[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
IMPROVING THE NATION'S ENERGY
SECURITY: CAN CARS AND TRUCKS BE
MADE MORE FUEL EFFICIENT?
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON SCIENCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
__________
FEBRUARY 9, 2005
__________
Serial No. 109-3
__________
Printed for the use of the Committee on Science
Available via the World Wide Web: http://www.house.gov/science
U.S. GOVERNMENT PRINTING OFFICE
98-561 WASHINGTON : 2005
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800
Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001
______
COMMITTEE ON SCIENCE
HON. SHERWOOD L. BOEHLERT, New York, Chairman
RALPH M. HALL, Texas BART GORDON, Tennessee
LAMAR S. SMITH, Texas JERRY F. COSTELLO, Illinois
CURT WELDON, Pennsylvania EDDIE BERNICE JOHNSON, Texas
DANA ROHRABACHER, California LYNN C. WOOLSEY, California
KEN CALVERT, California DARLENE HOOLEY, Oregon
ROSCOE G. BARTLETT, Maryland MARK UDALL, Colorado
VERNON J. EHLERS, Michigan DAVID WU, Oregon
GIL GUTKNECHT, Minnesota MICHAEL M. HONDA, California
FRANK D. LUCAS, Oklahoma BRAD MILLER, North Carolina
JUDY BIGGERT, Illinois LINCOLN DAVIS, Tennessee
WAYNE T. GILCHREST, Maryland RUSS CARNAHAN, Missouri
W. TODD AKIN, Missouri DANIEL LIPINSKI, Illinois
TIMOTHY V. JOHNSON, Illinois SHEILA JACKSON LEE, Texas
J. RANDY FORBES, Virginia BRAD SHERMAN, California
JO BONNER, Alabama BRIAN BAIRD, Washington
TOM FEENEY, Florida JIM MATHESON, Utah
BOB INGLIS, South Carolina JIM COSTA, California
DAVE G. REICHERT, Washington AL GREEN, Texas
MICHAEL E. SODREL, Indiana CHARLIE MELANCON, Louisiana
JOHN J.H. ``JOE'' SCHWARZ, Michigan VACANCY
MICHAEL T. MCCAUL, Texas
VACANCY
VACANCY
C O N T E N T S
February 9, 2005
Page
Witness List..................................................... 2
Hearing Charter.................................................. 3
Opening Statements
Statement by Representative Sherwood L. Boehlert, Chairman,
Committee on Science, U.S. House of Representatives............ 10
Written Statement............................................ 11
Statement by Representative Bart Gordon, Minority Ranking Member,
Committee on Science, U.S. House of Representatives............ 12
Written Statement............................................ 12
Prepared Statement by Representative Jerry F. Costello, Member,
Committee on Science, U.S. House of Representatives............ 13
Prepared Statement by Representative Eddie Bernice Johnson,
Member, Committee on Science, U.S. House of Representatives.... 13
Prepared Statement by Representative Michael M. Honda, Member,
Committee on Science, U.S. House of Representatives............ 14
Prepared Statement by Representative Russ Carnahan, Member,
Committee on Science, U.S. House of Representatives............ 14
Prepared Statement by Representative Sheila Jackson Lee, Member,
Committee on Science, U.S. House of Representatives............ 15
Witnesses:
Hon. William K. Reilly, Aqua International Partners
Oral Statement............................................... 17
Written Statement............................................ 19
Biography.................................................... 24
Financial Disclosure......................................... 26
Mr. Paul R. Portney, President, Resources for the Future
Oral Statement............................................... 27
Written Statement............................................ 29
Biography.................................................... 32
Mr. K.G. Duleep, Managing Director of Transportation, Energy and
Environmental Analysis, Inc.
Oral Statement............................................... 33
Written Statement............................................ 36
Biography.................................................... 41
Mr. Michael J. Stanton, Vice President of Government Affairs,
Alliance of Automobile Manufacturers
Oral Statement............................................... 42
Written Statement............................................ 43
Biography.................................................... 46
Dr. David L. Greene, Oak Ridge National Laboratory, Center for
Transportation Analysis, National Transportation Research
Center
Oral Statement............................................... 47
Written Statement............................................ 50
Biography.................................................... 60
Financial Disclosure......................................... 61
Discussion....................................................... 61
Appendix 1: Answers to Post-Hearing Questions
Hon. William K. Reilly, Aqua International Partners.............. 84
Mr. Paul R. Portney, President, Resources for the Future......... 87
Mr. K.G. Duleep, Managing Director of Transportation, Energy and
Environmental Analysis, Inc.................................... 89
Mr. Michael J. Stanton, Vice President of Government Affairs,
Alliance of Automobile Manufacturers........................... 91
Dr. David L. Greene, Oak Ridge National Laboratory, Center for
Transportation Analysis, National Transportation Research
Center......................................................... 93
Appendix 2: Additional Material for the Record
Statement of Dr. David L. Bodde, Professor and Director of
Innovation and Public Policy, International Center for
Automotive Research, Clemson University........................ 98
Statement of Dr. Gal Luft, Executive Director, Institute for the
Analysis of Global Security (IAGS)............................. 101
Letter to The Honorable Sherwood Boehlert from Timothy C.
MacCarthy, President and CEO, Association of International
Automobile Manufacturers, Inc., dated February 23, 2005........ 106
Ending the Energy Stalemate, A Bipartisan Strategy to Meet
America's Energy Challenges, The National Commission on Energy
Policy, December 2004.......................................... 108
Executive Summary, National Academy of Sciences, 2003............ 131
IMPROVING THE NATION'S ENERGY SECURITY: CAN CARS AND TRUCKS BE MADE
MORE FUEL EFFICIENT?
----------
WEDNESDAY, FEBRUARY 9, 2005
House of Representatives,
Committee on Science,
Washington, DC.
The Committee met, pursuant to call, at 2:30 p.m., in Room
2318 of the Rayburn House Office Building, Hon. Sherwood L.
Boehlert [Chairman of the Committee] presiding.
hearing charter
COMMITTEE ON SCIENCE
U.S. HOUSE OF REPRESENTATIVES
Improving the Nation's Energy
Security: Can Cars and Trucks Be
Made More Fuel Efficient?
wednesday, february 9, 2005
2:30 p.m.-4:30 p.m.
2318 rayburn house office building
Purpose
On February 9, the Committee on Science will hold a hearing on the
availability of technologies to improve fuel economy in cars and trucks
and the potential for fuel economy improvements to reduce the Nation's
dependence on foreign oil.
The U.S. depends on imports to meet nearly 60 percent of its oil
needs, much of it from troubled countries or regions of the world,
including Nigeria, Venezuela, Russia, and the Middle East. The gasoline
burned by cars and trucks accounts for about 45 percent of the Nation's
oil consumption. Total U.S. daily oil consumption is expected to rise
from 20 million barrels today to 29 million barrels by 2025, mostly as
a result of increasing consumption for transportation.
The hearing will focus on the pros and cons of tightening federal
fuel economy standards for cars and light trucks (known as Corporate
Average Fuel Economy, or CAFE standards) and reforming the program as a
way to reduce U.S. oil consumption and encourage the use of new
technologies. But witnesses have also been asked to discuss more
generally how the Federal Government could promote the deployment of
fuel-saving technologies. Other options include tax incentives, fuel
taxes, and research, development and demonstration programs.
More specifically, the hearing will review and update the findings
of the National Academy of Sciences on CAFE standards issued in 2002.
The Academy report, which was commissioned by the Congress, concluded
that the technology exists to significantly improve the fuel economy of
cars and light trucks without reducing safety.
In December, the National Commission on Energy Policy, a bipartisan
group of leaders from business, government, and academia that included
experts in national security, energy, and the environment released a
set of recommendations for U.S. energy policy. The recommendations
included a call to raise CAFE standards to enhance the Nation's energy
security. The privately funded group was chaired by William Reilly, who
was Administrator of the Environmental Protection Agency (EPA) under
President George H.W. Bush, and John Holdren, the Teresa and John Heinz
Professor of Environmental Policy at Harvard University.
The Committee plans to explore the following overarching questions
at the hearing:
1. To what extent can improving fuel economy in cars and
trucks improve the economic and energy security of the Nation?
2. What technologies are available or will soon be available
to improve fuel economy in cars and trucks? How much could
these technologies improve fuel economy without compromising
safety or the economy?
3. What policy options are available to Congress to encourage
the adoption of automobile efficiency technologies? What are
the advantages and disadvantages of each?
Witnesses:
1. William Reilly co-chaired the National Commission on Energy Policy,
which in December released a report entitled Ending the Energy
Stalemate: A Bipartisan Strategy to Meet America's Energy Challenges.
Mr. Reilly is founding partner of the investment firm Aqua
International Partners and was the Administrator of EPA under President
George H.W. Bush.
2. Paul Portney was Chairman of the National Academy of Science's
Committee on the Effectiveness and Impact of Corporate Fuel Economy
(CAFE) Standards, which authored the 2002 report. An economist, he is
the President of Resources for the Future, a D.C.-based energy and
environmental policy research institute.
3. K.G. Duleep is Transportation Managing Director of the energy and
environmental consulting firm Energy and Environmental Analysis, Inc.
He is an internationally recognized expert on vehicular fuel economy
and emissions issues. He has been involved with automotive technology,
fuel economy, and emissions issues for over 20 years.
4. Michael Stanton is Vice President of Government Affairs at the
Alliance of Automobile Manufacturers, a trade association representing
the BMW Group, DaimlerChrysler, Ford Motor Company, General Motors,
Mazda, Mitsubishi Motors, Porsche, Toyota, and Volkswagen.
5. David Greene is a Corporate Fellow at the National Transportation
Research Center, Oak Ridge National Laboratory. He has spent 25 years
researching transportation and energy policy issues.
Issues:
Has the Corporate Average Fuel Economy (CAFE) law
worked? Congress created the CAFE program in 1975 after the
Arab oil embargo, which resulted in a tripling of the price of
oil in the early 1970s. Average new car fuel economy rose from
12.9 miles per gallon (mpg) in 1974 to 27.6 mpg in 1985--
slightly more than the 27.5 mpg required by the CAFE standards
that year. (The average for new light trucks, the category that
now includes pickups, SUVs and mini-vans, rose to 19.5 mpg over
the same time period.) Today, the standards stand at 27.5 mpg
for cars and 21.0 mpg for light trucks.
Experts argue over the extent to which the increase in fuel
economy in the 1970s and 1980s can be attributed to CAFE or to
high fuel prices. Some say that the sudden hike in prices in
the 1970s and the threat of competition from Japanese
automakers (who were entering the U.S. market with more fuel
efficient cars) were the predominant forces driving the
increase in domestic fuel economy. But the National Academy of
Sciences panel concluded that CAFE standards have played a
leading role in preventing fuel economy levels from dropping as
much as they otherwise would have as fuel prices declined in
the 1990s, and that fuel use by cars and trucks today is
roughly one-third lower than it would have been had fuel
economy not improved since 1975.
Experts also argue whether, regardless of their
effectiveness, CAFE standards are the most efficient and
effective way to increase fuel economy.
Why has the fuel economy of new vehicles been on a
downward trend since 1987? The average fuel economy of new
vehicles sold in the U.S. has declined since reaching a peak in
1987. The major reason is the explosive growth in SUVs, mini-
vans, and pickup trucks, which must meet a fuel economy
standard that is lower than that for passenger cars. The number
of light trucks sold has more than tripled since 1980, while
the number of passenger cars has declined slightly over the
same period. Today more than half the new cars sold are light
trucks. At the same time, CAFE standards have remained
stagnant. The fuel economy standard for new cars has not
changed since 1990. And until this year, the standard for new
light trucks had not changed since 1996.
The fact that the average fuel economy has declined since
1987 does not mean that no new cars or light trucks use newer,
more fuel-efficient technologies. But any improvements in fuel
economy in a particular model have been offset by declines in
fuel economy in other models (or by increased sales of models
with lower fuel economy), allowing the average--which is based
on sales of all makes and models--to drop. Proponents of CAFE
standards argue that government action is the only way to raise
the average by pushing improvements across automakers' fleets.
Automakers point out that they have made cars and trucks
more efficient, pound for pound, in recent years. They note
that they have significantly increased the power and size of
vehicles without much change in fuel economy. And they argue
that customers prefer power, size and luxury over fuel
efficiency. As a result, average vehicle weight has increased
by 24 percent since 1981 and average horsepower has increased
by 93 percent.
Does the technology exist to improve the fuel economy
of cars and trucks? The National Academy of Sciences report
identified 14 technologies that were readily available in 2002
to improve the efficiency of automotive engines, transmissions,
and overall design (such as a vehicle's aerodynamics and
rolling resistance). The Academy also identified nine emerging
technologies, some of which had already been introduced in
European or Japanese markets, but not in the U.S.
The Academy concluded that the technologies it identified,
in combination, would allow fuel economy increases of 12 to 27
percent for cars and 25 to 42 percent for light trucks without
any reduction of safety. (The technologies would also pay for
themselves in fuel savings, the Academy found. See attachment.)
The Academy did not include hybrid vehicles among the
technologies it identified because they had just been
introduced into the American market when the Academy conducted
its study. Sales of hybrids have continued to grow since the
Academy issued its report. The National Commission on Energy
Policy report, released late last year, found that the ability
of hybrid technologies to make substantial improvements in fuel
economy has been clearly demonstrated.
Automakers question whether consumers will be willing to pay
for efficiency technologies. Even if the technology pays for
itself in gasoline savings over the life of the vehicle, they
say, many consumers do not consider those kinds of long-term
benefits when choosing a vehicle.
Can fuel economy be improved without eroding
passenger safety? The relationship between fuel economy and
safety is fiercely debated. Even the National Academy of
Sciences panel was split on this issue. A majority found that
when automakers in the 1970s and 1980s made vehicles more
efficient by making them smaller and lighter, they also likely
increased the number of crash fatalities by several percent.
(Two members of the panel believed the relationship between
weight, size and safety to be too uncertain to determine
whether any additional casualties occurred due to fuel economy
improvements during that time.)
The Academy panel concluded unanimously, however, that fuel
economy could be increased in the future without any detriment
to safety. The Academy said that the technologies it had
identified for improving fuel economy would not reduce safety
and could even increase it. The panel also called for a
reduction in the weight of the heaviest vehicles in the light
truck category as a way to increase safety and fuel economy
simultaneously. The Academy found that if the weight and size
of the heaviest vehicles, particularly those over 4,000 pounds,
were reduced, vehicle safety would improve by reducing the
damage caused by those vehicles in crashes.
Would raising fuel economy standards disadvantage
domestic manufacturers? The National Academy of Sciences report
concluded that CAFE regulations could have different effects on
different manufacturers, but that those effects could be
minimized. The sales and especially the profits of General
Motors, Ford, and the Chrysler division of DaimlerChrysler, are
much more dependent on light trucks than are their competitors.
If fuel economy standards were raised for light trucks, but not
for cars, U.S.-based companies would likely suffer. (This
assumes that redesigning light trucks to improve fuel economy
would either raise the prices of the vehicles, driving
customers away, or require automakers to absorb some of the
costs of redesign, eating into profits.) Conversely, if
standards were raised for cars only, U.S.-based companies might
be advantaged. But fuel economy increases in light trucks would
produce greater oil savings.
To minimize the costs of improving fuel economy, both the
National Academy of Sciences and the National Commission on
Energy Policy recommended reforming CAFE regulations to allow
manufacturers to trade fuel economy credits with one another in
much the same way that electric utilities trade pollution
allowances. Under such a system, an automaker that could not
improve its average fuel economy to the extent required by CAFE
standards could purchase credits from an automaker that had
exceeded CAFE standards. (The government could also sell
credits.) Tradable CAFE credits would give manufacturers an
incentive to exceed the standards since they could then sell
the credits to others. And it could minimize the overall cost
of the program by ensuring that the auto industry as a whole
made the most economical improvements in fuel economy.
Even under a CAFE program that allowed tradable credits,
however, domestic automakers, which sell the largest and least
fuel efficient vehicles, would likely have to invest the most,
either in purchasing credits from other manufacturers or in
developing fuel efficient technologies.
That is one reason why the National Commission on Energy
Policy further recommended that an increase in CAFE standards
be coupled with a tax incentive program to encourage the
domestic production of vehicles with fuel efficient
technologies like hybrid and diesel technologies.
The Academy also recommended that Congress eliminate the
separate categories for cars and light trucks. That would
enable CAFE standards to allow automakers more flexibility
because they could meet a single CAFE standard for their entire
fleet in more ways. An automaker could choose to meet a tighter
CAFE standard either by improving the fuel mileage of cars or
light trucks or both. However, eliminating the current
categories would likely severely disadvantage U.S.-based
automakers because their fleets are so weighted toward light
trucks that the bulk of any fuel economy improvements would
still have to be made in that class of vehicles. However, new
categories based on weight, size or horsepower, might go a long
way toward leveling the playing field.
How would higher fuel economy standards likely affect
workers in the automotive industry? The National Academy of
Sciences panel believed that fuel economy standards could be
raised without negative consequences on employment if the
increase were implemented with enough lead-time. Even existing
technologies, the report said, could take four to eight years
to penetrate the market.
The Academy panel pointed out, however, that larger scale
trends have a much greater effect on employment than do CAFE
standards. Employment in the auto industry increased from
little over 600 million in the early 1980s to over one million
in 1999, largely because of foreign-owned companies' decisions
to build manufacturing plants in the U.S. Over the same time
period, however, organized labor lost almost half of its
members due to the domestic manufacturers' improvements in
automobile production, shifts of parts production overseas, and
loss of market share to foreign-owned manufacturers. (Workers
in their plants, even those in the U.S., generally are not
unionized.)
The National Commission on Energy Policy argued that its
recommendation for tax incentives for the domestic production
of hybrid and diesel vehicles would help staunch this flow. The
Commission argued that some jobs would be lost in any event as
foreign manufacturers expand their efforts to introduce hybrid
and diesel vehicles in the U.S. market. But the Commission
calculated that its tax incentives would result in about 25
percent fewer jobs being lost.
How much oil would an increase in fuel economy save?
According to the National Commission on Energy Policy,
improving car and light truck fuel economy by 10, 15, and 20
percent by 2015 would result, by 2025, in an estimated fuel
savings of approximately two, three, and 3.5 million barrels of
oil a day respectively. Such savings represent a 25 to 40
percent reduction in the additional amount of oil by which U.S.
demand is currently projected to grow by that time, absent
other policy interventions.
Background:
Origins of the CAFE Program
The early 1970s saw the price of oil triple, an increase
precipitated by an embargo orchestrated by the oil cartel OPEC
(Organization of Petroleum Exporting Countries). The crisis threw into
stark relief the fuel inefficiency of U.S. manufactured automobiles,
and consumers began switching to relatively fuel efficient imported
vehicles. Congress passed the Energy Policy and Conservation Act in
1975 with the goal of reducing the Nation's dependence on foreign oil,
which established, among other things, the Corporate Average Fuel
Economy (CAFE) program to raise the fuel economy of the U.S. fleet.
The CAFE program requires the fuel economy of an automaker's entire
product line of cars and light trucks sold in the U.S., averaged across
all models and weighted by sales, to meet a miles-per-gallon level set
by the government. Under the 1975 law, Congress sets the target for
passenger cars, which rose from 18 mpg in 1978 to 27.5 mpg in 1990,
where it remains today. Congress delegated the authority to set fuel
economy standards for light trucks to the National Highway
Transportation Safety Administration (NHTSA). Light truck standards
rose from 17.5 mpg in 1982 to 20.7 mpg in 1996. Beginning this year,
the standard for light trucks is to rise gradually to 22.2 mpg in 2007.
The increase this year is the first since 1996, in part, because
language added to appropriations bills forbade NHTSA from raising the
standard between 1996 and 2000.
When Congress created the CAFE program, light trucks accounted for
a small portion of vehicle sales and generally included trucks used on
farms or at construction sites. According to the Congressional Research
Service, the number of new passenger cars sold each year in the U.S.
has decreased somewhat since 1980, but the number of light trucks sold
has more than tripled, from 2.2 million in 1980 to 8.7 million in 2001.
Domestic manufacturers still dominate the light truck market, but
their share has declined from 86 percent in 1993 to less than 77
percent in 2002 as foreign automakers have aggressively targeted this
popular sector of the U.S. market, focusing on somewhat smaller, more
fuel efficient models.
Recent Actions
In 2003 NHTSA issued a final rule to boost the CAFE standard for
light trucks by 1.5 miles per gallon by 2007. NHTSA estimates that the
increase will save approximately 75,000 barrels of oil a day between
2006 and 2012, or less than 0.4 percent of current consumption.
In 2003 NHTSA also issued an Advance Notice of Proposed Rule-making
inviting comments on a wide variety of potential ways to change the
CAFE program to address a number of criticisms that have been made,
including those made by the National Academy of Sciences panel. For
example, NHTSA has invited comments on whether it ought to discard the
distinction the program makes between cars and light trucks (which
would require a statutory change); establish separate fuel economy
standards for various classes of light trucks based on weight, size, or
some other attribute; or extend fuel economy standards to light trucks
weighing up to 10,000 pounds (since such vehicles are currently not
subject to fuel economy standards). NHTSA has set no date for when it
might propose actual reforms based on these comments.
Questions Asked of the Witnesses:
The witnesses were asked to address the following questions in
their testimony:
Mr. Reilly:
Please describe the Commission's recommendation to improve fuel
economy (particularly those related to Corporate Average Fuel Economy
(CAFE) Standards), and address the following questions:
1. What are the expected economic and energy security benefits
from reducing the Nation's dependence on oil? If we are to
reduce our dependence on oil, how important is it to improve
the fuel economy of cars and light trucks?
2. What effect would your recommendations have on the relative
competitiveness of American and foreign-owned automobile
manufacturers, on American workers in the automotive industry
and on automotive safety?
Mr. Portney:
Please describe the findings of the Academy report, with particular
emphasis on the following questions:
1. Have Corporate Average Fuel Economy (CAFE) standards been
effective at saving the country oil?
2. How much of an increase in fuel economy did your panel find
was technologically possible? How much did you find could pay
for itself in gasoline savings to the consumer?
3. To what extent could the technologies to improve fuel
economy described in the report be adopted without eroding
safety?
4. What are the Academy report's recommendation's for
improving the CAFE law?
Mr. Duleep:
1. What technologies are available now or are emerging that
provide the best opportunities for automakers to boost fuel
efficiency? How much could they improve fuel economy?
2. What are the prospects that hybrid technologies and diesel
vehicle technologies, in particular, will achieve a large
degree of market penetration? How much could they contribute to
improving overall fuel economy?
3. To what extent can any of these technologies be used to
improve fuel economy without eroding safety?
4. What steps could the government take to accelerate market
penetration of these technologies?
Alliance for Automobile Manufacturers Representative:
1. Do you agree with the findings of the National Academy of
Sciences regarding the availability and performance of
technologies to increase fuel economy?
2. What potential do hybrid technologies and new diesel
technologies have to reduce fuel consumption?
3. Do you believe that the U.S. should reduce its dependence
on foreign oil? If so, what steps should the government take to
accomplish this?
4. What do you believe is the best way the government can
encourage greater adoption of technologies to improve fuel
economy?
Dr. Greene:
1. What are the policy options for encouraging the adoption of
fuel efficient technologies in the marketplace and the
advantages and disadvantages of each?
2. Can the government encourage the adoption of technologies
to improve fuel economy without leading automakers to make
vehicles less safe?
3. Can the government encourage the adoption of technologies
to improve fuel economy without giving any individual automaker
a significant advantage?
Attachment
Chairman Boehlert. I want to welcome everyone here for this
important hearing on fuel economy.
This committee has a special responsibility to review this
issue, because part of our charge is to ensure that new energy
technologies are developed and that they make their way into
the marketplace.
And new fuel economy technologies are not making their way
into the market, at least not to an acceptable extent because
of market failures and, quite frankly, political failures.
Correcting those failures should be of surpassing interest
to every citizen of our country, because fuel economy is not
just an energy issue, it is not just an environmental issue, it
is, first and foremost, a national security issue.
Our nation is ever more dependent, stunningly dependent on
the world's most unstable region for the energy that is the
lifeblood of our economy. Could anything be more critical? We
are like a patient in critical care who needs a daily
transfusion and can only hope to get it from an iffy, black
market supplier.
And yet we act as if everything will be healthy forever. We
are doing next to nothing to reduce our reliance on foreign
oil. About 60 percent of the oil we consume each day is used
for transportation; 45 percent of it is just for cars and light
trucks. We can not reduce our oil consumption meaningfully
unless we address transportation. That is a simple, unarguable
fact.
And yet while many areas of the economy have been
significantly more energy efficient over the past three decades
or so, our nation's fuel economy is worse than it was 15 years
ago. That ought to be unacceptable.
It ought to be especially unacceptable, intolerable,
really, when we have the technology to improve fuel economy
without reducing safety, without harming the economy, and
without reducing the options people have in the automobile
showroom.
I think we will learn today that there really is no debate
about whether we have the technology we need to improve fuel
economy. The only debate is whether we are willing to do
something about it, and that we will hear more of today.
But while we listen to the experts before us today, I want
everyone to remember the costs of inaction: they can be
measured in dollars, particularly in the funds we spend on the
military and homeland security, and they can also be measured
in lives, as we can see in daily news reports. We need to
consider the very real costs of being utterly dependent on
unstable regions to carry out our most basic daily tasks.
I am not arguing, by the way, that we can become entirely
energy independent or that fuel economy is the sole answer to
our energy woes. That would be silly. We will markup a bill
tomorrow that reflects the full range of steps we need to take
in energy research and development to improve our energy
profile, and they involve work on energy efficiency and
renewable energy, but also on fossil fuels and nuclear energy;
and they involve supply as well as demand.
But we ought to do everything we can to reduce our demand.
That is in our national interest. It is an interest we share as
a society, but one that is not reflected adequately in
individual decisions in the marketplace, a classic market
failure that cries out for corrective government action. But
the government has not risen to the task, and we are all in
greater danger as a result.
We have a very distinguished and balanced panel of experts
before us. I am especially gratified that my old friend, former
EPA Administrator Bill Reilly is here to tell us the results of
the bipartisan study he co-chaired. Mr. Administrator, welcome.
And I am also very pleased to have Paul Portney with us to
review the National Academy of Sciences study that was
requested by Congress and that should be the foundation for any
discussion of CAFE standards. Unfortunately, the Academy study
was released right as the Energy Bill debate was starting 4
years ago, and it never received the full and fair airing it
deserved. Today, with a new Energy Bill debate pending, we have
a chance to make up for our previous missed opportunities.
In my view, we need more stringent CAFE standards, and we
need them now, for the reasons I have discussed. But the exact
level and timing of the standards and how the CAFE program
should be administered, that is all up for grabs, and I hope we
can have a full discussion of those issues today. I look
forward to hearing from our panel. And I thank them all for
being witnesses and sharing their expertise with us.
Mr. Gordon.
[The prepared statement of Chairman Boehlert follows:]
Prepared Statement of Chairman Sherwood L. Boehlert
I want to welcome everyone here for this important hearing on fuel
economy. This committee has a special responsibility to review this
issue because part of our charge is to ensure that new energy
technologies are developed and that they make their way into the
marketplace.
And new fuel economy technologies are not making their way into the
market, at least not to an acceptable extent, because of market
failures and political failures.
Correcting those failures should be of surpassing interest to every
citizen of our country because fuel economy is not just an energy
issue, it's not just an environmental issue, it is, first and foremost,
a national security issue.
Our nation is ever more dependent--startlingly dependent--on the
world's most unstable regions for the energy that is the lifeblood of
our economy. Could anything be more critical? We are like a patient in
critical care who needs a daily transfusion and can only hope to get it
from an iffy, black-market supplier.
And yet we act as if we will be healthy forever. We are doing next
to nothing to reduce our reliance on foreign oil. About 60 percent of
the oil we consume each day is used for transportation; 45 percent of
it just for cars and light trucks. We cannot reduce our oil consumption
meaningfully unless we address transportation. That is a simple,
inarguable fact.
And yet while many areas of the economy have become significantly
more energy efficient over the past three decades or so, our nation's
fuel economy is worse than it was 15 years ago. That ought to be
unacceptable.
It ought to be especially unacceptable--intolerable, really--when
we have the technology to improve fuel economy without reducing safety,
without harming the economy, and without reducing the options people
have in the automobile showroom.
I think we'll learn today that there really is no debate about
whether we have the technology we need to improve fuel economy. The
only debate is whether we're willing to do something about it, and that
we'll hear more of today.
But while we listen to the experts before us today, I want everyone
to remember the costs of inaction--they can be measured in dollars,
particularly in the funds we spend on the military and homeland
security, and they can also be measured in lives, as we can see in
daily news reports. We need to consider the very real costs of being
utterly dependent on unstable regions to carry out our most basic daily
tasks.
I am not arguing, by the way, that we can become entirely energy
independent or that fuel economy is the sole answer to our energy woes.
That would be silly. We will markup a bill tomorrow that reflects the
full range of steps we need to take in energy research and development
(R&D) to improve our energy profile, and they involve work on energy
efficiency and renewable energy but also on fossil fuels and nuclear
energy; and they involve supply as well as demand.
But we ought to be doing everything we can to reduce our demand.
That's in our national interest. It's an interest we share as a
society, but one that is not reflected adequately in individual
decisions in the marketplace--a classic market failure that cries out
for corrective government action. But the government has not risen to
the task, and we are all in greater danger as a result.
We have a very distinguished and balanced panel of experts before
us. I'm especially gratified that my old friend, former EPA
Administrator Bill Reilly is here to tell us the results of the
bipartisan study he co-chaired.
And I'm also very pleased to have Paul Portney with us to review
the National Academy of Sciences study that was requested by Congress
and that should be the foundation for any discussion of CAFE standards.
Unfortunately, the Academy study was released right as the Energy Bill
debate was starting four years ago, and it never received the full and
fair airing it deserved. Today, with a new Energy Bill debate pending,
we have a chance to make up for our previous missed opportunities.
In my view, we need more stringent CAFE standards and we need them
now, for the reasons I've discussed. But the exact level and timing of
the standards and how the CAFE program should be administered, that's
all up for grabs, and I hope we can have a full discussion of those
issues today. I look very forward to hearing from our panel.
Mr. Gordon.
Mr. Gordon. Thank you, Mr. Chairman. As you pointed out,
the topic that we are here to discuss today is very important
on many levels. Energy security is now synonymous with national
security. The U.S. uses a quarter of the world's oil and over
60 percent of that oil is imported, primarily from unreliable
and politically unstable regions of the world. The slightest
movement in the energy markets can have substantial impacts on
our economy. That is not to mention the disastrous effect that
it might have on the disruption of oil supply around the world.
While reserving judgment on any one solution, I am
appreciative of you for having this hearing and look forward to
learning more.
[The prepared statement of Mr. Gordon follows:]
Prepared Statement of Representative Bart Gordon
Thank you Mr. Chairman for holding this hearing today on an issue
that is particularly important given the flurry of activity in Congress
on energy legislation. It appears that we will see a House energy bill
on the Floor very soon and I look forward to tomorrow's markup of the
Science Committee's contributions.
The topic we're here to discuss today is important on many levels.
Energy security is now synonymous with national security. The U.S. uses
a quarter of the world's oil and over 60 percent of that oil is
imported, primarily from unreliable and politically unstable regions of
the world.
The slightest movements in energy markets can have substantial
impacts on the economy. That's not to mention the disastrous effect
that a major disruption in oil supply would have on the world, but most
especially the U.S. While we do use oil for a variety of industrial and
heating purposes, about 80 percent goes into the transportation sector,
and almost half of the oil we consume goes into cars and light trucks--
moms taking kids to soccer practice and suburban commuters driving to
work.
This thirst for oil comes at a price. Not only is it a weak link in
our national security chain, but the harmful health effects of air
pollution from fossil fuel use are yet to be fully understood. I don't
believe anyone would argue that we can continue at our present rate of
oil consumption, but the steps we take must be very calculated. CAFE
standards were responsible for successfully doubling the fuel economy
in the 1980's, but those too can have unforeseen economic
repercussions.
We should take care that, in our quest to lessen our dependence on
oil, we do not put excess burden on the industries that have made this
economy what it is today.
While reserving judgment on any one solution, I welcome the
discussion today of mechanisms such as tax incentives, tradable CAFE
credits, re-categorization of car and light truck standards, and
weight-based reclassifications schemes.
If increasing of CAFE standards is inevitable, as many believe it
is and should be, we should recognize both the limitations and the
technological achievements of individual automakers. In this regard,
some companies perform better than others. The Union of Concerned
Scientists' ranking of automakers by pollution impact places Honda and
Nissan at the top of the list.
Nissan, for example, produces the Pathfinder SUV in my district.
Despite not having a hybrid gas-electric vehicle on the market, it has
surpassed Toyota in the UCS rankings I spoke of. Even while
transforming itself into a full-line automaker, Nissan is incorporating
a suite of existing cutting edge technologies, such as Continuously
Variable Transmission, to increase their overall fleet fuel economy.
This hints at how complex the range of CAFE-related technology options
can be for automakers.
And there is an army of scientists and researchers outside of the
auto companies, discovering ways to revolutionize the transportation
sector with fuel efficient technologies. For example, Dr. Cliff
Ricketts at Middle Tennessee State University has transformed a
standard Nissan pickup truck into an emissions free alternative fuel
electric-hybrid vehicle.
I would like to thank the witnesses for coming to Washington to
testify on technologies supporting the Corporate Average Fuel Economy
of cars and trucks. Thank you again, Mr. Chairman for this important
hearing.
Chairman Boehlert. Thank you very much, Mr. Gordon. And all
Members will have the opportunity to have their statements
inserted in the record at this juncture.
[The prepared statement of Mr. Costello follows:]
Prepared Statement of Representative Jerry F. Costello
Good afternoon. I want to thank the witnesses for appearing before
our committee to examine available technologies to improve the fuel
economy in cars and trucks, while also working towards reducing the
Nation's dependence on foreign oil.
Congress passed the Energy Policy and Conservation Act in 1975,
with a goal to reduce the Nation's dependence on foreign oil. As a
result, the Corporate Average Fuel Economy (CAFE) program raised the
fuel economy of the U.S. fleet, hoping that Congress's objective would
be met. Thirty years later, we are still working towards achieving this
goal. Today we depend on imports to meet nearly 60 percent of our oil
needs. Gasoline burned by cars alone, constitutes about 45 percent of
the Nation's oil consumption. Looking towards the future, in 2025, it
is projected that the U.S. will consume 29 million barrels of oil a
day, mostly on transportation. According to the National Commission on
Energy Policy, improving car and light truck fuel economy by 10, 15,
and 20 percent by 2015 would result, by 2025, in an estimated fuel
savings of approximately up to 3.5 million barrels of oil a day. At the
same time, there are good arguments as to why we need to approach any
new CAFE standards carefully. If we have the technology today to
significantly improve the fuel economy of cars and light trucks,
without reducing safety, we must balance these advancements in a way
that does not place constrictive regulations on the automotive
industry, causing them to suffer economically. I am pleased to learn
that a National Commission on Energy Policy report from last year found
that the ability of hybrid technologies to make substantial
improvements in fuel economy has been clearly demonstrated.
As we look for ways to reduce our foreign dependence on foreign oil
and rely more on other domestic energy sources, such as coal, hydrogen,
and ethanol it is critical that we utilize the technological
advancements we have today to improve fuel efficiency, without
disregarding the legitimate concerns of the workers in the automotive
industry.
I look forward to hearing from our panel of witnesses.
[The prepared statement of Ms. Johnson follows:]
Prepared Statement of Representative Eddie Bernice Johnson
Thank you, Mr. Chairman. I am very grateful you have decided to
call a hearing today on our nation's energy security. I also wish to
thank our distinguished witnesses who have submitted testimony and have
agreed to answer our questions.
Corporate Average Fuel Economy [CAFE] standards were enacted into
law by Congress in 1975 as a part of the ``Energy Policy Conservation
Act,'' [EPCA]. This Act, passed in response to the 1973-74 Arab oil
embargo, was established to double new car fuel economy for passenger
cars and light trucks by model year 1985.
It has been stated that raising CAFE stands could potentially save
more oil than our Persian Gulf imports, thereby reducing our dependency
on Mid-Eastern imports and also curb global warming.
Unfortunately, some theorize that making cars more fuel efficient
will lead to greater safety concerns, reduced American auto choices and
a loss of American Auto job to overseas plants.
Everyday we, as Members of Congress, must make tough choice as to
how we deal with the issues such as the protection of our environment
(this is the only planet we have) and the safety of our highways. The
responsibility of weighing the pros and cons of every can be a life or
death matter.
Hopefully our witness here today can clear up these issues. We
appreciate your input.
[The prepared statement of Mr. Honda follows:]
Prepared Statement of Representative Michael M. Honda
I commend Chairman Boehlert and Ranking Member Gordon for convening
this hearing on fuel economy.
I continue to be amazed by the response of many people in this
country to the prospect of conserving energy. We know that fossil fuel
supplies both here and abroad are limited--they are fossil fuels,
remnants from biological processes that took place centuries ago but
which are not occurring now. These fuels will run out eventually. There
may be legitimate debate about exactly when that will happen, but the
fact is that they will run out.
Since our nation is nearly completely dependent on a finite source
of energy, it seems to me that what we need to do in the short-term is
reduce our levels of consumption of our finite energy supplies to make
them last longer, and for the long-term, develop renewable sources of
energy to meet our future needs.
But in complete opposition to common sense, Vice President Cheney
has indicated that conservation is a ``personal virtue,'' but not a
sufficient basis for a sound energy policy. I might almost be convinced
to buy into this if reducing energy consumption meant everyone had to
stay at home, in the dark, either too cold or too hot depending on
where they live. But that is not necessary. We have the technologies
available to us to day to reduce energy consumption in our vehicles, in
our homes, and in our offices, but because there is an up-front cost
associated with these new technologies, their adoption has been
stalled. No one factors in the long-term costs to public health and our
environment of not being energy efficient, though. If they did,
economics could be the driver. But instead, we need something else to
encourage efficiency.
CAFE standards are an excellent way of improving fuel economy in
vehicles. By requiring vehicles to be efficient, the government can
stand up for the long-term health of our nation and planet. Standards
have not increased over the years, however, because of industry
insistence that increased standards would make U.S. manufacturers less
competitive and would make vehicles less safe.
I am glad that we are having this hearing today so we can learn
about existing technologies that can increase fuel economy, and
strategies for implementing higher standards that would not compromise
the safety of our vehicles. I believe it is essential for our national
security to take all steps we can to reduce our consumption of fossil
fuels.
[The prepared statement of Mr. Carnahan follows:]
Prepared Statement of Representative Russ Carnahan
Mr. Chairman, thank you for taking the initiative to hold this
important hearing on improving automobile fuel efficiency technologies
and considering raising CAFE standards. We are lucky to have a leader
that recognizes the role that new technologies play in securing our
nation, bringing us closer to energy independence and protecting our
environment.
There is clearly a benefit to introducing new technologies to
increase fuel efficiency. I am most curious in hearing today what
policy options are available to us to take these important steps
forward.
I look forward, in particular, to Mr. Stanton's testimony and hope
to gain a better understanding of how the auto industry feels about
potential policy options. It is my hope that Congress can not only work
with the industry and energy providers, but also incorporate the
opinions of auto workers and citizens concerned about the environment
who also have a strong interest in our policy decisions.
Chrysler is an important employer to our region. I am proud to have
a strong American auto manufacturer in the midst of my district and
also to represent many of the plant's hardworking Americans.
I urge everyone to pay particular attention to balancing the
increase of CAFE standards while keeping our American auto companies
strong and viable.
I look forward to hearing the testimony of the panelists. Thank you
very much for being here today.
[The prepared statement of Ms. Jackson Lee follows:]
Prepared Statement of Representative Sheila Jackson Lee
Chairman Boehlert, Ranking Member Gordon,
I want to thank you for organizing this important hearing on fuel
efficiency standards for cars and light trucks. As we prepare to
discuss the Energy Bill, we all appreciate the importance of energy
efficiency as an essential component of the policies that affect our
nation's economy and security. The Department of Energy's Energy
Information Agency (EIA) reports that since 1985, the transportation
sector's consumption of primary energy sources has been second only to
the energy consumption used for electric generation. Between 2001 and
2004, light duty vehicles consumed nearly 60 percent of the primary
energy sources used for transportation. Clearly, effective national
policies to control the consumption of fuel used by light duty vehicles
would have a significant positive impact on the Nation. Over the past
three decades, national policies for vehicle fuel efficiency have
included both regulatory and ``technology-push'' approaches.
In response to the then-restricted world supply of oil, the
Congress enacted the Energy Policy and Conservation Act of 1975, which
was intended, among other things, to induce automobile manufacturers to
improve the fuel economy of their cars. The Act set a Corporate Average
Fuel Economy (CAFE) standard for passenger cars that increased several
times and then leveled off at 27.5 miles per gallon for model years
1985 and beyond.
Congress authorized the National Highway Traffic Safety
Administration (NHTSA) to raise or lower the standard for a particular
model year in order to achieve the ``maximum feasible average fuel
economy,'' taking into account technological feasibility, economic
feasibility, the effect upon fuel economy of other federal motor
vehicle standards, and the need of the Nation to conserve energy.
CAFE standards are calculated separately for a manufacturer's
domestic and import car fleet. In 1988 the NHTSA was concerned that the
27.5 mpg standard might lead American automobile manufacturers to shift
some of their large-car manufacturing overseas in order to average the
fuel economy of those cars with more of their small cars, thereby
raising the average fuel economy of their domestic fleets and lowering
the comfortably high average fuel economy of their non-domestic fleets.
The possible shift of large car manufacturing to off-shore plants
raised concerns of domestic job losses. Anticipating possible job
losses and ``potential economic harm,'' the NHTSA lowered the CAFE
standard in 1988 for MY 1989 from 27.5 mpg to 26.5 mpg. In 1989,
however, the agency terminated the MY 1990 aspect of the rule-making
without changing the CAFE standard for that year based on the agency's
conclusion that retention of the 27.5 mpg standard for MY 1990 not have
a significant adverse effect on U.S. employment or on the
competitiveness of the U.S. auto industry.
CAFE standards affect manufacturers differently. Those with full
product lines will be burdened more than manufacturers specializing in
small to medium size vehicles. Policy analysts may argue that would
force the marketing of smaller cars as they believe CAFE intends.
However, this ignores the engineering differences between some large
and small cars. For example, Ford's Crown Victoria is one of the few
cars now sold that built as a ``body on frame'' design--in contrast to
the unibody construction used on virtually all small to medium size
cars. ``Body on frame'' designs are inherently heavier than unibody
construction, but the durability this provides under harsh driving
conditions makes ``body on frame'' the preferred vehicle design for
police cars and taxicabs.
In addition to the distinction that CAFE makes between domestic and
imported passenger cars, there is also separate classification for
light duty trucks, whose standards are set by the NHTSA rather than by
statute. The present standard for light duty trucks is 20.7 miles per
gallon. The determination about what is considered a car or a truck can
be confusing--some of the NHTSA and EPA regulations define certain
kinds of trucks as those vehicles that look similar to a 1977 Jeep or a
1977 Land Cruiser,\1\ with `trucks' generally defined as those vehicles
having a flat cargo floor. Thus, the regulatory scheme allows for the
classification of the Dodge Neon as a compact car and the Chrysler PT
Cruiser as a truck for the purposes of fuel economy standards even
though both are built on the same vehicle platform.
---------------------------------------------------------------------------
\1\ 40 C.F.R. 600.002-85; 40 C.F.R. 600.002-93; 49 C.F.R.
533.4.
---------------------------------------------------------------------------
In addition to mandatory vehicle fuel economy standards specified
in federal laws and regulations, Congress and the Executive Branch have
supported research programs to develop new technologies intended to
enable the development of vehicles with increased fuel economy or
reduced emissions.
Beginning in 1991, the Department of Energy partnered with the
domestic car companies and electric utilities to form the U.S. Advanced
Battery Consortium (USABC), a research and development initiative to
develop batteries that would enable the deployment of practical
electric cars. In 1993, a number of federal agencies led by the
Department of Commerce again joined Detroit's Big-3 to form the
Partnership for a New Generation of Vehicles (PNGV) to build prototype
five-passenger vehicles capable of 80 MPG fuel economy. In 2000, the
Department of Energy led ``21st Century Truck,'' a government-industry
partnership in the development of technologies to enable more fuel
efficient large trucks. In 2002, the Department of Energy,
DaimlerChrysler, Ford, and General Motors created ``FreedomCAR,'' a
research initiative to develop technologies to enable petroleum-free
cars and light trucks. Federal funding for these initiatives range from
hundreds of millions of dollars for USABC to several billions of
dollars for PNGV and FreedomCAR.
Both of these approaches have had mixed results. Some will argue
that CAFE has shifted the market for family-sized vehicles away from
station wagons to the somewhat heavier and less aerodynamic mini-vans,
sport utility vehicles, and ``king cab'' pick-up trucks. U.S.-funded
``technology push'' initiatives need also to be evaluated against
privately-funded vehicle development programs in Japan that have
deployed the first three hybrid electric vehicle models commercially
sold in the U.S., Asia, and Europe.
The National Academy of Sciences studied the issue of increasing
vehicle fuel economy in considerable detail. While finding that the
CAFE regulations were effective in maintaining fleet fuel economy above
what it would have been with falling gasoline prices in the early
1980s, the Academies noted that ``there is a marked inconsistency
between pressing automotive manufacturers for improved fuel economy
from new vehicles on the one hand and insisting on low real gasoline
prices on the other.'' The Academies' study included ``cost efficient''
analyses to illustrate how rational consumers will balance fuel cost
savings with the added expenses associated with fuel saving
technologies in the selection of the vehicles they buy and how many
miles they drive--analyses that are not considered by either regulatory
or technology-push approaches. The National Academies also addressed
demand reduction policies--including gasoline taxes, carbon taxes, and
carbon cap-and-trade systems. These approaches do address consumer
demand for fuel, but many have criticized these approaches for a
variety of reasons, including they have the characteristics of a
regressive tax.
Successful policies may include an integrated combination of
regulations, technology development, and energy demand reduction
policies. Today's hearing will help to address these approaches.
Chairman Boehlert. Let me introduce our first and only
panel of the day, and it is a very distinguished panel: the
Honorable William Reilly, Aqua International Partners; Mr. Paul
Portney, President, Resources for the Future; Dr. David Greene,
Oak Ridge National Laboratory, Center for Transportation
Analysis, National Transportation Research Center; Mr. K. G.
Duleep, Managing Director of Transportation, Energy and
Environmental Analysis, Incorporated; and Mr. Michael Stanton,
Vice President of Government Affairs, Alliance of Automobile
Manufacturers.
Gentlemen, the floor is yours, and we will go in the order
introduced. We ask that you try to summarize in 5 minutes or
so, but those of you who have been here before, and Mr. Reilly,
you have been here many times, know that we are all offended by
the proposition that you are going to take a very important
subject like this and condense it into 300 seconds. But--so
don't get nervous if that green turns to caution and then red.
If you have got a point to make or you have got a thought to
complete, please do it.
With that, I present Mr. Reilly.
STATEMENT OF THE HONORABLE WILLIAM K. REILLY, AQUA
INTERNATIONAL PARTNERS
Mr. Reilly. Thank you. Thank you very much.
And my congratulations and my compliments to you, sir, and
to this committee for scheduling this hearing on a matter that
I fully agree with you is vital to our national security, vital
to our economy, and I think also vital to our environment.
I want to present my statement to you in summary, and I ask
that my written testimony be inserted in the record at this
time, if I might.
Chairman Boehlert. And without objection, so ordered. And I
want to advise all of our panelists that your complete record
will be part of the complete testimony and will be available to
all of the Members for their examination.
Mr. Reilly. Thank you.
As you mentioned, I have, over the past 21/2 years, served
as co-chairman of the National Commission on Energy Policy,
which released this report, Ending the Energy Stalemate: A
Bipartisan Strategy to Meet America's Energy Challenges, in
early December. This report, which was financed in large part
by the Hewlett Foundation, involved some $10 million from them
and also support from the MacArthur Foundation, the Pew
Charitable Trust, and the Packard Foundation, was conceived to
try to address some of the most intractable problems
confronting our energy situation in the United States and in
the world and to develop some consensus solutions, drawing on
the experiences and insights of a very diverse group of
members.
I was the Co-chair of this Commission. My fellow co-chairs
were John Holdren, a Professor at the Kennedy School, and John
Rowe, the Chairman and CEO of Excelon Corporation, one of the
Nation's largest electric power utilities based in Chicago. It
included the Chief Economist of Ford Motor Company, Group Vice
President, Marty Zimmerman. It included the Chairman of
ConocoPhillips Corporation, the country's largest refiner of
oil and gas. It included the Chairman of the Board of Consumers
Union and a representative from the United Steelworkers of
America Union, and the head of the energy program for the
Natural Resources Defense Council. It was, in all respects, I
think, as balanced, as diverse, as representative of the
different sectors of the economy, the non-governmental
community, the scientific community--we had a Nobel prize
winning scientist as a member, Mario Molina--that you could
find. And I think the significance of much of what I will say
is not so much in the novelty of what we recommend as it is in
the backgrounds of the people who supported it. And the
recommendation that I am going to discuss with you was the
product of a consensus in our Commission.
We placed, in this Commission, oil security at the top of
our energy priorities. And I would say that one of the most
interesting charts in our report, and it is included in my
submitted testimony, is one that shows that over the next 20
years, the United States and the world at large anticipate a 50
percent-plus increase in oil demand. That is a very large
number. If you look back at the 20 years from 1980 to the year
2000, it was a time of tremendous innovation in technology, new
development capacity on the part of the oil industry. It was
the period when the oil industry learned to reduce, or rather
to increase the amount of hydrocarbons it got from a field,
from 20 percent to 50 percent. It was a period when deep-water
oil exploration and development became possible in the Gulf and
other places to go beyond 5,000 feet deep. It was a period when
there was a lot of new technology that allowed drilling from
one well to go out into several fields from that single point.
Nevertheless, with all of that innovation, with all of that
new technology, with all of that effort, the oil industry
worldwide experienced a 20 percent increase in production over
that 20-year period. As we look ahead to the next 20 years,
seeing a 50 percent expected demand increase, it just isn't
there. We are going to have to find new efficiencies, new
opportunities to be more productive in our use of liquid fuels,
alternative fuels, and try to put an economy together, for
transportation particularly, that respects a new energy
environment.
There has been, over the last 30 years, significant
improvements in the efficiency of our economy with respect to
oil. It takes significantly less oil to produce $1,000 of GDP.
However, in recent years, we have seen an important slowdown in
those improvements. The intensity improvements have waned.
We note, and you have noted in your opening remarks, the
transportation sector has had the fastest growth in greenhouse
gas emissions over the past two decades. Two key solutions we
recommend: increases in investment to spur global oil
production, and reductions in demand domestically.
We reviewed at the Commission several options, a gas tax,
CAFE increases, alternative fuels. In our view, CAFE increases
provided the largest demand reduction by far. New technologies
like hybrids and diesels will enter the fleet slowly and be
used, we believe, in large part to increase power, weight, and
other performance attributes instead of fuel economy absent
increases in CAFE.
In summary, we recommended that Congress should instruct
the National Highway Traffic Safety Administration to
significantly strengthen automobile fuel requirements. New
standards, we propose, should be phased in between 2010 and
2015. We did not, frankly, reach agreement, but we discussed
several possibilities. We recommended a significant increase in
mandatory automobile fuel efficiency.
There is some direction given in the report on appropriate
or plausible CAFE levels to take full advantage of current and
emerging technologies, including hybrids and passenger diesels.
Our proposal is specifically designed to address political
and technical objections to traditional CAFE increases which
are: one, impacts on competitiveness of domestic manufacturers;
two, impacts on domestic jobs; and three, safety concerns.
These are the big three that are raised as objections to
increases in CAFE.
To deal with some of these concerns, U.S. manufacturers and
jobs, we would propose reducing compliance costs by allowing
trading of compliance credits across companies. This is not now
permitted. According to the Office of Management and Budget,
this would net you a 17 percent reduction in the overall cost
of compliance with this program.
We recommended that future costs of compliance with CAFE
requirements be kept through the use of what we call a ``safety
valve'' to ensure that industry is protected if technology
costs exceed government projections.
And finally, we would propose to offer manufacturer
incentives to retool existing domestic auto plants to produce
hybrids and advanced diesels, and we proposed that this be at
the level of $1.5 billion over five years.
With respect to safety, hybrids can significantly boost
mileage per gallon with the same vehicle size and equal or
better performance, in our judgment. And we have seen enough
experience with hybrids to know that the concerns about
downsizing and downweighting as the only option available to
the auto manufacturers to meet higher standards are misplaced.
Finally, I would just say the stakes for our Nation, as you
have pointed out, are tremendous. Our security, economy, and
environment will all benefit considerably if we seize the
opportunity to significantly increase the fuel economy of our
vehicle fleet.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Reilly follows:]
Prepared Statement of William K. Reilly
Good afternoon Chairman Boehlert. My thanks to you and to the
Members of the Committee for organizing this hearing on a matter of
great importance for our country.
I am one of three co-chairs of the National Commission on Energy
Policy. My other Co-chairs are John Rowe, CEO of Excelon, and John
Holdren, a professor at the Kennedy School at Harvard. We are an
independent bipartisan group of 16 persons who came together in 2002
with support from the Hewlett Foundation and several other leading
foundations: The MacArthur Foundation, Packard Foundation, and the Pew
Charitable Trusts. The Commission released a report at the end of last
year entitled Ending the Energy Stalemate: A Bipartisan Strategy to
Meet America's Energy Challenges. The first chapter of this report is
about enhancing oil security. The placement of oil security first among
all issues reflects the Commission's view that improving our nation's
oil security is the most significant near term energy challenge we
face. I'm pleased to have an opportunity to summarize the Commission's
recommendations on vehicle fuel economy.
Consistent with the focus of this hearing, I will direct the bulk
of my remarks to the Commission's proposals to significantly increase
vehicle fuel economy. However, I must note that try as we might, our
Commission could not construct a plausible scenario in which U.S. and
global oil demand does not increase over the next twenty years. For
this reason, we also propose a series of measures designed to increase
the global production of oil during this same time period. I will
submit our entire report and ask that it be made part of the record.
Rationale for Action
From the Commission's perspective, there are three considerations
that reinforce the need to strengthen passenger vehicle fuel economy:
FIRST, both domestic and global demand for oil is projected to grow
by roughly 50 percent by 2025. This rate of growth is at more than
double the historical rate since 1980 (Figure 1-1). At the same time,
spare capacity to compensate for supply disruptions has fallen to a
mere two percent of global demand. Left unchanged, these factors
suggest that the U.S. economy will continue to suffer from high and
volatile oil prices and is at risk of more frequent and serious supply
disruptions. The energy sector has for several years experienced a
consistent and growing gap between oil production and the discovery of
replacement reserves.
SECOND, the rate of improvement in U.S. oil economic intensity has
slowed in recent years. Oil economic intensity is a measure of how much
oil is required for the U.S. economy to produce a dollar of economic
output. This measure is important because the ability of the U.S.
economy to weather oil price shocks improves as oil's share of our
economic output decreases. Since 1970, the U.S. oil economic intensity
has dropped by half--a tremendous achievement--largely due to CAFE
standards in the late 1970s and early 1980s, and to a shift in the
electricity sector away from the use of petroleum. Further improvements
would further insulate the U.S. economy from oil price shocks (Figure
1-2).
THIRD, hybrid and passenger diesel vehicles hold the promise for
dramatic improvements in vehicle fuel economy. But historical trends
suggest that potential fuel economy gains may be undermined unless
government acts to reinforce the need for improved vehicle fuel
economy.
Although U.S. fuel economy has been stagnant sine 1987, the vehicle
industry has made considerable strides in efficiency. However, these
efficiency improvements have been used to increase vehicle horsepower
and weight, while still complying with Corporate Average Fuel Economy
(CAFE) standards. This trend--favoring horsepower, weight and other
attributes over fuel economy improvements--is likely to continue absent
government action. If we as a nation are serious about addressing our
dependence upon oil, we must seize the opportunity presented by hybrids
and passenger diesels (Figure 1-3) to improve the fuel economy of our
vehicle fleet.
The Importance of Strengthening Fuel Economy Standards
During its deliberations, the Commission considered a variety of
both major and minor transportation policy measures. These included
many of the usual suspects: a gasoline tax, a CAFE increase,
alternative fuels, as well as some new ideas: heavy-duty tractor
trailer fuel economy, efficiency standards for replacement tires,
congestion charges in urban areas. We examined these policy measures
against four criteria: (1) the ability to save one million barrels per
day of oil by 2025, (2) the cost per barrel of oil saved, (3)
administrative complexity, (4) political feasibility. Of all the
policies reviewed by the Commission, passenger vehicle fuel economy
improvements represented the largest opportunity for oil savings over
the next 20 years.
Accordingly, the Commission recommended that Congress instruct the
National Highway Traffic Safety Administration (NHTSA) to significantly
strengthen CAFE standards, giving due consideration to vehicle
performance, safety, job impacts, and competitiveness concerns
consistent with statutory requirements. We recommended that new
standards be phased in over a five-year period beginning no later than
2010. The Commission did not reach agreement on a specific increase in
fuel economy.
Of course, it would be naive to make recommendations about a CAFE
increase without considering how to break the current political
stalemate on fuel economy standards. The Commission identified three
issues that have dominated past debates about raising CAFE standards
and which we believe are largely responsible for the current stalemate:
(1) uncertainty over impacts on the competitiveness of domestic
manufacturers; (2) fear that more stringent standards will lead to
smaller, lighter vehicles and increased traffic fatalities; and (3)
concerns that higher standards will lead to losses in domestic jobs.
Competitiveness and U.S. Jobs
To address concerns about competitiveness impacts on U.S. domestic
manufacturers and U.S. auto workers, the Commission recommends that a
significant increase in CAFE standards be accompanied by reforms to the
current program that would increase compliance flexibility and reduce
compliance costs, together with manufacturer incentives designed to
promote the domestic manufacture of hybrid-electric and advanced diesel
vehicles.
Specifically, the Commission recommends that the current program be
altered to allow manufacturers to trade compliance credits with one
another and across their car and light truck fleets. The Congressional
Budget Office has estimated that this reform alone would reduce the
cost of the CAFE program by about 17 percent. An additional reform that
should be considered in concert with higher standards is a cost-capping
mechanism similar to the ``safety valve'' the Commission is
recommending in connection with a tradable permits system for
greenhouse gas emissions. In this case, the government could make
additional CAFE compliance credits available to manufacturers at a pre-
determined price. Such a mechanism would have the effect of protecting
automakers and consumers if the regulatory estimates used to set new
standards understate true costs and thus holds promise for overcoming
the inevitable and inherently irresolvable disagreements about future
technology development that have stymied past CAFE debates.
With respect to manufacturer incentives, the Commission is
specifically recommending a program of tax incentives for U.S.
manufacturing facilities that are re-tooled to produce hybrid-electric
and advanced diesel vehicle with superior fuel economy. Consistent with
international trade agreements, the incentive would be available to
both domestic and foreign companies, including both assembly plants and
parts supplies. The recommended subsidy level would total $1.5 billion
over ten years, with the amount of credit set to reflect up to two-
thirds of the capital investment associated with producing vehicles or
vehicle components. Commission analysis indicates that federal outlays
under such a program would be more than offset by increased tax
receipts as a result of maintaining domestic manufacturing jobs.
Relationship between Safety and Fuel Economy
A paramount concern for us when seeking to improve vehicle fuel
economy has been to ensure that there is no reduction in overall
vehicle safety. This is the concern so often expressed: That mandating
higher fuel economy will require production of less safe, lighter
vehicles and compromise vehicle performance. Our Commission considered
this concern and tested it against currently marketed hybrid vehicles.
Hybrids and passenger diesels offer the potential to boost fuel economy
while maintaining vehicle size and performance. The Ford Escape, Honda
Civic hybrid, the Honda Accord hybrid, and the forthcoming Toyota
Highlander hybrid, all achieve substantial fuel economy improvements
while maintaining or increasing horsepower (by as much as 17 percent)
compared to their conventional counterparts, and without reductions in
weight or size. These vehicles clearly demonstrate that substantial
fuel economy improvements can be achieved using already-available
technologies and without compromising vehicle performance and safety.
Conclusion
Hybrids and advanced diesels potentially change the game. They
offer the uncompromised features of conventional vehicles while
improving dramatically automobile fuel economy. It should be national
policy to foster early introduction on a significant scale of these
technologies for they promise to make a major contribution to U.S.
energy security.
Figures from Ending the Energy Stalemate: A Bipartisan Strategy to
Meet America's Energy Challenges, National Commission on Energy Policy
(2005).
Biography for William K. Reilly
William Kane Reilly is President and Chief Executive Officer of
Aqua International Partners, an investment group that finances the
purification of water and waste water in developing countries, and
invests in projects and companies that serve the water sector. Aqua
International is sponsored by the U.S. Overseas Private Investment
Corporation and is part of the Texas Pacific Group, an investment
partnership based in Fort Worth and San Francisco, which invests in
environmental, airline, apparel, health, wine, technology and other
companies in the United States, Latin America and Asia. During the
1993-94 academic year, Mr. Reilly served as the first Payne Visiting
Professor at Stanford University's Institute for International Studies
and delivered five public lectures on the challenges to the global
community.
From 1989 to 1993, he served as the seventh Administrator of the
U.S. Environmental Protection Agency. With 18,000 employees and a $7
billion budget, EPA is an independent federal regulatory agency charged
with improving and protecting public health and the environment.
Prior to becoming EPA Administrator, he held five environment-
related positions over two decades. He was President of World Wildlife
Fund (1985-1989) and President of The Conservation Foundation (1973-
1989). Those two organizations joined formally in 1985 at which time
Reilly became President of both. He was Executive Director of the
Rockefeller Task Force on Land Use and Urban Growth from 1972 to 1973.
From 1970 to 1972, he served as a senior staff member of the
President's Council on Environmental Quality and, from 1968 to 1970, as
Associate Director of the Urban Policy Center and the National Urban
Coalition. He served as Chairman of the Natural Resources Council of
America, an association of all major conservation groups, from 1981 to
1983.
Reilly has written and lectured extensively on environmental
issues. He has served on the boards of numerous public and private
sector organizations and received a number of awards and medals for his
contributions to environmental progress. He currently serves on the
boards of Dupont, Eden Springs, Ltd., ConocoPhillips, Ionics, and Royal
Caribbean International, and is a member of the Advisory Board of ERM
CVS. His service to non-profit organizations includes chairmanship of
the Board of World Wildlife Fund and of the Board of Advisors of the
Goldman School of Public Policy at the University of California,
Berkeley, and membership on the Boards of Trustees of the American
Academy in Rome, National Geographic Society and The Packard
Foundation. By appointment of the President, Reilly serves as one of
the seven trustees of the Presidio Trust, with responsibility for
running the Presidio National Park of San Francisco.
An alumnus of Yale University, Reilly holds a law degree from
Harvard University and a Master's degree in urban planning from
Columbia University. He was born in Decatur, Illinois, on January 26,
1940, and attended high school in Fall River, Massachusetts. He served
in the U.S. Army to the rank of Captain in 1966 and 1967.
He is married to Elizabeth ``Libbie'' Bennett Buxton Reilly. They
have two daughters, Katherine Buxton Reilly, an environmental lawyer
with Beveridge and Diamond in San Francisco, and Margaret Mahalah
Reilly, Megan, a student at Harvard Business School. The family resides
in San Francisco, California, and Alexandria, Virginia.
Chairman Boehlert. Thank you very much, Mr. Reilly.
Dr. Portney.
STATEMENT OF MR. PAUL R. PORTNEY, PRESIDENT, RESOURCES FOR THE
FUTURE
Mr. Portney. Chairman Boehlert, Members of the Committee,
thank you very much for having me here today, and thank you,
also, Mr. Chairman, for your kind words about the 2001 National
Research Council report on fuel economy standards. I appreciate
that. As you mentioned, it was somewhat overtaken by the debate
in the Energy Bill, but a month and a week later, overtaken by
the events of September 11, 2001, to which I will come back in
my testimony here.
I will summarize, as you have indicated, my remarks here
today. Thank you for allowing me to put my complete remarks
into the record.
I am testifying before you today principally in my capacity
as having been chairman of the National Academy of Sciences
2001 report on the effectiveness and impact of Corporate
Average Fuel Economy standards. Let me also say that nothing I
should say today should be construed or attributed to Resources
for the Future. I am appearing in my--as an individual and in
my role as the chairman of the National Academy of Sciences
committee.
I thought what I would do for you is very briefly summarize
for you the findings of that National Academy report. Some time
has passed since that report. Because it has been 31/2 years, I
would also like to reflect back on what has changed during the
past 31/2 years. Those views will be my own. I can purport to
speak for the whole committee, because we haven't met during
that period of time, but I thought it might be useful for me to
reflect on the recommendations of the committee in light of the
events over the last 31/2 years.
So let me start by giving you sort of very quickly the
basic conclusions that that National Academy of Sciences
committee reached in 2001.
First of all, we found that CAFE has played an important
role in boosting the fuel economy of the new vehicle fleet in
the United States. That occurred principally between the period
1978 or so until the early 1980s. And the committee was very
careful to say that while CAFE, in the view of the committee
members, indisputably played a role in the improvements in fuel
economy that happened during that period of time. Of course,
also during that period of time, gasoline prices had increased
dramatically so that there became, on the part of the public, a
demand for more fuel-efficient vehicles to which car makers
responded.
And because these two events happened more or less
contemporaneously, both pushing in the direction of improved
fuel economy, we couldn't separate out how much of the
improvement in fuel economy was due to higher prices and how
much was due to the CAFE standards. We will note, however, that
after about 1982, when gasoline prices collapsed, fuel economy
did not go back to its old level, suggesting that the
improvements that we got were permanent improvements that we
might not have gotten had we not instituted a CAFE program
during that period of time.
The committee also found that CAFE had some adverse
effects. You were--we were requiring car makers to devote
resources to improving fuel economy. These are resources that
they could not devote to improving the performance
characteristics of vehicles or to doing other things with those
resources during that period of time. And, and I can't
emphasize how important this point is, because car makers were
required to boost fuel economy by almost 50 percent in a
relatively short period of time, they didn't have the option of
rolling in a lot of new fuel-saving technologies. Rather, the
way they chose to meet much tougher fuel economy standards in a
short period of time was by making cars smaller and lighter.
And the CAFE committee, with two exceptions, was of the mind
that this accelerated very quick reduction--or improvement in
fuel economy through downsizing had adverse effects on the
safety of the vehicle fleet. We predicted, or estimated, that
an additional 1,300 to 2,600 fatalities by 2003 would have--or
took place that wouldn't have taken place if car makers had not
had to quickly downsize and downweight vehicles to meet the
fuel economy standards.
Again, this was not a unanimous view of the committee.
David Greene, one of the two committee members who dissented
from that particular conclusion of the panel, is here today,
and he will have an opportunity to speak for himself later.
Third, we found that technologies clearly exist or, at that
time, were in the process of being developed that would make it
possible to improve the fuel economy of the new vehicle fleet
at a cost, certainly, but nevertheless a cost that would be
more than offset by the fuel economy savings that would result
from these more fuel-efficient vehicles over the next 14 years.
The estimated improvements that would be possible by putting
into widespread use in the new vehicle fleet ranged from 12 to
25 percent for passenger cars and from 25 to 42 percent for
light-duty trucks. That comprises minivans, pick-up trucks, and
sport utility vehicles. And, importantly, if car makers were
given enough time to meet these new fuel economy goals, and by
enough time, we were looking in the range of 10 to 12 to 15
years, then these improvements would be capable of being made
without downsizing or without downweighting, and therefore,
without adverse effects on the safety of the fleet.
I can't emphasize how important it is, in the view of the
committee, that in contemplating tightening fuel economy
standards that you do so over a long enough period of time that
the car makers have an opportunity to take advantage of these
technologies that are out there and are currently being
developed so that they don't have to engage in a, and I don't
intend to bad pun here, a crash program to improve fuel economy
that might compromise safety.
Reinforcing one point that Bill Reilly has already made,
the committee felt very, very strongly that the credits that
can currently be earned in a very limited way in the CAFE
program ought to be made fully tradable so that someone who
beats their fuel economy standards can not only use those
credits themselves in a later year, they can trade across
passenger car and light-duty truck fleets, or they could sell
these credits to other car companies that are falling short of
hitting their targets.
Let me give you my brief update of things that have
happened in the 31/2 years since the committee report that I
think are material to your deliberations.
First of all, September 11 happened one month and one week
after the committee issued its final report. Since that time,
quite unsurprisingly, oil security is--looms much more
importantly in the national debate. And if the committee were
doing its work today, it is conceivable that we might give an
even greater value to reduced oil consumption on account of the
potential for macroeconomic disruptions associated with
fluctuations in oil import and oil domestic produced--
domestically produced oil prices.
Second, during the period of time since the issuance of the
report, gasoline prices have gone up between 20 and 25 percent.
This pushes the car companies in the direction of making more
fuel-efficient vehicles, because passengers have an incentive
to demand more fuel-efficient cars the more expensive the price
of gasoline is. I actually think we are seeing some evidence of
this. But for this price effect to continue, consumers have to
believe that prices will remain high, not slip down to the
$1.60 a gallon that they were when the National Academy
committee was doing its work.
Third, in the 31/2 years since we have issued our report,
hybrids have penetrated much more significantly into the new
vehicle market than we anticipated at the time. I think we were
probably too conservative in our report about the potential for
hybrids. Recent estimates suggest that by 2008/2009 there could
be as many as 800,000 hybrids sold in the United States. Last
year, I think the total was between 45,000 and 50,000. And if
that number of hybrids sold grows dramatically, the cost per
hybrid sold comes down, and that could make a big difference in
the costs associated with meeting tighter fuel economy
standards.
I would also like to emphasize that in the 31/2 years since
we completed our report, much progress has been made on a new
generation of clean diesel engines. And I think this is very
important for the fuel economy debate, because diesel engines,
all of the things being constant, hold out the possibility of
improvements of 25 to 40 percent in fuel economy. If we were
writing that report today, I think we would pay more attention
to the potential for these clean diesels to help in the fuel
economy challenge.
And finally, research has been done since that time on the
so-called rebound effect. I won't go into great detail on this,
but this suggests that as people own cars that get better fuel
economy, they may drive those cars more. And some of the
adverse effects associated with more vehicle miles traveled,
depending on the way you value those, actually have the
potential to cancel out some or all of the beneficial effects
of improved fuel economy.
So that is my quick summary of what has happened in the
time we have done the report. Thank you, again, for having me
here. And I would be happy to take any questions later.
Thanks.
[The prepared statement of Mr. Portney follows:]
Prepared Statement of Paul R. Portney
Good afternoon, Mr. Chairman and Members of the Committee. I am
Paul R. Portney, President of Resources for the Future. In 2001 I
served as Chair of the Committee on Effectiveness and Impact of the
Corporate Average Fuel Economy (CAFE) Standards of the National
Research Council (NRC). The Research Council is the operating arm of
the National Academy of Sciences, the National Academy of Engineering,
and the Institute of Medicine, charted by Congress in 1863 to advise
the government on matters of science and technology. My comments today
reflect my own views and, to the best of my abilities, those of the NRC
committee members. They do not reflect the views of Resources for the
Future, an independent and non-partisan research organization that
takes no institutional positions on legislative matters.
It is a pleasure to be here to discuss with you the NRC's 2001
report. This study was requested by Congress to provide assistance in
its decisions related to fuel economy standards. I would like to
provide a brief overview of the report, while noting that it was
detailed and cannot be done justice to in a few minutes. Therefore I
request that we include the Executive Summary of that report as part of
the record. (See Appendix 2: Additional Material for the Record.)
Following my overview of the 2001 report, I will make a few remarks
about developments in the three-and-a-half years since the committee
did its work. Let me say here, as I will again later, that I will not
be speaking for the committee in offering this update.
The NRC committee had a three-part mission in 2001 when it did its
work:
1. Determine the effect that CAFE standards have had on fuel
economy, and their impact on the industry, consumers, safety,
and other issues;
2. Estimate the impact that changes to CAFE standards might
have in the future; and
3. Evaluate the structure of the CAFE program and recommend
potential improvements.
Review of the Then-Current CAFE Program
Our review of the impacts of CAFE standards through mid-2001
convinced us that the program had significantly reduced fuel
consumption. Other factors also have been important, especially the
reaction of consumers and the automotive industry to higher fuel prices
in the 1970s and early 1980s. The committee could not apportion
responsibility among these factors, but noted that CAFE was clearly
important. In the years since the early- to mid-1980s, CAFE
indisputably played an important role in maintaining higher fuel
economy than otherwise would have resulted, especially during periods
when gasoline prices were much lower than those prevailing today.
There have been adverse consequences associated with the CAFE
program as well. Safety is most important. The majority of the
committee concluded in 2001 that the downsizing and downweighting that
occurred in the late 1970s and 1980s (partially in response to CAFE)
resulted in an additional 1,300 to 2,600 fatalities in 1993. While
fatalities were declining in this period, most committee members
believe that they would have declined this much more had the
downweighting and downsizing not occurred. Two members of the committee
dissented from this view. They believed that the data did not support
this conclusion, and that the net effect on highway fatalities of the
increases in fuel economy may have been zero.
An additional impact, although one we were unable to quantify, had
to do with restrictions on consumer choice. Requiring automotive
manufacturers to focus on fuel economy diverted their resources from
improving other attributes valued by consumers, such as acceleration
and carrying capacity.
Impact of Higher Standards
First let me note that the committee did not recommend whether or
by how much the government should tighten the current fuel economy
standards. We believed that is a decision belonging to Congress, the
President, and appointed officials because it involves tradeoffs among
factors very important to the people of this country--the costs of
driving, the environment, national security, consumer choice, safety,
and others. In so far as possible, the committee identified these
tradeoffs, but a full analysis was not possible within the short time
allotted to this study.
The committee believed that it is incumbent on decision-makers to
understand the benefits of fuel economy improvements and to ensure that
the costs associated with these improvements don't outweigh the
benefits. The two main benefits the committee considered were the
macro-economic gains associated with reduced exposure to fluctuating
world oil markets and reduced emissions of the greenhouse gases that
may be linked to global climate change. Analysts have assigned a wide
variety of values to reducing these externalities. The committee
considered this range and ultimately chose values which, in total, are
equivalent to about 30 cents/gallon of fuel. That is, each gallon of
gasoline consumed has adverse economic and environmental consequences
that, when combined, amount to as much as $0.30. I mention this figure
not because the committee endorsed it (indeed other analysts might
chose values much higher or lower), but because it helps to understand
how hard one can push on fuel economy.
With that as context, the committee concluded that significant
improvements in fuel economy are quite possible at reasonable cost. A
variety of technologies to improve fuel economy are available for cars
and light trucks. Many have been developed and are being implemented in
Europe and Japan where fuel prices are much higher than here.
Specifically, Variable Valve Lift and Timing can reduce fuel
consumption by 3-8 percent. Continuously variable transmissions can
achieve another 4-8 percent. Other technologies are under development
and will be available for wide scale use within 15 years. Fuel economy
can be raised more for heavier vehicles than for light ones, and the
resulting fuel savings will be much higher for the heavier vehicles as
well. For example, the fuel economy of a mid-size SUV could be improved
by 34 percent (from 21 to 28 miles per gallon). Over the lifetime of
the vehicle, these improvements would save nearly 2,000 gallons, which
would more than pay for their incremental cost.
As with the current CAFE program, raising standards will have other
consequences as well, with safety again being the most contentious. Any
increase in fatalities will depend on how manufacturers meet higher
standards. While the technologies examined by the committee generally
appear to be more cost-effective than weight reduction, CAFE standards,
as currently structured, do not preclude any methods. Thus some
manufacturers might include some weight reduction, which the majority
of the committee believed could involve some safety consequences.
However, it is also possible that weight reductions could be
concentrated in the heavier vehicles. This would reduce the weight
disparity in the fleet, which could have beneficial consequences for
safety. This could occur because the greater risk for the occupants of
the downsized vehicles would be more than balanced by the lessened risk
for other road users.
A key point to make here is that the committee felt strongly that
automakers must be given sufficient time to accommodate more stringent
fuel economy standards. The less time they are given to meet new
requirements, especially significantly more stringent ones, the more
likely it is that they will respond not through the introduction of
fuel-saving technologies but rather through down-weighting and/or down-
sizing. This could have adverse consequences for safety.
Recommendations on the Structure of the CAFE Program
First, it was the committee's view that there is a marked
inconsistency between raising fuel economy standards while keeping fuel
taxes low. The committee certainly did not recommend raising taxes to
the level of European countries (or to any specific level for that
matter), but the members believed strongly that efforts to raise fuel
economy would work much better if consumers had more motivation from
higher fuel prices. Since the 2001 report was written, gasoline prices
in the United States have risen roughly 20 percent. If consumers
perceive this increase to be permanent, it will begin to affect their
new-vehicle purchases. In fact, there is some anecdotal evidence to
suggest that it already has.
The committee recommended that a tradable credit program be part of
any regulatory program on fuel economy. Even if the current structure
of CAFE is maintained and the standards not raised, the program can be
made more efficient and effective with tradable credits. All
manufacturers would have incentive to raise the economy of all their
vehicles, and the results are likely to be less costly than the current
approach of treating each manufacturer and each vehicle segment
separately. Tradable credits have worked well in reducing the costs of
sulfur dioxide emissions from coal-fired power plants, and the
committee believes they will work as well on fuel economy.
Finally, the committee recommended that consideration be given to
modifying the current structure of the CAFE program in such a way that
the applicable fuel economy standards for varying types of vehicles
depend at least in part on their attributes--that is, their weight,
interior size, or some combination of characteristics. I would note
that the National Highway Traffic Safety Administration is giving
thought to this approach now. The committee also recommended the
elimination of both the two-fleet rule that distinguishes between the
domestic and foreign ``content'' of vehicles and the granting of extra
fuel economy credits for the production of dual-fuel vehicles.
Update
Three and a half years have passed since the NRC committee on CAFE
did its work. I thought it might be useful for me to reflect on
developments since August of 2001 and what they might mean for the fuel
economy debate. It should be clear that I am speaking for myself here
and not for the members of the NRC committee.
The CAFE committee issued its report about a month before the
horrific events of September 11, 2001. Those events and their ongoing
aftermath have made us think much more seriously than before about the
consequences of U.S. oil consumption and our growing dependence for
imported oil on nations that are unstable and/or may bear us ill will.
Were the 2001 NRC committee meeting today, its members might assign an
even larger value to reducing oil consumption so as to reduce our
economic vulnerability to oil price shocks, either accidental or
deliberate.
Next, oil prices have risen considerably since the time of the 2001
report, principally a reflection of rapidly growing demand for oil in
the developing world (especially China and India), coupled with slower
growth in production. If sustained, these higher prices will act as a
stimulus to the production of more fuel-efficient vehicles, for the
simple reason that people will demand better fuel economy. However, the
externalities associated with oil consumption and its effect on both
the economy and the environment would still justify government
intervention to further improve fuel economy.
Third, in its deliberations on new technologies that might be used
to improve future fuel economy, the 2001 NRC committee gave little
consideration to either gasoline-electric hybrids or diesel-powered
passenger cars and light-duty trucks. The former, the committee felt,
were too expensive to make a significant difference in fleet-wide fuel
economy over the next ten to fifteen years, while the latter faced
stiff challenges related to vehicle emissions standards for both oxides
of nitrogen and also fine particulate matter.
We may have been too conservative in both these assessments. Hybrid
vehicle sales have grown faster than anyone expected--to 86,000 in the
U.S. in 2004. According to industry experts, hybrid sales could amount
to 400,000-500,000 by the 2008-09 model year, with significant
penetration in both the passenger car and light-duty truck segments of
the market. Similarly, considerable progress is being made in the
development of much cleaner diesel engines; this is important because
diesel-powered vehicles get 30 percent better fuel economy than
conventional internal combustion gasoline engines. If the cost penalty
associated with hybrids falls significantly because of larger-than-
expected volumes, and if car makers find a way to produce diesel
engines that are capable of meeting tougher emissions standards in
California and the rest of the U.S. for the lifetime of vehicles,
things could be different. That is, it might be possible to meet more
stringent fuel economy standards at lower costs for less than the
committee foresaw in 2001. Once again, this is speculation on my part
alone; this view should not be attributed to the 2001 committee.
Finally, looking back on our 2001 report, I wish we had had the
time to pay closer attention to the so-called ``rebound effect'' (this
refers to the additional miles motorists may drive in vehicles that get
better fuel economy). Some recent research by my colleagues at
Resources for the Future suggests that the negative consequences
resulting from the added congestion, air pollution and accident risks
could cancel out the beneficial economic and environmental effects of
improved fuel economy, depending on how all these effects are valued. I
take responsibility for having given this important issue less
attention than I believe it deserves, and I urge the committee to
consider it in future deliberations over the CAFE program.
Thank you, Mr. Chairman and Members of the House Science Committee.
That concludes my prepared remarks. I would be happy to answer any
questions you have.
Biography for Paul R. Portney
Paul R. Portney is President of Resources for the Future (RFF), an
independent, non-partisan research and educational organization
specializing in natural resources and the environment. Portney joined
the staff of RFF in 1972; from 1986-1989 he headed two of its research
divisions; in 1989 he became its Vice President, and was named
President in 1995. In 1977, he took leave to become a Visiting
Professor at the Graduate School of Public Policy at the University of
California at Berkeley. Between 1992-1996, he was a Visiting Lecturer
at Princeton University's Woodrow Wilson School. In 1979-1980, Portney
was Chief Economist at the Council on Environmental Quality in the
Executive Office of the President.
Portney received his B.A. in economics in 1967 from Alma College
(Michigan), and his Ph.D. in economics from Northwestern University. He
is currently a member of the Sustainable Forestry Board and the Board
of Directors of The Johnson Foundation, where he chairs the Finance and
Investment Committee. He recently joined the Advisory Council of the
Comptroller General of the United States. In 2001, he was chairman of a
National Academy of Sciences' Committee on the future of Corporate
Average Fuel Economy standards. From 1994-97, he was a member of the
Executive Committee of EPA's Science Advisory Board (SAB) and Chairman
of the SAB's Environmental Economics Advisory Committee. He has
published widely on the costs and benefits of environmental regulation,
including the 2nd edition of his book, Public Policies far
Environmental Protection, used in college and university classrooms
around the country. He also lectures frequently on developments in U.S.
and international environmental policy.
Education
Ph.D. in economics, Northwestern University, 1973.
B.A. in economics, Alma College, 1967.
Professional Experience
President, Resources for the Future, 1995-present.
Vice President, Resources for the Future, 1989-1995.
Senior Fellow, Resources for the Future, 1980-
present.
Director, Resources for the Future, Center for Risk
Management, 1987-1992.
Director, Resources for the Future, Quality of the
Environment Division, 1986-1987.
Visiting Lecturer, Princeton University, 1992-1995.
Senior Staff Economist, Executive Office of the
President, Council on Environmental Quality.
Visiting Professor, University of California at
Berkeley, Graduate School of Public Policy, 1977.
Senior Research Associate, Resources for the Future,
1973-1977.
Dissertation Fellow, The Brookings Institution, 1971-
1972.
Journal Articles
On Valuing Nature, Raymond J. Kopp, N.E. Bockstael, A.M. Freeman III,
Paul R. Portney, and V.K. Smith, Environmental Science and
Technology, 2000, Vol. 24, No. 8, pp. 1384-1389.
Chairman Boehlert. Thank you very much, Mr. Portney. And I
want to thank both you and Administrator Reilly for focusing on
the fact that this is, first and foremost, a national security
issue. Then it is a consumer economy issue. It also happens to
be an issue of importance to those of us concerned about the
environment. And I would submit that most of us are concerned
about the environment. I don't want it to be portrayed as the
greens against the rest of the world. It is not the case at
all.
So--and the other thing I am glad you made reference, as I
did in my opening statement, to the debate in '01 just prior to
9/11, because it was just within hours of the issuance of your
report that Congress began the debate. And I would suggest in
many respects, it was not an informed debate, because the
Congress did not have the benefit of a thorough examination of
your outstanding work.
So thank you for what you have done.
Am I indicating to some of my fellow colleagues my
preference in this issue?
Mr. Duleep.
STATEMENT OF MR. K.G. DULEEP, MANAGING DIRECTOR OF
TRANSPORTATION, ENERGY AND ENVIRONMENTAL ANALYSIS, INC.
Mr. Duleep. Mr. Chairman, thank you for having me here.
The Committee's staff has asked me to focus on technology
issues, and that will be the focus. They asked me four specific
questions. I will try and summarize my comments and have the
written testimony submitted to the record.
The first question I will focus on is what technologies are
available to improve fuel economy. I have a chart in there on
what I call conventional technologies that you can go out and
actually buy on some car made today. So you can actually just
walk into a dealership and buy one of these. They haven't yet
penetrated the fleet. They are in just a few cars now, and we
estimate that if you take all of those technologies, and I have
a table in my written testimony, and you put them onto one car
or one truck, you can get something like 24 or 25 percent
improvement from these technologies in the fuel economy. They
would add about $800 to $1,000 on the price of a vehicle, the
retail price.
If you look at how much fuel they save and what the value
of it, they pretty much pay for themselves over 50,000 miles of
use, so a consumer buying these technologies would get paid
back in three or four years. That is a typical measure used by
auto companies to judge whether, in fact, they are to introduce
these technologies.
One of the important points on this is that I believe that
most of these technologies will be adopted, or could be
adopted, in most cars by the manufacturers just on the free
market, just on a competitive basis, largely because they make
sense. If they pay for themselves, why not? We have looked at
many of the public announcements made by General Motors and
Ford and so on, and we can see all of these technologies coming
in the next few years.
At the same time, I don't want to imply that this means
that fuel economy will improve by 25 percent in the next 10
years, largely because the consumers are buying more
performance, larger vehicles, and so on. So I expect about half
of the improvements will actually be lost to consumers buying
more vehicles, four-wheel-drive, and so on. And that is
assuming that gas prices stay about where they are today, about
$2 a gallon.
Next, I will briefly discuss the issue that Dr. Portney
raised, which is the issue of diesel engines and hybrids. At
the time the National Academy met, there was a lot of debate
about whether the diesel could meet U.S. emissions standards.
There is still some debate today, but having spoken to a lot of
the leading diesel engine manufacturers in the world, I am
fairly confident that they will meet these standards in the
next three or four years.
The diesel engine can improve--just by itself, can improve
vehicle fuel economy by something like 35 to 40 percent, and
they are widely used in Europe. If you add some of the other
conventional technology improvements, the vehicle fuel economy
can go up by more than 50 percent. So it is a huge fuel economy
improvement possibility, but the cost of the diesel engine is
pretty high. A four-cylinder diesel engine with all of the
advanced emission controls will add something like $2,200 to
the price of a car. If you use a V6 or a larger engine, it will
add something like $3,500 to the price of a truck.
At those prices, you don't get the payback. It won't pay
for itself, but I think consumers will still value things like
it has a lot of torque so it can tow trailers and so on, and it
has at least the image of great durability so it can run maybe
a half a million miles without a major overhaul. Consumers
value that, and they appear to certainly prefer diesel engines
in the larger pick-up trucks even today.
Going back to the hybrid, that has become very popular now,
but there are lots of different kinds of hybrids. At the one
end, we have the Toyota Prius, and I think Ford uses a very
similar design, and some people call that a full hybrid.
Somewhere in between, we have the Honda Accord and Honda Civic,
which uses a much smaller motor and the battery than the Toyota
Prius. Then we have other designs by General Motors and
DaimlerChrysler. And all of these are different implications
for fuel economy. So when people use the word ``hybrid,'' they
don't use it in a very consistent way, and there are lots of
flavors of them.
But there is one common characteristic that hybrids have.
Most of their fuel economy improvement occurs in city driving.
So it has to be stop-and-go driving. On the highway, hybrids
don't give you much, whereas with the diesel engine, the fuel
economy gains are more robust across all of the driving
conditions.
One of the things I do want to point out is that there has
been a lot of attention paid to the Toyota Prius, and rightly
so. It is a wonderful car. But if you look at how much it costs
to make, and you assume that manufacturers take their standard
profit margins and pay back their cost of capital and so on, we
estimate that, at today's prices, if you built a Toyota hybrid-
like mid-sized car, the retail price should go up about $6,000.
It gives you about a 50 to 55 percent fuel economy improvement.
And clearly, that--you are not going to make that money back in
fuel savings.
But the other thing that the press does not seem to notice
is that there are other very smart ways to do it. Honda, for
example, as I mentioned, uses a motor that is maybe half the
size of the one in the Prius, a battery that is less than half
the size, and they get fuel economy numbers that are almost as
good as the Prius. So there are very advanced ways to exploit
synergies between the engine, the electric motor, and the
transmission that may cut the costs tremendously. So we see
something like the cost coming down below $2,000, at which
point it starts to make sense to the consumer.
I would also mention that we know some companies are
working on diesel hybrid combinations in Europe, and we expect
to see them in something like 2008.
One of the continuing issues has been this issue of safety
and fuel economy. Others on this panel will comment on it. But
a lot of those issues that the panel--that people on this panel
talk about is what happens after the crash has occurred. I
think this committee should be made aware that there are really
amazing changes in new technology in preventing crashes from
occurring in the first place. These are technologies like blind
spot warning, pre-crash sensing, lane departure warning, night
vision, and so on. In fact, I think in--perhaps five or 10
years down the road, a vehicle will be able to brake itself
before it hits anything else, and so the whole issue of safety
and fuel economy links becomes almost moot.
Lastly, I was asked to address issues regarding government
policy in fuel economy. Like Dr. Portney, I agree that the CAFE
standards did achieve some goals. But I think that it did
disadvantage the domestic manufacturers, because all
manufacturers, regardless of what you produce, have to meet the
same MPG number, even if you build large cars or small cars,
whatever your mix is.
Dr. Greene and I have done some studies looking at some
other forms of standards, and I expect Dr. Greene will address
this more fully, but the basic fact is there are different ways
of doing this that are, perhaps, more equitable in this
treatment of manufacturers.
Second, I want to just briefly touch on the issue of
consumer response. Here I would take some issue at the
Honorable Reilly's recommendations from the National Commission
on Energy, which were all focused on manufacturers. Here we
have a situation, as you know, even with record prices last
year, light truck market share reached a new record in 2004: 55
percent of all vehicles bought in the U.S. were light trucks.
Today, we see cars with 400, 500, and even 600 horsepower that
are meant for street use. So clearly consumers are going in the
direction that needs some restraint, and I would suggest that
an important part of energy policy has to be--has to include
the consumer or has to be some form of consumer education.
Another point that I would like to touch on is this issue
that Dr. Portney, again, briefly touched on, which is many
economists continue to believe that if you raise fuel prices,
that is going to solve the problem. We have to remember that
five years ago, gas was $1.20 a gallon. Last year, it was
almost $2.00 a gallon, and that is a 50 percent price increase.
Yet if I look at the numbers in terms of fuel economy, what
people are buying, the vehicle miles of travel, it is hard to
see that there has been a big effect. I personally feel that
the estimates that were put forward by the National Academies
were, perhaps, an order of magnitude too large in this issue.
Lastly, I would touch on subsidies and fees for technology.
Here I think the experience has shown that it is probably not a
good idea to subsidize specific technologies. I would mention
in this--example the issue between, say, the Toyota Prius and
the Honda design, if you can figure out a smarter, cheaper way
of doing something, it may not be covered by the specific
definition used to subsidize a technology. I would certainly
advocate that tax rebates or subsidies for fuel-efficient
vehicles be independent of the kind of technology used to get
there, whether it be diesel or some very advanced type of
gasoline engine or some hybrid, because ultimately, we want to
reduce fuel use, and that should be the goal of the subsidy.
These subsidies could be phased out over some period. The
principle idea behind the subsidy would be to reduce
manufacturer risk of investing in something that we have no
idea whether the consumers are going to buy.
Thank you for your attention. I will be pleased to answer
your questions.
[The prepared statement of Mr. Duleep follows:]
Prepared Statement of K.G. Duleep
Mr. Chairman and Members of the House Science Committee,
Thank you for inviting me to participate in this hearing on the
topic of vehicle fuel efficiency. I am the Managing Director at Energy
& Environmental Analysis (EEA), a consulting firm. EEA has been
involved in analyzing this topic for the last 25 years and has provided
the Department of Energy with many analyses of technologies over this
period. EEA has also worked for a number of foreign governments,
notably Canada and Australia, on this issue. The views expressed by me
at this hearing, however, are my own and do not reflect the views of
the DOE or any of my other clients. I was instructed by the Committee's
staff to respond to four questions, and I will focus on these questions
in my testimony. I have highlighted the key points in my written
testimony
CONVENTIONAL TECHNOLOGY IMPROVEMENTS
The first question posed was on the identification of technologies
available to improve light-duty vehicle fuel economy and their
potential benefit. This is a question that has received much attention
and most analyses separate ``conventional'' technologies that are
evolutionary improvements to existing technology from ``revolutionary''
technologies that involve new types of engines and/or fuels. In this
context, hybrid and diesel vehicles could be described as revolutionary
and their benefits are described in the response to the second
question. All of the fuel economy benefits cited are on the EPA
combined city-highway test unless an alternative is specifically
mentioned.
The available conventional technologies have been extensively
researched and I can state that there is a consensus among engineers
regarding these technologies and their costs and benefits. Table 1
(attached) provides such a listing and is restricted to conventional
technologies that are sold in at least one mass-market model in the
U.S. as of 2005, to avoid any controversy about technology readiness
for the market place. In addition, I have ignored the potential for
weight reduction through the use of alternative materials because of
the unfortunate controversy over the link between weight and safety.
The data in the table suggests that a total fuel economy improvement of
about 26 percent in small cars to 28 percent in larger cars and light
trucks is possible for much of the new car fleet with no weight
reduction whatsoever. At the same time it should be noted that all of
the technologies are (by definition) in some vehicles, so that the
fleetwide benefit available relative to 2004 model year vehicles is
about two percent lower than the estimate in the table. If one were to
choose only those technologies that pay for themselves in terms of fuel
savings over 50,000 miles ( a measure used by manufacturers to gauge
consumer acceptance), then the gasoline direct injection system would
not be included in the list. However, direct injection with lean
combustion could be cost effective as it could double the fuel economy
benefit from this technology alone and eliminate the need to employ
cylinder de-activation or variable valve lift. Hence, the available
improvement from cost effective conventional technology would be about
24 to 26 percent. Half of the improvement is associated with engine
technology. The technologies would add about $800 to $1,000 to the
retail price of a vehicle while the value of fuel saved over 50,000
miles at $2/gallon would be in the same range.
These estimates are a little lower than the ones derived by the
National Academy of Sciences for two reasons. First, the choice of only
those technologies already in the market as of 2005 is more restrictive
than the definition used by the NAS. Adding most of the excluded
technologies like ``camless valve actuation'' or `` variable
compression ratio'' will increase the total available benefit but will
not change the listing of cost-effective technology as these excluded
technologies are typically quite expensive for the benefit delivered.
Second, the NAS study was completed four years ago and some of the
technologies on their list have already been widely adopted in the
interim period. However, it can be argued that the costs of these
excluded technology improvements could come down in the future. A
comparison of studies on fuel economy completed since 1985 suggests
that at any given point in time, there always appears to be the
potential to increase fuel economy by 25 to 30 percent in a cost-
effective way. As available technologies are adopted into most new
cars, new technologies are developed to lead to this conclusion.
More importantly, I also believe that all of the cost-effective
technology in the table could be adopted under free market conditions
in most vehicles by 2015 if gasoline prices do not decline
significantly, simply due to the fact these technologies pay for
themselves. As examples, GM has publicly announced that most of the V-8
and V-6 engines will have cylinder cutout in the future. GM and Ford
are collaborating on a six speed automatic transmission that will be
used on most of their front wheel drive cars by 2012. DaimlerChrysler's
new four-cylinder engine will be equipped with variable valve timing.
Most current Honda models offer variable valve lift systems. These
examples confirm our computations of cost-effectiveness. At the same
time, this does not imply that 2015 fuel economy under free market
conditions will be 25 percent higher than it is today. We estimate that
about half of the improvement will counterbalanced by consumers buying
more luxurious and larger vehicles, SUV models and four-wheel drive
even if fuel prices remain at around $2 per gallon. If gasoline prices
decline in the future to $1.25 per gallon, there may be no improvement
in fleet fuel economy at all as some technologies become cost
ineffective.
HYBRID AND DIESEL TECHNOLOGY
The second question asks about the prospects for diesel and hybrid
technology, and their expected contribution to fuel economy. Dr. Greene
of Oak Ridge National Laboratory and I completed a study of these
technologies last year on this very question, but because technological
changes are happening quickly, I have modified my answers to reflect
new data. I will focus on technology issues and let Dr. Greene respond
to market penetration issues. Both technologies offer the prospect for
fuel economy improvements of 40 to 50 percent, more than double the
total available from all cost effective conventional technology.
Diesel engines are not a new technology and half of all new cars
sold in Europe are diesel powered. They are revolutionary only in the
U.S. context due to the difficulty in meeting emissions standards in
force here. Although much has been made of the diesel's emissions, I am
now reasonably confident that the diesel engine will be able to meet
the stringent new Tier 2 emission standards in most vehicles in the
near future. Existing diesel engines can definitely meet this standard
with an urea-SCR system and particulate trap, but vehicles need
periodic refueling with urea. Distributing urea to refueling stations
is not an insurmountable problem, but is of some concern to the EPA.
Other solutions that do not require urea like the NOX adsorber are also
close to meeting emission standards but extract a fuel economy penalty
of three to five percent. More exciting developments are in emission
control by modifying the combustion process itself. There are three
approaches being pursued, and the U.S. EPA has developed one. Last
week, Ford and EPA announced an agreement to develop this technology
for production, demonstrating its potential.
Modern diesel engines with direct injection and turbocharging can
improve fuel economy by 38 5 percent relative to a gasoline engine of
equal size.\1\ These engines can provide 40 to 50 percent more mid-
range torque than the gasoline engine and near equal horsepower. In
addition, there is evidence from Europe that diesel vehicles perform
better on the road than gasoline vehicles and real-world (as opposed to
EPA test) fuel economy may be about 50 percent better than a gasoline
vehicle. However, the diesel engine (with advanced emission control)
will have a price premium of about $2200 for a four cylinder engine
used in a compact car to about $3400 for a large V-6 used in a pickup
truck. At these prices, the fuel savings over 50,000 miles will not pay
for the full cost, but consumers value the torque and durability of the
engine. I should also note that the ``conventional'' technologies not
related to the gasoline engine in Table 1 are also applicable to diesel
powered vehicles, so that the vehicle fuel economy potential is about
50 6 percent. Our study estimated the ultimate market potential of
the diesel in the 2015 time frame at about 30 percent of the market if
there is no hybrid competition.
---------------------------------------------------------------------------
\1\ Europeans often quote a diesel fuel consumption (the inverse of
fuel economy) benefit of 25 to 30 percent, and this is equal to a fuel
economy benefit of 33.3 to 42.85 percent.
---------------------------------------------------------------------------
The hybrid gasoline--electric vehicle has received much attention,
but there are many kinds of hybrids and the terminology to describe
them is both confusing and biased. The Toyota Prius is one reference
sometimes referred to as a ``full'' hybrid, and it uses two high
powered electric motors, a gasoline engine and a high power battery.
(Ford's Escape hybrid uses a similar system.) The Honda Civic and
Accord hybrids use a different and simpler system with one motor of
relatively low power and a smaller battery than the one used in the
Toyota Prius. GM and DaimlerChrysler currently offer a system in a
hybrid pickup truck conceptually similar to the Honda system but with a
much lower power battery. GM also plans to introduce a fourth type of
system, called a Belt drive Alternator Starter (BAS) system that is
significantly cheaper than any of the other systems. All of these types
are hybrids but have quite different price and performance
implications.
In general, all hybrids improve fuel economy in city (or stop-and-
go) driving by significant amounts, but offer little or no improvement
in fuel economy under highway (steady high speed) conditions. In
addition, the hybrid vehicle's fuel economy benefits, even under city
driving conditions, are a function of trip length and ambient
conditions. In contrast, the fuel economy benefit of the diesel is more
robust across all driving conditions.
It is difficult to provide a single fuel economy benefit number to
hybrids even of a particular type since it is a function of the
performance trade-offs chosen by the manufacturer. ``Full'' Hybrids
using a two electric motor design similar to that used by Toyota and
Ford can provide a 50 to 55 percent improvement in composite fuel
economy if optimized for maximum fuel efficiency. This improvement
includes the effect of the conventional technologies listed in Table 1
and the benefit of hybridization alone is about 25 to 30 percent. Such
hybrids provide comparable low speed acceleration but reduced
continuous power for hill climb or trailer towing. Vehicles that offer
no compromise in continuous power and significantly better low speed
acceleration will offer a benefit of 30 to 35 percent (again including
most conventional technologies). In a mid-size car for example, we
estimate that the additional hybrid related components will add $5,600
to retail price currently if manufacturers utilize standard retail
markup and expect to earn an average profit margin on these vehicles.
There are significant cost reductions likely to be realized over the
next five years and we estimate that by 2010 prices can be below
$3,900. Since the fuel savings over 50,000 miles are only on the order
of $1,300 to $1,500, many believe that this technology will never
succeed in the market even after cost reductions are realized.
These issues regarding the ``full'' hybrid have been debated
publicly, but the potential of other hybrid designs has received much
less attention in the press. Honda has introduced three hybrid vehicles
in the U.S. that have a single electric motor of less than half the
power of the motors in the Toyota Prius, and an advanced battery that
is half the size of the one in the Prius. Yet, the fuel economy gains
in the Honda hybrid vehicles are almost as good as the ones from the
Toyota hybrids. Honda has cleverly managed to exploit synergies between
engine, transmission and electric motor technology to maximize fuel
economy. We estimate the cost of these hybrids to be less than half the
cost the ``full'' hybrid designs, so that future prices will be
relatively close to the value of fuel saved. Other innovative designs
using ultra-capacitors have been shown by Continental of Germany that
could be a low cost solution for some types of vehicles. These
alternative types of hybrid designs in synergy with engine technologies
could provide fuel economy gains of 30 to 35 percent with no loss in
performance, and will be cost effective in terms of fuel savings over
the life of the vehicle. Dr. Greene's analysis suggests that hybrids of
different types can capture 25 percent of the market by 2015, and this
figure could be higher with some of the more innovative designs under
study now.
Some analysts have discounted the diesel engine and hybrid
powertrain combination as too expensive, but I do not agree. Some
alternative cheaper hybrid designs could make sense with advanced
diesel engines by eliminating the need for costly emission control
equipment like NOX adsorbers, partially offsetting hybrid costs. I have
heard that several European manufacturers are developing hybrid-diesel
combinations and I anticipate that the first models will be available
in the U.S. by 2008.
SAFETY RELATED EFFECTS
The data presented above for conventional and revolutionary
technology do not include any weight or size reduction, so there are no
reasons to be concerned for safety. In addition, both the diesel and
hybrid vehicle weigh three to five percent more than conventional
vehicles, so that there could be positive benefits if weight is indeed
a factor. I am not a safety expert, but recent analyses sponsored by
Honda suggest that size rather than weight is more important for
safety.
In addition, the safety relationship to weight and size is debated
in the context of injury after a crash has occurred. This committee
should be made aware of amazing new advances in active crash prevention
technologies. Technologies being introduced into the marketplace in the
near-term include:
-- Blind Spot Warning through radar or infra-red detection
-- Pre-Crash sensing using radar or vision based technology
-- Lane Departure Warning using camera based technology
-- Active Lane Keeping systems
-- Stability control, soon to be standard on most vehicles
-- Rollover prevention on trucks and SUV models
-- Rear Vision and Night Vision systems
-- Drowsy Driver Detection systems
Indeed, there are plans to incorporate systems to completely sense
the vehicle driving environment and warn the driver or prevent a crash.
I believe that active safety technology has the potential to completely
change the safety debate and remove any link between fuel economy and
safety, and hope that this committee will examine these technologies
more closely.
GOVERNMENT POLICIES
I was also asked to comment on government policies to accelerate
technology introduction. I am aware of public initiatives to raise CAFE
standards with the premise that this policy has worked in the past.
While the CAFE standards did achieve the goals, there is no question
that the current form of the standard requiring all manufacturers to
meet the same MPG target disadvantaged domestic manufacturers. Dr
Greene and I have investigated other forms of the standard such as size
or weight based standards and these seem to be more equitable in
treatment of different manufacturers. However, no form of standard is
without some drawbacks, and all are susceptible to ``gaming.'' I am
also hesitant to suggest the European method that set a ``voluntary''
fuel consumption improvement target for all manufacturers and let the
manufacturers negotiate individual targets between themselves. I
understand some strains are being caused between European manufacturers
by this agreement, and intra-industry agreements could be construed as
anti-competitive behavior under U.S. laws. I will let others on the
panel comment on standards and focus my attention on promoting
technology for fuel economy.
The consumer side of the equation should also not be neglected.
Consumers appear to value other attributes, notably size, luxury
features and performance over fuel economy, and the appeal for SUV
models has not diminished much even at the current gasoline price of $2
per gallon. The market share for light trucks continues to increase and
reached a record of almost 55 percent of the total light vehicle market
in 2004. Cars and light trucks with astounding horsepower ratings of
400, 500 and 600 HP are in demand in a country where the national speed
limit rarely exceeds 70 mph. These trends will serve to eventually
erase the benefits of any amount of technology introduction. Hence,
future fuel economy related efforts should include efforts directed at
consumer motivation to purchase more efficient rather than more
powerful or larger vehicles. This has always been a difficult area for
Congress, as any restriction on consumer choice appears politically
unacceptable.
Just a few years ago, many economists believed that raising fuel
prices alone would solve this problem of consumer motivation. Some
computations purported to show that gasoline savings equivalent to a 25
percent increase in CAFE standards could be obtained by raising the
fuel price to $1.75 (or by about 50 cents) at that time. It can now be
demonstrated from U.S. data from 2003-2004 that the assumed
elasticities of consumer response to gasoline prices for vehicle choice
and vehicle use were in error, by almost an order of magnitude. The
Canadian experience with high fuel prices for the last 20 years also
proves the same point. Hence, increasing taxes on gasoline as the
primary conservation measure is not a particularly powerful strategy
unless very large price increases ($2 to $3) are contemplated. At the
same time, higher gasoline prices do make some modest contribution to
saving fuel and can set the stage for making higher priced fuel
efficient technology more palatable to the consumer, i.e., it may be a
necessary but not a sufficient condition.
Subsidies and fees for fuel efficiency or fuel-efficient technology
to motivate consumer purchase are a common suggestion, and there are
some subsidies now available for hybrid vehicles. I believe that the
experience has shown technology specific credit or subsidy programs to
be quite unpredictable in supporting the best outcome. For example,
California's current ZEV mandate provides credits to hybrid vehicles as
a function of electric motor power and battery voltage, independent of
the actual fuel economy or emissions results attained by a specific
design. In future, this could have the effect of promoting more
expensive designs and disfavoring less expensive but more innovative
designs that provides a similar outcome. I also believe that diesel and
hybrid technologies are not in direct competition, as the primary
benefits of hybrids accrue to passenger vehicles which operate mostly
under city driving conditions. Diesel technology is most useful for
vehicles that carry loads, tow trailers occasionally, and/or operate
primarily on the highway. Hence, the availability of both diesel and
hybrid technologies in the marketplace would extend benefits to
different groups of consumers with different needs.
I would suggest tax rebates or subsidies for fuel efficient
vehicles that are independent of technology, be it advanced diesel,
gasoline direct injection, hybrid or some combination. These subsidies
could be phased out over a 10-year period, and the main purpose would
be to reduce manufacturer's risk of investing in the production of a
high fuel economy technology that is rejected by the consumer.
Thank you for your attention. I will be pleased to answer any
questions the committee may have for me.
Biography for K.G. Duleep
As Managing Director at EEA, Mr. K.G. Duleep has been involved with
automotive technology, fuel economy, and emissions issues for nearly 25
years. He has directed a number of studies evaluating new technologies
for vehicular engine and fuel combinations (including methanol, natural
gas, and other alternative fueled vehicles). These studies have
compared the technical feasibility, economics, performance,
maintenance, and air emissions impacts of alternative vehicle
technologies. Mr. Duleep has completed projects for the U.S. Federal
and State governments, and for several other countries (notably Canada
and Australia) where his technology evaluations and forecasts have
formed the basis for fuel economy related initiatives and regulations.
Mr. Duleep has testified on transportation technology issues for the
U.S. Congress during debates on the Clean Air Act and CAFE (fuel
economy) standards during the 1990s.
In 2000, Mr. Duleep supported the National Academy of Sciences'
Committee on the Effectiveness and Impact of CAFE Standards by
providing information to the committee on the availability, cost and
benefit of several automotive technologies. Much of the data on the
cost of fuel economy and alternative fuel technology available in the
public domain can be traced to his work for the Department of Energy.
He also provides technology analysis support to auto-manufacturers and
Tier 1 suppliers.
Mr. Duleep has a Masters' degree in Engineering from the University
of Michigan and an MBA from Wharton.
Chairman Boehlert. Thank you very much.
Mr. Stanton.
STATEMENT OF MR. MICHAEL J. STANTON, VICE PRESIDENT OF
GOVERNMENT AFFAIRS, ALLIANCE OF AUTOMOBILE MANUFACTURERS
Mr. Stanton. Thank you, Mr. Chairman.
I represent the Alliance of Automobile Manufacturers, which
is BMW, DaimlerChrysler, Ford, GM, Toyota, Mazda, Mitsubishi,
Porsche, and Volkswagen of America. So it is a broad group of
international manufacturers.
And the Alliance supports efforts to create an effective
energy policy based on broad market-oriented principles.
Policies that promote research and development and accelerate
the deployment of advanced technologies by providing customer-
based incentives should be the foundation for these efforts.
This focus leverages the intense competition of automobile
manufacturers worldwide. Competition drives automakers to
develop and introduce technologies as rapidly as possible to
meet the demands and needs of customers.
The auto industry is committed to developing and utilizing
emerging technologies to produce cleaner, safer, and more fuel-
efficient cars and light trucks. The NAS, in its 2001 report to
Congress, cited a number of promising technologies that are
being developed for use in vehicles. The report notes that they
fall into a variety of categories, from production intent to
emerging. In many cases, the production intent technologies are
already in vehicles. The emerging technologies are ones that
may achieve significant penetration in the market if economic
and regulatory conditions permit, and in some cases, if there
are engineering breakthroughs. All of this suggests that
purchasing a course of--or pursuing a course of incentivizing
the introduction of technologies to accelerate their
implementation would be more effective than attempting to
effectively mandate their use.
Auto manufacturers are working on advanced longer-term
technologies, such as hybrid, clean diesel, and internal
combustion engines and fuel cells. These efforts may lead to
substantial improvements in efficiency and emissions
performance, all, we hope, without sacrificing safety, utility,
comfort, or performance. Fuel cell technology, or liquid
hydrogen powered ICEs, also serve as a potential path 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 together
all of the stakeholders, including auto makers, energy
providers, government policymakers, and most important,
consumers.
The Alliance supports enactment of consumer tax credits for
the purchase of these advanced technology vehicles. These
credits will help offset the initial higher cost until greater
volumes make them less expensive to produce and purchase. The
Alliance believes that the overall concepts and provisions for
consumer tax incentives found in last year's conference report
for the Energy Bill are the right approach and would benefit
consumers. And I am pleased to say that yesterday Congressman
Camp introduced similar legislation, and we hope that the
Committee Members would be able to support it.
CAFE levels are critical to auto makers for a variety of
reasons. First, if standards are too high, they will preclude
vehicle attributes that can put the manufacturer at odds with
their customers. Second, the level of CAFE standards can result
in unintended consequences, such as the adverse safety
consequences of pushing manufacturers to making vehicles
lighter and smaller. Third, there are competitive implications
for some manufacturers relative to others due solely to the mix
of vehicles that are offered and sold. For instance, a
manufacturer specializing in large, high-performance vehicles
will have a more difficult challenge than a full-line
manufacturer, and that full-line manufacturer will have a more
difficult challenge than a limited-line manufacturer on
compacts and sub-compact vehicles. And finally, for consumers
sensitive to costs, fuel economy gains must be compared to the
increased costs for their new vehicle purchase decisions.
To summarize, Mr. Chairman, the Alliance believes that we
must continue our efforts to reduce our dependence on foreign
oil, which is one of the reasons we support the President's
Hydrogen Fuel Initiative. In the near term, Alliance members
will continue to compete with advanced technology vehicles,
such as hybrids, clean diesel, and alternative fuel vehicles.
Meanwhile, we will continue to work with NHTSA as it fulfills
its congressional mandate to set new light truck vehicle CAFE
standards at their maximum feasible level.
Mr. Chairman, this concludes my statement. Thank you.
[The prepared statement of Mr. Stanton follows:]
Prepared Statement of Michael J. Stanton
Mr. Chairman,
Thank you for the opportunity to testify before the Committee on
Science regarding fuel efficient technologies for motor vehicles. I
represent the Alliance of Automobile Manufacturers, a trade association
of nine car and light-truck manufacturers. Our member companies include
BMW Group, DaimlerChrysler Corporation, Ford Motor Company, General
Motors Corporation, Mazda, Mitsubishi, Porsche, Toyota Motor North
America and Volkswagen of America.
Alliance member companies have more than 600,000 employees in the
United States, with more than 230 manufacturing facilities in 35
states. Overall, a 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 Alliance supports efforts to create an effective energy policy
based on broad, market-oriented principles. Policies that promote
research and development and accelerate the deployment of advanced
technologies by providing customer-based incentives should set the
foundation for these efforts. This focus on ``accelerating the
implementation of advanced technologies'' leverages the intense
competition of the automobile manufacturers worldwide. Competition
drives automakers to develop and introduce breakthrough technologies as
rapidly as possible to meet the demands and needs of consumers.
According to EPA data, the results of these efforts have been
steady fuel efficiency increases of nearly two percent per year on
average from 1975 to 2003 for both cars and light trucks. Fuel
efficiency is a measure of the energy needed to move a given mass a
specified distance. Fuel efficiency has been increased through
improvements in aerodynamics, powertrains and reductions in accessory
losses--in essence, through the use of the technologies of concern to
the Committee and mentioned in reports by the National Academy of
Sciences (NAS). As a result, the average vehicle each year, everything
else being equal, consumes about two percent less fuel than it did the
year previously.
To accomplish these great results, the auto industry spending on
R&D each year is approximately $18.4 billion, with much of it in the
high tech sector. In fact, the University of Michigan study noted
earlier 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 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.''
The auto industry is committed to developing and utilizing
``emerging'' technologies to produce cleaner, safer, and more fuel
efficient cars and light trucks. The NAS, in its 2001 report to
Congress, ``Effectiveness and Impact of Corporate Average Fuel Economy
(CAFE) standards,'' cited a number of promising technologies that are
being developed for use in vehicles. The report notes that they fall
into a variety of categories--from ``production intent'' to
``emerging.'' In many cases, the production intent technologies have
already begun to be introduced into vehicles. The ``emerging''
technologies are ones that may achieve significant penetration into the
market over 10 or more years, IF economic and regulatory conditions
permit and at times ONLY IF engineering ``breakthroughs'' are achieved.
All of this suggests to us that pursuing a course of incentivizing the
introduction of technologies to accelerate their implementation would
be more effective than attempting to effectively mandate their use.
Auto manufacturers are also working on advanced longer-term
technologies such as hybrid, clean diesel, and hydrogen powered
vehicles, including fuel cells and internal combustion engines (ICE).
These efforts may lead to substantial improvements in efficiency and
emissions performance--all, we hope, without sacrificing safety,
utility, and performance. Fuel cell technology, or liquid hydrogen
powered vehicles using an ICE, also serve as a potential 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 consumers.
The NAS summarized the 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.''
What this says is a fact that the auto industry must deal with
every day in designing and producing vehicles--the customer is in the
driver's seat. This helps explain why, when fuel efficiency has been
increasing by two percent per year, fuel economy (the miles per gallon
a vehicle obtains) has not kept pace. Consumers are not placing as high
a value on fuel economy as they are on other vehicle attributes (e.g.,
price and safety). Thus, while vehicles continue to get more fuel
efficient, the miles per gallon obtained by a given vehicle or the
vehicle fleet as a whole, has not increased as much because consumers
are either choosing larger and heavier vehicles or choosing vehicle
attributes such as larger engines and advanced safety equipment, that
dampens the increase in fuel economy.
Market-based incentives ultimately will help consumers deal with
the initial higher cost barriers of advanced technologies during early
market introduction. The important consideration here is to increase
demand, bringing more energy efficient vehicles into the marketplace.
This will help drive cost reduction as economies of scale are achieved
in a timelier fashion.
As a result, the Alliance supports enactment of consumer tax
credits for the purchase of advanced technology vehicles. These credits
will help offset the initial higher costs of advanced technology and
alternative fuel vehicles until further technological advancements and
greater volumes make them less expensive to produce and purchase. The
Alliance believes that the overall concepts and provisions for consumer
tax incentives found in last year's energy bill conference report are
the right approach and would benefit American consumers.
Unfortunately, there have also been Congressional efforts in the
past to consider amendments to the energy bill to increase CAFE
standards. The Alliance has opposed these attempts to Congressionally
set arbitrarily higher CAFE levels. The original CAFE program was
designed to allow the Department of Transportation to set new standards
by conducting rule-makings that consider the ``maximum feasible fuel
economy level'' that is achievable for a given model year.
Two years ago, the National Highway Traffic Safety Administration
(NHTSA) used this authority to set higher standards for the 2005-07
model year light trucks. The NHTSA rule increased the standards by 1.5
mpg over that period--to 22.2 mpg by 2007--the largest increase in 20
years. NHTSA set these standards after considering key elements such as
technological feasibility, cost, safety, emissions controls, consumer
choice, the need of the Nation to conserve energy, and the effect on
American jobs. While the standard for 2007 may not be viewed by some as
sufficiently ``aggressive,'' NHTSA stated in the preamble to the final
rule that it will pose a ``substantial challenge'' to at least one of
our member companies.
In its rule-making, NHTSA noted that advanced fuel saving
technologies, such as hybrid electrics and advanced clean diesels,
could substantially enhance the average fuel economy of the American
light vehicle fleet as even more advanced technologies, such as fuel
cells, are being developed.
Where CAFE levels are set is critical to automakers for a variety
of reasons. First, there are competitive implications for some
manufacturers, relative to others, due solely to the mix of vehicles
that are offered and sold. The current system emphasizes these
disparate impacts by more severely challenging manufacturers that
already provide vehicles in the heavier and larger segments of the
vehicle fleet, such as full-size SUVs and pick-up trucks. While there
are approaches to restructuring the CAFE program that can help address
these concerns, the details of implementing them are critical and must
be fully explored to avoid creating a system with new competitive
consequences. The Administration is currently examining a number of
CAFE restructuring proposals through rule-making and the Alliance and
its Member companies are actively involved in the process.
Second, the level of CAFE standards can result in unintended
consequences, such as the adverse safety consequences of pushing
manufacturers to make vehicles lighter and smaller. The NAS report
noted the increased fatalities that are attributable to the impacts of
downweighting and downsizing due to past CAFE standards and urged care
in setting future levels to avoid aggravating this effect. The report
said, ``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. For
fuel economy regulations not to have an adverse impact on safety, they
must be implemented using increased fuel efficiency technology.''
Third, the emphasis of customers on improving the safety of the
vehicles they purchase results in automakers adding more equipment to
provide safety in collisions. Safety improvements continuously add
weight to vehicles, and the heavier the vehicle, the more energy it
takes to move it down the road, resulting in a decrease in fuel
economy. This is a classic dilemma and reflects the tradeoffs that
automakers face constantly in designing vehicles to achieve
improvements in safety, fuel efficiency and emission performance.
Finally, 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 a fuel cost of $2 per gallon, a 20
percent increase in vehicle fuel efficiency offers an annual fuel
savings of under $150. This cost must be weighed against the
convenience, utility and performance of the alternative. 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.
So where is the industry headed:
Fuel Cell Vehicles
A 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. On-board hydrogen storage also
presents some difficulty. The gasoline infrastructure is well
established, but gasoline reformers are the least developed and the
most costly of reformer technology.
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 fleets are the packaging restrictions
of size and weight.
Hybrid-Electric Vehicles
Hybrid-electric vehicles offer significant improvements in fuel
economy and in tailpipe emissions. 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 investment in
fuel infrastructure which helps reflect their potential for near-term
acceptance.
Advanced Lean Burn Technology Vehicles
Vehicles that are powered by advanced lean burn technology such as
clean, direct injection diesels offer greater fuel economy and better
performance. The auto industry is working now to introduce technologies
that will allow diesel automobiles to meet the EPA's Tier 2 emissions
regulations. These types of vehicles, widespread in Europe today, could
provide fuel economy gains in excess of 25 percent above comparable
conventional vehicles.
Internal Combustion Engine powered by liquid hydrogen
Another promising and enabling technology towards a hydrogen
economy are hydrogen-powered ICEs. The concept of using hydrogen in
internal combustion engines offers several advantages: near zero
emissions, maintaining the utility, flexibility, and driving dynamic of
today's automobile and helping to promote a hydrogen fueling
infrastructure.
Battery Electric Vehicles
Vehicles that utilize stored energy from ``plug-in'' rechargeable
batteries offer zero emissions from the vehicle. However, battery
electric vehicles continue to face weight, energy density, and cost
challenges that limit their customer range and affordability.
Beyond gasoline, the auto industry is working with a variety of
suppliers of alternative fuels. In fact, the industry already offers
more than 25 vehicles powered by alternative fuels. Approximately three
million of these vehicles are on the road today and more are coming.
Today, we find vehicles that use:
Natural gas, which reduces carbon monoxide emissions;
Ethanol, a renewable fuel domestically produced with
the longer term potential to substantially reduce greenhouse
gases;
Liquefied petroleum gas (propane), the most prevalent
of the alternative fuels, which reduces VOC emissions; and
For the future, liquid hydrogen, which has the
potential to emit nearly zero pollutants depending on
feedstock.
One of the key hurdles to overcome in commercializing alternative
fuel vehicles is the lack of fueling infrastructure. For nearly a
century, infrastructure has focused primarily on gasoline and diesel
products. Infrastructure and fuel incentives will help the distributors
overcome the costs to establish the alternative fuel outlets and
support distributors during initial lower sales volumes as the number
of alternative fuel vehicles increases.
As you can tell, the automobile companies are constantly competing
for the next breakthrough innovations. 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 is why now is the perfect
time for the enactment of consumer tax credits to help spur the
purchase of these new vehicles which years of research and development
have made possible.
Thank you.
Biography for Michael J. Stanton
Michael J. Stanton, Vice President, Government Affairs, is
responsible for implementing and coordinating the Alliance of
Automobile Manufacturers (Alliance) and its members' programs to assure
that their views on federal issues are appropriately communicated to
Members of Congress and their staffs, executive departments and federal
agencies and other associations and organizations. He is also
responsible for international relations to ensure that U.S. automakers
interests are represented throughout the world.
Mr. Stanton was named to his present position in 1999 when the
Alliance was formed. Prior to the Alliance, he served as Director of
Federal Relations for eight years with the American Automobile
Manufacturers Association (AAMA). Before joining AAMA, Mr. Stanton was
responsible for federal and State legislation for the Motor Vehicle
Manufacturers Association.
Mr. Stanton has more than 25 years experience representing auto
manufacturers before federal and State legislatures.
Mr. Stanton spent two years as an officer in the Navy, serving
aboard the U.S.S. America during the Vietnam War. A native of
Washington, D.C., Mr. Stanton holds a Master's Degree from George
Washington University.
Chairman Boehlert. Thank you very much, Mr. Stanton.
Dr. Greene.
STATEMENT OF DR. DAVID L. GREENE, OAK RIDGE NATIONAL
LABORATORY, CENTER FOR TRANSPORTATION ANALYSIS, NATIONAL
TRANSPORTATION RESEARCH CENTER
Dr. Greene. Thank you, Mr. Chairman. Good afternoon, and
good afternoon to Members and staff and guests here.
I am pleased to be here, and I hope I can help advance the
discussion.
Could I have the first slide, please?
[Slide.]
I have been asked three questions that pertain to policy.
The first question, essentially, is what are the policy
options and what are their pluses and minuses. I have dealt
with this, or tried to, at some length in my testimony. I will
just try to hit some high points here.
The second question is directly aimed at whether or not the
government can encourage adoption of fuel-efficient
technologies without leading manufacturers to make vehicles
less safe. My simple answer to that is yes, but I will
elaborate on that in a moment.
And can the government encourage the adoption of
technologies to improve fuel economy without significant
negative impacts on manufacturers? And this is more
complicated, but I think things can be done to improve the
current system, let me say that.
Next, please.
[Slide.]
Well, there are lots of standards that can be used, and
there are lots of policies that can be used to encourage fuel
economy improvement. And countries--almost every developed
country around the world has some form of fuel economy
standards, and almost all of them are different. We have the
CAFE standards. Japan has weight-based standards. China is
adopting weight-based standards. The European Union has
comprehensive voluntary standards, which has some advantages
for them. My bottom line here is I think there are many ways to
do this and to do it effectively. There are some pluses and
minuses.
For example, I think the one criticism of the CAFE
standards that stands up to analysis is that they did have
differential competitive impacts, which were more onerous for
the Big Three U.S. manufacturers to meet than for foreign
manufacturers. On the other hand, the situation in the auto
market has changed considerably. The largest manufacturers now
are much more supplying vehicles across the board, as compared
with back in 1975 when the foreign manufacturers were highly
specialized in small vehicles. So these differential impacts
will be inherently smaller today than they were back then, and
there are further ways to mitigate them by having class-based
standards or attribute-based standards.
The chief problem I see with the CAFE standards is that
once you meet the standards, then you stop. There is not a
continuing incentive to improve fuel economy to add
technologies as they come along. This kind of problem can be
addressed by market-based incentives, such as feebate systems,
which consist of a fee charged for vehicles that are below a
pivot point or a certain fuel economy level and a rebate or
incentive that are given to vehicles above that level. Pivot
points can be chosen, such there is one for the entire
marketplace, one for passenger cars, one for light trucks, or
perhaps many classes of vehicles. This provides ongoing
incentives to continue to adopt fuel economy technology in
order to avoid a fee or gain a rebate.
Other market-based approaches include gasoline taxes, and I
would like to say that our National Research Council report,
once again, recommended higher fuel taxes. I think that is
still a good idea. It may be unpopular, but I think it is
incumbent on people like myself and like my colleague, Dr.
Portney, to recommend such things when we get the opportunity.
Next, please.
[Slide.]
I would like to spend a moment trying to elaborate on the
point that the Chairman made earlier that there is market
failure in the market for fuel economy and to see if I can help
us understand what the nature of that is.
What matters to the consumer of an automobile is not the
total value of fuel savings that fuel-efficient technology will
provide, nor is it solely the price increase that will come
about when these technologies are added to the vehicle. Rather,
it is the difference between the two, the net value: the fuel
savings minus the price increase. I show here on the higher
graph data from our own National Research Council study. The
dotted red line is the cost of improving the fuel economy using
the technologies we described in the study of a typical 28-
mile-per-gallon passenger car. The solid black line is the
discounted present value of fuel savings that would be realized
over the life of the car. I see some people are already eyes
glazing over with that kind of terminology. But essentially,
that is the value of these fuel savings to a perfectly rational
economic consumer who calculates out exactly what he is going
to do and how much he is going to save over the life of the
car. By the way, the evidence is there probably are no such
consumers out there.
But in any case, what is of interest to the consumer is the
difference between the two, which is that lower curve, which
doesn't vary by more than plus or minus $200 or $250 over
approximately 50 percent increase in fuel economy. I think this
explains, given the uncertainty in the consumer's mind about
what those fuel economy numbers on the car really mean and what
the future price of gasoline is going to be. It is no surprise
that this is not an important issue to the typical car buyer.
This is way down the list of things that are of importance.
On the other hand, to achieve this kind of dramatic
improvement in fuel economy, manufacturers have to completely
redesign their vehicles, invest billions of dollars in
retooling, and it is a very risky, expensive proposition for
something that their customers are barely interested in. This,
I think, is the principle reason why fuel economy technologies
today do not get incorporated into vehicles for the purpose of
improving fuel economy.
Now many in the industry believe that consumers only count
the first three years of fuel savings and not the fuel savings
over the life of the car. The lower graph shows that same net
value curve if you only count the first three years of fuel
savings, and obviously at that point, there is nothing worth
doing. So that explains, if that is your perspective, on why
you would not improve the fuel economy of vehicles.
Next slide, please.
[Slide.]
Turning to this question of whether the government can
encourage fuel-efficient technology without harming safety,
first, let me say the question of fuel economy and weight
reduction is greatly exaggerated. According to data published
by the Environmental Protection Agency, the average light-duty
vehicle, combined passenger car and light truck fleet vehicles,
sold in 2004 weighed six pounds more than the average light-
duty vehicles sold in 1975. Yet it got 58 percent, almost 60
percent better fuel economy. So we have improved the fuel
economy of vehicles over 1975 levels by 60 percent. The
vehicles weigh six pounds more than they did back then. The
issue that weight reduction is the chief method of improving
fuel economy is, using Mark Twain's phrase, greatly
exaggerated.
Now there is still this issue of whether they are
downsizing weight reduction, which did occur in the early years
following the passage of the Fuel Economy Standards in 1975 and
the price shocks in '73 and '74, whether that was harmful to
safety. At the time the National Research Council report was
written, there were no scientific studies contradicting the
prevailing view that increasing fuel economy led to smaller,
lighter cars, which led to greater fatalities. There are now
four scientific studies that have been published, which do
contradict that view, and these studies indicate that, one,
there is no link between fuel economy and traffic safety, and
two, that, in the case of the studies done by DRI and supported
by Honda of America, it indicates that increasing the weight of
vehicles while maintaining size would be--actually be harmful
to safety. Decreasing the weight of vehicles somewhat while
maintaining the size of vehicles would be beneficial to safety.
So now I think we have something we didn't have at the time
of the NRC report, which is scientific evidence that this link
is not what we thought it was and that we can proceed to
improve fuel economy without harming safety.
Next slide, please.
[Slide.]
This is just a slide which illustrates the point. The upper
line shows total highway traffic fatalities, which, by and
large, decreased over time, while fuel economy was improving.
Your eyes don't deceive you: fuel economy increased, traffic
fatalities went down. And the issue is a lot more complicated
than that, but I think that does summarize, reasonably well,
what was achieved.
Final slide, please.
[Slide.]
With respect to differential impacts, there are many things
that can cause differential impacts on firms from a fuel
economy standard or any kind of market-based fuel economy
policy as well. The one that I think is most salient is the
product mix, which does differ, to some extent, across
manufacturers and will be an issue. There are ways to mitigate
this with class-based standards, attribute-based standards, and
adding flexibility features, like tradable credits that we
recommended in the National Research Council report.
Final slide, please.
[Slide.]
I think all I wanted to say from this slide is to reiterate
what Dr. Portney said. That is that it is extremely important
to allow adequate lead time for design changes so that
manufacturers have time to do the proper engineering and the
resources to do the proper engineering and to turn over their
productive capital in an orderly fashion. It is also important
to set the standards at levels that are close to being cost-
effective from the point of view of fuel savings so that they
do not create excessive market distortions.
[Slide.]
With that, let me go to the last slide and just say thank
you very much, and I will be happy to answer any questions.
[The prepared statement of Dr. Greene follows:]
Prepared Statement of David L. Greene
1. WHAT ARE THE POLICY OPTIONS FOR ENCOURAGING THE ADOPTION OF FUEL
EFFICIENT TECHNOLOGIES AND THEIR ADVANTAGES AND DISADVANTAGES?
There are many ways to structure policies to achieve significant
increases in fuel economy effectively and efficiently. I will focus on
five below. It is possible to create policies that are reasonably
effective, efficient, and fair. Our own experience with our CAFE
standards and difficulties we have had updating the CAFE law indicates
that we should also prefer policies that provide a continuing incentive
to improve fuel economy.
Following the oil crises of the 1970s, nearly every developed
economy in the world adopted fuel economy standards in some form (IEA,
1984; 1991). Though the forms and means of implementing standards
varied, and although fuel economy standards have been criticized on a
variety of grounds, all these standards were effective in raising fuel
economy levels. Fuel economy standards contributed to curbing the
growth of world oil demand in the 1980s and, in combination with the
market response to higher oil prices led to the OPEC cartel's loss of
control over world oil markets in 1986. We do know how to reduce
dependence on petroleum and we have done so effectively in the past.
The combination of higher oil prices and policies aimed at increasing
energy efficiency led to almost 15 years of low oil prices (Figure 1).
Unfortunately, after these efforts were successful and oil prices
crashed in 1986, we stopped trying. With OPEC nations holding more than
two thirds of the world's proven oil reserves and more than half of the
world's ultimate conventional oil resources, and with growing demand
for oil for transportation in developed and developing economies, it
was only a matter of time before they regained control of world oil
markets.
Potentially effective fuel economy policies range from standards to
market-based measures. Developed economies that have recently tightened
their fuel economy or carbon emission standards for motor vehicles
include Japan, the entire European Union (EU) and Australia. China has
also recently adopted fuel economy standards with the aim of curbing
their rapidly growing demand for oil (An and Sauer, 2004). Each country
has a different form of standard, and each one is different from our
own Corporate Average Fuel Economy (CAFE) Standards. Japan and China
have mandatory standards that vary (in different ways) across vehicle
weight classes. The EU and Australia negotiated voluntary standards
with automobile manufacturers collectively that are based on the sales-
weighted average emissions of carbon dioxide per vehicle kilometer.
CAFE OR UNIFORM PERCENTAGE INCREASES (UPI)
Our CAFE standards were effective in raising passenger car and
light truck fuel economy and curbing the growth of petroleum demand.
They have been criticized on many grounds, but the one criticism that
stands up to analysis is that they created a more severe burden for the
``big three'' domestic manufacturers than for much of their
competition. Differential competitive impacts are inherent in the CAFE
system whenever manufacturers specialize in different market segments
because it requires each manufacturer to meet the same MPG target,
regardless of its product mix. Manufacturers emphasizing larger light
trucks and passenger cars will clearly have a more difficult task than
those concentrating in smaller vehicle market segments. This problem
was ameliorated but not eliminated in the CAFE law by defining separate
targets for passenger cars and light trucks. Another provision to
increase flexibility allows manufacturers to average their fuel economy
numbers over a six year moving window (three years forward, three
back). The economic efficiency of the CAFE law could be improved
further by allowing manufacturers to trade fuel economy credits as
recommended by the National Research Council (NRC, 2002) CAFE report.
Still, these trades will result in income transfers among firms unless
credits are initially allocated to firms in a way that compensates in
advance for such transfers. That might be difficult to do because it
effectively amounts to giving money to some firms and not others.
UPI have been proposed as an alternative to CAFE. This system
requires each manufacturer to achieve not the same MPG level, but the
same percentage increase in MPG. The UPI system essentially produces a
mirror image of the differential competitive impacts of CAFE (Greene
and Hopson, 2004; Plotkin et al., 2002), putting smaller vehicle
manufacturers and manufacturers that have already adopted advanced fuel
economy technologies at a disadvantage. A UPI system would also
discourage manufacturers from adopting more fuel economy technology
than was absolutely required, since exceeding the standard might later
lead to having to meet a more difficult standard. In addition, while
CAFE can discourage manufacturers from abandoning smaller vehicle
production, UPI can discourage small vehicle manufacturers from moving
into larger vehicle markets.
ATTRIBUTE-BASED STANDARDS
Attribute-based standards set fuel economy standards based on
measurable vehicle attributes, such as weight or size. This can help
reduce, but probably cannot eliminate (see, e.g., Plotkin et al., 2002,
Ch. 6), the competitive impacts of CAFE or UPI style fuel economy
standards. Japan has had successful weight-class fuel economy standards
for decades, and China has just adopted a weight-based system. Weight-
based standards take account of the product mix but do not recognize
differences in manufacturers' current use of fuel economy technology.
They do not recognize the possibility that different manufacturers may
be serving customers with different preferences for fuel economy. For
these reasons, some degree of differential competitive impacts will
occur even under a weight-based system. Finally, weight-based
standards, depending on how there are designed, may or may not provide
an incentive for substituting advanced lightweight materials in
vehicles as a way of increasing fuel economy.
Size-based standards are a promising but largely untested
alternative to weight-based standards. Size-based standards could be
based on dimensions such as wheelbase times track width, or interior
volume. Such standards would have the advantage of preserving the
option of reducing vehicle weight to increase fuel economy without
sacrificing vehicle size. There is some recent evidence to indicate
that moderate reductions in vehicle weight while maintaining basic
vehicle dimensions would be beneficial to highway safety (Van Auken and
Zellner, 2004). Because there is no experience with size-based fuel
economy standards, the engineering and design implications of such
standards should be carefully studied before they are formulated and
implemented.
VOLUNTARY STANDARDS
Voluntary fuel economy standards were effective in Europe in the
1970s and 1980s, and the current EU-ACEA carbon dioxide emissions
standard also appears to be headed for success in meeting its 2008
target. Canada also adopted voluntary standards, but they mirrored the
U.S. CAFE standards which essentially guaranteed their success.
According to economic theory, voluntary standards can be effective if
there is a credible threat of mandatory standards. Voluntary standards
can take any of the forms of mandatory standards.
The EU-ACEA voluntary standards are worthy of note because they
apply to the entire industry, leaving the determination of individual
firms' responsibilities to negotiations among the firms. While this
certainly has risks, it also creates the opportunity for firms to
allocate responsibilities in an efficient and fair manner by setting
each firm's target at the same level of marginal cost per gallon of
fuel saved. Because compliance is achieved voluntarily, there is no
need for transfers of income among firms. Thus, economic efficiency,
fairness and minimal competitive impacts can all be achieved
simultaneously. No other system can claim all three advantages.
FEEBATES
Feebates are an entirely market-based approach. Vehicles above a
chosen ``pivot'' level of fuel consumption (best measured as the
inverse of fuel economy, i.e., gallons per mile or liters per 100
kilometers) pay a fee, while those below receive a rebate (Davis et
al., 1995). The most efficient approach is to set both fees and rebates
at a fixed rate in terms of dollars per 0.01 gallons per mile (or
equivalent). This provides the same economic incentive to save a gallon
of gasoline for all vehicles (assuming equal miles of use).
The economic response to feebates is solely a function of the rate
and not the pivot points because the rate determines the marginal value
of increasing fuel efficiency. The pivot points determine the transfer
of revenues. This allows the creation of revenue-neutral feebate
systems that pay out as much as they take in. Feebate systems can be
designed with one pivot point or with vehicle class-specific pivot
points. Analysis of feebate systems has shown that the transfer of
revenues among manufacturers can be reduced significantly by a two
pivot point system that distinguishes between cars and light trucks
(Greene et al., 2005). The benefits of greater numbers of pivot points
is unclear, and increasing the number of pivot points increases the
opportunity to ``game'' the system by moving vehicles from one class to
another to attain a more easily achieved pivot point.
A key advantage of feebate systems is that they provide a
continuing incentive to adopt fuel economy technologies as long as they
remain in effect. Whereas once a CAFE target is met there is no further
incentive to increase fuel economy, the feebate rate always offers an
additional economic incentive to avoid a dollar of fee or gain a dollar
of rebate. In view of the difficulty of raising CAFE standards over the
past 20 years, this could be an extremely valuable feature in the U.S.
political context.
The United States currently has in place half of a feebate system
on half of the vehicles, in the form of the gas guzzler tax. The rate
of the gas guzzler tax is very high, and as a result, it has nearly
eliminated gas guzzling passenger cars. Guzzler taxes or rebates alone
cannot be as effective as a comprehensive feebate system (Greene et
al., 2005). A gas-guzzler tax on passenger cars and not light trucks
undoubtedly decreases the numbers of larger heavier passenger cars
without similarly affecting light trucks. Given the current CAFE law,
the gas-guzzler tax also produces no benefit in terms of raising
passenger car fuel economy.
GASOLINE TAXES
If the market for automotive fuel economy operated efficiently,
increasing the tax on gasoline would be the most economically efficient
way to increase fuel economy. Over the years, higher gasoline taxes
have proven to be unpopular, but that is not an argument against their
desirability from an economic efficiency standpoint. There are,
however, good reasons to believe that the market for fuel economy is
not efficient and, therefore, that standards have an important role to
play.
First, even nations with gasoline prices two to three times higher
than those in the United States have felt it necessary to have fuel
economy standards. This includes the entire EU and Japan. If the market
for fuel economy were efficient, gasoline prices in the range of $3 to
$5 per gallon should be sufficient to raise vehicle fuel economy.
Still, the EU and Japan found it necessary to have fuel economy
standards.
Second, the net value to consumers of technology-based fuel economy
improvements appears to be small over a wide range of fuel economy
levels. In general, advanced fuel economy technology costs more that
conventional technology. The benefit to consumers is therefore the
present value of fuel saved minus the initial higher cost of the
technology. The two graphs below show the estimated price increase and
value of fuel savings for an average U.S. passenger car as fuel economy
is increased from 28 to 45 miles per gallon. The data are taken from
the 2002 NRC CAFE study. In Figure 2, the customer is assumed to count
fuel savings over the full life of the vehicle, yet there is no more
than a $250 difference in net value (fuel savings minus price
increase) over a range of zero percent to 50 percent increase in fuel
economy. Considering the uncertainty in what the customers' true fuel
economy number will be, what the future price of fuel will be, and what
the consumer is likely to actually pay for higher fuel economy, it is
no wonder that fuel economy is not high on the consumers' list of
things to consider when buying a car. From the manufacturers'
perspective, however, a large increase in fuel economy is a long-term,
high-cost, high-risk decision, requiring nearly complete vehicle
redesign and substantial retooling--all for something customers are
essentially indifferent about.
The second graph (Figure 3) displays the net value if consumers
count only the first three years of fuel savings. In this case, there
is no economic incentive for consumers to demand higher fuel economy or
for manufacturers to supply it.
Third, recent evidence from surveys indicates that consumers are
indeed undervaluing fuel economy. First, survey evidence, generally
supported by automobile manufacturers, indicates that consumers expect
an expenditure on fuel economy technology to be paid back in fuel
savings within 2-4 years, far less than the full lifetime of a modern
automobile. A recent study by the University of California at Davis
(Turrentine and Kurani, 2005) conducted in-depth interviews with 60
households in California. Few even considered fuel economy in their
purchase decisions. None explicitly calculated the potential value of
fuel savings by any method. In short, there was no evidence whatsoever
of textbook, economically rational behavior with respect to fuel
economy.
Despite the apparent imperfection of the market for fuel economy,
increasing the price of gasoline would be a sound and beneficial
policy. It would signal consumers of the importance of reducing fuel
use, making it somewhat easier for manufacturers to sell higher fuel
economy vehicles. It would mitigate and could eliminate the rebound
effect, the tendency for motorists to drive a little more when higher
fuel economy reduces the fuel cost per mile of travel. Finally, a
higher tax on gasoline would make up for revenues that would otherwise
be lost to the highway trust fund in the future when higher levels of
fuel economy reduce the demand for motor fuel.
2. CAN THE GOVERNMENT ENCOURAGE THE ADOPTION OF TECHNOLOGIES TO
IMPROVE FUEL ECONOMY WITHOUT LEADING AUTOMAKERS TO MAKE VEHICLES LESS
SAFE?
The government can encourage the adoption of technologies to
improve fuel economy without leading automakers to make vehicles less
safe. First, there are many technologies that can be used to improve
fuel economy that should have no impact on vehicle safety. Technologies
such as variable valve timing and lift control, displacement on demand,
reduced aerodynamic drag, continuously variable transmissions, and
engine friction reduction should be independent of vehicle safety.
Several reports have developed lists of such technologies and estimate
their likely impacts on vehicle costs and fuel economy. The 2002 NRC
study of the CAFE standards provides an extensive analysis of how such
technologies could be used to cost-effectively increase passenger car
and light truck fuel economy. Given the availability of such
technologies, manufacturers should be able to respond to the demands of
a higher fuel economy standard without compromising safety.
The argument that fuel economy improvement inevitably leads to
weight reduction which inevitably leads to increased fatalities and
injuries is not correct. The role of weight reduction versus technology
in achieving the fuel economy improvements of the past thirty years has
been greatly exaggerated. Weight reduction was indeed an early strategy
for increasing fuel economy. Vehicle weight reduction began before the
CAFE standards went into effect, probably a response to the fuel
shortages and higher prices caused by the first oil crisis of 1973-74.
It continued after fuel economy standards went into effect in 1978 but
ended in 1981. Fuel economy continued to improve through 1987 while
weight increased. Since then, weight has increased while the average
fuel economy of new light-duty vehicles has gradually declined, in
large part due to the increasing market share of light trucks.
According to data published by the Environmental Protection Agency, the
average 2004 model year light-duty vehicle actually weighed six pounds
more than the average light-duty vehicle sold in 1975. The average fuel
economy of a new light-duty vehicle sold in 2004 was 58 percent higher
than in 1975 (Figure 4). Clearly, none of this increase can be
attributed to weight reduction since today's new light-duty vehicles
are actually slightly heavier than their 1975 counterparts.
It has been argued, however, that further increases in fuel economy
standards would inevitably lead to downsized or down-weighted vehicles
and that smaller, lighter vehicles are inherently less safe. By and
large, this objection has focused on weight reduction as the principal
threat to safety. Reducing vehicle mass is certainly one way, though by
no means the only way or even the most effective way, to increase fuel
economy.\1\ In a dissent to the 2002 NRC CAFE report, Marianne Keller
and I pointed out that the evidence for a causal link from fuel economy
to weight reduction to increase traffic fatalities and injuries was
highly dubious. Since that report, our position has been strengthened
by four scientific studies. With the support of Honda, Van Auken and
Zellner (2002) attempted to replicate Kahane's (1997) path-breaking
analysis of the relationship between vehicle weight and crash
fatalities using more recent data from a somewhat different subset of
states. They found that a reduction in the weight of passenger cars and
light trucks of 100 pounds would not increase net highway fatalities.
In an extension of this study in which they separately estimated the
impacts of weight versus size (wheelbase and track width), Van Auken
and Zellner (2003) found that reducing weight while holding vehicle
size constant would improve safety somewhat, while increasing weight at
constant size would be harmful to safety. Kahane (2003) has since
published a new study using a modified methodology that contradicts the
findings of the first Van Auken and Zellner study and concludes that
weight reduction accompanied by size reduction would be harmful to
safety, but Kahane's new study still does not distinguish between the
effects of size and weight.
---------------------------------------------------------------------------
\1\ In general, a one percent reduction in vehicle weight at
constant performance can produce a 0.6 percent to 0.7 percent increase
in fuel economy on the U.S. test cycle.
In a paper forthcoming in Accident Analysis and Prevention, Wenzel
and Ross (2005) demonstrate two key points. First, they show that, in a
crash between vehicles, heavier vehicles may provide additional
protection to their own occupants but this comes at the expense of the
occupants of the vehicles with which they collide. This is important
because it is consistent with the simple physics of elastic collisions
which imply that increasing the weight of one vehicle in a crash is a
zero sum game: the heavier vehicle gains safety at the expense of the
lighter vehicle.\2\ Wenzel and Ross (2005) also show that light trucks
with chassis-on-frame construction tend to be exceedingly aggressive in
collisions with other vehicles and that the harm they do to other
vehicles outweighs the benefit of their additional weight to their
occupants. These vehicles and roll-over-prone SUVs turned out, on net,
to be harmful to overall traffic safety.\3\
---------------------------------------------------------------------------
\2\ These same simple laws of physics imply that a proportional
down-weighting of both vehicles would have no effect on the outcome of
the crash. The predictions of Kahane's 1997 analysis were also
consistent with these simple laws, as Keller and I demonstrated in our
dissent to the NRC 2002 report.
\3\ The fact that heavier vehicles benefit their occupants in a
collision at the expense of occupants of the vehicles with which they
collide creates what economists call an externality. The implication is
that individuals will buy heavier vehicles than they would if they
considered the impacts on others.
---------------------------------------------------------------------------
Perhaps the seminal study linking fuel economy, weight and safety
was that of Crandall and Graham (1989). This study, however, was based
on the very limited experience with significant fuel economy changes
that was available at the time the analysis was carried out. It
included data from 1947 to 1981, but the CAFE law was not passed until
1975, took effect in the 1978 model year, and affected only new
vehicles and not the entire fleet. More recently, Noland (2004)
examined the relationship between fuel economy, fatalities and injuries
using a time series of data for states covering the period 1975 to
1998. Instead of regressing fatalities or injuries against vehicle
weight, he regressed directly against fuel economy. This is significant
because, as pointed out above, weight reduction is far from the only
means of raising vehicle fuel economy. For example, reducing engine
power is also beneficial to fuel economy.\4\ By using fuel economy
instead of weight as an independent variable, Noland was able to
reflect all the possible paths by which fuel economy improvements might
have influenced vehicle design and thereby safety. What Noland found
was that the relationship between fuel economy and safety was not
stable over time. It appeared that in the 1970s fuel economy was
positively related to (increased) traffic fatalities, but that in later
years there was no statistically significant relationship. Indeed,
Noland found that, unless the years 1975 to 1977 were included in the
analysis, no statistically significant relationship could be found.
---------------------------------------------------------------------------
\4\ A one percent reduction in horsepower, all else equal, would
produce a 0.2 percent to 0.3 percent increase in fuel economy.
---------------------------------------------------------------------------
At the 2005 Transportation Research Board Meetings, I presented the
results of a statistical analysis of the relationship between national
average passenger car and light truck fuel economy and total U.S.
traffic fatalities for the period 1966 to 2002 (Ahmad and Greene, 2005)
(see Figure 5). Testing a wide array of possible models and other
contributing factors, our analysis demonstrated that the only
statistically significant relationships between fuel economy and
traffic fatalities indicated that increasing fuel economy was
associated with lower traffic fatalities, not higher. For a number of
reasons we cover in detail in the paper, we do not conclude that
increasing fuel economy will reduce traffic fatalities. Rather we
conclude that the aggregate national traffic fatality and fuel economy
statistics provide no support for the hypothesis that increasing fuel
economy led to increased traffic fatalities over the period 1966 to
2002. While these results contradict the earlier findings of Crandall
and Graham (1982), we believe this is because of the longer record of
experience available to us today.
Major improvements in light-duty vehicle fuel economy will require
major vehicle design changes. Safety is always an issue when vehicle
designs change. This strongly argues for insuring that manufacturers
have sufficient time to carry out redesigns with the usual level of
care and attention to detail. There need be no compromise in safety,
provided that fuel economy targets are set at levels close to what can
be achieved with approximately cost-effective technologies.
3. CAN THE GOVERNMENT ENCOURAGE THE ADOPTION OF TECHNOLOGIES TO
IMPROVE FUEL ECONOMY WITHOUT GIVING ANY INDIVIDUAL AUTOMAKER A
SIGNIFICANT ADVANTAGE?
While it is possible for the government to encourage the adoption
of technologies to improve fuel economy without giving any individual
automaker a significant advantage, most of the policies described above
will be more easily complied with by some manufacturers than others.
However, there are ways to reduce competitive impacts and improve the
fairness of fuel economy policies.
What makes a system fair from a competitive perspective? This
question could be answered in many ways. I suggest the following
definition. A fair policy is one that (1) requires each manufacturer to
spend the same amount at the margin to reduce the fuel consumption of
each car by one gallon per mile and (2) does not otherwise redistribute
revenues among manufacturers.\5\ A CAFE system with tradable credits
could satisfy the first criterion, as would other market-based
mechanisms such as a feebate system or gasoline tax, but they could
satisfy the second only with a complex and probably controversial
redistribution of revenue.\6\
---------------------------------------------------------------------------
\5\ Assuming that every car travels the same number of miles, this
would ensure that manufacturers and consumers were spending the same
marginal cost for each gallon of gasoline saved.
\6\ There is also good reason to doubt that the market in tradable
credits would be an open and competitive one. In all likelihood, there
would be two to three large buyers facing two to three large sellers,
an oligopsony facing an oligopoly. Rubin et al., however, have shown
that even in this situation most of the potential efficiency benefits
of credit trading would probably be realized.
---------------------------------------------------------------------------
In my opinion, the EU-ACEA voluntary fuel economy agreement
probably comes closest to meeting both criteria. It appears to me that
manufacturers have allocated the responsibility for meeting the
industry target to individual firms in such a way as to equalize the
marginal costs per liters/100 kilometers, and there appear to be no
inter-firm transfer payments. However, this is no more than my opinion
since the firms have not disclosed the details of their agreement.
Four main factors give different firms different capabilities to
increase fleet average fuel economy:
1. The technological capability of the firm
2. The firm's current adoption of fuel economy technology in
its products
3. The preferences of the customers served by the firm
4. The firm's product mix
There are differences in the ability of firms to use specific fuel
economy technologies, but in general, technology is a fungible
commodity in the automotive market place. Firms can buy technology from
suppliers and from other firms, generally, but not always at
competitive prices. Since being technically capable is essential to
being able to compete in today's marketplace, it is probably best not
to attempt to address this issue in creating a fair fuel economy
policy.
Some firms make greater use of technologies to increase fuel
economy than others. This has special relevance if fuel economy metrics
such as the uniform percentage increase are being considered. A UPI
system would make achieving fuel economy goals more costly for those
firms currently making the greatest use of technologies to increase
fuel economy. Their marginal costs per gallon saved would therefore be
higher than those of firms using less fuel economy technology. Firms
may make greater use of fuel economy technologies as a matter of
corporate policy or because they serve a segment of the market that
places a higher value on fuel economy. In the latter case, a CAFE
system would disadvantage manufacturers who served consumers less
interested in fuel economy. There appears to be little publicly
available research on this subject.
Finally, fuel economy policies can have different impacts on firms
that specialize in large or small, high or low power vehicles. Although
there has been substantial convergence over time in the product
offerings of major manufacturers, differences still remain. Systems
like CAFE, UPI, and feebates will have differential impacts on
manufacturers. Setting individual targets for vehicle types (e.g.,
passenger cars vs. trucks) and size classes can mitigate these
differential impacts, but at the cost of creating opportunities for
``gaming'' by shifting vehicles from one class to another to acquire a
less stringent standard. A reasonable but not perfect balance can be
achieved with these systems. Steps that can be taken to minimize
differential competitive impacts are listed below.
1. Give adequate lead time
a. Time to first possible redesign
b. Time for orderly redesign and retooling
2. Allow for differences in the mix of vehicles sold
a. Vehicle classes
b. Attribute-based formulas
3. Build in flexibility
a. Carry-forward, carry-back windows
b. Credit trading with caps on credit prices
c. Administrative review
4. Insure that goals are feasible with approximately cost-
effective, fungible technologies
a. Technical analysis
b. Review other regulations for compatibility
As has been noted above, it is possible but not certain that a
voluntary agreement that allows manufacturers to allocate fuel economy
improvement responsibilities can achieve equal marginal costs of
compliance and no revenue transfers among firms. With a feebate system
or tradable credit CAFE system, it is also possible to allocate initial
credits in such a way as to mitigate the differential financial impacts
that would otherwise occur. Such allocations are likely to be
controversial, however, since they will amount to substantial payments
to some firms and not others.
REFERENCES
Ahmad, S. and D.L. Greene. 2005. ``The Effect of Fuel Economy on
Automobile Safety: A Re-examination.'' TRB05-1336, presented at
the 84th Annual Meetings of the Transportation Research Board,
Washington, DC, January.
An, F. and A. Sauer. 2004. Comparison of Passenger Vehicle Fuel Economy
and Greenhouse Gas Emission Standards Around the World, The Pew
Center on Global Climate Change, Arlington, Virginia. Available
at http://www.pewclimate.org/global-warming-in-depth/all--
reports/fuel-economy/index.cfjm
Crandall, R.W. and J.D. Graham. 1989. ``The Effect of Fuel Economy
Standards on Automobile Safety,'' Journal of Law and Economics,
Vol. 32, pp. 97-118.
Davis, W.B., M.D. Levine, K. Train and K.G. Duleep. 1995. Effects of
Feebates on Vehicle Fuel Economy, Carbon Dioxide Emissions, and
Consumer Surplus. DOE/PO-0031, Office of Policy, U.S.
Department of Energy, Washington, DC, February.
Greene, D.L. and J.L. Hopson. 2004. ``Analysis of Alternative Forms of
Fuel Economy Standards for the United States,'' Transportation
Research Record 1842, Paper No. 03-3945, Transportation
Research Board, Washington, DC.
Greene, D.L., P.D. Patterson, M. Singh and J. Li. 2005. ``Feebates,
Rebates and Gas Guzzler Taxes: A Study of Incentives for
Increased Fuel Economy,'' Energy Policy, 33:757-775.
Hellman, K.H. and R.M. Heavenrich. 2004. Light-Duty Automotive
Technology and Fuel Economy Trends 1975 Through 2004. EPA420-R-
04-001, Office of Transportation and Air Quality, U.S.
Environmental Protection Agency, Ann Arbor, Michigan.
(IEA) International Energy Agency. 1991. Fuel Efficiency of Passenger
Cars. Organisation for Economic Cooperation and Development
(OECD), Paris.
(IEA) International Energy Agency. 1984. Fuel Efficiency of Passenger
Cars. Organisation for Economic Cooperation and Development
(OECD), Paris.
Kahane, C. 1997. Relationships between Vehicle Size and Fatality Risk
in Model Year 1985-93 Passenger Cars and Light Trucks. DOT HS
808 570, National Highway Traffic Safety Administration, U.S.
Department of Transportation, Washington, DC.
Kahane, C.J. 2003. Vehicle Weight, Fatality Risk and Crash
Compatibility of Model Year 1991-99 Passenger Cars and Light
Trucks. DOT HS 809 662, National Highway Traffic Safety
Administration, U.S. Department of Transportation, Washington,
DC.
(NRC) National Research Council. 2002. Effectiveness and Impact of
Corporate Average Fuel Economy (CAFE) Standards. Committee on
the Effectiveness and Impact of Corporate Average Fuel Economy
(CAFE) Standards, National Academy Press, Washington, DC.
Noland, R. 2004. ``Motor Vehicle Fuel Efficiency and Traffic
Fatalities,'' The Energy Journal 25, No.4:1-22.
Plotkin, S., D. Greene, K.G. Duleep. 2002. Examining the Potential for
Voluntary Fuel Economy Standards in the United States and
Canada. ANL/ESD/02-5, Argonne National Laboratory, Argonne,
Illinois.
Rubin, J., P. Leiby, D. Greene. 2005. ``Analysis of Tradable Corporate
Average Fuel Economy Credit Systems.'' Presented at the 84th
Annual Transportation Research Board Meeting, Washington, DC,
January 9-13.
Turrentine, T.S. and K. Kurani. 2005. ``Automotive Fuel Economy in the
Purchase and Use Decisions of Households,'' Presented at the
84th Annual Meeting of the Transportation Research Board,
Washington, DC, January.
Van Auken, R.M. and J.W. Zellner. 2004. A Review of the Results in the
1997 Kahane, 2002 DRI, 2003 DRI, and 2003 Kahane Reports on the
Effects of Passenger Car and Light Truck Weight and Size on
Fatality Risk. DRI-TR-04-02, Dynamic Research, Inc., Torrance,
California, March.
Van Auken, R.M., J.W. Zellner. 2003. A Further Assessment of the
Effects of Vehicle Weight and Size Parameters on Fatality Risk
in Model Year 1985-98 Passenger Cars and 1985-97 Light Trucks.
DRI-TR-03-01, Dynamic Research, Inc., Torrance, California,
January.
Van Auken, R.M. and J.W. Zellner. 2002. An Assessment of the Effects of
Vehicle Weight on Fatality Risk in Model Year 1985-98 Passenger
Cars and 1985-97 Light Trucks. DRI-TR-02-02, Dynamic Research,
Inc., Torrance, California, February.
Weiss, M.A., et al. 2000. On the Road in 2020. MIT Energy Laboratory
Report MIT EL 00-003, Massachusetts Institute of Technology,
Cambridge, Massachusetts.
Wenzel, T.P. and M. Ross. 2005. ``The Effects of Vehicle Model and
Driver Behavior on Risk,'' accepted for publication and
forthcoming, Accident Analysis and Prevention.
Biography for David L. Greene
A Corporate Fellow of Oak Ridge National Laboratory (ORNL), David
Greene has spent 25 years researching transportation energy and
environmental policy issues. Dr. Greene received a B.A. degree from
Columbia University in 1971, an M.A. from the University of Oregon in
1973, and a Ph.D. in Geography and Environmental Engineering from The
Johns Hopkins University in 1978. After Joining ORNL in 1977, he
founded the Transportation Energy Group in 1980 and later established
the Transportation Research Section in 1987. Dr. Greene spent 1988-89
in Washington, DC, as a Senior Research Analyst in the Office of
Domestic and International Energy Policy, U.S. Department of Energy
(DOE). He has published more than one hundred seventy-five articles in
professional journals, contributions to books and technical reports,
and has authored or edited three books (Transportation and Energy,
Transportation and Global Climate Change, and The Full Costs and
Benefits of Transportation). Dr. Greene served as the first Editor-in-
Chief of the Journal of Transportation and Statistics, and currently
serves on the editorial boards of Transportation Research D, Energy
Policy, Transportation Quarterly, and the Journal of Transportation and
Statistics. Dr. Greene has been active in the Transportation Research
Board (TRB) and National Research Council (NRC) for over 25 years,
serving on several standing and ad hoc committees dealing with energy
and environmental issues and research needs. He is past Chairman and
member emeritus of the TRB's Energy Committee, past Chair of the
Section on Environmental and Energy Concerns and a recipient of the
TRB's Pyke Johnson Award. In recognition of his service to the National
Academy of Science and National Research Council, Dr. Greene has been
designated a lifetime National Associate of the National Academies.
Discussion
Chairman Boehlert. Thank you very much. And thank all of
you for your outstanding testimony.
Let us address something right off the bat that I think is
very important. We have all been through this drill before. We
know the arguments pro and con. I am going to make a statement
and ask each of the witnesses if they agree or disagree with
this statement. And the statement is this: the only way to
increase CAFE standards is to make vehicles lighter and
therefore less safe. Do you agree or disagree with that
statement?
Mr. Reilly.
Mr. Reilly. You mean the only way to improve fuel economy,
right?
Chairman Boehlert. Exactly.
Mr. Reilly. Right. No, I disagree with that.
Chairman Boehlert. Dr. Duleep.
Mr. Duleep. I disagree.
Chairman Boehlert. Mr. Stanton.
Mr. Stanton. I am confused. Could you tell me one more
time?
Chairman Boehlert. All right. The only way to increase fuel
efficiency, using increased CAFE standards, is to make vehicles
lighter and therefore less safe.
Mr. Stanton. Disagree.
Chairman Boehlert. Thank you.
Dr. Greene.
Dr. Greene. Disagree.
Chairman Boehlert. Thank you very much.
All right. Mr. Portney and--Dr. Portney and Mr. Duleep, you
both state the percentages by which fuel economy could safely
be improved by deploying a number of technologies ranging from
more efficient transmissions to diesel and hybrid engines, and
incidentally, try to buy a hybrid today, and they will tell you
to stand in line. But presumably, those are percentages by
which an individual model, or even a class of vehicles, could
be improved. Tell me how those figures would translate into
fleet-wide averages. By how much would it be possible for
Congress, should it choose to do so, raise the CAFE standards,
and in what time frame?
Dr. Portney.
Mr. Portney. I will let Mr. Duleep go first.
Mr. Duleep. Mr. Chairman, the key assumption would be what
happens with the consumer demand. In other words, are consumers
buying the same kinds of cars today and in 2015 and how--what
would you assume on that? And if you make the assumption that
people buy the same mix of vehicles and the same kind of
horsepower and the same features, then I believe that, just
with conventional technology on cars, you can get up to about
32 or 33 miles per gallon with just conventional, no hybrids or
diesels, and for the light trucks, you would get up in the
neighborhood of 231/2 or 24 miles per gallon.
Unfortunately, as I mentioned, that is--people are buying
more and more attributes. That is they want four-wheel-drive,
and they want cars that ride high and more cup holders and a
bigger stereo and so on. And so that is going to take away from
these numbers. And clearly, I would expect that about half of
the improvement would go away, and perhaps even more. It might
go away and consumers are just buying more vehicle. If you add
in, say, the diesel and hybrid, with reasonable market
penetrations, like the kinds that Dr. Greene computed, which is
about 20 percent of the market, then they can do another two or
three miles per gallon.
So some number in the neighborhood of 35 or 36 miles per
gallon for cars and some number like 26 or 27 miles per gallon
may be possible. But again, the backsliding issue is, like, a
major one.
Chairman Boehlert. In using existing technology?
Mr. Duleep. No, sir; the--this would use hybrid and diesel,
perhaps diesels for the trucks and----
Chairman Boehlert. That is existing technology, right?
Mr. Duleep. That is all--yeah.
Chairman Boehlert. Dr. Portney.
Mr. Portney. Well, I am going to espouse an unpopular view.
I think several of my colleagues on the panel have disagreed
with it, and I realize it is a particularly difficult view for
those of you in Congress. But I want to say that there is a
problem with using CAFE standards as a way to improve fuel
economy in contrast to increasing, say, the federal excise tax
on gasoline. And it is important for everybody to understand
this distinction. If I have a car that gets 50 miles per
gallon, but I drive that car 50,000 miles per year, I use more
gasoline than if I have a car that gets 10,000--or 10 miles per
gallon that I only drive 5,000 miles per year.
So it is not just the fuel economy of the car, it is also
the number of vehicle miles traveled that the--that determine
how much gasoline we use, and therefore how much we are
contributing to the greenhouse gas burden in the atmosphere or
how insecure our energy supply is becoming. And so, while no
one likes to vote for tax increases, I mean, you need to keep
in mind that just requiring that cars be more fuel-efficient
only gets at part of this. And when cars become more fuel
efficient, it becomes cheaper to drive each mile, so you lose a
little bit, because people cheat and drive more miles, because
they have more fuel-efficient cars.
Now I notice you shaking your head----
Chairman Boehlert. Well, no, that would be the subject of
considerable debate, and I--you know, a good, healthy, honest
debate----
Mr. Portney. Well, and----
Chairman Boehlert.--because, you know, I think most people
just don't go out, like we used to when I was a kid, for a
Sunday drive. People drive from their home to their place of
work, or if they have a limited time off home to recreate
someplace, I don't think people just go out and drive a lot
depending upon the price of gasoline.
So we--I mean, the desire is to make the automobiles more
fuel-efficient. That is to the advantage of consumers. That is
in our national security interests.
And let me go to Mr. Stanton. You know, I watched the Super
Bowl, and I must confess, a lot of people did. I will tell you,
when you talk about consumer demand, I would say I have to
commend your industry, one member of it, that ad that Ford put
on for the new Mustang was one of the stars of the whole
commercials. And I think a lot of people watch the Super Bowl
just to watch the commercials, and they don't give a darn about
the Patriots or the Eagles. But it seems to me that the
industry, if--you can help drive consumer demand by your
marketing and advertising approach. And I don't know if there
are any examples of members of your Alliance selling safety or
selling fuel efficiency. But I will tell you this, I have been
around this town long enough to remember when a hot shot young
vice president from Ford came to town and told the Congress,
and I was on the staff at that time, ``If you mandate seat
belts, that will have a devastating negative impact on the
industry I represent.'' Fast forward several years, that guy
then was chairman of the board of another automobile company
and was on saying, you know, ``Buy our product. We have got
airbags to protect you, and no one requires it, but we are
concerned for your safety.'' So I would suggest that a lot of
this has to do with your marketing approach.
And we all have to be sensitive to your industry. It is a
very vital part of our overall economy. And for us to put undue
burdens on the auto industry is counterproductive. But I think
to impose some reasonable burdens and work cooperatively with
you, not say we need something by 8:30 tonight, but you know,
with a lead time frame, as Mr. Reilly has testified, as Dr.
Portney has emphasized in the report, I think is a reasonable
approach. I could--I am on my high horse, and I have got the
advantage of the microphone----
Mr. Stanton. Could I have it for a minute?
Chairman Boehlert. Sure, by all means, Mr. Stanton. Yeah.
Mr. Stanton. For someone who spent 51/2 lobbying the States
for mandatory safety belt use laws, our industry has changed a
lot. There is just absolutely no question about it. I can't
tell you how proud I am to say that we have got national safety
belt usage up to 85 percent. We have got a long ways to go
still, but at least we are making progress.
I was also very pleased to watch the Super Bowl, and I
noticed that three of our members had three drastically
different commercials. One of the members had, in addition to
Ford, a commercial on power and acceleration. And then another,
which you probably really recognize, had a commercial about the
Prius. So we had three very different target audiences, and
that is I think the--what I heard in all of the testimony today
is how complex an issue it is to get what we all want, and I
really want to emphasize this. We all want to reduce our
dependence on foreign oil. The only difference of opinion, I
think, is how to go about doing it.
Chairman Boehlert. Thank you very much.
With that, Mr. Gordon.
Mr. Gordon. Mr. Reilly, you said that your Commission
recommended that there be significantly higher CAFE standards,
but you also said that you I guess intentionally did not try to
say what those standards would be. You know, having worked with
this group and what you know, what would you say would be the
minimum of a higher standard?
You need to--you----
Mr. Reilly. I don't want to go beyond where the Commission
itself has come out. This was one of the----
Mr. Gordon. Well, that is why I was asking you, as an
individual who has assimilated all of this information. What
would be the minimum?
Mr. Reilly. Well, let me just say that this was a
particularly contentious and concerning issue that our
Commission addressed. We looked at a lot of options. We looked
at their advantages, their costs. We did propose these consumer
incentives as well as manufacturer incentives to encourage more
fuel efficient, advanced diesel and hybrids. The consultant
studies on which we relied strongly suggested that a 10- to 20-
mile-per-gallon increase in CAFE would be cost effective and a
desirable policy. When I say ``significant,'' when the
Commission said a ``significant increase,'' I think it is
reasonable to infer from those studies and from the language of
our report that that is the range that most of us were
contemplating.
Mr. Gordon. So when you say ``range,'' would 10 be a
minimum then?
Mr. Reilly. Ten would be a number that I believe most----
Mr. Gordon. That most folks would----
Mr. Reilly.--members of the Commission would endorse.
Mr. Gordon. Okay. And Mr. Stanton, what is your opinion as
to how long it would take the automobile industry and how
feasible is it to obtain a 10 percent--or a 10-mile CAFE
increase?
Mr. Stanton. A lot of it would depend upon market forces,
obviously. I think that we have just seen the biggest increase
in light truck fuel efficiency standards, which was between
2005 and 2007. And that was a 71/2 percent increase. That was
supposedly determined by NHTSA with the congressional criteria
of looking at all of the factors that are important, including
employment and production cycles, et cetera.
One of the problems that we have with looking forward to
whatever the time frame is that a substantial time frame builds
uncertainty into the standard--into the process for us. We
don't know where consumers are going to be. We don't know where
the demands are going to be. We are--we do not, and would not,
recommend that we set standards separate from where--or
different from where our customer base is. And this goes back
to the comments that were made here, too. We need to get the
consumer somehow in the equation, because right now, just as we
were talking about with the Super Bowl ads, we have got
customers out there that want power. And if we want to sell
vehicles, we will sell power. And that--you see that in the
marketplace. But we are also doing an awful lot on the advanced
technology side of it in an effort to maintain those attributes
that our customers want and, at the same time, get a major
increase in fuel efficiency.
Mr. Gordon. But I am talking more of the technology. You
know, I mean--you know, in terms of you have to have a
reasonable time to come out with new models and so to get a 10-
mile increase, what kind of lead time--again, is that possible,
and if so, what kind of lead time is necessary to keep it in
that--and I guess the question is what is a reasonable, you
know, increase. So what kind of--are we talking five years, 20
years?
Mr. Stanton. The dilemma that I face is I just really don't
know the answer if that is the right number in a given period
of time. If we could make some certain assumptions that, you
know, 50 percent of the vehicles would be hybrids or gas prices
would be some place else, then we could chart a path that would
make sense to get there. But I don't know how to answer those
questions.
Mr. Gordon. Well, let me ask you this. Is the Alliance--
have you taken a position on tradable CAFE compliance credit
programs?
Mr. Stanton. Actually, we like the idea of increased
flexibility in the program. And in preparation for the hearing,
we tried to figure out what exactly was meant by the tradable
credits program that had been espoused by a number of my
colleagues here. And we found out that we didn't fully
understand all of the ramifications of it, but it is something
we certainly would be willing to do.
Mr. Gordon. What do you think it will take to help you to
understand that better?
Mr. Stanton. Some pretty healthy discussions, I think.
Mr. Gordon. Is there a forum for that?
Mr. Stanton. No, sir.
Mr. Gordon. And does anyone here have a suggestion on what
would be a necessary forum? And also, I think in that
discussion, the statistic that you pointed out that was a 17
percent reduction in the costs by having this, what would be an
appropriate forum for that discussion? Anyone? Go right ahead.
Mr. Portney. I would be happy to convene a group of auto
makers and analysts who have floated this idea of tradable
credits at Resources for the Future any time to have a talk
about this and try to explain the idea in more detail so that
even the analysts could better understand what the pros and
cons are. I would be happy to do that.
Mr. Gordon. I think that would be helpful for us if there
could be some groundwork laid on something like that. I mean,
hopefully--that might be very well an area of consensus within
the--between the industry and those folks that are, you know,
want an increase in the fuel efficiency.
Thank you, Mr. Chairman.
Chairman Boehlert. Thank you very much.
Ms. Biggert.
Ms. Biggert. Thank you, Mr. Chairman.
The National Highway and Traffic Safety Administration is
considering ways to reform the CAFE system, and one of the--one
method is the weight-based standard. In my District, we have a
company that is just newly developing a process--a reactor in
process to produce titanium. It is called International
Titanium Powder, in a very useful forum, and they are actually
working with the military now and looking at the weight of
tanks and the weight of Humvees. Is NHTSA considering advances
in materials, like I have just described with respect to
titanium as it contemplates reform to the CAFE program? Mr.
Stanton? Or is this something that you would see in--rather
than just looking at the CAFE standards and the weight to look
at advanced materials in deciding how to raise those standards?
Dr. Greene.
Dr. Greene. One thing about weight-based standard can be
formulated in any number of ways. It can be formulated to
encourage weight increasing in cars. It can be formulated to
discourage it. And so if it were formulated to discourage
increasing the weight of cars, that would encourage material
substitution of the kind you are describing. I think this gets
at the real issue in auto safety and weight, which is the
energy that has to be absorbed in a crash in order to minimize
the maximum deceleration that is experienced by the people in
the car, and the ability of the materials to handle that. The
heavier the car, the more energy has to be absorbed, and so
there is a trade-off there. But advanced materials ought to be
able to play a role in making safer and lighter cars.
Ms. Biggert. Because if this material is lighter and yet it
is just as strong, it is--it would reduce the fuel consumption.
And you talked about the cars' size versus weight and said that
there can be lighter cars, which are just as safe, depending on
the size.
Dr. Greene. Yeah, on--the study done by--sponsored by Honda
essentially took the same approach as the National Highway
Traffic Safety Administration and Dr. Kahain did in his study,
but tried to separate the effect of size from the effect of
weight, which Dr. Kahain did not try to do, and came to the
conclusion that making cars the same size but a bit lighter
would be beneficial to safety.
Ms. Biggert. Thank you.
Mr. Stanton.
Mr. Stanton. Yeah. Just to follow up on one--well, two
points, actually. One is that, by all means, we are always into
advanced technologies, and if you have someone in your
District, then we would love to talk to them if they have got a
promising technology, and by all means, we can make that
happen.
The second point is on the size and mass. We are still
learning an awful lot on safety. But basically, it is our
opinion anyway, that at the present time that it is a function
of both mass and volume or size. We have got to remember that
we are talking about a whole fleet out there. And the
question--the public policy question we are trying to struggle
with is how do we increase the safety for all of the driving
public? We can't sacrifice some safety for someone to improve
safety for someone else. We can do that, but we don't think
that is the right public policy.
Ms. Biggert. With regard to NHTSA, the regulatory process,
and they have had the process for raising CAFE standards for
light trucks, and it seems to have been working. It was going
up. It went unimpeded by Congress. Is--do you agree that--well,
particularly Mr. Stanton, do you agree that this would continue
if we hadn't put a hold on the raising of those standards?
Mr. Stanton. Not only would I agree, it would have to,
under the law that Congress has passed, that NHTSA has to set
the maximum feasible standard for light trucks for each and
every year. I think you are absolutely correct. And we
anticipate that it will continue.
Ms. Biggert. Thank you. Thank you, Mr. Chairman.
Chairman Boehlert. Mr. Lipinski.
Mr. Lipinski. Thank you.
A number of you had touched upon this, but I don't know if
you really wanted--it is a little bit off of the question
exactly of technology, but I want to see if anyone wanted to
just take a stab at this. What do we really know about
consumers' habits in regard to purchasing vehicles, their
driving habits? I have heard, you know, different things,
suggestions about what may--what changes may occur in the
vehicles purchased or, you know, how they drive. They get
better mileage, are they going to drive differently? Or perhaps
even, you know, if they got feedback on what their mileage is
that they are getting, do people actually respond to that. And
so what do we know? You know, if we are working at this, you
know, through a free market, what can we do in that regard? Go
ahead.
Dr. Greene. Given the importance of this subject of fuel
economy and car purchases, there has been remarkably little
research on this subject. There has been, however, recently
completed by the University of California Davis, in-depth
interviews of households, their complete history of automobile
purchase decisions, and getting at where fuel economy came into
those decisions, and when they did consider it, how did they go
about doing it. And what those researchers found is that a
small minority of the people considered fuel economy at all in
making their car-buying decisions. And of those who did, none
of them made any explicit calculations about what the value the
fuel saving would be worth and what the car would cost. And
nobody thought in terms of paying more to get a more fuel-
efficient car. They thought in terms of paying less to get a
smaller, lighter, less-efficient car. So this idea of adding
technology to improve efficiency is not in the consumer's mind
when he goes to buy the car. That is something that happens on
the manufacturer's side in designing the vehicle.
Now a great deal is known about travel behavior, and we
have entire Transportation Research Board meetings every
January in which there are thousands of papers presented, half
of them or so on subjects related to that. But is it well
understood? Well, I think most of them would say no, it is not.
There are still, sort of, some mysteries there.
But one of the things that has been studied fairly
carefully is this rebound effect. And we know that if you look
back historically, the rebound effect is probably somewhere in
the range of 10 to 20 percent, meaning if you improve the fuel
economy of the vehicle by 50 percent, then people will drive,
maybe, five to 10 percent more in the long run. And we--I
suspect that the rebound effect decreases over time, as the
cost of fuel becomes less and less and less important in the
monetary costs of operating a vehicle and including, also, the
value of a person's time.
So I think the rebound effect is a small effect, but it is
real, and it is probably decreasing over time, as people's time
becomes more valuable. This was confirmed by a recent study
from the University of California, again out of Irvine,
Professor Kent Small.
Mr. Stanton. Briefly that--and I was looking in my
briefcase to see if we--if I had brought it with me, but there
are a number of polls that are out there on what consumers
value when they search for a new vehicle. Usually the first
item is reliability and then it goes down to cost and other
attributes. I think verifying what the panel is saying here is
in the past, fuel efficiency wasn't even on the list, and it is
there now as number 13 on the 2004 poll that I had seen.
Mr. Lipinski. And does this mean that, in essence, have to
forget about the consumer side when we are, you know, trying
to, you know, save fuel? Does it all have to then come from,
you know, the manufacturer side and, you know, are they going
to the people? If consumers don't care about it, then, you
know, what incentive do they have to be--you know, make more
fuel-efficient vehicles, and does that come down to incentives
that the government may have to give them to be more fuel
efficient, such as the CAFE standards and that is the only
thing that is going to move them?
Mr. Reilly. Well, sir, the National Commission on Energy
Policy considered that incentives are necessary, incentives
both to the manufacturers and the parts suppliers to them and
also incentives to the consumers themselves. There is currently
a tax deduction of up to $2,000. It is worth between $400 and
$600 to the average taxpayer, and that is provided to consumers
who purchase new hybrid electric vehicles. That starts phasing
out--expires after 2006. The Commission supports extending that
tax incentive for five years, 2007 to 2011, but altering the
mechanism from a simple deduction to a variable credit of up to
$3,000 based on vehicle fuel economy, and also expanding the
scope of the allowance of the program to include advanced
diesel vehicles, from which we expect quite a lot of fuel
efficiency in the years to come.
Chairman Boehlert. Thank you. The gentleman's time is
expired.
Mr. Sodrel.
Mr. Sodrel. I think you have answered a lot of my questions
as I sit here. I am a free market person. I mean, I believe in
the marketplace. I believe it produces products that consumers
want. And my question really went to what marketing--and maybe
it is best for Mr. Stanton. What marketing--we talked a little
bit about the Super Bowl and the convertible with the frozen
guy sitting at the wheel. What kind of marketing programs have
the automobile manufacturers undertaken to try to sell fuel
economy to their customers and to the marketplace?
Mr. Stanton. Well, I think that the best, and probably the
most efficient program, as you look at the most fuel-efficient
vehicles, and they are also the least expensive, so I mean, it
is--other than pricing, and I think it is pretty well known
that on a lot of the smaller vehicles, the manufacturers are
pretty much giving them away. It is very difficult to make--to
compete successfully in that marketplace.
Mr. Sodrel. Yes, sir.
Mr. Portney. If I can weigh in on this, first of all, I am
glad we are staying away from BigDaddy.com commercials here.
I--on this--the issue of the free market in all of this, I
absolutely agree with you: we all benefit from a free market
that produces shoes and pencils and everything else, and I
think it is for--goods and services for which all of the costs
are borne by the producers and the consumers, it is, by far,
the best way to organize an economic system. The one
justification you can make for having the government involved
in this particular case, either through higher taxes or through
mandated fuel economy standards, is that when I go buy a car,
typically I count in the cost of that thing how much the
purchase price of the car is and what it will cost me over my
lifetime. Typically, people don't take into account the fact
that the gasoline that they use is contributing to the
atmospheric burden of carbon dioxide. They don't take into
account, in their own purchase decisions, this dependence on
imported oil, and that is why, in a case where you wouldn't get
involved if there weren't these external costs, that there is a
good reason for economic efficiency that you can justify some
form of government involvement in the fuel economy--in the case
of fuel economy. We can certainly argue about what is the best
way to do it, but I think there is a case there that, because
there is a form of market failure, that you need some kind of
government intervention.
Chairman Boehlert. Mr. Miller.
Mr. Miller. Thank you, Mr. Chairman.
Just a couple questions. Mr. Stanton, you mentioned that
your association supports the President's hydrogen fuel cell
proposal. This committee had hearings in the last Congress on
that proposal, and there seemed to be a great deal of
skepticism that there is not an ample supply of hydrogen out
there, we just need to find a way to use it, that, in fact, the
hydrogen has to come from other fossil fuels, has to be
stripped out, that it is not a particularly clean process to do
that. It doesn't really free us from our dependency on
foreign--on fossil fuels. We seem to be pursuing that to the
exclusion of other alternative fuels, and we have some massive
amount of money tied up in a liquid fuel in transporting liquid
fuels and having it available. My question to you is have
things changed in the last couple of years on that proposal? Do
we--where would the hydrogen come from if we really
dramatically changed from a fossil to a hydrogen economy?
Mr. Stanton. Well, I think we all believe that somewhere
down the line it has got to come from renewables if we are
going to work our way out of this. It is really the goal, I
think, that we would like to see, and we recognize that. And I
hope everybody understands that. As the industry, we agree that
dependence on foreign oil is a national issue. And the question
is what is the best path out of that. And we are struggling
with exactly what is the best path. Certainly research--
additional research and development, the things that this
committee has done in the past or things that we have
supported, part of our members are involved in FutureCar and
FreedomCAR. I personally was involved in the PNGV program.
Those kinds of programs are the kind of research and
development that we are going to need to solve this conundrum
that we find ourselves in.
Mr. Miller. Mr. Portney, you seemed to be nodding your head
to that question, so did you have anything you wanted to add
or----
Mr. Portney. Just that, you know, I think everyone is
optimistic about anything that has the potential technological
promise of hydrogen of being a completely clean energy source,
but I think we need to do something sooner than the time frame
in which hydrogen will become the major propulsion for motor
vehicles. I mean, I think that is really 15 or 20 years off. I
would love to be more optimistic than that. I think we can't
wait 15 or 20 years before we try to do something, regardless
of what it might be, to try to improve the fuel economy of the
overall fleet, whether it is through higher taxes or
technological fuel economy requirements or whatever. I would
hate to just put all of our eggs in the hydrogen basket and not
do anything for 20 years in the hopes that that will be
available and to solve the problem.
Mr. Miller. Mr. Stanton, you seemed to describe a two-step
process: figure out, one, how to make hydrogen work, then, two,
figure out where we are going to get the hydrogen. How long--
Mr. Portney--Dr. Portney suggested that that would be a 15- or
20-year proposal. Do you see it as being substantially more
than that or less than that?
Mr. Stanton. Yeah, actually, we have some members that are
very high on bringing fuel cell vehicles to the fleet now, but
the question is what are the numbers and what is the impact
going to be. And we certainly agree with Paul that we need
something in between, and that is why we are supporting and
working hard on the hybrid vehicles and the clean diesel,
because that is the interim path that we see to getting us to
the hydrogen----
Mr. Miller. One of the criticisms in the hearings that we
held in the last Congress was that the proposal--President's
proposal, I believe it was $3 billion, was to the exclusion of
other alliterative fuels. But from what you have just
described, we obviously need to be doing both. Do you think we
are doing enough to develop other alternative fuels from which
we would get hydrogen, as well as having those alternative
fuels to use in the meantime?
Mr. Stanton. Mr. Miller, you are beyond my expertise on
all----
Mr. Miller. Okay.
Mr. Stanton. I think we, generally, as an industry, are
looking at all of the paths, and we are just trying to find
what is the right one and work with the right people to get
there.
Mr. Miller. Okay. Dr. Portney, I think I saw you nodding
again. Did you have anything to----
Mr. Portney. I am going to hold my head----
Mr. Miller. You may just have a tick, I don't know.
Mr. Portney.--very still in the future here. I--let me just
say, I am always worried when the government or the private
sector or anybody puts all of its eggs in one basket. And I
think what we ought to do is have a goal for a fuel economy for
the fleet without specifying the technology, whether it is
diesel or hybrid or hydrogen or improved internal combustion
engines. I always worry where we sort of anoint a winner and
put all of our R&D dollars and other efforts into that.
Mr. Miller. So Mr. Reilly, you did more than nod.
Mr. Reilly. If I might add to that, thank you.
Our Commission, in that opening statement I gave about the
crunch that is coming in liquid fuels need versus production
capacity over the coming years and the current shortfall, a
very limited capacity that exists of less than two percent of
excess capacity, we looked at the need for a whole range of new
interventions and of new efficiencies, fuel sources, and the
rest, but strongly supported ethanol as a fuel derived
primarily from cellulosic material, corn stover, switch grass,
forest cuttings, and things of that sort as an important
solution to part of our problem. The oil industry has tended to
regard ethanol as an additive over the years past. It is only
two percent of our gas supply now. And I think that is 2.8
billion gallons a year. We see the need to boost that
considerably and offer a number of incentives to do that, but
that has got to be part of our future, I think, and
particularly, with the phase-out, the banning of MTBE as an
oxygenate in many of our states, including my own State of
California.
Chairman Boehlert. The gentleman's time has expired.
Mr. Gilchrest.
Mr. Gilchrest. Thank you, Mr. Chairman.
First, I want to welcome the person who, on the Eastern
Shore, is affectionately known as Bill ``Wetlands'' Reilly.
Back in the late '80s, early '90s, we had a full range of
issues dealing with wetlands, and as EPA Administrator, Mr.
Reilly was a friend of the State of Maryland, especially the
Eastern Shore, and I just wanted to make those comments, Bill.
It is--Mr. Chairman, it seems to me that we have an issue
that we have been dealing with for a number of decades that is
environmental, it deals with energy security, it deals with
safety, and it deals with economics. And when we look at that,
and we hear the information that has been given to us, both
from your testimony, from the NRC report, Bill, from what you
have done with your research. I am looking at this either from
a global marketplace or an international marketplace issue. If
we look at it from a global marketplace issue, this is free
market, do what you want, the bottom line, the top line is the
profit margin. But I think this has to be an international.
This has to be an issue with the marketplace, which gives us
most of our ingenuity and our initiative, on new technologies,
and the government's understanding, and you might want to
comment on this, that there is a factor with CO2 and
global warming. There is a factor with our security and energy
dependence, especially with countries like China moving to
create a huge demand on energy. And can we resolve the issue of
safety? And can we do it economically feasibly so we have a
dynamic economy that continues to be prosperous?
So I sort of frame that issue to ask just four quick
questions. One is, Bill, and a number of you, mentioned
increase production as part of a whole package. Is that looking
both foreign and domestic or just domestic? Number two, Mr.
Stanton, you said something interesting about petroleum-
dependent transportation sector, or I think I heard you say you
are moving away from the petroleum-dependent transportation
sector. And that sounds like it is pretty good news. How long
do you think that will take, and what can we do to speed that
up? And then, Mr. Greene--Dr. Greene and a number of people
have mentioned the idea of CAFE standards versus a number of
new technologies, weight-based standard versus CAFE standard.
So where are we on that, and is that a recommendation specific
to us? The last one is, Bill, you mentioned, you know, burning
corn and those kinds of things, ethanol. Where are we, and can
we move in certain sectors of our country, especially in the
rural areas, to add more soy oil to diesel fuel?
Those are my questions, Mr. Chairman.
Chairman Boehlert. Who are you directing your question to,
or do you want to provide the answer, also?
Mr. Gilchrest. I don't have my--I don't have the answers. I
am just--if anybody would like to comment on that, or any of
those----
Mr. Reilly. I would just comment quickly, first of all to
say I know nothing about the capacity of soy oil to be a fuel,
but I have been impressed in the course of our research over
the past 21/2 years that even turkey parts are being used in
Carthage, Missouri to create liquid fuels. I think you can make
alcohol out of virtually anything, and we are beginning to find
more imaginative ways and cheaper ways and more--ways that are
more efficient in the use of energy and manufacturing, and that
is what some of these ethanol possibilities are, I think.
You mentioned China. That first question you had, is it a
U.S. or is it a worldwide number? The number that I began with
is an excess--in excess of 50 percent of new production will be
required over the next 20 years. It is, I think, 43 percent for
the United States in liquid fuels, in oil and in gas,
basically, gasoline. That compares with a 20 percent increase
in production worldwide over the period 1980 to 2000. Those
contrasting numbers, a very significant difference, suggests to
me that we are not going to make it. We really do need
virtually all of the possibilities that we can explore and
bring on with some degree of cost effectiveness.
Mr. Duleep. On the issue of soy-based diesel, I--there has
been a lot of research on that, and it does look like a
relatively expensive option, so it is a tough sell at $1.50 or
$2.00 a gallon for diesel fuel, but it----
Mr. Gilchrest. It is a tough sell because of----
Mr. Duleep. The cost of production.
Mr. Gilchrest.--the cost of production, even though you
might be in an area where soybean production is large? It would
still--the cost of production to turn soybeans into soy oil is
still not competitive with traditional fossil fuels?
Mr. Duleep. Relative to what you can sell the soybeans in
the market for, it would be a difficult--it is just a hard
thing to do. But I understand there are other types of
agricultural products they are looking at to make diesel fuel
from. Now ethanol is a completely different animal.
Chairman Boehlert. The gentleman's time has expired.
Ms. Lofgren.
Ms. Woolsey. Woolsey is my name.
Chairman Boehlert. Lofgren. Woolsey. I am looking here, and
then I am looking there, and I am seeing two different things.
Ms. Woolsey.
Ms. Woolsey. Well, first of all, I would like to welcome
Mr. Gilchrest to this committee. I am glad you are here, except
for now you have made my questions seem simplistic.
I want to talk about consumers and getting consumers into
the equation. And I will start with Mr. Stanton. I mean, we
talked about a target audience on the Super Bowl ads, but there
is something about supply and demand, so we know that consumers
are actually waiting for hybrid cars. So if we don't--and we
also know that Americans don't like to wait for anything, but
they are actually waiting for these cars, and more would buy
them, I believe, if there--it was more convenient for them to
just get one off the lot, like other automobiles. So why do you
think when these cars are popular that there aren't enough of
them yet?
Mr. Stanton. Well, I think there are a couple of reasons,
and I want to give credit to one of my members, particularly
Toyota, because they are just going gangbusters on this, and
they have just announced that they are going to double
production again. And I think that is wonderful. We are finding
out that things like single occupant HOV use in Virginia or
California seems to be a great incentive for these things, and
we are generally for incentives to encourage the production and
then, of course, the purchase of these advanced-technology
vehicles.
If I look at our membership in the Alliance, we have some
members who, right now, are going very strong on hybrids, and
other members are going very hard on clean diesel. And I think
it was Mr. Portney who said it earlier, I mean, we don't think
Congress ought to try to pick winners and losers in
technologies, but the race is there. That is the point.
Who is going to win the race? I--we don't know. I mean,
hybrids are inherently more expensive, because they have got
two power plants. You have got the internal combustion engine,
and then you have got the battery. So clean diesel has some
emission challenges. Thanks to Congress, we are going to have
15 parts per million sulfur-fueled beginning in 2006. We hope
that is an enabler that will allow us to put the after-
treatment on the diesel--on the clean diesels so that we will
be able to certify those vehicles and they will meet the
stringent tier two emission standards to--that come into effect
or being phased in now.
So who wins? The consumer wins eventually. What we have
proposed, and what we would like to see, is very complex. I
mean, as we talk about how to do this, Mr. Camp's bill or the
consumer credits that were in the Energy Bill last year, I
mean, it was an attempt to balance the degree of technology,
the fuel economy increase, and the gallons saved for hybrids
versus diesel and come up with a package where everyone thought
that that was relatively neutral in supporting both
technologies. And that is what we would like to see happen. And
then the consumer becomes the big winner.
Ms. Woolsey. Well, and the industry becomes a winner.
Mr. Stanton. Absolutely.
Ms. Woolsey. It doesn't cost--I mean, the automobile
industry doesn't lose money on hybrid cars, do they?
Mr. Stanton. They sure do in the beginning.
Ms. Woolsey. Well----
Mr. Stanton. There is no question that--you know, our
industry is spending $18 billion on research a year. I don't
want to say long lead time, but lead time extremely important.
There are major investments in new technology. And you tend to,
you know, want to go a little slower than faster unless you
know that you have a winner. And I think you are seeing in the
marketplace now that the hybrid turns out to be a winner. I
have got an article on my desk that shows that we are going to
have 50 hybrid models by 2010. This is phenomenal.
Ms. Woolsey. So how does--how do R&D credits work into
that? I mean----
Mr. Stanton. Well, the tax credits work in, because the
incremental cost increase is going to be less than the tax
credit, but we need a way to get the new technology into the
marketplace. And if we want to accelerate the introduction--and
we all recognize that there is going to be a cost differential.
If we can get the cost differential down to where it is--the
purchase price is roughly similar to a comparable internal
combustion engine, then we will get the volumes up, and with
the volumes up, the price comes down.
Ms. Woolsey. Well, thank you.
And you did say that consumers don't really care that much.
I represent Marin and Sonoma Counties, just north of the Golden
Gate Bridge, if it matters.
Mr. Stanton. Not all consumers, how about--we will put the
qualification there.
Ms. Woolsey. Thank you very much.
Chairman Boehlert. Thank you very much.
Mr. Schwarz. Dr. Ehlers.
Mr. Ehlers. Thank you, Mr. Chairman.
Several comments before I get to questions. First of all,
on the issue of hydrogen, everyone assumes when you are talking
hydrogen that it has to be fuel cell, and I agree with Mr.
Portney: they will leave the options open. Those are two
separate issues, and there are other ways of using hydrogen
besides fuel cell. The--but the main factor there with hydrogen
is simply don't get it from fossil fuels. There are abundant
sources. H2O happens to be fairly abundant.
Unfortunately, it is a very tight chemical bond, but again,
that may be an appropriate place for high-temperature nuclear
reactors and getting away from fossil fuels.
I would also like to comment about the statement about
market forces. A number of people have talked about this as if
somehow these are some magic, independent things that
automatically lead to good results. And that assumes--that kind
of model assumes that people genuinely react to these market
forces. But that ignores certain things, and I have always had
a--I have had a bone to pick with the auto industry for a long
time. In fact, I am the only Member of Congress from Michigan
who has consistently voted against the freezing CAFE standards,
not that I am that enamored of higher CAFE standards, but we
have to face this issue. And the auto companies simply refuse
to face it. And my bone with them was they kept talking about
market forces. ``We are just making what the people want.'' And
I simply remind them of their advertising budget. How much do
you spend advertising SUVs compared to how much do you spend
advertising low-cost, high fuel economy vehicles? It is very
disproportionate. And we are not talking peanuts here. If I buy
a new car, I am paying about $400 for the advertising that they
bought to persuade me to buy the car.
And so market forces don't operate in a vacuum. I think the
auto industry has taken a pass on that. They can greatly
influence the choices consumers make through education, through
advertising. A part of the problem, and part of the reason
market forces don't work very well is the public simply does
not understand energy. They can't see it, they can't touch it,
they can't taste it, they can't feel it, and it is frustrating
to me, as a physicist, because that is one thing I do
understand. But I have often said I wish energy were purple. If
energy were purple and people could see it and they are driving
down the highway and a Toyota Prius comes by with just a little
purple around it, and it is followed by an SUV with a big
purple cloud, people are going to say, ``Hey, you know, I am
going to get one of those Prius,'' because they could see it.
They could see the impact. As it is, their only tie to reality,
in terms of the energy, is the price at the gas pump. And that
is a little too ephemeral to directly affect their purchases.
I--now enough ranting for a while, except that I wish the
automobile companies would try to influence purchases.
I--Mr. Stanton, in your testimony, you state their
approaches to restructuring the CAFE program, that would--can
help address competitiveness concerns. And as I told you, I am
not enamorant of the CAFE program, but I would be interested in
what you meant by that. What ideas do you have? What mechanisms
are available to more--to affect consumer choices so that they
are more likely to choose energy-efficient vehicles? I would
appreciate your comments on that, and then I am going to ask
the rest of the panel, too.
Mr. Stanton. Mr. Ehlers, thank you.
Yeah, I think that there are ways to improve the program. I
think that it was referenced earlier that, certainly, we have
had 30 years of experience, and we all recognize that it is
less than perfect. NHTSA is currently looking at an attribute-
based system. The NAS is looking at an attribute-based system.
There are certain pluses and certain minuses. Those are ways to
do it. The complexity of the program, and from Michigan, you
understand, certainly, that issues like two fleet credit and
credit trading and some people like that very much and other
people don't like that very much, depending upon which side of
the fence you sit. But we are looking for ways to further the
fuel efficiency, and I hear you on the advertising--the
advertisement, as you and I have discussed before.
Mr. Ehlers. I would like other comments. What alternatives
are there to CAFE standards that you really think would be
workable in today's marketplace that would really affect
consumer choices? Dr. Greene.
Dr. Greene. I think that a leading contender to fuel
economy standards are these feebate systems in which we have,
at present, a gas-guzzler tax, which is kind of a half of a
feebate system. It is just a tax. And that gas-guzzler tax is
quite steep. It is so expensive that there virtually aren't any
gas-guzzler passenger cars sold. There is no comparable tax on
light trucks, so we have a strange asymmetrical situation
there. But it is very, very likely that a feebate system would
work well, encouraging both consumers to buy more efficient
cars and light trucks, and encouraging manufacturers to adopt
the technology to avoid fees and gain rebates. And so I think
as a market-based incentive, that deserves a careful look as an
alternative to CAFE standards.
Mr. Ehlers. Would you--are you saying you should--that we
should try to apply something like that across the whole market
spectrum?
Dr. Greene. Well, there are two components of a feebate
system. One is the pivot point. That is, what MPG level defines
whether you get charged a fee or you get a rebate? You can have
a pivot point for cars and a different one for trucks. You
could have one for smaller cars or larger cars, smaller trucks.
You can have as many as you like. What provides the incentive
to the manufacturers, especially, to adopt technology is the
rate. That is usually specified in terms of dollars per 0.01
gallons per mile so that every gallon of gasoline gets the same
rate--weight in this incentive. And a feebate system of $500 to
$1,000 per 0.01 gallons per mile, that is about the difference
between a 20- and a 25-mile-per-gallon vehicle. It would
provide a very strong incentive, both to the manufacturers and
to the consumers to get a more efficient vehicle. These systems
can be designed so the pivot points make the system revenue
neutral, that is you take in as much as you pay out.
Chairman Boehlert. Thank you very much.
The gentleman's time has expired.
Mr. Schwarz.
Mr. Schwarz. We have talked about--first, let me say that
my District is right next to Congressman Ehlers' District. And
my District--in my District, General Motors is building the
largest plant that they have built in the last 20 years, and I
am delighted to have them there. It is the Delta Township
plant, the Delta plant just outside of Lansing, Michigan. You
have talked about methyltertiary butylether gone away. You
can't use that anymore. Ethanol is expensive stuff, not
generally accepted by the population, by the motoring
population yet. Biodiesel is a great idea. There are some
places--where I live in Michigan, they are actually using it
and selling it, the B20 with biodiesel from soy and some of it
from restaurant grease and other things of that nature. At some
point, the industry has got to get from petrofuels to the
hydrogen society, the hydrogen environment.
So my question is briefly this, as someone who has
thousands of people in his District working in the automotive
industry, and someone from the State of Michigan, what is the
best policy that the Federal Government should develop or
maintain toward the industry that gets you from petrofuels to
hydrogen the most quickly that it possibly can? Less
regulation? More regulation? Change the rules? Leave CAFE
standards the way--what gets us there quickest?
Mr. Stanton. Well, I will take the first stab at that.
Certainly the research and development that this committee has
been supportive of in the past, and we need to continue that
and increase that. We think that the tax credits for advanced-
technology vehicles is certainly a good way to go, too. We are
not saying no increases in CAFE. We are just saying make sure
we do the CAFE increases right so we don't divert resources
from our main goal to having to meet incremental increases,
which is not going to be the big bang for the buck at the end
of the day.
Mr. Portney. If I could, Mr. Schwarz, thank you.
I agree with Mike that there are two pieces to this puzzle
to hasten the onset of the hydrogen economy, if it turns out
that that really is the energy wave of the future. The first is
more investment in research and development, because individual
companies don't have a sufficient incentive to invest in new
technologies, because other people can then ape the
technologies that they invent, and they don't get all of the
benefits. So there is underinvestment. But I think there also
needs to be some incentive that--something that motivates the
consumer to demand more fuel-efficient cars, and that can
either take the form of higher gasoline prices or tighter fuel
economy standards that the car companies have to meet.
If I could add one more thing, I actually think 2005 will
be the most important year for people who pay attention to fuel
economy that we have seen, and the reason I say that is that if
one looks at the hybrid vehicles that we have had in the past,
the Honda Insight, the original version of the Prius, tend to
be cars that give you great fuel economy and this hybrid
technology but not a lot of other amenities. So you have kind
of sacrificed on the amenity side to get improved fuel economy.
This year, we will see the Ford Escape SUV. We will see the
Toyota or the Lexus HX-400, a very elegant SUV hybrid. We see
the Honda Accord now hybridized, and we will see the--both
Volkswagen and DaimlerChrysler with advanced diesel engines in
much more upscale cars. And if we see this year great consumer
acceptance of those vehicles, then I think it will be an
unmistakable signal to car makers across the line, both in the
passenger car and the light-duty truck segment of the fleet,
that this is something that the public is willing to pay for
and fuel economy really does have a strong consumer demand. And
I think that is going to go a long way toward creating a great
incentive for improved fuel economy, even without government
intervention, which, I would argue, probably still needs to
take place.
Dr. Greene. Let me endorse both of those recommendations
that have been made, and also add that if we want a--if we want
hydrogen from renewable sources, then we probably need to have
a policy for controlling carbon emissions, cap and trade
system, some kind of way of penalizing vehicles that emit
greenhouse gases.
Chairman Boehlert. Thank you very much. You are right on
time. The gentleman's time has expired.
Excuse me. I think we have pretty well established that we
have the technology right now to make cars and trucks get
significantly better fuel economy without any detriment to
safety. I think that is agreed by all.
The question is still on the table, it seems to me, and
there are two of them. First, what are the pros and cons of
using CAFE standards to get that technology into the hands of
consumers rather than just depending on the markets? And the
second one, how can we put CAFE standards into place without
disproportionately burdening U.S. manufacturers? A tall order.
Who wants to take the first crack at it?
Mr. Duleep. Let me----
Chairman Boehlert. The centrist in the panel.
Mr. Duleep. Let me just answer the first part of it, which
is how can we get these technologies. I think, as I pointed out
in my opening statement, and as Mr. Stanton pointed out, a lot
of these are going to come in, regardless of any actions by the
Congress or not. That--I think that many of these technologies
pay for themselves and make sense in the marketplace. I think
where there is a market failure in this constantly increasing
consumer demand for attributes that are rapidly eroding some of
these benefits of the technologies, and there has been
reference made to it. And I think that is where there is
perhaps more disagreement on how one might capture the
technology benefits in terms of fuel economy benefits rather
than benefits in acceleration performance or other attributes.
And the second part of it, on the CAFE issue, I am fairly
certain, and I think Dr. Greene will back me up on this, is
that if the--meeting a single-number target for all companies
is definitely--creates distortions in terms of competitive
impacts between manufacturers. And any attribute-based
standard, we have found in our research, is somewhat better
than the current CAFE standard. But we also came to the
conclusion that there is no real perfect way to do it, and that
almost anything you do involves some degree of compromise. And
so I think it is just a matter of defining those compromises
and--rather than the fact we are ready to accept them.
Chairman Boehlert. Mr. Reilly.
Mr. Reilly. The question of whether or not the onset of
hybrids does disadvantage American auto manufacturers is one
that we took very seriously. And I must say, coming into that
conversation, I was skeptical that it would. We concluded--our
consultants concluded that there is a risk of loss of U.S. jobs
to American manufacturers and that the reason for that is--in a
word is because the technologies that we are talking about
here, advanced diesel and hybrids, are German, primarily, and
Japanese, primarily. They are--when they are brought to this
united--these United States, they are, very often, under
contract or franchised with some of those who have developed
those technologies.
Chairman Boehlert. Is that because they have regulations
that require that in Japan and Germany?
Mr. Reilly. It is possible that that has played a role. It
certainly has stimulated much more attention to some of these
issues on a more urgent basis, I think, particularly in Japan.
But for that reason, we did propose significant manufacturer
incentives of a billion and a half dollars over 10 years to
manufacturers for producing these vehicles in the United
States, for all manufacturers, Toyota included to the extent
that they manufacture in the U.S. We had those proposals vetted
by trade lawyers to determine whether or not these were
consistent with international trade agreements, with the World
Trade Organization. They concluded that they were, that they
are, and that this is an important way to get the introduction
of the technologies. And I think they are game changing
technologies. I have been involved with this issue for a long
time. What is truly new now is we have technologies available
to us that can get significant improvements in automobile fuel
efficiency that we didn't have 10 years ago. So I think finding
a way to get them introduced with the least disadvantage to
American manufacturers and workers is the way to go, and that
is the reason for the incentives that we proposed. We also had
consumer incentives that I mentioned.
Chairman Boehlert. What--you know, let me just ask. It is--
I think it is a national security imperative to reduce oil
demand, and I think we all--can all accept that. Can we just
rely on market forces to do that, or is there something more
than market forces that we have to engage in? And you are
recommending--obviously, you are recommending something more
than market forces, and I think Dr. Portney is, too.
Mr. Reilly. Well, I strongly prefer the use of market
forces, because that aligns the interests of consumers with the
interests of manufacturers.
Chairman Boehlert. Well, I understand that, and we all do.
Mr. Reilly. Right.
Chairman Boehlert. I mean, I don't think you will get any
disagreement there. Everybody raise their hand. We prefer
market forces, but if market forces aren't doing what needs to
be done, and we have a national security imperative to reduce
demand for oil and look at the emerging giants in India and
China, the demand, you know--there is not an unlimited supply
of oil around the world. And you--well----
Mr. Reilly. Well, if the question is if you could not use
higher prices as a way to create demand for more fuel efficient
vehicles, do I think that there is an appropriate role for the
government, through tightening CAFE standards. I do, but there
I would come back to the point that I made before, that I would
only do that if I gave up on the use of market forces, which I
am not prepared to do, and it is so important that car makers
be given sufficient time to do this, rather than be required to
get unrealistically high improvements in unrealistically short
periods of time, because then we are back to downsizing and
downweighting, which was a counterproductive way to go about
this, I think, in the first place.
Chairman Boehlert. And we established the fact that it is
not necessary to downsize and downweight to get the increased
fuel efficiency that we are looking for. We have established
that fact.
Mr. Reilly. Well, we have established that----
Chairman Boehlert. You know, I can remember well.
Mr. Reilly. Yeah, we have established that if the car
makers are given a sufficient period of time. If you said we
are going to----
Chairman Boehlert. And we all agree that they--what they
should be given, so, you know----
Mr. Reilly. But in that case, fine----
Chairman Boehlert.--a period of time. We can't say, ``Do it
tomorrow.''
Mr. Reilly.--I absolutely--right. Right.
Chairman Boehlert. I mean, what--you know, I applauded the
President last January 14 when he announced his space
exploration initiative, and you know, he took an agency where
they are still wearing black arm bands in the aftermath of the
demise of the Columbia, and they were in a collective funk, and
he said, you know--he inspired them, you know, for future space
exploration. But to his credit, he said, ``We are not going to
do it tomorrow, and don't write me a blank check.'' And I am
very mindful of the people that Mr. Stanton represents. I don't
want to just shove something down the throat of the industry
and say, ``We have got to do it right away.'' We have got to be
sensitive to their very legitimate concerns. But what comforts
me today is the positive approach saying that we have got to
work together to accomplish something that we agree is a
legitimate national security objective. Now we might have some
differences on timetable, but we are not focusing from one side
of the argument all our energy on fighting something that we
all agree is necessary. Now we may have some differences on
timetable.
And finally, I would say on customer demand, and everybody
keeps talking about customer demand, and I agree, but I will
tell you, I think, I feel strongly that customer demand is
ignited, in large measure, by what all of us are exposed to in
advertising. And I would--and I go back to, once again, the
auto industry came forward with airbags before they were
mandated by the government. And a lot of the captains of
industry were on television selling safety. And you know what,
in my house, like a lot of houses across the country, my wife
said, ``Boy, that is something I want for me and for our kids
and grandkids.''
So I think we are all in this together. I hope that--Dr.
Portney, I am going to take you up on your offer. We will
follow it up in writing. You said you would be glad to convene
something and maybe we can get, you know--from people in the
auto industry and the Alliance to sit down and sort of talk
together to try to sort this thing out. It is very, very
important. And I know one of the things you are including in
your market forces is increasing taxes, and I will tell you
this, we are very skittish about that, and with legitimate
reason, because there are ways to accomplish the same objective
without increasing taxes. So--but I understand that is one of
the market forces that is an option that you would suggest we
take a look at. And let me say we should look at all options.
But with that, let me say thank you very much. You know, we
will follow up, probably, with a few questions for each of you,
and we would appreciate a timely response. But this has been a
very good panel. Not everyone has been in agreement. We have
had some good back and forth--good participation from up here.
I really appreciate it. We did something worthy of note here
today.
The hearing is adjourned.
[Whereupon, at 4:30 p.m., the Committee was adjourned.]
Appendix 1:
----------
Answers to Post-Hearing Questions
Responses by Hon. William K. Reilly, Aqua International Partners
Questions submitted by Representative W. Todd Akin
Q1. If the CAFE program has been successful, could you please explain
why we are more dependent on foreign oil today and consuming more
gasoline in our vehicles than we were when the program was originally
put into place? And if that is the case, how will increasing the CAFE
requirements to higher levels reverse this trend and accomplish the
original goals of CAFE?
A1. Was CAFE successful? In a study published in 2002 entitled
``Effectiveness and Impact of Corporate Average Fuel Economy (CAFE)
Standards,'' the National Academy of Sciences found that fuel use by
passenger vehicles is roughly one-third lower today than it would have
been had fuel economy not improved since 1975. CAFE was identified as a
``major reason'' for the fuel economy improvement. The NAS estimated a
2.8 million barrel per day savings between 1975 and 2000, or 14 percent
of current U.S. consumption (?20 million barrels per day).
If CAFE was successful, why are we consuming more oil? We are
consuming more oil because vehicle miles traveled (a function of
increasing numbers of vehicles on U.S. roadways and the trend towards
driving greater distances each year) have outstripped the oil savings
achieved by improved fuel economy in the late 1970s and 1980s. The
figure to the right from the NAS report shows vehicle miles traveled
(VMT) increasing steadily since 1966. Fuel use declined between 1978
and 1983 due to improved vehicle fuel economy and a decline in the use
of oil by electric utilities, but has risen steadily since then as
passenger vehicle fuel economy levels have stagnated. Source of Figure:
NAS CAFE report at page 19.
If CAFE was successful, why are oil imports increasing? Oil imports
are increasing because domestic production has declined steadily since
1970, and domestic consumption has continued to grow, although at
slower rate than what might have been given CAFE and other factors. The
figure to the right is from EIA's Annual Energy Review (2003) which
provides statistics on petroleum production, consumption by sector,
trade, storage, prices, refinery activities and the Strategic Petroleum
Reserve. Since the peak of U.S. crude oil production in 1970 of 9.6
MBD, domestic production has declined 40 percent and now rests at 5.7
MBD. Over the next twenty years, the Energy Information Administration
in its Annual Energy Outlook 2005 forecasts a slight increase in U.S.
oil production over the next five years, followed by a slow but steady
decline until 2025.
How will increasing CAFE reverse the trend of increasing
consumption and rising oil imports and thus accomplish its original
goals? The fact that the U.S. economy has not gone into a recession
despite $50 for a barrel of crude oil is in part because efforts over
the last thirty years to begin to wean our economy off oil have been
successful. The figure to the left excerpted from the Commission's
report shows that the oil economic intensity of the U.S. economy (that
is, the amount of oil needed to produce a dollar of GDP) was halved
over the last 30 years. Increasing CAFE can reverse the trends of
increasing consumption and rising imports, but the increase would have
to be larger than two percent per year to offset the annual rise in
VMT. But the point here is that even a more modest increase in CAFE can
help insulate the economy from future oil price shocks and generally
high oil prices.
Answers to Post-Hearing Questions
Responses by Paul R. Portney, President, Resources for the Future
Questions submitted by Chairman Sherwood L. Boehlert
Q1. In your testimony you said that recent research by your colleagues
suggests that the ``rebound'' effect--people driving more because
improvements in fuel economy make it cheaper to do so--might cancel out
the economic and environmental benefits of improving fuel economy. To
what extent were the energy security benefits of improving fuel economy
taken into account?
A1. The rebound effect has only to do with how much gasoline will be
saved by tighter standards--it does not bear on the question of the
good that is done by reducing consumption. If people drive a little
more because their cars get better fuel economy (and hence the cost of
driving an additional mile are reduced), that just means that we'll
save less gasoline through tighter CAFE standards than appears at first
blush.
The NAS committee indeed took into account energy security
benefits--assigning them a ``shadow value'' of $5/barrel of oil
consumed, which at the time was about 20 percent of the price of a
barrel of oil (more like 10 percent now). This is a very important
question, of course, but it is unrelated to the debate over the rebound
effect.
Q2. In discussing the potential of technology to reduce fuel
consumption, you emphasized the importance of the ability of the
individual consumer to recoup the additional costs of fuel efficient
technology through gasoline savings. But if reducing the Nation's
dependence on oil is a public good, why not emphasize the level of fuel
savings that maximizes the benefit to the public as a whole? Why not
think of fuel economy standards as similar to pollution emissions
requirements, in which individual consumer repayment is not as
important a consideration?
A2. In fact, the right way to think about the benefits of improved fuel
economy is to combine the benefits to the consumer from reduced
gasoline consumption with the social benefits from internalizing the
climate change and oil import dependence externalities. The NAS
Committee thought it was worthwhile, though, to analyze the effects of
tighter standards purely from the standpoint of the car buyer.
Depending upon the period over which gasoline savings are calculated,
and upon the discount rate used to compare future savings with present
outlays, tighter standards look attractive purely on economic grounds
alone.
This is somewhat deceiving, however, because a rational car buyer
might think to herself, ``Fine, I'll save more gasoline over the life
of this car than I'll have to shell out in a higher purchase price. But
what if the car companies could use the money they are required to
spend on tighter fuel economy instead on developing other conveniences
for me? It's at least possible that I'd like those new features even
more than the fuel economy savings I'll be getting now.''
This isn't an unrealistic scenario, though it gets more and more
unrealistic as gasoline gets more and more expensive. In other words,
the higher the cost of gasoline, the less likely it is that car buyers
will prefer heated cup-holders or whatever other options might be
invented to improved fuel economy.
Questions submitted by Representative W. Todd Akin
Q1. You served as Chair of the NAS panel that reviewed the CAFE
program in 2001. Did your panel recommend any specific CAFE standards?
Could you explain some of the complexities and policy tradeoffs that
must be considered in taking information on future technologies and
assessing the increases in vehicle and fleet fuel economy that may be
possible from implementing those technologies?
A1. The NAS Committee did not recommend any specific CAFE standards.
Determining those standards involves a set of complicated tradeoffs
that can only be made by elected or appointed officials of the Federal
Government.
The complicated tradeoffs include such things as the safety of
vehicle occupants, the cost and reliability of new vehicles, the fuel
savings that would result from tighter standards, the reduced emissions
of greenhouse gases associated with improved fuel economy and many
other factors that are spelled out clearly in the report.
Q2. If the CAFE program has been successful, could you please explain
why we are more dependent on foreign oil today and consuming more
gasoline in our vehicles than we were when the program was originally
put into place? And if that is the case, how will increasing the CAFE
requirements to higher levels reverse this trend and accomplish the
original goals of CAFE?
A2. This is an easy one. The fact that we consume more gas today than
we did before the CAFE standards were put in place does NOT necessarily
indicate that the program was unsuccessful. That depends on how much
gasoline we consume today compared to the level that would exist had we
not implemented CAFE standards in the late 1970s. It was very clear to
the NAS panel that while fuel consumption has gone up significantly
since then, it would have gone up by much more had the CAFE program not
been put in place--particularly after the fall in gas prices during the
1980s.
While there are clearly pros and cons to even tighter standards--
again, all spelled out in some detail in the NAS report, no one doubts
that they would reduce the amount of gasoline used. Some believe that
the savings wouldn't be worth the costs, while others have a different
view. But NO ONE argues that tighter CAFE standards in the future will
fail to reduce gasoline consumption relative to the current baseline.
Answers to Post-Hearing Questions
Responses by K.G. Duleep, Managing Director of Transportation, Energy
and Environmental Analysis, Inc.
Questions submitted by Chairman Sherwood L. Boehlert
Q1. In your testimony you called the demand for 400, 500 and 600
horsepower engines ``astounding'' since the speed limit in this country
rarely exceeds 70 miles per hour. What effect do you believe this
increase in horsepower will have on fuel economy? On safety?
A1. Large increases in horsepower do affect fuel economy and safety if
vehicles. Typically a 10 percent increase in horsepower decreases fuel
economy by 2.5 percent if the vehicle technology level is unchanged and
the horsepower gain is achieved by engine upsizing. Larger increases in
horsepower of 20 percent or more also require improvements to the
brakes, tires and the drive line, thereby increasing vehicle weight and
causing additional losses in fuel economy over and above the effect of
engine upsizing. The doubling of horsepower that has occurred over the
last 20 years has led to an implied loss in fuel economy of about 30 to
35 percent.
It is more difficult to provide a quantitative estimate on safety
effects, since the vehicle safety statistics are profoundly influenced
by driver behavior. In the past, high horsepower engines were typically
associated with sports cars, which have a poor safety record. Now, very
powerful engines are being offered in many conventional cars but it is
not clear if their accident and fatality rates will be similar to those
of sports cars with similar engines, due to differences in the types of
consumers who drive these vehicles. I would still expect some increase
in accident and injury rates since it is much easier to drive these
powerful vehicles aggressively.
Q2. You have emphasized the importance of the ability of the
individual consumer to recoup the additional costs of fuel efficient
technology through gasoline savings. But if the government chose to
improve fuel economy to benefit the Nation by reducing our dependence
on oil, why shouldn't it approach the issue more like it does the
setting of requirements to control pollution emissions, in which
consumer repayment is not a consideration?
A2. My testimony did emphasize the ability of consumers to recoup the
costs of technology through savings from reduced fuel consumption, and
I do not believe the situation is the same as setting emission
standards for criteria pollutants. The committee appeared most
interested in achieving increased fuel economy by setting fuel economy
standards that auto manufacturers must comply with, but have no direct
effect on consumer demand. Moreover, there appears to be little
appetite in Congress for restricting consumer choice of vehicle size
and power. Hence, manufacturers faced with consumer demand for larger,
more powerful cars and lack of consumer interest in fuel economy will
have considerable
difficulty in selling technology that is perceived by the consumer
to cost-ineffective. In contrast, emissions of criteria pollutants are
not a function of vehicle size and power (due to the catalyst cleaning
up 99 percent of engine-out emissions) and meeting emission standards
is effectively de-coupled from the issue of consumer choice of vehicle
attributes. The California zero-emissions vehicle mandate departs from
historical emission standards by requiring a certain percentage of
vehicles sold by each manufacturer to be a hybrid or electric vehicle.
This regulation presents problems similar to those posed by fuel
economy regulations, especially if hybrids are perceived as cost-
ineffective by a majority of consumers.
Questions submitted by Representative W. Todd Akin
Q1. Since all of the automakers are in different places in terms of
the current use, potential use and even applicability of the various
technologies you have identified to their products, can you explain how
you are able to evaluate the potential for increasing the fleet fuel
economy levels? Aren't there going to be ``winners'' and ``losers'' in
the process of dramatically increasing CAFE standards as some have
suggested?
A1. We recognize that different manufacturers are in different
positions with regard to technology deployment and vehicle sales mix,
but we do track technology and fuel economy at the vehicle make and
model level and can derive fuel economy potential for each
manufacturer. The fleet fuel economy improvements cited in my testimony
are simply a sales-weighted average of individual manufacturer
capability but my testimony also makes the point that a single fuel
economy standard for all manufacturers could disadvantage many
manufacturers. The current CAFE standard imposes a single standard for
cars and another for all light trucks, regardless of the mix of cars or
trucks sold by any specific manufacturer. Historically, this single
standard approach has created problems for GM, Ford, Chrysler and
European luxury car manufacturers. This could continue to be true in
the future, but the magnitude of the effect is declining due to mergers
and acquisitions in the industry. In addition, the Japanese and Korean
manufacturers are gradually entering all market segments including low
fuel economy segments like fullsize pickup trucks and SUV, where no
imports were offered in the past. Dr. Greene of Oak Ridge National
Laboratory and I have explored other types of standards such as size
class or weight specific fuel economy standards, and these appear to be
better than the single standard approach used in the historical period.
Q2. If the CAFE program has been successful, could you please explain
why we are more dependent on foreign oil today and consuming more
gasoline in our vehicles than we were when the program was originally
put into place? And if that is the case, how will increasing the CAFE
requirements to higher levels reverse this trend and accomplish the
original goals of CAFE?
A2. Many detailed analyses of the CAFE standard conducted by the
government conclude that it was effective in reducing gasoline
consumption during the 1980-1990 period. Of course, the CAFE standards
for cars set in 1975 by Congress are still in force today at the same
level of 27.5 mpg while light-truck CAFE standards have also continued
for the last 20 years with almost no change. Hence, the benefits of
these standards have long since been swamped by population growth,
increases in car ownership, and increased driving per car. Future
increases in CAFE standards will also have only a short-term effect if
the standards are left unchanged for decades. It is also possible that
historical increases in car ownership will not occur as we approach
saturation, and future increases in travel per vehicle may be much
lower due to increasing congestion and traffic. If historical growth
rates of these parameters are reduced in the future, then the benefits
of CAFE standards may be more durable.
Answers to Post-Hearing Questions
Responses by Michael J. Stanton, Vice President of Government Affairs,
Alliance of Automobile Manufacturers
Questions submitted by Chairman Sherwood L. Boehlert
Q1. You suggest in your testimony that to advance the adoption of new
technologies to improve fuel economy, the government should enact tax
credits for the purchase of advanced technology vehicles. However, if
CAFE standards were to remain constant, since they are based on a
fleet-wide average, the purchase of advanced high efficiency vehicles
could be off-set by the sale of more fuel inefficient vehicles or the
deployment of these technologies for greater power or size, resulting
in little or no change in the overall consumption of fuel by the fleet.
How do we avoid this outcome when supporting incentives for the
purchase of advanced vehicles?
A1. Your question gets to the heart of one of the problems of the CAFE
program. There is nothing that says the consumer must purchase ``fuel
economy.'' The CAFE program only says that vehicle manufacturers must
produce a fleet that averages a certain fuel economy level regardless
of what consumers want or choose to purchase. The auto industry today
makes over 100 models that achieve 30 or better miles per gallon on the
highway, yet the sales of these vehicles are very low.
The purpose of the incentives is to make it economical for the
manufacturer to offer these advanced technology vehicles, since there
is a premium to produce these vehicles. The proposed consumer tax
incentives are for a very limited time. They will help increase
production volumes and consequently reduce costs, enabling
manufacturers to provide highly fuel-efficient vehicles with the
attributes consumer's value.
We can't change consumer-purchasing habits, but we can make some of
these advanced technology vehicles in the most popular vehicle lines.
There are already two hybrid-electric SUVs available and more are
planned for production. There is also a diesel-powered SUV available.
It is the manufacturers task to introduce advanced technologies in
vehicles that consumers want to purchase.
Q2. You have emphasized the importance of the ability of the
individual consumer to recoup the additional costs of fuel-efficient
technology through gasoline savings. But, if the government chose to
improve fuel economy to benefit the Nation by reducing our dependence
on oil, why shouldn't it approach the issue more like it does the
setting of requirements to control pollutant emissions, in which
consumer repayment is not a consideration?
A2. There are two important distinctions between the national program
to control tailpipe emissions and the CAFE program. Over the past four
decades, manufacturers developed and implemented very effective
emission control technology. In fact, today's vehicles have 99 percent
fewer smog-forming pollutants than vehicles of the 1970s.
These emission reductions were achieved in a way that was invisible
to the consumer.
Unlike smog-forming pollutants, there are no ``catalysts'' that can
be put on a vehicle to improve its fuel economy. Although several
technologies to improve fuel efficiency have been introduced in the
fleet, it can take 20 years to develop and implement a single new
technology.
The other main way to improve fuel economy is to make vehicles
lighter. This involves either making vehicles smaller or using advanced
materials for constructing the vehicle, which may not be cost-
effective. Unfortunately, history shows that consumers do not value or
purchase in large numbers small cars with good fuel economy.
Once consumers purchase these vehicles and get some experience,
Consumer incentives to purchase advanced technology vehicles will spur
the sale of these vehicles resulting in greater consumer acceptance and
greater consumer willingness to invest in these technologies.
Questions submitted by Representative W. Todd Akin
Q1. The House has considered amendments to legislatively increase the
CAFE standards during consideration of each of the past two energy
bills. Does the Auto Alliance support such legislative attempts to
increase CAFE standards? Are legislative changes necessary? What would
you recommend instead?
A1. No, the Alliance does not support legislative increases to CAFE
standards. Congress clearly assigned the task of setting CAFE standards
to NHTSA. NHTSA has the expertise and a great deal of experience in
carrying out its statutory obligation to set maximum feasible standards
considering technological feasibility, economic practicability, the
effect of other motor vehicle standards, and the need of the U.S. to
conserve energy. NHTSA enacted the largest increase ever for light
trucks when it set standards for the 2005-2007 model years. Now, NHTSA
is working on a proposal that will set standards and revamp the CAFE
program for 2008 and later models years.
Q2. If the CAFE program has been successful, could you please explain
why we are more dependent on foreign oil today and consuming more
gasoline in our vehicles than we were when the program was originally
put into place? And if that is the case, how will increasing the CAFE
requirements to higher levels reverse this trend and accomplish the
original goals of CAFE?
A2. The CAFE program has been successful--the average fuel economy of
the passenger car fleet doubled from around 13 mpg in the mid 1970s to
27.5 mpg in 1985. However, programs that succeed in reducing oil demand
have always increased, in percentage terms, the world's dependence on
the most insecure sources of supply. As demand falls, the market share
of high-cost non-OPEC producers falls, and the market share of low-cost
Middle Eastern OPEC producers rises.
In terms of overall fuel consumption, there are many unintended
consequences of the CAFE program. When consumers are able to buy cars
that get better mileage, in a low fuel price environment, consumers
will drive more miles. Vehicle miles traveled have been increasing
exponentially over the last decade or more. Since the enactment of the
original CAFE standards, consumers have purchased more light trucks,
which are now over 50 percent of the market. These vehicles are
generally less efficient than passenger cars, but they provide greater
carrying capacity and the ability to tow heavy loads, which most
passenger cars today can't.
Increasing the CAFE standards as they are currently structured will
not reverse this trend, because the same unintended consequences will
occur. The CAFE standards are a requirement for manufacturers to make
more fuel-efficient cars and light trucks, but there is nothing that
says consumers have to buy more fuel-efficient vehicles. The auto
industry today makes over 100 models that achieve 30 mpg or more on the
highway, but sales of these vehicles are relatively low compared to the
overall fleet. NHTSA should be left with the job of weighing all of the
competing demands placed on the industry and setting a standard that
takes all of that into account.
Answers to Post-Hearing Questions
Responses by David L. Greene, Oak Ridge National Laboratory, Center for
Transportation Analysis, National Transportation Research
Center
Questions submitted by Chairman Sherwood L. Boehlert
Q1. In his testimony, Dr. Portney said that recent research by his
colleagues suggests that the ``rebound'' effect--people driving more
because improvements in fuel economy make it cheaper to do so--might
cancel out the economic and environmental benefits of improving fuel
economy. Do you agree? Would consideration of the energy security
benefits of improving fuel economy affect your answer?
A1. I do not agree that the rebound effect would cancel the benefits of
fuel economy improvements brought about by higher fuel economy
standards set at an appropriate level.
In general, a reduction in the cost of operating a car brought
about by improving fuel economy will be partially to entirely offset by
an increase in the price of the vehicle. This is an extremely important
point that is generally overlooked in analyses of the rebound effect.
The premise of the rebound effect is that increasing fuel economy
reduces the cost of operating a vehicle by reducing the amount of fuel
required per mile of travel. Estimates of the rebound effect published
in the economics literature measure the effect of reduced fuel cost per
mile of travel (price per gallon divided by miles per gallon) on the
amount of travel, other things equal. However, when manufacturers raise
fuel economy in response to higher standards they do so primarily by
adding more expensive fuel economy technology, thereby increasing the
cost of the vehicle. Whether the increased cost of this technology will
be less than or greater than the value of fuel saved is usually a
subject of heated debate, and in any case will depend on how high the
standards are set. Regardless, in the long run the cost of operating a
vehicle depends on the cost of the vehicle as well as the cost of fuel
(plus other costs such as insurance, maintenance, etc., some of which
may increase with vehicle price). Thus, in the long run, the rebound
effect due to lower fuel costs will be at least partially and possibly
entirely offset by the increased cost of fuel economy technology. I
will provide a simple illustration below to show how important this
effect can be.
Second, when fuel economy increases significantly, motor fuel tax
revenues drop dramatically. Since motor fuel taxes are overwhelmingly
user fees that finance the construction and maintenance of highways,
Federal and State governments must find some way to replace the lost
revenue. Historically, they have done this by raising motor fuel tax
rates. Current federal and State motor fuel taxes average $0.38 per
gallon (excl. sales taxes). If fuel economy standards were raised by 50
percent, for example, the increase in fuel economy would eventually
cause tax revenues to drop by 1/3. To restore the lost revenue the
total tax would have to increase to $0.57, an increase of $0.19 or
about 10 percent of the price of gasoline (at $2/gallon). Such a tax
increase would further erode the rebound effect, as I will illustrate
below.
Finally, while historical estimates of the rebound effect (the
elasticity of travel with respect to fuel cost per mile) are in the
vicinity of ^0.2, the rebound effect has been decreasing over time, (1)
as fuel costs have decreased as a share of total vehicle operating
costs, and (2) as consumers' incomes rise. In 1985, fuel costs
comprised 20 percent of total vehicle operating costs; in 2003, fuel
accounted for only 12 percent of operating costs. As fuel becomes a
smaller share of the cost of driving, motorists become less sensitive
to both fuel prices and fuel economy. In addition, as consumers'
incomes rise, they become less sensitive to fuel costs. The most recent
analysis of the rebound effect by Professors Kenneth Small and Kurt Van
Derider of the University of California at Irvine found a long-run
rebound elasticity for the U.S. of ^0.24 for the period 1966-2001. This
is quite similar to my 1999 study of this subject which found a long-
run elasticity of ^0.23. However, for the most recent five-year period
using values of income for the State of California Small and Van Dender
found the long-run rebound effect had fallen to ^0.09. Projecting
future income growth in California, they calculated expected rebound
values of ^0.08 for 2005 and ^0.04 for 2020. The current value of the
long-run rebound elasticity is therefore probably close to ^0.1, with
smaller values appropriate for evaluating future fuel economy impacts.
It is instructive to combine these elements in a sample
calculation. Suppose fuel economy regulations require a 50 percent
increase in light-duty vehicle fuel economy. This will produce a 33
percent decrease (1/1.5 = 0.67) in fuel cost per mile. Evaluated using
alternative rebound elasticity values of ^0.2 and ^0.1, this would
imply a 6.7 percent or a 3.3 percent increase in vehicle travel,
respectively. If we assume that the increase in vehicle price for
technologies to achieve these fuel economy gains will be two thirds of
the value of fuel saved, then the net decrease in long-run vehicle
operating costs would be only 11 percent. This would produce an
increase in vehicle travel between 1.1 percent and 2.2 percent. If we
add to this the assumption that motor fuel taxes will increase by $0.19
per gallon, and that this amounts to 9.5 percent of the cost of
gasoline at $2.00/gallon, then the total long-run decrease in the
operating cost of a vehicle is 1.5 percent, for which we would estimate
a rebound effect of between 0.3 percent and 0.15 percent. Obviously,
the numbers used in this example are approximations. Nevertheless,
taking into account the fact that increased fuel economy will increase
the price of vehicles together with the likelihood that governments
will respond to losses in highway revenues by raising motor fuel taxes
can reduce the rebound effect to a truly negligible factor.
From the above example it is clear that the smaller the price
increase caused by higher fuel economy standards is relative to the
fuel savings they produce, the larger the rebound effect will be. If
the price increase is larger than the value of fuel savings, the
rebound effect could be negative (i.e., an increase in vehicle
operating costs and a decrease in miles traveled). My point is that one
cannot have it both ways. Either fuel economy standards cause a net
decrease in vehicle operating costs, in which case there is a rebound
effect but also a substantial economic benefit to car buyers, or there
is a net increase in operating costs, in which case there should be no
rebound effect. If the fuel economy standards are set near the point at
which the value of fuel savings equals the price increase, the rebound
effect should be negligible.
Finally, I believe that Dr. Portney was referring to not just the
environmental impacts of the rebound effect, but to the full range of
potential external costs of vehicle travel, which in previous studies
by RFF have included congestion and safety externalities, among others.
According to Harrington and McConnell (2003) non-environmental external
costs may be several times the environmental external costs. In my
view, we should not let the existence of safety, congestion and air
pollution problems prevent us from addressing our oil dependence
problem. Instead, we should address all these problems with appropriate
and well targeted solutions.
Q2. In discussing the potential of technology to reduce fuel
consumption, you emphasized the importance of the ability of the
individual consumer to recoup the additional costs of fuel efficient
technology through gasoline savings. But if reducing the Nation's
dependence on oil is a public good, why not emphasize the level of fuel
savings that maximizes the benefit to the public as a whole? Why not
think of fuel economy standards as similar to pollution emissions
requirements, in which individual consumer repayment is not as
important a consideration?
A2. Thank you for the opportunity to clarify my view on this subject. I
entirely agree that reducing oil dependence is a public good and that
the value to the Nation of reducing oil dependence should be a key
factor in determining the appropriate level of vehicle fuel economy.
However, in studying the costs of improving light-duty vehicle fuel
economy I have observed two relevant phenomena. First, it appears that
technology costs increase rapidly beyond the point at which the total
cost of an increase in fuel economy exceeds the total present value of
fuel savings. This is usually significantly above the fuel economy
level at which the marginal value of fuel savings equals the marginal
cost. Second, trying to increase fuel economy by using pricing to shift
vehicle sales in favor of higher mpg configurations (rather than using
fuel economy technology) appears to be a very expensive strategy. My
intent in making the observation that the level of fuel economy
standards should be set close to the level at which the total value of
fuel saved equals the total cost of technology used to achieve those
savings was to suggest a reasonable range in which the socially optimal
level of fuel economy is likely to be found. In my opinion, this will
be above the point at which the marginal cost of improving fuel economy
equals the marginal value of fuel saved but below the point at which
the total value of fuel saved equals the total cost of improving fuel
economy. Of course, technology is constantly changing and therefore the
most beneficial level of fuel economy from a societal perspective will
change, as well.
Questions submitted by Representative W. Todd Akin
Q1. If the CAFE program has been successful, could you please explain
why we are more dependent on foreign oil today and consuming more
gasoline in our vehicles than we were when the program was originally
put into place? And if that is the case, how will increasing the CAFE
requirements to higher levels reverse this trend and accomplish the
original goals of CAFE?
A1. Establishing fuel economy standards was effective in raising fleet
average fuel economy, reducing U.S. petroleum consumption, and reducing
our oil dependence. During the years in which we required continuous
increases in light-duty vehicle fuel economy (from 1978 to 1985) our
oil dependence steadily decreased. When oil prices (not coincidentally)
collapsed in 1986, we abandoned that successful strategy. By leaving
the fuel economy standards essentially constant for the past 20 years
we have allowed growing travel demand to overtake the new vehicle fuel
economy gains achieved by 1985. The principal factors driving the
growth of travel demand have been increasing population, increasing
levels of income and economic activity, and the continuing geographical
dispersion of both people and the built environment.
Our oil dependence problem has worsened considerably since 1985
because we stopped requiring fuel economy to increase while at the same
time our ability to produce petroleum domestically continued to
decline. The amount of oil we import equals the amount we consume minus
what we produce. U.S. production has been falling since 1970 due to
depletion of our oil resources. In 1970, the U.S. produced 11.3 million
barrels per day of petroleum (crude oil plus natural gas liquids); in
2003 we produced only 7.5 million barrels per day.\1\ U.S. petroleum
consumption in 1970 was 14.7 million barrels per day. Petroleum use
increased to 18.8 million barrels per day in 1978, the first year in
which the CAFE standards were in force. From that level, U.S. petroleum
consumption decreased to 15.7 million barrels per day in 1985, for
practical purposes the last year in which the CAFE standards increased.
The reduction in petroleum consumption from 1978 to 1985 was achieved
despite a 15 percent increase in miles traveled by light-duty vehicles
over the same period (from 1,426 billion vehicle miles in 1978 to 1,637
billion in 1985).\2\ Because it takes more than 10 years to turn over
most of the stock of light-duty vehicles, the benefits of higher new
vehicle fuel economy persisted beyond 1985 even though the rate of
growth in vehicle travel exceeded the rate of increase in fuel economy.
By 1992, the turnover of the stock of vehicles was nearly complete and
on-road light-duty vehicle fuel economy reached a plateau of
approximately 19.5 miles per gallon. Had light-duty vehicle fuel
economy remained at the 1978 level of 13.6 mpg, the 2,078 billion miles
traveled by passenger cars and light trucks in 1992 would have required
46 billion gallons (three million barrels per day) more petroleum than
it did.
---------------------------------------------------------------------------
\1\ U.S. Department of Energy, Energy Information Administration,
``Annual Energy Review 2003,'' DOE/EIA-0384 (2003), Table 5.1,
September 2004, Washington, DC.
\2\ U.S. Department of Transportation, Federal Highway
Administration, ``Highway Statistics 2002,'' Table VM-1, Washington,
DC.
---------------------------------------------------------------------------
Depending on the fuel economy standards chosen, raising fuel
economy standards alone may or may not be sufficient to reverse the
trend of increasing oil dependence. In general, increasing energy
efficiency alone is not a complete strategy for addressing oil
dependence. Increasing domestic petroleum and alternative fuel supplies
is equally important, and harnessing market forces to promote both
efficiency of energy use and increased energy supply is key. Equally
important to these strategies is continuously expanding the
technological potential to increase energy efficiency and substitute
alternative energy sources for petroleum through research. In my
opinion, raising the fuel economy standards is an essential part of an
effective energy security strategy but not a sufficient strategy by
itself.
References
1. Small, K.A. and K. Van Dender. 2004. ``A Study to Evaluate the
Effect of Reduced Greenhouse Gas Emissions on Vehicle Miles Traveled,''
Department of Economics, University of California, Irvine, December 6.
2. Greene, D.L., J. Kahn and R. Gibson. 1999. ``Fuel Economy Rebound
Effect for U.S. Household Vehicles,'' The Energy Journal, Vol. 20, No.
3, pp. 1-31.
3. Harrington, W. and V. McConnell. 2003. ``Motor Vehicles and the
Environment,'' RFF Report, Resources for the Future, Washington, DC,
April.
Appendix 2:
----------
Additional Material for the Record
Prepared Statement of Dr. David L. Bodde
Professor and Director of Innovation and Public Policy, International
Center for Automotive Research, Clemson University
Thank you, Mr. Chairman, for the opportunity to comment on
Corporate Average Fuel Economy (CAFE) standards and their capacity to
encourage fuel-saving innovation in automobiles and light trucks. The
thoughts that follow are my own and not necessarily the views of
Clemson University or its International Center for Automotive Research.
In summary, my thesis rests on three points:
Near-term improvements in fuel economy can most
likely be achieved through more stringent CAFE standards. But
these gains will soon dissipate unless efficiency-enhancing
innovation becomes an ongoing process.
CAFE standards, by themselves, cannot move light
vehicles from mere compliance to continuous improvement. This
is true for two reasons:
CAFE standards operate on the supply side of the
market. They do nothing to promote consumer demand for
more fuel-efficient vehicles.
CAFE standards take no cognizance of the
entrepreneurial sector of the economy. Therefore they
are irrelevant to the most dynamic force for change in
a free society, the wellspring of ``creative
destruction'' that has led technological revolutions in
fields as diverse as telecommunications, computing, and
medicine.
If more aggressive CAFE standards are authorized,
then I would suggest consideration be given to policies that
could supplement regulation with incentives for continuous
innovation.
In what follows, I will set out the evidence that supports this
thesis.
The Limits of Standards in Promoting Ongoing Fuel Efficiency Innovation
The balance of evidence supports two premises as true. The first is
that the original CAFE standards contributed to the sharp increase in
vehicle fuel efficiency that occurred in the decade from 1975 to 1985.
To be sure, analysis cannot clearly distinguish the effects of the
regulation from the effects of the fuel price increase over that same
period. But at the very least, the CAFE standards contributed to the
improvement--and they surely prevented a decline in efficiency as fuel
prices fell in the late 1980s.
Second, the evidence strongly supports a conclusion that the
technology required for meaningful improvement is readily at hand. For
example, the 2002 report of the National Research Council\1\ found that
technologies capable of meaningful improvements in fuel efficiency now
exist but are not applied to passenger cars and light duty vehicles.
Other statements presented to this Committee corroborate this view.\2\
And yet, if this Committee were to hold these hearings 10 years from
now, the same would be said--the ongoing advance of science in many
fields will ensure that the frontier of the possible remains well ahead
of what is actually achieved. The key issue then concerns how to
achieve rapid and continuous application of these results.
---------------------------------------------------------------------------
\1\ U.S. National Research Council, Committee on the Effectiveness
and Impact of Corporate Average Fuel Economy (CAFE) Standards,
Effectiveness and Impact of Corporate Average Fuel Economy (CAFE)
Standards, National Academies Press, 2002.
\2\ For example, Duleep, K.G. Testimony of Mr. K.G. Duleep at the
Hearing on Improving the Nation's Energy Security: Can Cars and Trucks
Be Made More Efficient? Committee on Science, U.S. House of
Representatives, 9 February, 2005.
---------------------------------------------------------------------------
These premises hold important implications. The current situation
does not differ markedly from that of 1975, when the Energy Policy and
Conservation Act first put fuel efficiency standards in place. Then, as
now, the public need for fuel efficiency was far stronger than could be
expressed by price in the marketplace. Then, as now, technologies
offering potential improvement were available, but not in use. Then as
now, the evidence suggested some differential impact on auto
manufacturers. Thus, we can reasonably expect that a new, more
aggressive set of standards would achieve similar results: a onetime,
marked improvement in vehicle fuel performance, followed by a period of
much diminished gains.
If that outcome is satisfactory, then CAFE alone would be
satisfactory. But if the aim of energy policy is to achieve something
more, then consideration should also be given to ways of nurturing
fuel-saving innovation as an ongoing process. And to that subject that
we now must turn.
The Process of Innovation: Implications for Fuel Efficiency
At the beginning, it might be helpful to review some general
principles regarding technological innovation and how it advances
performance throughout the economy. We should begin by understanding
technology from the customer perspective--not as a ``thing,'' but as a
service.
Technology Viewed as a Service: Fuels and vehicles have little
value in themselves, but enormous utility as providers of mobility
services. For road transportation, these valued services include
performance vectors like:
time saving: will the vehicle travel far enough that
the driver does not waste time with frequent refueling?
safety: how well does the vehicle protect its
occupants, both by its ability to avoid accidents and by its
ability to survive them?
comfort: can the vehicle mitigate the stress and
hassles of road travel for the driver and passengers?
image: what does driving this particular vehicle say
about its occupants?
ancillary services: does the vehicle have enough
generating capacity to meet the growing demand for on-board,
electricity-based services?
At any time, consumers emphasize some of these performance
dimensions while sacrificing along others. Consider the consumer
preferences revealed by an EPA analysis of automobile performance from
1981 to 2003. Over this period, average horsepower nearly doubled (from
102 to 197 horsepower), weight increased markedly (from 3201 to 3974
lbs.), and the time required to accelerate from zero to 60 mph dropped
by nearly 30 percent. One task of policy should be the addition of fuel
efficiency to the competitive performance dimensions for road
transportation.
Technology-based Innovation: Accumulating Technological innovations
can be grouped into two general classes: those that advance performance
by accumulating incremental improvements, and those that offer
discontinuous leaps in performance. The term accumulating applies to
technologies that advance performance along dimensions already
recognized and accepted by customers. Each improvement might be
incremental, but the cumulative effect compounds to yield markedly
improved performance--consider the improvements in processor speed for
computers, for example. Auto manufacturers are accustomed to competing
along these dimensions, and the cumulative effect can lead to important
advances--but only if the technology competition continues long enough
for the gains to accumulate. Most of the fuel saving technologies
discussed at this hearing are incremental in nature, and so nurturing
this kind of innovation could become an important policy goal.
Technology-based Innovation: Discontinuous: In contrast,
discontinuous technologies introduce performance dimensions quite
distinct from what the mainstream customers have come to value,
sometimes offering inferior performance along the accustomed
dimensions. Because of their inferior mainstream performance, these
technologies initially gain traction only in niche markets. With
continued use and improvement, however, discontinuous technologies gain
adequacy along the original dimensions and then enter the mainstream
markets.
Consider the electric car, for example. Many analysts have written
off electric vehicles because of their inferior performance in
mainstream auto markets--acceleration, range, and recharge time. Yet
electric vehicle technologies are emerging in an important niche: the
market for personal transportation. This includes golf carts, all-
terrain vehicles, touring vehicles for resorts, transportation within
gated communities, and so forth. In that market, the chief performance
dimensions are convenient access, economy, and ease of use--and style.
The current state of electric vehicle technology is adequate for the
limited range and acceleration requirements of this niche. But, could
electric vehicle technology advance to the point of entry into
mainstream markets? Or, could it compete effectively in personal
transportation markets in developing countries--say Thailand or China?
That is, of course, unknowable. But, please recall that the personal
computer was once considered a hobbyists toy, inherently without enough
power to enter mainstream applications.
Discontinuous innovation tends to be the province of the
entrepreneur, and the companies that such persons found become
platforms for the innovations that radically change all markets. Yet
entrepreneurs often have low visibility relative to the market
incumbents in policy discussions, and their companies are far from
household words.\3\ This is because the entrepreneurs' story is about
the future, not the present; about what could be and not about what is.
For that reason, policies that encourage entrepreneurship in
technologies relevant to reducing fuel use should become part of the
energy policy conversation.
---------------------------------------------------------------------------
\3\ Consider, for example, Zap!, a company founded 10 years ago in
response to the zero-emissions vehicle market emerging in California. A
description can be found at: http://www.zapworld.com/index.asp
---------------------------------------------------------------------------
Policy Options to Promote Fuel Saving Innovations
Two general strategies could be considered to supplement the CAFE
approach by encouraging ongoing innovation in fuel-efficient
technologies: building market demand for these innovations, and
nurturing the entrepreneurial sector to supply them.
Building Market Demand: The price of the fuel offers most obvious
way to encourage fuel saving innovations, and motor fuel taxes provide
the most direct leverage if this component of policy is to be
considered. We must, however, distinguish among short-term and long-
term effects, and include consideration of consumer expectations.
For the short-term, consumers can respond to increased motor fuel
prices in only two ways: by changing their driving patterns, or by
paying more for fuel and reducing their consumption in other areas. The
evidence suggests some mix of these responses. For the longer-term,
consumers can exchange their capital stock--the vehicles they drive--
for more fuel efficient models. In both cases, this adaptive behavior
will depend upon consumer expectations for the magnitude and duration
of the fuel price increase. Adaptive behavior diminishes to the extent
that consumers believe the price increase will prove impermanent. We
should observe also that every country relying on fuel economy
standards also matches them with meaningful motor fuel taxes.
The so-called ``freebates'' program offers an alternative to taxes.
This has been capably discussed elsewhere,\4\ and needs no further
comment here. The effectiveness of income tax deductions for the
purchase of fuel-efficient vehicles will depend upon the tax status of
the individual purchaser. The incentive is further blunted by the
complexities of the tax code and by the delay in receipt of the
benefit.
---------------------------------------------------------------------------
\4\ Greene, Dr. David L. Hearing on Improving the Nation's Energy
Security: Can Cars and Trucks Be Made More Efficient? Committee on
Science, U.S. House of Representatives, 9 February, 2005.
---------------------------------------------------------------------------
In general, any policy that increases consumer incentives to
purchase fuel efficient vehicles will provide an incentive for ongoing
innovation--provided that the policy is perceived as permanent.
Entrepreneurs and innovators respond primarily to opportunity; but that
opportunity must be durable for the 10-year cycle required to establish
a new high-growth company.
Nurturing an Entrepreneurial Culture in Fuel Saving: Policies to
build the market for fuel saving technologies operate on the ``demand''
side of entrepreneurship and innovation. In addition, several policies
could be considered to build an entrepreneurial climate on the
``supply'' side. These include:
Special tax consideration for investors in new
ventures offering products relevant to fuel savings. The intent
would be to increase the amount of venture capital available to
startup companies.
Commercialization programs might enable more
entrepreneurs to bring their nascent technologies up to
investment grade. For example, an enhanced and focused Small
Business Innovation Research (SBIR) program might increase the
number of participating entrepreneurs participating in fuel-
relevant markets. A portion of the Advanced Technology Program
(ATP) could be focused in like manner.
Outreach from the National Laboratories to
entrepreneurs might be improved. Some laboratories, the
National Renewable Energy Laboratory (NREL) for example, offer
small, but effective programs. But more systematic outreach,
not to business in general, but to entrepreneurial business,
would also increase the supply of market-ready innovations.
Prepared Statement of Dr. Gal Luft
Executive Director, Institute for the Analysis of Global Security
(IAGS)
Mr. Chairman, Members of the Committee:
It is an honor to be invited to submit this testimony to this
distinguished Committee on the important issue of improving the fuel
efficiency of America's vehicle fleet. I currently serve as executive
director of the Institute for the Analysis of Global Security (IAGS),
an energy security research institution. I'm also representing the Set
America Free coalition, a coalition of national security, foreign
policy and environmental groups dedicated to promote a blueprint for
energy security which focuses on reduction of U.S. oil demand in the
transportation sector. Among the groups involved in the coalition are
IAGS, the National Defense Council Foundation, the Hudson Institute,
the Foundation for the Defense of Democracies, the Center for Security
Policy, and the Natural Resources Defense Council.
I would like to address the strategic context of our current
dependence on imported oil and its implications on national security
and offer new approaches to the fuel efficiency debate.
The Strategic Impact of Our Oil Dependence
In 2004 oil prices have grown by close to 40 percent. As a result,
the United States spent more than $18 million per hour on foreign oil.
In the same period of time, OPEC's oil export revenues grew by 42
percent to $338 billion. According to the U.S. Energy Information
Administration (EIA) throughout 2005 oil prices will continue to stay
high and OPEC will rake $345 billion in revenue. This transfer of
wealth of historical proportions is not only exacting a hidden tax on
the American economy but is also undermining our national security and
the security of the world at large. It is unfortunate that most major
oil producing countries are either politically unstable and/or at odds
with the U.S. Some of the world's largest oil producing nations are
sponsors of or allied with radical Islamists who foment hatred against
the U.S. The petrodollars we provide such nations contribute materially
to the terrorist threats we face. In time of war, it is imperative that
our national expenditures on energy be redirected away from those who
use them against us.
Beyond the underwriting of terror, our present dependency creates
unacceptable vulnerabilities. As we have learned from Osama bin Ladin's
messages, al Qaeda terrorists know that oil is the Achilles heel of the
world economy and disrupting the world's oil supply is central to their
efforts to defeat the U.S. and its democratic allies. In Iraq and Saudi
Arabia, America's enemies have demonstrated that they can advance their
strategic objective by attacking critical oil infrastructure and
personnel. In Iraq alone there have been more than 200 attacks against
pipelines and oil installations in the past 20 months. These targets
are readily found not only in the Mid East but also in other regions to
which Islamists have ready access such as the Caspian Basin and Africa.
Over time, these attacks are sure to become more sophisticated and
their destructive effects could be difficult, costly and time-consuming
to undo.
In the longer run America's national security can be adversely
influenced by China's growing demand for oil. Chinese oil consumption
is increasing seven times faster than that of the U.S. and its imports
have grown by over 35 percent per year for two consecutive years. All
signs indicate that China's appetite for oil will continue to grow in
the years to come. According to the International Energy Agency, by
2030 China will import more oil than the U.S. does today. There is no
doubt that China's robust economic growth has already been felt on the
global energy scene and has been a major contributor to last year's
spike in prices. More importantly, China's demand for energy and other
raw materials and its hunt for steady oil supplies in areas where the
U.S. has strategic interests could undermine Sino-American relations.
The U.S.-China Economic and Security Review Commission, a group created
by Congress to examine the national security implications of the
bilateral trade and economic relationship between the two countries,
warned in its 2004 report that China's growing dependence on imported
oil is a key driver of its relations with terrorist-sponsoring
governments. The report said: ``China's approach to securing its
imported petroleum supplies through bilateral arrangements is an
impetus for non-market reciprocity deals with Iran, Sudan, and other
states of concern, including arms sales and WMD-related technology
transfers that pose security challenges to the United States.'' There
is growing recognition within the oil industry that the rise of China
will bring about a bidding war for Middle East supply between East and
West. Dave O'Reilly, chief executive of ChevronTexaco warned recently
against alliances formed between Asian countries and Middle East
entities, calling for the U.S. Government to recognize and understand
the implications of such a geopolitical shift. Without a comprehensive
strategy designed to prevent China from becoming an oil consumer on par
with the U.S., the U.S. might find itself in the future facing
aggressive competition from China over access to Middle East oil with
grave implications for global security.
U.S. Approach to Oil Dependence
In light of intensifying military involvement in the Middle East,
terrorist attacks on oil infrastructure, persistently high global oil
prices, and the rise of China, oil dependence has become an incipient
national security emergency. To address the problem of our dependence
on volatile suppliers, the U.S. has pursued a three-part strategy:
Diversifying sources;
Managing inventory in a strategic reserve;
Increasing the transportation sector's energy-
consumption efficiency
The first pillar of our strategy is no more than a stopgap
solution. In May 2001, when the Bush administration released its
National Energy Policy, it proposed to reduce dependence on Middle East
oil dependence by targeting alternative oil-supplying nations for
government investment and closer alliances, including Angola,
Azerbaijan, Colombia, Kazakhstan, Nigeria, Russia, and Venezuela. All
of these nations are undemocratic, vulnerable to global terrorism and
face significant political and social instability. Increasing U.S.
reliance on these states would do little to address U.S. security and
economic threats stemming from oil dependency. Given the integrated
nature of the world economy we accomplish nothing if we merely shift
our own purchases of oil from one of the world's regions to another. An
oil crisis will affect all our economies, regardless of the source of
our own imports. Furthermore, non-OPEC reserves are being depleted
almost twice as fast as OPEC's. This will ensure that our dependence on
OPEC will only grow as time goes by. With OPEC countries sitting in the
driver's seat with respect to the world's oil supply and oil prices,
the world's economic and political future will be compromised.
Inventories are a critical element of energy security. But they are
limited in scale and only useful to address a short term supply
disruption. However, at this moment most major oil consuming nations do
not have significant strategic petroleum reserves. This means that a
supply disruption will still send international oil prices to the roof
regardless of how much stock is kept in the U.S. Though over time it
would be advisable to see more countries developing robust strategic
petroleum reserves, such action at the point of high oil prices would
only create additional demand and hence drive prices up even further.
Since the Arab oil embargo in 1973 several sectors of the economy
significantly reduced their dependence on oil. The power sector is a
particular example: today, only two percent of U.S. electricity is
generated from oil. The transportation sector accounts for 2/3 of U.S.
oil consumption, about 2/3 of that being gasoline and most of the rest
diesel. Improving fuel efficiency in U.S. vehicles is the only course
of action which carries no negative consequences. On the contrary,
studies show that by reducing demand for oil in the transportation
sector and transitioning the economy into an economy based on next
generation fuels and automobiles, the U.S. could generate millions of
new jobs and billions of dollars worth of investment opportunities.
New Approach to Fuel Efficiency
In the past three decades the debate on improving fuel efficiency
has focused mainly on the tension between auto manufacturers, consumers
and the government. Though everybody agrees that the U.S. should reduce
its oil bill neither Detroit nor the American consumer is willing to do
so for the greater good. The U.S. auto industry shies away from
embarking on revolutionary changes in its designs and production lines
and by and large resists significant rise in CAFE standards. The
American consumer is growingly minded to the need to reduce oil
dependence but is still unwilling to accept compromise on cost,
comfort, power or performance. To end the stalemate in the fuel
efficiency issue we need to change the terms of the debate. Today when
it comes to CAFE the auto industry shoulders the entire burden. But
long-term security and economic prosperity depends on technological
transformation not only at the vehicle level but also in the fuel that
powers it. In other words, to get people to travel more miles per
gallon of gas one need not focus only on redesigning the car, making it
lighter or improving its engine. We should think in terms of gallon
stretchers--making our fuel more efficient. For example, a number of
commercially available fuel additives can enhance combustion efficiency
by up to 20 percent. Most of these additives are made from organic
materials and are environmentally friendly. By reducing the size of the
oil droplets they bring to more efficient combustion. Such additives
can be blended into gasoline, diesel and bunker fuel.
An even better way of reducing the content of gasoline in the fuel
tank can be done by mixing gasoline with alternative fuels and using
the blend in flexible fuel vehicles (FFVs) that can be readily
available at low marginal cost and that require no change in auto
design. FFVs are designed to burn on alcohol, gasoline, or any mixture
of the two. About four million FFVs have been manufactured since 1996.
The only difference between a conventional car and a flexible fuel
vehicle is that the latter is equipped with a different control chip
and some different fittings in the fuel line to accommodate the
characteristics of alcohol. The marginal additional cost associated
with such FFV-associated changes is currently under $150 per vehicle.
That cost would be reduced further as volume of FFVs increases,
particularly if flexible fuel designs were to become the industry
standard.
Alcohol fuels that can be used in FFVs:
Ethanol is currently produced in the U.S. from corn.
In 2004, the U.S. produced over 3.2 billion gallons of ethanol,
and the market has increased on the average of 25 percent per
year over the past three years. Almost all our ethanol comes
from corn and is being used either as an additive to gasoline
or as E-85. Upping production of ethanol would be achieved by
continuing to advance the corn-based ethanol industry but, more
importantly, by commercializing the production of ethanol from
agricultural and municipal waste and dedicated energy crops.
Progress has been made on a process that produces ethanol from
biomass using genetically modified biocatalysts and a Canadian
company, Iogen, has just entered commercial production.
P-Series fuel (approved by the Department of Energy
in 1999) is an energy-efficient blend of ethanol, natural gas
liquids and ether made from biomass waste. About 20 percent of
the blend is MeTHF, an ether derived from lignocelullosic
biomass--paper sludge, wastepaper, food waste, yard and wood
waste, agricultural waste, and so on. P-Series fuels can help
solve a problem all municipalities are facing today: waste
disposal. Using feedstock with a negative cost--that means
waste that municipalities would otherwise pay to have hauled
away--allows the fuel's selling price to be about the same as
mid-grade gasoline.
Methanol (also known as wood alcohol) is today for
the most part produced from natural gas. Expanding domestic
production can be achieved by producing methanol from coal, a
resource with which the U.S. is abundantly endowed. The
commercial feasibility of coal-to-methanol technology was
demonstrated as part of the DOE's ``clean coal'' technology
effort. For almost a decade, a commercial scale demonstration
plant in Kingsport, Tennessee has been producing methanol from
coal at under $0.50 a gallon. Methanol can also be produced
from biomass using gasification technology.
Alcohol fuels are relatively easy to introduce to the market
because of the low infrastructure costs involved. It only costs about
$20,000 to enable an existing gasoline or diesel tank at a gas station
to accommodate one of the above fuels and about $60,000 to add a new
fuel pump to an existing refueling station. By introducing a fleet of
FFVs and actually fueling them with blends of say 20 percent alcohol
and 80 percent gasoline we can save more oil than through the entire
CAFE program. For example, a hybrid car like the Toyota Prius that is
also an FFV running on a blend of 85 percent ethanol and 15 percent
gasoline can get nearly 300 miles per gallon of gasoline.
Electricity as a Fuel
Electricity is seldom referred to as a transportation fuel, but it
is. Less than two percent of U.S. electricity is generated from oil, so
using electricity as a transportation fuel would greatly reduce
dependence on imported petroleum. Tens of thousands of hybrid electric
vehicles are already on America's roads combining hybrid engines
powered in an integrated fashion by liquid fuel-powered motors and
battery-powered ones. Such vehicles increase gas-consumption efficiency
by 30-40 percent. While hybrids gather charge to their batteries by
capturing breaking energy, their only external source of energy is
liquid fuel. ``Plug-in'' hybrid electric vehicles take the concept one
step further, by allowing us to draw charge not only from the engine
and captured braking energy, but also directly from the electrical grid
by being plugged into standard electric outlets when not in use. They
have liquid fuel tanks and internal combustion engines, so they do not
face the range limitation posed by electric-only cars. Since fifty
percent of cars on the road in the United States are driven 20 miles a
day or less, a plug-in with a 20-mile range battery would reduce fuel
consumption by, on average, 85 percent. Plug-in hybrid electric
vehicles can reach fuel economy levels of 100 miles per gallon of
gasoline consumed. Overall, plug-ins can reduce gasoline use by 85
percent. This is so dramatic a reduction that a plug-in SUV actually
would consume less gasoline than a standard compact car. Plug-in hybrid
vehicles would be charged at night in home garages--a time-interval
during which electric utilities have significant excess capacity. The
Electric Power Research Institute estimates that up to 30 percent of
market penetration for plug-in hybrid electric vehicles with 20-mile
electric range can be achieved without a need to install additional
electricity-generating capacity. Plug-ins will soon make their debut.
DaimlerChrysler is currently introducing a plug in version of its
Sprinter van. Though a plug-in would be initially more expensive up
front than an ordinary car, the total cost over the life of the vehicle
would be less due to lower operating costs and gasoline saving. As
battery technologies improve the cost of plug-ins will drop further.
If a vehicle combines hybrid technology with a flexible fuel
internal combustion engine, the effect of next generation fuels can be
multiplied with substantial fuel efficiency gains. A plug-in hybrid
vehicle that is also a flexible fuel vehicle can be powered by blends
of alcohol fuels, gasoline, and electricity. If fueled by a blend of 80
percent alcohol, 20 percent gasoline, and electricity, fuel economy
could reach 500 miles per gallon of gasoline.
According to the Set America Free Coalition if by 2025, all cars on
the road are hybrids and half are plug-in hybrid vehicles, U.S. oil
imports would drop by eight million barrels per day (mbd). Today, the
United States imports 10 mbd and it is projected to import almost 20
mbd by 2025. If all of these cars were also flexible fuel vehicles,
U.S. oil imports would drop by as much as 12 mbd.
Recommendations for Congress:
Provide incentives to auto manufacturers to produce and consumers to
purchase, hybrid vehicles, plug-in hybrid electric vehicles and FFVs
across all vehicle models. Producing fuel-efficient, advanced
technology vehicles will requires automakers and their suppliers to
retool their factories. Hybrid vehicles rely on advanced equipment such
as battery packs, electric motors and generators, and electronic power
controllers. Advanced diesel drivetrains require sophisticated fuel
injection systems, turbochargers and after treatment systems.
Provide incentives for auto manufacturers to increase fuel efficiency
of existing, non-FFV auto models. Many off-the-shelf technologies exist
to improve today's cars, including variable valve engine timing,
continuously variable transmissions, and lightweight, high strength
materials.
Call for substantial incorporation of plug-ins hybrids, standard
hybrids, and FFVs into federal, State, municipal and covered fleets,
and ensure that these FFVs are actually fueled with alcohol blends.
Provide investment tax incentives for corporate fleets and taxi
fleets to switch to plug-ins, hybrids and FFVs.
Encourage gasoline distributors to blend combustion enhancers into
the fuel.
Provide incentives for existing fueling stations to install
alternative fuel pumps and mandate that all new gas stations be so
equipped with such pumps.
Encourage new players, such as utilities, to enter the transportation
fuel market. Utility companies have traditionally viewed themselves as
providers of ``power'' for lighting homes or powering computers. Using
electricity as a fuel can allow them to become key players in the
transportation energy sector and introduce much needed competition in
the fuel market.
Provide incentives for the construction of commercial scale
demonstration plants to produce non-petroleum based liquid fuels from
domestic energy resources, particularly from waste. Two billion dollars
in federal funding utilizing public-private cost sharing partnerships
could build roughly 25 demonstration plants. Such program would spur
innovation, development, and demonstration projects aimed at making
non-petroleum fuels cost-effective for consumers while weeding out
unfeasible technologies.
Apply efficiency standards for heavy-duty trucks. Most of our effort
to improve fuel efficiency is focused on light-duty vehicles. But
improving the fuel economy of heavy-duty trucks offers no smaller
opportunity for oil savings. The heavy-duty trucks sector is
responsible for the consumption of close to three million barrels per
day of oil. Over two-thirds of this energy is consumed by the heaviest
trucks, such as tractor-trailers weighing over 33,000 lbs. Technology
assessments by the American Council for an Energy-Efficient Economy
(ACEEE) found that conventional technology improvements including
enhancements to aerodynamics, weight reduction, improved engine fuel
injection and the introduction of hybrid gasoline-electric or diesel-
electric drive trains can achieve truck fuel-efficiency advances of 26
to 70 percent at cost-effectiveness. Congress should therefore begin to
apply some of the standards for the small cars to the larger vehicle
classes especially heavy trucks from 8,500 to 10,000 lbs. Tremendous
amounts of fuel are used by truck drivers during idling. Drivers idle
their trucks for days in a row to heat or cool their sleeping cabin and
run electrical appliances. This practice is extremely wasteful since
large diesel engines are designed to move heavy loads, not run
auxiliary systems. Idling can be reduced by installing auxiliary power
units and providing electricity in rest areas.
Invest in Public Education. Consumers still rank fuel efficiency way
below power, performance, cost and safety in their car buying
considerations. As a result the Nation's fuel efficiency standards have
remained stagnant while our oil dependence continues to grow. Barring a
catastrophic oil disruption this could only change if the public is to
become more aware of the huge impact oil dependence has on our national
security. Reduction of our oil bill should be viewed by consumers as a
patriotic duty, not pure economic calculation. There is clear need for
public education program to connect the dots between our behavior on
the road and our national security, between the number of Hummers on
the road and the number of Humvees in the Persian Gulf. Another issue
on which public education is desirable is the true cost of oil. The
most recent estimates suggest that in a non-war year the United States
spends $20 to $40 billion in military costs to secure access to Middle
East oil supplies, which means that the American taxpayer is paying at
least an additional $4 to $5 a barrel for crude oil above market price.
These extra dollars are being paid by consumers through their income
tax but are not reflected at the price at the gas station. If Americans
were more aware of what they pay outside the gas station it would be
politically easier to introduce legislative efforts to transfer that
tax burden from an indirect mechanism such as income tax to a direct
pay-as-you-go tax at the pump.
In sum
America takes pride in offering choice in every aspect of our
lives. Yet, when it comes to transportation fuels we are offered
nothing but petroleum products. We must embark on an effort to
diversify our fuel market by introducing domestically produced fuels
that are made from waste products or other resources the U.S. is rich
in, and that are clean and affordable. The U.S. is no longer rich in
oil or natural gas. It has, however, a wealth of other energy sources
from which transportation fuel can be safely, affordably and cleanly
generated. Among them: hundreds of years worth of coal reserves, 25
percent of the world's total (especially promising with Integrated
Gasification and Combined Cycle technologies); billions of tons a year
of biomass, and further billions of tons of agricultural and municipal
waste. Vehicles that meet consumer needs like ``plug-in'' hybrids can
tap America's electrical grid to supply energy for transportation,
making more efficient use of such clean sources of electricity as
solar, wind, geothermal, hydroelectric and nuclear power.
Because of the national security imperative we have no time to wait
for commercialization of immature technologies such as fuel cells. I
believe that automotive fuel cells hold great potential and should
definitely be pursued. But far too much focus is being placed on them
at the expense of more quickly available solutions. We should focus on
real world solutions and implement technologies that exist today and
are ready for widespread use. We also don't have the time and money to
embark on massive infrastructure changes. The focus should be on
utilizing competitive technologies that do not require prohibitive or,
if possible, even significant investment in changing our transportation
sector's infrastructure. Instead, we should permit the maximum possible
use of the existing refueling and automotive infrastructure. Finally,
we need to remember that oil dependence is a global issue which should
be addressed internationally. Even if the U.S. was no longer dependent
on foreign oil, if the rest of the world still remains beholden to the
small club of oil producers the national security problems discussed
before will not go away. Only a global effort led by the U.S. to reduce
demand for petroleum by distributing the above-mentioned technologies
will bring about prosperity and strengthen global security.