to update NHTSA's 1997 analysis of the safety effects of 
reducing weight by using more recent accident data and newer 
vehicles with updated safety technology.
    The preliminary conclusion is that the effect of a 100-
pound weight reduction on the traffic fatalities of the 
combined car and light truck fleet is very small, and is 
statistically insignificant. Earlier this year, DRI presented 
an extensive overview of the analysis to NHTSA. NHTSA indicated 
that DRI appeared to have done a credible job of replicating 
their statistical techniques and updating their earlier 
analyses.
    Although additional research is needed, the updated 
analysis indicates that weight reduction across the entire 
vehicle fleet may not have a negative safety impact. Honda will 
submit the completed DRI report to NHTSA shortly.
    Mr. Chairman, there is much that technology can do to 
achieve enhanced fuel efficiency, but we must be realistic 
about the pace of technology and the hurdles that we will 
encounter. Manufacturers can only sell what customers are 
willing to buy. Absent programs or marketplace conditions that 
stimulate demand or provide incentives, the manufacturer's 
challenge would be to increase fuel efficiency without 
sacrificing the performance, safety, convenience, and comfort 
that customers demand.
    Thank you. I would be happy to answer any questions.
    [The prepared statement of Mr. German follows:]

  Prepared Statement of John German, Manager, Environment and Energy 
                Analyses, American Honda Motor Co., Inc.

    Good morning, my name is John German, Manager, Environment and 
Energy Analyses, Product Regulatory Office, American Honda Motor Co., 
Inc. Honda appreciates the opportunity to appear before the Senate 
Commerce, Science and Transportation Committee to discuss automotive 
fuel efficiency with a focus on technology.
    Honda products have always focused on the most efficient use of 
resources. It has been a part of Honda's culture from the beginning. To 
quote our founder, Mr. Honda, in 1974, ``I cannot overstress the 
importance of continuing to cope with the pollution problem.'' We 
believe we must think about more than just the products we make. We 
think about the people who use them and the world in which we live. We 
believe that it is our responsibility, as a manufacturer of these 
products, to do all we can to reduce the pollutants that are created 
from the use of products that we produce.

Conventional Technology
    There is a popular misconception that vehicle manufacturers have 
not introduced fuel efficient technology since the mid-80s. This is 
understandable, as the car and light truck CAFE have remained constant 
for the last 15 years (and the combined fleet has gone down due to 
increasing light truck market penetration), as shown in Figure 1. 
However, there has been a substantial amount of efficiency technology 
introduced in this time period. Some examples for the entire car and 
light truck fleet from EPA's 2000 Fuel Economy Trends are shown in 
Figure 2.
    However, this new technology has been employed more to respond to 
vehicle attributes demanded by the marketplace than to increase fuel 
economy. Over the past two decades consumers have insisted on such 
features as enhanced performance, luxury, utility, and safety, without 
decreasing fuel economy. Figure 3 shows the changes in vehicle weight, 
performance, and proportion of automatic transmissions since 1980 in 
the passenger car fleet. Even though weight increased by 12 percent 
from 1987 to 2000, the 0-60 time decreased by 22 percent from 1981 to 
2000. This is because average horsepower increased by over 70 percent 
from 1982 (99 hp) to 2000 (170 hp). In addition, the proportion of 
manual transmissions, which are much more fuel efficient than automatic 
transmissions, decreased from 32 percent in 1980 to 14 percent in 2000.
    It is clear that technology has been used for vehicle attributes 
which consumers have demanded or value more highly than fuel economy. 
Figure 4 compares the actual fuel economy for cars to what the fuel 
economy would have been if the technology were used solely for fuel 
economy instead of performance and other attributes. If the current car 
fleet were still at 1981 performance, weight, and transmission levels, 
the passenger car CAFE would be almost 36 mpg instead of the current 
level of 28.1 mpg. The trend is particularly pronounced since 1987. 
From 1987 to 2000, technology has gone into the fleet at a rate that 
could have improved fuel economy by about 1.5 percent per year, if it 
had not gone to other attributes demanded by the marketplace.



    There is no reason why this technology trend of improved efficiency 
(as opposed to fuel economy) should not continue. Many of the 
technologies in the 2000 fleet, such as 4-valve per cylinder, have not 
yet spread throughout the entire fleet (although Honda vehicles have 
been virtually 100 percent 4-valve per cylinder since 1988). In 
addition, several new technologies that will have significant 
efficiency benefits are just beginning to penetrate the fleet. One 
technology pioneered by Honda is variable valve timing. While Honda 
used variable valve timing in almost 60 percent of our 2000 vehicles, 
penetration in the other manufacturers' fleets is only a percent or 
two. Other technologies that have recently been introduced or for which 
at least one manufacturer has announced plans to introduce include:

   Direct injection gasoline engines (only announced for Europe 
        and Japan to date)
   5-speed automatic and 6-speed manual transmissions
   Continuously variable transmissions (works like an 
        automatic, but more efficient)
   Lightweight materials
   Low rolling resistance tires
   Improved aerodynamics
   Cylinder cut-off during light-load operation (for example, 
        an 8-cylinder engine shuts off 4 cylinders during cruise 
        conditions)
   Idle-off (the engine stops at idle)

    Technologies are continuously being incorporated into vehicles. 
However, consumer's sense of value usually puts fuel efficiency near 
the bottom of their list. The dilemma facing manufacturers is that 
customers may not value putting in these technologies just to improve 
fuel economy.

Gasoline-Electric Hybrids
    The most promising technology on the mid-term horizon (5-15 years) 
are hybrid vehicles--vehicles which employ two power sources. The two 
hybrid vehicles recently introduced in the U.S., the Honda Insight and 
the Toyota Prius, both use innovative hybrid techniques. In addition, 
Honda will introduce a hybrid version of our Civic sedan this spring.
    There are some basic operating characteristics that help shape the 
design of any hybrid system. The greatest demands on horsepower and 
torque occur while accelerating and climbing grades. Minimal power is 
needed to maintain a vehicle's speed while cruising on a level road. By 
using an electric motor to provide a power boost to the engine when 
appropriate, a smaller, more fuel-efficient gasoline engine can be 
used. In addition, the motor can be used to capture energy that would 
normally be lost during deceleration and braking and use this energy to 
recharge the battery. This process is referred to as ``regenerative 
braking''. These vehicles do not need to be plugged in. Finally, the 
powerful electric motor can restart the engine far quicker than a 
conventional starter motor and with minimal emission impact, allowing 
the engine to be shut off at idle.
    Honda's Integrated Motor Assist (IMA) relies primarily on a small 
gasoline motor and is supplemented by a high torque, high efficiency DC 
brushless motor located between the engine and the transmission. \1\ 
This 10 kW motor is only 60 mm (2.4") thick and is connected directly 
to the engine's crankshaft. It supplies up to 36 ft-lb. of torque 
during acceleration and acts as a generator during deceleration to 
recharge the battery pack. This is a simple, elegant method to package 
a parallel hybrid system and minimizes the weight increase.
---------------------------------------------------------------------------
    \1\ ``Development of Integrated Motor Assist Hybrid System'', K. 
Aoki et al, Honda, June, 2000, SAE # 2000-01-2059.
---------------------------------------------------------------------------
    Toyota's hybrid system combines both series and parallel systems. 
\2\ The Prius powertrain is based on the parallel type. However, to 
optimize the engine's operation point, it allows series-like operation 
with a separate generator.
---------------------------------------------------------------------------
    \2\ Prius information is based upon October, 1999 Presentation by 
Dave Hermance of Toyota, ``Toyota Hybrid System Concept and 
Technologies.''
---------------------------------------------------------------------------
    Both models use relatively small battery packs. The Insight's NiMH 
battery pack is rated at about 1 kW-hr of storage and only weighs about 
22 kg (48 pounds). The battery pack on the Prius is larger, but is 
still no more than twice the size of the Insight's. These lightweight 
battery packs help to maintain in-use performance and efficiency while 
maintaining most of the hybrid system benefits. The larger motor and 
battery on the Prius also allow limited acceleration and cruise at 
light loads on electricity only.
    Both the Insight and the Prius incorporate substantial engine 
efficiency improvements, in addition to the downsizing allowed by the 
hybrid system. The Prius uses a low friction, Atkinson cycle 1.5L 
engine. The Atkinson cycle uses a longer expansion stroke to extract 
more energy from the combustion process.
    The Insight engine incorporates a number of different strategies to 
improve efficiency. The engine has Honda's variable valve technology, 
which boosts peak horsepower and allows even more engine downsizing. 
The 1.0L, 3-cylinder engine also incorporates lean-burn operation, low 
friction, and lightweight technologies to maximize fuel efficiency. 
Despite the small engine size, the Insight can sustain good performance 
with a depleted battery, due to the high power/weight from the VTEC 
engine.



    What is especially interesting about the Insight and Prius 
comparison is that very different powertrain technologies were used to 
achieve similar efficiency goals. One important lesson is that the 
different types of hybrid systems have reasonably similar environmental 
performance. The new continuously variable transmission (CVT) Insight 
is rated as a SULEV. There are an infinite number of ways to combine 
hybrid components to create a practical hybrid electric vehicle.
    Both the Insight and the Prius have achieved impressive fuel 
economy improvements. The manual transmission Insight has the highest 
fuel economy label values ever for a gasoline vehicle, 61 mpg city and 
68 highway. The CVT Insight is rated at a slightly lower level. While 
much of the high fuel efficiency is attributable to the hybrid engine, 
other fuel efficient technologies, such as aerodynamic design and 
strategic use of lightweight materials were incorporated into the 
Insight as well. The Prius values are 52 mpg city and 45 highway. The 
label values on the Civic hybird will be about 50 mpg city and highway.
    Projections have also been made for prototype or future hybrid 
designs. Table 1 compares the manufacturer claims for the prototype 
vehicles to the production values for the Insight, Civic, and Prius. It 
should be noted that Table 1 presents CAFE values, instead of fuel 
economy label values. \3\
---------------------------------------------------------------------------
    \3\ EPA discounts the city test by 10 percent and the highway by 22 
percent when calculating fuel economy values, so the combined FE based 
upon the label values discussed in the last paragragh is about 15 
percent lower than the CAFE values in Table 1.



    While it is easy to overlook because of the large efficiency 
benefits, hybrids also offer some potential emission reductions. The 
lower fuel consumption directly reduces upstream emissions from 
gasoline production and distribution. If the higher efficiency is used 
to increase range, evaporative emissions from refueling are reduced.
Future potential for hybrid powerplant applications and volume sales
    Hybrids have a number of positive features that are desired by 
customers. They use gasoline (or diesel fuel); thus there are no 
concerns about creating a new infrastructure to support fueling. The 
customer benefits from lower fuel costs, extended range, and fewer 
trips to the gas station. Hybrids have good synergy with other fuel 
economy technologies and even help reduce emissions. Equally important, 
there is little impact on how the vehicle operates. The vehicles drive 
and operate similar to conventional vehicles.
    Recent announcements from a number of manufacturers indicate that 
hybrid systems are being considered across a very broad vehicle 
spectrum. Toyota has announced production of a hybrid electric minivan 
for the Japanese market. \4\ Ford has announced plans to put a hybrid 
system into a 2003 model year Escape, a small SUV. \5\ DaimlerChrysler 
will offer a hybrid in its Durango SUV sometime in 2003. \6\ General 
Motors is already selling hybrid bus systems and plans to sell hybrid 
versions of its full-size pickup truck and the forthcoming Saturn VUE 
SUV in 2004. \7\ There appears to be no inherent limitation on the use 
of hybrid systems, as long as packaging, weight, and cost issues can be 
managed.
---------------------------------------------------------------------------
    \4\ ``Toyota sees a hybrid future'', Autoweek, October 30, 2000.
    \5\ Ford Motor Co. press releases, January 10, 2000 and April 7, 
2000.
    \6\ Associated Press article by Justin Hyde, October 25, 2000.
    \7\ General Motors Co. press release, January 9, 2001.
---------------------------------------------------------------------------
    While there have been tremendous strides in hybrid technology, 
there remain some packaging issues such as finding space for the motor, 
battery pack, and power electronics, as well as some additional weight. 
However, these issues are secondary compared to the cost issue.
    Unfortunately, hybrid systems are not cheap. Initially, hybrids 
also have high development costs spread over relatively low sales. 
Manufacturers are understandably reluctant to discuss the cost of their 
hybrid systems, so it is difficult to determine a realistic cost. 
Still, it is clear that hybrids currently cost at least several 
thousand dollars more than the equivalent conventional gasoline 
vehicle, with the cost increasing proportionally for larger vehicles.
    To put the cost issue into context, one must examine what customers 
might be willing to pay in exchange for the fuel savings, both in the 
U.S. and overseas using several assumptions. The most critical is 
customer discounting of fuel savings. It is generally understood that 
most customers in the U.S. only consider the first 4 years of fuel 
savings, plus they heavily discount even these 4 years. This is roughly 
equivalent to assuming that customers only value the fuel savings from 
the first 50,000 miles. For lack of information, the same 50,000 mile 
assumption is used for overseas customers (who drive less per year but 
may value the fuel savings more).
    Estimates were made for three different size vehicles, small cars, 
midsize cars, and large trucks. Three estimates were also made for the 
hybrid benefits, as the improvements listed in Table 1 range from 15 
percent to 91 percent. Of course, some of the vehicles in Table 1 
include factors that go well beyond the impact of the hybrid system 
itself, such as weight and load reduction and engine efficiency 
improvements. A reasonable factor for just the hybrid system and 
corresponding engine size reduction is probably about 30-40 percent 
over combined cycles. Sensitivity cases of 20 percent (for very mild 
hybrids) and 80 percent (for hybrids combined with moderate engine and 
load improvements) are also shown in Table 2.
    The final factor is fuel cost. Table 2 lists two cases: $1.50/
gallon (U.S.) and $4.00/gallon (Europe and Japan). The formula used to 
calculate the fuel savings in Table 2 is:




    The results are sobering. From a societal view, the fuel savings 
over the full life of the vehicle (which are about three times the 
values in Table 2), would likely justify the approximately $3000 cost 
of hybrid systems. However, the typical customer would not make up the 
incremental cost of $3000 by the fuel savings, especially in the U.S.. 
In Japan and Europe, there may be a substantial market for hybrids even 
at a cost of $3000, due to the higher fuel prices. If the hybrid cost 
could be reduced to $1500 or $2000, the majority of customers in Japan 
and Europe might be willing to purchase a hybrid vehicle.
    Even in the U.S., there are customers who, because they drive a lot 
or value the benefits more highly, will be willing to pay a $3000 
premium for a hybrid vehicle. However, it is clear that hybrids will 
not break into the mainstream market in the U.S. unless the cost of 
hybrid systems comes down and/or some sort of market assistance or 
incentive program is adopted.
    Over the next 5 to 10 years, we are likely to see a gradual 
increase in hybrid sales in the U.S. While the approximately $3000 cost 
increment in 2003 is too high for the mass market in the U.S., enough 
customers will desire the features to keep the market growing. In 
addition, hybrid sales are likely to increase much faster in Europe and 
Japan, due to their much higher fuel costs. This will lead to higher 
volume production and further development, both of which will reduce 
cost worldwide. Sales in the U.S. will continue to increase as the 
costs come down.
    But there is a broader message here for U.S. policymakers. All of 
the technology improvements that can be made are incremental and have a 
financial cost. Absent marketplace signals as well, progress on 
achieving higher fuel efficiency in the marketplace may be slower than 
we may desire.

Fuel Cells
    Fuel cells are the most promising mid- to long-term option. 
Hydrogen fuel cells have virtually no emissions and are extremely 
efficient. Large-scale production of hydrogen would probably use 
natural gas, which would reduce our dependence on fossil fuels. Even 
longer term, we may be able to produce hydrogen using solar energy or 
biomass fuels.
    However, there are many issues to resolve before fuel cell vehicles 
become commercially viable. Cost and size must be drastically reduced 
and on-board hydrogen storage density must be significantly improved. 
Durability must also be proved. Even after all these problems are 
solved, there are still infrastructure and fueling system issues to 
resolve. Thus, fuel cells will be a long time in development.
    There also are serious concerns about on-board reformers for 
creating hydrogen. Reformers are the hardware that converts fuel like 
natural gas or methane, to hydrogen. These reformers are expensive, 
take up valuable space in the vehicle, and are slow to warm up and 
respond to transient driving conditions. In addition, they reduce the 
efficiency of the vehicle, both because of the energy needed for the 
reforming process and because the resulting fuel stream is not pure 
hydrogen. The dilution of the fuel stream requires a larger fuel cell 
stack to maintain the same performance, increasing weight, size, and 
cost of the system. In fact, recent research has concluded that fuel 
cells with on-board reformers may not be more efficient than a good 
gasoline hybrid. \8\
---------------------------------------------------------------------------
    \8\ ``On the Road in 2020'', M. Weiss, J. Heywood, E. Drake, A. 
Schafer, and F. AuYeung, Massachusetts Institute of Technology, October 
2000.
---------------------------------------------------------------------------
    Honda's current research efforts are focused on direct hydrogen 
fuel cell vehicles. These are not yet ready for the public, not ready 
for ``numbers'', and not ready to help fill requirements for zero 
emission vehicles. But even if all of the technological and 
infrastructure obstacles can be overcome, we are still one to two 
decades away from serious commercial introduction. However Honda is 
serious about this technology because it holds promise for 
environmentally sound transportation.

NAS CAFE Study
    The recent report of the National Academy of Sciences (NAS) 
entitled ``Effectiveness and Impact of Corporate Average Fuel Economy 
Standards'' provides the Committee with a good point of departure for 
considering this complex technological, economic and public policy 
issue. We commend the NAS on its report on fuel economy. While we do 
not agree with all the findings and recommendations, the Panel had a 
formidable task, which it completed on an extremely tight time frame.
    A number of the recommendations of the NAS on any future increase 
in CAFE parallel our thinking. The report recognizes the importance of 
providing adequate lead-time to design and introduce new technology to 
meet future standards. The report focuses on a 15-year timeframe. 
Certainly, the more significant the increase in the standard, the 
longer the lead-time needed. We also note the NAS Report is not 
unanimous on its position with regard to safety. We have more to say 
about this critical issue later, but we concur that more research is 
warranted.
    The pace of technology improvement is significant in the context of 
the NAS finding that ``[t]echnology changes require very long lead 
times to be introduced into the manufacturers' product lines.'' 
Accelerated mandates that are met through piecemeal modifications to 
existing vehicle designs, rather than through integration of fuel-
efficient technologies from the inception of a new vehicle design, can 
have disruptive and undesirable effects. The NAS notes that the 
downweighting and downsizing that occurred in the late 1970s and early 
1980s, may have had negative safety ramifications. But the ability to 
``design in'' fuel economy from the beginning--through the use of 
aerodynamic styling, enhanced use of lightweight materials, and 
incorporation of the newest drivetrain technologies--can produce 
significant fuel savings with little sacrifice of other vehicle 
attributes that consumers desire. We can say unequivocally that this 
has been Honda's experience.
    As long as adequate leadtime is provided, the technology analyses 
in the NAS report are reasonable. Similar to Honda's position, the NAS 
found that there are significant amounts of conventional technology 
that can be applied to the vehicle fleet, but that hybrids may cost too 
much for mass market acceptance and fuel cells are not ready for the 
consumer market. The minor corrections in the NAS Letter Report of 
January 16, 2002 and the committee's stated desire for readers to focus 
on the average results, instead of the upper and lower bounds, are also 
reasonable. The fuel efficiency and cost estimates in the NAS report 
are in the ballpark and can be used to help Congress balance the 
nation's need to conserve energy with consumer acceptance of the costs 
and impacts on other consumer attributes.

Safety Issues
    It is significant that safety considerations are the only issue 
that produced a dissenting opinion in the NAS Report. Honda concurs 
with that dissenting opinion expressed by committee members David 
Greene and Maryann Keller, that the data is insufficient to conclude 
that safety is compromised by smaller vehicles. The level of 
uncertainty about fuel economy related safety issues is much higher 
than stated in the majority report. Significantly, existing studies do 
not address the safety impact of using lightweight materials without 
reducing size, especially for vehicles with advanced safety technology.
    As the dissenters state, ``[t]he relationship between vehicle 
weight and safety are complex and not measurable with any degree of 
certainty at present.'' We believe it is important to understand the 
differences between size and weight. We have demonstrated through the 
use of sophisticated engineering and advanced lightweight materials 
that smaller cars can be made increasingly safer. For example, Honda's 
2001 Civic Coupe, with a curb weight of 2502 pounds, was the first 
compact car to receive a five star safety rating in the NHTSA crash 
results for the driver and all passenger seating positions in frontal 
and side crashes. The fuel economy of the Civic HX coupe with a 
continuously variable automatic transmission (CVT) and a gasoline 
engine is 40 mpg (highway) and 35 mpg (city). In addition, there are 
many ways to increase fuel efficiency that do not affect weight 
including power train technology and the efficient use of space.
    Thus, vehicle design and size, and not just vehicle mass, must be 
considered when studying the relationship between fuel economy and 
safety. There are accident scenarios where less weight may actually be 
an advantage in some vehicle accidents. In others, it is a 
disadvantage. But, there is much we do not know. For example, to what 
extent can advanced crash avoidance technologies, such as forward 
collision warning/avoidance, lane keeping and road departure 
prevention, and lane change collision warning/avoidance systems, be 
employed to make weight considerations less relevant? To what extent 
can new, lightweight materials and sophisticated engineering provide a 
level of crash protection comparable or even superior to vehicles with 
traditional materials and designs?
    Honda supports the NAS recommendation that NHTSA undertake 
additional research to clarify the relationship of weight and size in 
the context of newly evolving advanced materials and engineering 
techniques in the array of accident scenarios that are encountered on 
American roads. Honda recently retained a contractor, Dynamic Research, 
Inc. (DRI), to update NHTSA's 1997 analysis of the safety effects of 
reducing weight by using more recent accident data with newer vehicles. 
The preliminary conclusion is that the effect on traffic fatalities of 
a 100 pound weight reduction on the combined car and light truck fleet 
is very small and not statistically significant. On January 15, 2002, 
DRI presented an extensive overview of the analysis to NHTSA staff. 
They indicated that DRI appeared to have done a credible job of 
replicating their statistical techniques and updating their earlier 
analysis. The updated analysis indicates that weight reduction across 
the entire vehicle fleet may not have a negative safety effect. Honda 
will submit the complete DRI study report to NHTSA in the very near 
future. Honda supports the NAS recommendation that NHTSA undertake 
additional research to clarify the relationship of weight and size in 
the context of newly evolving advanced materials and engineering 
techniques in the array of accident scenarios that are encountered on 
American roads.

Customer Preference
    Honda believes it has a duty to be a responsible member of society 
and to help preserve the global environment. Honda is committed to 
contributing to mitigation of greenhouse gas emissions through 
technological progress. We believe it is our responsibility to develop 
and offer efficient products in the market. We have been an industry 
leader in introducing such products and will continue to do so.
    However, unless the customer becomes an integral participant in the 
process of reducing greenhouse gases, market acceptance of these 
products will be limited. Programs will be far more effective if they 
include government and customers, not just industry. The industry can 
provide a ``pull'' by providing products desired by the consumer. But, 
we cannot push customers into buying vehicles they do not want. 
Government programs to stimulate demand, provide incentives, and 
educate the customer could dramatically affect acceptance of new 
technologies and market penetration.




    Thank you for this opportunity to testify. I would be happy to 
answer your questions.

    Senator Kerry. Thank you very much. Mr. Dana.

            STATEMENT OF GREG DANA, VICE PRESIDENT, 
         ENVIRONMENTAL AFFAIRS, ALLIANCE OF AUTOMOBILE 
                         MANUFACTURERS

    Mr. Dana. Mr. Chairman, thank you for the opportunity to 
testify before the Committee today regarding CAFE standards. I 
will summarize my written report.
    Senator Kerry. All of the statements will be placed in the 
record as if read in full.
    Mr. Dana. First, the alliance supports efforts to create an 
effective energy policy based on broad, market-oriented 
principles. Policies that promote research, development, and 
employment of advanced technologies and provide customer-based 
incentives to accelerate demand of these advanced technologies 
set the foundation.
    Second, the alliance believes that Congress does not need 
to set new standards or change the structure of the CAFE 
program. Current law requires the Department of Transportation 
to promulgate new light truck standards at a maximum feasible 
level, taking into consideration technology feasibility, 
economic practicability, the effect of other motor vehicle 
standards on fuel economy, and the need of the United States to 
conserve energy. These are the same issues that are the focus 
of today's hearing.
    In fact, the National Highway Traffic Safety Administration 
has issued a proposal to set standards for the 2004 model year, 
and we expect the agency will soon issue a rulemaking notice to 
address the proper level of light truck CAFE standards for the 
2005 model year and beyond. Auto makers will be working 
cooperatively with the agency in these rulemakings.
    Setting future CAFE standards requires knowledge of auto 
makers future product plans, their technology roll-out, and 
their financial situation. This requires NHTSA to gather and 
analyze a vast amount of data, along with propriety information 
from manufacturers and suppliers. Given the many variables and 
uncertainties in the marketplace, auto makers believe that 
NHTSA is the appropriate forum to consider CAFE standards. 
NHTSA is the best to judge the complexities of the program and 
the need to balance public policy goals.
    In discussions involving future CAFE standards on auto 
makers, consumers cannot be left out of the equation, for their 
decisions drive today's sales and influence future research and 
product planning. According to the Environmental Protection 
Agency, vehicle fuel efficiency, as measured on a pound for 
pound basis, has increased nearly 2 percent per year since 
1975. Fuel economy has marginally declined, however, 
representing consumers' increasing preference for safety, 
utility, and performance.
    When considering what kind of vehicle to buy, consumers 
evaluate all the different uses they will demand of their new 
car or light truck. Most customers select vehicles that best 
serve their peak uses, whether carrying kids, car-pooling 
adults, towing trailers, or handling adverse terrain or 
weather. Auto manufacturers are working on future technologies 
such as hybrid and fuel cell vehicles that may lead to 
substantial improvements in efficiency and emissions 
performance without sacrificing safety, utility, and 
performance.
    Successful introduction of these new and emerging 
technologies all share the need for cooperative efforts that 
bring all the key stakeholders together, including the auto 
makers, energy providers, Government policymakers and, most 
importantly, the customers.
    Auto makers have also been developing a new generation of 
highly fuel-efficient clean diesel vehicles as a way to 
significantly increase fuel economy and reduce greenhouse gas 
emissions. Low sulfur diesel fuel is necessary to enable the 
new clean diesel technology to be used in future cars and light 
trucks. Cleaner fuels will also provide emission benefits for 
the existing on-road fleet of vehicles. We know that advanced 
technologies with a potential for major fuel economy gains are 
on the horizon, and as a Nation we need to get these 
technologies developed and on the road as soon as possible in 
an effort to reach the national energy goals as fast and as 
safely and as efficiently as we can.
    What can Congress do to assist in this process? We urge 
that the Senate consider new approaches for the 21st Century 
which accelerates the consumer's acceptance of advanced 
technologies. The alliance and its 13 member companies believe 
the best approach for improved fuel efficiency is to 
aggressively promote the development of technologies through 
cooperative public-private research programs and competitive 
development and incentives to pull the technologies into the 
marketplace as rapidly as possible.
    In closing, let me comment we are in general support of the 
concepts in Senate bill 760, the CLEAR act, which you, Mr. 
Chairman, and other members of this Committee have cosponsored, 
and this bill would provide consumer tax credits for the 
purchase of fuel-efficient vehicles, and we appreciate your 
help in that area.
    I would be happy to answer any questions, Mr. Chairman.
    [The prepared statement of Mr. Dana follows:]

Prepared Statement of Greg Dana, Vice President, Environmental Affairs, 
                  Alliance of Automobile Manufacturers

    Mr. Chairman,
    Thank you for the opportunity to testify before the Committee 
regarding energy issues. My name is Greg Dana and I represent the 
Alliance of Automobile Manufacturers (Alliance), a trade association of 
13 car and light-truck manufacturers. Our member companies include BMW 
Group, DaimlerChrysler Corporation, Fiat, Ford Motor Company, General 
Motors Corporation, Isuzu Motors of America, Mazda, Mitsubishi, Nissan 
North America, Porsche, Toyota Motor North America, Volkswagen of 
America, and Volvo.
    Alliance member companies have more than 620,000 employees in the 
United States, with more than 250 manufacturing facilities in 35 
states. Overall, a recent University of Michigan study found that the 
entire automobile industry creates more than 6.6 million direct and 
spin-off jobs in all 50 states and produces almost $243 billion in 
payroll compensation annually.
    The automobile industry has played an integral role in the economic 
and job growth of the nation. 2001 was the second best year for new 
vehicle sales and this was certainly helped by the zero-percent 
financing offered by many companies in response to the September 
terrorist attacks. However, the current economic recession has affected 
many in our country and the automobile industry is no exception.
    The economic downturn in the industry offers many challenges for 
our industry in 2002. In recent months, many companies have announced 
restructuring plans to address changing business conditions and 
consumer demands and ensure long-term financial health. The overriding 
goal has not changed and that is to provide American consumers with a 
wide of range of vehicle choices to meet their needs and desires. 
However, policies that are at odds with the market add a real cost to 
manufacturers and their customers. Higher Corporate Average Fuel 
Economy (CAFE) standards beyond the maximum feasible level threatens 
our ability to provide customers with the vehicles they want and/or 
price increases that reduce demand for new automobiles. Both of these 
have the potential to undermine the growth of the auto industry and 
their contribution to U.S. economic growth.
    As automakers research, design and build cars and light trucks, a 
number of factors are taken into consideration including some which are 
the subject of today's hearing. Technology, safety, utility 
requirements, and cost are key components for any vehicle and companies 
are constantly striving to balance these issues in manufacturing 
vehicles and meeting government regulatory standards. We welcome the 
opportunity to discuss the Alliance views on our nation's energy policy 
and, specifically, the benefits of advanced technology vehicles for 
consumers and its role in domestic policy.
    The Alliance supports efforts to create an effective energy policy 
based on broad, market-oriented principles. Policies that promote 
research, development and deployment of advanced technologies and 
provide customer based incentives to accelerate demand of these 
advanced technologies set the foundation. This focus on bringing 
advanced technologies to market leverages the intense competition of 
the automobile manufacturers worldwide. Incentives will help consumers 
overcome the initial cost barriers of advanced technologies during 
early market introduction and increase demand, bringing more energy 
efficient vehicles into the marketplace.
    Over the past year, there has been increased attention on vehicles 
and their fuel economy levels with particular discussion of the CAFE 
program. The Alliance believes, however, that Congress does not need to 
set new standards or change the structure of the program. Current law 
requires the Department of Transportation (DOT) to promulgate new light 
truck standards (pickups, SUVs, minivans and vans) at the ``maximum 
feasible level'' taking into consideration technological feasibility, 
economic practicability, the effect of other motor vehicle standards on 
fuel economy, and the need of the U.S. to conserve energy. These are 
the same issues that are the focus of today's hearing. In fact, the 
National Highway Traffic Safety Administration (NHTSA) has issued a 
proposal to set standards for the 2004 model year and we expect the 
agency will soon issue a rulemaking notice to address the proper levels 
of light truck CAFE standards for the 2005 model year and beyond.
    Automakers will be working cooperatively with the agency in these 
rulemakings. Setting future CAFE standards requires knowledge of 
automakers' future product plans, their technology rollout, and their 
financial situation. This requires NHTSA to gather and analyze a vast 
amount of data along with proprietary information from manufacturers 
and suppliers. Given the many variables and uncertainties in the 
marketplace, automakers believe that NHSTA is the appropriate forum to 
consider CAFE standards given the complexities of the program and the 
need to balance public policy goals.
    What can Congress do to assist in this process? We urge that the 
Senate consider new approaches for the 21st century which accelerate 
the consumers' acceptance of advanced technologies. The Alliance and 
its 13 member companies believe that the best approach for improved 
fuel efficiency is to aggressively promote the development of advanced 
technologies--through cooperative, public/private research programs and 
competitive development--and incentives to help pull the technologies 
into the marketplace as rapidly as possible. We know that advanced 
technologies with the potential for major fuel economy gains are on the 
horizon. As a nation, we need to get these technologies developed and 
on the road as soon as possible in an effort to reach the national 
energy goals as fast and as safely and efficiently as we can.
    In discussions involving energy policy and automakers, consumers 
cannot be left out of the equation, for their decisions drive today's 
sales and influence future research and product planning. According to 
the Environmental Protection Agency, vehicle fuel efficiency, as 
measured on a pound for pound basis, has increased nearly 2 percent per 
year since 1975. The fleet fuel economy has marginally declined, 
however, representing consumers' increasing priority for safety, 
utility and performance. When considering what kind of vehicle to buy, 
consumers evaluate all the different uses they will demand of their new 
car or light truck. Most customers select vehicles that best serve 
their peak uses, whether carrying kids, carpooling adults, towing 
trailers or handling adverse terrain or weather.
    Another important consideration is that technologies that produced 
significant car fuel economy improvements, such as front wheel drive 
and aerodynamic styling, are not always possible to a great extent on 
light duty trucks. The majority of light duty truck buyers have 
specific performance requirements related to their use of pickups and 
vans for cargo capacity, towing, and utility. Manufacturers are 
developing engine technologies that will increase fuel efficiency and 
incorporate these performance requirements without impacting those 
attributes.

R&D Focus
    The University of Michigan study also found that the total R&D 
spending by the industry is approximately $18.4 billion per year, with 
much of it in the high tech sector. In fact, the study stated the 
following: ``The level of automotive R&D spending and the relatively 
high employment of research scientists and engineers in the U.S. auto 
industry has traditionally earned it a place in any U.S. Government 
listing of high technology industries generally thought to be central 
to the long-term performance of the U.S. economy.'' A number of other 
industries are affected by the decisions, actions and economic health 
of the automakers. For instance, automobile companies are the rail 
industry's 3rd largest customer. Other affected industries include: 
steel, aluminum, plastics, tires, trucking, glass, iron, carpeting and 
semiconductor manufacturers.
    As we begin the 21st century, the auto industry is committed to 
developing and utilizing emerging technologies to produce safer, 
cleaner, more fuel-efficient cars and light trucks. The National 
Academy of Sciences (NAS), in its July, 2001 report to Congress on 
CAFE, introduced their discussion of promising technologies by stating 
that the 1992 NAS report outlined various automotive technologies that 
were either entering production at the time, or were considered 
``emerging'' based upon their potential and production intent. 
Automotive technology has continued to advance, especially in 
microelectronics, mechatronics, sensors, control systems, and 
manufacturing processes. Most of the technologies identified in the 
1992 report as ``proven'' or ``emerging'' have already entered 
production.
    The 2001 NAS report also demonstrates the complexity of the CAFE 
program and the impact on a number of fronts including one of this 
Committee's key concerns: safety. Following are key excerpts:

        ``The majority of this committee believes that the evidence is 
        clear that past downweighting and downsizing of the light-duty 
        vehicle fleet, while resulting in significant fuel savings, has 
        also resulted in a safety penalty. In 1993, it would appear 
        that the safety penalty included between 1300 and 2600 motor 
        vehicle crash deaths that would not have occurred had vehicles 
        been as large and heavy as in 1976.'' (page 2-26)

        ``If an increase in fuel economy is effected by a system that 
        encourages either downweighting or the production and sale of 
        more small cars, some additional traffic fatalities would be 
        expected.'' (page 6-5)

    The Alliance believes NHTSA, as the nation's highway safety agency, 
is best situated to issue new fuel economy standards that do not result 
in a degradation of safety.
    Auto manufacturers are working on future technologies such as 
hybrid and fuel cell vehicles that may lead to substantial improvements 
in efficiency and emissions performance without sacrificing safety, 
utility, and performance. Fuel cell technology also serves as a 
potential vehicle to move away from a petroleum dependent 
transportation sector. Successful introduction of these new and 
emerging technologies all share the need for cooperative efforts that 
bring all the key stakeholders together . . . including the automakers, 
energy providers, government policy makers and most importantly, the 
customers.

Key Energy Policy Initiatives

1) Promoting Market-Driven Principles
    The focus on bringing advanced technologies to market leverages the 
intense competition of the automobile manufacturers worldwide. This 
competition drives automakers to develop and introduce breakthrough 
technologies to meet a variety of demands and customer needs in the 
marketplace.
    The National Academy of Sciences summarized this diversity of 
demand and priorities in the marketplace when it stated that 
``automotive manufacturers must optimize the vehicle and its powertrain 
to meet the sometimes-conflicting demands of customer-desired 
performance, fuel economy goals, emissions standards, safety 
requirements and vehicle cost within the broad range of operating 
conditions under which the vehicle will be used.'' This necessitates a 
vehicle systems analysis. Vehicle designs trade off styling features, 
passenger value, trunk space and utility. These trade-offs will 
likewise influence vehicle weight, frontal area, drag coefficients and 
powertrain packaging, for example. These features together with the 
engine performance, torque curve, transmission characteristics, control 
system calibration, noise control measures, suspension characteristics 
and many other factors, will define the drivability, customer 
acceptance and marketability of the vehicle.
    This is a long, but necessary, way of saying that in the end, the 
customer is in the driver's seat. Market based incentives and 
approaches ultimately will help consumers overcome the initial cost 
barriers of advanced technologies during early market introduction and 
increase demand, bringing more energy efficient vehicles into the 
marketplace. This will also accelerate cost reduction as economies of 
scale are achieved in a timelier fashion.
    The Alliance supports enactment of consumer tax credits during 
early market introduction to help offset the initial higher costs of 
advanced technology and alternative fuel vehicles until more 
advancements and greater volumes make them less expensive to produce 
and purchase. These types of tax incentives would ensure that advanced 
technology is used to improve fuel economy and energy savings. 
Performance incentives would be tied to improved fuel economy in order 
for a vehicle to be eligible for the tax credits. These performance 
incentives would be added to a base credit that is provided for 
introducing the technologies into the marketplace.

2) Maintaining Technology Focus
    The Alliance and its 13 member companies believe that the best 
approach for improved energy security and fuel efficiency gains is to 
aggressively promote the development of advanced technologies--through 
cooperative, public/private research programs and competitive 
development--and incentives to help pull the technologies into the 
marketplace as rapidly as possible.
    The automobile companies are convinced that advanced technologies 
with the potential for major fuel economy gains are on the horizon 
which will allow automakers to continue offering products that 
consumers demand without sacrificing safety, performance or cargo 
features. Increased costs during early market penetration for those new 
technologies, however, create a critical hurdle for customer acceptance 
and demand. As a nation, we need to get these technologies on the road 
as soon as possible and tax credits will help spur consumer acceptance 
so we can reach the national energy goals as fast and as efficiently as 
we can.

New Technologies--Promises and Challenges
Focus on Powertrain and Vehicle Technologies
    Automobile companies around the globe have dedicated substantial 
resources to bringing cutting-edge technologies--electric, fuel cell, 
and hybrid electric vehicles as well as alternative fuels and 
powertrain improvements--to the marketplace. Each of these technologies 
bring a set of unique advantages to the marketplace. At the same time, 
each technology has a unique set of challenges that inhibit widespread 
commercialization and acceptance. The internal combustion engine, 
fueled by relatively inexpensive gasoline, has been and continues to 
be, a formidable competitor against which all new technologies must 
compete.
    For consumers sensitive to cost, fuel economy gains must be 
compared to the increased investment costs and risks in their new 
vehicle purchase decision. Assuming today's gasoline price per gallon, 
a 20 percent increase in vehicle fuel efficiency offers an annual fuel 
savings of about $100. This savings must be weighed against the 
increased vehicle price to provide this 20 percent as well as the 
convenience, utility and performance tradeoffs. As automakers, we are 
keenly aware of the importance of consumer choices and the challenges 
we have to deliver new technologies that meet their affordability, 
performance and utility needs.

Fuel Cell Vehicles
    The most promising long-term technology offers breakthrough fuel 
economy improvements, zero emissions and a shift away from petroleum-
based fuels. From a vehicle perspective, hydrogen-fueled fuel cells 
offer the biggest improvement in efficiency and emissions but at high 
cost and with major infrastructure challenges. Onboard hydrogen storage 
also presents some difficulty. Gasoline infrastructure is well 
established, but gasoline reformers are the least developed and the 
most costly of reformer technology. Current sulfur content in gasoline 
will most likely need further reduction to zero or near zero levels.
    A robust fuel cell commercialization plan incorporates 
breakthroughs and complementary research in stationary power units. A 
primary challenge in the introduction of fuel cells into America's 
light vehicle passenger and truck fleet are the packaging restrictions 
of size and weight. Experience and commercial expansion of stationary 
power units, relatively unconstrained by size and weight will be 
helpful gaining the experience necessary to meet the cost targets for 
commercialization in the vehicle sector.

Hybrid-Electric Vehicles
    Hybrid-electric vehicles can offer a significant improvement in 
fuel economy. These products capture power through regenerative 
braking. When decelerating an internal combustion vehicle, the brakes 
convert the vehicle's kinetic energy into heat, which is lost to the 
air. By contrast, a decelerating hybrid vehicle can convert kinetic 
energy into stored energy that can be reused during the next 
acceleration. Hybrid vehicles do not require additional investments in 
fuel infrastructure which helps reflect their potential for near term 
acceptance.

Battery Electric Vehicles
    Vehicles that utilize stored energy from ``plug-in'' rechargeable 
batteries offer zero emissions. Battery electric vehicles continue to 
face weight, energy density, and cost challenges that limit their 
customer range and affordability.

Advanced Lean Burn Technology Vehicles
    Vehicles that are powered by direct injection diesels are faced 
with a significant challenge in meeting the new California and Federal 
exhaust emission standard. If the technology challenges can be 
overcome, these types of vehicles could provide fuel economy gains in 
excess of 25 percent above comparable conventional vehicles.

Focus on Fuels and Infrastructure
    Much of the discussion regarding fuel economy centers on the 
vehicles of the automobile manufacturers and their role in a national 
energy policy. But it is important not to forget about a vital 
component for any vehicle--the fuel upon which it operates. As 
automakers look at the competing regulatory challenges for our 
products--fuel efficiency, safety and emissions--and attempt to move 
forward with advanced technologies, we must have the best possible and 
cleanest fuels. EPA has begun to address gasoline quality but fuel 
needs to get even cleaner. This is important because gasoline will 
remain the prevalent fuel for years to come and may eventually be used 
for fuel cell technology.

Low Sulfur Gasoline
    In 1999, new EPA rules were issued which direct oil refiners to 
reduce the amount of sulfur in gasoline to an average of 30 parts per 
million, a reduction of 90 percent over current levels. Low sulfur 
gasoline is vital to ensuring that vehicle pollution control devices, 
such as catalytic converters, work more efficiently. This is especially 
important as automakers phase-in more stringent Tier II emission 
standards beginning in the 2004 model year. Further improvements will 
be needed especially if gasoline is to be used in fuel cells.

Low Sulfur Diesel
    In addition to alternative fuels, companies are constantly 
evaluating fuel-efficient technologies used in other countries to see 
if they can be made to comply with regulatory requirements in the 
United States. One such technology is diesel engines, using lean-burn 
technology, which has gained wide acceptance in Europe and other 
countries. Automakers have been developing a new generation of highly 
fuel-efficient clean diesel vehicles--using turbocharged direct 
injection engines--as a way to significantly increase fuel economy and 
reduce greenhouse gas emissions. However, their use in the U.S. must be 
enabled by significantly cleaner diesel fuel which provides the best 
opportunity to achieve the more stringent emission standards in this 
country.
    Last year, EPA promulgated its heavy-duty diesel rule that the 
Alliance supports, as far as it goes. The rule reduces the amount of 
sulfur in the fuel. Low sulfur diesel fuel is necessary to enable the 
new clean diesel technology to be used in future cars and light trucks. 
Providing cleaner fuels, including lowering sulfur levels in gasoline 
and diesel fuel, will provide emission benefits in existing on-road 
vehicles. Unless there are assurances that such fuels will be 
available, companies will not invest in new clean diesel technologies. 
Efforts to reduce sulfur content will provide environmental benefits 
and allow vehicles to operate more efficiently.
    As you can tell, the automobile companies--from the top executives 
to the lab engineers--are constantly competing for the next 
breakthrough innovation. If I can leave one message with the Committee 
today, it is to stress that all manufacturers have advanced technology 
programs to improve vehicle fuel efficiency, lower emissions and 
increase motor vehicle safety. These are not ``pie in the sky'' 
concepts on a drawing board. In fact, many companies have advanced 
technology vehicles in the marketplace right now or have announced 
production plans for the near future. That's why now is the perfect 
time for the enactment of tax credits to help spur consumers to 
purchase these new vehicles which years of research and development 
have made possible.
    The Alliance and its member companies would urge that public policy 
decisions focus on the steps that will achieve real reductions in fuel 
consumption and which support our national energy goals. The advanced 
technology fuel-efficient vehicles are typically more expensive than 
their gasoline counterparts because of the new technologies. Therefore, 
market penetration is a challenge. As a result, the Alliance supports 
personal and business tax incentives for the purchase of qualifying 
advanced technology hybrid and fuel cell powered vehicles as well as 
alternative fueled vehicles and infrastructure development. These tax 
incentives should help ``jump start'' the market penetration of these 
highly fuel efficient vehicles leading to increased sales and volumes 
so that the cost will come down in the long-term with positive 
implications for energy security.
    Thank you for the opportunity to testify before the Committee 
today. I would be happy to answer any questions you may have.

    Senator Kerry. Thank you, Mr. Dana.
    In your written testimony you state that the CAFE standards 
should not be set, ``beyond the maximum feasible level.'' What 
is that level?
    Mr. Dana. That level is something that we think has to be 
determined by NHTSA as part of their rulemaking.
    Senator Kerry. Well, you guys know what your industry is 
capable of. What is the level?
    Mr. Dana. I do not know what my manufacturers' confidential 
product plans are 4 or 5 years out That is the kind of data 
they share with NHTSA to help them determine what the maximum 
feasible level can be, based upon advances in technology and 
also the product plans of the manufacturers.
    Senator Kerry. So the industry is sort of unwilling 
publicly, as an industry, to even suggest a range?
    Mr. Dana. I cannot suggest a range, as I said, not knowing 
what the future product plans the members are. That is 
confidential information.
    Senator Kerry. We are not asking for the product plan. We 
are asking for a range within which you think you could provide 
greater efficiency. I mean, is it 1 mile per gallon over 10 
years? Do you think the industry could do 1 mile per gallon 
over 10 years?
    Mr. Dana. I think that is something NHTSA has to decide 
based upon its rulemaking, Senator.
    Senator Kerry. So you are not even prepared to say you 
would give 1 mile per gallon over 10 years. Don't you think 
that renders you sort of silly?
    Mr. Dana. No, sir, I do not.
    Senator Kerry. I beg your pardon?
    Mr. Dana. No, sir, I do not.
    Senator Kerry. You do not think it is kind of strange that 
Andrew Card in 1995 would suggest that Congress ought to make 
the decision, not NHTSA? Now that NHTSA is in different hands, 
and Congress is, you are reversing that choice, sort of forum-
shopping your way? It does not mean anything to you?
    Mr. Dana. I am a technical person, Senator. I do not deal 
with policies like that.
    Senator Kerry. Well, technically, can you tell me 
technically is it feasible to have a gain in fuel efficiency 
along the lines suggested by the National Academy of Sciences? 
Do you technically agree with the National Academy of Sciences?
    Mr. Dana. We think what the National Academy of Sciences' 
report points out is the complexity and the difficulty of 
arriving at what fuel economy levels might be achievable, given 
all the demands on those levels by the consumers and by the 
other technologies.
    We do believe that technological progress has been made in 
the past. We think there are chances for improvements in 
technology in the future. We are the largest industry in the 
country, and we have the most R&D money spent in this country, 
and we are very proud of the technology we have been able to 
develop, and what we hope to develop in the future.
    Senator Kerry. Well, that is not my question. My question 
is, ``NAS, is it technically--and you said you are technical--
is it technically feasible and potentially economical to 
improve fuel economy without reducing vehicle weight or size, 
and therefore without significantly affecting the safety of 
motor vehicle travel. Do you agree with their technical 
conclusion?''
    Mr. Dana. I would cite the fact that the NAS said the 
numbers in their report are not intended to be CAFE standards 
per se. You can discuss technology improvements and you can 
discuss fuel economy improvements, but again, the NAS made it 
very clear that those should not be considered as part of CAFE.
    Senator Kerry. Well, within the industry there is sort of a 
variance, I guess. I mean, again, I am not asking you--I am not 
trying to trap you into accepting the figures they put out. I 
am asking you to accept the principle that it is technically 
feasible. I mean, do you see what I am saying? I did not ask 
you to adopt 37.2 as a goal in 15 years. I am asking whether it 
is technically feasible to achieve in the equation they have 
set forward.
    Mr. Dana. We think it is technically feasible to achieve 
improvements in fuel economy technology based upon 
technological developments.
    Senator Kerry. Without affecting the safety of motor 
vehicle travel?
    Mr. Dana. I have not worked on automotive vehicle safety 
for 5 years. I am not sure I can address that.
    Senator Kerry. Mr. German, can you share with me a sense--
you have sort of worn a couple of hats. You have been with EPA 
previously, now with the industry. Obviously, we need to give 
time to the industry to incorporate economy improvements into 
new fleets, and I understand that, and we want to try to be 
sensible about how we do that. In your judgment, what is a 
reasonable timeframe for that? I mean, I understand the model 
cycles and so forth. What do you think is a reasonable 
timeframe for improvements, leaving out what might or might not 
be a figure?
    Mr. German. The real issue is the amount of time it takes 
to design and tool, and you have natural product cycles which 
are 5, 6 years before you can roll it out to the entire fleet, 
so something in the range of 12 to 15 years is probably 
reasonable.
    Senator Kerry. So the academy's range is 10 to 15. That is 
a fair range.
    Mr. German. Honda is completely supportive of the academy's 
assessments of lead time.
    Senator Kerry. And that did not reflect, obviously, the 
potential of hybrid or other--I mean, I assume it did not even 
reflect diesel injection, did it?
    Mr. German. Well, the National Academy report considered 
them, but what they concluded is that conventional technology 
is available at much lower cost.
    Senator Kerry. If we were to make allowance as we have 
talked about here, and Mr. Dana, maybe you could answer this, 
too, for the CLEAR act components, the tax credit, and perhaps 
even some kind of a framework for credit trading of some 
notion, would that then make the academy goals which on their 
own, freestanding, they said are achievable, even more 
palatable and more achievable to the industry?
    Mr. German. The CLEAR act would be very helpful if you are 
trying to make hybrid vehicles commercial. Right now, their 
costs are just too high. There are two ways you can reduce 
cost. One is economics of scale, increase the sales volumes, 
and the other is further development, and the CLEAR act will 
help with both of those. It will help bring the cost down. The 
hybrids do have a ways to go before they are going to be 
accepted by most consumers.
    Senator Kerry. What is the restraint on that? You said 
before it is accepted.
    Mr. German. It is cost.
    Senator Kerry. But the cost, as we heard earlier, they have 
lowered the cost down at least into the marketplace now, to try 
to gain a foothold.
    Mr. German. There is a lot of different types of consumers 
out there. There is a small group which are very much into 
technology and innovation, and like those kinds of 
characteristics, and value them fairly highly, so there is an 
niche market right now, even at current prices.
    Senator Kerry. And what does it take to get it beyond 
niche, lowering the cost even further?
    Mr. German. The cost has to come down.
    Senator Kerry. Below 20?
    Mr. German. The incremental cost of the hybrid technology 
probably has to come down under $1,500 before most customers 
will accept it.
    Senator Kerry. What is the incremental cost today?
    Mr. German. It is over $3,000. How much over, it is hard to 
determine, because manufacturers do not really reveal that 
information.
    Senator Kerry. What happens when you factor in the CLEAR 
act?
    Mr. German. Absolutely, at that stage it does become 
acceptable to a much, much larger audience of people. That is 
one of the advantages of the CLEAR act, we will be able to 
significantly increase volumes with that.
    Senator Kerry. What happens to the overall--I mean, 
pricing, is there an efficiency that begins to cut in here with 
larger consumption, more production, or not? In other words, if 
you are selling a lot more, do you suddenly--do you bring your 
cost down?
    Mr. German. Usually, yes, and the problem is that the 
higher production volumes allow you to do things more 
efficiently, and sometimes it has a huge impact, sometimes it 
has a small impact. We expect that. For example, on hybrids you 
have three primary costs. You have the motor, the power 
controls, and the batteries. We do expect to see dramatic 
decreases in the electronics, maybe dramatic decreases in the 
motor, hard to say, but the battery pack is a tough one. So how 
the overall thing is going to work out at this stage is very 
unclear, but having incentives is helpful for establishing this 
and helping us progress to the next stage.
    Senator Kerry. You will, acknowledge, I assume, that the 
academy did not contemplate the hybrid component when they came 
up with their feasibility. I mean, their feasibility does not 
have the cushion of the hybrid in it.
    Mr. German. Right.
    Senator Kerry. Mr. Dana, the chair of the NAS panel said it 
might cost about $800 to substantially increase fuel economy of 
the new car, or sport utility. Is that a cost that the industry 
cannot work with to create an affordable package fort the 
consumer?
    Mr. Dana. As Mr. German said, we are in a very competitive 
marketplace, and we would like to keep costs from going up much 
at all. We have already done a lot of that with emissions and 
safety standards. I think it is safe to say that any kind of 
cost increment is difficult in the marketplace. We would like 
to see an ability to get that cost down so that we can more 
effectively compete.
    The CLEAR act also represents things like hybrids and 
advanced diesels which have a larger incremental cost to them, 
and that is why the CLEAR act is clearly necessary for them. I 
think over time, as manufacturers improve technology, I think 
you have to look at the NAS numbers, too, as a cumulative 
overtime number. I mean, we have improved fuel efficiency of 
models 2 percent per year over a long period of time, and those 
costs have been incorporated in vehicles over time as well, so 
it has been a gradual change in price.
    Senator Kerry. Well, the National Academy again said that 
just existing technologies--I mean, you have to go out and 
spend a lot of money on the R&D and push the technology curve, 
but existing technologies, from variable valve timing to 
integrated starter generators and so forth, would significantly 
reduce fuel consumption and could improve fuel economy by 20 to 
40 percent.
    Notwithstanding that, I saw the chart earlier which shows 
that you folks have put most of your technological money into 
horsepower and acceleration. Can't the auto industry just take 
the existing technologies and begin to reverse that a little 
bit in order to improve fuel economy?
    Mr. Dana. As I said in my statement, we have continued to 
improve fuel efficiency of models.
    Senator Kerry. But efficiency is different from economy. I 
understand the distinction. I am talking about economy.
    Mr. Dana. Well, economy, and talking about CAFE standards 
in particular requires consumers' input in terms of that demand 
equation, and you said how the industry has taken technology 
and improved performance. Well, part of that is what I said and 
what Mr. German said, is that we are driven by market demands, 
and consumers want performance, they want safety, they want 
other things they value more than fuel economy, so what we have 
had to do is do a balancing act with the technology we put on 
the vehicles, trying to meet all those competing demands as 
well as trying to use it to improve fuel efficiency of that 
vehicle model.
    Senator Kerry. Well, with all due respect, again you come 
back to fuel efficiency. There is a distinction between fuel 
efficiency and fuel economy, and I know you have improved fuel 
efficiency, but what we are concerned about here is the economy 
side of it.
    Second, a huge amount of that increase--I have bought 
enough cars in my lifetime, in the last few years, to be pretty 
familiar, as we all are as consumers, with the marketing 
process. A huge amount of that increase in what you call 
performance, which is in horsepower and acceleration, is almost 
unused by most Americans. They like it when you go in, the 
salesman can pitch it, but it is almost nonessential.
    I mean, how much faster you get between red lights is not 
all that in the end, important relative to some of these other 
choices, and the speed limits on these cars, or the speed 
capacity of these cars and acceleration is so far in excess of 
performance needs that the question is whether the industry 
when you measure that against where we are with this need to 
try to get economy, where there cannot be some sort of better 
balance of that.
    Ms. Claybrook earlier talked about how at one point we 
began to ratchet down the weights. Now, the weights have all 
been added back, and that is one of the reasons why the 
efficiencies of the economy has gone down. What do you say to 
that?
    Mr. Dana. Well, again, we are driven by the consumers in 
the marketplace.
    Senator Kerry. You do not think you drive the consumers at 
all? You think there is no, which comes first here?
    Mr. Dana. All of the surveys we have show that fuel economy 
is very low on the list of what consumers value, and so we do 
our best to balance that along with other demands that 
consumers have in the models we make.
    Senator Kerry. So what about Mr. Eizenstat's comments about 
security and national need, the externalities. Does that not 
compel us to sort of change the externalities as we did in 1975 
so you respond differently?
    Mr. Dana. What we said is NHTSA should take its role under 
current law and look at the maximum feasible levels based upon 
the considerations they have to look at to make the standards 
effective.
    Senator Kerry. But we may have to set the standard. What if 
we just set the standard and let them decide how it is going to 
be achieved? But you are again setting the standard.
    Mr. Dana. We think that NHTSA is better equipped to do 
that. They can review the confidential plans together. They 
have to be considered like that.
    Senator Kerry. Mr. German, with respect to the hybrid and 
the balance of these other technologies that are available now, 
help us to understand what would the balance be if Congress 
raises the standard? Do you know at this time whether you would 
look mostly to the hybrids to try and meet that, or would you 
adopt some of these available standards, available technologies 
that are there now, or would it be a mix?
    Mr. German. Assuming you are talking about standards in the 
range of what NAS considered, we would definitely look forward 
toward conventional technology, incremental technology. There 
is a lot--Marc is right, I read this article in Automotive 
Engineering on the plane on the way in yesterday. It is a good 
summary of just some of these things that are being worked on 
right now. There is a lot happening in conventional engine 
technology, and most of those, not all of them, are more cost-
effective at this stage than hybrids are, so they would come 
first.
    Senator Kerry. Professor Ross, you have done a lot of work 
on this, and a lot of it with the industry itself. The average 
percentage of energy and fuel converted by an internal 
combustion engine to the mechanical energy is now--what is it 
now?
    Mr. Ross. Well, I think you mentioned 15 percent. If we 
consider the accessories it might be a bit more.
    Senator Kerry. 18 to 20 percent?
    Mr. Ross. More like 17 or 18.
    Senator Kerry. What is the maximum percentage of energy 
that could be converted by an internal combustion engine into 
mechanical energy?
    Mr. Ross. Well, we know what percentage is converted into 
work by the pistons, and that is followed by all kinds of 
frictional losses before you get to the 17 percent. The initial 
percentage is 38 percent with today's conventional gasoline 
engines, and somewhere in the low 40's, up to 44 percent maybe, 
with the diesel engine.
    Senator Kerry. So if you were able to--and is one able to, 
incidentally--is there a technically feasible way to get 
between that roughly 19 percent today, 18, 19 percent, and then 
38 percent?
    Mr. Ross. Not all the way. If you went halfway there you 
would get beyond what the National Academy was projecting. 
Getting rid of all the friction is too hard. You know, we have 
bearings at electric power plants, and those machines can be 
efficient in the upper nineties in terms of frictional losses, 
but an internal combustion engine is a much cruder device, a 
much, much cheaper device.
    Senator Kerry. What is not pushing the curve, in your 
judgment? I mean, if you were to--and I am sort of trying to 
reach for reasonableness here. What is a reasonable expectation 
of the engine efficiency you could gain just in the 
thermodynamic efficiency component?
    Mr. Ross. Well, half again better would be reasonable, 
about 25 percent.
    Senator Kerry. Where does that take you in terms of the 
academy?
    Mr. Ross. You could go somewhat further than the academy, 
maybe to 40 miles per gallon.
    Senator Kerry. That could take you there at roughly what 
you sort of deem the reasonable medium, and that is without 
measuring, that is just on the internal combustion engine. That 
is without measuring what you could get through hybrid or other 
kinds of combinations here?
    Mr. Ross. That is right. It is based on the engine and 
transmission. The transmission is also very important, the 
gearing and the management of it.
    Senator Kerry. Is there room for improvement, from your 
knowledge, with respect to hybrids themselves at this point? 
Could we have greater gains there? I mean, it is a very new----
    Mr. Ross. There is room, but the two high voltage hybrids 
that are being offered for sale now are very ambitious, and 
they recover quite a lot of breaking energy, which is one of 
their really special features, and they have relatively 
efficient internal combustion engines. They have done a good 
job. Of course, they could go further, but not much further.
    Senator Kerry. But the gain that you have described that 
comes just in the internal combustion engine through the more 
efficiency of the fuel component is also augmented, would it 
not be, by other potential existing technologies that are there 
if you wanted to also grab them?
    Mr. Ross. Well, it depends on what you are talking about. 
If you are turning the engine on and off, which is part of what 
the hybrid vehicles do, that could also be done at much lower 
cost in a conventional vehicle. So I would lump that together 
with engine efficiency as a part of the engine efficiency 
improvement.
    Senator Kerry. What about the 5-4-3 valves per cylinder, 
the variable valve timing? You just mentioned idle-stop-start 
cylinder, deactivation, variable compression ratio, variable 
displacement, and then, of course, the advanced IC engines that 
we were hearing about earlier. Are those a legitimate part of 
the mix?
    I mean, as we are sitting here--and incidentally, I am not 
talking about choosing between them or anything like that. That 
is not our role. I am happy to say NHTSA or somebody else ought 
to make that decision. I just want to understand from a policy 
point of view, as Mr. Eizenstat mentioned earlier when they sat 
there, they had a sense of what the feasibilities were so they 
were not just whistling in the dark. Are these legitimate? Are 
they real potentials? Are they within reach? How do we make a 
judgment about these?
    Mr. Ross. You know, most of them are legitimate. Most of 
them cover some of the same ground. You do not have to do all 
those things. They are covering the same ground. There are 
different ways of reducing the friction within an engine, for 
example, so the fact that we see different ways, whether they 
are putting in more air into the cylinder with one technology 
or reducing friction in the engine, or turning the engine off 
when it is not needed, there are all kinds of different things 
which have become practical in the last 15 years. They were 
thought of much earlier. In fact, Rudolph Diesel himself 
thought of some of these things back in the 19th Century, but 
they were entirely impractical until we had the control systems 
that are now practical.
    Let me just say, one of the reasons why 10 or 15 years is 
needed is that these technologies, when you apply them, have to 
be refined. The programming has to be refined, so time is 
needed even though the technology in principle is available.
    Senator Kerry. Fair enough. Just a couple more questions, 
and then we will wrap it up.
    Is it possible to have--and I do not know the answer. Is it 
possible, is there any reason you could not have a diesel 
hybrid?
    Mr. Ross. None at all. That is certainly one of the 
possibilities.
    Senator Kerry. So if you had a diesel hybrid, you have a 
much more significant gain than you augment, don't you?
    Mr. Ross. It is another factor.
    Mr. German. I think that the hybrid certainly improves the 
overall diesel efficiency, but I think I would suggest that by 
not quite as high a percentage as on gasoline. It is just a 
function of the fact that the diesel has lower pumping losses 
under light load conditions to begin with, and the light load 
condition is where the hybrid really helps most.
    Senator Kerry. Mr. Schaeffer, what is the reason that the 
diesel is not more successful here? Can it be, are there 
barriers and restraints to its introduction?
    Mr. Schaeffer. There are a number of issues, Senator, one 
of those being consumer familiarity. Right now, diesels in the 
U.S. make up less than one third of 1 percent of all light-duty 
vehicles, so 0.26 percent of all the fleet that is out there 
today are diesel-powered, so there is not a strong familiarity 
with the technology.
    The second issue, obviously, had been talked about before. 
That is, the petroleum prices right now, gasoline prices being 
very low, relatively speaking. I think the third thing is there 
are still some technological issues that are working to be 
overcome. Just last year the Environmental Protection Agency 
promulgated new standards that include requirements for cleaner 
diesel fuel, and people are working to figure this new system 
out of how these advanced technology diesel engines can meet 
the lower NOX and particulate matter standard and 
still provide their inherent benefits of efficiency and lower 
greenhouse gases.
    So it is a number of factors that lead there to be not a 
high presence of diesels in the marketplace today.
    Now, having said that, I think there is a significant 
amount of research underway not just here in the U.S. but 
around the world, including companies like Honda and Toyota 
have significant diesel operations in Asia and really around 
the globe. Diesels are very predominant global technology, and 
I think the U.S. can reap the benefits from those, especially 
sport utilities, those kinds of vehicles, and the three leading 
diesel manufacturers in the U.S. today, Caterpillar, Cummins, 
and Detroit Diesel, are all working on the kinds of diesel 
engines that would make the SUVs have higher fuel economy, so 
there is lots of work underway. We are just a little bit before 
the market.
    Mr. Ross. If I could interject just for a moment, there 
still is an issue with the health effects of particulates, and 
research is still needed. The Europeans have gone into quite 
deliberately to diesels, nevertheless the smallest particles 
are not regulated by EPA or anybody else. We still need more 
research in that area before we wholeheartedly embrace the 
light duty vehicle diesel. That research can be done and I am 
optimistic about it, but we still need that work.
    Mr. German. There is one other factor that I think does 
tend to get overlooked, and that is that diesels are not cheap. 
The four-cylinder diesel Volkswagen uses is an $1,100 price 
increment over the comparable gasoline engine. The kinds of 
diesels that are used in the large sport utilities and pick-up 
trucks are over $3,000 price increments. It is not a complete 
barrier, of course, but it is a factor that needs to be 
considered.
    Mr. Schaeffer. If I might respond to that, those numbers 
are correct, but for folks that own that vehicle for 5 or 10 
years, or have a need for a vehicle of that type, those cost 
differentials are returned in their fuel savings in a fairly 
short amount of time, especially because here in the U.S. we 
travel a lot more than in Europe.
    Also a comment about the particulate issue. Light duty 
diesels right now, the EPA inventory suggest they make up one-
half of 1 percent of all the particulate that is in the 
inventory today, and on the heavy duty side, the particulate 
emissions have been reduced by over 80 percent today, and there 
is going to be another 90-percent reduction in just a few 
years, so with the new traps and filter technology diesels will 
be very clean, and the differential between diesel performance 
and, for example, natural gas has narrowed to a point now where 
there is very little difference in some applications.
    Senator Kerry. Well, that is exciting and interesting, and 
I have heard that actually. I know that people in Europe are 
extraordinarily excited about the DI capacity, which is--and I 
know there have been some sort of environmental constraints 
here that people have been concerned about it, but they are 
obviously ironing that out in a way that offers some terrific 
possibilities, there is no doubt about it.
    Well, I appreciate everybody's patience and participation 
in this today. Thank you very, very much. I think we hope to 
move forward. We are going to have some meetings in the 
Committee and see where we go from here.
    Thank you. We stand adjourned.
    [Whereupon, at 12:50 p.m., the Committee adjourned.]