[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.

                                  
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