    [Senate Hearing 109-1119]
    [From the U.S. Government Publishing Office]

                                                           S. Hrg. 109-1119

           REFORMING CORPORATE AVERAGE FUEL ECONOMY (CAFE) STANDARDS

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

                                    HEARING

                                   before the

           SUBCOMMITTEE ON SURFACE TRANSPORTATION AND MERCHANT MARINE

                                     OF THE

                             COMMITTEE ON COMMERCE,
                          SCIENCE, AND TRANSPORTATION
                              UNITED STATES SENATE

                           ONE HUNDRED NINTH CONGRESS

                                 SECOND SESSION

                                   __________

                                  MAY 9, 2006

                                   __________

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

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           SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                           ONE HUNDRED NINTH CONGRESS

                                 SECOND SESSION

                         TED STEVENS, Alaska, Chairman
    JOHN McCAIN, Arizona                 DANIEL K. INOUYE, Hawaii, Co-
    CONRAD BURNS, Montana                    Chairman
    TRENT LOTT, Mississippi              JOHN D. ROCKEFELLER IV, West
    KAY BAILEY HUTCHISON, Texas              Virginia
    OLYMPIA J. SNOWE, Maine              JOHN F. KERRY, Massachusetts
    GORDON H. SMITH, Oregon              BYRON L. DORGAN, North Dakota
    JOHN ENSIGN, Nevada                  BARBARA BOXER, California
    GEORGE ALLEN, Virginia               BILL NELSON, Florida
    JOHN E. SUNUNU, New Hampshire        MARIA CANTWELL, Washington
    JIM DeMINT, South Carolina           FRANK R. LAUTENBERG, New Jersey
    DAVID VITTER, Louisiana              E. BENJAMIN NELSON, Nebraska
                                         MARK PRYOR, Arkansas
                 Lisa J. Sutherland, Republican Staff Director
            Christine Drager Kurth, Republican Deputy Staff Director
                 Kenneth R. Nahigian, Republican Chief Counsel
       Margaret L. Cummisky, Democratic Staff Director and Chief Counsel
       Samuel E. Whitehorn, Democratic Deputy Staff Director and General
                                    Counsel
                 Lila Harper Helms, Democratic Policy Director
                                     ------

           SUBCOMMITTEE ON SURFACE TRANSPORTATION AND MERCHANT MARINE

                       TRENT LOTT, Mississippi, Chairman
    TED STEVENS, Alaska                  DANIEL K. INOUYE, Hawaii, Ranking
    JOHN McCAIN, Arizona                 JOHN D. ROCKEFELLER IV, West
    CONRAD BURNS, Montana                    Virginia
    KAY BAILEY HUTCHISON, Texas          BYRON L. DORGAN, North Dakota
    OLYMPIA J. SNOWE, Maine              BARBARA BOXER, California
    GORDON H. SMITH, Oregon              MARIA CANTWELL, Washington
    GEORGE ALLEN, Virginia               FRANK R. LAUTENBERG, New Jersey
    JOHN E. SUNUNU, New Hampshire        E. BENJAMIN NELSON, Nebraska
    DAVID VITTER, Louisiana              MARK PRYOR, Arkansas

                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on May 9, 2006......................................     1
    Statement of Senator Boxer.......................................    16
        Article, dated February 2, 2002, from the National Journal,
          entitled Gas Mileage: Deal Maker or Breaker? by Margaret
          Kriz.......................................................    18
    Statement of Senator Cantwell....................................    13
    Statement of Senator Dorgan......................................    25
    Statement of Senator Lautenberg..................................     9
    Statement of Senator Lott........................................     1
        Prepared statement...........................................     1
    Statement of Senator Pryor.......................................    21
    Statement of Senator Smith.......................................    11
        Prepared statement...........................................    12
    Statement of Senator Snowe.......................................    23

                                   Witnesses

    Cabaniss, Jr., John M., Director, Environment and Energy,
      Association of International Automobile Manufacturers, Inc.....    31
        Prepared statement...........................................    32
    Claybrook, Joan, President, Public Citizen.......................    52
        Prepared statement...........................................    54
    Friedman, David, Research Director/Senior Engineer, Clean
      Vehicles Program, Union of Concerned Scientists................    61
        Prepared statement...........................................    63
    Mineta, Hon. Norman Y., Secretary, Department of Transportation;
      accompanied by Jeffrey Rosen, General Counsel, USDOT, and
      Jacqueline Glassman, Deputy Administrator, NHTSA...............     2
        Prepared statement...........................................     5
        Letter, dated April 27, 2006, to Hon. Bill Frist.............     3
    Reuther, Alan, Legislative Director, International Union, United
      Automobile, Aerospace and Agricultural Implement Workers of
      America (UAW)..................................................    69
        Prepared statement...........................................    70
    Sharp, Hon. Philip R., President, Resources for the Future (RFF).    35
        Prepared statement...........................................    36
    Webber, Frederick L., President and CEO, Alliance of Automobile
      Manufacturers..................................................    27
        Prepared statement...........................................    28

                                    Appendix

    Inouye, Hon. Daniel K., U.S. Senator from Hawaii, prepared
      statement......................................................    85

           REFORMING CORPORATE AVERAGE FUEL ECONOMY (CAFE) STANDARDS

                                  ----------

                              TUESDAY, MAY 9, 2006

                                   U.S. Senate,
    Subcommittee on Surface Transportation and Merchant
                                                 Marine
            Committee on Commerce, Science, and Transportation,
                                                        Washington, DC.
        The Subcommittee met, pursuant to notice, at 10:30 a.m. in
    room SD-562, Dirksen Senate Office Building, Hon. Trent Lott,
    Chairman of the Subcommittee, presiding.

                 OPENING STATEMENT OF HON. TRENT LOTT,
                     U.S. SENATOR FROM MISSISSIPPI

        Senator Lott. The Committee will come to order. I'm pleased
    to convene this morning's hearing on reforming Corporate
    Average Fuel Economy standards. Chairman Stevens had indicated
    that he would like the Subcommittee to go forward with this
    hearing despite the vote taking place on the floor a few
    moments ago. And I'm delighted that the Chairman is here, and
    that the other Senators are here, and some other Senators
    indicated to me, on the floor of the Senate, they'd be coming
    over momentarily.
        I do want to point out that we have many Senators that are
    going to be here this morning, a number of very good witnesses,
    including the Secretary of Transportation, our friend Norm
    Mineta. And I, therefore, ask that all opening statements be
    placed in the record at this point, and I'll do the same myself
    and that we could go straight to the Secretary.
        [The prepared statement of Senator Lott follows:]

      Prepared Statement of Hon. Trent Lott, U.S. Senator from Mississippi
        Since being introduced in the 1970s, Corporate Average Fuel Economy
    (CAFE) standards have been controversial. There has been much debate
    about their effectiveness and their effect on safety, consumer choice,
    and the automobile industry.
        CAFE became so controversial, that it effectively was frozen for
    many years.
        The stand-off over CAFE finally eased with Congress commissioning a
    National Academy of Sciences review of the CAFE program that was
    released in 2002. Although that study found that CAFE had in fact
    reduced energy consumption, the Academy was critical of how the program
    was structured and found that there was a negative impact on safety.
        Just this spring, the Department of Transportation issued new
    reformed CAFE rules for pickup trucks, vans, and SUVs. This rule is a
    radical departure from prior CAFE rules in that it applies different
    standards to different sized vehicles rather than a uniform standard
    across the whole fleet. The Department's approach addresses many of the
    criticisms in the Academy's study.
        The recent rule did not, however, include new standards for cars.
    Those standards have been the same since 1984 and there is considerable
    legal ambiguity about the Secretary's ability to increase the
    standards. It is clear that the law does not allow the Secretary to
    ``reform'' CAFE for cars, since that part of the statute is written
    differently.
        Secretary Mineta is here today to discuss his request that these
    legal impediments be removed and that the Secretary of Transportation
    be given the authority to ``reform'' CAFE for cars.
        I believe his request should be carefully considered. The
    Department has the technical and scientific expertise to develop a
    ``reformed'' standard for cars that carefully balances costs and
    benefits, including--importantly--safety.
        After this hearing, I hope to work with members of the Commerce
    Committee from both sides of the aisle, as well as with other Senators
    with an interest in this issue to see if there is enough common ground
    to develop a legislative proposal that can be enacted. I am afraid that
    if we get sucked into a debate about developing a single mileage
    standard, this process will very quickly get bogged down. We should do
    something constructive and update the existing cumbersome rule, which
    has not been changed since 1984, thereby doing away with the many
    worrisome attributes identified by the National Academy of Sciences.

        Senator Lott. Mr. Chairman, would you be willing to go
    forward on that basis?
        The Chairman. That's fine.
        Senator Lott. If my colleagues would be willing to do that,
    we'll include our statements in the record.
        Senator Cantwell. Well, Mr. Chairman, I do think it's an
    important hearing, and we're glad that the Secretary of
    Transportation is here, and we look forward to his comments. I
    do have a statement, but happy to put that into the record and
    proceed with the hearing.
        Senator Lott. Thank you very much, Senator Cantwell.
        Secretary Mineta, we're delighted to have you back before
    the Committee, and we're very anxious to hear your thoughts on
    this very important issue. Please proceed.

             STATEMENT OF HON. NORMAN Y. MINETA, SECRETARY,

              DEPARTMENT OF TRANSPORTATION; ACCOMPANIED BY

               JEFFREY ROSEN, GENERAL COUNSEL, USDOT, AND

            JACQUELINE GLASSMAN, DEPUTY ADMINISTRATOR, NHTSA

        Secretary Mineta. Very well, thank you very much. Mr.
    Chairman and members of the Committee, thank you very, very
    much for the invitation to have this opportunity to discussing
    reforming Corporate Average Fuel Economy standards for
    passenger cars.
        Last week, at the President's request, I sent a letter to
    Congressional leaders asking for the authority to reform the
    structure of the current CAFE program for passenger cars. And I
    ask, at this time, unanimous consent that my letter of April
    27th to the majority leader be made a part of the hearing
    record.
        Senator Lott. Without objection, it will be included in the
    record at this point.
        [The information previously referred to follows:]

                              U.S. Department of Transportation
                                         Washington, DC, April 27, 2006
    Hon. Bill Frist,
    Majority Leader,
    United States Senate,
    Washington, DC.

    Dear Bill:

        At the President's request, I hereby ask that the Congress take
    prompt action to authorize the U.S. Department of Transportation (DOT)
    to reform fuel economy standards for passenger automobiles for the
    first time. Along with other previously announced energy policies, the
    President believes these actions are critical to promoting our Nation's
    energy security and independence.
        The Administration has already shown strong leadership on fuel
    economy. The DOT raised the light truck and sport utility vehicle
    standards twice in the last four years, including a recently announced
    rulemaking that will save nearly 11 billion gallons of gasoline,
    eliminate incentives to make lighter and therefore more dangerous
    vehicles, and encourage all manufacturers, not just a few, to deploy
    fuel saving technologies.
        Our National Highway Traffic Safety Administration (NHTSA) has the
    technical expertise to regulate fuel economy in a manner that is cost
    effective, based on sound science and safeguards vehicle occupants.
    Substantial increases in CAFE standards under the current single
    standard approach would increase fatalities on America's highways,
    raise healthcare costs and reduce employment. As a result, the
    Administration would oppose any increase in passenger car CAFE
    standards without corresponding reform.
        In addition, it is imperative that CAFE standards be set through an
    administrative process based on sound science and data. The
    administrative process provides safety and other public interest
    groups, the auto industry and the general public an opportunity to
    develop and provide NHTSA with policy suggestions and detailed
    technical, economic, and other relevant data necessary for reforming
    the passenger car CAFE system and setting new CAFE standards.
        I commend Congress for their strong interest in improving our
    country's energy independence, and I look forward to working with you
    to achieve this important objective.
        An identical letter has been sent to the Minority Leader of the
    Senate, the Speaker of the House of Representatives, and the Minority
    Leader of the House of Representatives.
                Sincerely yours,
                                              Norman Y. Mineta,
                                           Secretary of Transportation.

        Secretary Mineta. Mr. Chairman, this is an important step
    toward reducing America's oil demand as passengers account for
    some 43 percent of domestic oil consumption. Now, this
    Administration has a good record on improving CAFE. Members may
    recall that, in 2001, at my request, Congress ended the 6-year
    freeze on CAFE rulemaking. Later that year, the National
    Academy of Sciences issued a Congressionally-mandated study
    that was critical of the CAFE program. Among the report's
    criticisms was that CAFE had probably cost between 1,300 and
    2,600 lives in one year alone, 1993, because it encouraged
    automakers to build smaller vehicles. Paul Portney, the chair
    of the committee which wrote the landmark study, said, upon its
    release, ``No matter what Congress decides regarding specific
    fuel economy targets, our committee is adamant that changes
    should be made to shore up the deficiencies in the program.''
        In response to this study, I directed NHTSA to begin
    reforming CAFE for light trucks. On March 29 of this year, we
    completed that reform by issuing a rulemaking that replaced the
    single fuel economy standard with an innovative size-based
    system. Allow me to explain why basing a fuel economy standard
    on a vehicle's size is superior to the current one-size-fits-
    all approach.
        First, a size-based system preserves vehicle choice.
    Instead of forcing manufacturers to produce smaller vehicles to
    comply with these regulations, this approach takes the
    automaker's own product-mix projections and applies separate
    fuel economy targets to each vehicle based on its footprint.
    Under a size-based system, automakers will be able to build
    cars that consumers want to buy, but those cars will have to be
    more fuel efficient across the board.
        Second, a size-based system eliminates the incentive for
    automakers to produce smaller and, consequently, less safe
    vehicles by encouraging manufacturers to add fuel-saving
    technologies to boost fuel efficiency.
        Third, a sized-based system ensures that all automakers are
    encouraged to use fuel-saving technologies, not just the
    manufacturers of larger vehicles.
        Our new light-truck standards under the reformed CAFE will
    save a record 10.7 billion gallons of fuel. All told, the
    Administration has raised CAFE standards for light trucks for 7
    consecutive years, from 2005 to 2011. Today, because of our
    successful reform of the light-truck CAFE program, we have the
    capacity to establish a far more precise, equitable, and safe
    CAFE program for passenger cars. However, we currently lack the
    legal authority to do so. The original CAFE standard for
    passenger cars was set at 27.5 miles per gallon more than 30
    years ago, back in 1975. Neither Congress nor the Department of
    Transportation has ever increased this standard beyond the
    level set in the original statute.
        So, it's important that, if passenger car fuel economy
    standards are raised, that we make the necessary structural
    reforms to avoid compromising safety and causing job loss. If
    given the authority to reform CAFE for passenger cars, we will
    replace the one-size-fits-all system with a size-based system,
    as we did with light trucks. Based on the automaker's
    confidential product plans, our experts at NHTSA can
    objectively measure how much fuel-saving technology we can
    require before the cost outweighs the benefit.
        Now, this method of formulating a fuel economy standard is
    science-based, subject to review, and is free from the
    deficiencies identified in the National Academy of Sciences
    study. It's also far more likely to produce an optimal result
    than if Congress were to prescribe a standard in a statute. For
    this reason, we will not accept an arbitrary statutory increase
    under the current passenger car system.
        Mr. Chairman, the President does not ask for this authority
    lightly. And I am aware that certain automakers are having a
    rough time financially, and that thousands of hard-working
    Americans have lost their jobs as a result. But this
    Administration has also made great strides in improving fuel
    economy for light trucks without harming the economy or
    compromising safety. And so, I respectfully ask for the
    authority to achieve similar gains for the passenger car fleet.
        Mr. Chairman, I am ready to take questions.
        [The prepared statement of Secretary Mineta follows:]

            Prepared Statement of Hon. Norman Y. Mineta, Secretary,
                          Department of Transportation
        Mr. Chairman, thank you for inviting me to appear before this
    Committee today to discuss reforming corporate average fuel economy
    (CAFE) standards for passenger cars.
        On April 27, the President asked Congress for the authority to
    reform the structure of the current CAFE program for passenger cars for
    the first time in the program's 30-year history. This is an important
    step to reduce America's dependence on foreign oil, and is consistent
    with President Bush's call to replace more than 5 million barrels per
    day of oil imports by the year 2025. Currently, passenger cars account
    for 23 percent of domestic oil consumption.
        Mr. Chairman, this Administration has a good record on improving
    CAFE. Senators may recall that in 2001, at my request, Congress ended
    the six-year freeze on CAFE rulemaking. In 2002, the National Academy
    of Sciences (NAS) completed a study, at Congress's request, that was
    highly critical of the current CAFE program. Among the criticisms
    contained in the NAS report was the contention that the CAFE program
    probably had cost between 1,300 and 2,600 lives in one calendar year
    alone (1993) because it encourages automakers to build smaller vehicles
    in order to ``average out'' fuel savings across their fleets. The chair
    of the committee wrote, ``. . . no matter what Congress decides
    regarding specific fuel economy targets, our committee is adamant that
    changes should be made to shore up deficiencies in the program.'' To
    correct these longstanding safety and other deficiencies in the CAFE
    program, I directed the National Highway Traffic Safety Administration
    (NHTSA) to begin reforming CAFE for light trucks based on the NAS
    recommendations. Unlike with passenger cars, the Administration does
    have the authority to reform CAFE for light trucks.
        On March 29 of this year, NHTSA completed its reform of CAFE for
    light trucks by replacing the one-size-fits-all system with an
    innovative size-based system. Allow me to explain why this reformed
    system that bases fuel economy standards on a vehicle's size is
    superior to the current ``one-size-fits-all'' approach.

       First, a size-based system preserves vehicle choice: Instead
            of forcing manufacturers to produce smaller vehicles for
            purposes of regulatory compliance, this approach takes the
            manufacturers' own product mix projections and then applies
            separate fuel economy targets to each vehicle based on its
            dimensions. Under a size-based system, automakers will still be
            able to build the cars consumers want, but those cars will have
            to be more fuel efficient across the board.

       Second, a size-based system eliminates the perverse
            incentives for manufacturers to produce smaller and more
            dangerous vehicles instead of introducing fuel-saving
            technologies.

       Third, a size-based system ensures that all manufacturers
            are introducing fuel-saving technologies, not only the
            manufacturers of larger vehicles.

        Our new light truck standards will lead to a safer, more efficient
    CAFE program and will save a record 10.7 billion gallons of fuel. This
    rule also included large sport utility vehicles (SUVs), such as the
    Hummer H2, under CAFE for the first time. All told, this Administration
    will have raised CAFE standards for light trucks for seven consecutive
    years, from 2005 to 2011.
        Today, following our successful overhaul of the light truck CAFE
    program and consistent with the recommendations of the NAS, we have the
    capacity to establish a far more precise, efficient, and safe CAFE
    program for passenger cars, but we do not have the legal authority to
    do it.
        The passenger car fuel economy standard was set in law at 27.5
    miles per gallon in the original 1975 CAFE statute. Some of the more
    senior Senators may recall that the 27.5 miles per gallon standard was
    arrived at by simply doubling what the average fuel economy was in
    1975. The passenger car standard was not then, and certainly is not
    now, based on sound science or economics.
        The original statute did not authorize DOT to change the way the
    standard applied to different size cars. Neither Congress nor DOT has
    ever increased the passenger car standard beyond the level set in the
    original statute. So it is important that if we embark on this course,
    we do it right to avoid compromising safety and to avoid causing
    economic damage and job loss.
        If we are given the authority to reform the CAFE system for
    passenger cars, we can improve fuel efficiency by requiring
    manufacturers to apply fuel-saving technologies rather than giving them
    an incentive to build smaller cars. Based on the automakers'
    confidential product plans, our experts at NHTSA can objectively
    measure how much fuel-saving technology we can require before the costs
    outweigh the benefits. This method of formulating a fuel economy
    standard is objective and subject to review during the rulemaking
    process. It is also far more likely to produce an optimal result than
    if Congress were to prescribe a standard in a statute.
        The President and I are committed to improving fuel economy across
    the board through an open regulatory process built upon sound science
    and economics, but we will not accept an arbitrary statutory increase
    under the current passenger car system.
        Mr. Chairman, I know that whenever CAFE is debated, it can turn
    divisive. When the original CAFE statute was debated, I was a freshman
    Member of Congress. I recall well the debates of the 1970s on how best
    to conserve fuel and what the impacts would be on the economy. I remind
    Senators that CAFE reform will not be without cost. And I am aware that
    certain automakers are having a rough time financially, and that
    thousands of hard-working Americans have lost their jobs through no
    fault of their own because of these financial difficulties.
        Mr. Chairman, the President did not ask for this authority lightly.
    But this Administration has already made great strides in improving
    fuel economy for light trucks. We have the expertise and experience to
    boost fuel economy responsibly without needlessly sacrificing safety or
    American jobs. I now respectfully ask for the authority to achieve
    similar gains for the passenger car fleet.

        Senator Lott. Well, thank you, Secretary Mineta. And to my
    Senate colleagues that are here, we'll go ahead and have an
    opportunity to make a brief statement or ask questions of
    Secretary Mineta, and then we'll go to the second panel. I
    would ask, though, that you be as brief as you can.
        Let me take the prerogative of the Chair just to ask the
    first question, then yield to the Chairman of the full
    Committee.
        In your letter to Congress and in your testimony here
    today, it's clear that you not only want the authority to
    increase the CAFE standard, but the authority to reform it.
    What is it about the current system that makes you feel like we
    need to effectively start over and realign it--or reform it--
    for the passenger cars?
        Secretary Mineta. Well, typically, the stringency of the
    gas mileage efficiency standard is set at a certain amount. And
    when the manufacturers have that, they then, in order to meet
    that miles-per-gallon standard, generally tend to lower the
    weight of the car in order to meet that fuel efficiency
    standard. And unfortunately, once you lower the weight of the
    car, then fatalities and serious injuries go up.
        We feel that we have to reform the performance standards--
    as we said in the light-truck rule--based on the footprint of
    the vehicle, that would be the width of the vehicle times the
    length of the wheelbase.
        Senator Lott. It appears to me that you did a good job with
    the light trucks. Passenger vehicles are different, obviously,
    but based on your statement, you feel like you could come up
    with changes that will be as effective or as widely accepted as
    your light-truck decision?
        Secretary Mineta. Yes, sir, we believe so, because, under
    the law, there are four requirements that we have to look at.
    One is the maximum feasible fuel efficiency/economy, the need
    to conserve fuel, the requirement to save lives, and the fourth
    one, in terms of preserving jobs, or the impact on the auto
    manufacturers.
        Senator Lott. You may not have the answer to this, because
    it'll depend, I guess, on, you know, the process and getting
    the right result. How long, though, do you think this would
    take?
        Secretary Mineta. Well, there are two parts to that answer,
    Mr. Chairman. One is, we have to allow the manufacturers, under
    statute, 18 months lead time. The model year is generally
    October of a given year. We have to give them 18 months. And
    so, that's April--18 months ahead of that model year.
        Now, in order for us to come up with that study, in terms
    of what would be the fuel efficiency standard, I would assume
    that it would take a minimum of 1 year. So, even if we were to
    start today, we would have to have the rule out by April 1,
    2007, in order to be able to impact on model year 2009. So,
    you're talking at least 2-and-a-half years between the 18-month
    mandatory, under statute, plus at least 1 year for us to do our
    studies. I should have introduced the folks at the table with
    me. On my right is Jeff Rosen, our general counsel at the
    Department, and on my left is Jackie Glassman, our deputy
    administrator of NHTSA.
        Jackie?
        Ms. Glassman. Yes, as the Secretary mentioned, it would
    take us about a year to collect the data from the
    manufacturers, go through that data, go through a rulemaking
    process, including notice, and then comment period and review
    of the comments, in order to put out a final rule applicable to
    passenger cars. So, in all likelihood, that would be model year
    2010.
        Senator Lott. Thank you all for being here.
        Mr. Chairman, would you like to go with your questions now,
    sir?
        The Chairman. I don't quite get the 2010. I thought it was
    going to be 2009.
        Ms. Glassman. If we could get a final rule out by April 1,
    2007, then that could be applicable to model year 2009.
    Beginning now, in June of 2006, that would be a huge feat, to
    be able to get the product plans from the manufacturers, review
    them, put a notice out, give appropriate time for manufacturers
    and others with an interest--public-interest groups--to comment
    on the proposal, and come up with a final rule.
        The Chairman. Is the cost of change any part of a factor in
    these CAFE standards?
        Ms. Glassman. Absolutely, sir. We look at the cost to
    change. We look at lead-time considerations. We look at the
    cost to the economy, the cost to jobs, the cost of lives, in
    terms of safety. We look at the Nation's need to conserve
    energy. And we balance all of those factors to reach the
    maximum feasible level we can possibly set CAFE at, taking into
    account the fact that we do not want to cost lives and we do
    not want to cost jobs.
        The Chairman. And in terms of the light trucks, have you
    determined what the increase in cost to the consumer of the new
    trucks would be because of your regulations?
        Ms. Glassman. Yes, sir. The total cost of our light-truck
    rule was about $6.7 billion. The cost to consumers, on average,
    was about $200 a vehicle. And the payback period, in terms of
    how long it would take people in the reduced cost of fueling up
    their vehicles, was about 4-and-a-half years.
        The Chairman. Is there any estimate on what the cost is
    going to be to the consumer, of compliance with the change in
    CAFE for passenger cars?
        Ms. Glassman. No, sir, we haven't done that analysis yet.
    That's what we would have to do if we were given the authority
    to reform the program and raise the standards.
        The Chairman. Do you have any standards that have been
    adopted in foreign countries that you look at as you go forward
    on these standards?
        Ms. Glassman. We look at the product plans for the United
    States in a number of foreign countries----
        The Chairman. No, I mean the standards, as far as
    construction and what will lead to the cost savings--I mean,
    the fuel savings in CAFE.
        Ms. Glassman. There are a number of different approaches in
    different countries. In Europe, for example, they have 40
    percent diesel vehicles. We don't have that kind of penetration
    of diesels and hybrids yet in the United States. In China,
    they're using a weight-based system. They have a very different
    kind of product mix. So, we really focus more on the products
    and consumer choices made in the United States.
        The Chairman. Are the CAFE standards affected by the use of
    ethanol?
        Ms. Glassman. The CAFE standards themselves are not. That
    is in law. There is a credit given for the production of dual-
    fuel vehicles or vehicles that can run either on gasoline or
    ethanol. But, by law, NHTSA is not allowed to consider those
    credits when actually setting the CAFE standards.
        The Chairman. But will CAFE standards vary for those
    vehicles that are built to use a higher amount of ethanol?
        Ms. Glassman. They don't vary by vehicle. There's one
    standard for a manufacturer's entire fleet. But certainly the
    increased use of ethanol will increase fuel economy and help
    the overall balance of fuel economy in the United States.
        The Chairman. Well, we were told at another hearing that it
    is possible for the manufacturers to develop their motors so
    that they could use a higher degree of nonfossil fuels. Put it
    that way. Does that crank into your CAFE standards calculation?
    Am I clear on what I'm saying?
        Ms. Glassman. It does if they're being put into the
    manufacturer's product plans. We look in the manufacturer's
    product plans for whatever time period we're looking at, which,
    for passenger cars, would be somewhere between 2009 or 2010
    forward, for a few years, and if those kinds of vehicles are
    being put into the marketplace in that time frame, then, yes,
    we would absolutely be looking at them.
        The Chairman. Well, I was told if the Department recognized
    the change in the motors that could be made, in terms of CAFE
    standards, that a great deal of the savings we want to achieve
    could be done just by that alone. You're looking at the overall
    construction of the vehicle, including the motor, isn't that
    right?
        Ms. Glassman. We are. We look at the overall construction
    of the vehicles. We look at safety and other emissions
    equipment to see how much weight that adds. When we're setting
    CAFE standards themselves, we're looking at more short-term
    gains from the standard setting. But CAFE itself is a long-term
    effort, as is the development of alternative fuel.
        The Chairman. But what I'm saying is, we were told we could
    move forward faster by just the motor's change. Is that
    correct?
        Ms. Glassman. If the motors are--if those kinds of changes
    in the vehicles are being put into the product cycle, then we
    would see greater changes, faster.
        The Chairman. Thank you.
        Senator Lott. Thank you, Mr. Chairman.
        Senator Lautenberg, I understand perhaps I was supposed to
    go to Senator Cantwell next, and I would be glad to recognize
    her if----
        Senator Cantwell. Well, Mr. Chairman, I understand that
    Senator Lautenberg showed up early to try to get on first for
    another obligation, so I'll defer to him, and let him ask his
    questions.
        Senator Lautenberg. That's very nice, but I'm not deferring
    to anybody else.
        [Laughter.]
        Senator Lott. That was a----
        Senator Lautenberg. Thanks, Mr. Chairman.
        Senator Lott. Comedy is really good this morning. Thank
    you, Frank. Go ahead.
        [Laughter.]

                STATEMENT OF HON. FRANK R. LAUTENBERG,
                      U.S. SENATOR FROM NEW JERSEY

        Senator Lautenberg. So far, we're doing pretty good, Mr.
    Chairman. And I thank you for calling this hearing.
        I listened very carefully to the Secretary and the plans
    that he'd like to see put into place, but I have a problem with
    some of the supporting view. The reason we're doing this, I
    understand, is because we've got this enormous pressure now in
    the excessive fuel use at these ridiculous prices. I noted that
    some are concerned about the crash-worthiness of smaller cars,
    and that we might have increases in fatalities if we reform
    CAFE. I think the number was 1,300 to 2,600 lives. But I would
    wager that the fact that we don't fix our highway hazards, our
    bridge deterioration, and our behavioral problems like drunk
    driving--we don't do the things that make the roads safer--
    causes death and injuries as well. I think people here are very
    well aware of my interest in drunk driving and how by simply
    raising the age for drinking legally we save a thousand lives a
    year.
        So, not to diminish the concern about the loss of life, I'd
    point out that alcohol-related fatalities increased 1.7
    percent, from 16,694 to 16,972. That's over 1 year, from 2004
    to 2005. And, frankly, I don't buy the argument that the
    concern has got to be the fact that you run the risk. We don't
    want to run risk with anybody, but what's the risk that's put
    upon this country by this incredible cost for fuel? The average
    family is going to spend $1,800 a year more for fuel. And there
    are lots of people whose incomes aren't 10 times or 15 times
    more than that.
        On a different note, Mr. Secretary, there's something I'm
    concerned about. There are three seats remaining unfilled on
    the Amtrak board. If we could get people into trains--and we
    can do it if we improve the ride and the service--we know these
    seats can be occupied. The open seats are supposed to be filled
    with Democratic nominees. Will the Administration consult with
    the Senate Minority Leader to see that the President nominates
    members to fill these seats? Let's see if we can make some
    improvements there, even as--and I am pleased to see that there
    is an interest in increasing CAFE standards, but an increased
    passenger rail service is a place where we could really do
    something at the same time to reduce our dependence on foreign
    oil.
        Secretary Mineta. Well, we have consulted with the Minority
    Leader right now on a nominee for the board. And the name is
    pending, I believe, at the White House right now.
        Senator Lautenberg. There are three seats open, Mr.
    Secretary.
        Secretary Mineta. Yes, sir.
        Senator Lautenberg. But if you have one name--and this is
    not a new discussion, as you're aware. So, I urge you to--let's
    get on with fixing parts as we can--as quickly as we can.
        Early in the Administration, Vice President Cheney held
    private meetings with energy industry executives regarding
    policy in our country. Two-thirds of all of petroleum used in
    our country is for the transportation sector. Were you involved
    in these meetings when they took place, Mr. Secretary, with the
    senior executives from the oil companies and the officials from
    the Administration to try and develop that energy policy
    package that was passed here?
        Secretary Mineta. Yes. I was a member of that Energy Policy
    Task Force. I was not privileged to sit in on any of the
    meetings with the Vice President that you were referring to.
        Senator Lautenberg. How about meetings with oil industry
    executives?
        Secretary Mineta. None directly.
        Senator Lautenberg. You didn't----
        Secretary Mineta. I did not have any.
        Senator Lautenberg. Didn't have any. As you all know, cars
    and trucks account for about 20 percent of the U.S. carbon
    dioxide emissions. Since the Administration won't commit to
    increasing CAFE standards for passenger vehicles, and it's
    alleged that that needs Congressional approval, how do we
    reduce the impact of global warming coming from cars, unless
    there is leadership from the Administration?
        Secretary Mineta. Well, we haven't said that we would not
    raise the CAFE standard. What we're saying is that the
    stringency of that CAFE standard alone is not going to fix the
    problem. And what I am asking for is the reform of the
    structure of the program. And I cannot restructure the program
    without the legal authority to do that. It's not the
    stringency, it's not the miles-per-gallon standard that----
        Senator Lautenberg. Well, wouldn't that matter
    substantially, Mr. Secretary?
        Secretary Mineta. No, my point is that just setting the
    miles-per-gallon standard alone does not take into
    consideration the total picture that we have to look at under
    the law. Under the law, we have to look at maximum feasible
    fuel economy, the ability to save lives, the ability to
    conserve energy, and the ability to save jobs or the impact on
    the manufacturer. Now, those are the factors that we have to,
    under statute, look at in order to establish the miles per
    gallon. And so, that's why we have to have the authority to
    reform the structure. We cannot just reform the structure
    administratively.
        Senator Lott. Thank you very much.
        Senator Lautenberg. Thank you.
        Senator Lott. Senator Smith?

                  STATEMENT OF HON. GORDON H. SMITH,
                        U.S. SENATOR FROM OREGON

        Senator Smith. Thank you, Mr. Chairman. And, Secretary
    Mineta, it's nice to see you. Thank you for your service.
        It's hard to believe, but I've been in this chamber now for
    10 years, and I have voted for CAFE standards, and I have voted
    against some that went, I thought, too high. I have always
    recognized, in voting for them, that this was a very blunt
    instrument to try and incentivize a good thing, which is fuel
    economy. I know Congress has always held onto this authority
    that you're asking for, because the other competing values of
    jobs and safety really do require our attention, as well. We
    can't just dismiss those in the name of fuel economy. But I'm
    also aware that other nations have tried programs, the fee-bate
    program that I think you're asking for, something other than
    just a quota for so many vehicles to be sold at certain mileage
    levels. I understand Ontario, Canada, has such a fee-bate
    program. In other words, the heavier, less-efficient vehicles,
    they simply pay more; the lighter, more fuel efficient
    vehicles, they actually get rebates. Is that the program that
    you're describing?
        Secretary Mineta. No. What we're doing is really basing it
    on the size or the footprint of the vehicle, as we did with the
    light trucks, so that we have a continuous curve based on the
    size of the vehicle. And in order to do that kind of structural
    reform under the CAFE program, we need that authority in law,
    which I requested from Congress in 2001.
        Senator Smith. And you feel it's worked for light trucks.
        Secretary Mineta. It has, and that's why we would like--
    because of the experience we've had with light trucks, we----
        Senator Smith. Has the light-truck approach been
    sufficient? Are we getting as much savings from it--in terms of
    fuel consumption----
        Secretary Mineta. Well----
        Senator Smith.--as we could?
        Secretary Mineta.--we think that for the model years that
    we are now embarking under this new program--and it will be
    mandatory for the model year 2011--we feel that that is a good
    approach.
        Senator Smith. The approach that you're asking for, have
    any other nations tried it? And how has it worked for them? I
    know individual states have looked at such things, and that
    they have been discouraged from that, because of Federal pre-
    emption.
        Secretary Mineta. Let me ask Ms. Glassman that.
        Ms. Glassman. As the Secretary indicated, the approach that
    we're asking for is part and parcel of the current statutory
    structure, but it would allow us to go further than the limits
    that are imposed by the statute itself. Other countries have
    taken a number of different kinds of approaches. There are also
    a variety of ideas out there, market-based approaches, such as
    fee-bates that you mentioned. And we would look at a national
    fee-bate program, but we haven't yet done that.
        Senator Smith. But you would do that if----
        Ms. Glassman. We would----
        Senator Smith.--we gave you that----
        Ms. Glassman. We would----
        Senator Smith.--authority?
        Ms. Glassman.--study that. But that is a reform which is
    beyond the kind of reform that we're specifically asking for
    today.
        Senator Smith. Well, one of the problems we have here in
    giving you the authority is that this doesn't break down in
    terms of Republican or Democrat. So it's actually helpful, Mr.
    Secretary, that you're a Democrat. I have noticed that there
    are two schools of thought on this. One's all carrot, and the
    other's all club. And somehow I think we've got to figure out
    how to balance the competing interests of fuel economy, jobs,
    and safety with some combination of incentives and regulation.
    The problem we have, it seems to me, in giving you this
    authority, is the fear of what the next Administration would do
    with this. There is a fear CAFE standards will be arbitrarily
    undertaken to do something that just simply is devastating to
    the auto industry or devastating to safety, all in the name of
    fuel efficiency. As a Democrat, sir, do you think that that's
    probable? Are those fears unfounded? Should we trust the
    Executive Branch of government with what is a very, very
    important issue, on three counts?
        Secretary Mineta. I see no reason why that cannot be done,
    because Congress still has the oversight responsibility of what
    happens in law. And so, Congress still has the ability to
    change the law at that point, if it's not working. And so, I
    see no problem with that approach at all.
        Senator Smith. Thank you, Mr. Chairman.

      Prepared Statement of Hon. Gordon H. Smith, U.S. Senator from Oregon
        Mr. Chairman, I want to thank you for convening this hearing on
    automobile fuel efficiency. I look forward to hearing from the
    witnesses appearing before the Subcommittee today.
        Since Hurricane Katrina, we have had numerous hearings in various
    Senate committees about high gasoline prices. A few things have become
    quite evident over the last nine months, as prices have remained at
    historically high levels. First, the United States is heavily dependent
    on oil imports and we are now competing with emerging economies such as
    China and India for oil resources. Second, we rely on nations that are
    politically volatile, such as Venezuela, Nigeria, and Iran, for much of
    our imported oil. Third, our domestic production and refinery capacity
    are heavily concentrated in the Gulf of Mexico--an area prone to
    hurricanes. Fourth, as a Nation, we have made little progress in
    vehicle fuel efficiency while the population is increasing and the
    average American is driving more miles each year.
        Even Congress can't repeal the laws of supply and demand. We know
    that most of our oil is used in the transportation sector, and that
    demand is increasing. We also know that supplies are fairly stagnant.
    Over 70 percent of current production comes from oil fields that have
    been in production for more than 30 years. There is currently less than
    two percent surplus production capacity globally.
        We know, intellectually, what it is going to take to solve our
    dependence on foreign oil. Numerous studies have told us that we need
    more efficient vehicles, and we need alternative fuels for those
    vehicles. There is widespread agreement that those are the two most
    important actions we could take. The challenge is that it requires some
    major changes to the entire sector--from design and manufacturing of
    vehicles to development of the infrastructure to support advanced
    technology vehicles.
        The United States is significantly more dependent on imported oil
    today than it was in 1973, when the oil embargo was imposed. Back in
    the 1970s, Congress recognized the importance of vehicle efficiency,
    and we adopted CAFE standards that moved our vehicle fleet to
    significantly higher efficiency levels by 1990. Unfortunately, that is
    the last significant step we've taken. We've had numerous discussions
    since then, and while I haven't been here for all those debates, I do
    recall the Senate floor debate in connection with trying to pass an
    energy bill in 2002. At that time, I had joined Senator Kerry and
    several colleagues in sponsoring an amendment to increase CAFE
    standards. Our amendment would have increased auto efficiency levels to
    an average of 36 miles per gallon by 2015.
        The amendment was ultimately withdrawn after arguments that
    mandating increased fuel efficiency levels would hurt our domestic auto
    industry, and that it would take choices away from Americans. Instead,
    we passed an amendment that asked the NHTSA to study CAFE standards to
    determine whether they should be increased. We failed to take action,
    in part, because gasoline was significantly less expensive in 2002 than
    it is today.
        Four years later, gasoline is over $3 a gallon and prices are
    expected to remain high into the foreseeable future. I want to focus
    briefly on where we are now. I have a chart here that compares auto
    efficiency levels for several countries. The message is clear. Of all
    nations around the world, we have--by far--the lowest auto efficiency
    levels. Our cars and light trucks have an average efficiency of less
    than 25 miles per gallon, while China and Australia have average
    efficiencies above 30 miles per gallon, and both the European Union and
    Japan have average efficiencies above 40 miles per gallon. What's more,
    these other regions have policies in place that are expected to move
    their average efficiencies upward. Unless we also act, we'll fall even
    farther behind.
        We declined to act in 2002 at least in part because it was argued
    that increasing CAFE would cost us jobs in our domestic auto industry.
    Well, inaction certainly didn't help us on that front. Here's a graph
    showing auto industry jobs since 1990. We've lost 215,000 jobs just
    since 2000, and more job losses in the domestic auto industry are
    projected for the next few years. I happen to believe that part of the
    reason for auto job losses today is because our manufacturers aren't
    making the right vehicles. The global market is now demanding more
    efficient vehicles, and we don't have them to sell.
        Let me make one final comparison. In 2002, we were spending $300
    million per day on oil imports. Today that number is $800 million--
    almost $1billion per day--for the oil we're importing.
        We can no longer afford the status quo. As a first step, I am
    working on a bill to encourage the investment in plants to manufacture
    more efficient, alternative vehicles, as well as the fueling and
    interconnection infrastructure that will be needed to provide
    alternative fuels and re-charge plug-in hybrid vehicles. This bill will
    also lift the cap on the number of alternative vehicles eligible for
    tax credits as requested by President Bush last week. My bill will also
    encourage such transportation alternatives as bicycling and
    telecommuting by providing favorable tax treatment related to the costs
    of those alternatives to commuting.
        While these tax measures will make a difference, we must do more to
    increase the efficiency of our highway fleets. We have several options.
    We could mandate higher efficiencies, higher CAFE levels. as we did in
    the 1970s. We should also study whether alternative regulatory
    structures would be more effective than the current CAFE system.
    Regulatory alternatives that have been discussed, and should be
    examined, include fuel efficiency standards based on vehicle weight
    classes or footprints, or a program that provides rebates on efficient
    vehicles and imposes fees on less efficient vehicles.
        The U.S. auto industry is at a crossroads: innovation or
    obsolescence. I believe that we can use technology and American
    ingenuity to create a new generation of advanced technology vehicles.
    We can, and we must, have vehicles that are more efficient, while
    preserving passenger safety features and customer choice. It is a tall
    order, but American industry is up to the challenge.

        Senator Lott. Senator Cantwell? Thank you for your courtesy
    this morning, too.

                   STATEMENT OF HON. MARIA CANTWELL,
                      U.S. SENATOR FROM WASHINGTON

        Senator Cantwell. Thank you, Mr. Chairman.
        Mr. Secretary, I believe you were in Congress in 1975,
    isn't that correct?
        Secretary Mineta. I was.
        Senator Cantwell. That was your first term. And that's the
    year that Congress passed an energy bill with a CAFE standard
    in it, which I think, at that time, proved to be one of the
    least controversial aspects of that bill when it passed. And
    the savings that we get today from that is nearly 3 million
    barrels per day, than we would have had if we had not passed
    that legislation. So, to me, it's been a great success.
        Now, we've heard a lot about this light-truck----
        Secretary Mineta. Senator Cantwell, could I comment on that
    just a minute?
        Senator Cantwell. Yes----
        Secretary Mineta. That's all right. Go ahead. That's all
    right.
        Senator Cantwell. Let me----
        Secretary Mineta. That's all right. You go ahead.
        Senator Cantwell. If I could, because we're----
        Secretary Mineta. Sure.
        Senator Cantwell.--only on 5-minute rounds here. You've
    commented about the lightweight truck standards, and my
    colleagues have also commented on that. I guess I have a little
    bit different perspective, in that fact, you know, the
    establishment of the vehicle classes and the use of the
    footprint, rather than the weight, in the end result, to me,
    has been, I would say, anemic. The new rule covers 240,000
    large SUVs, or 2.8 percent of the 8.5 million light trucks sold
    annually. In addition, the rule does not include trucks that
    weigh between 8,500 and 10,000 pounds, such as the Hummer H2--
    that is, until the 2011 date--and does not cover those that
    weigh over 10,000 pounds. So, although the impact analysis done
    by NHTSA found that the final rule for the light truck will
    save 7.8 billion gallons of fuel, that's the study, not the 10
    billion gallons previously advertised. So, maybe you could
    comment on that. And, moreover, the analysis found that 2.9
    billion gallons of the fuel savings would have come from
    changes that the automakers would have made to their fleet due
    to market forces anyway. So, that's my reading and analysis of
    the lightweight truck scenario.
        So, now if we're talking about restructuring, and we're
    talking about a more aggressive ramp--because I would like you
    to--I would like you to say if the Administration plans on
    moving up the passenger car mileage standard from where it is
    today. There has been several proposals here in the Senate to
    move passenger cars up to 40, and I don't know whether the
    Administration supports that or not--and trucks up to 27. But
    what would be the--how could we be assured that the
    Administration would have an aggressive ramp-up, given the
    international situation that we're facing, given the economic
    situation that we're facing? And how would you characterize
    that bold step today? How would you measure that, as a bold
    step?
        Secretary Mineta. Well, I think, first of all, what we did
    in the light-truck rule was a bold step, in terms of where we
    were previously, and we feel that the way we've formed the
    program, and the results, is a bold step forward. Remember, for
    some 6 or 7 years, Congress had a prohibition of our even
    dealing with the whole light-truck rule at all. And that's why
    I requested in 2001--in July of 2001, requested that I be given
    the authority to deal with light trucks. In December 2001,
    Congress gave us the authority to do that. So, with that
    experience from the light truck, I feel we can do the same
    thing as it relates to passenger cars.
        Now, you mentioned the 10.7 billion gallons of gas that we
    say that we will save from the light-truck rule, and that is
    the 7.8 billion that we compute from our own rule, as well as
    the 2.9 billion which the auto manufacturers are incorporating
    into their light trucks, minivans, and SUVs because of the
    rulemaking. And so, that's why we claim the 10.7 billion total
    gallons.
        But, again, I feel that we can use the experience that we
    have gained in the light-truck rule to do the same thing in
    terms of the private passenger----
        Senator Cantwell. So, in levels of boldness--if I could, in
    levels of boldness, you're saying that the Administration's
    policies would be similar to what they've done in lightweight
    trucks.
        Secretary Mineta. I think that what we have done in light
    trucks was a bold move. Again, it's not just a question of
    establishing or determining what the level might be. Forty
    miles per gallon may not be a level that is attainable without
    losing jobs, impacting on the manufacturing capability, and--
    even though we can conserve fuel--and it does give us a high
    standard. But, again, we are obligated to look at four factors.
    And someone just picking out of the air a figure--and we feel
    that what we do is based on science and economic data and the
    projection of the fleet from the manufacturers.
        Senator Cantwell. Do you--given that the Administration--I
    know my time is up, but if I could just----
        Senator Lott. All right.
        Senator Cantwell.--one more follow-up. I know that various
    Members of the Cabinet have now called this an ``energy
    crisis.'' And, given the fact that they have called it a
    ``crisis,'' do you think maybe a different, or a bolder
    approach, given that you're saying you have various categories,
    is for the Administration to set an actual goal savings by
    barrels of oil?
        Secretary Mineta. Well----
        Senator Cantwell. Because if we look at CAFE, and we say
    that we've saved, you know, 3 million barrels per day, maybe a
    different approach would be for the Administration to say,
    ``Here's how much they want to save,'' given--and given the
    last energy bill in which they opposed even a 1 million barrel
    oil savings a day, maybe the Administration could better convey
    their boldness by setting a goal for this particular reduction
    in consumption.
        Secretary Mineta. Well, I think the reference to the
    ``energy crisis'' was attributed to, as I recall, Secretary
    Bodman. But when you look at the President's response, it's
    really a four-point program that he has that is short-term,
    mid-term, and long-term. I don't believe the Administration--
    And I know I have not--advocated that the CAFE is a short-term
    response to the energy crisis. This is really a long-term
    response, in terms of the energy crisis. This is not a response
    to $3.50 at the pump, because this will not deal with $3.50 at
    the pump immediately. But it will impact on--in terms of fuel
    savings over a long period of time, and in terms of one segment
    of the energy consuming part of the economy, the automobile.
        Senator Cantwell. Thank you, Mr. Secretary.
        Senator Lott. Thank you, Mr. Secretary.
        Senator Boxer?

                   STATEMENT OF HON. BARBARA BOXER,
                      U.S. SENATOR FROM CALIFORNIA

        Senator Boxer. Thank you. And welcome, everybody.
        I wanted to thank Senator Cantwell for her line of
    questioning, because I know she's very expert in this area,
    and, you know, her probing you on the boldness of your move is
    something that I think a lot of Americans share. They can't
    believe that you're calling it a bold move to go to the light
    trucks and say there's going to be fuel economy increase by 1.8
    miles per gallon over 4 years, when everyone knows the
    technology is so far ahead of you. And I think one of the
    reasons we're all suffering here from low ratings in the
    Congress and in this Administration, abysmal ratings, is
    because people are smart, and they see what they're paying, and
    they know we've done nothing. And now you're asking us for more
    authority. So--what? You can do 1.8 miles per gallon over 6
    years? Four years? And I have to say, when I look at what you
    use for your cost-benefit ratio, it's amazing, you left out the
    entire area of greenhouse gases, and didn't even put it in as a
    benefit, what we could benefit from. You say we pull a number
    out of the air? Well, you ignored the air, even though you were
    told to take a look at it. You had people who wrote you and
    said, ``It's very important to include the benefits on air
    quality,'' and that those benefits could be as great as $50
    billion by 2020, yet those benefits were ignored in NHTSA's
    final rule--in effect, really putting a thumb on the scale on
    the side of lower standards.
        So, the other thing is, you've got the price of oil
    fluctuating. It's a moving target. Now, when you came up with
    this, what was the price of oil then, when you came up with
    your 1.8 improvement? What was the price of oil then?
        Secretary Mineta. I would assume it was about $1.80.
        Senator Boxer. All right. So, now you have a situation
    where the cost----
        Secretary Mineta. I----
        Senator Boxer.--is so much----
        Secretary Mineta. I don't recall the exact time, but--
    Jackie, maybe----
        Ms. Glassman. When we do the rulemaking, we use the long-
    term price of oil that is put out by the Department of
    Energy's----
        Senator Boxer. And what was it?
        Ms. Glassman.--EIA. For the----
        Senator Boxer. What was it?
        Ms. Glassman.--NPRM, it was $1.58. For the final rule, it
    went up to $2. And they are looking at the price of oil over
    the long term----
        Senator Boxer. All right. Well----
        Ms. Glassman.--and not at----
        Senator Boxer.--may I say----
        Ms. Glassman.--today.
        Senator Boxer.--something here? This proves the point,
    that, you know, you relied on information that has proven to be
    false. You should go back--based on the price of oil. I don't
    think anyone's saying, now, that the price of gas at the pump
    is going to go to $1.50. If you can find someone, that would be
    swell. Now, maybe there are people out there. But, if anything,
    we're looking at higher prices. So, you should go back with
    this abysmal----
        Secretary Mineta. Senator, I think----
        Senator Boxer.--increase.
        Secretary Mineta. But, Senator, if I might say, what we do
    is like taking a picture at a certain point, and we take a
    picture, and that camera reflects what is being taken at the
    time. And so, at the time----
        Senator Boxer. Fine, then take another picture. Throw out
    the camera, get a new one, go get a picture. Go take a picture
    of the oil prices and the----
        Secretary Mineta. Senator----
        Senator Boxer.--gas prices in California--some stations, 4
    bucks a gallon----
        Secretary Mineta. I----
        Senator Boxer.--and then make a case for a 1.8 abysmal
    increase in fuel economy over 4 years. It just doesn't fly with
    the American people. They're smarter than that, Norm.
        Secretary Mineta. I understand that, Senator. But under the
    rules, we have to give notice to the manufacturers 18 months
    ahead of the model year, so----
        Senator Boxer. Ah, I----
        Secretary Mineta.--I understand that great----
        Senator Boxer. Well, go back--
        Secretary Mineta.--prices have gone up to $3.57, whatever
    they are today. But----
        Senator Boxer. I need to take back my time----
        Secretary Mineta. Absolutely.
        Senator Boxer.--because I don't have much. And I'm trying
    to make the point here that, as Maria Cantwell said, we're in a
    crisis. Your own Administration says that. This is not the time
    for business as usual. You might have to go back. Whoa, what a
    shock. You might have to go back. There is a crisis. You've
    come up with a number here that makes no sense. You've ignored
    the new technologies. I mean, you think you're bold? Then I'm
    sure you think that Ford, which is producing SUVs--part of
    the--light truck category, that get 36 miles per gallon,
    they're revolutionary. You are so far behind on what's even
    happening in the marketplace.
        And I guess my question is--you're asking us to give you
    authority. You know what? If you had fought with us for better
    fuel economy, I'd have a different attitude about it, because
    I'm a little annoyed at this Congress. Democrats and
    Republicans haven't risen to the occasion on this. But where
    were you when various members of both parties had legislation?
    Olympia Snowe is one of them. Were you helping her? Were you
    helping us to get better fuel economy into the law? Did the
    Administration take a position on that when we were fighting to
    get higher fuel standards? Where were you?
        Secretary Mineta. No, I'm sorry, I'm not familiar with the
    legislation. But we have not taken a position on other
    legislation that I can think of--
        Senator Boxer. Well, if I might say, that's incorrect,
    according to this article. And you might want to debate it. And
    I will close with this and ask unanimous consent to put into
    the record this article from the National Journal, February 2,
    2002, the time when colleagues--we were all working hard to get
    better fuel economy, ``The President has consistently opposed
    increasing fuel economy standards for cars and SUVs. His
    national energy strategy, which was released in May, largely
    adopted in the House, pushes for greater oil and gas drilling
    that would provide few incentives for energy conservation.''
        [The information previously referred to follows:]

                     The National Journal, February 2, 2002

                      Gas Mileage: Deal Maker or Breaker?

                                By Margaret Kriz

        Fifteen hundred members of the United Auto Workers descended on
    Washington this week for their union's annual legislative conference,
    thereby allowing the UAW to mount a massive in-person lobbying campaign
    aimed at persuading the Senate to protect the interests of U.S.
    automakers. As UAW members were swarming Capitol Hill, the majority
    staff of the Senate Commerce, Science, and Transportation Committee was
    attempting to hammer out an energy bill toughening fuel-efficiency
    standards for cars and SUVs.
        The UAW fears that stiffening those requirements, formally known as
    corporate average fuel economy (CAFE) standards, would overburden U.S.
    car manufacturers who are already feeling the pinch of the national
    economic downturn. Ford Motor Co., for example, recently announced
    plans to lay off 35,000 workers and close five plants.
        But the recession is not the only issue reshaping the energy
    debate, which shifted to the Senate after the House passed an energy
    bill last year. Environmental lobbyists say that national security
    fears triggered by September 11 are causing more lawmakers to look for
    ways to cut oil imports from the Middle East and other unstable
    regions. Even some Republicans who have long opposed toughening CAFE
    standards are considering that approach as a way to curb American
    gasoline consumption. U.S. oil imports ``aren't just looked at as a
    vulnerability anymore,'' said David Hamilton, director of state and
    Federal policy at the Alliance to Save Energy. ``Now they're a national
    threat.''
        At the same time, however, the energy debate has taken on strong
    new political overtones because Sen. John F. Kerry, D-Mass., who is a
    potential Democratic presidential contender, is forcefully attacking
    President Bush's pro-industry energy policies. Senate Majority Leader
    Thomas A. Daschle, D-S.D., is also trying to play the energy card
    against Bush.
        The President has consistently opposed increasing fuel-economy
    standards for cars and SUVs. His national energy strategy, which was
    released in May and largely adopted by the House in August, pushes for
    greater oil and gas drilling and would provide few incentives for
    energy conservation. The House rejected higher CAFE standards. But many
    lobbyists and Congressional staff members say that White House control
    over the energy debate has been undercut by Enron Corp.'s growing
    financial problems and by the public's growing concerns about
    allegations that Vice President Dick Cheney allowed Enron and other
    energy industry giants to essentially dictate much of the
    Administration's energy strategy. In Congress, committee investigations
    into Enron's collapse have eaten up staff time and forced the Senate
    Commerce Committee to postpone a hearing on CAFE standards.
        Despite growing support across party lines in the Senate for
    stricter efficiency standards, continued opposition by the auto
    industry and its Congressional supporters significantly reduces the
    odds that Congress will actually pass an energy package this year.
    Citing the CAFE dispute and standoffs over several other energy
    proposals, many industry lobbyists and Capitol Hill staffers give the
    legislation only a 50-50 chance of making it to the President's desk.
        Environmentalists predict that opponents of higher CAFE standards
    are likely to try to block Senate passage by filibustering.
    Conservative Republican opponents of efficiency standards know they can
    count on the votes of Democratic Senators from Michigan and other
    Midwestern states where cars and car parts are manufactured.
        Meanwhile, filibuster threats are also looming over the Republican
    proposal to allow drilling in Alaska's Arctic National Wildlife Refuge.
    Senators Kerry and Joe Lieberman, D-Conn., have vowed to block any
    energy bill that includes drilling there. Sen. Ted Stevens, R-Alaska,
    counters that he will filibuster any bill that doesn't allow drilling
    in the refuge.
        Even if the Senate passes legislation that includes increased CAFE
    standards but bars drilling in the Alaska refuge, the energy package
    would face tough going in a House-Senate conference committee. After
    all, the House energy package excludes fuel-efficiency standards and
    gives a green light to the Alaskan drilling provision.
        ``You'd have a very round peg coming out of the Senate trying to
    fit into a very square hole in the House,'' said Daniel F. Becker,
    director of the Sierra Club's global-warming and energy program. ``It
    would be a real challenge to make the two fit.''
        Currently, automakers are required to meet an average efficiency
    standard of 27.5 miles per gallon for all the new cars they sell in the
    United States and 20.7 mpg for light trucks. The latter category
    includes SUVs, which now constitute half of the passenger vehicles sold
    in the United States. U.S. auto companies regularly fail to meet the
    CAFE standards, while American Honda Motor Co. and Toyota Motor Co.
    usually exceed the fuel mandates because they sell mostly small cars
    and are already using more efficient technologies. Because of
    opposition from Detroit, CAFE standard haven't been increased since the
    1980s.
        Lobbyists close to the Senate Commerce Committee's negotiations say
    that Democrats recently floated the idea of raising fuel-efficiency
    standards to between 30 mpg and 39 mpg over a 10- to 12-year span. A
    July 2001 National Academy of Sciences report said such increases are
    feasible using existing technology.
        The Committee's present draft rejects a UAW fuel-efficiency plan
    under which all car makers would be required to increase their fleet's
    efficiency by the same percentage. That approach was opposed by
    committee Republicans as unfair to Honda and Toyota, which already
    exceed current CAFE requirements.
        The UAW argues that Congress should give more weight to the needs
    of the U.S. car companies, which employ UAW members, than to those of
    Honda and Toyota, which run non-union shops. ``It's important that
    these standards are economically feasible. And by that we mean
    something that doesn't cause economic hardship,'' said Alan Reuther,
    Legislative Director of the UAW.
        Honda favors an across-the-board increase in the CAFE standards.
    Ford, General Motors Corp., DaimlerChrysler Corp., and Toyota are part
    of an industry alliance that opposes any increase in the fuel-
    efficiency standards. The U.S. automakers assert that instead of hiking
    CAFE standards, which would force car companies to invest more in
    modernizing the current generation of internal combustion engines,
    Congress should fund more-futuristic research projects, such as the
    Bush Administration's hydrogen-powered fuel-cell car project, which was
    announced by Energy Secretary Spencer Abraham in early January at the
    Detroit auto show. But the industry's critics argue that although fuel
    cells may have long-term promise, they can do nothing to immediately
    lessen the Nation's growing appetite for oil.
        The Big Three U.S. automakers now argue that fuel standards should
    be set by the Transportation Department's National Highway Traffic
    Safety Administration. However, during the Clinton Administration, they
    successfully lobbied Congress to block funding that would have allowed
    the NHTSA to draft new efficiency standards.
        Under Bush, NHTSA has been reluctant to crack down on the auto
    industry. The Administration recently announced that it would not raise
    the fuel-efficiency requirements for SUVs and other light trucks built
    in 2004. But Administration officials have hinted that they might be
    willing to raise the standards for those made in 2005.
        Meanwhile, other Administration officials--notably John Graham, who
    heads the Office of Management and Budget's powerful Office of
    Information and Regulatory Affairs--have suggested overhauling the CAFE
    standards to allow automakers to trade fuel-efficiency ``credits,'' a
    controversial move that would require Congressional approval.
        Energy legislation became a top priority for Washington early in
    Bush's first year, when he called for a national energy strategy to
    help solve California's electricity crisis. Cheney's energy task force
    developed a largely supply-side national energy strategy, which
    recommended increasing U.S. oil and natural-gas drilling throughout the
    United States, including in the Alaska wildlife refuge. The measure
    rejected tougher CAFE standards but called for more reliance on nuclear
    power. In August, the Republican-controlled House adopted the
    Administration's energy package and added $34 billion in tax benefits--
    $27 billion for the coal, oil, natural gas, and nuclear power
    industries, and the other $7 billion earmarked for energy-efficiency
    and conservation programs.
        The Democratic-controlled Senate has started from scratch in
    developing its national energy strategy. Released on December 5 by
    Daschle and Senate Energy and Natural Resources Committee Chairman Jeff
    Bingaman, D-NM, that bill would provide incentives for building a
    natural-gas pipeline from northern Alaska to the lower 48 states but
    would not allow oil development in the Alaskan wildlife refuge. It
    would give the Federal Energy Regulatory Commission more power to
    streamline state electricity deregulation and would push the White
    House to develop a plan for curbing emissions of the greenhouse gases
    linked to global warming.
        Daschle has promised to bring energy legislation to the Senate
    floor before the Senate break that begins on February 18. (The CAFE
    provision, however, is being handled separately by the Senate Commerce
    Committee and will be added to the Daschle package.) Daschle's bill
    would also include tax breaks for industry but would provide more funds
    than the House wants for alternative energy and energy-efficiency
    projects. The Daschle tax breaks would likely total $10 billion to $15
    billion. Like the CAFE provision, the tax breaks are set to be added to
    the energy package on the Senate floor.
        Supporters of the fuel-efficiency standards argue that increasing
    them is one of the only ways of reducing U.S. gasoline use. ``CAFE has
    been the single most effective energy policy this Nation has ever had
    in saving gasoline,'' said Hal Harvey, president of the Energy
    Foundation, which supports renewable energy projects. ``There is
    literally no other policy that the United States can enact that would
    have remotely the same impact as CAFE in the next decade or two, except
    possibly [steep] European-level gasoline taxes. And the political
    prospects of a gas tax are zero.''
        The prospects of ratcheting up CAFE standards this year are not
    zero. In fact, they are rising, but still are not high.

        Secretary Mineta. Well, then, you know, on that count, let
    me say that in 2001, I wrote a letter to Congress asking to be
    given the authority to raise the fuel standards.
        Senator Boxer. That's not my question. My question----
        Secretary Mineta. You're asking----
        Senator Boxer.--is, Did you----
        Secretary Mineta.--whether or not----
        Senator Boxer. No. I said, Did you help us or hurt us when
    we, in the Congress, were trying to raise fuel economy
    standards? Did you weigh in on the side of those of us who were
    in favor of the legislation? The--
        Secretary Mineta. At the----
        Senator Boxer.--answer is no.
        Secretary Mineta.--at the time, I did not.
        Senator Boxer. You did not. You opposed it. Not you,
    personally--
        Secretary Mineta. I didn't oppose it.
        Senator Boxer. The President----
        Secretary Mineta. I did----
        Senator Boxer.--opposed it.
        Secretary Mineta.--not oppose it.
        Senator Boxer. I'm not talking about you.
        Secretary Mineta. No, you asked me if I did.
        Senator Boxer. The Administration. I'm meaning the
    Administration, not you, personally. According to this article,
    the President consistently opposed it.
        Secretary Mineta. I think on a single-number basis, we have
    always, I guess, opposed.
        Senator Boxer. Thank you.
        Thank you, Mr. Chairman.
        Senator Lott. On our early bird rule, I believe, Senator
    Pryor, you would go next, and then Senator Snowe.
        So, Senator Pryor?
        Senator Pryor. Mr. Chairman, I think that Senator Snowe was
    here before me. Senator Snowe, weren't you here?
        Senator Snowe. Go ahead.
        Senator Pryor. Are you sure? OK.

                     STATEMENT OF HON. MARK PRYOR,
                       U.S. SENATOR FROM ARKANSAS

        Senator Pryor. Thank you, Mr. Chairman.
        Let me ask, if I may, Mr. Secretary--I know that some of
    the studies that we're looking at now, they've talked about
    recalculating CAFE. I think CAFE's been around since 1975. Some
    of these studies that we're referring to in this hearing and in
    other contexts are--go back to 2002, 4 years ago. Why are we
    just now coming to the point of you coming in and asking for a
    change of approach with CAFE?
        Secretary Mineta. Well, what prompted this latest round is
    Senator Frist's bill--I believe it was introduced a week ago
    last Wednesday--requesting--or authorizing me to go ahead and
    increase the CAFE standard. And my response, when he dropped
    that bill in, was to say that I would want to have not only the
    authority to raise the CAFE standard, but to reform the
    structure of the program----
        Senator Pryor. OK. Let me ask----
        Secretary Mineta.--for private passenger cars.
        Senator Pryor. Right. Let me ask, on that, if I may, so I
    can be very clear on this and make sure I completely understand
    this. What you're asking for us to do is to give the
    Administration, the Department of Transportation, total
    discretion in rewriting the CAFE standards and the goals and
    the targets? Is that what you're asking for?
        Secretary Mineta. Well, it would still be subject to
    review.
        Senator Pryor. Review by?
        Secretary Mineta. The Congress.
        Senator Pryor. OK.
        Secretary Mineta. And, again, it would go through our
    normal rulemaking process, which would make it available for
    comment by----
        Senator Pryor. The public----
        Secretary Mineta.--the public.
        Senator Pryor.--whoever that may be. But you do want total
    discretion, in effect. You want discretion in order to rework
    CAFE the way you want to do it.
        Secretary Mineta. I--yes, I would say total discretion.
    But, that's still subject to review.
        Senator Pryor. What about if Congress had a requirement in
    there that actually, as you promulgate new CAFE standards, that
    you actually increase it by a minimum amount? I mean, let's
    just pick a--figure out there--1 mile per gallon per vehicle,
    or something minimum in every category. Would that be something
    you'd object to?
        Secretary Mineta. Well, I suppose it would depend upon what
    the standard would be. If it were 1 mile per gallon, I would
    not have any objections to it. I think if I were given the
    authority to revise it with the requirement that it be set at
    40 miles per gallon, I think--because, again, you know, we're
    guided by what is in statute and by the National Academy of
    Sciences.
        Senator Pryor. All right, let me ask----
        Secretary Mineta. So----
        Senator Pryor. I don't want to interrupt----
        Secretary Mineta. Yes.
        Senator Pryor.--but my time is short, so let me ask this.
    As I understand it, you've recently gone through, with light
    trucks, a new series of CAFE standards. And something you have
    there now is--I believe you called it a few moments ago--the
    continuous curve. So basically, it's a continuum of standards,
    depending on the vehicle, and it's very specific to width and
    length of the vehicle, the size of the vehicle, et cetera. And
    is that what you want to do for cars? Is that what you have in
    mind for passenger cars?
        Secretary Mineta. That's correct.
        Senator Pryor. Would it be----
        Secretary Mineta. Let me----
        Senator Pryor.--would it be very, very similar to the light
    trucks, maybe even identical to the approach you took in light
    trucks?
        Secretary Mineta. I think it would be, but let me have Ms.
    Glassman expand on the answer.
        Ms. Glassman. Yes, sir, as the Secretary indicated, that
    would definitely be the starting point for the analysis. The
    idea would be to take our light-truck structure, apply it to
    passenger car data, and make sure that it applies appropriately
    to passenger cars, and make sure that we don't create any
    unintended consequences by doing that. But it would be,
    definitely, the starting point.
        Senator Pryor. OK. In regard to the light trucks, I know
    you talk about this continuous curve--how often will DOT or
    NHTSA--how often will you revisit recalibrating those
    standards? Do you do it annually, every 2 years, every 5 years?
    How often do you revisit those standards?
        Secretary Mineta. For the present light-truck rule, we go
    out to 2011--I mean 20-----
        Ms. Glassman. Eleven.
        Secretary Mineta.--2011. So----
        Senator Pryor. Right. I understand that. But then, are you
    now starting the process again to go out beyond 2011, or to
    maybe even making some adjustment in 2010, 2011, you know, and
    that kind of thing?
        Secretary Mineta. I don't believe we are. But let me ask
    Ms. Glassman----
        Ms. Glassman. Not----
        Secretary Mineta.--whether----
        Ms. Glassman.--historically, CAFE standards were set
    annually. Beginning in 2003, we started to set standards in 3-
    year time-frames. So, we put out a rule in 2003 for light
    trucks applicable to model years 2005, 2006, and 2007. And in
    this latest rule, we approached 4 years. We would need a rule
    out, by 2010, beginning to cover 2012, and, in all likelihood,
    that would again be a multi-year rule.
        Senator Pryor. Mr. Chairman, I'm out of time. Thank you.
        Senator Lott. Senator Snowe?

                  STATEMENT OF HON. OLYMPIA J. SNOWE,
                        U.S. SENATOR FROM MAINE

        Senator Snowe. Thank you, Mr. Chairman. And thank you for
    holding this hearing on this critically important topic.
        And I want to welcome you, Mr. Secretary. Obviously, I
    think you sense a great deal of frustration, because we're at a
    point where we cannot grapple with this issue in an aggressive
    way. I think America can do better than what we're doing right
    now in fuel economy standards. It's one that we have struggled
    with. Frankly, Congress hasn't been any better on this issue
    than the Administration. But we're at a point in this country
    where we really have to recognize that we have to address an
    increase in CAFE standards very vigorously and aggressively.
        Frankly, an unfortunate minimalist approach has been
    embraced. I believe that just increasing the light truck
    category by a little more than a mile per gallon--for SUVs, for
    instance--is insufficient to where we stand in America today.
    We're depending on the most volatile regions of the world for
    our gasoline for the vehicles we drive. And other countries are
    ahead of us on establishing increases for greater fuel
    economies.
        So, I just don't see why there is resistance and
    reluctance. I mean, the National Academy of Sciences, back in
    2001, issued a report and said we could increase 15 miles per
    gallon in 15 years. And here we are today talking about how the
    Administration has done it once for the light-truck category,
    by increasing CAFE by a little more than a mile for the first
    time since 1985. For passenger cars, we haven't had any changes
    since 1975. So, there really hasn't been any effort to do that
    even though we recognize there are problems with a stagnant
    CAFE system. But shouldn't we be able to know now, with
    specificity, where we should go on this issue? Senator Boxer
    mentioned the initiatives that we have fought for. And, once
    again, I'll be introducing legislation with Senator Feinstein
    on this issue, creating a 10 in 10 bill--an increase of 10
    miles in 10 years for the overall average for the fleet,
    including passenger cars, light trucks, and SUVs. This is
    something we ought to be able to do. We ought to be inventive.
    We're at a point in time where we have arrived at a real
    juncture. And I think it requires leadership on both of our
    parts, the Administration, as well as the U.S. Congress, in
    achieving that. We should go hand in hand. There should be no
    question about that.
        I am concerned because I think the real issue here is that
    we're going to relinquish this authority, and in return, we're
    just going to get a minimal approach rather than a very
    aggressive one. We need to be far more far-reaching in
    increasing CAFE standards than we are today.
        We're not hearing any time lines from your DOT. We're not
    hearing how much the Administration wants to increase
    standards. We're not hearing anything. And here we are in the
    midst of an energy crisis, frankly. This is certainly
    abundantly clear. And we don't know what's ahead of us in the
    months to come. We're back to the heating oil costs concerns
    from last January in considering the winter months to come. The
    prospects don't look very bright at this point and I have great
    concerns.
        So, we ought to be doing all we can about oil savings and
    reduced costs. And I don't hear that we are. And that's the
    issue. We could really fix this. We have the technology. We
    have the wherewithal. We have the knowhow. It will require
    leadership, including the White House and here in the U.S.
    Congress to get it done. And that's why I am reluctant to
    abdicate the authority for CAFE standards for passenger cars,
    because I don't think increases are going to happen. Look at
    where we stand today. NHTSA has increased CAFE for SUVs a
    little more than one mile per gallon, so if we give NHTSA
    authority over passenger cars as well, we totally transfer--we
    relinquish that authority, so then where are we?
        Secretary Mineta. Well, first of all, there's no question
    that there's an urgency about the issue. I guess my problem is
    that establishing the CAFE standard is really part of the long-
    term issue involving fuel. It doesn't have an immediate impact
    on the price of gasoline at the pump. Fuel efficiency will be
    able to conserve fuel, but it's not one that, again, impacts on
    fuel costs or conservation immediately. It's one that has
    impact over time. As I said, the urgency is there to get it
    done, but, in terms of its impact, will not be immediate.
        Now, in terms of the stringency of the standard, again, I
    guess we're really being driven by the statutory requirements,
    in terms of impact, again, on safety, jobs--and so, that's why
    to me, it's much more difficult than to just establish some
    mile-per-gallon standard and set that as a goal to attain
    without going through the studies that NHTSA has to go through
    in order to come to that conclusion. I just feel that we have
    to allow the comment period, to be able to allow NHTSA the
    ability to take into consideration product mix, impact on
    safety, the ability to conserve fuel, and to save lives.
        Senator Snowe. Well, a lot of the issues that you raise
    have been issues ever thus. I mean, it's always been that way.
    It's always been the case. And I can't believe, in America
    today, in the 21st century, that we cannot reconcile ourselves
    as to what the solutions are. The National Academy of Sciences
    said it back in 2001, and we know we have the capabilities to
    address all these competing interests for these issues. And,
    frankly, we know there will be no immediate impact on the price
    of gasoline. But, I hesitate to even think about where we would
    be today if we had begun to implement a very aggressive
    schedule for CAFE increases back in 2001.
        I guess the point here is that it would send a very strong
    message, and particularly to the transportation sector that has
    imposed tremendous demands on our consumption of imported oil.
    That is a huge issue, and that's what we need to address
    effectively.
        Secretary Mineta. And probably the two questions I ask are,
    one, relating to stringency, and the other in terms of timing.
    And, again, in terms of timing, we're constricted by law. The
    law says we have to give at least 18 months notice to the
    manufacturers. But for us to give notice to the manufacturers,
    it takes us about a minimum of a year. And as Jackie has
    indicated, a minimum, they'd be hardpressed to come up with a
    major rule on CAFE standards.
        Senator Snowe. Thank you, Mr. Chairman.
        Thank you, Mr. Secretary.
        Senator Lott. All right.
        Senator Dorgan, if you'd bear with us just 1 second, we do
    have a very good panel that we want to hear from this morning,
    but Senator Boxer had one last question would like----
        Senator Boxer. Yes.
        Senator Lott. OK, would you like to do that right quick
    now, and then we'll go to Senator Dorgan? All right, good.
        Senator Boxer. Mr. Secretary, the Federal Government
    purchases 58,000 new vehicles for the Federal fleet every year.
    Would you support a piece of legislation that says they should
    buy, where feasible and where it makes sense, the most fuel-
    efficient vehicles they can, to set a standard for the rest of
    the country? Would you support that concept? As an individual.
        Secretary Mineta. Yes.
        Senator Boxer. I know you can't----
        Secretary Mineta. Yes.
        Senator Boxer.--you have to check with the other people,
    but I'm asking you, personally, if that would make sense to
    you.
        Secretary Mineta. Sure, that sounds----
        Senator Boxer. Good. Well, I have such a bill. So, I'll be
    calling you.
        [Laughter.]
        Senator Boxer. And the only other point I'd make is, I'd
    say, go back and redo your cost-benefit ratio, because it's way
    off the mark. Gas is higher. We can give tax breaks to people
    who buy these fuel-efficient cars. And you should include the
    greenhouse gas benefits from a better fuel economy.
        Thank you.
        Senator Lott. Senator Dorgan, would you like to make a
    brief----
        Senator Dorgan. Well, Mr.----
        Senator Lott.--statement or----

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

        Senator Dorgan.--Mr. Chairman, first let me apologize. I
    know--I've been elsewhere, and I've been delayed. I don't want
    to take much time. But let me just, if I might, so that you can
    get the second panel up, ask just one or two questions of
    Secretary Mineta.
        I have not been a big fan of CAFE standards. I've always
    said, if the issue on energy is the debate between CAFE and
    ANWR, we lose, because we have to be bolder and much more
    decisive on a range of issues--hydrogen fuel cells in the
    future, and so on. But I--you know, I looked at a car the other
    day that was 10 years newer--a new car--than the previous same
    model, and exactly the same rated mileage. I mean, it, on the
    sticker, said--you know, you get the same mileage. Now, the
    question is, Why, in 10 years, has nothing changed with respect
    to that car? I don't understand it. So, I've--my own view is, I
    don't think Congress has much choice but to be much bolder,
    much more aggressive on CAFE standards and other issues.
        And I guess my question for you is, we've had a number of
    iterations--I think Senator Cantwell probably asked about
    this--of how many barrels of oil we're going to save by a
    certain time to establish goals. You know, there's this old
    saying, ``If you don't care where you are, you're never going
    to be lost.'' So, you set a goal. And if you set a goal, then
    you aspire to reach that goal. What is your goal? What is our
    goal? What's the Administration's goal at this point with
    respect to efficiency of the vehicle fleet? What is the goal?
    Do we have a goal?
        Secretary Mineta. I'm not sure that I can give you an
    answer in terms of miles per gallon.
        Senator Dorgan. Well, then savings--saving the number of
    barrels of oil by a certain time.
        Secretary Mineta. Well, we don't start with, let's say,
    saving 3 million barrels a day, and then come up with the miles
    per gallon, because, again, in terms of determining what the
    miles per gallon should be under CAFE, we look at the product
    mix of what the manufacturers will be building in a given model
    year. And maybe I can't explain it as well, but maybe I can
    have Ms. Glassman explain it in terms of the process we go
    through. As I said, if someone were to say, ``We've just come
    up with a rule that comes over 37 miles per gallon,'' to me
    that would be ready, fire, aim----
        Senator Dorgan. Yes, but--
        Secretary Mineta.--because I can't come to a conclusion
    first on the miles per gallon or the fuel saved prior to making
    the determination through the computations of a rulemaking as
    to what the miles per gallon would be.
        Senator Dorgan. But, Mr. Secretary, that reminds me of a
    bumper sticker, ``Onward through the fog.'' You know, the fog
    here is the uncertainty of what our goal is. It seems--I just
    disagree completely with the notion that you can't set a goal
    and then manage, with respect to policy, public policy, to how
    you achieve that goal, whether it's incentives, whether it's
    mandates, whether--no matter what it is. You've got to have a
    goal. You've got to aspire to be someplace. And the question
    I'm asking is, What's the goal with respect to vehicle
    efficiency? And the reason I ask this question, Mr. Chairman--
    as I understand it, the Chinese now have about 20 million cars.
    By the year 2020, they're going to have 120 million vehicles.
    So, we're going to add 100 million vehicles to the vehicle
    fleet, just with China alone. And we suck 84 million barrels
    out of this planet every day. We use one-fourth of it in this
    country. We've got huge problems. And I'm just trying to figure
    out, What's our goal? And the reason I use vehicles as the
    catalyst here is, my first car was a 1924 Model T Ford that I
    rehabilitated and sold when I was a little kid. I put gas in
    the 1924 Model T exactly the same way I put gasoline in a 2006
    Ford. Nothing has changed. Everything else about the car has
    changed, but you still stick the hose in the tank, and you're
    still pumping petroleum. And I know you can't give me the
    answer at the moment, but I'm telling you, I think the
    Administration, and I think the Congress, has to set goals,
    establish goals, then develop the policy to meet those goals.
        Senator Lott. Well, thank you very much, Senator Dorgan.
        Thank you, Secretary Mineta.
        We've got a very good panel now. We'd like to ask this
    panel to take their seats as quickly as possible. It includes
    Fred Webber, President, Alliance of Automobile Manufacturers,
    of Washington, D.C.; Mr. John Cabaniss, Director of Environment
    and Energy, Association of International Automobile
    Manufacturers, from Arlington; the Honorable Philip R. Sharp,
    former colleague from the House of Representatives, now
    President, Resources for the Future; Ms. Joan Claybrook,
    President, Public Citizen, Washington, D.C.; Mr. David
    Friedman, Senior Analyst, Clean Vehicle Program, Union of
    Concerned Scientists, of Washington, D.C.; and Mr. Alan
    Reuther, Legislative Director, International Union, United
    Automobile, Aerospace, and Agriculture Implement Workers of
    America.
        I'd like to ask this panel, if you would submit your full
    statement for the record. It will be included in its entirety.
    Then if you could sum up your statement, hopefully limiting it
    to 3 minutes--Senators, we couldn't do that, probably, but we'd
    ask you to challenge yourself to try to keep it as brief as
    possible, because we do have an excellent panel. We'd like to
    get your basic point of view and have a little time left for,
    hopefully, some questions and attempted answers.
        Senator Dorgan. Mr. Chairman, can I have my opening
    statement put in the record?
        Senator Lott. Your statement will be included in the record
    at the beginning of the hearing.
        Mr. Webber, let's begin with you.

     STATEMENT OF FREDERICK L. WEBBER, PRESIDENT AND CEO, ALLIANCE
                      OF AUTOMOBILE MANUFACTURERS

        Mr. Webber. Well, thank you, Mr. Chairman. Good morning.
    Thank you for giving me this opportunity--push it again. How is
    that working? OK.
        Senator Lott. Pull it up a little closer, Fred.
        Mr. Webber. Thanks.
        As you know, we represent--the Alliance represents nine
    automobile manufacturers. We share the concerns of this panel,
    of our customers, of the Congress, writ large, about gasoline
    prices, certainly energy security, and we all need to take
    steps together to solve the problem, to solve the challenge.
        There's a great story out there in America today that's not
    being told, and we're going to start telling it ourselves, and
    that has to do with advanced technology. I know the focus is on
    CAFE and the authority the Secretary's looking for to apply the
    truck rule to automobiles. But, as he said, it's not a quick
    fix. It's not going to solve the immediate problem or the
    immediate challenge. It's a long, laborious process. It takes
    time.
        In the meantime, this exciting industry that I represent is
    moving rapidly toward advanced technology vehicles. We have
    over 40 in the marketplace today. We're going to have another
    40 in the next year or so. And what's happened here is that,
    like safety--as you know, when safety became a competitive
    issue, all kinds of great things happened in the automobile
    industry, and today you and I drive trucks and cars that have
    never been safer. That's what's happening in the advanced
    technology arena. Advanced technology has become a competitive
    issue, and we're off to the races. And our member companies and
    others are really striving hard to develop these advanced
    technology vehicles. We've made a lot of progress with E-85
    engines that'll burn ethanol. We've made a tremendous amount of
    progress with diesel, clean diesel, biodiesel. We are looking
    down the road at hydrogen. We've got the Administration's
    support on that, and the Congress's support on that. This is
    the real story.
        This is going to be the fix. This is going to enable us to
    reduce consumption of gasoline from foreign sources, or, I
    should say, oil. We're very excited about it. We're moving
    forthrightly. And we would ask that people recognize it,
    especially the Congress.
        I want to say one other thing. In our car lots today we
    have over 100 different models of vehicles that get over 30
    miles to the gallon. The consumer has a choice. That's been the
    objective all along in the history of the automobile industry.
    Soon the consumer will have greater choices as we move forward
    with advanced technology. I know many of you have interest in
    ethanol. We've got infrastructure challenges there, but I think
    they can be overcome.
        So, again, this is an exciting time for our industry,
    perhaps a turning point, and we are going to continue the
    progress that we've made.
        [The prepared statement of Mr. Webber follows:]

         Prepared Statement of Frederick L. Webber, President and CEO,
                      Alliance of Automobile Manufacturers
        The Alliance of Automobile Manufacturers (Alliance) is a trade
    association of nine car and light truck manufacturers including BMW
    Group, DaimlerChrysler, Ford Motor Company, General Motors, Mazda,
    Mitsubishi Motors, Porsche, Toyota and Volkswagen. One out of every ten
    jobs in the U.S. is dependent on the automotive industry.
        Alliance members share the concerns of our customers and the
    American public about high gasoline prices and support the President's
    policy of reducing our consumption of petroleum. Member companies have
    consistently improved the fuel efficiency of their products and
    continue to offer ever-increasing numbers of advanced technology
    vehicles--such as hybrids, clean diesels, alternative fuel vehicles,
    and others--that reduce the automotive sector's consumption of
    petroleum.
        For example, since the 1970s, new vehicles have continued to become
    more fuel-efficient. EPA data demonstrate that fuel efficiency has
    increased steadily at nearly one to two percent per year on average
    from 1975 for both cars and light trucks. Passenger car fuel economy
    has more than doubled from 14.2 mpg in 1974 to 29.1 mpg in 2004 and
    light truck fuel economy has increased by 60 percent since 1974. But as
    we have noted on many previous occasions, the ultimate decisions about
    what vehicles are purchased and how they are driven belong to American
    consumers.
        And while consumers value fuel economy, they also want many other
    attributes in today's vehicles, such as safety, passenger and cargo
    room, performance, towing and hauling capacity. Our challenge is to
    develop advanced technology vehicles that combine these attributes with
    improved fuel efficiency. Of particular focus is maintaining safety
    while improving fuel efficiency.
        The auto industry leads the way when it comes to investing in
    research and development. Automakers are committed to being first to
    market with breakthrough technologies that can produce new generations
    of autos with advanced powertrains and fuels. Automakers are competing
    to bring these vehicles to market, as soon as the technology is
    feasible, affordable and meets consumer expectations. Each year many
    new advanced technology models are offered on dealer lots. In just five
    years, the Alliance has seen the number of these vehicles grow to more
    than 40 models on sale in dealer showrooms with an additional 35
    models, that includes hybrids, clean diesels and alternative fuel
    vehicles in showrooms soon. In addition, vehicles using liquid hydrogen
    in internal combustion engines (ICE), fuel cells and electric vehicles
    are in development. Today, eight million advanced technology and
    alternative-fuel autos are on the road and automakers will continue to
    increase volumes and new product offerings for years to come. This year
    more than one million advanced technology and flexible fuel vehicles
    will be sold. Automakers support incentives that can help put more of
    these highly fuel-efficient autos on the road.
        The result of all of this work is that today's drivers are learning
    a new vocabulary. The following is a brief description of some of the
    exciting advanced technologies and alternative fuel vehicles being sold
    or currently in development.
    Flexible Fuel Vehicles
        An important provision of the Energy Policy Act of 2005 (EPACT
    2005) is the increased promotion of renewable fuels in the
    transportation sector. Since 1996, auto manufacturers have been
    producing vehicles capable of using high concentration blends of
    ethanol including E-85. There will be more than six million of these E-
    85 capable vehicles on the road by the end of the year and nearly one
    million more are being added each year. If fuel were available for all
    of these E-85 capable vehicles to refuel using only E-85, the U.S.
    would be able to reduce its gasoline consumption by nearly three
    billion gallons per year.
        EPACT 2005 will help in E-85 infrastructure development by raising
    the requirement for the use of ethanol and other renewable fuels to 7.5
    billion gallons per year by 2012 and providing tax incentives aimed at
    making more E-85 pumps available to the driving public and helping to
    reduce reliance on oil imports.
    Hybrid-Electric Vehicles
        Hybrid-electric vehicles are being offered today and are already
    saving fuel. The number of these vehicles will increase substantially
    over the next several years. They offer significant improvements in
    fuel economy--up to 50 percent and reduced emissions. These vehicles
    utilize electric motors for propulsion, to reduce some of the burdens
    on the traditional ICE. Hybrid-Electrics capture usable energy through
    regenerative braking. It is estimated that by 2010, more than 50 hybrid
    nameplates will be available in North America with volumes approaching
    one million vehicles. Hybrid technology can also be applied to diesels,
    alternative fuel and fuel cell vehicles.
    Advanced Lean-Burn Engines
        Vehicles that are powered by clean advanced lean-burn technology
    such as lean burn gasoline engines and direct injection diesels offer
    greater fuel economy and better performance than conventional gasoline-
    powered engines. Diesel-powered vehicles are very popular in Europe--
    where environmental standards and economic incentives have been
    provided to enhance their appeal. These types of vehicles could provide
    fuel economy gains of up to 30 percent compared to conventional
    vehicles. In addition, most diesels are capable of running on good
    quality biodiesel blends of up to five percent (B5) and many are
    designed to use up to twenty percent or one hundred percent biodiesel
    fuel (B20 or B100).
    Fuel Cells
        From a vehicle perspective, hydrogen-powered fuel cells offer the
    greatest potential improvement in fuel efficiency and emissions
    reductions. They also create a great opportunity for eliminating
    dependency on petroleum. However, widespread commercialization of this
    technology is some years away.
    Hydrogen Internal Combustion Engines
        Another promising and enabling technology is hydrogen-powered ICEs.
    The concept of using hydrogen ICEs offers several advantages: near-zero
    emissions, maintaining the utility, flexibility, and driving dynamic of
    today's automobile, assisting in the development of hydrogen storage
    technology, and developing hydrogen distribution channels and helping
    to promote hydrogen refueling infrastructure.
        All of these advanced technologies and alternative fuel vehicles
    will help the U.S. address concerns about its over-reliance on imported
    oil. But they will take time to be effective. Tomorrow's transportation
    needs will be met by a diverse collection of technologies each offering
    drivers a unique set of attributes to help move their families down the
    road.
        For its part, the auto industry is committed to advancing the state
    of technology and bringing new vehicles using these technologies to the
    market as quickly as possible. Competition among automakers will drive
    this process far better and with fewer disruptions to the marketplace
    than any regulations that can be adopted. Furthermore, stimulating
    consumer demand can help accelerate this process. Tax credit provisions
    enacted as part of EPACT 2005 have helped to spur the purchase of these
    highly fuel-efficient vehicles.
        Today, automakers are providing consumers with a wide range of
    fuel-efficient choices, but when gasoline prices rise, not all
    consumers are in a position to purchase the highly fuel-efficient
    models on sale today. There are over 200 million vehicles on U.S.
    roads, and the quickest way to reduce gasoline usage is through
    conservation. There are many simple, easy gas-saving tips for
    consumers. American drivers can save gasoline immediately by keeping
    their engines tuned and their tires properly inflated. Smooth
    accelerations save gas, along with closing windows at higher speeds.
    The U.S. Department of Energy provides excellent gas-saving tips to
    drivers, and we urge the government to highlight this information as
    the summer driving season begins. In addition, there are opportunities
    for infrastructure improvement such as improved traffic light timing
    that can help reduce fuel consumption.
    Corporate Average Fuel Economy (CAFE)
        For over 30 years, the CAFE program has been in place to provide
    fuel economy requirements as to what each automaker's fleet of
    passenger cars and light trucks must achieve. While vehicle fuel-
    efficiency has improved, vehicles miles traveled has increased an
    average of about 1.7 percent per year for the past 30 years with a net
    result of little impact on energy conservation. Currently, CAFE
    requires each automaker to meet an average fuel economy level of 27.5
    mpg for all new passenger cars that it sells each year. For light
    trucks, NHTSA recently announced an increase in the CAFE standards for
    the 2008-2011 model years, marking seven straight years of fuel economy
    increases (from MYs 2005-2011) and an increase of nearly 20 percent
    over that period. Meeting these higher fuel economy standards will be a
    challenge, even with all the new fuel-efficient technologies that
    manufacturers are placing in vehicles today.
        When setting new standards, NHTSA must consider many elements
    including technological feasibility, economic practicability, the need
    of the U.S. to conserve energy and the effect of other motor vehicle
    standards, such as safety and emissions on fuel economy. It is in the
    best interest of the public that we maintain a balance between improved
    fuel economy, highway safety and employment.
        While the law holds manufacturers responsible for meeting CAFE
    standards, it is important to recognize that in reality, consumer
    purchases actually determine whether a manufacturer meets, exceeds, or
    falls short of the standards in any given year. Because of this, CAFE
    compliance depends not only on what products are offered but also on
    what products consumers purchase.
    Proposed Changes in the Law
        The Administration has requested new authority to permit reform of
    the passenger car CAFE program. With the ink barely dry on the recent
    light truck rule and no actual experience with the truck reform
    proposal, it may be a bit premature to think of locking in this new
    system for passenger cars at this time. Inclusion of some broad
    guidance that CAFE reform, based on use of vehicle attributes and
    classes, may be of some value to the agency when it does consider
    increasing passenger car CAFE requirements.
        The Alliance also believes that NHTSA should very carefully weigh
    the timing of any increases in passenger car standards in view of the
    current economic health of the industry. No one likes high gas prices,
    but increasing passenger car standards--which takes time to effect and
    then years to fully become phased into the overall fleet of vehicles on
    the road--should not be viewed as a panacea to combat rising fuel
    costs. Alliance members are only in the second year of seven years of
    increasingly stringent light truck standards. In addition, the
    passenger car fleet average already exceeds the current 27.5 mpg
    standard--driven by consumer choices of the many very fuel-efficient
    cars offered for sale.
        If NHTSA is granted authority to reform the structure of the
    passenger car standards, the agency should administer the new authority
    in a nondiscriminatory manner among manufacturers.
        The rulemaking for CAFE standards is a labor-intensive and
    resource-intensive process both for NHTSA and for the manufacturers.
    Therefore, NHTSA should have the authority to establish a standard that
    could remain in effect for more than one year, as long as the agency
    determined by rulemaking that the standard is ``maximum feasible'' for
    that multiyear period covered by the standard.
        The discussion of passenger car CAFE policy has also raised two
    additional issues--credit trading and the so-called, two-fleet rule.
    Credit trading is intended to provide flexibility options for
    manufacturers as they pursue compliance with the CAFE program. Credit
    trading has been examined numerous times in the past without agreement
    as to its actual value. Department of Transportation recently
    considered adding credit trading to the light truck rule and decided
    not to do it.
        As regards to the two-fleet rule, the CAFE statute requires
    separation of the domestically-manufactured and non-domestically-
    manufactured vehicles in the passenger car fleet, with separate
    compliance required by each sub-fleet. The original policy
    justification for the two-fleet rule was to discourage manufacturers
    from shifting their production of smaller, more fuel efficient cars to
    foreign factories. Recognizing that a fleet-wide average structure for
    the fuel economy standards would effectively require manufacturers to
    include smaller, more fuel-efficient cars in their fleets, Congress
    wanted to avoid any inducement to increase the importation of foreign-
    produced cars. If there are any proposed changes to the two-fleet rule
    they should be carefully reviewed.
    Conclusion
        We believe the most effective approach to pursuing reductions in
    U.S. gasoline consumption is to expand the availability of alternative
    fuels such as ethanol and to help promote the sale of advanced
    technology and alternative fuel vehicles that are currently gaining
    traction in the market.
        As previously stated, Alliance members are currently offering for
    sale more than one million of these advanced technology and alternative
    fuel autos, and more will be offered in the future. We are pleased that
    Congress passed consumer tax incentives for the purchase of some of
    these vehicles last year, and we urge Congress to focus on expanding
    the production, infrastructure and distribution network for alternative
    fuels. Getting more of the American-based renewable and biofuels into
    the market and available to consumers will displace much more gasoline
    than a new passenger car CAFE requirement.
        However, if NHTSA does initiate a passenger car rulemaking, the
    Alliance and its members will work closely with the agency in its
    consideration and promulgation of a final rule. Setting CAFE standards
    is a complicated, rigorous and arduous process. NHTSA considered over
    45,000 comments and spent countless man-years in the consideration of
    its light truck rule.
        The automakers remain committed to populating America's roadways
    with the latest innovative vehicle technologies. Competition among the
    companies will drive much of this innovation. And the changing needs
    and wants of American consumers also play a huge role in driving
    automaker decisions.

        Senator Lott. Thank you very much, Mr. Webber.
        Mr. Cabaniss?

             STATEMENT OF JOHN M. CABANISS, JR., DIRECTOR,

                 ENVIRONMENT AND ENERGY, ASSOCIATION OF

              INTERNATIONAL AUTOMOBILE MANUFACTURERS, INC.

        Mr. Cabaniss. Good morning, Mr. Chairman.
        I represent the Association of International Automobile
    Manufacturers. We have 14 automakers that account for over 40
    percent of the cars sold here in the United States every year.
    We support Secretary Mineta's request for authority to
    restructure the program. We also stress the importance of
    providing adequate lead time to comply with the standards,
    encourage additional market-based incentives to spur the demand
    for those vehicles, and, also, the elimination of the so-called
    two-fleet rule.
        Senator Lott. Do you want to pull that microphone a little
    closer, please.
        Mr. Cabaniss. Certainly. Sorry.
        Senator Lott. The elimination of?
        Mr. Cabaniss. The two-fleet rule.
        We believe there are three guiding principles that Congress
    should follow when it addresses CAFE. First and foremost, any
    approach must be competitively neutral. Second, the
    requirements must be technologically feasible and economically
    practical. And, third, we need that lead time that I mentioned.
        Standards also should continue to be performance-based, not
    trying to pick winners and losers, and not specifying or
    favoring certain technologies over others. And those kinds of
    performance standards also allow manufacturers the flexibility
    that they need to set their own research priorities, build on
    their strengths, and develop the products that meet consumer
    needs and demands.
        We support DOT's request to move ahead, as they have
    already with the light trucks, to consider an attribute-based-
    type program. The light truck rule, as Secretary Mineta
    mentioned, is a good starting point. But we believe that, given
    that we don't have experience with that program yet, we would
    urge some caution be taken there, in terms of carefully looking
    at how it applies. But under no circumstances should DOT rely
    on using a company-specific uniform-percentage increase-type
    approach.
        We believe that the incentives are very important, in terms
    of not just requiring that the vehicles be manufactured, but
    also creating extra demands for consumers to purchase them.
    Congress, of course, has considered various types of incentives
    in the past, and we support those, and we support working with
    you to develop even further ways to increase demand for these
    vehicles.
        The auto industry is not the same today as it was 30 years
    ago. Since the time when the CAFE program was first
    established, the AIAM companies, our companies, have invested
    over $30 billion in U.S.-based manufacturing plants and
    research facilities. Combined, the international automobile
    manufacturers employ over 100,000 Americans and generate almost
    2 million jobs in supplier and dealership facilities. And 60
    percent of the cars and trucks that our members sell here in
    the United States are now manufactured right here in the United
    States. So, when we consider jobs, we need to consider the full
    landscape of the industry.
        Thank you.
        [The prepared statement of Mr. Cabaniss follows:]

    Prepared Statement of John M. Cabaniss, Jr., Director, Environment and
      Energy, Association of International Automobile Manufacturers, Inc.
        Good morning. My name is John Cabaniss, Director, Environment and
    Energy for the Association of International Automobile Manufacturers,
    Inc. (AIAM).
        AIAM is a trade association representing 14 international motor
    vehicle manufacturers accounting for over 40 percent of passenger cars
    and over 20 percent of light trucks sold in the United States
    annually.\1\ AIAM appreciates the opportunity to offer its views
    regarding the need to reform passenger automobile CAFE standards. AIAM
    supports Transportation Secretary Mineta's request for additional legal
    authority to revise the structure of the passenger car CAFE standards.
    In addition to addressing this issue, we would like to stress the
    importance of adequate lead-time in achieving compliance with any new
    standards, suggest that supplemental market-based incentives would
    strengthen a national effort to reduce fuel consumption, and recommend
    the elimination of the ``two-fleet rule'' requiring the separation of a
    manufacturer's import and domestic fleets.
    ---------------------------------------------------------------------------
        \1\ AIAM members include Aston Martin, Ferrari, Honda, Hyundai,
    Isuzu, Kia, Maserati, Mitsubishi, Nissan, Peugeot, Renault, Subaru,
    Suzuki and Toyota. AIAM also represents original equipment suppliers
    and other automotive-related trade associations.
    ---------------------------------------------------------------------------
        AIAM members are important stakeholders in the debate over
    passenger car fuel economy standards, representing 44 percent of all
    sales in this market segment last year. In addition, AIAM member
    companies have for many years been leaders in offering fuel-efficient
    vehicles for the U.S. market. Historically, vehicles produced by our
    member companies have headed EPA's annual list of most fuel-efficient
    vehicles. Member companies have achieved this fuel-economy leadership
    to a significant degree by pioneering the introduction of advanced
    automotive technology into their vehicles. Our member companies
    continue to introduce a variety of advanced technology models,
    including hybrid electric vehicles, ethanol-capable flexible-fuel
    vehicles, hydrogen fuel cells, clean diesel, as well as advances in
    traditional gasoline vehicles.
        AIAM believes that there are three guiding principles that Congress
    should follow when it addresses CAFE matters. First and foremost, when
    considering the form of the CAFE standards it is of the utmost
    importance that the structure or underlying approach is competitively
    neutral, and that all manufacturers are treated fairly and equitably
    under the standards system. Second, under any structure, the specific
    requirements of the standards must be technologically feasible and
    economically practicable. Third, it is absolutely essential that
    manufacturers are provided adequate lead-time to implement new
    standards.
        In addition, standards should continue to establish performance
    requirements rather than specify or favor any particular technology.
    Reducing U.S. dependence on petroleum is a complex undertaking, and the
    greater the number of creative technologies that can be brought to
    bear, the better. In addition, performance standards allow
    manufacturers the flexibility to set their own research priorities
    based on their individual strengths and to develop the most effective
    and efficient approaches to meet consumer demand, while achieving the
    broader societal goals for which the standards are intended.
    I. Reform of the Structure of the Passenger Car CAFE Standards
        An April 28, 2006, White House Fact Sheet states that the
    Administration is requesting additional legal authority to enable DOT
    to reform the passenger car CAFE standards ``consistent with the
    approach taken with the light truck rule issued March 29.'' \2\ AIAM
    supports authorizing DOT to establish attribute-based class standards
    for passenger cars, as is currently authorized for light trucks. This
    approach would be consistent with the recommendations of the National
    Academy of Sciences and is generally consistent with the approach
    adopted by NHTSA in its recent light truck CAFE rulemaking. DOT should
    be given the flexibility to consider variations of the structure
    adopted in its light truck rule. Given our lack of experience with the
    new structure, it remains uncertain how the new structure will work in
    practice. Under no circumstances should the Department be authorized to
    adopt company standards based on past performance, such as uniform
    percentage increase (UPI) standards. We urge Congress to provide
    guidance to DOT by providing the underlying principles upon which the
    new standards must be based, including the three guiding principles
    discussed above.
    ---------------------------------------------------------------------------
        \2\ See http://www.whitehouse.gov/news/releases/2006/04/20060428-
    9.html.
    ---------------------------------------------------------------------------
        Over the years, AIAM has vehemently opposed any effort to authorize
    fuel economy standards based on the UPI approach. Respected analysts
    have consistently criticized the UPI approach, including the National
    Academy of Sciences, in its 2001-2002 study, which states:

            The UPI system would impose higher burdens on those
            manufacturers who had already done the most to help reduce
            energy consumption. The peer-reviewed literature on
            environmental economics has consistently opposed this form of
            regulation. It is generally the most costly way to meet an
            environmental standard; it locks manufacturers into their
            relative positions, thus inhibiting competition; it rewards
            those who have been slow to comply with regulation; it punishes
            those who have done the most to help the environment; and it
            seems to convey a moral lesson that it is better to lag than to
            lead. In addition to fairness issues, the change would not
            eliminate the problems of the current CAFE system, but would
            create new ones. Implementation of such rules provides strong
            incentives for manufacturers to not exceed regulatory standards
            for fear that improvements will lead to tighter regulations.
            Thus, such rules tend to create beliefs counterproductive for
            longer-term goals.\3\
    ---------------------------------------------------------------------------
        \3\ ``Effectiveness and Impact of Corporate Average Fuel Economy
    Standards,'' National Research Council, 2002, pages 92-93.

        In addition to these shortcomings, the UPI approach would have the
    effect of locking manufacturers into their current model mix, leaving
    them potentially unable to meet changing consumer demands.
        We also believe that standards levels should be established by DOT
    through rulemaking. The complex technical and economic analyses
    necessary to set standards are better accomplished as part of an agency
    rulemaking rather than through direct legislation. DOT has substantial
    resources available to perform the required technology and economic
    analyses required for standard setting, and the use of an open,
    transparent, rulemaking process is needed to assure that the interests
    of all parties are considered in reaching a decision on the standards.
    II. Lead-Time
        The law provides that CAFE standards must be set at least 18 months
    prior to the start of the affected model year. However, the 18-month
    period is adequate to enable automakers to implement only the most
    minor of design changes. For more substantial changes, greater lead-
    time is necessary, not only to develop new technologies but also to
    deploy existing technologies into the fleet through normal product
    redesign cycles. It is instructive to note that the National Academy of
    Sciences projected the need for up to 15 years lead-time to meet
    significantly higher standards. It is also desirable to our planning
    efforts to have standards set for multiple years in a single
    rulemaking, as NHTSA did with the recent light truck rule. Automakers
    generally plan major vehicle redesigns on a 5 to 8 year cycle, with
    individual model changeovers staggered to allow the best use of limited
    engineering resources. Significant changes in fuel economy require a
    stable and predictable set of requirements that corresponds to this 5
    to 8 year product cycle. We urge Congress and the Administration to
    consider the need for lead-time beyond the statutory minimum in order
    to implement new vehicle technology.
    III. Market-Based Approaches to Facilitating Higher Levels of Fuel
            Economy
        CAFE standards mandate the production of more fuel efficient
    vehicles but provide no incentive for consumers to purchase such
    vehicles. The most direct market signal to encourage consumers to
    demand fuel efficiency is an increase in the cost of driving. Recent
    record-high gasoline price increases encourage consumers to value fuel
    saving technologies. However, motorist interest in fuel savings often
    dims when fuel prices decline. Therefore, other types of incentives may
    be useful to maintain demand for fuel efficient vehicles when fuel
    prices are lower or to reinforce the market signal provided by high
    fuel prices. Such incentives include extending and expanding current
    tax credits and tax deductions for the purchase of fuel efficient and
    alternative fueled vehicles, access to preferential parking areas, and
    mandates for government fleet purchases. These and other incentives
    would further encourage manufacturers to develop and introduce advanced
    technologies by enhancing the market for vehicles that use such
    technologies. Advanced fuel-efficient technologies are frequently
    costly, particularly in their first years of introduction, and such
    incentives can facilitate the introduction of advanced technologies by
    helping to bridge the price differential between these vehicles and
    conventional vehicles. Congress has considered a variety of technology-
    based incentives in recent years to encourage consumers to purchase
    advanced technology vehicles. AIAM member companies have generally
    supported these incentives and support the President's call to lift the
    current manufacturer cap on tax credits for hybrids and diesels to
    allow more consumers to be eligible for the full tax credit. Ideally,
    we believe that such incentives should be performance-based and
    technology-neutral, i.e., they should be designed to encourage the
    production and sale of fuel-efficient vehicles, regardless of the
    specific advanced technology selected by the manufacturer or where
    vehicles are manufactured.
        AIAM supports new authority for credit trading under the CAFE
    program. Allowing credit trading would provide manufacturers with
    increased compliance flexibility and encourage fuel economy
    improvements. The 1992 \4\ and 2001 \5\ NAS CAFE committees suggested
    this approach. Allowing such trading would also enhance the overall
    efficiency of the CAFE system. We believe that the rulemaking should
    examine credit trading among manufacturers and between a manufacturer's
    passenger auto and light truck classes.
    ---------------------------------------------------------------------------
        \4\ ``Automobile Fuel Economy, How Far Should We Go?'', National
    Research Council, 1992, page 184.
        \5\ ``Effectiveness and Impact of Corporate Average Fuel Economy
    (CAFE) Standards,'' National Research Council, 2002, page 114.
    ---------------------------------------------------------------------------
    IV. Domestic/Import Separate Fleet Requirement
        The current law requires dividing a manufacturer's passenger car
    fleet into domestic and import classes that must comply separately with
    fuel economy standards. There is no similar requirement for light
    trucks. This requirement was originally intended to encourage domestic
    production of smaller vehicles by eliminating any compliance benefit
    for U.S.-based manufacturers from simply importing foreign produced,
    fuel efficient vehicles. Supporters of the ``two-fleet'' rule argue
    that the rule prevents manufacturers from shutting down U.S. production
    facilities for smaller, fuel efficient vehicles. In our view, the
    current record-high fuel prices and growing demand for fuel efficient
    vehicles indicates there is a strong incentive for maintaining or
    increasing U.S. production of fuel efficient vehicles by all
    manufacturers. Moreover, the ``two-fleet'' provision has created the
    unintended consequence of providing a disincentive for foreign-based
    companies to increase the U.S. content of their vehicles to levels
    above 75 percent, since doing so would place the vehicles in a separate
    compliance fleet. This disincentive is real, not theoretical, and has
    cost U.S. jobs. There have even been cases where a company has
    decreased the U.S. content of certain domestic vehicles to a level
    below 75 percent to allow those vehicles to be averaged with the
    manufacturer's more efficient import fleet adversely impacting U.S.
    suppliers.
        The 2001 National Academy of Sciences study of the CAFE program \6\
    states that ``since the two-fleet rule increases costs to consumers,
    the committee believes it is no longer justifiable and should be
    eliminated.'' The 1992 NAS CAFE committee \7\ concluded that the
    separate fleet requirement ``has no obvious or necessary connection to
    the achievement of fuel economy'' and encouraged Congress to consider
    its repeal. We strongly concur in these assessments.
    ---------------------------------------------------------------------------
        \6\ Id., pages 89-90.
        \7\ Id., pages 183-184.
    ---------------------------------------------------------------------------
    V. Conclusion
        The auto industry is not the same as 30 years ago when the CAFE
    program was established. Since that time AIAM members have invested
    over $33 billion in U.S.-based vehicle, engine and parts manufacturing
    plants, and research and development facilities and developed a
    production capacity of 3.7 million vehicles annually. Combined,
    international automakers directly employ 103,000 Americans and generate
    1.7 million U.S. jobs in dealerships and supplier industries
    nationwide. Approximately 60 percent of all the cars and light trucks
    sold each year in the U.S. by international automakers are made in the
    United States.
        Thank you.

        Senator Lott. Thank you very much.
        Congressman Sharp, good to see you again.

    STATEMENT OF HON. PHILIP R. SHARP, PRESIDENT, RESOURCES FOR THE
                              FUTURE (RFF)

        Mr. Sharp. Thank you very much, Mr. Chairman. Thank you for
    asking me to testify.
        I'm here as president of Resources for the Future, but I
    must quickly say the institution takes no position on public
    policy issues, so these are my own remarks. They derive from my
    experience, since leaving Congress, on two panels: the National
    Academy of Sciences study that you folks have been referring to
    all morning, and the National Commission on Energy Policy, a
    private bipartisan effort to make some policy recommendations.
    What is important, I believe, is that both of these panels have
    recommended that we ought to significantly increase the CAFE
    standards in this country, the fuel economy standards. Both
    also recommended the system needed to be reformed.
        Now, the reasons for taking action, some of which have been
    articulated this morning, are, first and foremost, our growing
    dependence on the global oil market, and the second, and very
    importantly, is the need to reduce the growth of carbon dioxide
    emissions here and around the world. Indeed, increasingly, many
    people believe that we are entering an era of the carbon-
    constrained economy, and it is very difficult to deal with
    transportation in that economy.
        But, third, it's very important to recognize, over the last
    30 years, as a number of you on the panel have been involved in
    these policy disputes, the fact that the world price of oil
    goes up, and it goes down. We do not know where it is headed
    now, and we misjudged where it was headed on any number of
    occasions over the last 30 years. The result is that consumer
    interest is on again, off again; investor interest is on again,
    off again; government policy is on again, off again--in terms
    of fuel economy or in terms of alternative fuels. So, it's
    extremely important that the government have not a crash
    program, but a consistent program that helps to push our
    technology and push our marketplace.
        Now, let me just briefly state that, the National Academy
    of Sciences, as has been alluded to, identified current
    technologies available that can be used now and could be cost-
    effectively put into the system, and are coming into the
    system.
        But let me close by simply saying that CAFE has been an
    imperfect policy, no doubt about it, but it's been a very
    important one. It has been identified as up to almost 3 million
    barrels of oil per day we're not using that we would have been
    using today, had we not had this policy. But it is really
    important to understand that it's also not the be-all and end-
    all solution to transportation problems and fuel economy in
    this country. Indeed, many believe that if we don't have a
    sustained price of gasoline, meaning a sustained gasoline tax,
    we do not encourage efficient use of cars, nor the efficient
    purchase of cars.
        Thank you very much, Mr. Chairman.
        [The prepared statement of Mr. Sharp follows:]

            Prepared Statement of Hon. Philip R. Sharp, President,
                         Resources for the Future (RFF)
        Mr. Chairman,
        Thank you for inviting me to testify. My name is Philip Sharp and I
    am President of Resources for the Future (RFF), a nonpartisan, social
    science think tank that has dealt with energy and resource issues for
    more than 50 years. As an institution, however, RFF does not take
    positions nor engage in advocacy, so the opinions expressed here are my
    own.
        For the record, I have been involved with fuel economy issues in
    several ways.
        During my service in Congress and on this Committee (1975-1995), I
    participated in the creation of the Corporate Average Fuel Economy
    (CAFE) policy and in the few legislative changes made since then.
        More recently, I was a member of the CAFE review panel sponsored by
    the National Research Council, an arm of the National Academy of
    Sciences. Its 2002 report recommended the government take further
    action to improve passenger-vehicle fuel economy and suggested possible
    reforms in the CAFE policy. (See: Effectiveness and Impact of Corporate
    Average Fuel Economy (CAFE) Standards at www.nap.edu.)
        Currently, I am also a member of the National Commission on Energy
    Policy, a private bipartisan panel funded by the Hewlett Foundation,
    which in 2004 recommended a significant increase in CAFE standards
    along with reforms to the current policy. (See: Ending the Energy
    Stalemate: A Bipartisan Strategy to Meet America's Energy Challenges at
    www.energycommission.org. )
        Both the Academy committee and the Energy Commission recommended
    Federal action to improve fuel economy for the purpose of mitigating
    two major concerns: oil security and growing carbon dioxide
    (CO2) emissions.
        Our growing consumption of oil, concentrated in the transportation
    sector, entails major risks associated with our dependence on the
    global oil market. And this consumption is a major contributor of
    CO2 to the atmosphere and hence to global climate change.
        Among oil-market concerns is the possibility of a serious supply
    disruption caused by political turmoil or terrorism with severe
    economic consequences; the pressure to compromise important U.S.
    foreign policy goals for the sake of oil supply; the possibility that
    oil production will peak and dramatically intensify global competition
    for supplies; and other issues.
        Among the uncertainties we face is where oil prices will go in the
    years ahead. Just as the dramatic rise in oil and natural gas prices
    over the last two years was not predicted, it is now unclear whether
    oil prices will rise further, drop back in the $40-per-barrel range as
    some have predicted, or take a real nose dive as they did in 1986 and
    1999.
        The history of price uncertainty has meant a history of on-again,
    off-again interest by consumers, investors, and government in fuel
    efficiency.
        In the face of such uncertainty, many, including the bipartisan
    commission, have concluded that it is prudent for the United States to
    maintain policies that push markets to improve fuel efficiency, to
    advance alternative fuels, and to expand public transit options in
    order to mitigate against global market risks and to reduce CO2
    emissions growth.
        Action now by Congress on fuel economy standards obviously will
    have no immediate impact on gasoline prices. Indeed, it will take some
    years for changes in the policy to have an impact at all.
        But action now on fuel economy standards can help the United States
    address our long-term national interests.
        CAFE is currently getting a lot of attention because people are
    looking for immediate relief from high prices at the pump, but there is
    no fast or cheap way to escape the risks of oil dependence.
    Undoubtedly, one of the most expedient ways to reduce dependence would
    be to welcome higher oil and gasoline prices rather than decry them--an
    unlikely prospect for today's consumers or leaders.
    The Academy Report
        Let me call your attention to a few of the findings and
    recommendations of the Academy committee, which may be useful in your
    consideration today. Attached, as Appendix A, is a portion of that
    report.
        The study notes in Finding 5, ``technologies exist that if applied
    to passenger cars and light duty trucks, would significantly reduce
    fuel consumption within 15 years.''
        It notes in Finding 6 that much of this could be accomplished with
    the consumer breaking even--meaning that the savings in gasoline costs
    would offset the added cost to a new vehicle. And that calculation was
    made assuming gasoline only costs $1.50 per gallon. Furthermore, the
    hybrid car has greatly advanced since the report; given its costs in
    2001, the committee did not consider it a realistic near-term option.
        The committee recommended several possible CAFE reforms
    (Recommendation 2), such as trading fuel economy credits, which has
    also been a recommendation of RFF researchers (see Fischer, Carolyn and
    Paul R. Portney, 2004, ``Rewarding Automakers for Fuel Economy
    Improvements,'' chapter 6 in New Approaches on Energy and the
    Environment: Policy Advice for the President, RFF Press).
        The committee cautioned that a major redesign (Recommendation 3)
    required more study than the committee had been able to devote to it.
        To avoid harmful effects on companies, on employment, and on
    consumers, the committee suggested allowing plenty of time for the
    industry to meet stiffer requirements.
        And finally, the government should continue to fund research on
    breakthrough technologies.
    Delegation to NHTSA
        Neither the National Academy committee nor the Energy Commission
    was willing or able to agree on recommended numerical CAFE targets--in
    part, because the task is a complex one and, in part, because the
    targets represent tradeoffs among various societal values and therefore
    are a political decision.
        The commission, in fact, recommended delegation of that
    responsibility: ``Congress should instruct NHTSA to significantly
    strengthen Federal fuel economy standards . . . to take full advantage
    of the efficiency opportunities provided by currently available
    technologies and emerging hybrid and advanced diesel technologies''
    (see Appendix B).
        Given the considerable burden of legislating in this area, it seems
    appropriate that setting the targets and redesigning the policy could
    be delegated to the National Highway Safety Transportation Authority
    with legislative guidance and strong Congressional oversight.
        Possibilities for policy redesign were laid out before the House
    Committee on Energy and Commerce last week by my colleague, Dr. William
    Pizer (see Appendix C).
    Conclusion
        CAFE has been a very imperfect, but important, policy in dealing
    with fuel consumption. The Academy concluded, in 2002, that our oil
    imports would have been 2.8 million barrels a day higher had the policy
    not existed. (See Finding 1 in the attached Appendix A).
        Many experts believe that a more effective approach to reducing
    fuel consumption--and a more cost-effective approach for the U.S.
    economy--would be stronger gasoline tax or oil tax, either as an
    alternative to CAFE or in conjunction with CAFE. The impact would not
    only encourage consumers to purchase more efficient vehicles but also
    encourage them to be more economical in their driving, a critical
    component that CAFE does nothing to address. Indeed, such a tax would
    have a more rapid impact on consumption than is possible through CAFE
    alone. These experts, of course, are not subject to popular election.
        Mr. Chairman, after 20 years of stalemate on fuel economy issues,
    we finally have a moment where change is possible. Let's do it!
                                     ______

    Appendix A--Effectiveness and Impact of Corporate Average Fuel Economy
                                (CAFE) Standards
    Findings
        Finding 1. The CAFE program has clearly contributed to increased
    fuel economy of the Nation's light-duty vehicle fleet during the past
    22 years. During the 1970s, high fuel prices and a desire on the part
    of automakers to reduce costs by reducing the weight of vehicles
    contributed to improved fuel economy. CAFE standards reinforced that
    effect. Moreover, the CAFE program has been particularly effective in
    keeping fuel economy above the levels to which it might have fallen
    when real gasoline prices began their long decline in the early 1980s.
    Improved fuel economy has reduced dependence on imported oil, improved
    the nation's terms of trade, and reduced emissions of carbon dioxide, a
    principal greenhouse gas, relative to what they otherwise would have
    been. If fuel economy had not improved, gasoline consumption (and crude
    oil imports) would be about 2.8 million barrels per day greater than it
    is, or about 14 percent of today's consumption.
        Finding 2. Past improvements in the overall fuel economy of the
    Nation's light-duty vehicle fleet have entailed very real, albeit
    indirect, costs. In particular, all but two members of the committee
    concluded that the downweighting and downsizing that occurred in the
    late 1970s and early 1980s, some of which was due to CAFE standards,
    probably resulted in an additional 1,300 to 2,600 traffic fatalities in
    1993.\1\ In addition, the diversion of carmakers' efforts to improve
    fuel economy deprived new-car buyers of some amenities they clearly
    value, such as faster acceleration, greater carrying or towing
    capacity, and reliability.
    ---------------------------------------------------------------------------
        \1\ A dissent by committee members David Greene and Maryann Keller
    on the impact of downweighting and downsizing is contained in Appendix
    A. They believe that the level of uncertainty is much higher than
    stated and that the change in the fatality rate due to efforts to
    improve fuel economy may have been zero. Their dissent is limited to
    the safety issue alone.
    ---------------------------------------------------------------------------
        Finding 3. Certain aspects of the CAFE program have not functioned
    as intended:

       The distinction between a car for personal use and a truck
            for work use/cargo transport has broken down, initially with
            minivans and more recently with sport utility vehicles (SUVs)
            and cross-over vehicles. The car/truck distinction has been
            stretched well beyond the original purpose.

       The Committee could find no evidence that the two-fleet rule
            distinguishing between domestic and foreign content has had any
            perceptible effect on total employment in the U.S. automotive
            industry.

       The provision creating extra credits for multifuel vehicles
            has had, if any, a negative effect on fuel economy, petroleum
            consumption, greenhouse gas emissions, and cost. These vehicles
            seldom use any fuel other than gasoline yet enable automakers
            to increase their production of less fuel efficient vehicles.

        Finding 4. In the period since 1975, manufacturers have made
    considerable improvements in the basic efficiency of engines, drive
    trains, and vehicle aerodynamics. These improvements could have been
    used to improve fuel economy and/or performance. Looking at the entire
    light-duty fleet, both cars and trucks, between 1975 and 1984, the
    technology improvements were concentrated on fuel economy: It improved
    by 62 percent without any loss of performance as measured by 0-60 mph
    acceleration times. By 1985, light-duty vehicles had improved enough to
    meet CAFE standards. Thereafter, technology improvements were
    concentrated principally on performance and other vehicle attributes
    (including improved occupant protection). Fuel economy remained
    essentially unchanged while vehicles became 20 percent heavier and 0-60
    mph acceleration times became, on average, 25 percent faster.
        Finding 5. Technologies exist that, if applied to passenger cars
    and light-duty trucks, would significantly reduce fuel consumption
    within 15 years. Auto manufacturers are already offering or introducing
    many of these technologies in other markets (Europe and Japan, for
    example), where much higher fuel prices ($4 to $5/gal) have justified
    their development. However, economic, regulatory, safety, and consumer-
    preference-related issues will influence the extent to which these
    technologies are applied in the United States.
        Several new technologies such as advanced lean exhaust gas after-
    treatment systems for high-speed diesels and direct-injection gasoline
    engines, which are currently under development, are expected to offer
    even greater potential for reductions in fuel consumption. However,
    their development cycles as well as future regulatory requirements will
    influence if and when these technologies penetrate deeply into the U.S.
    market.
        The Committee conducted a detailed assessment of the technological
    potential for improving the fuel efficiency of 10 different classes of
    vehicles, ranging from subcompact and compact cars to SUVs, pickups,
    and minivans. In addition, it estimated the range in incremental costs
    to the consumer that would be attributable to the application of these
    engine, transmission, and vehicle-related technologies.
        Chapter 3 presents the results of these analyses as curves that
    represent the incremental benefit in fuel consumption versus the
    incremental cost increase over a defined baseline vehicle technology.
    Projections of both incremental costs and fuel consumption benefits are
    very uncertain, and the actual results obtained in practice may be
    significantly higher or lower than shown here. Three potential
    development paths are chosen as examples of possible product
    improvement approaches, which illustrate the trade-offs auto
    manufacturers may consider in future efforts to improve fuel
    efficiency.
        Assessment of currently offered product technologies suggests that
    light-duty trucks, including SUVs, pickups, and minivans, offer the
    greatest potential to reduce fuel consumption on a total-gallons-saved
    basis.
        Finding 6. In an attempt to evaluate the economic trade-offs
    associated with the introduction of existing and emerging technologies
    to improve fuel economy, the committee conducted what it called cost-
    efficient analysis. That is, the committee identified packages of
    existing and emerging technologies that could be introduced over the
    next 10 to 15 years that would improve fuel economy up to the point
    where further increases in fuel economy would not be reimbursed by fuel
    savings. The size, weight, and performance characteristics of the
    vehicles were held constant. The technologies, fuel consumption
    estimates, and cost projections described in Chapter 3 were used as
    inputs to this cost-efficient analysis.
        These cost-efficient calculations depend critically on the
    assumptions one makes about a variety of parameters. For the purpose of
    calculation, the committee assumed as follows: (1) gasoline is priced
    at $1.50/gal, (2) a car is driven 15,600 miles in its first year, after
    which miles driven declines at 4.5 percent annually, (3) on-the-road
    fuel economy is 15 percent less than the Environmental Protection
    Agency's test rating, and (4) the added weight of equipment required
    for future safety and emission regulations will exact a 3.5 percent
    fuel economy penalty.
        One other assumption is required to ascertain cost-efficient
    technology packages--the horizon over which fuel economy gains ought to
    be counted. Under one view, car purchasers consider fuel economy over
    the entire life of a new vehicle; even if they intend to sell it after
    5 years, say, they care about fuel economy because it will affect the
    price they will receive for their used car. Alternatively, consumers
    may take a shorter-term perspective, not looking beyond, say, 3 years.
    This latter view, of course, will affect the identification of cost-
    efficient packages because there will be many fewer years of fuel
    economy savings to offset the initial purchase price.
        The full results of this analysis are presented in Chapter 4. To
    provide one illustration, however, consider a midsize SUV. The current
    sales-weighted fleet fuel economy average for this class of vehicle is
    21 mpg. If consumers consider only a 3-year payback period, fuel
    economy of 22.7 mpg would represent the cost-efficient level. If, on
    the other hand, consumers take the full 14-year average life of a
    vehicle as their horizon, the cost-efficient level increases to 28 mpg
    (with fuel savings discounted at 12 percent). The longer the consumer's
    planning horizon, in other words, the greater are the fuel economy
    savings against which to balance the higher initial costs of fuel-
    saving technologies.
        The Committee cannot emphasize strongly enough that the cost-
    efficient fuel economy levels identified in Tables 4-2 and 4-3 in
    Chapter 4 are not recommended fuel economy goals. Rather, they are
    reflections of technological possibilities, economic realities, and
    assumptions about parameter values and consumer behavior. Given the
    choice, consumers might well spend their money on other vehicle
    amenities, such as greater acceleration or towing capacity, rather than
    on the fuel economy cost-efficient technology packages.
        Finding 7. 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.
    Higher real prices for gasoline--for instance, through increased
    gasoline taxes--would create both a demand for fuel-efficient new
    vehicles and an incentive for owners of existing vehicles to drive them
    less.
        Finding 8. The committee identified externalities of about $0.30/
    gal of gasoline associated with the combined impacts of fuel
    consumption on greenhouse gas emissions and on world oil market
    conditions. These externalities are not necessarily taken into account
    when consumers purchase new vehicles. Other analysts might produce
    lower or higher estimates of externalities.
        Finding 9. There are significant uncertainties surrounding the
    societal costs and benefits of raising fuel economy standards for the
    light-duty fleet. These uncertainties include the cost of implementing
    existing technologies or developing new ones; the future price of
    gasoline; the nature of consumer preferences for vehicle type,
    performance, and other features; and the potential safety consequences
    of altered standards. The higher the target for average fuel economy,
    the greater the uncertainty about the cost of reaching that target.
        Finding 10. Raising CAFE standards would reduce future fuel
    consumption below what it otherwise would be; however, other policies
    could accomplish the same end at lower cost, provide more flexibility
    to manufacturers, or address inequities arising from the present
    system. Possible alternatives that appear to the committee to be
    superior to the current CAFE structure include tradable credits for
    fuel economy improvements, feebates,\2\ higher fuel taxes, standards
    based on vehicle attributes (for example, vehicle weight, size, or
    payload), or some combination of these.
    ---------------------------------------------------------------------------
        \2\ Feebates are taxes on vehicles achieving less than the average
    fuel economy coupled with rebates to vehicles achieving better than
    average fuel economy.
    ---------------------------------------------------------------------------
        Finding 11. Changing the current CAFE system to one featuring
    tradable fuel economy credits and a cap on the price of these credits
    appears to be particularly attractive. It would provide incentives for
    all manufacturers, including those that exceed the fuel economy
    targets, to continually increase fuel economy, while allowing
    manufacturers flexibility to meet consumer preferences. Such a system
    would also limit costs imposed on manufacturers and consumers if
    standards turn out to be more difficult to meet than expected. It would
    also reveal information about the costs of fuel economy improvements
    and thus promote better-informed policy decisions.
        Finding 12. The CAFE program might be improved significantly by
    converting it to a system in which fuel economy targets depend on
    vehicle attributes. One such system would make the fuel economy target
    dependent on vehicle weight, with lower fuel consumption targets set
    for lighter vehicles and higher targets for heavier vehicles, up to
    some maximum weight, above which the target would be weight-
    independent. Such a system would create incentives to reduce the
    variance in vehicle weights between large and small vehicles, thus
    providing for overall vehicle safety. It has the potential to increase
    fuel economy with fewer negative effects on both safety and consumer
    choice. Above the maximum weight, vehicles would need additional
    advanced fuel economy technology to meet the targets. The committee
    believes that although such a change is promising, it requires more
    investigation than was possible in this study.
        Finding 13. 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.
    However, the actual effects would be uncertain, and any adverse safety
    impact could be minimized, or even reversed, if weight and size
    reductions were limited to heavier vehicles (particularly those over
    4,000 lb.). Larger vehicles would then be less damaging (aggressive) in
    crashes with all other vehicles and thus pose less risk to other
    drivers on the road.
        Finding 14. Advanced technologies--including direct-injection,
    lean-burn gasoline engines; direct-injection compression-ignition
    (diesel) engines; and hybrid electric vehicles--have the potential to
    improve vehicle fuel economy by 20 to 40 percent or more, although at a
    significantly higher cost. However, lean-burn gasoline engines and
    diesel engines, the latter of which are already producing large fuel
    economy gains in Europe, face significant technical challenges to meet
    the Tier 2 emission standards established by the Environmental
    Protection Agency under the 1990 amendments to the Clean Air Act and
    California's low-emission-vehicle (LEV II) standards. The major
    problems are the Tier 2 emissions standards for nitrogen oxides and
    particulates and the requirement that emission control systems be
    certified for a 120,000-mile lifetime. If direct-injection gasoline and
    diesel engines are to be used extensively to improve light-duty vehicle
    fuel economy, significant technical developments concerning emissions
    control will have to occur or some adjustments to the Tier 2 emissions
    standards will have to be made. Hybrid electric vehicles face
    significant cost hurdles, and fuel-cell vehicles face significant
    technological, economic, and fueling infrastructure barriers.
        Finding 15. Technology changes require very long lead times to be
    introduced into the manufacturers' product lines. Any policy that is
    implemented too aggressively (that is, in too short a period of time)
    has the potential to adversely affect manufacturers, their suppliers,
    their employees, and consumers. Little can be done to improve the fuel
    economy of the new vehicle fleet for several years because production
    plans already are in place. The widespread penetration of even existing
    technologies will probably require 4 to 8 years. For emerging
    technologies that require additional research and development, this
    time lag can be considerably longer. In addition, considerably more
    time is required to replace the existing vehicle fleet (on the order of
    200 million vehicles) with new, more efficient vehicles. Thus, while
    there would be incremental gains each year as improved vehicles enter
    the fleet, major changes in the transportation sector's fuel
    consumption will require decades.
    Recommendations
        Recommendation 1. Because of concerns about greenhouse gas
    emissions and the level of oil imports, it is appropriate for the
    Federal Government to ensure fuel economy levels beyond those expected
    to result from market forces alone. Selection of fuel economy targets
    will require uncertain and difficult trade-offs among environmental
    benefits, vehicle safety, cost, oil import dependence, and consumer
    preferences. The committee believes that these trade-offs rightfully
    reside with elected officials.
        Recommendation 2. The CAFE system, or any alternative regulatory
    system, should include broad trading of fuel economy credits. The
    committee believes a trading system would be less costly than the
    current CAFE system; provide more flexibility and options to the
    automotive companies; give better information on the cost of fuel
    economy changes to the private sector, public interest groups, and
    regulators; and provide incentives to all manufacturers to improve fuel
    economy. Importantly, trading of fuel economy credits would allow for
    more ambitious fuel economy goals than exist under the current CAFE
    system, while simultaneously reducing the economic cost of the program.
        Recommendation 3. Consideration should be given to designing and
    evaluating an approach with fuel economy targets that are dependent on
    vehicle attributes, such as vehicle weight, that inherently influence
    fuel use. Any such system should be designed to have minimal adverse
    safety consequences.
        Recommendation 4. Under any system of fuel economy targets, the
    two-fleet rule for domestic and foreign content should be eliminated.
        Recommendation 5. CAFE credits for dual-fuel vehicles should be
    eliminated, with a long enough lead time to limit adverse financial
    impacts on the automotive industry.
        Recommendation 6. To promote the development of longer-range,
    breakthrough technologies, the government should continue to fund, in
    cooperation with the automotive industry, precompetitive research aimed
    at technologies to improve vehicle fuel economy, safety, and emissions.
    It is only through such breakthrough technologies that dramatic
    increases in fuel economy will become possible.
        Recommendation 7. Because of its importance to the fuel economy
    debate, the relationship between fuel economy and safety should be
    clarified. The Committee urges the National Highway Traffic Safety
    Administration to undertake additional research on this subject,
    including (but not limited to) a replication, using current field data,
    of its 1997 analysis of the relationship between vehicle size and
    fatality risk.
                                     ______

       Appendix B--Ending the Energy Stalemate: A Bipartisan Strategy to
                        Meet America's Energy Challenges
        Policy Recommendations
    Reduce U.S. Oil Consumption Through Increased Vehicle Efficiency and
            Production of Alternative Fuels
        Reducing U.S. oil consumption is a critical complement to the
    measures described in previous sections for expanding and diversifying
    global supplies of oil. A key to slowing continued growth in U.S. oil
    consumption--which is otherwise projected to increase by more than 40
    percent over the next two decades--is breaking the current political
    stalemate on changing Corporate Average Fuel Economy (CAFE) standards
    for new motor vehicles. Although recommendations in later chapters of
    this report--notably those aimed at promoting the development of
    alternative transportation fuels--will also help to reduce oil demand,
    improving passenger vehicle fuel economy is by far the most significant
    oil demand reduction measure proposed by the Commission.
        The Commission's approach to vehicle efficiency builds on three
    decades of experience with fuel economy regulation and a record of
    impressive technological advances by the automobile manufacturing
    industry. As a result of CAFE standards introduced in the 1970s and
    high gasoline prices in the late 1970s and early 1980s, the average
    fuel economy of new light-duty vehicles improved from 15 miles per
    gallon (mpg) in 1975 to a peak of 26 mpg in 1987, a 73 percent increase
    over a time period that also saw substantial progress in improved
    vehicle performance and safety. The trend toward greater fuel economy,
    however, did not continue. Passenger car CAFE standards peaked in 1985
    at 27.5 mpg and have not changed since. Light-duty truck standards were
    recently raised by 1.5 mpg to a new standard of 22.2 mpg which will go
    into effect in 2005--prior to this increase they had remained
    essentially unchanged since 1987. Thus, for most of the last two
    decades overall fleet fuel economy has stagnated and continued
    technology gains--such as port fuel injection, front-wheel drive, valve
    technology, and transmission improvements--have been applied to
    increase vehicle size and power, rather than fuel economy. In fact, at
    24 mpg on average, new vehicle fuel economy is now no higher than it
    was in 1981, but vehicle weight has increased by 24 percent and
    horsepower has increased by 93 percent.
        The Commission believes that three factors are largely responsible
    for the current CAFE stalemate: (1) uncertainty over the future costs
    of fuel-saving technologies; (2) fear that more stringent standards
    will lead to smaller, lighter vehicles and increased traffic
    fatalities; and (3) concerns that higher fuel economy standards will
    put the U.S. auto industry and auto workers at a competitive
    disadvantage.
        With respect to the first of these factors--cost and technology
    potential--numerous recent analyses by the National Academy of Sciences
    and others have concluded that significant improvements in the fuel
    economy of conventional gasoline vehicles are achievable and cost-
    effective, in the sense that fuel savings over the life of the vehicle
    would more than offset incremental technology costs. Estimates of cost-
    effectiveness do not, however, account for--and thus cannot by
    themselves resolve--potential trade-offs in terms of vehicle
    performance, safety, and impacts on jobs and competitiveness.
        Given these complexities, the Commission was unable to agree on a
    numerical fuel-economy standard.
        The recommendations that follow nevertheless reflect the
    Commission's conclusion that a combination of improved conventional
    gasoline technologies and advanced hybrid-electric and diesel
    technologies presents an opportunity to significantly increase fuel
    economy without sacrificing size, power, safety, and other attributes
    that consumers value. Note that the Commission defines ``advanced
    diesel'' in this context as a diesel passenger vehicle that meets
    stringent new Federal air pollution control requirements--or so-called
    ``Tier 2'' standards--that are being phased in from 2004 to 2008 (no
    currently available passenger diesel vehicles meet these standards).
    Ultimately, the Commission believes that a combination of higher
    standards, CAFE reforms, and complementary incentive programs will
    allow the Nation to capitalize on potentially ``game changing''
    technologies such as hybrids and advanced diesels in a manner that
    greatly enhances its ability to achieve oil security and environmental
    goals, as well as its ability to sustain the future competitiveness of
    the U.S. automobile industry.
        Specifically, the Commission recommends:

       Raising Passenger Vehicle Fuel Economy Standards--Congress
            should instruct the National Highway Traffic Safety
            Administration (NHTSA) to significantly strengthen Federal fuel
            economy standards for passenger vehicles to take full advantage
            of the efficiency opportunities provided by currently available
            technologies and emerging hybrid and advanced diesel
            technologies. Consistent with existing statutory requirements,
            NHTSA should--in developing new standards--give due
            consideration to vehicle performance, safety, job impacts, and
            competitiveness concerns. To allow manufacturers sufficient
            time to adjust, new standards should be phased-in over a five-
            year period beginning no later than 2010.

       Reforming CAFE--To facilitate compliance with higher
            standards, Congress should modify CAFE to increase program
            flexibility by allowing manufacturers to trade fuel economy
            credits with each other and across the light truck and
            passenger vehicle fleets. In addition, Congress should
            authorize NHTSA to consider additional mechanisms that could
            further simplify the program, increase flexibility, and reduce
            compliance costs. One such mechanism is a compliance ``safety
            valve'' that would permit manufacturers to purchase CAFE
            credits from the government at a pre-determined price. Such a
            mechanism would effectively cap costs to consumers and
            manufacturers should fuel-saving technologies not mature as
            expected or prove more expensive than anticipated.

       Providing Economic Incentives for Hybrids and Advanced
            Diesels--Congress should establish a five- to ten-year, $3
            billion tax incentive program for manufacturers and consumers
            to encourage the domestic production and purchase of hybrid-
            electric and advanced diesel vehicles that achieve superior
            fuel economy.

                                     ______

                 Appendix C--Testimony on CAFE Program Reforms
                          Prepared by William A. Pizer
        Thank you, Mr. Chairman, for the opportunity to offer testimony
    before the Committee about the possibility of reforming the Corporate
    Average Fuel Economy (CAFE) program, with particular reference to the
    recently introduced reforms for light trucks. Over the past decade, I
    have had the privilege of working on energy and environment issues for
    organizations as diverse as the President's Council of Economic
    Advisers and the National Commission on Energy Policy. Currently, I am
    a senior fellow at Resources for the Future (RFF), a 54-year-old
    research institution, headquartered here in Washington, D.C., which
    focuses on energy, environmental, and natural resource issues.
        RFF is both independent and nonpartisan, and shares the results of
    its economic and policy analyses with members of both parties,
    environmental and business advocates, academics, members of the press,
    and interested citizens. RFF neither lobbies nor takes positions on
    specific legislative or regulatory proposals, although individual
    researchers are encouraged to express their individual opinions, which
    may differ from those of other RFF scholars, officers, and directors. I
    emphasize that the views I present today are mine alone.
        Just a few weeks ago, the National Highway Traffic and Safety
    Administration (NHTSA) released a final CAFE rule for the years 2008-
    2011 that raises the standard from its 2007 level of 22.2 miles per
    gallon (mpg), to 22.5 mpg in 2008, 23.1 mpg in 2009, and 23.5 mpg in
    2010. But what should be of more interest to this Committee are two
    major changes to the structure of the program included in the final
    rule. First, the rule differentiated standards across manufacturers
    based on the size of the vehicles they produce, and second, starting in
    2011, the rule set these standards based on an explicit cost-benefit
    analysis. Previously, there was a single standard for all light-truck
    manufacturers and that standard was set, based on the ability of the
    least capable manufacturer. In addition to these major structural
    changes, the rule will also for the first time include medium-duty
    passenger vehicles in the CAFE program starting in 2011. With the
    inclusion of these heavier and naturally less fuel-efficient vehicles,
    the estimated average fuel economy will be 24.0 mpg in 2011.
        At the time the light-truck rule was proposed last Fall, I offered
    my opinion--which I have appended to this statement--that the reforms
    were a clear move toward a more efficient system, and perhaps even an
    optimal one, given statutory constraints. I also indicated that, based
    on an analysis of the underlying data from the recent National Research
    Council (NRC) study, the 2011 fuel economy standard should be increased
    based on the recent, dramatic increase in forecasted oil price and, in
    turn, the dramatic increase in benefits from improved fuel economy.
    What I would like to do today is first review my previous comments on
    the design of the rule for light trucks and explain why they are
    equally relevant for cars. I will then discuss additional reforms
    possible in statute--the ability to trade CAFE credits across fleets,
    firms, and time, as well as a cost-limiting safety valve that were not
    possible in the light-truck rulemaking. I will briefly remark on the
    fact that dramatically higher oil prices did not lead to an noticeable
    increase in the 2011 fuel economy standard and finally offer a few
    reflections on the overall desirability of CAFE from an economist's
    perspective.
    Light-Truck CAFE Before the Recent Reforms
        To understand the recent reforms to the light-truck CAFE program,
    as well as the potential for further statutory reforms, it is useful to
    consider how ``un-reformed'' or traditional CAFE works. There is a
    single, one-size-fits-all fuel economy standard for light trucks that
    must be met, on average, by each manufacturer. That is, each
    manufacturer takes the fuel economy of each light-truck model they
    produce, and then averages those numbers weighted by production volume.
    That number must be at or above the mandated standard. If the
    manufacturer beats the standard, the manufacturer collects CAFE credits
    that can be used to make up any shortfall in the next three years. If
    the manufacturer misses the standard and does not have any credits,
    there is a penalty equal to $5.50 per 0.1 mpg per vehicle. The penalty
    is routinely paid by European manufacturers, but has never been adopted
    by domestic or Asian manufacturers, who have voiced concern about the
    penalization notion surrounding the fee.
        For light trucks, the level of the traditional standard is set with
    an eye toward achieving the maximum possible fuel economy, but with
    considerable deference given to the ability of each manufacturer to
    meet that standard. The National Highway Traffic Safety Administration
    (NHTSA) has typically tailored the standard to be economically
    practicable for the least capable vehicle manufacturer while also
    considering the Nation's need to conserve energy, technological
    feasibility, and the impact of other motor vehicle standards on fuel
    economy. The actual analysis is based on confidential manufacturer
    product plans, data, and modeling.
        One consequence of the traditional approach is that the single
    standard for light trucks is tougher--that is, more expensive--for
    manufacturers with a full line that includes large trucks with lower
    fuel economy, and easier for manufacturers focused on small trucks with
    higher fuel economy. For example, Honda has consistently beaten the
    existing light-truck CAFE standard by 4-5 mpg, suggesting that it has
    had no effect on their production decisions, while the major domestic
    manufacturers that produce a broader range of trucks have hovered right
    at the standard, suggesting a real impact.
    The Reformed CAFE Rule
        The recently finalized rule for light trucks makes two major
    changes to the traditional approach. The first is a shift from a single
    light-truck standard for all manufacturers to differentiated standards
    for each manufacturer based on the size of the vehicles they produce.
    The second is a shift to setting the standard based on an explicit and
    careful cost-benefit analysis, involving the costs to manufacturers,
    the value of fuel savings, and other consequences of gasoline and
    vehicle usage.
        Unlike the traditional CAFE rule for light trucks, the recently
    finalized rule differentiates standards for each manufacturer based on
    a continuous schedule of targets for different-sized vehicles. The size
    of the vehicle, or footprint, is defined by multiplying the track width
    (the distance between tires on the same axle) by the wheelbase (the
    distance between centerlines on each axle). In 2011, the fuel economy
    schedule ranges from 30.42 mpg for the smallest vehicle to 21.79 mpg
    for the largest vehicle (Table 4 in the Final Rule). Among
    manufacturers, this is forecast to result in a fleet standard ranging
    from 23.2 mpg for General Motors (GM) to 27.1 mpg for Suzuki (Table
    13).
        Differentiating manufacturers' standards based on the mix of large
    and small light trucks that they produce--so that Suzuki faces a higher
    standard than GM--has important distributional consequences. Unlike the
    traditional light-truck CAFE rule, in which the single standard was
    much harder for GM and other manufacturers of large trucks to meet, the
    reformed rule allocates the overall burden more evenly by shifting some
    of it away from manufacturers of large trucks and toward manufacturers
    of small trucks.
        This distributional change will also lower the cost of a given
    improvement in fuel economy across all fleets (or increase the overall
    improvement in fuel economy for a given total cost). By seeking larger
    fuel savings from small truck manufacturers, who previously faced
    little or no CAFE incentive to improve fuel economy, opportunities
    exist to improve fuel economy that previously were not being captured.
    Some of these efficiency improvements are cheaper than the ones
    previously achieved through almost exclusive reliance on improvements
    among manufacturers of large trucks. That is, the program achieves
    lower cost and/or more fuel savings (estimated at 15-20 percent in the
    Regulatory Impact Analysis, Table VII-1).
        There is a third, important effect associated with differentiating
    standards based on the size of vehicles: It substantially alters the
    incentives to downsize. Downsizing is one way a manufacturer could
    comply with the traditional light-truck CAFE rule. As noted, smaller
    trucks naturally have higher fuel economy. Instead of using technology
    to improve fuel economy, manufacturers could simply choose to make
    smaller trucks. While some might applaud a shift to smaller vehicles,
    this frequently raises concerns about safety.
        By making the standard higher for smaller trucks, the incentive to
    downsize to comply with the reformed CAFE rule is reduced if not
    eliminated, thereby addressing these concerns about safety. Making
    smaller trucks does not help a manufacturer meet their standard--the
    natural improvement in fuel economy associated with the smaller vehicle
    is offset by the reformed CAFE's requirement that smaller vehicles
    achieve higher fuel economy.
        The second major change in the reformed CAFE rule comes in 2011,
    when fuel economy will be set, based on maximizing net benefits from
    reduced petroleum consumption, including the reduced consequences of
    oil-supply disruptions, the reduced market power of oil-exporting
    countries, and environmental concerns, as well as effects of fuel
    economy on congestion, accidents, and greater vehicle range. These
    benefits are weighed against the costs of installing new technologies
    to improve fuel economy. This sharply contrasts the previous approach,
    which focused on the ability of the least capable manufacturer--that
    is, the one making the largest trucks. In fact, with the shift to
    differentiated standards, the notion of a least capable manufacturer
    disappears; instead, each company faces a standard that is tailored to
    be as difficult as any other. This latter change represents an
    unambiguous move toward greater efficiency in the light-truck CAFE
    program. While the traditional approach highlighted factors that should
    be considered when setting the standard, it did not suggest how they
    ought to be balanced, somewhat ironically using cost-benefit analysis
    as part of the regulatory impact analysis after the standard was set.
    The proposed reforms put the cost-benefit analysis front and center,
    stipulating that those factors should be balanced based on the best
    available valuations. By definition, such an approach is the most
    efficient possible approach to setting CAFE standards once the
    structure of the program is determined.
    Applying the Light-Truck Reforms to Passenger Cars
        Both of the reforms adopted in the recent light-truck rule--
    differentiating manufacturers' standards based on their mix of large
    and small vehicles, as well as setting the standards based on careful
    cost-benefit analysis--provide similar opportunities to improve the
    passenger car CAFE program. Unlike the light-truck program, however,
    these changes must be made in statute. While NHTSA had the authority to
    differentiate manufacturers' standards and to shift to a cost-benefit
    approach for light trucks, the existing statute is much more specific
    for passenger cars.
        As was the case for light trucks, differentiating the passenger car
    standard among manufacturers based on their mix of large and small cars
    provides three advantages. First, it creates a more equitable burden.
    Because large cars naturally have lower fuel economy than smaller cars,
    a single standard for all manufacturers would put a disproportionate
    burden on those who produce larger cars. In contrast, a differentiated
    standard would shift that burden toward small car manufacturers.
    Second, this shift in burden will also mean a shift from higher-cost
    improvements in large cars to lower-cost improvements in small cars.
    This will lower the cost of achieving a given overall level of fuel
    economy, or allow a greater improvement in overall fuel economy at a
    given total cost. Finally, by making the standard progressively higher
    for smaller cars, the incentive to downsize passenger cars is reduced
    if not eliminated. The natural fuel economy improvement associated with
    downsizing is now penalized by a higher standard. This addresses past
    concerns that CAFE produces smaller, less safe vehicles.
        The use of a cost-benefit approach to set the passenger car
    standard would, by definition, create a program that maximized
    efficiency--that is, the net benefits to society--of the program, given
    the design (for example, differentiated standards and fleet averaging).
    Going Beyond the Light-Truck Reforms
        There are at least four areas where light-truck reform was limited
    by statute but where greater efficiency could be realized by changing
    the structure of the program. Three relate to simply giving
    manufacturers more flexibility to meet a given standard without
    affecting the outcome in terms of overall oil savings. The fourth
    addresses uncertainty about compliance costs, reducing the risk of high
    costs at the expense of possibly achieving lower oil savings.
        The first of these further reforms would allow manufacturers to
    average fuel economy jointly over both cars and light-truck fleets.
    Currently, manufacturers must meet each standard separately, even
    though cheaper opportunities may exist in one fleet versus the other.
    From a national perspective, Congress should not care whether fuel
    savings are achieved in one fleet or the other. Allowing manufacturers
    to trade off cheaper improvements in one fleet against more expensive
    improvements in the other would lower overall costs without affecting
    oil savings.
        Second, Congress could also allow credit trading among
    manufacturers. That is, when one manufacturer exceeds their standard,
    they earn credits that could then be sold to other manufacturers
    struggling to meet theirs. This reform reduces costs by shifting
    improvements to manufacturers with lower costs and away from
    manufacturers with higher costs. And like the first reform, this action
    has no effect on overall oil savings.
        It is useful to note that historically there has been opposition to
    trading because it likely further exacerbates the disparity between
    manufacturers of large and small vehicles. That is, even though trading
    would generally benefit both buyers and sellers of CAFE credits, under
    traditional CAFE, it would tend to provide larger benefits to sellers--
    manufacturers of small cars who can easily if not effortlessly exceed
    the standard. However, with size-based CAFE, the initial compliance
    burden is more evenly distributed among manufacturers of both large and
    small vehicles, erasing the likely larger benefit to manufacturers of
    small vehicles.
        Third, Congress could allow companies who exceed the standard in
    one year to bank credits for the indefinite future. Banking not only
    leaves the total volume of reduced oil consumption unchanged, it moves
    the savings forward in time--that is, we see the effects of energy
    conservation sooner. Banking has easily been the most successful
    element of the acid rain trading program used by electric utilities to
    reduce sulfur dioxide emissions. In that case, firms reduced emissions
    by twice as much as the law required to create flexibility for future
    compliance. Currently, banking is allowed in the CAFE program--but for
    only up to three years, after which time the banked credits expire,
    thereby reducing the incentive to over-comply and to reduce oil
    consumption earlier. New legislation could remove this restriction.
        Finally, Congress could create a safety valve, whereby
    manufacturers could opt to pay a specified fee if compliance costs end
    up being unexpectedly high. This would allow manufacturers to avoid the
    risk of high costs in exchange for the possibility that fuel economy--
    and oil savings--might be lower if that turns out to be the case. As
    noted earlier, the current program already has such a fee, defined as a
    penalty, which is often used by European manufacturers but has been
    avoided by domestic and Asian manufacturers. By ``decriminalizing the
    fee, Congress could help allay manufacturer concerns and reduce the
    central debate about how much technology really costs--perhaps allowing
    higher standards to be introduced more quickly.
    Transparency About Costs
        The recent light-truck rule highlighted the fact that the cost
    estimates used to set fuel economy standards remain something of a
    mystery. Despite the fact that the benefits of improving fuel economy
    increased by 50 percent between when the proposed and final rules were
    published, due to dramatic increases in forecast oil prices, the
    estimated aggregate fuel economy standard for 2011 increased by only
    0.2 mpg, from 23.9 to 24.1 mpg (excluding medium-duty vehicles, which
    were not included in the proposed rule). Yet, the standard is supposed
    to represent a balancing of costs and benefits.
        The final rule indicates that there were countervailing changes in
    estimated costs--related to the costs of technologies and especially
    the time required to phase in those technologies--but those changes are
    difficult to judge because the underlying details of the cost model are
    not spelled out clearly. Without any countervailing effects, my
    comments last fall suggested that a 50 percent increase in benefits
    might lead to a 4-5 mpg increase in the standard. Having reviewed other
    cost analyses, I might adjust that downward, closer to 2 mpg. In any
    case, a 0.2 mpg increase is surprisingly small despite the indicated
    countervailing modeling changes.
        It might be desirable, therefore, for the Department of
    Transportation to be required to make public the cost modeling used in
    any rulemaking to set fuel economy standards. In the past, such
    disclosure would have been nearly impossible, as it entirely centered
    on the capabilities of one manufacturer. Now, there is presumably
    safety in numbers: Cost modeling for particular vehicle sizes can be
    disclosed, on average, without necessarily revealing proprietary
    information. Such a requirement would facilitate a more informed debate
    in the rulemaking process.
    Do Fuel Economy Standards Make Sense?
        So far, the discussion has centered on how to improve CAFE through
    statutory reform--that is, how to get more fuel savings at lower cost,
    while addressing concerns about equity and safety. This is an extremely
    important question, given the likelihood that the CAFE program will not
    go away and will remain the main policy tool for addressing concerns
    about petroleum use in the transportation sector. Nonetheless, it is
    useful to ask whether CAFE makes sense compared to other choices, or
    whether Congress should instead focus on an entirely different policy.
        The underlying motivation for CAFE is the desire to reduce oil
    demand because of concerns about costs, security, and the environment.
    Given this underlying motivation, many people, especially economists,
    often criticize CAFE policy for two related reasons: First, it does not
    encourage consumers, once they buy a vehicle, to drive less; and
    second, it implies that the government can do a better job of weighing
    the costs and benefits of fuel-saving vehicle technologies than the
    auto manufacturers and auto consumers who make and use those vehicles.
    These critics typically conclude that the better policy is to tax
    gasoline, where the tax rate reflects some or all of the additional
    cost to society associated with oil use--for example, the negative
    influence of oil supply disruptions on the economy, domestic and
    international environmental impacts, and highway congestion.
        One response is to agree with the CAFE critics on principle, but
    note that political opposition to gasoline tax increases make them
    impractical. However, we can also take issue with the second criticism
    and argue that auto manufacturers and consumers are not really making
    good decisions about fuel economy. Several explanations for this
    failure stand out. The first is that consumers may not know,
    understand, or believe differences exist in fuel economy among
    vehicles. The recent controversy over the inaccuracy of EPA fuel
    economy ratings on information labels underscores this point.
        Second, even understanding that those differences exist and are
    real, consumers may not rank fuel economy high enough to worry about
    when shopping for a car. Cargo capacity, power, and styling may be more
    important to consumers. Finally, even if consumers consider fuel
    economy, they may find it does not make a big enough difference to sway
    their choice of vehicle. Typical fuel economy decisions might represent
    an annual net gain per vehicle of about $50-$500, depending on the
    payback period a consumer requires. On a $20,000 new car, this is
    analogous to an option for a fancy radio or improved styling.
        Finally, consumers may not properly account for the full value of
    future fuel savings from a more fuel-efficient car, considering, for
    example, only the first few years of savings rather than the entire
    vehicle lifetime.
        If consumers are systematically undervaluing fuel economy, it makes
    sense that vehicle manufacturers are not going to build more fuel-
    efficient cars. Based on that observation--an observation with which I
    tend to agree--fuel economy standards are a sensible policy and
    Congress should focus on reforming CAFE to make it more efficient.
        It is worth noting that one argument that cannot be used to support
    CAFE is that stricter fuel economy standards will substantially lower
    gasoline prices. Recent estimates by the Energy Information
    Administration, for example, suggest that a 36 percent improvement in
    CAFE (6-7 mpg) would lower gasoline prices by at most $0.08 by 2025.
    More modest CAFE improvements, such as the recent 1.8 mpg increase in
    light-truck standards, would lower gasoline prices even less (although
    the impact is larger with reforms than without). However, CAFE will
    lower expenditures on gasoline, as the quantity consumed will decline
    even if the price remains relatively insensitive. More importantly, it
    will reduce the vulnerability of the economy to future oil price shocks
    by reducing the share of gasoline expenditures in overall economic
    activity.
    Overall Conclusions
        Following on the heels of recent regulatory reforms to the light-
    truck CAFE program, Congressional action to similarly reform the CAFE
    program for passenger cars--as well as to enact further reforms that
    were not possible in the light-truck rulemaking--has a large potential
    to improve program efficiency, to make the program more equitable, and
    to do all of this without sacrificing safety. The light-truck rule
    provides a model for two improvements: differentiating manufacturers'
    standards based on their mix of large and small vehicles, and setting
    the overall level of the standards based on an explicit and careful
    cost-benefit analysis. Further reforms include trading between the
    passenger car and light-truck fleets, trading among manufacturers,
    unrestricted banking of CAFE credits earned by exceeding the standard,
    and a cost-limiting safety valve.
        It is surprising that the recent final rule for light-truck fuel
    economy in 2011, based on balancing costs and benefits, demonstrated
    remarkably little sensitivity to a 50 percent increase in the value of
    fuel saving benefits. This surprise, along with other concerns about
    how NHTSA would set the standards, has led to calls for Congress to
    directly set the standard in statute. Nonetheless, I find the
    complexity of the standard-setting process, as well as the need to
    regularly revisit the level of the standard, to be more suitable for
    agency rulemaking than Congressional action. Congress can instead
    reform the structure of CAFE to increase efficiency, continue to give
    NHTSA clear guidance on the key costs and benefits it should consider,
    and perhaps require greater transparency with regard to the cost
    modeling.
        Lastly, critics often argue that CAFE is not the right policy to
    address petroleum use in the transportation sector, because it
    improperly focuses on creating more fuel-efficient vehicles rather than
    alternatively or additionally encouraging consumers to drive those
    vehicles less. Such a criticism is based on an assumption that
    consumers and manufacturers will make good decisions about fuel economy
    based on technology and fuel costs. Yet, there are a variety of reasons
    why this assumption might be false; based on my belief that these
    reasons have credibility, a CAFE program continues to make sense.
        In summary, Congress has a great opportunity to improve the
    efficiency of an extremely significant program to reduce oil
    consumption in the United States, namely by reforming the fuel economy
    program for cars and light trucks. Such reforms will reduce the costs
    of achieving a given standard and allow us to pursue greater fuel
    economy without sacrificing safety. In contrast to other policies being
    promoted to address concerns about higher fuel prices and oil
    dependency, such improvements attack the problem directly by reducing
    both our expenditures on oil and our vulnerability to future price
    increases.
        I thank you again for the opportunity to appear before this
    Committee, and I would be pleased to answer any questions.
                                     ______

        Appendix I--Understanding Proposed CAFE Reforms for Light Trucks
                                FR Doc. 05-17005
    Summary
        On August 23, 2005, the National Highway Traffic Safety
    Administration (NHTSA) released a Notice of Proposed Rulemaking (NPR)
    on corporate average fuel economy (CAFE) standards for light trucks
    along with a Preliminary Regulatory Impact Analysis (PRIA) (NPRM:
    Federal Register 05-17005, vol. 70, no. 167, August 30). Relative to
    the existing 2007 standard of 22.2 miles per gallon (mpg), the proposed
    changes include fuel economy standards of 22.5-23.5 mpg over 2008-2010
    using the current program design.
        More notable, however, are proposed changes to this design. Under
    the proposed changes, each manufacturer would still need to meet a
    single overall standard for their light truck fleet, but that standard
    would differ across manufacturers based on their production of
    different sized vehicles. Vehicles with different footprints (wheelbase
    times track width) would have different fuel economy targets and a
    manufacturer's overall standard would be based on these size-
    differentiated targets averaged over their specific fleet. During 2008-
    2010, manufacturers would have a choice of complying with either the
    old (unreformed) or new (reformed) CAFE standards.
        Importantly, the fuel economy standards starting in 2011 would be
    set explicitly to maximize net benefits to society--including fuel
    savings, safety, security, and environmental concerns. Among other
    things, this shift implies that those standards will rise along with
    the price of oil. While the proposed 2011 targets assume $25-30 per
    barrel crude oil prices (based on available government forecasts) and
    are estimated to achieve a 24 mpg fuel economy, we estimate that an
    additional $20 per barrel (in line with recent long run private-sector
    forecasts) would raise the proposed targets by perhaps 4-5 mpg.
        The proposed reforms also erase the current disparity between
    passenger automobile and light truck standards, as the smallest light
    truck category would have a target exceeding the current 27.5 mpg for
    passenger automobiles. This would remove the incentive for automakers
    to effectively design passenger cars that can be categorized as a light
    truck (by raising the height, making the seats removable, etc.) in
    order to face an easier fuel economy standard.
        From an economic perspective, these reforms represent a remarkable
    shift toward a more efficient regulatory system. Still, potentially
    valuable, further improvements remain--trading of CAFE credits across
    manufacturers and between passenger cars and light trucks, for example.
    The proposed reforms also fail to address the larger economic questions
    of whether taxes or tradable permits (for gasoline usage) would be a
    better policy than a CAFE performance standard, and whether consumers
    and manufacturers are really making bad fuel economy decisions absent
    government intervention. The latter question could also have
    significant implications for whether technology costs and fuel economy
    benefits are correctly valued in the CAFE analysis.
        The remainder of this memorandum walks through essential elements
    of the reform package, provides a quick economic analysis, and
    summarizes the economist's perspective.
    Unreformed CAFE
        Existing CAFE regulations establish a single mileage standard that
    must be met, on average, for every manufacturer's light truck fleet.
    That is, each manufacturer takes the fuel economy of each light truck
    model they produce, and then averages those numbers weighted by
    production volume. That number must be at or above the mandated
    standard. If the manufacturer beats the standard, the manufacturer
    collects CAFE credits that can be used to make up any shortfall in the
    next three years. If the manufacturer misses the standard and does not
    have any credits, there is a penalty equal to $5.50 per 0.1 mpg per
    vehicle. The penalty is routinely paid by European manufacturers but
    has never been utilized by domestic or Asian manufacturers.
        The level of the standard is set with an eye toward achieving the
    maximum possible fuel economy, but with considerable deference given to
    the ability of each manufacturer to meet that standard. In particular,
    NHTSA has traditionally focused on the least capable vehicle
    manufacturer and tailored the standard to be ``economically
    practicable'' for that firm. The actual analysis is based on
    confidential manufacturer data and modeling. This approach was used in
    2003 to set the 2005-2007 standards. Prior to that, Congressional
    riders prevented any changes to the CAFE levels for light trucks since
    1996. The standard for passenger cars has remained unchanged since
    1990.
        One consequence of this approach is that the single standard for
    light trucks is tougher--more expensive--for manufacturers with a full
    line, including large trucks that have lower fuel economy, and easier
    for manufacturers focused on small trucks that typically have higher
    fuel economy. For example, Honda has consistently beaten the existing
    light-truck CAFE standard by 4-5 mpg, suggesting it has had no effect
    on their production decisions, while the major domestic manufacturers
    that produce a broader range of trucks have hovered right at the
    standard, suggesting a real impact.
        The current NPR uses this approach to determine unreformed 22.5-
    23.5 mpg standards for 2008-2010.
    Reformed CAFE
        The proposed CAFE reforms involve two major changes. The first is a
    shift from a single standard for all manufacturers to differentiated
    standards for each manufacturer based on the composition of their
    fleet. This shift arguably eliminates the notion of a least capable
    manufacturer because standards are tailored to each manufacturer's
    vehicle mix. The second is a shift to an explicit cost-benefit analysis
    based on fuel savings and other consequences of gasoline and vehicle
    usage. While previous standards have utilized cost-benefit analysis as
    part of the regulatory impact analysis after the standard was set, the
    proposed reforms put the cost-benefit analysis front and center.
    Differentiated Standards
        The NPR proposes differentiating fuel economy standards for light
    trucks using six discrete size categories, but requests comments on the
    use of both alternative attributes and/or more size categories (or even
    a continuous function). The size of a vehicle, or ``footprint,'' is
    defined by multiplying the track width (distance between tires on the
    same axle) multiplied by the wheelbase (distance between centerlines on
    each axle). The proposed ranges for each footprint category, according
    to NHTSA, were based on an effort to keep the majority of models in the
    low end of each range; that is, to avoid creating significant
    opportunities for firms to slightly increase the size of a vehicle and
    have it move into the next higher range with a correspondingly lower
    standard.
        NHTSA then establishes the relative position of targets for each
    category. That is, category 2 is 0.8 mpg lower than category 1;
    category 3 is 3.4 mpg lower than category 2; etc. These relative
    positions are determined based on the difficulty/cost of achieving fuel
    economy levels in each category. The result is a schedule of fuel
    economy targets for different size categories, but only defined
    relative to each other.
    Setting the Standards
        The actual standards are determined by moving the absolute level of
    this schedule up or down in order to meet one of two criteria. From
    2008-2010, the criterion is that the total cost to industry under the
    reformed regulation should equal the total cost to industry under the
    unreformed regulation, described earlier. From 2011 onward, the
    criterion is that benefits to society, minus costs, are maximized.
    Table 1 summarizes the resulting standards in the NPR.
        With the target for each category in hand, the standard for each
    manufacturer is based on how many trucks the manufacturer produces in
    each category. Based on current projections by NHTSA, that results in
    the manufacturer-specific standards given in Table 2. Note that
    manufacturers do not have to meet the target in any one category, but
    underachievement in one category has to be offset by overachievement in
    another.
    Analysis
        Several questions naturally arise when evaluating the proposed
    reform package. Does it cost more or less than the unreformed policy?
    Even if the cost is roughly the same, is the distribution of costs
    different across manufacturers? Does it achieve more overall fuel
    economy for a given cost? Are these cost-benefit estimates consistent
    with other cost-benefit estimates? We briefly examine each question in
    turn based on available data.
    Does Reformed CAFE Cost More?
        There are no direct comparisons of costs under the proposed, cost-
    benefit approach to setting the standard versus costs based on the
    existing, least-capable manufacturer approach. A footnote in Table 3
    highlights this fact--costs are similar in each year where both
    reformed and unreformed CAFE costs are reported by design.
        However, looking at those same cost estimates in Table 3 across
    years, we do not see a dramatic difference moving from 2010 to 2011,
    when the new metric of maximizing net benefits is applied for the first
    time, versus moving from 2007 to 2008, 2008 to 2009, or 2009 to 2010,
    when the overall cost to industry is set based on unreformed CAFE.
    Costs per vehicle rise by $89 from 2010 to 2011, but they rise by $88
    from 2008 to 2009. That suggests, at the very least, that any increase
    in costs from the reformed approach is in line with the spending trend
    for fuel economy improvements over time under the unreformed program.
    Is the Distribution of Costs Different Across Manufacturers?
        Unreformed CAFE sets a common standard for all manufacturers,
    whereas reformed CAFE will set differentiated standards based on each
    manufacturer's product line--higher standards for manufacturers
    specializing in smaller trucks. Other things equal, this suggests a
    shift in costs away from manufacturers of larger trucks and toward
    those which only manufacture smaller light trucks. Table 4 quantifies
    this shift using historical data on CAFE credits: Under both reformed
    and unreformed CAFE, manufacturers can earn credits equal to the amount
    by which their fleet exceeds the standard, expressed in tenths of a
    mile-per-gallon, per vehicle. These credits can then be used in future
    years to make up a deficit if they fail to meet the standard.
        Based on historic manufacturing data for 2002-2004, Table 4 shows
    the change in manufacturers' net CAFE credits position under the
    reformed versus unreformed program; positive numbers reflect a better
    outcome under reformed CAFE. What we see is that three manufacturers,
    Hyundai, Isuzu, and Suzuki, do noticeably worse, facing a deficit of
    perhaps 30 credits per vehicle absent changes. Meanwhile, GM, to a
    lesser extent Ford, and eventually Nissan, all see an improvement of 2-
    6 credits per vehicle. If we look at the underlying production data
    available in Tables III-3 through III-5 of the PRIA, the three
    manufacturers who face the greatest deficit are the ones whose trucks
    fall entirely in the smallest two of the six reformed CAFE categories.
    Meanwhile, GM, Ford, and Nissan have the largest share--more than one-
    third--in the largest two categories by 2004 (only 20 percent of
    DaimlerChrysler vehicles fell in those two categories in that year).
    Does Reformed CAFE Achieve More Fuel Economy for a Given Cost?
        Given that the costs of reformed CAFE are similar to the costs of
    unreformed CAFE, the delivered value of the proposed reforms turns on
    whether benefits are higher. Table 5 compares estimates of the fuel
    economy, gallons saved, and dollar benefits under the two programs. For
    all three metrics, we see reformed CAFE improvements that are 12-15
    percent higher in 2008, 19-20 percent higher in 2009, and 6-7 percent
    higher in 2010. No comparison is possible in 2011, because only
    reformed CAFE estimates were provided.
    Are the Cost Estimates Consistent With Other Studies?
        In an effort to benchmark the cost analysis in the NPR and PRIA, we
    used the data contained in the 2001 National Academy of Sciences (NAS)
    CAFE study to estimate cost curves for fuel economy improvements for
    different classes of light trucks (SUVs, trucks, and minivans). We
    compare these costs to the benefits from fuel savings in the NPR,
    ignoring all of the additions and subtractions for various
    externalities the PRIA considers that have a net effect of lowering
    benefits 2-4 percent (see PRIA Tables VIII-4 through VIII-10). We then
    estimate the net benefit maximizing level of fuel economy.
        Despite the fact that our data is now five years old and that we
    could not replicate the size-based categories in the NPR, our results
    suggest a benefit-maximizing fuel economy squarely in the range of the
    22.6-24.0 mpg levels forecast under the proposed rule. However, it is
    important to highlight that this estimate uses the NPR and PRIA oil
    price forecast of $25-30 from the Annual Energy Outlook 2005. More
    recent private sector forecasts suggest an increase of perhaps $20 per
    barrel, adding an additional $0.50 per gallon to the fuel economy
    savings and raising our estimate of the benefit-maximizing fuel economy
    by 4-5 mpg.
    Perspective
        From an economist's perspective, the proposed reforms represent a
    clear move toward greater efficiency, perhaps even an optimum given
    current statutory constraints. Moving beyond this constraint, however,
    the efficiency of the CAFE program could still be improved by allowing
    trades among manufacturers and between cars and trucks. Because the
    benefit per gallon is now the metric for setting the standard, one
    could also ask whether this value ought to be used to cap the cost of
    any compliance efforts by allowing manufacturers to pay that value (or
    some multiple) if they miss the standard. One might even want to back
    up and ask whether CAFE itself--that is a performance standard for
    vehicles rather than fuel taxes or emissions trading--is what we really
    want. Many economists argue that consumers and manufacturers already
    make the desired fuel economy decisions without regulation, excluding
    concerns over the environment, security, and safety. If so, the fuel
    economy savings and technology cost ought to balance at the margin,
    suggesting they have been incorrectly valued in this analysis.
        Importantly, by raising the target for small trucks above the
    standard for passenger vehicles the proposed reforms eliminate the
    incentive to redesign what is essentially a passenger vehicle in order
    to be classified as a light truck and to face a lighter CAFE standard.
    Under the current program, such redesigns are often cited as a
    significant, adverse, and unintended consequence of the wide gap in
    standards between cars and trucks.
        Finally, our calculations, showing that recent increases in long-
    run oil prices raise the desired fuel economy by 4-5 mpg, highlight the
    importance of assumptions about these prices. While it is unclear what
    role oil prices played in setting standards under the unreformed
    program, they drive the standards set by benefit maximization under the
    reformed program.
    Tables and Figures

                                           Table 1. Proposed Targets (in mpg)
    ----------------------------------------------------------------------------------------------------------------
                      Category                       1         2            3            4            5          6
    ----------------------------------------------------------------------------------------------------------------
    Range of vehicle footprint (sq. ft.)            43.0   >43.0-47.0   >47.0-52.0   >52.0-56.5   >56.5-65.0   >65.0
    MY 2008 Targets                                 26.8         25.6         22.3         22.2         20.7    20.4
    MY 2009 Targets                                 27.4         26.4         23.5         22.7         21.0    21.0
    MY 2010 Targets                                 27.8         26.4         24.0         22.9         21.6    20.8
    MY 2011 Targets                                 28.4         27.1         24.5         23.3         21.9    21.3
    ----------------------------------------------------------------------------------------------------------------
    Source: NPR Table 6.

           Table 2. Estimates of Required Fuel Economy Levels (in mpg)
    ------------------------------------------------------------------------
              Manufacturer             MY 2008   MY 2009   MY 2010   MY 2011
    ------------------------------------------------------------------------
    BMW                                   23.8      24.8      25.1      25.7
    Suzuki                                26.0      26.7      26.8      27.5
    Volkswagen                            22.7      23.9      24.3      24.8
    General Motors                        22.2      22.8      23.2      23.7
    Ford                                  22.4      22.9      23.1      23.6
    DaimlerChrysler                       22.8      23.5      23.7      24.2
    Honda                                 23.1      24.0      24.2      24.8
    Hyundai                               24.2      25.9      25.7      26.3
    Nissan                                22.1      22.8      23.2      23.7
    Toyota                                23.2      24.1      24.5      25.0
    Fuji (Subaru)                         24.8      25.6      25.8      26.4
    Porsche                               22.3      23.5      24.0      24.5
    Isuzu                                 22.3      22.9      23.2      23.7
    ------------------------------------------------------------------------
    Source: NPR Table 7.

                      Table 3. Incremental Cost per Vehicle
    ------------------------------------------------------------------------
                                       MY 2008   MY 2009   MY 2010   MY 2011
    ------------------------------------------------------------------------
    Unreformed CAFE in 2008-2010            56       130       185       N/A
    Reformed CAFE in 2008-2011             54*      142*      186*       275
    ------------------------------------------------------------------------
    *By policy design, the proposed mpg levels under Reformed CAFE are set
      so that the industry-wide costs of Reformed CAFE are roughly equal to
      the industry-wide costs of Unreformed CAFE for MY 2008-2010.
    Source: PRIA Table I.

        Table 4. Effect of Reformed CAFE, Relative to Unreformed CAFE, on
             Manufacturer's CAFE Credit Position Using Historic Data
                         [change in credits per vehicle]
    ------------------------------------------------------------------------
                                          Market
               Manufacturer               share      2002     2003     2004
                                          (2004)
    ------------------------------------------------------------------------
    BMW                                      0.01    -4.29    -0.92   -16.23
    DaimlerChrysler                          0.19    -3.03    -6.00    -7.25
    Ford                                     0.23     2.80    -1.00     3.01
    GM                                       0.29     7.87     6.00     5.63
    Honda                                    0.06    -3.51   -11.00    -9.91
    Hyundai                                  0.02   -13.64   -30.05   -27.15
    Isuzu                                    0.00   -14.32   -29.76   -27.21
    Nissan                                   0.06    -9.89   -16.02     2.18
    Suzuki                                   0.00   -16.71   -29.90   -29.40
    Toyota                                   0.13    -4.50    -5.01    -7.99
    Volkswagen                               0.01    -8.53   -15.12    -8.14
    ------------------------------------------------------------------------
    Source: PRIA Tables III-3 through III-5.

            Table 5. Benefit Estimates, Reformed and Unreformed CAFE
    ------------------------------------------------------------------------
                                            2008     2009     2010     2011
    ------------------------------------------------------------------------
                 Fuel economy improvement versus baseline (mpg)
    ------------------------------------------------------------------------
    unreformed                               0.26     0.59     0.87
    reformed                                 0.29     0.71     0.88     1.34
    ------------------------------------------------------------------------
         Gallons saved over vehicle lifetime versus baseline (millions,
                                  undiscounted)
    ------------------------------------------------------------------------
    unreformed                                826     1860     2715
    reformed                                  942     2218     2892     4110
    ------------------------------------------------------------------------
    Benefits versus baseline ($millions, net present value at 7 percent over
                        vehicle life for each model year)
    ------------------------------------------------------------------------
    unreformed                                605     1366     2007
    reformed                                  694     1633     2144     3069
    ------------------------------------------------------------------------
    Source: PRIA Tables VI-1b, VI-2, VI-3 (Fuel Economy), PRIA Table 5
      (Gallons), PRIA Table 3 (Benefits).

        Senator Lott. Thank you, Congressman.
        And Ms. Joan Claybrook, good to see you again.

                STATEMENT OF JOAN CLAYBROOK, PRESIDENT,
                             PUBLIC CITIZEN

        Ms. Claybrook. Thank you so much, Mr. Chairman. It's a
    pleasure to be here.
        I'd like to point out that I issued the first, and only,
    car fuel economy standards for this Nation in 1977, setting the
    final standard in 1985, which was mandated by the Congress in
    the Energy Policy Act of 1975. We set the standard at 27.5--
    based not on just product plans, which is what the current DOT
    Secretary talks about, but product capability. This issue
    reveals the great deficiency in the way that they have
    addressed this. You have some awesome women on this panel, Mr.
    Chairman, and they have----
        Senator Lautenberg. Can you move the mike up a little
    closer?
        Ms. Claybrook. You have some awesome women on this panel,
    Mr. Chairman, and they have dissected this rule already. But I
    would like to add one piece to that, dealing with the sliding
    scale for the light-truck rule, which the Secretary's asking
    authority to have for the car standards, and that is that it's
    left to the discretion of the manufacturer as to how much fuel
    is going to be saved, because it's a sliding scale. And so, if
    a manufacturer wants to increase the weight of their vehicle
    just a little bit more, they will have less fuel economy to
    meet. That is, the whole concept of this rule is that the
    bigger the vehicle--the bigger the footprint of the vehicle--
    the less fuel economy you have to achieve. So, the larger they
    make their vehicles, the less fuel economy they have to
    achieve. So, I believe it's a mirage about how much fuel
    savings is actually going to occur under that rule. And I would
    certainly oppose that for the car standards.
        This restructuring that they're asking for, I think, is a
    terrible mistake. And it's certainly not needed for cars in the
    same way they've tried to justify it for trucks, as there's so
    much less differential between the smallest car and the largest
    passenger car. So, you really don't need it in the same way
    that you might be able to assert that it's needed for trucks.
        The suggestion that we have is that the Congress set a
    long-term goal. We haven't given a number, but we would support
    the bill that Senator Snowe has suggested. And we would
    definitely say that you should set a standard for 2008 and 2009
    in the statute, because the agency is not going to be able to
    get, as they have said today, their rulemaking done by that
    time. And so, you're not going to have any activity, really,
    until 2010.
        In response to the fuel economy standards that I set in
    1977, because there was a long-term goal of 1985, the auto
    industry immediately started changing its product plans. In
    fact, they boasted--General Motors boasted that they weren't
    going to meet 27 and a half, they were going to meet 30 by
    1985, at one point. And then, when the Administration changed,
    unfortunately the standard was lowered to 26 temporarily. And
    so, all of that fuel economy advancement left the product
    planning activity.
        So, we would definitely suggest, for 2008, a 31 mpg--the
    Secretary said, on average, that they're now at 30--and 32.5
    for 2009.
        In addition, I would just like to address safety for a
    second. I know my time is up, but if I could just take 1 minute
    to do that. The National Academy of Sciences based a conclusion
    that 2,500 deaths would be lost with an increase in fuel
    economy, based on a study by the Department of Transportation,
    authored by a gentleman named Kahane. His study was totally
    deficient, because it made an assumption, a theoretical
    statistical assumption, that you would reduce the weight of
    every vehicle by 100 pounds. And that has never happened nor
    would it. When the auto manufacturers reduce weight, they take
    it out of the behemoths. They take it out of the great big guys
    because that's the most cost-effective and efficient way for
    them to do it. It's what they did in the period between 1975
    and 1985. They never reduced the weight of the smaller
    vehicles. In fact, if you look in the back page of my
    testimony, it shows what's happened with cars. Cars used to
    vary from 5,500 pounds to 2,000 pounds. And after the 1977
    standards were issued, the fleet homogenized. And today, there
    are no 2,000-pound cars on the highway, and there are no 5,500-
    pound cars on the highway. They're now between 2,500 and 4,000.
    So, there is much more homogenization of the size/weight of
    cars today on the highway. And that's the opposite of what the
    current DOT did for the light-truck standard. They said, ``The
    bigger it is, the less fuel economy you have to meet.'' So,
    there isn't going to be any homogenization of the size of these
    big vehicles. And they don't even deal with the ones over 8,500
    pounds. So, you're going to have these very huge, dangerous
    vehicles on the highway still hitting smaller vehicles. And if
    there's one thing that this Committee could do for safety, it
    would be to command the Department of Transportation to issue a
    compatibility standard. Since now they're going to have these
    big behemoths out there, require them at least to make these
    vehicles compatible when they hit other vehicles, and that
    would save more lives than anything else.
        And it's a total myth that safety is harmed by improving
    fuel economy. In fact, safety is improved by design. If you
    design a car right, it's safe.
        Thank you so much, Mr. Chairman.
        [The prepared statement of Ms. Claybrook follows:]

        Prepared Statement of Joan Claybrook, President, Public Citizen
        Thank you, Mr. Chairman and members of the Committee, for the
    opportunity to be here today. My name is Joan Claybrook and I am the
    President of Public Citizen, a public interest organization with
    130,000 members nationwide. I was the Administrator of the National
    Highway Traffic Safety Administration (NHTSA) from 1977 to 1981, and as
    Administrator, I issued the first fuel economy standards for cars and
    light trucks. In total, I have worked to improve motor vehicle safety
    and fuel economy for more than 40 years.
        The fuel economy standard for passenger cars has not been raised
    since I issued the 27.5 miles-per-gallon (mpg) standard in 1977 under
    the Energy Policy and Conservation Act (EPCA) of 1975. The standard has
    not changed since 1990, when it was revised back to 27.5 after being
    lowered in 1986. The current standard is still 27.5 mpg and was first
    achieved in 1985 as the law required; more than twenty years of lost
    opportunities to increase fuel economy have been squandered by
    inaction. If the car standard were an extremely reasonable 35 mpg
    today, we would save approximately 1.1 million barrels of oil each and
    every day. If the standard was an achievable fleet-wide average of 40
    mpg, we would save approximately 3.4 million barrels of oil a day.\1\
    Over the course of a year, these savings would total approximately 1.24
    billion barrels, a quantity almost one-and-a-half times greater than
    our current annual imports from the Persian Gulf.
    ---------------------------------------------------------------------------
        \1\ Analysis by Therese Langer, Transportation Program Director,
    American Council for an Energy-Efficient Economy.
    ---------------------------------------------------------------------------
        Increasing the fuel economy of passenger vehicles would lower gas
    prices within a few years by reducing demand substantially. It would
    also bolster national security, improve safety, conserve natural
    resources, reduce pollution and help slow the effects of global
    warming. It is critical that Congress act to ensure an increase in fuel
    economy standards for passenger cars, which account for approximately
    25 percent of our total oil consumption.\2\
    ---------------------------------------------------------------------------
        \2\ Ibid.
    ---------------------------------------------------------------------------
        I would like to urge Congress to take the following actions to
    improve car fuel economy:

            1. Congress should clarify whether NHTSA has the authority to
            raise the fuel economy standards for passenger vehicles in the
            absence of the Congressional veto, which the Supreme Court
            declared unconstitutional in Public Citizen's lawsuit, INS v.
            Chadha in 1983.\3\

        \3\ See INS v. Chadha, 462 U.S. 919 (1983).
    ---------------------------------------------------------------------------
            2. Congress should require an increase in passenger car fuel
            economy standards.

            3. To assure immediate improvements in fuel savings, Congress
            should statutorily set the fuel economy standard at 31 mpg for
            2008 cars and 32.5 mpg for 2009 cars and direct NHTSA to set
            higher standards for later model year passenger vehicles
            through 2015.

            4. Congress should direct NHTSA to promulgate a single mpg
            requirement rather than a sliding-scale standard, like the
            light truck fuel economy standard the agency just issued on
            April 6, 2006. I will make the case that, contrary to arguments
            otherwise, increases in the single mpg fuel economy standard
            for cars would improve, not harm, safety, and a sliding-scale
            system for car fuel economy is not needed to ensure fair
            competition among manufacturers.

            5. Congress should lock in the minimum miles per gallon at 27.5
            through a backstop measure that increases the minimum miles per
            gallon as the fuel economy standard is increased.

        One of the hotly debated issues regarding the car fuel economy
    standard is whether clarification of NHTSA's authority to increase the
    standard is needed for the agency to act. While some legal experts say
    that it is not necessary, others say it is likely required. To avoid
    almost-certain litigation over this issue, Congress should clarify
    NHTSA's legal obligation to raise fuel economy standards for passenger
    cars given the removal of the Congressional veto.
        Such a clarification should also provide a mandate to act. The
    current law states only that the Secretary ``may'' raise fuel economy
    standards.\4\ Any reasonable clarification of this standard would
    require that the Secretary ``shall'' raise fuel economy standards for
    cars by a certain date consistent with achievement of the maximum
    feasible average as defined in the current law. This would provide a
    new mechanism for agency accountability should NHTSA fail to act.
    ---------------------------------------------------------------------------
        \4\ See 49 U.S.C. Sec. 32902(c)(1).
    ---------------------------------------------------------------------------
        NHTSA agrees that clarification of its authority would be useful.
    The position of NHTSA, as articulated by Department of Transportation
    (DOT) General Counsel Jeffrey Rosen at a hearing by the House of
    Representatives' Energy and Commerce Committee on May 3, 2006, was that
    ``the statute had provided the authority subject to a legislative veto
    and that's why it would be good to clarify'' it. In its rulemaking
    notices, NHTSA has stated only that it has authority to ``change'' the
    standards on the right showing of need under the statute. However, the
    only ``change'' NHTSA has ever made to the 27.5 mpg standard was to
    lower it in 1986 to 26 mpg, which is consistent with the agency's
    citation of case law concerning NHTSA's authority to lower the standard
    under the current statute.\5\ The standard subsequently returned in
    1990 to 27.5 mpg where it has stagnated for the past 16 years.
    ---------------------------------------------------------------------------
        \5\ See CEI v. NHTSA, 901 F.2d 107 (1990); CEI v. NHTSA, 956 F.2d
    312 (1992); CEI v. NHTSA, 45 F.3d 481 (1995).
    ---------------------------------------------------------------------------
        Because of the urgent need to address high fuel prices, Congress
    should also avoid needless delay in payoff from increased car fuel
    economy by statutorily setting the standard for model years 2008 and
    2009. This would provide the necessary lead-time for rulemaking by
    allowing NHTSA to set higher standards for later model year passenger
    vehicles. Under the current law, NHTSA must provide 18 months of lead
    time prior to a model year to allow automakers to form or adjust
    product plans. The light truck standard beginning in model year 2008
    was just issued by NHTSA on April 6, 2006--18 months prior to the start
    of that model year. If Congress were to act quickly, it would provide
    virtually 18 months notice for automakers regarding the passenger
    vehicle standard for model year 2008 and substantially more notice for
    model year 2009. However, the agency should be encouraged to issue
    future standards with greater lead time to allow companies to meet more
    demanding standards.
        According to data from the Environmental Protection Agency, which
    files an annual report tracking trends in vehicle fuel economy,
    automakers experience, on average, fuel efficiency gains of 1.9 mpg in
    each model year. These are the result of innovation and progress in
    vehicle and technology design and manufacturing.\6\ In the absence of
    meaningful fuel economy requirements, most of this added efficiency in
    cars and light trucks has been used for bulking up vehicle weight,
    acceleration and torque.
    ---------------------------------------------------------------------------
        \6\ U.S. Environmental Protection Agency, ``Light-Duty Automotive
    Technology and Fuel Economy Trends: 1975 Through 2003,'' EPA420-R03-
    006, April 2003.
    ---------------------------------------------------------------------------
        It has been over twenty years since automakers have been told to
    use this increase for fuel economy purposes. Last week, the Department
    of Transportation (DOT) admitted that the average car fleet fuel
    economy today is about 30 mpg, but some manufacturers are still below
    the 1985 standard.\7\ Many existing cost-effective fuel-saving
    technologies, such as six-speed transmissions, have been allowed to
    molder on the shelf. Based on the existing standard, an increase of 1.9
    mpg per year consistent with EPA's calculated fuel efficiency increases
    would predict achievable fuel economy of at least 30.3 mpg in 2008 and
    32.2 mpg in 2009. Given the use of hybrid and other advanced
    technologies, manufacturers could easily meet fuel economy standards of
    31 mpg for 2008 model year cars and 32.5 mpg for 2009 model year cars.
    Congress should mandate these increases to avoid rulemaking delays
    while allowing NHTSA to set the standard through notice-and-comment
    rulemaking for model year 2010 and later.
    ---------------------------------------------------------------------------
        \7\ See Juliet Eilperin, ``Resistant Lawmakers Now Back Higher Gas
    Mileage Standards,'' Washington Post, May 4, 2006 and Matthew Wald,
    ``Plan to Reshape Mileage Standards Could Buoy Detroit,'' New York
    Times, May 7, 2006.
    ---------------------------------------------------------------------------
        Congress should also specify that the car standard be a single
    standard rather than a sliding-scale system. Congress could do this by
    adding the phrase ``a single standard'' to the mandate. There is no
    need for the passenger car standard to incorporate a restructuring of
    the current system. The agency's stated concerns about the safety
    effects of down-weighting in response to a single standard are
    unfounded. Another common argument for a sliding-scale system is that
    it may help to assure there is fair competition among manufacturers.
        This argument was used by NHTSA in support of the new light truck
    fuel economy standards for model years 2008 through 2011, which is
    based on a sliding scale that requires larger vehicles to comply with
    less stringent standards. The measure used by the agency is vehicle
    ``footprint,'' or the space occupied by the vehicle on the highway--
    essentially, the length times the width of the vehicle between tires,
    or wheelbase. This system is intended to insulate full-line
    manufacturers from a disadvantage in competing with manufacturers that
    make smaller light trucks and can therefore more easily meet fuel
    economy standards.
        This circumstance does not apply to the car marketplace, as most
    manufacturers now make a full line of vehicles. For instance, using
    EPA's four car classes--subcompact, compact, midsize and large--seven
    of eleven major manufacturers produce a large sedan and nine of eleven
    produce a subcompact. Moreover, relative differences in fuel economy
    between light and heavy cars are not nearly as great as they are
    between trucks.
        In contrast, any restructured system that creates a sliding scale,
    such as the recent light truck and SUV fuel economy standards, raises
    serious concerns that oil savings will erode, or even evaporate, over
    time due to the risk that manufacturers will up-size vehicles to
    qualify for less stringent standards. Figure A, below, examines
    manufacturers' product plans, as submitted to NHTSA, for the light
    truck fleet at the time the light truck fuel economy standard was
    proposed and compares them with manufacturers' plans at the time the
    final rule was issued. The chart shows a significant reduction in the
    number of vehicles with the smallest footprint classification, or Bin 1
    in the chart, and a significant increase in the number of vehicles with
    the largest footprint classification in just the brief period of time
    between the issuance of the advanced notice of proposed rulemaking
    (ANPRM) on August 30, 2005, and issuance of the final rule on April 6,
    2006. This shows that automakers will, as they confessed to Automotive
    News, alter product plans and the footprint of vehicles in response to
    fuel economy-related incentives from NHTSA.\8\
    ---------------------------------------------------------------------------
        \8\ See Harry Stoffer, ``New CAFE Rules Could Backfire,''
    Automotive News, April 3, 2006.

        * Source: NHTSA, ``Average Fuel Economy Standards for Light Trucks
    Model Years 2008-2011,'' Federal Register, Vol. 71, No. 66, April 6,
    2006, Figures 9 and 10.
        ** Bin 1 encompasses vehicles with footprints ranging from 34 to 43
    square feet. Bin 2 encompasses vehicles with footprints ranging from 44
    to 47 square feet. Bin 3 encompasses vehicles with footprints ranging
    from 48 to 51 square feet. Bin 4 encompasses vehicles with footprints
    ranging from 52 to 56 square feet. Bin 5 encompasses vehicles with
    footprints ranging from 57 to 64 square feet. Bin 6 encompasses
    vehicles with footprints ranging from 65 to 79 square feet.

        Indeed, NHTSA's recent light truck fuel economy final rule projects
    only oil savings ``estimates'' due to the unpredictability of potential
    changes in manufacturers' future product plans for model years 2008
    through 2011. Without a backstop or ratchet mechanism that would be
    triggered when oil savings fail to materialize, a sliding-scale
    passenger car standard would leave the Nation's level of oil savings at
    the mercy of profit-driven decisions by automakers, which may choose to
    ``game'' the car standard in the same way they are evidently now
    responding to the light truck rule. The incentive to upsize that comes
    with a sliding-scale system may also lead to larger and more aggressive
    vehicles, reducing overall safety.
        NHTSA's rather blithe assurances in this regard cannot be relied
    upon. While the agency claimed that oil savings from the rule would
    total 10.7 billion gallons over the lifetime of model year 2008-2011
    vehicles, its public statements failed to note that it never modeled
    the automakers' likely choices regarding the various options available
    under the rule. Instead, the agency counted oil savings for ``best
    case'' compliance scenarios not actually required by the rule.
    Moreover, the agency's oil savings estimate of 10.7 billion gallons
    included gains from changes in automakers' product plans made long
    before issuance of the agency's final rule. In sum, the oil savings
    numbers from NHTSA were fictional.
        Congress should include a ``no backsliding'' measure locking in the
    minimum miles per gallon for the car fleet at 27.5 mpg, or for model
    years 2008 and 2009, the Congressionally-mandated new standard. The
    measure would require a fleet-wide fuel economy average for each
    manufacturer so that overall fuel economy gains are not lost because
    vehicles qualify for a less stringent based on their footprints. A ``no
    backsliding'' measure would ensure a base level of oil savings,
    reducing the risk of fleet erosion and incentive for gaming, and remove
    some manufacturer caprice from the equation. The minimum miles per
    gallon in the ``no backsliding'' measure should also be increased with
    each future increase in the fuel economy standard for cars.
        Finally, I would like to emphasize that both car and light truck
    fuel economy can be improved without sacrificing safety. A common
    concern promoted by auto manufacturers is that fuel economy
    improvements result in down-weighting and thus affect safety. However,
    the large number of fuel-saving technologies gathering dust on the
    shelf means that Congress need not fear any safety risks from vehicle
    down-weighting in response to higher fuel economy standards.
        Historically, manufacturers have relied primarily on fuel-saving
    technologies, not changes in weight, to improve vehicle fuel economy.
    In fact, after the passenger car CAFE standard were issued in 1977,
    according to the Department of Energy, 85 percent of fuel economy gains
    came from gas-saving technologies and not from reducing vehicle weight.
    For the other 15 percent, automakers decreased the weight of only the
    heaviest vehicles, as investing in redesign of those vehicles paid the
    largest dividends in fuel savings.
        For lighter vehicles, the payoff for removing weight is minimal and
    requires an expensive vehicle redesign. It is not, as some have wrongly
    asserted, cheap to accomplish. Therefore, weight changes are reserved
    as a fuel economy tool for only the heaviest vehicles in a
    manufacturer's fleet.
        In addition, since 1985, when the 1977 fuel economy standard fully
    took effect at 27.5 mpg, auto companies have vastly increased the
    weight and engine power of automobiles, using fuel-saving technologies
    not to improve fuel economy, but to offset the increases in vehicle
    weight and engine power and maintain compliance with the 1985 standard.
    As I mentioned earlier, data from the Environmental Protection Agency
    show that automakers experience, on average, fuel efficiency gains of
    1.9 mpg in each model year. But such gains have been used to make
    vehicles bigger and faster, not to improve fuel economy. Significant
    fuel economy savings could be easily achieved through installation of
    sensible engines and some accompanying down-weighting in the largest
    and heaviest vehicles.
        In sum, given the current availability of fuel-saving technologies,
    as in the 1970s, any weight changes in response to a more stringent
    fuel economy standard would be concentrated, for economic reasons, in
    the heaviest part of the car fleet. Reducing weight in this segment of
    the vehicle fleet is both productive for fuel economy and beneficial in
    terms of safety for others on the road. No such reduction occurred.
        NHTSA's Kahane study, which is the basis for the National Academy
    of Sciences (NAS) study on the relationship between fuel economy and
    safety, posits a negative safety impact as a result of fuel economy
    increases. The study, however, wrongly assumes that fuel economy
    standards cause an across-the-board reduction in vehicle weights of 100
    lbs. removed from each vehicle.
        Additionally, the NAS report estimating that CAFE caused thousands
    of additional deaths in 1993 was wrong. That estimate was hotly
    disputed in a written dissent by two of the NAS panel members. In
    Figure B, below, the numbers for 1993 vehicle weights show that there
    was no across-the-board reduction by 100 pounds of vehicle weight.
    Instead the impact of CAFE had long been absorbed and the vehicle fleet
    normalized.
        Even in earlier years, there was no down-weighting of vehicles on
    the lightest end of the vehicle fleet and no explosion of tiny
    vehicles. For example, between 1976 and 2003, the market share for
    heavier new cars weighing 3,000-3,500 lbs. nearly doubled, rising from
    15 percent to a 37 percent total market share in 2003. Meanwhile, at
    just over 10 percent in 2003, the market share of lighter new cars
    weighing 2,000-2,750 lbs. is half what it was in 1976. The largest
    cars, weighing more than 4,000 lbs, all but disappeared and only
    reappeared in the most recent years.
        Thus, there has been a homogenization of automobiles in terms of
    weight, which the GAO reported in the 1990s is an asset for safety
    because the behemoths of the 1970s were a hazard to others on the
    highway. An across-the-board 100 lbs. reduction in vehicle weight did
    not happen after the CAFE standards were issued in 1977, and will not
    happen in the future for the cost-effectiveness reasons explained
    above.

        Comparing historical fact with Kahane's 100 lb. assumption
    demonstrates why the NAS's use of Kahane's results has produced a
    widespread and unfortunate misunderstanding concerning safety and fuel
    economy.
        In addition, the most important factor for safety is good vehicle
    design. Vehicle structure, crashworthiness and interior protections, as
    well as compatibility with other vehicles on the road, are all
    critical. The most significant step Congress could take to increase
    vehicle compatibility would be to require the agency to issue a
    compatibility safety standard in upcoming legislation. The 2001 and
    2002 models of Honda Civics, for instance, have a far lower driver
    death rate than many much heavier cars.\9\ Moreover, longitudinal
    studies by Clarence Ditlow of the Center for Auto Safety, shown below
    in Figure C, of particular vehicles affected by the 1970s CAFE rules
    show through matched-pairs analysis that vehicles were brought into
    compliance with CAFE rules at the same time that they were made safer.
    ---------------------------------------------------------------------------
        \9\ Source: Insurance Institute for Highway Safety, ``Risk of Dying
    in One Vehicle Versus Another,'' Status Report, Vol. 40, No. 3, March
    19, 2005. Available at http://www.iihs.org/news/2005/
    iihs_sr_031505.pdf.

        In summary, Congress should take the following steps to improve car
    ---------------------------------------------------------------------------
    fuel economy:

            1. Congress should clarify NHTSA's authority to raise the fuel
            economy standard for passenger cars with a single corporate
            average fuel economy by providing a mandate to do so consistent
            with the agency's obligation to achieve maximum feasible fuel
            economy, as defined in current law.

            2. Congress should require an increase in passenger car fuel
            economy standards.

            3. Congress should statutorily set the fuel economy standard at
            31 mpg for 2008 cars and 32.5 mpg for 2009 cars and direct
            NHTSA to set higher standards for later model year passenger
            vehicles through 2015.

            4. Congress should direct NHTSA to promulgate a single mpg
            requirement rather than a sliding-scale standard.

            5. Congress should lock in the minimum miles per gallon at 27.5
            through a backstop measure that increases the minimum miles per
            gallon as the fuel economy standard is increased.

        Congress should also address several other issues critical to
    improving vehicle fuel economy. Congress should provide increased
    funding to the CAFE program to ensure its effectiveness. The program
    should receive at minimum $30,000,000--approximately the inflation-
    adjusted equivalent of the amount of $10 million that the CAFE program
    received to implement the first standards in 1977--and twenty staff
    members. Only with sufficient resources can the agency adequately
    research and support its decisions.
        Congress should also consider eliminating the CAFE credits for
    production of flex-fuel vehicles, which only undermine fuel economy
    achievements, and instead substitute a mandate for production of flex-
    fuel vehicles capable of running on ethanol and other alternative
    fuels. And lastly, Congress should revise the statutory definition of
    passenger and non-passenger vehicles to reflect changes in the vehicle
    fleet since 1975 when EPCA was enacted. SUVs and minivans are currently
    classified as non-passenger vehicles despite their use to primarily
    transport people. The definitions should be updated to reflect current
    driving habits.
        As the former Administrator of NHTSA charged with issuing the
    nation's first fuel economy standards in the 1970s, I urge the Congress
    to act to improve car fuel economy.

        Senator Lott. Thank you, Ms. Claybrook.
        Mr. Friedman?

            STATEMENT OF DAVID FRIEDMAN, RESEARCH DIRECTOR/
      SENIOR ENGINEER, CLEAN VEHICLES PROGRAM, UNION OF CONCERNED
                               SCIENTISTS

        Mr. Friedman. Thank you, Mr. Chairman and members of the
    Committee.
        I'm the Research Director for the Union of Concerned
    Scientists, and a Senior Engineer. UCS has been working at the
    intersection of science and policy for over 30 years. And
    that's exactly what the issues are, facing us today.
        The President could not have been more correct when he told
    the Nation that we are addicted to oil. We import over 60
    percent of our oil and other petroleum products. Every minute,
    $500,000 that could have been spent creating U.S. jobs and
    strengthening our economy, instead leaves this country to
    support our import habit.
        The cost of our addiction, however, does not end there.
    Only the entire economies of the United States, China, and
    Russia exceed the global warming pollution resulting from U.S.
    cars and trucks alone. We are already seeing the impacts.
    Nineteen of the 20 hottest years on record have occurred since
    1980.
        One of the reasons for this problem is that the average
    fuel economy of the fleet of new cars and trucks sold in the
    United States in 2005 was lower than it was in 1985. And while
    automakers always note the number of models on the market that
    get more than 30 miles per gallon on the highway, they fail to
    mention that most are mid-size or compact cars, and that
    consumers spend most of their time driving in congested city
    conditions.
        The answer to high gas prices, in the long run, our always
    addiction, and our warming planet is not limiting fuel economy
    choices, as automakers have done, but, rather, giving
    consumers, who need vehicles of all shapes and sizes, safe and
    high-fuel-economy options. There's a lot of focus on silver-
    bullet solutions these days, whether it's a new fuel or a new
    extremely advanced technology that is not going to help us for
    another 20 or 30 years. The answer is not long-term silver
    bullets. The answer is ``eating right and getting more
    exercise.'' And that's what fuel economy can give you.
        [Laughter.]
        Mr. Friedman. What we have lacking in the showrooms is the
    41-mile-per-gallon family car, the 37-mile-per-gallon minivan,
    the 34-mile-per-gallon mid-size SUV, and the 30-mile-per-gallon
    pickup. These are the vehicles that the National Academies
    report, requested by Congress, shows are possible with existing
    technology. Together, these vehicles, in a fleet with the
    makeup of what the National Academies studied, would average 37
    miles per gallon and would save consumers a net of $2,500 over
    their lives.
        I fear, however, that if left up to the President,
    consumers are not likely to get relief from high gasoline
    prices. The President's recent rulemaking on light trucks will
    save less than 2 weeks' worth of gasoline each year for the
    next two decades.
        Furthermore, the President's rulemaking applied to--applied
    size-based standards in a way that will lead to the erosion of
    even this small amount by encouraging automakers to market
    larger, lower fuel economy vehicles, and even allowing them to
    abandon some sectors of the market.
        Congress can ensure that this erosion does not happen by
    requiring a fleet-wide fuel economy backstop of 37 miles per
    gallon when giving the President the authority to set size-
    based standards for passenger and nonpassenger automobiles.
    This target is based on the guidance requested by, and received
    from--requested by Congress and received from the National
    Academy of Sciences, and would cut oil dependence by 3.5
    million barrels per day.
        I'm sorry, one quick statement. I know my time is up, but I
    just wanted to point out that while the NAS study clearly
    states that fuel economy can be increased with no impact on
    safety of our cars and trucks, critics of fuel economy
    standards often make claims to the contrary. But these claims
    do not stand the test of the light when compared with three
    recent reports that have come out since the National Academy of
    Sciences study was released. They demonstrate that fuel economy
    is not linked with increased fatalities. Large vehicles do not
    have lower fatality rates compared to smaller vehicles. And
    increased weight is actually associated with increased
    fatalities.
        At the end of the day, investing in fuel economy and
    efficiency to cut oil use is the best policy that we can apply
    to get savings over the next two decades. Congress should not
    defer its regulatory authority to the Administration, and it
    need not, as it can base fuel economy targets on the scientific
    research it requested. Congress can be confident that this is
    technically feasible, cost effective, and safe.
        Thank you.
        [The prepared statement of Mr. Friedman follows:]

        Prepared Statement of David Friedman, Research Director/Senior
        Engineer, Clean Vehicles Program, Union of Concerned Scientists
        Thank you, Mr. Chairman and members of the Committee, for the
    opportunity to testify before you today. My name is David Friedman. I
    am the research director and a senior engineer with the Union of
    Concerned Scientists' (UCS) Clean Vehicles Program. UCS is a nonprofit
    partnership of scientists and citizens that has been working at the
    intersection of science and policy for over 30 years.
        The President could not have been more correct when he told the
    Nation that we are addicted to oil. Data from the Energy Information
    Administration indicates that we import over sixty percent of our oil
    and other petroleum products. Last year the cost of our oil and
    petroleum imports was equivalent to almost one-third of the United
    States trade deficit. At today's oil prices, we are sending more than
    $500,000 to other countries every minute just to purchase that oil and
    other petroleum products. In other words, every minute over one half of
    a million dollars that could have been spent creating U.S. jobs and
    strengthening our economy leaves this country. Forty percent of the oil
    dependence responsible for this is due to the 220 million cars, SUVs,
    minivans and pickup trucks we drive every day.
        The cost of our addiction, however, does not end there. For each
    mile our cars, SUVs, minivans and pickups drive each year, another
    pound of global warming pollution (carbon dioxide equivalent) is
    released from the tailpipe. That means each vehicle produces six tons
    of global warming pollution from its tailpipe every year and the fleet
    of automobiles produces over 1,300 tons. Including the global warming
    pollution emitted in making the fuel required for these vehicles, the
    total impact represents about 1,700 tons of global warming pollution,
    more than most countries produce from their entire economies. Only the
    entire economies of the United States, China, and Russia exceed the
    global warming pollution resulting from our cars and trucks alone.
        Since the time when Model T was first mass-produced, global warming
    pollution from cars and many other sectors throughout the world has
    increased carbon dioxide levels in the atmosphere to levels higher than
    the globe has experienced for the past 650,000 years. We are already
    seeing the impacts. Nineteen of the twenty hottest years on record
    (since 1880) have occurred since 1980. Five of the six hottest years
    have occurred just since 2000. As the problem accelerates, we will be
    forced to rename Glacier National Park as the glaciers disappear and
    dramatic impacts will be felt in lives and economies throughout the
    country and the world.
    Ending the Addiction
        As long as the United States is tied to oil, American's pocket
    books will be susceptible to instability in the Persian Gulf and other
    regions of the world. Rising oil consumption in China and other
    developing nations will only make matters worse. And as long as the
    United States is tied to fossil fuels, we will be contributing to many
    significant environmental problems that impact our health and our
    economy, especially the reality of global warming.
        These facts make the destination clear--in the next fifty years, we
    must switch to clean, renewable fuels to power our cars and trucks--but
    the reality is that there are no silver bullets to tap into overnight.
    We will continue to be dependent on oil as a transportation fuel for
    decades to come. Yet we have the ability to dramatically lessen the
    addiction. There is reason for optimism if we put policies in place
    that ask both consumers and automakers to take the necessary steps to
    increase fuel economy and reduce travel. Both of these steps will also
    ensure that renewable fuels work in the long run, because if we keep
    increasing the amount of fuel we use, the alternatives will take up too
    much land, be too expensive, and may just lead to imports of
    alternatives from countries that are just as unfriendly towards U.S.
    interests as most oil producers are today.
        Consumers can and must do their part by keeping their tires pumped
    up, getting regular vehicle maintenance, reducing travel through
    carpooling, taking transit when available, walking or biking if it is
    safe, combining trips, and purchasing the highest fuel economy car or
    truck that meets their needs. But the last step is very difficult in
    today's market. The average fuel economy of the fleet of new cars and
    trucks sold in the U.S. in 2005 was lower than it was in 1985.
    Automakers note the number of models on the market that get more than
    30 miles per gallon on the highway, but they fail to mention that most
    of those are mid-size or compact cars and that consumers spend more of
    their time driving in congested urban conditions. The answer to high
    gas prices, our oil addiction, and our warming planet is not limiting
    fuel economy choices as automakers have done, but rather giving
    consumers who do need vehicles of all shapes and sizes the safe, high
    fuel economy options they need to be able to find in the showrooms.
    Consumer Choice
        In the past, fuel economy standards have ensured that consumers
    could have higher fuel economy vehicles and not have to give up
    options. Just as we see today, automakers were not ready for the
    gasoline shortages and the price spikes that occurred in the early
    1970s. As a result consumers jumped on the only option they had at the
    time, relatively poorly designed smaller cars. However, as fuel economy
    standards were fully phased in automakers switched from giving
    consumers poor choices to putting technology in all cars and trucks so
    consumers could have options in the showroom with 70 percent higher
    fuel economy than they had in 1975 (2005 EPA Fuel Economy Trends
    Report).
        Today, consumers have vehicles that are larger and faster than they
    had in 1975, but they get higher fuel economy due to Corporate Average
    Fuel Economy Standards. If the fuel economy of today's cars and trucks
    was at the level the fleet experienced in 1975 instead of today's 25
    miles per gallon, we would be using an additional 60 billion gallons of
    gasoline on top of the 140 billion gallons we will use this year. At
    $2.50 per gallon, that represents $150 billion saved. That number could
    have been much higher, however, if fuel economy standards had not
    remained essentially unchanged for the past two decades.
        The fact that fuel economy standards have remained stagnant has yet
    again allowed automakers to set up consumers for a fall. With regular
    gasoline hovering around $3.00 per gallon, consumers have few good
    choices in the marketplace. Hybrids are now on the market and their
    sales are growing, but manufacturer production capabilities are very
    limited and will be slow to grow while the hybrids carry a higher price
    premium. What is lacking from the market is the over 40 mpg family car,
    the 37 mpg minivan, the 34 mpg mid-sized SUV, and the 30 mpg pickup.
    These are the vehicles that the National Academies report, requested by
    Congress, shows are possible with existing technology (Effectiveness
    and Impact of Corporate Average Fuel Economy (CAFE) Standards, page
    38). Together in a fleet of the same make-up as the NAS analyzed, these
    vehicles would average 37 mpg. Over the life of these vehicles,
    consumers would more than pay for the cost of the technologies, saving
    a net of $2,500, essentially paying consumers to help cut our oil
    dependence and global warming pollution.

        All that is possible without hybrids, diesels, or high-strength
    materials, as the NAS study did not include these in their detailed
    technology evaluations. In fact, as noted in a February 9, 2005 press
    release from Resources For the Future regarding the former RFF
    President's statement before the House Science Committee, ``[Paul]
    Portney, Chair of the National Research Council's Committee on
    Effectiveness and Impact of CAFE Standards, noted that, upon
    reflection, the Committee's 2001 report may have been too conservative
    in its fuel economy recommendations . . . `It might be possible to meet
    more stringent fuel economy standards at lower costs than the Committee
    foresaw in 2001.' ''
        Union of Concerned Scientists' analysis of conventional technology,
    which included the NAS technologies as well as high-strength materials,
    indicates that such a fleet could go even farther. Examples of some of
    these technologies are shown in Figure 1 at the end of this document. A
    fleet that put these technologies to work could reach 40 mpg over the
    next ten years while providing the same size, acceleration and even
    improved performance compared to today's vehicles. Tapping hybrid and
    diesel technology could bring the fleet to more than 50 mpg by 2025.
    Setting Standards and Presidential Authority
        With the NAS study as its foundation, Congress can and should set a
    fleet-wide fuel economy target for all new cars, SUVs, minivans, and
    pickups at 37 miles per gallon within the next ten years. Congress
    should not defer its regulatory authority to the Administration and it
    need not as it can base such standards on the scientific research it
    requested. Congress can be confident that this is both technically
    feasible, cost effective, and safe. The engineers, scientists and other
    experts on the NAS CAFE panel noted that, ``. . . it is technically
    feasible and potentially economical to improve fuel economy without
    reducing vehicle weight or size, and, therefore, without significantly
    affecting the safety of motor vehicle travel.''
        This committee has the opportunity to ensure that savings like
    these are realized in our near future. If Congress does not exercise
    this authority, consumers are likely to receive little relief from high
    gasoline prices. The president's recent rulemaking on light trucks will
    save less than two weeks of gasoline each year for the next two
    decades. Such a small amount will not make a significant dent in our
    oil addiction. Furthermore, the president's rulemaking applied size-
    based standards in a way that will lead to erosion of even this small
    amount. Improperly designed, size-based standards encourage automakers
    to market larger, lower fuel economy vehicles, and allow them to
    abandon some sectors of the market. In the 1990s we saw the impact of
    improperly designed class-based standards as automakers took advantage
    of the loophole allowing a lower standard for minivans and SUVs despite
    the fact that they are passenger vehicles and should have been included
    in that category instead of with pickups and cargo vans in the non-
    passenger category established by Congress. The result has been a
    decline in fleet-wide fuel economy from its peak of nearly 26 mpg in
    1987 to 24.6 mpg in 2005 (EPA Fuel Economy Trends Report).
        Congress can ensure that this erosion does not happen again by
    requiring a fleet-wide fuel economy backstop when giving the President
    the authority to set size-based standards for passenger and non-
    passenger automobiles. If Congress does only the latter, however, the
    benefits will be small to non-existent given the Administration's
    actions on minivans, SUVs and pick-ups.
        Based on the guidance requested and received from the NAS, Congress
    should ask that the President put in place regulations to ensure that
    the average fuel economy of the fleet of new cars, SUVs, mininvans and
    pickups sold ten years from now be at least 37 miles per gallon. By
    doing this, Congress would be fulfilling its regulatory role by setting
    a fleet-wide fuel economy target that will cut oil dependence by 3.5
    million barrels per day in 2025. In addition, setting a fleet-wide fuel
    economy target within the context of size-based standards would create
    a backstop that would ensure both that the oil savings are realized and
    that consumers will get the choices they will need in a world marked by
    continuing high and unstable gasoline prices and growing impacts of
    global warming.
    Economic and Jobs Impacts of Setting Fuel Economy Targets
        Contrary to claims by the auto industry, investments in fuel
    economy technology, just like other investments, will lead to
    prosperity. In order to quantify the benefits of actions to increase
    future fuel economy, UCS estimated the effect of moving existing
    technologies into cars and trucks over the next 10 years to reach an
    average of 40 miles per gallon (mpg) by 2015. Slowing down the timeline
    or reducing the fuel economy target would reduce the benefits, but for
    40 mpg we found that:

       In 2015, the benefits resulting from investments in fuel
            economy would lead to 161,000 more jobs throughout the country,
            with California, Michigan, New York, Florida, Ohio, and
            Illinois topping the list.

       In the automotive sector, projected jobs would grow by
            40,800 in 2015.

       For consumers, the cost of the new technology would more
            than pay for itself, saving a net $23 billion in 2015 alone.

        Getting technologies like these into the fleet over the next ten
    years and then tapping into the growing potential of hybrid cars and
    trucks could get us to the point of saving five to six million barrels
    of oil per day by 2025 (Figure 2). That would be enough of a reduction
    in oil use to stop the current growth in oil demand and hold us where
    we are today while we wait for the breakthroughs that are needed for
    clean and renewable alternatives to oil. The new jobs would be created
    both because of investments in new technologies by the automakers and
    because consumers would shift spending away from gasoline to more
    productive products and services.
        Requiring all automakers to improve fuel economy will increase the
    health of the industry. Companies like Ford and General Motors are
    currently in junk-bond status due to poor management decisions, not
    fuel economy standards, which have been stagnant for the past two
    decades. Those poor decisions have put them in a place where, just as
    in the 1970s, they do not have the products consumers need at a time of
    high gasoline prices, and they are continuing the slide in market share
    that began the first time they made this mistake.
        In contrast to automaker claims, it is actually high gasoline
    prices, not technology investment, which will undermine the health of
    the domestic automobile industry. According to a recent study by the
    University of Michigan and the NRDC, a sustained gasoline price of
    $2.86 per gallon would lead Detroit's Big 3 automakers' profits to
    shrink by $7 billion as they absorb 75 percent of the lost vehicle
    sales as consumer budgets are squeezed compared to a scenario with
    gasoline at $1.96 per gallon. This would put nearly 300,000 people out
    of work in states like Indiana, Michigan, Ohio, Oklahoma, Texas and
    Wisconsin.
        By requiring Ford, GM, and all automakers give consumers the
    choices they need, Congress can ensure automaker jobs stay in the U.S.
    and models like the Ford Explorer and Chevrolet Tahoe are still on the
    market ten years from now but they will go farther on a gallon of gas.
    Safety Impacts of Setting Fuel Economy Targets
        While the NAS study clearly states that fuel economy can be
    increased with no impact on the safety of our cars and trucks, critics
    of fuel economy standards often point to the chapter, which takes a
    retrospective look at safety. Despite the fact that this chapter did
    not represent a consensus of the committee (a dissenting opinion was
    included in the appendices) and the fact that three major analyses have
    since shown that fuel economy and safety are not inherently linked,
    claims are still made to the contrary.
        First, David Greene (one of the NAS panel members) produced a
    report with Sanjana Ahmad in 2004 (The Effect of Fuel Economy on
    Automobile Safety: A Reexamination), which demonstrates that fuel
    economy is not linked with increased fatalities. In fact, the report
    notes that, ``higher mpg is significantly correlated with fewer
    fatalities.'' In other words, a thorough analysis of data from 1966 to
    2002 indicates that Congress can likely increase fuel economy without
    harming safety if the past is precept.
        Second, Marc Ross and Tom Wenzel produced a report in 2002 (An
    Analysis of Traffic Deaths by Vehicle Type and Model), which
    demonstrates that large vehicles do not have lower fatality rates when
    compared to smaller vehicles. Ross and Wenzel analyzed Federal accident
    data between 1995 and 1999 and showed that, for example, the Honda
    Civic and VW Jetta both had lower fatality rates for the driver than
    the Ford Explorer, the Dodge Ram, or the Toyota 4Runner. Even the
    largest vehicles, the Chevrolet Tahoe and Suburban had fatality rates
    that were no better than the VW Jetta or the Nissan Maxima. In other
    words, a well-designed compact car can be safer than an SUV or a
    pickup. Design, rather than weight, is the key to safe vehicles.
        Finally, a study by Van Auken and Zellner in 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) indicates that increased weight is associated with increased
    fatalities, while increased size is associated with decreased
    fatalities. While this study was not able to bring in the impacts of
    design as well as size, it helped inform NHTSA as they rejected weight-
    based standards in favor of size-based standards based on the vehicle
    footprint.
        These studies further back up Congress's ability to set fuel
    economy targets of 37 mpg for the fleet in the next ten years without
    impacting highway safety.
    Conclusions
        Setting a fleet-wide target of 37 mpg in 10 years while giving the
    President the authority to reach that target through size-based
    standards will save consumers money, stimulate the economy, create and
    protect jobs and preserve the safety of our vehicles. All of these
    benefits will come in addition to cutting our oil dependence and
    emissions of global warming pollutants from our cars and trucks.
        Investing in efficiency to cut oil use, the equivalent of eating
    right and getting more exercise, has been overlooked for the past two
    decades. Fuel economy technology has gone to double the power of our
    car engines and increase weight by 25 percent. Consumers are clearly
    happy with the size and acceleration of their vehicles today. We don't
    have to change that. But consumers are clearly unhappy with the cost of
    high gasoline prices and our economy and our environment cannot sustain
    the impacts of our oil addiction.
        Congress has the opportunity to ensure that automakers spend the
    next 20 years using technology to curb our oil addiction. It should not
    be surprising that Congress is needed to play this role, the Federal
    Government has helped drive every major transportation revolution this
    country has seen, whether it was trains, planes, or automobiles. The
    next transition will be no different.
        In addition to setting a fleet-wide fuel economy target of 37 mpg
    over the next 10 years, there are several different mechanisms the
    government could also put to work to help reduce oil usage. Among the
    viable options are:

       Enforceable, national oil savings targets

       Performance-based incentives for suppliers and manufacturers
            to produce higher fuel economy vehicles

       Eliminating the 60,000 vehicle cap on consumer incentives

       Incentives to increase alternative fuel production,
            including production targets, research and development, and
            infrastructure investments

       Incentives and requirements to increase efficiency of oil
            usage in the heavy duty transportation and industrial sectors

       Closure of existing loopholes in fuel economy regulations
            and tax laws

        None of these options is a silver bullet. And some, if not all of
    them, are politically challenging. But by adopting a reasonable package
    that includes several of these measures now, we can reduce the trade
    deficit and create hundreds of thousands of new jobs, while steadily
    reducing our oil usage. And that's something I hope we can all support.
        Thank you for the opportunity to testify today. I would be happy to
    answer any questions you may have.

        Senator Lott. Thank you, Mr. Friedman.
        Mr. Reuther?

    STATEMENT OF ALAN REUTHER, LEGISLATIVE DIRECTOR, INTERNATIONAL
    UNION, UNITED AUTOMOBILE, AEROSPACE AND AGRICULTURAL IMPLEMENT
                        WORKERS OF AMERICA (UAW)

        Mr. Reuther. Thank you, Mr. Chairman.
        The UAW appreciates the opportunity to testify before this
    Committee on the subject of reforming the CAFE standards. We
    have repeatedly emphasized two important points about the CAFE
    program. First, we have urged that the structure of the program
    be modified to eliminate discrimination against full-line
    producers based on their product mix. In our view, all
    companies should be required to make similar efforts to improve
    fuel economy across their entire line of vehicles. Second, we
    have consistently emphasized the importance of retaining both
    the fleet-wide averaging and the two-fleet, the domestic and
    foreign, components of the passenger car CAFE structure. These
    two requirements ensure that full-line auto manufacturers must
    maintain small-car production in North America.
        As a matter of national energy policy, we believe it is
    important for the U.S. to retain domestic production of
    smaller, more fuel efficient passenger cars. Furthermore, over
    17,000 American workers are currently employed in seven U.S.
    assembly plants that produce small passenger cars. Almost
    50,000 American workers produce parts for these vehicles. The
    jobs of these workers would be directly threatened by any CAFE
    proposals that undermine fleet-wide averaging and/or the two-
    fleet rule for passenger cars.
        UAW recognizes that establishing an attribute-based CAFE
    system for passenger cars similar to the new light-truck system
    would have the benefit of eliminating the current
    discrimination against full-line producers. But it would also
    have the major down side of undermining fleet-wide averaging
    and the two-fleet rule, and, thus, would enable auto
    manufacturers to offshore all of their small car production and
    jobs.
        Fortunately, the UAW believes there is an easy way to
    obtain the benefits of moving to an attribute-based CAFE system
    for passenger cars while avoiding the down side of losing our
    small-car production and jobs. Specifically, we urge Congress
    to impose an anti-backsliding requirement on any new CAFE rules
    that NHTSA would be authorized to promulgate for passenger
    cars. This requirement should specify that both domestic and
    foreign passenger car fleets for each auto manufacturer would
    still have to meet or exceed the CAFE standard under the
    current system. This anti-backsliding benchmark should be
    increased in line with overall fuel economy improvements. The
    adoption of this type of anti-backsliding requirement would
    prevent companies from offshoring their small-car production
    and jobs. It would also ensure that the auto manufacturers
    cannot subvert the objective of any new CAFE system by
    upweighting or upsizing many of their vehicles, resulting in
    worse overall fuel economy.
        In conclusion, we look forward to working with this
    Committee as you consider proposals to improve fuel economy.
        Thank you.
        [The prepared statement of Mr. Reuther follows:]

    Prepared Statement of Alan Reuther, Legislative Director, International
        Union, United Automobile, Aerospace and Agricultural Implement
                            Workers of America (UAW)
        Mr. Chairman, my name is Alan Reuther. I am the Legislative
    Director for the International Union, United Automobile, Aerospace and
    Agricultural Implement Workers of America (UAW). The UAW appreciates
    the opportunity to testify before this Subcommittee on Reforming
    Corporate Average Fuel Economy (CAFE) standards.
        The UAW represents 1.1 million active and retired workers across
    the country, many of whom work or receive retirement benefits from auto
    manufacturers or auto parts companies. We were deeply involved in the
    original enactment of the CAFE program, and continue to have a very
    strong interest in this program because of its major impact on
    automotive production and employment in this country and the jobs and
    benefits of our members.
        The UAW strongly supported the establishment of the CAFE program,
    and we support continuation of this program as an essential mechanism
    for improving fuel economy and reducing our dependence on foreign oil.
    We have previously stated, and continue to believe, that modest
    increases in the CAFE standards over time are technologically and
    economically feasible.
        However, the UAW has repeatedly emphasized two critically important
    points about the CAFE program. First, we have urged that the structure
    of the CAFE program be modified to eliminate discrimination against
    full-line producers based on their product mix. In our view, all
    companies should be required to make similar efforts to improve fuel
    economy across their entire line of vehicles. Because of this, we have
    strongly opposed legislative proposals that would have a discriminatory
    impact on full-line producers, and therefore jeopardize the jobs and
    benefits of tens of thousands of active and retired workers.
        Second, we have consistently emphasized the importance of retaining
    both the fleet-wide averaging and the two-fleet (domestic and foreign)
    components of the passenger car CAFE structure. The fleet-wide
    averaging requirement provides important flexibility to automotive
    manufacturers, while ensuring that the CAFE standards produce an
    overall improvement in fuel economy. Furthermore, the combination of
    fleet-wide averaging and the two-fleet requirement ensures that full-
    line auto manufacturers must maintain small car production in North
    America. This is because the production of smaller, more fuel efficient
    vehicles is needed to offset the production of larger, less fuel
    efficient vehicles.
        As a matter of national energy policy, we believe it is vital that
    the U.S. retain domestic production of smaller, more fuel efficient
    passenger cars. As we have all witnessed, sharp increases in gas prices
    can lead to shifts in consumer demand towards smaller, more fuel
    efficient vehicles. Unless we retain domestic production of such
    vehicles, consumers interested in this segment of the market could be
    forced to purchase foreign-made vehicles.
        Over 17,000 American workers are currently employed in seven U.S.
    assembly plants that produce small passenger cars. This includes GM,
    Ford, DCX, Mitsubishi and NUMMI plants in Lordstown (Ohio), Wilmington
    (Delaware), Spring Hill (Tennessee), Wayne (Michigan), Belvidere
    (Illinois), Bloomington (Illinois) and Fremont (California). Almost
    50,000 American workers produce parts for these vehicles. The jobs of
    these workers would be directly threatened by any CAFE proposals that
    undermine fleet-wide averaging and/or the two-fleet rule for passenger
    cars. In addition, the loss of these jobs would inevitably have a
    negative ripple effect on the rest of the economy.
        NHTSA recently released final rules establishing new CAFE standards
    for light trucks. These rules require modest improvements in light
    truck fuel economy, and also establish a sized-based CAFE system for
    light trucks. The UAW supported these rules for several reasons. We
    believed the magnitude and timing of the proposed increases in light
    truck fuel economy were feasible. We were also very pleased that the
    size-based CAFE system eliminated the discriminatory impact on full-
    line producers. At the same time, because the old light truck CAFE
    standards did not contain any two-fleet rule, there was no threat to
    the continuation of small truck production and jobs in the United
    States. Furthermore, because the new rules only dealt with light
    trucks, not passenger cars, and did not change the definitions of what
    is a ``passenger car'' and what is a ``light truck,'' there was no
    threat to small car production and jobs in this country.
        The UAW believes that NHTSA already has the authority to raise the
    flat MPG requirement in the current CAFE standards for passenger cars,
    and that legislation is not needed to enable it to go forward in this
    manner. However, in his recent letters to Congress, Secretary Mineta
    made it clear that the Department of Transportation also wants Congress
    to give NHTSA the authority to change the structure of the passenger
    car CAFE system to an attribute-based system similar to the new
    structure that has been implemented for light trucks. There is general
    agreement among the various stakeholders in the fuel economy issue that
    NHTSA does not currently have this authority, and that authorizing
    legislation would be required before such structural changes in the
    passenger car CAFE program could be adopted.
        The UAW recognizes that establishing an attribute-based CAFE system
    for passenger cars similar to the new light truck system would have the
    benefit of eliminating the current discrimination against full-line
    producers. We would strongly applaud this development.
        However, it would also have the major down side of enabling auto
    manufacturers to offshore all of their small car production and jobs.
    This would happen due to the elimination of the two-fleet rule. But
    even if this rule was retained, the companies would still be able to
    offshore their small car production and jobs due to the shift from a
    uniform, flat MPG fleet-wide requirement for all companies to a pure
    attribute-based system.
        Some commentators have tried to dismiss concerns about the loss of
    small car production by arguing that the companies will simply
    substitute large car production at these facilities, leaving the
    overall production and employment levels unchanged. This ignores the
    harsh reality that there currently is significant over capacity in the
    auto industry. The UAW submits that the real world impact is that
    certain companies would take advantage of the change in the CAFE rules
    to further downsize their operations. The net result is that small car
    facilities would be closed, and tens of thousands of automotive jobs
    would be lost, without any compensating replacements with large vehicle
    production and jobs.
        Fortunately, the UAW believes there is an easy way to obtain the
    benefits of moving to an attribute-based CAFE system for passenger
    cars, while avoiding the down side of losing our small car production
    and jobs. Specifically, the UAW urges Congress to impose an ``anti-
    backsliding'' requirement on any new CAFE rules that NHTSA would be
    authorized to promulgate for passenger cars. This requirement should
    specify that both the domestic and foreign passenger car fleets for
    each auto manufacturer would still have to meet or exceed the CAFE
    standard under the current system (i.e. the 27.5 flat MPG fleet-wide
    standard). This ``anti-backsliding'' benchmark should be increased in
    line with the overall fuel economy improvements required under any
    attribute-based passenger car CAFE system.
        The adoption of this type of ``anti-backsliding'' requirement would
    prevent companies from offshoring all of their small car production and
    jobs. This would help protect the jobs of tens of thousands of American
    workers. It would also guarantee that we continue to maintain domestic
    production capacity for smaller, more fuel efficient vehicles.
        This type of ``anti-backsliding'' requirement also would ensure
    that the auto manufacturers cannot subvert the objective of any new
    CAFE system by ``up-weighting'' or ``up-sizing'' many of their
    vehicles, resulting in worse overall fuel economy. It would guarantee
    that the companies will actually improve fuel economy across the entire
    range of their passenger cars, and that consumers and our Nation will
    indeed receive the benefits of more fuel efficient vehicles.
        The imposition of this type of an ``anti-backsliding'' requirement
    would not be burdensome for the auto manufacturers. If the companies
    are genuinely taking steps to improve fuel economy across their entire
    range of passenger vehicles, and if they do not shift small car
    production overseas, they should easily be able to meet this
    requirement.
        Thus, the UAW would support legislation that authorizes NHTSA to
    establish an attribute-based CAFE system for passenger cars similar to
    the recently promulgated rule for light trucks, provided this is
    coupled with an ``anti-backsliding'' requirement that protects small
    car production and jobs in this country and prevents up-weighting or
    up-sizing of cars. If this type of ``anti-backsliding'' requirement is
    not included, then we would vigorously oppose such legislation.
        In addition to imposing an ``anti-backsliding'' requirement on any
    new passenger car CAFE rules, the UAW urges Congress to specify that
    such rules should only take effect in 2012 or later, after the new
    light truck CAFE rules have been implemented. In light of the serious
    economic difficulties currently facing certain auto manufacturers, we
    believe it is important to avoid placing undue regulatory burdens on
    the industry. The auto companies will have to make significant
    investments to meet the challenges posed by the new light truck CAFE
    rules. In our judgment, these burdens should not be compounded by
    simultaneously requiring changes in passenger car CAFE rules. By
    delaying the effective date of any new CAFE rules for passenger cars,
    NHTSA can gain the benefit of valuable experience in the implementation
    of the size-based CAFE system for light trucks. This will also ease the
    financial burdens on the auto manufacturers.
        The UAW recognizes that there are other important issues associated
    with any shift to an attribute-based system of CAFE rules for passenger
    cars. This includes whether this type of a system should be based on
    weight, size or some combination of factors. We believe that resolution
    of these complex issues can best be resolved through the administrative
    rulemaking process.
        We understand that some persons have also called for the adoption
    of a ``credit trading'' system that would allow auto manufacturers to
    buy and sell CAFE credits for passenger cars and/or trucks. The UAW
    strongly opposes such proposals, and urges Congress not to give NHTSA
    any authority to establish this type of a credit trading system. A
    system for trading CAFE credits would inevitably have the effect of
    undermining the two-fleet rule and/or fleet-wide averaging, and would
    therefore jeopardize the continuation of small car production and jobs
    in the United States. It could also aggravate the uneven playing field
    that currently exists between foreign and domestic auto manufacturers.
        The UAW believes it is important for Congress to recognize that
    changing the CAFE standards for passenger cars, by itself, will not
    solve either the immediate problem of high gas prices or the larger
    problems of energy security and environmental protection. Because of
    the long lead time needed to implement any changes in CAFE, there
    clearly will not be any impact whatsoever on current gas prices.
    Furthermore, light duty vehicles (passenger cars and light trucks) only
    account for 40 percent of oil demand in 2006. Passenger cars account
    for less than half of light-duty vehicle sales, and new passenger cars
    sold each year represent a very small percentage of the total vehicle
    stock on the road. Thus, changing the CAFE standard for passenger cars
    would, over five years, only moderate demand from a source comprising
    less than 10 percent of our Nation's oil use. In order to significantly
    reduce our oil usage and our dependence on foreign oil, clearly there
    is a need for broader national energy policies.
        The UAW submits that these critically important energy security
    objectives do not have to be at odds with the goal of protecting and
    creating jobs for American workers. Indeed, we firmly believe our
    Nation can make substantial progress in improving fuel economy and
    reducing our Nation's dependence on foreign oil, and at the same time
    help make sure that we keep and expand automotive jobs in this country.
        The UAW urges this Subcommittee, the entire Congress and the Bush
    Administration to support energy initiatives that further both of these
    important objectives. Specifically, we urge Congress and the Bush
    Administration to move forward with proposals to encourage the domestic
    production of advanced technology vehicles and their key components. We
    believe great strides can be made in improving fuel economy and
    reducing our dependence on foreign oil by accelerating the introduction
    of such vehicles. But, as was demonstrated by a November 2004 study
    conducted by the Office for the Study of Automotive Transportation
    (OSAT) of the University of Michigan Transportation Research Institute,
    and commissioned by the bipartisan National Commission on Energy
    Policy, the United States will lose tens of thousands of automotive
    jobs unless steps are taken to encourage the domestic production of
    these vehicles and their components. Currently, most of the advanced
    technology vehicles are assembled overseas, and almost all of the key
    components for the hybrid and diesel vehicles are built overseas. As
    these vehicles gain a larger share of the market, we will inevitably
    lose automotive jobs unless we make sure that these vehicles are
    assembled in the U.S. and the main components are also built here.
        We are very pleased that proposals along these lines have already
    been introduced by Members on both sides of the aisle, including the
    Bayh-Lieberman-Brownback-Lugar (S. 2025); Obama (S. 2045); Conrad (S.
    2571) and other bills. The UAW submits that the types of manufacturer's
    incentives in these bills can help to create thousands of automotive
    jobs for American workers, while at the same time improving fuel
    economy, reducing global warming and our dependence on foreign oil.
        The UAW also urges Congress and the Bush Administration to move
    forward with proposals to aggressively promote the production, sale and
    use of alternative fuel vehicles. Several automakers are already
    producing vehicles that can run on a blend of 85 percent ethanol, 15
    percent gas. This technology is relatively inexpensive--about $150 per
    vehicle. But production and sales of flex-fuel vehicles represent only
    a small fraction of the market. And the actual use of alternative fuels
    has been hampered by bottlenecks in processing and, more importantly,
    the lack of a distribution network. The UAW believes these problems can
    be overcome by mandating that a certain percentage of all vehicles sold
    in the U.S. by each automaker must be flex-fuel capable by a specified
    date. Indeed, there's no reason why automakers can't make 100 percent
    of their vehicles flex-fuel capable within a reasonable time frame. We
    also believe that there should be additional incentives to encourage
    the creation of more processing plants to increase the supply of
    alternative fuels, and to encourage the conversion of existing filling
    stations so they have the capability to distribute alternative fuels.
    In our judgment, this combination of flex fuel policies offers the best
    opportunity to make progress in the near term on reducing oil
    consumption and our dependence on foreign oil.
        In conclusion, the UAW looks forward to working with this
    Subcommittee as you consider proposals to improve fuel economy. Thank
    you for considering our views on these important issues.

        Senator Lott. Well, thank you very much, panel. And we will
    have some time for questions now. I hope you all can stay with
    us another 15 minutes, at least, or so.
        Senator Cantwell?
        Senator Cantwell. Thank you, Mr. Chairman.
        Mr. Friedman, you used a ``60 percent dependent on foreign
    sources'' number. I thought our number was 50 percent. So, if
    you could just tell me where you got that.
        Mr. Friedman. Well, that's based on February imports and
    total consumption from the Energy Information Administration.
        Senator Cantwell. OK. And can you comment on this? My
    colleague Chairman Lott and I worked on this EPA accuracy-of-
    labels issue. In fact, maybe Ms. Claybrook wants to comment on
    that, as well. But Consumer Reports have been conducting
    mileage tests for years. And what happens is, consumers go out,
    and they think they're buying a car that is more fuel
    efficient--for example, EPA says that the Chrysler 4-wheel-
    drive diesel version of the Jeep Liberty gets 22 miles per
    gallon, and yet, in Consumer Reports, it only got 11. The Chevy
    TrailBlazer was supposed to get 15 miles; it only gets 9. And
    there are various examples of that. So, how do we--and we were
    successful in getting EPA to say that they were going to update
    this test, which hasn't been updated since, I think, the
    1970s--how do we marry that with CAFE so that we're getting an
    accurate assessment?
        Mr. Friedman. Well, right now the way the regulations--the
    way the law is written, the fuel economy standards are based on
    the tests that were used in 1975. And clearly we know those
    tests do not work anymore. Consumers know it. The average
    acceleration on those tests is the equivalent of going from
    zero to 60 in 18 seconds. So, those tests are clearly broken.
    And EPA does look to be finding ways to fix that for the window
    stickers. But the way the regulations are written, that fix
    cannot legally be applied to the fuel economy standards. That
    statute would have to change in order for the fuel economy
    standards to also be based on what consumers are actually
    getting in the marketplace.
        Senator Cantwell. And I'm assuming you think we should do
    that.
        Mr. Friedman. Well, it only makes sense for both consumers
    and the Government and automakers to be judging their vehicles
    based on the real fuel economy they get, rather than what's--
    incorrect tests would produce. Definitely.
        Senator Cantwell. Ms. Claybrook, did you want to comment on
    that?
        Ms. Claybrook. I completely agree. I think it's very
    confusing to have two different sets of numbers. And, I think
    that if you adjusted the standard numbers to reflect reality,
    without increasing them in the course of doing that, so they
    adjust for the equivalent of what they are today, but they're
    real numbers, then that wouldn't have any adverse impact, in
    terms of what the auto manufacturers would be concerned about.
    And then, from there you make your calculations about how much
    of an increase you could get. I know we're all wedded to the 40
    miles per gallon in 10 years, and the 27 and a half, we'll just
    have to learn again and readjust. But I think it should be
    done.
        Senator Cantwell. Thank you.
        Mr. Webber, I see your finger poised for the button there,
    but if I could ask you to also comment on your infrastructure
    comment and the fact that we have an infrastructure issue as it
    relates to alternative fuel products. And if you have any
    recommendations on that.
        Mr. Webber. First, on labeling, we supported your effort to
    reform the system. And I'm glad it's underway. It needs reform.
    The consumer deserves to know.
        Senator Cantwell. But you--do you--but what about--as----
        Mr. Webber. On infrastructure----
        Senator Cantwell. No, creating--the gap between the
    labeling and the fact that it can't be used for CAFE. Do you
    support changing that, so that they're the same?
        Mr. Webber. I would like to study that. We haven't taken a
    position on that particular aspect of it.
        Senator Cantwell. OK.
        Mr. Webber. But we do know that the present system is
    somewhat misleading.
        Senator Cantwell. OK.
        Mr. Webber. On infrastructure--and I am focusing now on
    ethanol, and I'll just give you some statistics--if we have
    over 180,000 gasoline stations out there today, only about 650
    will offer you E-85 ethanol fuel. We have 5 million vehicles on
    the road today--we'll have 6 million by the end of the year--
    that can burn E-85. So, that's a big gap, and that has to be
    made up. And it's part of our shared responsibility theory,
    that, in order to get that done, we're going to need a lot of
    help from the fuel industry, from the government at all levels.
    That's got to change.
        Senator Cantwell. And do you have any specifics there that
    you--that your association supports today?
        Mr. Webber. No specifics. We've identified the problem.
    We've talked, in general terms, about how it might be fixed. I
    met with a group of lieutenant Governors recently, and, when I
    quoted those numbers to them, they said, ``We've got to fix it.
    We think there's a role in it for State government.'' But we
    have yet to really get down to the basics on it. But it's a
    real problem.
        And, in the meantime, our companies--many of our companies
    are moving out rather smartly and producing E-85-capable
    vehicles.
        Senator Cantwell. Thank you.
        Mr. Reuther, on that point, on the E-85 vehicles that have
    already been in the marketplace, and obviously being
    successfully used in other countries like Brazil, what is
    technically required, and how much does that cost, to actually
    add that ability for cars manufactured in the United States to
    run on either ethanol or on fossil fuels?
        Mr. Reuther. It costs about $150 per vehicle. It's a very
    modest cost. The technology is known. This is something that's
    easily doable. And we feel that moving ahead aggressively with
    flex-fuel vehicles is probably the best short-term thing we
    could do to save and reduce oil consumption.
        Senator Cantwell. And so, auto manufacturers are ready to
    go on that, or they need--or are you recommending something to
    help that acceleration?
        Mr. Reuther. Well, the companies are moving ahead with
    that. We would support a mandate, by a date certain, requiring
    that a certain percentage of vehicles sold have to be flex-fuel
    vehicles, since it is a modest cost and since the technology is
    known. We think the bigger challenge is making sure that the
    distribution network is there, and we would support additional
    incentives to encourage that to happen.
        Senator Cantwell. Thank you very much.
        Ms. Claybrook. Could I comment on that, just briefly?
        Senator Lott. Briefly.
        Ms. Claybrook. Very briefly.
        Right now, in the law there is a credit to the
    manufacturers to encourage them to manufacture the flex-fuel
    vehicles. And I think that maybe that was appropriate
    initially, but it hasn't really made any difference, in terms
    of use of alternative fuels or oil savings because of the
    ethanol distribution system. And it does seem to me that a
    mandate is far preferable to this willy-nilly system of getting
    credits. And, also, the credits undermine the amount of fuel
    economy that the manufacturers actually produce for each such
    vehicle.
        Senator Lott. Senator Lautenberg?
        Senator Lautenberg. Thanks very much, Mr. Chairman. This
    has been a very instructive panel, as I heard it, and including
    discussion with the Secretary of Transportation, before.
        It seems that we're pretty much at odds with whether you
    can or you can't. Is it--what is--what would deter Congress
    from setting a fuel efficiency mark for the industry and
    saying, ``Meet that standard''? Is there anything in law--I
    understand what you said, Ms. Claybrook, about reforming the
    whole system--or one of you did--but there's nothing, as I see
    it, that would prevent the--NHTSA from saying, ``Here's what
    you've got to do.'' Am I wrong?
        Ms. Claybrook. Well, no, the issue here, and the reason
    that the President came forward, is that under the existing
    statute it says that the agency can set a standard above 27 and
    a half miles per gallon with a Congressional veto. Public
    Citizen got the Congressional veto overruled in the Supreme
    Court in 1983. So, there is no longer a Congressional veto. The
    legal question is: ``Is there still authority to raise the
    standards? ''
        Our view is that we're not sure. We don't know what the
    Court might say. But we think that it would be preferable to
    have the authority vested in the agency, so there wouldn't be
    any more lawsuits on this issue, and so that the agency would
    have authority to set higher standards.
        There's no reason that they couldn't set a standard out
    some distance so that the industry has long-term notice, you
    know, 8 or 10 years. But I don't think that the agency's going
    to do that. And so, that's the reason that we, and the
    environmental groups and a number of other organizations, favor
    a longer-term standard that's very reasonable, based on what
    EPA has predicted is feasible, and set a standard so that
    there's a goal----
        Senator Lautenberg. Thank you.
        Ms. Claybrook.--that would be achieved.
        Senator Lautenberg. Mr. Friedman, does the union support
    lifting of the tariffs on the imports of ethanol, like the
    Brazilian formulation, at least until we can supply the--supply
    it domestically?
        Mr. Friedman. Well, we currently do not have a position on
    tariffs relative to ethanol. Part of the reason for that is
    that the largest impact that we can have over the next 20 years
    in cutting our oil dependence is clearly fuel economy. We did
    an analysis where we looked at what would happen if we put the
    pedal to the metal on both fuel economy and ethanol. And what
    we found is, over the next 20 years, 70 to 80 percent of the
    reductions in oil dependence would come from ``eating right and
    getting more exercise''; 20 to 30 percent would come from
    ``eating better foods and getting new fuel''----
        Senator Lautenberg. You're not talking about the weight in
    the car, right? Are you? You say reduce passenger weight, and
    that'll save us?
        [Laughter.]
        Mr. Friedman. Exactly. We're talking about ``eating right
    and getting more exercise,'' in terms of putting----
        Senator Lautenberg. Right, but----
        Mr. Friedman.--the technology that the----
        Senator Lautenberg.--we can't----
        Mr. Friedman.--automakers already have.
        Senator Lautenberg.--solve that problem here.
        Mr. Friedman. Right.
        Senator Lautenberg. I, personally, tried that.
        [Laughter.]
        Mr. Friedman. You should be commended for that.
        [Laughter.]
        Senator Lautenberg. Are you concerned that the potential
    for ethanol plants might be built with coal-firing?
        Mr. Friedman. Well----
        Senator Lautenberg. And could that cancel out some of the
    benefits that we'd be getting?
        Mr. Friedman. That's the tricky thing with silver bullets.
    There are smart ways to do alternatives, there are smart ways
    to do ethanol, and there are poor ways to do ethanol. Studies
    show that if you base your ethanol production from corn heavily
    on fossil fuel production to make that ethanol, you could
    actually increase global warming pollution and potentially even
    increase oil dependence. But if you make ethanol right, from
    corn, for example, you could cut greenhouse gas emissions by on
    the order of 10 percent. If you make ethanol from grasses, wood
    chips, other cellulosic products, you could actually cut your
    global warming pollution by 80 percent. But it's all about
    making sure you do it the right way, not the wrong way, which
    is why we would support regulations that would require--if E-85
    is going to be on the market, that we need to have a growing
    percentage of that fuel coming from the cleanest sources out
    there. We need performance-based standards for fuels, as well
    as for vehicles.
        Senator Lautenberg. Without starting a firestorm here,
    sitting next to my colleague from Arkansas and various other
    center-country states, what about--is there a major difference
    in the efficiency of the ethanol that's produced, as we're
    reading a lot about now, in Brazil from sugarcane, and that
    which is grown from corn or produced from corn?
        Mr. Friedman. Well, sugarcane does have some added
    benefits, in terms of global warming pollution. It's somewhere
    in between corn and switchgrass and other woody products. I
    think the reality here is, we do need to tap into all the
    alternatives that we can, but alternative fuels, while very
    promising, are still going to take 20, 30, potentially,
    depending on the fuel, even 40 years before they're going to
    have a major impact. We can't afford to wait that long. Fuel
    economy can actually be a buffer so that we can figure out the
    technologies, so that we can get the best fuels out there for
    consumers.
        Senator Lautenberg. I'm determined to wait until that's
    proven.
        Thank you very much.
        Senator Lott. Thank you very much, Senator Lautenberg.
        Let me ask a couple of questions here, if I could. Mr.
    Webber, do you have a position on including CAFE credits in a
    future CAFE program for passenger cars?
        Mr. Webber. Yes, sir. We think that that ought to be
    studied, and not ought to be part of the request, or whatever
    you decide to grant the Administration, in terms of
    restructuring authority for CAFE. On the surface, it looks like
    an easy solution, but it's more complicated than that. We
    think, though, it does warrant study. And who knows what the
    future will hold for it?
        Senator Lott. Well, I think you need to study it, and you
    need to be prepared to take some positions on it as we----
        Mr. Webber. And we will.
        Senator Lott.--go forward.
        Mr. Webber. Yes, sir.
        Senator Lott. Mr. Reuther, now. I'm sorry, I had to leave
    the room, and I missed part of your testimony, but I want to
    make sure you do advocate, on behalf of your union, that this
    authority should be given to the Secretary, and we should move
    forward with the changes, including the reform. Is that
    correct?
        Mr. Reuther. Only if there's a requirement that they must
    include an anti-backsliding provision in any new standard. If
    that is not included, then we would oppose giving the authority
    to the Administration to move forward with an attribute-based
    system.
        Senator Lott. All right, sir.
        Mr. Cabaniss, now, your testimony indicates that the two-
    fleet rule may actually have cost jobs in the United States. Do
    you want to make any comment on the two-fleet rule?
        Mr. Cabaniss. Yes, sir. The point there is, that the two-
    fleet rule has actually had the unintended consequence of
    creating disincentives for foreign-based manufacturers to
    increase the content of the vehicles they manufacture here in
    the United States. And, as I mentioned earlier, today we have
    approximately a 4-million-vehicles-per-year capacity in the
    United States. We believe there's every incentive--especially
    with the need to conserve fuel, the need to address greenhouse
    gases, and so on--there's every reason to believe that we need
    to have as much production here in the United States for all
    manufacturers for fuel-efficient vehicle options. And so, it's
    counterproductive to have that kind of disincentive in the Act.
        There have even been cases where vehicle content of
    domestically produced vehicles has been reduced in order to
    deal with this accounting of having vehicles in the import side
    versus the domestic side. And those kinds of de-contenting
    decisions take away jobs, and not only direct jobs, but also
    have supplier impacts, as well.
        Senator Lott. Congressman----
        Mr. Sharp. Mr. Chairman?
        Senator Lott.--Congressman Sharp, if I could go to you,
    thank you for the time you've spent with these outside groups
    since you left the Congress. I'd like to get your view about
    the CAFE regulation for light trucks. Was this a positive move?
    Did it work well? Is it going to work well, in your opinion?
        Mr. Sharp. Well, first of all, we don't have----
        Senator Lott. It's been panned a good bit here.
        Mr. Sharp.--real experience with it yet. It's----
        Senator Lott. Yes.
        Mr. Sharp. It hasn't actually taken effect, in terms of----
        Senator Lott. Yes.
        Mr. Sharp.--the choice that the manufacturer makes between
    the old style and the new style. One of our economists at our
    Resources for the Future, however, did look at it, and I have
    attached to my testimony some of the favorable propositions
    that he identified about this redesign. It does pattern after a
    redesign possibility that was in the National Academy of
    Sciences proposal where it suggested a weight-based standard
    phased in a similar way. There is one element of the National
    Academies study that I think it would be wise for your staff to
    go back and look at, and that was a design feature that would,
    in a sense, cap off how bad it could get if you allowed this to
    go to the degree that Joan Claybrook is concerned it will. And
    so, there are some other features that can help solve that.
        I think there are a lot of questions out there as to how
    aggressive they, in fact, were in the numbers that they picked.
    And I think, given, especially, the fact that the price of
    gasoline is up, that one might have made a different calculus,
    and, therefore, come up with higher requirements.
        Senator Lott. Do you think, though, that the approach taken
    in that rule, perhaps with some strengthening, could be applied
    to passenger cars?
        Mr. Sharp. I think that's possible, but I'm not the expert
    on that.
        Senator Lott. OK. Right. Well, just in conclusion, because
    my time's running out, too, and we'll want to go to Senator
    Pryor, I want to thank this panel. It's been a very interesting
    presentation. You know, two or three observations. One, there's
    always a desire--well, you can do--should do more, could do
    more--here's my point. We should have done more. A long time
    ago, across the board, in a whole lot of areas. But that's no
    reason why we shouldn't act now. Whatever we might want to do
    in the future, if we don't get started now, we're not going to
    be there. And on ANWR, if we had not vetoed it 10 years ago--we
    would be getting oil or gas from ANWR. If we want to get some
    better fuel efficiency standards, let's start now. It may not
    be as much as you'd like for it to be, but I'd like to think
    about getting as much as we can.
        I was in a rural State this past weekend, on Sunday
    afternoon, and the road was just jammed with cars. And no
    trucks. This was Sunday afternoon. And I'm thinking, ``What the
    heck is going on here?'' People are mad about gas prices. And
    yet, they were all out there in their cars, in the rain. It
    wasn't Sunday afternoon driving to see the scenery in Kentucky.
    They weren't going to a ball game. It was too early to be going
    to church. They weren't taking the kids to school. They weren't
    going to work. What in the heck were they doing?
        So, one of the things I always say in my remarks now, while
    we're always pointing fingers at each other, whether it's
    Republicans or Democrats, Executive Branch, the oil companies,
    automobile--hey, we've met the enemy, and it is us. We, the
    people. And one of the things I think I miss in some of these
    comments here--we're talking about, OK, look, here's our view,
    and here we are in the Congress. We're going to impose our view
    on the people. Somebody better give some thought to what are
    the people going to demand? You're not going to make the people
    drive a Mini Cooper. They may choose to drive a big old truck.
    We can impose our judgment, but the American people don't have
    to necessarily comply with that. So, I just hope that we keep
    touch with reality. Can we push the envelope? Can we lead the
    people in a responsible way? Hopefully. But I think we've got a
    lot of work to do, in terms of bringing the people along to
    where we maybe need to be in 10 years. And I don't think we've
    made much progress there. And that's why I did my column last
    week, basically saying, ``Hey folks, you can't have cheap gas,
    big hog automobiles, and not want a refinery in your
    neighborhood, don't want any more nuclear plants, don't want
    hydro plants. You don't want anything. You just want cheap gas.
    You can't have it all, all three of those simultaneously.'' So,
    we've got to start making some choices here. Of course, I
    prefer the latter option. I want more refineries. I want LNG
    plants. I want more hydro plants. I want nuclear plants. I want
    more production. Now, my concession to those with a different
    point of view is, ``Hey, I think we ought to have conservation.
    I think we ought to have alternative fuels. I think we need to
    look for all kinds of options.'' And so, I want the whole
    package. I don't think it's all production or all conservation.
    I don't think CAFE's going to solve all the problems of the
    world, but, let's do it all, in a responsible way.
        Now, those words, ``responsible way,'' is the kicker. It's
    in the eye of the beholder. And I think we need to try to look
    for that sweet spot. And we haven't found it for 30 years. But
    the chickens are going to come home to roost on all of us. And
    if we don't find some answers soon, I dread the thought of
    what's going to happen.
        Thanks for allowing me to make a speech here.
        Senator Pryor?
        Senator Cantwell. Mr. Chairman, what kind of car was that,
    that the American people don't want to drive?
        Senator Lott. A Mini Cooper--which, by the way, I have one.
        [Laughter.]
        Senator Lautenberg. Mr. Chairman, could it have been the
    Kentucky Derby that people were coming home from after----
        Senator Lott. Actually, my son and grandchildren live in
    Kentucky, so--was there--what event was that?
        [Laughter.]
        Senator Pryor. Thank you, Mr. Chairman.
        Mr. Reuther, let me start with you, if I may. And you said
    something a few moments ago that was intriguing, and that is
    your ``anti-backsliding requirement.'' Could you explain that a
    little further to the Committee?
        Mr. Reuther. We think that if there is going to be a shift
    to a size-based system for cars, there should be a requirement
    that the foreign and domestic fleets of each company cannot
    slip back below what the current standard is. There would be
    two benefits to that. It would guard against the companies
    generally upweighting or upsizing all of their vehicles, and,
    as a result, they would wind up with worse overall fuel
    economy. From our perspective, the other key benefit would be
    it would prevent the full-line auto manufacturers from
    offshoring all of their small car production, which would have
    a huge negative jobs impact on this country.
        And I would disagree with the statements that were made
    earlier about how that would actually add jobs. The major
    impact of getting rid of the two-fleet rule would be that we
    would see the loss of small car production in this country.
        Senator Pryor. OK, thank you.
        Mr. Friedman, let me ask you about the idea of an anti-
    backsliding provision. Do you like that concept?
        Mr. Friedman. Well, I think if you're going to put in place
    size-based standards, you have to have an anti-backsliding
    system. In fact, what you should really do----
        Senator Pryor. And, by the way, as I understand it, you do
    not like size-based.
        Mr. Friedman. A size-based system can work if you have an
    overall fleet-wide target, which would take the form of
    something like an anti-backsliding system. I think we shouldn't
    look to the past, of where we have been. I think we should look
    to the future, on where we can go with technology, and set that
    anti-backsliding level, that fleet-wide goal, at a level that
    we could reach in the future. If you do that, then Ford, GM,
    all the automakers can give consumers the choices they need,
    but Congress will be ensuring that in the end we save the oil
    that we have to save if we're going to reduce the impact of our
    oil addiction.
        Senator Pryor. Ms. Claybrook, do you have any views on the
    anti-backsliding provision? I know you had some reservations
    about the size-based, as well.
        Ms. Claybrook. Well, we think that if you're going to
    restructure the system, which we see no reason to do for the
    car fleet, that it's absolutely essential to have an anti-
    backsliding requirement. And one of the key questions is what's
    that going to be.
        Senator Pryor. Right.
        Ms. Claybrook. So, that's another issue, that adds yet
    another complexity to it. I think that restructuring with a
    sliding scale and the addition of an anti-backsliding
    requirement is complex and unnecessary for cars.
        Senator Pryor. OK, thank you.
        Mr. Webber, let me ask you a question. Secretary Mineta,
    earlier in this hearing, talked about one of the factors they
    look at as they have set standards in the light-truck world is
    the impact on manufacturers. But it seems to me that if you
    look at the Big Three--the so-called Big Three U.S. automakers,
    they've been losing market share fairly steadily over the last
    two or three decades. And it seems to me that one of the things
    that the American consumer looks at when they're purchasing a
    new vehicle is the gas mileage of the vehicle. And so, I would
    think that if we did have more stringent fuel efficiency and
    fuel economy requirements in the U.S., it might actually help
    the Big Three automakers. Do you have any comments on that?
        Mr. Webber. I do, Senator. And let me just say that, as I
    look at this list of alternative fuel autos on sale today, the
    Big Three is well represented. As I look at the very serious
    commitment the old Big Three have made to research and
    development, it is, indeed, very impressive. In fact, the
    automobile industry, generally, spends more money, almost $15
    billion a year, in research and development and this is more
    than the pharmaceutical industry spends. And so, we're Number 1
    in this country when it comes to R&D spending. And most of it
    is going to advanced technology vehicles.
        What are these advanced technology vehicles achieving?
    Better mileage and lower emissions. All you have to do is look
    at the dozen models of hybrids, many of which are manufactured
    by the Big Three, and you can see the results. The same goes
    with diesels and biodiesels and ethanol, and even natural gas.
    I think it's advanced technology and alternative fuels. To me,
    that's the twofold answer to the crisis we're in today, if,
    indeed, it really is a crisis, as Secretary Bodman insists. As
    I said earlier, CAFE is a long-term proposition. The gentleman
    from the Union of Concerned Scientists feels that advanced
    technology is a long way off. That is not true. It's here.
        Senator Pryor. Mr. Webber, let me ask one final question.
    This is really, I guess, for Mr. Webber and Mr. Friedman. And
    that is an issue that's very important to this Committee,
    certainly very important to me, and that's safety. We don't
    want to sacrifice safety. But we do know that the NAS, for
    example, examined safety when they looked at CAFE standards, et
    cetera, and all the ramifications that they may have for the
    consumer. As I understand what the NAS said, they said that the
    fuel economy in new vehicles, especially in SUVs and trucks,
    could be raised by as much as 8 to 11 miles per gallon. It
    would be more expensive, apparently, per vehicle, but that cost
    would be offset over time through economy in fuel prices. In
    addition, there would be no, or very little, change in the
    vehicle's size or performance, and there might even be a slight
    increase in weight. And so, I heard the Secretary earlier
    talking about that again, that being one of the factors that
    they look at, of safety. But it seems to me that based on the
    NAS study and other things that I'm aware of--it seems to me
    that you can make cars more energy efficient and not lose
    anything on the safety front. Could I have your comments on
    that? And then Mr. Friedman, as well?
        Mr. Webber?
        Mr. Webber. I'll defer to Mr. Friedman.
        Senator Pryor. OK.
        Mr. Webber. First. And I'll--then I'll----
        Senator Pryor. OK, great.
        [Laughter.]
        Senator Pryor. You want to close on that, OK.
        Mr. Friedman. Well, you can--you're speaking exactly what
    the National Academy findings say. And, in fact, reading from
    the report, it says, ``Cost-efficient fuel-economy increases
    occur without degradation of safety. In fact, they should
    provide enhanced levels of occupant protection, because both
    the increased level of safety technology and the increased
    weight of that technology.''
        Senator Pryor. And you agree with that.
        Mr. Friedman. It is clear that the technology is out there
    to increase fuel economy with either having no impact on safety
    or making vehicles significantly safer. When you look back to
    1988-1989, by that point, on the order of 80 percent of the
    improvements in fuel economy were due to technologies that had
    no impact on safety. The only way we're going to have safety
    problems is if the auto industry does not put safe vehicles out
    there. This is the auto industry who fought seatbelts, who
    fought airbags. They don't have a lot of credibility on safety.
    And that's why the Government has had to require them to put--
    whether it's safety technology or fuel-economy technology into
    those vehicles. That's the only way we're going to move forward
    safely and efficiently.
        Senator Pryor. Mr. Webber?
        Mr. Webber. Glad I deferred. I am happy to have the last
    word. Our vehicles, as I said earlier in my testimony, have
    never been safer. Safety is a competitive issue. We're doing
    things that are not required of us. Many of these things are
    standard safety issues, or, I should say, features that are
    standard on automobiles and trucks today. Some are options. But
    they have never been safer.
        The other point I would make is that safety has to be a
    consideration when you're addressing CAFE. I think NHTSA,
    generally speaking, has done a fairly good job in considering
    safety issues over the years. But I do want to quote from the
    Wall Street Journal editorial. This is today's editorial. I
    hesitate to use the caption, but it--they did say ``Not so
    Grand CAFE.'' You can draw your own conclusions on that. But
    they do address the safety issue. And here is the quote, ``The
    National Academy of Sciences once focused on the impact of CAFE
    standards in a single year, 1993, and estimated that they
    resulted in as many as 2,600 additional deaths. Average car and
    light-truck weight rose a bit in the 1990s, and in 2002 the
    Academy wrote that this increase, though detrimental to fuel
    economy, had saved lives in return.''
        So, there is a tradeoff. There is always a tradeoff. We
    have to take those tradeoffs into consideration as we address
    CAFE. And NHTSA is mandated to do that.
        Senator Lott. Yes. And I think they should. Another
    personal point of reference. My son and my son-in-law, thank
    goodness, both bought recent new vehicles, and the primary, if
    not the only consideration, was safety, carrying my four
    grandchildren. Now, unfortunately--or fortunately--they picked
    vehicles that were highly safe in their ratings, but did not
    get very good fuel efficiency. Not that they're necessarily,
    you know, not compatible. But clearly, safety is a big issue
    with the buying public, more so than the fuel efficiency.
        I believe, Senator Cantwell, you had one follow-up
    question?
        Senator Cantwell. Yes. But, on that subject, I just want to
    point out, I think that some of the analysis in studies--
    because there are others that show that they're--in fact,
    Dynamic Research Institute showed that there was no impact on
    safety with decreasing the weight across a fleet, but there are
    issues of whether airbags were used appropriately in those
    studies. So, I think we should get the information on that so
    that we can compare accurate assessments. I think it's great
    that many of these vehicles now not just have one or two
    airbags, but sometimes as many as six airbags in the car.
        But I wanted to ask Mr. Reuther about just the--Mr.
    Friedman was talking about the nature of change, and,
    obviously, the length of time for that change. And one of the
    things that's been impressive about what other countries have
    done with American cars is that they have successfully
    accelerated this transition to alternative fuels. How quickly
    do you think that we could get to the point of producing over a
    major of percent of U.S. cars in the United States with that
    flex-fuel capability?
        Mr. Reuther. I don't have an exact year for you, but, you
    know, we think over the next decade it's easily achievable to
    make our auto fleets flex-fuel capable. At the same time, we
    think we should be moving forward aggressively in expanding the
    introduction of advanced technologies--the hybrids, the
    advanced diesels--and making sure that the vehicles and the
    components are built in this country. And we would like to see
    Government become more of a partner in encouraging that
    acceleration.
        Senator Cantwell. But you think within a 10-year period of
    time, we could get to over 50 percent? Is that what you were--
    --
        Mr. Reuther. Certainly. Yes.
        Senator Cantwell. Thank you.
        Well, Mr. Chairman, thank you for conducting this hearing.
    And, given your remarks earlier, I certainly believe that we
    need to look forward, and we need to look forward in the most
    expeditious fashion. I think this country is just one hurricane
    or one international incident away from really having our
    economy greatly impacted by this. And so, as quickly as we can
    consider legislation and get it moved through the Senate and to
    the House and on to the President's desk, the better. So, I
    thank you for conducting this hearing.
        Senator Lott. Thank you, Senator Cantwell and Senator Pryor
    and to our panel. It was a very interesting panel this morning.
    Thank you for your time.
        This hearing is adjourned.
        [Whereupon, at 12:35 p.m., the hearing was adjourned.]
                                A P P E N D I X

     Prepared Statement of Hon. Daniel K. Inouye, U.S. Senator from Hawaii
        It is unfortunate that it has taken record high gas prices to
    prompt interest in new corporate average fuel economy (CAFE) standards.
    Nonetheless, I am pleased that we are moving forward on this issue.
        This Committee can state with great pride that it helped to
    establish the nation's first CAFE standards in 1975, following the oil
    crisis of the early 1970s. The standards were largely credited with
    decreasing the nation's oil demand in the 1980s, but they have not been
    updated since. Thirty years later, it is time to do more, and this
    Committee must take the lead.
        We know from experience that CAFE works. A National Academy of
    Sciences study demonstrated that CAFE standards achieved a 75 percent
    increase in fuel efficiency over the time period they were implemented,
    improved efficiency without affecting vehicle performance, and did both
    affordably. These improvements resulted in billions of gallons of oil
    saved, and relief at the pump for all Americans.
        We also know from experience that our Nation's insatiable demand
    for oil is one of our greatest economic vulnerabilities, but we have
    the capacity to do something about it. New CAFE standards are one of
    the most immediate and effective steps we can take to remedy our
    dependence on oil. Technology that would double our fuel efficiency is
    already available; automakers just need to adopt it. That step alone
    would reduce our national oil dependence and reduce fuel costs for
    every American.
        While I am encouraged by Ford Motor Company's recent, concerted
    emphasis on flexible fuel vehicles and hybrid technology, I would like
    to see our automobile industry, as a whole, take a more aggressive
    leadership role in addressing fuel economy. We do not expect any of
    these companies to put themselves out of business, but we do expect
    them to be innovators and leaders in the effort to help create a
    sustainable and profitable energy future for our country.
        I would like to see this Committee update the CAFE standards in a
    way that better reflects the times in which we live. These standards
    can have a profound impact on our oil demand, and given that they are
    squarely in this Committee's jurisdiction, I believe we have a
    responsibility to advance them. I know that many Members on this
    Committee are deeply interested in this subject, and I would like to
    work with each of you as we advance a proposal in the weeks to come.