[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]


 
REVIEW OF THE ADMINISTRATION'S ENERGY PROPOSALS FOR THE TRANSPORTATION 
                                 SECTOR

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

                                HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON ENERGY AND AIR QUALITY

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                           FEBRUARY 28, 2007

                               __________

                            Serial No. 110-9


      Printed for the use of the Committee on Energy and Commerce

                        energycommerce.house.gov

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                    COMMITTEE ON ENERGY AND COMMERCE

                  JOHN D. DINGELL, Michigan, Chairman

HENRY A. WAXMAN, California          JOE BARTON, Texas
EDWARD J. MARKEY, Massachusetts          Ranking Member
RICK BOUCHER, Virginia               RALPH M. HALL, Texas
EDOLPHUS TOWNS, New York             J. DENNIS HASTERT, Illinois
FRANK PALLONE, Jr., New Jersey       FRED UPTON, Michigan
BART GORDON, Tennessee               CLIFF STEARNS, Florida
BOBBY L. RUSH, Illinois              NATHAN DEAL, Georgia
ANNA G. ESHOO, California            ED WHITFIELD, Kentucky
BART STUPAK, Michigan                BARBARA CUBIN, Wyoming
ELIOT L. ENGEL, New York             JOHN SHIMKUS, Illinois
ALBERT R. WYNN, Maryland             HEATHER WILSON, New Mexico
GENE GREEN, Texas                    JOHN SHADEGG, Arizona
DIANA DeGETTE, Colorado              CHARLES W. ``CHIP'' PICKERING,
  Vice Chairman                          Mississippi
LOIS CAPPS, California               VITO FOSSELLA, New York
MIKE DOYLE, Pennsylvania             STEVE BUYER, Indiana
JANE HARMAN, California              GEORGE RADANOVICH, California
TOM ALLEN, Maine                     JOSEPH R. PITTS, Pennsylvania
JAN SCHAKOWSKY, Illinois             MARY BONO, California
HILDA L. SOLIS, California           GREG WALDEN, Oregon
CHARLES A. GONZALEZ, Texas           LEE TERRY, Nebraska
JAY INSLEE, Washington               MIKE FERGUSON, New Jersey
TAMMY BALDWIN, Wisconsin             MIKE ROGERS, Michigan
MIKE ROSS, Arkansas                  SUE MYRICK, North Carolina
DARLENE HOOLEY, Oregon               JOHN SULLIVAN, Oklahoma
ANTHONY D. WEINER, New York          TIM MURPHY, Pennsylvania
JIM MATHESON, Utah                   MICHAEL C. BURGESS, Texas
G.K. BUTTERFIELD, North Carolina     MARSHA BLACKBURN, Tennessee
CHARLIE MELANCON, Louisiana
JOHN BARROW, Georgia
BARON P. HILL, Indiana


                           Professional Staff

                Dennis B. Fitzgibbons, Chief of Staff
                 Gregg A. Rothschild, Chief Counsel
                    Sharon E. Davis, Chief Clerk
               Bud Albright, Minority Staff Director

                 Subcommittee on Energy and Air Quality

                    RICK BOUCHER, Virginia, Chairman

CHARLIE MELANCON, Louisiana         J. DENNIS HASTERT, Illinois,
JOHN BARROW, Georgia                   Ranking Member
HENRY A. WAXMAN, California         RALPH M. HALL, Texas
EDWARD J. MARKEY, Massachusetts     FRED UPTON, Michigan
ALBERT R. WYNN, Maryland            ED WHITFIELD, Kentucky
MIKE DOYLE, Pennsylvania            JOHN SHIMKUS, Illinois
JANE HARMAN, California             JOHN B. SHADEGG, Arizona
TOM ALLEN, Maine                    CHARLES W. ``CHIP'' PICKERING, 
CHARLES A. GONZALEZ, Texas             Mississippi
JAY INSLEE, Washington              STEVE BUYER, Indiana
TAMMY BALDWIN, Wisconsin            MARY BONO, California
MIKE ROSS, Arkansas                 GREG WALDEN, Oregon
DARLENE HOOLEY, Oregon              MIKE ROGERS, Michigan
ANTHONY D. WEINER, New York         SUE MYRICK, North Carolina
JIM MATHESON, Utah                  JOHN SULLIVAN, Oklahoma
                                    MICHAEL C. BURGESS, Texas


                                  (ii)

  
                             C O N T E N T S

                              ----------                              
                                                                   Page
Baldwin, Hon. Tammy, a Representative in Congress from the State 
  of Wisconsin, opening statement................................    10
Barton, Hon. Joe, a Representative in Congress from the State of 
  Texas, opening statement.......................................     5
Boucher, Hon. Rick, a Representative in Congress from the 
  Commonwealth of Virginia, opening statement....................     1
Burgess, Hon. Michael C., a Representative in Congress from the 
  State of Texas, opening statement..............................     9
Butterfield, Hon. G. K., a Representative in Congress from the 
  State of North Carolina, opening statement.....................    12
Dingell, Hon. John D., a Representative in Congress from the 
  State of Michigan, opening statement...........................     3
Doyle, Hon. Michael F., a Representative in Congress from the 
  Commonwealth of Pennsylvania, opening statement................     9
Harman, Hon. Jane, a Representative in Congress from the State of 
  California, opening statement..................................     6
Hastert, Hon. J. Dennis, a Representative in Congress from the 
  State of Illinois, opening statement...........................     3
Inslee, Hon. Jay, a Representative in Congress from the State of 
  Washington, opening statement..................................    14
Shadegg, Hon. John B., a Representative in Congress from the 
  State of Arizona, opening statement............................    12
Shimkus, Hon. John, a Representative in Congress from the State 
  of Illinois, opening statement.................................     8
Sullivan, Hon. John, a Representative in Congress from the State 
  of Oklahoma, opening statement.................................    14
Upton, Hon. Fred, a Representative in Congress from the State of 
  Michigan, opening statement....................................     7
Walden, Hon. Greg, a Representative in Congress from the State of 
  Oregon, opening statement......................................    11

                               Witnesses

Lazear, Edward P., Chairman, Council of Economic Advisers........    17
    Prepared statement...........................................    51
Nason, Nicole, Administrator, National Highway TrafficSaety 
  Administration.................................................    15
    Prepared statement...........................................    50


REVIEW OF THE ADMINISTRATION'S ENERGY PROPOSALS FOR THE TRANSPORTATION 
                                 SECTOR

                              ----------                              


                      WEDNESDAY, FEBRUARY 28, 2007

                  House of Representatives,
            Subcommittee on Energy and Air Quality,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10:05 a.m., in 
room 2123 of the Rayburn House Office Building, Hon. Rick 
Boucher (chairman of the subcommittee) presiding.
    Present: Representatives Butterfield, Markey, Wynn, Doyle, 
Harman, Gonzalez, Inslee, Baldwin, Matheson, Dingell (ex 
officio), Engel, Hastert, Upton, Shimkus, Shadegg, Pickering, 
Walden, Sullivan, Burgess, and Barton (ex officio).

  OPENING STATEMENT OF HON. RICK BOUCHER, A REPRESENTATIVE IN 
           CONGRESS FROM THE COMMONWEALTH OF VIRGINIA

    Mr. Boucher. This morning, we will be continuing our focus 
on the appropriate congressional response to climate change, 
with the first in what will be a series of hearings on the 
transportation sector.
    Our subject today is the proposal by the administration for 
statutory authority to raise the Corporate Average Fuel Economy 
standard for passenger cars above the current standard of 27.5 
miles per gallon.
    The administration's proposal would also, for the first 
time, empower NHTSA to establish different fuel economy 
standards for different classes of passenger cars, and for the 
first time, establish fuel economy credit trading among auto 
manufacturers.
    In the administration's view, as expressed by the President 
in his State of the Union Address, these far reaching CAFE 
changes would serve to reduce fuel consumption by the motoring 
public, and also address the challenge of climate change.
    The administration's proposal has now been submitted to the 
committee as draft legislation. It raises fundamental questions 
which we will explore with our witnesses this morning. One 
obvious question is whether different fuel economy standards 
for different classes of passenger cars might create a perverse 
incentive for manufacturers to build more of the larger, less 
fuel-efficient vehicles, and correspondingly, fewer of the 
smaller, more efficient cars.
    The draft asks for authority to distinguish categories of 
passenger cars for fuel economy purposes, based on attributes, 
but the term attributes is not defined. Characteristics of cars 
that affect fuel economy can vary widely, and so we are asking 
today what the word attribute means. Can the administration 
create greater definition of what it intends through the use of 
the word attributes.
    The draft bill proposes a trading system for fuel economy 
credits, presumably akin to the trading system that is now in 
place for sulfur dioxide emissions, but there are major 
differences between electric utilities, that largely do not 
compete with each other, and the very highly competitive 
automobile industry, where depending on the circumstances, 
manufacturers might prefer to pay penalties for CAFE 
noncompliance rather than to purchase credits for fuel economy 
from a competitor that would involve giving revenue to that 
competitor. And we must ask whether there is any analysis 
showing that tradable fuel economy credits would actually save 
fuel.
    I am also interested in the administration's view of how 
its CAFE proposal for passenger cars would fit within a 
framework of greenhouse gas control. Later this year, our 
subcommittee will process control program legislation to 
address the climate change challenge. I am interested in the 
views of the witnesses about whether the CAFE changes that are 
now before us would complement that effort, whether other kinds 
of CAFE changes would better achieve greenhouse gas reductions, 
or whether an entirely different approach would be preferable 
for the transportation sector component of greenhouse gas 
program controls.
    I really don't anticipate that the witnesses will have 
complete answers to these climate change questions today, but I 
am outlining these questions in order to demonstrate our 
concern that we must view the CAFE proposal within that larger 
context.
    So, I want to say welcome to the witnesses this morning. We 
appreciate your being with us and sharing your views, and 
before we turn to your statements, we will welcome opening 
statements by other members of the subcommittee.
    Pursuant to the rules of the committee, any member who 
waives an opening statement will then have 3 minutes added to 
the time allotted to that member in order to ask questions.
    This morning, I want to say a word of welcome to the 
ranking member of our subcommittee, and we are honored in this 
subcommittee to have as our ranking member Denny Hastert from 
Illinois, the former Speaker of the House of Representatives. 
Denny performed, I think tremendously well in his role as 
Speaker, and I believe, has the distinction of being the 
longest standing Republican Speaker of the House of 
Representatives in American history, and that is an enormous 
accomplishment, which demonstrates the merit with which he 
carried forward that work. Denny was not present for our first 
hearing. He is present today, and I want to welcome him to the 
subcommittee, and say how honored we are to have him serving in 
this position, and how much I personally look forward to 
working with him as we embark on the work of the 110th 
Congress.
    And so, Denny, with those words of welcome, we would be 
glad to have your opening statement.

 OPENING STATEMENT OF HON. J. DENNIS HASTERT, A REPRESENTATIVE 
         IN CONGRESS FROM THE STATE OF STATEOF ILLINOIS

    Mr. Hastert. Well, thank you, Mr. Chairman, and thank you 
for your kindness.
    Mr. Chairman, I appreciate you holding this important 
hearing. CAFE is back before this committee, this time as an 
administration proposal, part of the President's Twenty in Ten 
Initiative, with a goal of reducing U.S. gasoline usage by 20 
percent in the next 10 years. While the goals of this proposal 
are laudable, we need more information as to how the details 
would work. The hearing will provide that.
    Reducing gasoline consumption, in part by strengthening 
CAFE standards, addresses America's need for energy security, 
and must be part of our deliberations on energy and 
environmental policy. The CAFE bill that passed this committee 
last year, like today's administration bill, would have given 
the Department of Transportation authority to establish fuel 
economy standards for passenger cars on a model size by model 
size basis.
    This approach to greater fuel efficiency is certainly as 
timely as ever. The administration's suggested 4 percent 
increase in fuel efficiency is controversial. Costs to 
automakers, the technologies involved, the questions regarding 
the market and consumer choice all require careful examination. 
The examination that this committee gave the question last year 
yielded a bill with excellent balance, in my view. Had we 
enacted it, the CAFE reform process would already be well 
underway, and we would have begun enjoying the fuel savings 
much sooner.
    So now, we have some catching up to do. In the process, we 
will make certain that whatever we do, safety is not 
compromised. Sound science and economics would guide fuel 
economy standards, and the regulatory process will be open and 
fair. We cannot honor these values if we merely ratchet up the 
current passenger car fleet standards set in a law that--27.5 
miles to the gallon. Arbitrary statutory increases do not take 
careful account of economic impact, job loss, technological 
advance, or consumer choice.
    The key is the size-based standard embodies by both the 
administration bill before us and our bill last year. 
Automakers now face a fleet average standard, a standard based 
on vehicle dimensions will improve safety by eliminating the 
incentive for manufacturers to downsize vehicles, and by 
increasing incentives for technological improvements that will 
lower miles per gallon, and will make passenger cars safer.
    I welcome our witnesses today and look forward to their 
testimony. Thank you, Mr. Chairman.
    Mr. Boucher. I thank the gentleman, and now recognize the 
chairman of the full committee, the gentleman from Michigan, 
Mr. Dingell, for 5 minutes.

OPENING STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    The Chairman. Mr. Chairman, good morning, and good morning 
to everybody.
    I want to thank you for holding today's hearing as a part 
of this committee's broad examination into climate change. I 
want to commend you for the very vigorous and energetic and 
thoughtful way in which you are conducting the business of this 
subcommittee.
    I also want to welcome back our good friend, Mr. Hastert, 
and hope that his health is good, and say I look forward to 
working with him in the future, as we have in the past.
    The Corporate Average Fuel Economy program originated in 
this committee. It was a response to the first oil crisis in 
the 1970's. Its primary objective was to reduce the Nation's 
consumption of imported oil by improving the fuel economy of 
light duty cars and trucks. The program has been remarkably 
successful, but there have been some shortcomings. Fuel economy 
today is double that of 30 years ago, in part, but only in 
part, because of CAFE.
    The program's flaw is that it regulates what automakers are 
able to sell, not what they are technologically capable of 
producing. The consumer ultimately determines the average fuel 
economy of an automaker's fleet with what he or she actually 
buys, and that, of course, is in good part bottomed on 
individual choice.
    The program is also designed to address challenges very 
different from those we face today, in a world that has changed 
dramatically. The issues have evolved, markets have evolved, 
technology has evolved, and almost always in ways not 
envisioned when we first wrote CAFE. I believe that, as you do, 
Mr. Chairman, it is time for a fresh look at the issue, and to 
seek answers to some of the questions now before us.
    First is the existing system of regulating fuel economy in 
the most effective way to address the Nation's reliance on 
petroleum. Second, faced with conclusive evidence that the 
globe is warming, is the CAFE the best way to constrain 
greenhouse gas emissions from trucks and cars? Third, what if 
any alternatives merit our support?
    I note that when Congress first required the Department of 
Transportation to set fuel economy standards, the science of 
global warming was in its infancy. We now know that greenhouse 
gas emissions are warming the Earth, with the potentially 
significant consequence to the environment. As motor vehicle 
use increases around the world, so does the need to address the 
corresponding increase of greenhouse gas emissions.
    Fortunately, many vehicle and fuel technologies not 
envisioned 30 years ago are now available, and now viable in 
the marketplace. Consumers all across the country can purchase 
hybrid electric cars, or one that runs on biofuels. We are 
close, also, to developing the next generation of batteries, to 
making plug-in hybrid and electric vehicles available for 
purchase in the next few years. More efficient methods of 
production are making ethanol and other biofuels legitimate 
alternatives to petroleum and will also reduce and lower 
emissions of carbon dioxide.
    A system to regulate fuel economy without considering the 
nature of fuel or the level of greenhouse gas emitted may not 
be adequate. Such a program may discourage the use of fuels 
that displace petroleum and emit fewer greenhouse gases, but 
which happen to contain less energy than petroleum. Energy 
security and global warming are real problems confronting the 
Nation and the world. Solutions must account for technological 
advancements and their place in the global market.
    Finally, we must note the competitive realities of what is 
a brutal global automobile market, and the disparate impact on 
American jobs that proposals might have. These are difficult 
questions, but they are questions that we will strive to 
answer. Although I am concerned with some aspects of the 
administration's CAFE proposal, I welcome its ideas, and look 
forward to working cooperatively with you and the other members 
of this subcommittee on these important matters.
    The old debate is no longer sufficient. We should clearly 
identify the programs and the problems that we seek to bring 
forward, and to solve and consider comprehensive legislation 
that accounts for the new economic, political, and scientific 
realities of our time.
    I thank you, Mr. Chairman, for recognizing me.
    Mr. Boucher. Thank you, Chairman Dingell.
    Now recognized is the ranking member of the full committee, 
the gentleman from Texas, Mr. Barton.

   OPENING STATEMENT OF HON. JOE BARTON, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF TEXAS.

    Mr. Barton. Thank you, Mr. Chairman. I, too, want to 
welcome our former Speaker and now member of this committee, 
and ranking member of this subcommittee, Denny Hastert, back to 
this important subcommittee. He couldn't have come back on the 
committee at a better time, given the sensitivity and the 
importance of some of the issues that this subcommittee and 
full committee are going to be addressing this year.
    Last year, the full committee reported a CAFE bill, on a 
party line vote, 28 to 26. All the Republicans voted for it, 
all the Democrats voted against it. It is not the identical 
bill that the administration has put forward this year. This 
year's administration bill has a cap-and-trade system that is 
problematic, to say the least, but the majority in the last 
Congress did support giving the Secretary of Transportation the 
authority to explicitly set CAFE standards for cars, which 
would have given it the identical authority that the Secretary 
of Transportation has for light trucks.
    Building on the successful reform of the light truck rule, 
I think it is important in this Congress that we do give such 
authority to the Secretary of Transportation, or consider 
statutory changes. As Chairman Dingell just said, the old 
debate won't suffice. What is in vogue this year, as we 
consider climate change issues, are various cap-and-trade 
proposals to control CO\2\ and other greenhouse gases.
    Now, one of the largest emitters, if not the largest 
emitter of greenhouse gas in the United States, are not 
smokestack emissions. It is tailpipe emissions. So, if we are 
going to have a debate about cap-and-trade, we are going to 
have to put tailpipe emissions on the table.
    Now, I am, as the chairman and the subcommittee chairman 
well know, I am by no means an advocate of the cap-and-trade 
system, but if we are so enamored of cap-and-trade, everybody's 
trades and everybody's emissions should be included in the 
policy debate, so that we can get the most cost-effective and 
the most commonsense type of proposal, if we are going to go 
down that road, and again, I am not saying that we should go 
down that road.
    So, I am very excited to have this hearing today. I have a 
GM assembly plant in my district, in Arlington, Texas. That 
plant assembles the Chevrolet Tahoe, Cadillac Escalade, which 
are two of the larger SUVs in the GM product line. So, this is 
an issue that is not just generically interesting to me. It is 
an issue that is district-specific to me, and I am going to 
follow it very well.
    And again, I supported the bill in the last Congress that 
passed this committee, but it didn't go to the floor, to give 
the Secretary explicit authority to set standards for cars like 
it has for trucks. So I am not opposed to some change in CAFE, 
but as we move down that road, it should be done very 
carefully, and hopefully, with bipartisan support.
    With that, I yield back, Mr. Chairman.
    Mr. Boucher. The Chair thanks the gentleman.
    The gentleman from Massachusetts, Mr. Markey, for 3 
minutes.
    Mr. Markey. Mr. Chairman, if I pass now, the 3 minutes is 
added to the question period?
    Mr. Boucher. That is correct.
    Mr. Markey. Then I would like to pass.
    Mr. Boucher. OK. The gentleman from Maryland.
    Mr. Butterfield. I think that is a first, Mr. Chairman.
    Mr. Boucher. Continuing on the Democratic side, the 
gentleman----
    Mr. Markey. I didn't give them up, unfortunately for the 
witnesses.
    Mr. Boucher. The gentleman from Maryland, Mr. Wynn.
    Mr. Wynn. Thank you, Mr. Chairman. I will pass.
    Mr. Boucher. The gentle lady from California, Ms. Harman.

   OPENING STATEMENT OF HON. JANE HARMAN, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Ms. Harman. Thank you, Mr. Chairman. As you know, it is a 
pleasure to be back on this committee, and I am very proud to 
be a member of the subcommittee.
    When the CAFE program was started over 30 years ago, the 
challenge was to insulate ourselves from Middle East oil 
shocks. Who would have guessed that a new generation of 
lawmakers, and some oldies, would confront the same challenge 
today?
    The security of our Nation's energy supply is fragile to 
the extreme. One need only watch the nightly news to witness 
the peril of oil dependent economy. Our transportation sector 
is a liability for our planet, too. The Pew Center on Global 
Climate Change recently reported that the U.S. transportation 
sector alone emits more CO\2\ than the entire economy of any 
other country besides China, and China has four times as many 
people as we do.
    In the 21st century, new technologies will revolutionize 
the way our economy runs, but not overnight. In the short term, 
energy efficiency is a must. Transportation accounts for nearly 
a third of our Nation's energy consumption, and that is why 
CAFE is so important. We need a long-term plan. Decades from 
now, cars and trucks on the road, assuming we have roads, must 
be far more efficient than they are today. But the technologies 
will not invent themselves. With coherent and consistent 
Federal policy and initiatives, which are strictly and fairly 
enforced, we can drive new technology to independence on 
foreign and to slow climate change. That is a win-win.
    And it doesn't have to cost us jobs. Done right, savings 
from fuel costs and investment in technology will pay dividends 
in jobs and in economic growth, and the value to our national 
security will be priceless.
    I look forward to the witnesses, and to asking some 
questions in my more limited time than Mr. Markey's. I yield 
back.
    Mr. Boucher. Thank you, Ms. Harman. Mr. Upton for 3 
minutes.

   OPENING STATEMENT OF HON. FRED UPTON, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Upton. Well, thank you, Mr. Chairman.
    I, too, want to welcome Speaker Hastert back to the 
subcommittee. I am sure that it comes as no surprise to anyone 
here that I am intensely interested in the automobile industry, 
because of its base in the State of Michigan and Midwest. In 
fact, I co-chair the Congressional Auto Caucus with my good 
friend Dale Kildee.
    One of the concerns I have, though, is that when we talk 
about transportation and the use of fuel and production of 
emissions, we immediately focus on cars and light trucks, 
ignoring the fact that approximately 40 percent of the fuel 
consumption and emissions come from other transportation, such 
as heavy trucks, rail, air, even ships. If we are going to talk 
about global climate change, it doesn't make sense to not talk 
about the entire transportation industry.
    In addition, I think we need to seriously look at the 
impact of this particular proposal to the automotive economy. 
And while I think that reform of the CAFE system could be 
productive, to make sure that we are using the right numbers 
and criteria for the program, I also believe that the proposed 
4 percent rate of increase in the standard is not reasonable 
without huge costs on such a short timeline.
    I have seen some estimated numbers on how much the 
President's proposal could cost both the auto industry, as well 
as the consumers, and I think those numbers are staggering. We 
are talking about an estimated $100 billion in costs for 
manufacturers, $100 billion, and for the consumer, possible 
price increases of up to $2,000 per vehicle. It is imperative 
that, as this committee addresses climate change, that we do so 
not at the expense of the auto industry. We must take a 
reasoned, practical approach, examining all facets of our 
economy, including the transportation sector.
    The U.S. auto industry is a loyal partner that can play 
truly a valuable role in pursuing a viable solution, but if we 
are reckless in our efforts, the consequences will be grave for 
auto manufacturing and manufacturing in general across the 
country.
    And I yield back my time.
    Mr. Boucher. The Chair thanks the gentleman. The gentleman 
from Illinois, Mr. Shimkus.

  OPENING STATEMENT OF HON. JOHN SHIMKUS, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF ILLINOIS

    Mr. Shimkus. Thank you, Mr. Chairman. I appreciate you 
holding this hearing.
    This administration's bill is similar to the bill we passed 
last year, as has been stated, and the intent last year was to 
replace an out of date approach for the passenger car standards 
with a modern, flexible approach already adapted for non-
passenger automobile standards.
    And Chairman Dingell is right, and the old debate on CAFE 
standards is no longer sufficient, based upon a lot of things 
that were brought up in the current discussions. We ought to 
agree that there are variables that are important to us: 
safety, sound science, and economics that will guide fuel 
economy standards, and a regulatory process that is open and 
fair.
    I think many of us would agree that the market demand 
ultimately could drive the need for higher CAFE standards, and 
I have said this numerous times in the committee process. What 
moves the consumer faster than the high cost of gasoline? And 
we have just seen over the past 6 months. Where gas prices were 
high, everybody was rushing to hybrids. Gas prices dropped off, 
hybrid sales declined. Gas prices are going back up, guess 
what? Hybrids are going to be back in again. And that is a lot 
faster than whatever we could do here in the public policy 
arena. Increasing fuel economy standards in passenger cars 
would be an added incentive for consumers in a world of high 
gases and foreign dependency, and potentially, even a reduction 
in greenhouse gases.
     I hate this discussion about how much we drive in this 
country. When I was stationed in West Germany, I could drive 
across the entire country of West Germany in 2\1/2\ hours. I 
can't get to parts of my district in 2\1/2\ hours. To make a 
comparison about how much we drive, compared to how much 
Europeans drive, is a red herring. It is a terrible comparison, 
based upon the size of a country. And again, my colleague, Mr. 
Boucher, is bringing up the whole greenhouse gas debate. The 
election wasn't decided on global warming, but it is now the 
cause du jour of the new majority. And so, it is a cause du 
jour, it has to be part of this debate. And it has to be part 
of this debate, and as Mr. Upton said, in all the 
transportation arena. Let us reclaim some of our jurisdiction 
on the railroad issue by talking about miles per gallon used by 
the railroad industry and fuel usage. We are good at giving 
away jurisdiction. We are not very good at reclaiming 
jurisdiction, and I think this debate could be the arena by 
which we start doing that.
    The other thing that is critical is looking at the hydrogen 
economy and new technology. Renewable fuels, coal to liquid, 
and the like, and science has to be a determinant factor on the 
next generation of fuels, which is the hydrogen economy.
    Thank you, Mr. Chairman. My time has expired.
    Mr. Boucher. The Chair thanks the gentleman. The gentleman 
from Pennsylvania, Mr. Doyle, for 3 minutes.

   OPENING STATEMENT OF HON. MIKE DOYLE, A REPRESENTATIVE IN 
         CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA

    Mr. Doyle. Thank you, Mr. Chairman.
    Mr. Chairman, there are two things that I believe are 
uncontested facts when it comes to the question of breaking our 
reliance on foreign oil. The first is that American innovation 
is the only way to break the stranglehold, and the second is 
that American innovation needs a strong Federal funding 
commitment if it is going to achieve the lofty goals the 
President has declared.
    Unfortunately, the President's budget continues his trend 
of identifying a problem, but not funding the solution. His 
Twenty in Ten proposal declares that new technology, coupled 
with higher production of alternative fuels, will reduce our 
gasoline consumption by 15 percent, while more flexibility 
under the current law will give him the final 5 percent. Yet he 
brings no new funding to the table to achieve this.
    At a time when we spend more money in Iraq in 3 months than 
we spend on the entire Department of Energy for the year, I 
find it insulting to every member of this committee that he 
just continues to shift funds, instead of providing the seed 
money that American innovators need. It is time to call a spade 
a spade, so we can move past these shell game proposals, and 
move to create the framework under which American innovation 
can flourish.
    Mr. Chairman, this policy is like we have seen year after 
year, all flash, no cash, it is time for this House to put our 
money where his mouth is.
    And I yield back.
    Mr. Boucher. The Chair thanks the gentleman, and recognizes 
the gentleman from Texas, Mr. Burgess, for 3 minutes.

OPENING STATEMENT OF HON. MICHAEL C. BURGESS, A REPRESENTATIVE 
              IN CONGRESS FROM THE STATE OF TEXAS

    Mr. Burgess. Thank you, Mr. Chairman, and thank you for 
holding this hearing.
    I haven't been shy in the past about making my position 
known that I believe our best bet to decrease the consumption 
of gasoline, at least over the short term, is to increase the 
number of hybrid cars on the road. I have owned a hybrid for 
now nearly 3 years, and I have logged a lot of miles across 
north Texas during that time, and although I bought the car 
because of concerns about air quality in our nonattainment 
area, when the gas prices got so high, I looked positively 
brilliant for making that purchase.
    But we are here today to talk about CAFE standards. Hard to 
think about CAFE standards without visualizing a Yugo. I have 
got some serious reservation about the whole CAFE system. It 
forces manufacturers to make cars that no one wants. That is 
not good for the long-term viability of our auto manufacturers, 
and it does nothing to reduce energy consumption, and it 
certainly cripples innovation.
    It is consumer demand and consumer choice that will 
ultimately determine the fuel economy of the vehicles that are 
actually on America's highways. Until consumers realize that 
there is a direct correlation between energy prices, dependence 
on foreign oil, and their SUVs or other big gas consumers, we 
will simply not see a change in consumer habits.
    Today, there are many more hybrids on the road than there 
were a year ago, which is more than there were on the road 5 
years ago. The market has recognized this increase in demand, 
and now, there are even more models available to choose from, 
including for us down in Texas, our official car of Texas, the 
hybrid SUV.
    The tax incentives for the purchase of hybrid and 
alternative fuel vehicles in the energy bill helped to 
encourage the purchase of more of these fuel-efficient cars, 
but the primary driver behind this trend is consumer demand. I 
would like to see this committee examine market-based 
alternatives to the CAFE system, but as long as we are 
functioning within that system, I believe that the Bush 
administration's vehicle class approach makes some sense, 
although I do have reservations about the workability of the 
credit trading proposal.
    I would like to note that this proposal is very similar to 
legislation we considered in this committee during the 109th 
Congress under the leadership of then-chairman and now ranking 
member Joe Barton, and I look forward to hearing from our 
witnesses today on the proposal.
    I yield back.
    Mr. Boucher. The Chair thanks the gentleman, and 
recognizes, for 3 minutes, the gentlewoman from Wisconsin, Ms. 
Baldwin.

 OPENING STATEMENT OF HON. TAMMY BALDWIN, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF WISCONSIN

    Ms. Baldwin. Thank you, Mr. Chairman.
    The tide has clearly begun to turn in our country, and we 
are thinking about how we, as Americans, can be more energy 
independent. We are becoming more conscious of the energy 
impact that each one of us makes, and we are just beginning to 
think about and discuss questions like what our Nation would 
look like in a post-petroleum era and economy. These 
conversations about our immediate and more distant future are 
important to have. What role will hydrogen, cellulosic ethanol, 
and carbon sequestration play in reducing our greenhouse gas 
emissions, and in helping us to meet our future energy needs? 
What investments in research need to be made so that the 
technology is available to make our country more energy 
independent?
    The discussions about our future energy supply are 
important and necessary at this time, but we can also not lose 
sight of the steps that we can take in the here and now to 
lessen our energy use.
    We can ensure that our appliances are the most energy-
efficient possible, that products operating in standby mode are 
not wasting enormous amounts of energy, and that our cars and 
trucks operate with the best miles per gallon ratio possible. 
Unfortunately, this is where I believe we have failed the 
American consumers. We have not required that manufacturers 
take the most energy-efficient and technologically advanced 
products available. We have set standards that fall far below 
the levels that we are capable of achieving. Quite frankly, I 
think we have taken the easy way out.
    Last year, the Department of Transportation did just this, 
in my opinion. We reformed the light truck CAFE program with 
rules that fall short if we are going to meet our most pressing 
energy needs. This rule completely excluded pickup trucks from 
increased fuel economy standards, and it only increased the 
fuel economy of SUVs and vans by a mere 1.8 miles per gallon 
over a 4-year period. They are minimal changes to say the 
least, and the technology exists for us to do far better.
    Now, the Department of Transportation wants the authority 
to set fuel economy standards for passenger cars. The proposal 
will grant NHTSA authority similar to what it has for light 
trucks, but there is nothing in this proposal that requires 
NHTSA to make significant, meaningful steps that will truly 
make a difference in our fuel economy standards. In fact, there 
is nothing here before us to require NHTSA to act at all.
    So, I am skeptical of the administration's motives in 
seeking the authority, of their desire to act, and of their 
interest in making real change, change that can be made now, 
rather than waiting for years to see where the research or 
technology will put us.
    I hope that our witnesses will address some of my concerns 
today, and I am very much looking forward to hearing your 
testimony.
    Thank you.
    Mr. Boucher. Thank you. The gentleman from Oregon, Mr. 
Walden, for 3 minutes.

  OPENING STATEMENT OF HON. GREG WALDEN, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF OREGON

    Mr. Walden. Thank you, Mr. Chairman.
    I will keep my remarks short, but I am really looking 
forward to this hearing. As somebody who represents a district 
that covers nearly 70,000 square miles, you can imagine my 
constituents spend a lot of time on the road, and they want to 
be able to drive vehicles that get the best mileage possible, 
while ensuring their safety and their ability to haul things 
that weigh a lot, like horses and cattle. And so, somewhere in 
this process, I hope we can continue to move forward on fuel 
efficiency in America's fleet, but do so in a way that provides 
them the horsepower they need and the safety they require.
    I have been pleased with some of the initiatives from the 
administration, and a lot of the work out of this committee, 
where we have invested in new technologies that we know are 
going to be out there for us in the long term that can't be 
achieved immediately, like hydrogen fuel cell vehicles. There 
is a company in my district that has been on the forefront of 
hydrogen fuel cell technology development. I have met with them 
several times, and in fact, Jim Connaughton, and I toured him 
around that facility at one point. It is very impressive what 
America's professional engineers and scientists are doing to 
move us forward in new energy-efficient ways. We need a long-
term look.
    I think what this committee did and what this 
administration proposed, to put incentives in place, to 
encourage people to buy hybrid vehicles makes a lot of sense, 
and is having a dramatic effect in the marketplace. But even 
with those incentives, we don't see an overwhelming consumer 
movement to them, even though the percentages are coming up.
    So, I look forward to the discussion on CAFE standards. I 
look forward to the discussion on both short-term and long-term 
efforts we can continue to undertake to improve efficiency, to 
make America more energy independent, to develop new resources 
that reduce pollutants, and make America a better place. So I 
appreciate your initiatives, and I think you will see a lot out 
of this committee, as we have in the past.
    So, thank you, Mr. Chairman. I appreciate the time.
    Mr. Boucher. The Chair thanks the gentleman, and recognizes 
the vice chairman of this subcommittee, the gentleman from 
North Carolina, Mr. Butterfield.

 OPENING STATEMENT OF HON. G. K. BUTTERFIELD, A REPRESENTATIVE 
          IN CONGRESS FROM THE STATE OF NORTH CAROLINA

    Mr. Butterfield. Mr. Chairman, I too thank you for 
convening this important hearing today, and you told us at the 
beginning of the 110th Congress that you were serious about 
creating good energy policy in this country, and I thank you 
very much for this hearing today.
    There is no question, Mr. Chairman, that I am a supporter 
of increasing overall fuel economy of passenger vehicles and 
light trucks, as part of a larger solution to our Nation's 
growing emissions problems. I talk with members of this 
committee from time to time, and other Members of the House, 
and persons from the industry as well, and I believe that there 
is an intelligent, bipartisan way that we can resolve this 
issue.
    I do not believe that the bill we will discuss here today 
is the best way, or the smartest way, to go forward. I have 
been surprised by the administration's approach to crafting 
this proposal, quite frankly. This is a serious matter that 
requires bipartisan serious thought and planning, but by all 
estimates that I have heard from the industry and from 
colleagues and agencies in our Government, there has been no 
recent analysis of whether the systems in this legislation will 
work, or if industry will have any impetus to abide by them. 
Frankly, I have seen no recent analysis that indicates that 
this approach will have any significant impact whatsoever.
    So, I thank you, Mr. Chairman, for this hearing. I am going 
to do very little talking. I will let Mr. Markey and others do 
that, but I am going to do a lot of listening today.
    I yield back.
    Mr. Boucher. The Chair thanks the gentleman, and recognizes 
the gentleman from Arizona, Mr. Shadegg, for 3 minutes.

OPENING STATEMENT OF HON. JOHN B. SHADEGG, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF ARIZONA

    Mr. Shadegg. Thank you, Mr. Chairman, and I appreciate your 
holding this hearing. I will keep my remarks brief.
    Let me simply say that I believe it is important to learn 
lessons from what we have done in the past, and I think those 
lessons indicate that whenever Congress gets down in the detail 
of setting specific standards, we discover that we make a 
mistake. When we set broad, general standards, or when we give 
experts the discretion to set standards, such as the CAFE 
standards, it seems to me we enable the system to be flexible 
enough to work.
    If you look at our experience in the past, when we have 
said specifically you must use certain specific oxygenates, we 
have created problems. On the other hand, if we say here is 
what you must do to clean the air, we succeed. So, I believe it 
is a mistake for the United States Congress to set the specific 
CAFE standard. I believe that is better delegated to expertise 
at the Government agencies involved, and not to have the 
Congress prescribe it.
    And so, I hope that is the direction in which we move. They 
can evaluate all the different factors, then they can move, 
quite frankly, more quickly than we can. I believe that 
typically, when a Congress tries to set the standard, it cannot 
move quickly enough to match the science. So, I would urge us 
not to have the United States Congress specify a specific 
mileage standard under CAFE, but rather, to leave that 
authority where it can be adjusted most rapidly.
    The second point I want to make is that I believe it is a 
grave error for us, and I disagree with the Bush administration 
on this issue, to quintuple or otherwise dramatically increase 
the ethanol mandate. I think we can already see a serious 
problem with the ethanol mandate that has been put in place. I 
met yesterday, I am sorry, day before yesterday, in Arizona, 
with executives in the food industry in Arizona, and they are 
telling me that because of the existing ethanol mandate, the 
price of corn has almost doubled across the country, driving up 
food prices in a variety of areas, and that unless we change 
agriculture policy, which might be a good idea, to allow more 
corn and other crops to go into production, the ethanol mandate 
is going to drive up the cost of food in this country quite 
dramatically, and that will have the greatest impact upon the 
poorest Americans. I think you can already see that in the 
crisis in Mexico, where the Government of Mexico has faced a 
revolt by the people, because of the increase in the cost of 
corn, and its ripple effect through the Mexican economy, and 
quite frankly, in the food supply in Mexico.
    So, I would prefer to see us let the market decide what is 
the proper mix for alternative fuels. If, in fact, ethanol is 
the best alternative fuel at this point, so be it, but let the 
market dictate that. Earlier last year, I tried to suspend the 
excessive tariff on imported ethanol, because I believe that 
simply drove up the cost of gasoline at a time when gasoline in 
America was well over $3 a gallon. I believe that we need to 
pursue alternative forms of energy, but having the Congress 
artificially decide which is the correct policy to do that, and 
that it is, in fact, corn, or ethanol based on corn, as opposed 
to, perhaps, ethanol based on other cellulose products, or 
alternatives to ethanol, again gets the Congress in the wrong 
position, and has ripple effects, including increasing the 
cost, for example, of food to America's poorest, and I don't 
think that is good public policy.
    So, I look forward to hearing the witnesses' testimony, and 
appreciate your holding the hearing.
    Mr. Boucher. The Chair thanks the gentleman and recognizes 
the gentleman from Washington State, Mr. Inslee, for 3 minutes.

   OPENING STATEMENT OF HON. JAY INSLEE, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF WASHINGTON

    Mr. Inslee. I just want to dedicate my comments to my mom, 
who spent summers re-vegetating the Alpine Meadows up on the 
beautiful flanks of Mount Rainier, and she loved those meadows, 
and those meadows are going to disappear by the time her great-
great-grandchildren are around, if we don't do something about 
global warming, because the tree line is rising, which squeezes 
out the meadows, and they are drying up, because of concerns 
about water in the summer, in Washington State.
    And I think, in her memory, we need to do something to 
dramatically reduce the carbon emissions from our 
transportation fleet, and I think we need to start talking 
about a post-petroleum future for a significant part of our 
fleet, and unfortunately, I don't believe the existing CAFE 
system does that.
    I would submit that if we are going to succeed in taming 
the beast of global warming, which I believe we will succeed in 
doing, we are going to have to structure incentives to the 
industry in policies that are fit for the post-petroleum age, 
and that means that we have to find a way to move to a system 
that is carbon emissions per mile, not just miles per gallon. 
In the world of cellulosic ethanol, and in the world of plug-in 
vehicles, and in the world of fuel cell vehicles, mileage, or 
miles per gallon is an artifact of the previous century.
    And I do believe we should raise CAFE standards, to find a 
way to do that with our existing fleet, but we have to leapfrog 
this discussion. We have to leapfrog our transportation future 
into a post-petroleum situation. There is no way on this green 
Earth to cut our emissions 80 percent, which we and our kids 
are going to have to do to tame this beast, if we are driving 
cars based on petroleum. So, we are going to have to find a way 
and an incentive package to incentivize actions in the industry 
to move off of petroleum to other fuel sources.
    Now, the good news is these are very close to 
commercialization. We had the GM Voltair, a pre-production car. 
Everything is stock on it, except the batteries, and A123 
Battery Company has got lithium ion batteries that are powering 
our power tools today, and they are going to be ready in a few 
years with a commercial package where you can drive your car 20 
to 40 miles, plug it in at night, and then run it on cellulosic 
ethanol, and get 100 miles a gallon on that.
    So, I just think we need to think a lot bigger than we are 
thinking here on getting into these leapfrog technologies, and 
really revamping the system.
    Thank you.
    Mr. Boucher. The Chair thanks the gentleman, and recognizes 
the gentleman from Oklahoma, Mr. Sullivan.

 OPENING STATEMENT OF HON. JOHN SULLIVAN, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF OKALHOMA

    Mr. Sullivan. Thank you, Mr. Chairman.
    It is great to be here. I think that as we go forward in 
this debate, we need to make sure that we look at everything, 
not just certain Band-Aid approaches to our energy policy in 
this country. And I think we need to look at each thing 
collectively, have a global approach to energy policy that we 
can make sure we do the right things, and make sure that jobs 
are still there, that we don't hurt certain people, certain 
sectors of the economy, and I think that is imperative as we go 
forward. We can't just have one thing. Like CAFE standards 
isn't going to do it all. We need to do a lot of things, and it 
seems to be a tendency in Washington to do like Band-Aid 
approaches to problems, and that will fix it.
    I think this is a problem that requires a lot of debate, a 
lot of discussion, and we make sure that we make, we protect 
the economy as well, and we put ourselves at a disadvantage in 
the global economy.
    Thank you.
    Mr. Boucher. The Chair thanks the gentleman. That completes 
the opening statements, and the Chair now is pleased to welcome 
our two witnesses this morning, and I first would like to 
express appreciation for your patience, while we express our 
views on this very timely subject.
    Today, we are joined by the Honorable Nicole Nason, the 
Administrator of the National Highway Traffic Safety 
Administration, an agency within the U.S. Department of 
Transportation. NHTSA regulates the safety and fuel economy of 
motor vehicles, and I am pleased the Administrator is here to 
assist the committee in its review of both CAFE standards and 
also climate change.
    The Honorable Edward Lazear was sworn in as Chairman of the 
Council of Economic Advisers on February 27, 2006, so yesterday 
marks his 1-year anniversary as chairman, and we extend 
congratulations to him for completing his first year of 
service. He is on leave of absence from Stanford University, 
and has written or edited nine books, and published more than 
100 papers. The committee welcomes his expertise in economics 
and policy, as it reviews the administration's transportation 
proposals.
    Both of your prepared statements will be made a part of the 
record, and we would welcome your oral summaries of 
approximately 5 minutes, and Ms. Nason, we will be pleased to 
begin with you.

  STATEMENT OF NICOLE NASON, ADMINISTRATOR, NATIONAL HIGHWAY 
                 TRAFFIC SAFETY ADMINISTRATION

    Ms. Nason. Good morning. Thank you, Mr. Chairman.
    I am going to try to summarize my statement, to preserve my 
voice for questions and answers.
    Let me thank you, Mr. Chairman, and the members of the 
committee for inviting us here today to discuss the Corporate 
Average Fuel Economy standard for passenger cars. I know that 
Chairman Lazear is going to speak more broadly about the 
President's Twenty in Ten proposal, so I will keep my remarks 
to the draft legislation that we provided to this committee a 
few weeks ago.
    The Bush administration already has a history of reforming 
and improving fuel economy standards. Consider our record on 
light trucks, which comprise half of the vehicles sold today, 
as this committee knows. Members may recall that this 
administration has raised the CAFE standards for light trucks 
for 7 consecutive years, from 2005 to 2011.
    Our 2006 light truck rule will not only save a record 
amount of fuel, it regulated, for the first time, some of the 
heaviest light trucks. However, we believe the method by which 
these accomplishments were achieved is probably the most 
important. In its 2002 study on CAFE, the National Academy of 
Sciences found that while the CAFE program did fulfill its 
original goals, it contained flaws that were preventing the 
program from living up to its full potential.
    For example, one of the NAS criticisms was that the program 
concentrated most of the regulatory requirements on a few full 
line manufacturers. This resulted in some manufacturers already 
above the standard not being required to make any further 
improvements in fuel efficiency. This means we are continuing 
to lose potential fuel efficiency in the fleet.
    Next, the NAS estimated that CAFE had probably cost between 
1,300 and 2,600 lives in one year alone, 1993, because the 
standards were structured in a way that enabled automakers to 
meet much of their compliance obligations by downsizing their 
vehicles. NHTSA carefully considered the NAS study, and 
methodically developed a new structure for light truck CAFE 
standards that addressed these criticisms.
    This new system, which we call Reformed CAFE, is based on 
requiring automakers to improve fuel economy not by downsizing, 
but by adding fuel saving technologies. Basing CAFE on adding 
fuel saving technologies has a number of benefits.
    First, by setting fuel economy targets for every size 
vehicle, instead of having one flat standard, every model of 
vehicle will potentially have to improve fuel economy. Reformed 
CAFE ensures that all vehicles, small, medium, or large, may 
become more fuel-efficient.
    Second, under Reformed CAFE, there is no longer an 
incentive for automakers to improve their fleet by downsizing. 
By removing this incentive, we can raise the CAFE standard 
without decreasing safety.
    Third, since Reformed CAFE demands greater fuel efficiency 
from every model of vehicle affected, every automaker will 
share the regulatory burden for improving fuel economy, not 
just a few. And finally, the administration's bill, draft bill 
contains a voluntary CAFE credit, a trading provision which 
could help alleviate regulatory costs for manufacturers.
    Mr. Chairman, the President has stated his desire to raise 
the fuel economy standard. We are pleased to have a part in his 
Twenty in Ten proposal. We believe that having experts develop 
this standard, using sound science and data, in an open and 
reviewable rulemaking process, is the most responsible way to 
determine a new CAFE standard.
    If Congress authorizes the Secretary to reform CAFE for 
passenger cars, we will immediately begin working on a 
rulemaking to boost passenger car fuel economy. And if the 
administration's draft legislation is enacted soon, cars 
rolling off the assembly line for the 2010 model year will have 
to meet a higher CAFE standard.
    Mr. Chairman, given NHTSA's successful experience with 
setting the fuel economy standard for light trucks, we believe 
we have demonstrated our capability to set balanced standards 
for passenger vehicles, given the authority to do the reform.
    Thank you, and I would be pleased to answer the committee's 
questions.
    [The prepared statement of Ms. Nason appears at the 
conclusion of the hearing.]
    Mr. Boucher. Thank you, Ms. Nason.
    Mr. Lazear.

 STATEMENT OF EDWARD P. LAZEAR, CHAIRMAN, COUNCIL OF ECONOMIC 
                            ADVISERS

    Mr. Lazear. Thank you. Good morning, Mr. Chairman, and 
members of the committee. Thank you for giving me the 
opportunity to be here to discuss the President's plan to 
enhance energy security.
    The President's plan has four pillars. The first two 
pillars focus directly on the President's goal of reducing the 
use of gasoline in the United States by 20 percent in 10 years. 
First, the President has called for an increase in the supply 
of renewable and alternative fuels by setting a mandatory 
alternative fuels standard, to require 35 billion gallons of 
renewable and alternative fuels in 2017, which is nearly five 
times the current requirement for 2012. Approximately three-
quarters of the targeted reduction in gasoline would come 
through the use of the alternative fuel standard.
    Second, the President believes that we should reduce our 
demand for fuel by reforming and modernizing the Corporate 
Average Fuel Economy standards for cars. Changes to CAFE 
standards account for the remaining quarter of the saving 
necessary to meet the President's goal, potentially saving 
another 8.5 billion gallons by 2017.
    Third, the President has proposed additional funding for 
energy innovation and technology, including bioenergy research 
and loan guarantees for cellulosic ethanol plants. Fourth, the 
President proposed doubling the capacity of the Strategic 
Petroleum Reserve to enhance our ability to deal with severe 
supply disruptions caused by natural disasters or a terrorist 
attack to the supply chain.
    The President believes that bold steps are warranted. 
Improving our energy security is a goal on which we can all 
agree. To do this, he has outlined a variety of measures that 
will diversify our energy supply and increase energy 
efficiency. The Twenty in Ten plan was designed with these 
goals in mind.
    Additionally, the plan undertakes to accomplish these goals 
in an environmentally sensible way. Most important, the 
President has made clear that we must accomplish these goals 
without damaging the American economy. This is foremost in his 
mind, especially because the market, unfettered by government, 
is the most effective driver of innovation, that strengthens 
energy security.
    Changes in prices create the incentives necessary for 
scientists, farmers, industry leaders, and entrepreneurs to 
find the means to diversify our fuel supply and increase 
efficiency. As such, the President's policies, that he has 
proposed, while bold, are not Draconian. The proposals build on 
existing programs, and the reforms allow for American companies 
to comply with the targets in ways that will not compromise 
their ability to compete internationally.
    Two principles are important in evaluating these proposals: 
technology neutrality and flexibility. The President's 
alternative fuel proposal builds on existing renewable fuel 
standards to include virtually all alternative gasoline, 
alternatives to gasoline, rather than just renewable fuels. 
Additionally, there is flexibility embedded in both the 
alternative fuels standard and the CAFE proposal, so that 
significant distortions to the economy can be avoided.
    The proposed alternative fuels standard includes two safety 
valves, one through administrative discretion, one automatic, 
that would limit the economic costs. Furthermore, there is 
discretion given to the Secretary of Transportation, who can 
alter CAFE targets in ways that are compatible with preserving 
safety, technological developments, and cost-benefit analysis. 
These provisions prevent a system on automatic pilot from 
taking us down unanticipated paths that are inconsistent with 
the goals we set. It means we can have an approach that is 
responsive, but one that is also consistent with economic 
realities. CAFE provisions also extend the existing credit 
framework, by allowing credits to be traded, granting 
manufacturers additional flexibility, and lowering their costs.
    Finally, as my colleague, Nicole Nason, explained in her 
testimony, the President's call for an attribute-based CAFE 
system for cars would help address both safety and 
distributional concerns. By remaining open to new technologies 
and ensuring flexibility, the policies proposed by the 
President have the virtue that they cause minimal economic 
disruption, yet yield the promise of moving us toward a worthy 
goal.
    I welcome your questions.
    [The prepared statement of Mr. Lazear appears at the 
conclusion of the hearing.]
    Mr. Boucher. Well, I want to say thank you to both of our 
witnesses for joining us this morning and sharing that 
information.
    The proposal that has been sent to the committee now in 
draft legislative form breaks new ground in a couple of 
important ways. First of all, it for the first time would 
authorize the establishment of fuel economy standards for 
different classes passenger vehicles, rather than passenger 
vehicles as a single category. And secondly, it would for the 
first time establish a tradable fuel economy credit, and I have 
several questions I would like to propound about both of those 
proposed changes.
    With regard to different fuel economy standards for 
different classes of passenger cars, some have suggested that 
if such a program were put into place, the incentive for 
manufacturers might be to create larger, less fuel-efficient 
vehicles, and perhaps fewer of the smaller, more efficient 
vehicles, with the result that you really wouldn't be achieving 
overall fuel savings.
    Ms. Nason, would you care to respond to that?
    Ms. Nason. Yes, thank you, Mr. Chairman.
    We have heard the concern regarding upsizing, and when you 
set a class by class, an attribute-based system, you have 
targets for vehicles of a particular class. Size or weight is 
generally the attribute that most closely correlates with fuel 
efficiency. And that there could be an incentive, some believe, 
for manufacturers to look at the targets for the higher, larger 
vehicles, and just decide that that is all they are going to 
make.
    And I think I would respond to that in two ways. First, 
there is no incentive under Reformed CAFE to make large or 
medium or small. We deliberately preserve consumer choice by 
requiring technology improvements in all vehicle sizes, so that 
manufacturers can decide to make the products that they believe 
people want to buy.
    If you are going to be required to have, say, a $200 change 
in an engine, a technology improvement, it is going to be $200 
for that engine, notwithstanding what vehicle you might put 
that engine in, so there is no incentive that we see to upsize 
the vehicles.
    And I guess the other point I would just make is one of 
practical market. We saw what happened last summer. Gas prices 
went up after Hurricane Katrina. The market for large vehicles 
plummeted almost overnight. There was a near 30 percent drop, 
and so, I don't think that it is in any manufacturer's best 
interest to decide that they are only going to make vehicles 
based on a particular CAFE standard. We have never seen that 
historically. That is not why people buy their vehicles, so we 
don't anticipate that as a real problem.
    Mr. Boucher. You also have in your legislation this phrase 
attributes, and apparently attributes would be related to 
various characteristics of the automobile that would relate to 
fuel economy. Give me some indication of what you mean by 
attributes. That phrase is not defined, and it could be 
virtually anything.
    Ms. Nason. Right.
    Mr. Boucher. You know, how large the luggage rack is, or 
how heavy the mirror is. I mean, I think some added definition 
would be extremely important, if, in fact, this proposal were 
to move forward.
    Ms. Nason. We did hear that complaint before, Mr. Chairman, 
and we agree. When we say attribute, we are using the National 
Academy of Sciences study, and an attribute-based system is one 
that most correlates with fuel efficiency, so size or weight. 
We would be pleased to work with you and this committee, if you 
think it would help us, to provide some clarity in that 
definition, as we move forward.
    Mr. Boucher. Thank you for that.
    Mr. Lazear, let me ask you about the trading program, which 
I believe you have some ownership of, actually, and perhaps 
patronage of.
    Presumably, this is based on what has been a very 
successful experience in this country with SO2 trading, which 
this committee originated as a part of the 1990 Clean Air 
Amendments. That program really has worked very well. But that 
is within the electric utility industry. These utilities, as a 
matter, a general matter, do not compete with each other. They 
are serving a certificated area, and each has his own, and so, 
there is probably not a lot of reluctance for competitive 
reasons for them to trade credits. That may account for the 
success of the program. But the automotive industry is highly 
competitive, and some have suggested that tradable credits 
would not work as well within a competitive industry, where 
those doing the trading are competitors each with the other.
    What is your response to that?
    Mr. Lazear. Thank you, Mr. Chairman.
    I would say that the motivation behind this is based more 
on what I would think of as basic economic rationale than it is 
on comparison with any particular program per se. What we know 
is that giving people options is a good thing. It tends to 
increase flexibility, and reduce the cost of compliance with 
any particular program.
    I think what the President is most concerned about is that 
he would like to move the energy agenda forward. He thinks 
energy security is important, but at the same time, is 
cognizant of the fact that we don't want to punish our 
automobile industry, and wants to do that in a way most 
compatible with minimizing economic costs.
    We believe that giving companies the option to trade 
credits is one that is a good thing. It is good for the 
companies, and it is also good for the workers within those 
companies. Now, obviously, they don't have to exercise that 
option. They have the alternative option, under this plan, to 
simply pay a fee, exercise their right to go to the safety 
valve, and do that instead of trading, and in fact, if tradable 
credits were to rise in price up to that point, in fact, many 
would exercise that alternative.
    So, we believe that this is just an additional alternative 
to reduce the cost of compliance.
    Mr. Boucher. OK. Thank you. I have some additional 
questions, and we will have a second round of questions for our 
witnesses. I will defer those until later.
    And I am pleased to recognize the gentleman from Illinois 
for his questions.
    Mr. Hastert. Thank you, Mr. Chairman.
    Ms. Nason, let me ask you a question. When you get into 
fuel economy, you had $11 billion over, in fuel savings, 
estimated in your light truck rulemaking. When you get into the 
situation of flex fuel automobiles, a lot of them are using 85 
percent ethanol, for instance, and the ethanol mileage per 
gallon is not always as good as just pure gasoline, do you take 
into account the drop in miles per gallon, but yet, the 
emissions are low? How do you balance that out?
    Ms. Nason. Thank you, Congressman Hastert, as you have 
noted, the use of E-85 is growing, and we have certainly seen 
some manufacturers make pledges that they will be doubling the 
amount of E-85 vehicles on the road.
    When we calculate a CAFE standard, we take the tests that 
are done by EPA, EPA takes the vehicles, and they run the 
tests, and that is where a credit is applied for a flex fuel 
vehicle. Under current law, it is 0.9, it used to be 1.2, was 
the most you could get for a credit for flex fuel vehicles. So, 
EPA does take that into account when they do the test. And 
then, when the numbers are applied to NHTSA, and we make the 
determinations about whether you were over or under the 
standard, and whether or not you have met it, or there was a 
fee to be applied, that has already been taken into account by 
the EPA.
    Mr. Hastert. When you talk about the increase in 
manufacturers increasing the number of flex fuel automobiles, 
are you aware that Underwriters Laboratories, who have to test 
the pumps for liability reasons, for people who distribute that 
fuel, are dragging their feet and not getting those tests done, 
so even though you have maybe twice as many flex fuel vehicles 
out there, the ability for independents, for instance, 
groceries stores, others, to buy the pumps to disperse the 
fuels, they can't do it. And so, you have, literally, a glitch 
in the system. Armed Services use E-85, a lot of other entities 
use E-85, but yet, when you have to sell it commercially, they 
can't do it. And this might be something that you want to look 
into, to urge the expedition of that.
    When you were talking, as we said before, the new light 
truck rulemaking, it will result in a fuel savings of nearly 11 
billion gallons over the life of the light trucks manufactured 
between 2008 and 2011, what kind of fuel savings do you look 
at, or guess that you might have, in the increase in passenger 
car fuel economy standards, according to this proposal?
    Ms. Nason. We are basing our standard on the President's 
goal that he has set: 8.5 billion gallons of fuel saved in 
2017, and the way that we get to that number is a goal of a 4 
percent annual increase. I only stress that it is a goal, 
because we did not include it in the draft legislation, as you 
are aware, because we haven't done a full cost-benefit analysis 
with the best available data.
    Mr. Hastert. Mr. Lazear, the NAS has recommended the dual 
fleet rule be eliminated. Why doesn't your proposal contain 
such a provision?
    Mr. Lazear. We believe that the way that we have set up the 
proposal right now guarantees the most flexibility and is 
consistent with neutrality, and what we mean by neutrality is 
that we make sure that we don't favor any one particular kind 
of technology over another.
    Now, the one thing that we are doing, as my colleague has 
pointed out, is we do believe that attribute-based systems are 
important, in terms of guaranteeing safety, but we also want to 
ensure that consumer choice is protected, and that would be the 
main motivation, I would say.
    Mr. Hastert. Thank you.
    And Ms. Nason, I do again repeat, we might want to look at 
what are the things holding up the ability of distribution of 
E-85. To double the number of vehicles won't do you any good, 
unless you can buy fuel.
    Ms. Nason. Right. Yes, sir. Thank you.
    Mr. Hastert. Thank you. I yield back.
    Mr. Boucher. Thank you, Mr. Hastert.
    The gentleman from Michigan, Mr. Dingell, for 5 minutes.
    The Chairman. Mr. Chairman, thank you.
    Administrator Nason, I want to ask these questions to save 
the utmost amount of time, and if you can answer them with a 
yes or no, it would be very much appreciated.
    Ms. Nason. Yes, sir.
    The Chairman. The reformed light truck rule is not 
available for manufacturers until the bottom of the year 2008. 
Do we have any appreciation of how the CAFE system, the new 
one, will work on light trucks, and how it will perform?
    Ms. Nason. Yes.
    The Chairman. We do?
    Ms. Nason. Yes.
    The Chairman. We do have an idea? Have any studies been 
performed on this?
    Ms. Nason. We have done our own analyses. I don't know that 
there is a study other than the National Academy of Sciences.
    The Chairman. Would you submit to us, then, the work that 
has been done, so that we may know what you know about this 
particular matter, please?
    Ms. Nason. Yes, sir.
    The Chairman. Now, has NHTSA studied how a similar system 
might work on passenger cars?
    Ms. Nason. We have, but I acknowledge it is based on old 
data.
    The Chairman. It is based on old data?
    Ms. Nason. Yes, sir. The best that we had, but several 
years old.
    The Chairman. Now, has NHTSA studied how a similar system 
would affect passenger car safety?
    Ms. Nason. No, sir. We have used the National Academy of 
Sciences report.
    The Chairman. Now, has NHTSA studied what effect a similar 
system, if applied to passenger cars, would have on overall 
fuel consumption in the United States?
    Ms. Nason. I don't know if studied would be the right word. 
Again, we have rough analyses, but they are based on----
    The Chairman. Well, would you submit to us, first of all, 
the studies, and second of all, what information you have with 
regard to how this would affect fuel consumption in the United 
States, please?
    Ms. Nason. Yes, sir.
    The Chairman. Now, has NHTSA studied how the new structure 
would work with the existing requirement that manufacturers 
satisfy CAFE for both foreign and domestic fleets?
    Ms. Nason. The National Academy of Sciences did look at 
that, sir.
    The Chairman. You have studied that?
    Ms. Nason. No, we are using NAS' work, Mr. Chairman.
    The Chairman. I understand, then, you are telling me that 
you have not studied that.
    Ms. Nason. No, sir. We are relying on the NAS study.
    The Chairman. I am having trouble hearing, please.
    Ms. Nason. I am sorry. We are relying on the NAS study. 
They did look at that, and so, we reviewed their work.
    The Chairman. So, you have not studied this yourself.
    Would you submit to us the basis upon which you have made 
any judgments on this matter, and any information that you have 
with regard to this matter, please?
    Ms. Nason. Yes, Mr. Chairman.
    The Chairman. Now, has NHTSA studied, and/or considered how 
it would preserve domestic production of small automobiles if 
it is granted this new authority?
    Ms. Nason. We didn't propose any changes to the two fleet 
rule, Mr. Chairman.
    The Chairman. I am sorry.
    Ms. Nason. We have not proposed any changes to the two 
fleet rule, sir.
    The Chairman. All right. Now, Dr. Lazear, has the 
administration conducted any independent analysis on CAFE 
trading, credit trading proposals?
    Mr. Lazear. No independent analysis of it.
    The Chairman. No independent analysis.
    If manufacturers did trade credit, has the administration 
conducted an independent analysis that demonstrates how it 
would reduce overall fuel consumption in the United States?
    Mr. Lazear. Not specifically.
    The Chairman. So, then, we don't really know what it would 
do to reduce fuel consumption. Is that right?
    Mr. Lazear. We don't know. We have a target, and our target 
would be implemented by the Department of Transportation.
    The Chairman. So, we have a target, but we don't know how 
we are going to get there.
    Mr. Lazear. Well, we know the method that we would use. The 
issue is we don't know the cost of technological change over 
time.
    The Chairman. Well, for a hardheaded economist, Doctor, I 
must confess I am being driven to the conclusion that you 
probably are more suited to the clergy, because your faith and 
your hope appear to be more outstanding than the quality of 
your scientific work here.
    Mr. Lazear. Well, I will let my colleagues comment on that.
    The Chairman. The NAS study examined cap-and-trade system 
for carbon dioxide emissions. Does the administration support 
this kind of credit trading?
    Mr. Lazear. Cap-and-trade. Right now, this is obviously 
being discussed in Congress. This is something that we are 
going to be seeing over the next year or so, and we are 
certainly going to be considering it.
    The Chairman. Now, your very able predecessor, Mr. Mankiw, 
endorsed both a carbon and a gas tax in the Wall Street Journal 
on October 20, 2006. Has the administration considered 
supporting a tax on carbon or gasoline?
    Mr. Lazear. We don't believe that a direct gasoline tax is 
the way to go. We believe that this particular proposal 
accomplishes the goals with less distortion, and keeps the 
money in the economy.
    The Chairman. Thank you. Mr. Chairman, thank you for your 
kindness.
    Mr. Boucher. Thank you, Chairman Dingell. The gentleman 
from Michigan, Mr. Upton, is recognized for 5 minutes.
    Mr. Upton. Well, thank you. I was wondering if my colleague 
from the great State of Michigan was going to change the old 
saying a wing and a prayer to a wheel and a prayer, based on 
his questions.
    Ms. Nason, I had a question as it relates to your 
testimony. You said, on page third, since Reformed CAFE demands 
create fuel efficiency from every model of vehicle affected, 
every automaker will share the regulatory burden for improving 
fuel economy, not just a few.
    And what brings that to my attention is the fact that, as 
we have heard from our manufacturers, particularly as it 
related to GM, they estimated that from the time period 2010 to 
2017, the cost for them would be about $40 billion, and at the 
same time, the estimated impact on two of their key 
competitors, Toyota and Honda, is estimated to be $8.4 billion 
and $4 billion respectively, and I just want to know how that 
fits with your statement that they would all be affected. 
Surely, that would be the case, but at least on the surface, it 
doesn't seem like it would be anywhere close to equal. Would 
you concur?
    Ms. Nason. Yes. I think our only point in suggesting a 
Reformed CAFE program, Congressman Upton, is that whether 
Congress chooses a number, an arbitrary increase, or the 
administration raises it, under a reform, everyone will be 
required to make some improvements. There may be some that have 
to make more than others.
    Mr. Upton. Well, in this case, it looks like it is to the 
neighborhood of perhaps as much as ten times as much.
    Ms. Nason. Well, the estimates, again, were based on almost 
5 year old data. We can't speak to GM's analysis, but----
    Mr. Upton. In the last truck CAFE rules issued by the 
administration, you found that the maximum feasible increase in 
the light truck CAFE standards for 2008 to 2011 model years 
would be an average of about 2 percent a year, and I think at 
the time, the administration further noted that increasing the 
rate any further than the 2 percent would impose costs that 
exceed benefits. I am just wondering if that was true about a 
year ago, why have you doubled the 2 percent to 4 percent?
    Ms. Nason. Thank you, Congressman.
    Mr. Upton. And might know who suggested that you do that.
    Ms. Nason. Well, again, 4 percent is a goal. It is a 
target. I don't know that we will get there, but we will 
certainly try. The President has made clear that this is a 
priority for him, and you are correct. We did get to 2 percent 
under light trucks. We are looking at passenger cars now, in 
the hope that we can have an even greater increase in passenger 
cars.
    Mr. Upton. Four percent for both, is it not? Did you not do 
4 percent for both?
    Ms. Nason. Four percent for both, but we would be starting 
light trucks several years, 2 years further out.
    Mr. Upton. Well. The other question that I had for you is, 
as I understand it, you all last week issued a request for 
product plan information from the automakers from 2010 to 2017, 
and my question is, if you didn't have such information on hand 
when you made this proposal, how is it that you ended up coming 
up with the numbers that you did?
    Ms. Nason. Two points. The other point I was going to make, 
Congressman, is that we are proposing a rulemaking on the 4 
percent issue, from 2010 to 2017. It would be a longer 
rulemaking, and it would be further out, a decade out, which is 
part of the reason why we thought we could still have net 
benefits at 4 percent.
    We did ask for product plans, because of course, without 
the best available data, we are making rough estimates. We 
absolutely acknowledge that.
    Mr. Upton. Mr. Lazear, would you want to comment on any of 
those questions?
    Mr. Lazear. I think my colleague handled it well, unless 
you want to follow up with anything specific. I am happy to 
answer your questions, but I thought she handled it.
    Mr. Upton. Well, thank you. Again, we all do care about 
fuel economy. I am in the market for a new vehicle, and one of 
the questions that I did ask was the fuel economy, it does have 
an impact on every purchaser, I think, that is out there. And I 
guess one of the things that I would like to see, as we see 
these improvements come, we do need some reforms, there is no 
question about that. They need to be appropriate ones. I don't 
just want to necessarily see all of the costs, total, be borne, 
perhaps, by the manufacturers, at a disparity of perhaps as 
much as tenfold between some of them.
    And look forward to working with the chairman and others on 
the committee to, in fact, watch us move forward, and I yield 
back my time.
    Mr. Wynn [presiding]. I thank the gentleman. It appears 
that I have taken the chair at an opportune time, because it is 
my turn for asking questions.
    I am concerned about the notion of cost-benefit analysis, 
and exactly how it would work. And forgive me if you have 
covered this earlier, but I would like you to explain to me 
exactly how you are going to analyze cost, and I know there are 
some kind of traditional indicators you use, that the industry 
provides, lost jobs, and this sort of thing, but there are also 
is an element of benefit that I think is somewhat difficult to 
define, but very important, which is the quality of our air, 
the impact of reducing global warming, and if we don't have a 
real way to incorporate these hard to define values and 
benefits into this cost-benefit analysis, it seems to me that 
we are basically going to be operating off of kind of the old 
school model, and not adapting to the realities that have 
caused us concern.
    So, could you talk a bit about how this cost-benefit 
analysis is going to be conducted, in the first instance, and 
secondarily, how you will include the broad societal benefits 
into the benefit side of the equation?
    Ms. Nason. Yes, thank you, Congressman.
    We are not proposing to jettison any of the restrictions 
that we have in current statute. We are asking for similar 
authority, which does require a cost-benefit analysis. Under 
the cost-benefit analysis, for example, for the light truck 
rule, we look at the costs of the technologies that we are 
applying. It is a cost to the manufacturers for the 
technologies that they have to put on their vehicles to improve 
the fuel efficiency.
    The benefit side, as you said, gets more tricky. The vast 
majority of the benefits, in our analysis, is the benefits from 
gallons of gasoline saved. We can quantify that. There are 
other externalities. We look at benefits from a reduction of 
pollutants, NOx and Sox and VOC and lead, but the majority of 
the benefits does come from the gallons of gasoline that we are 
saving.
    There are other benefits to increasing the CAFE standard, 
reduction of CO\2\ emissions, for example, is one. We have 
heard from some that we should have quantified that. We can 
quantify it. We just can't monetize it, which has been the 
challenge, so that we can say a reduction of 73 million metric 
tons of CO\2\, the question is how do you apply a value to 
that, and so, in the end, applying a value to some of these 
more challenging concepts, as you said, hard to define, clean 
air, better environment, energy independence, it would be, I 
don't think it would be something that we would be able to 
value specifically in this rule. They are benefits.
    Mr. Wynn. Well, thank you. That, I must acknowledge that is 
kind of troubling, because that is the whole point of why we 
are here, and without those kinds of values being taken into 
consideration and identified, we might end up, as I called old 
school, but it may be somewhat status quo.
    The other question I wanted to ask you is whether, speaking 
of status quo, whether we might find ourselves in a situation 
in which we got no appreciably increase in fuel efficiency 
based on this cost-benefit analysis, which is to say, if you 
conclude that the new technologies would be too costly to 
implement on a particular model, or group of models, or group 
of classes, or whatever, that you would then take no action, or 
recommend only the slightest change.
    I believe that is possible, perhaps even likely. Would you 
agree or disagree with that?
    Ms. Nason. Well, I would disagree, Congressman, that we 
will see nothing. I think we feel fairly confident, even 
looking at some of the older data, that we can see an increase 
in fuel efficiency for manufacturers. The reason we asked for 
the flexibility, and the reason we didn't write 4 percent into 
our draft legislation, was so that we could do a full cost-
benefit analysis, so we could look at what is technologically 
feasible and economically practicable, considering the need for 
the Nation to conserve energy.
    We can look at the effect of other Federal motor vehicle 
standards on our rulemaking, all things we are required to do 
under the statute, and to make a determination about the best 
increase we could get. We do believe we will get an increase. I 
can commit to you we will raise the standard.
    Mr. Wynn. By how much?
    Ms. Nason. That is why we need to do the analysis.
    Mr. Wynn. Right. I understand.
    Let me turn to the cap-and-trade. There is some concern 
about how that would work and, again, if you covered it, I 
apologize, but this would seem to, well, perhaps it would be 
better, explain to me how this is going to work, because there 
are several different versions of it. I want to make sure that 
the penalties are sufficiently stiff to incentivize, if you 
will, fuel efficiency by the industry, and that the trading is 
actually practicable.
    Ms. Nason. Yes, thank you, Congressman.
    I wouldn't call it cap-and-trade. Someone said earlier, it 
was akin to cap-and-trade. It is a trading program. There 
wouldn't be a cap, though, in the same sense that you would see 
with a sulfur trading program, for example. We would actually 
encourage manufacturers who were at or a little above the fuel 
efficiency levels to do even more, because we believe it would 
provide an incentive in the marketplace for them to do better. 
They would have credits that they might be able to sell to 
other manufacturers.
    Mr. Wynn. They are selling the credits for cash, is that 
what is going to happen?
    Ms. Nason. Right. We would not be, we did not propose to 
set the price for a credit. We proposed to allow financial 
investors to be included in the market, as we noted earlier. It 
is a very small market. The manufacturers all know each other, 
and the reason that we included financial investors was so that 
we could hope to spur trade, maybe.
    Mr. Wynn. So, they would have to basically give cash to a 
competitor?
    Ms. Nason. Well, the idea would be they could sell credits 
to Merrill Lynch, just to pick----
    Mr. Wynn. Well, the seller, I understand, but the buyer.
    Ms. Nason. The buyer would presumably, let us just say 
Merrill Lynch, would go to a buyer, and say, hey, if you are 
interested, we have collected credits from, could be a variety 
of people, could be over a period of years, would you be 
interested?
    Now, it is completely voluntary. We put it out there as an 
option for flexibility for the manufacturers. They have the 
option of meeting the CAFE standard.
    Mr. Wynn. If they fail to meet the CAFE standard, and 
decline to, and are not able to purchase credits to offset 
their failure, what is the penalty?
    Ms. Nason. There is fee, sir.
    Mr. Wynn. What is the fee?
    Ms. Nason. It is $5.50 for every tenth of a mile times the 
number of vehicles produced by that manufacturer. It would be 
in the millions.
    Mr. Wynn. Is that the same structure you have now for light 
trucks and SUVs?
    Ms. Nason. Yes, sir. This is statutory.
    Mr. Wynn. Have you given any consideration to increasing 
the fees as an incentive?
    Ms. Nason. We have statutory authority to go up to $10. We 
didn't propose that in our draft legislation. We would be open 
to discuss it.
    Mr. Wynn. You didn't propose any increase, actually, in the 
draft legislation.
    Ms. Nason. No. That is correct. Yes, sir.
    Mr. Wynn. Does that reflect the decision that no increase 
ought to be made, or is it just kind of not an issue that was 
taken up?
    Ms. Nason. It wasn't an issue that we addressed. We were 
looking at fuel savings issue. The fine or the fee is something 
we would be happy to discuss.
    Mr. Wynn. I think the fee structure definitely needs to be 
considered, because that is integral to making this process 
work.
    I see my time is up, and the next, I would like to 
recognize Mr. Shimkus for 5 minutes.
    Mr. Shimkus. Thank you, Mr. Chairman, and it is a pleasure 
having you all here.
    This is an important debate. This country still is probably 
predominantly a fossil fuel generated economy. And as much as 
we may not like it, that is a reality. So our effects on the 
use of fossil fuels will have a dramatic effect in the economy. 
The question is what we do now, and how do we bridge to the 
next generation, which a lot of us believe will be a hydrogen 
economy, and how do we do that in a way in which we are not so 
disruptive of the economy that we never can afford the capital 
expenditures to get to the hydrogen economy?
    So, having said that, Ms. Nason, this 2010, and it is 35 
billion gallons, if I understand, in the testimony and 
questions, 8.5 by a modernized CAFE, and then 16.5 by a RFS 
alternative fuel definition. Is that correct?
    Ms. Lazear. No, I am sorry. It is 8.5, the 8.5 is one 
quarter of the total of 35 billion, it comes from the AFS. That 
may be what you said.
    Mr. Shimkus. Yes. What I am trying to do is, I have been 
following the fossil fuel debate here in this Congress so far, 
and I, one, we increased taxes on fossil fuels. We did not put 
the tax revenue generated to coal to liquid technologies. That 
wasn't allowed as an amendment on the floor.
    We just had a science bill on the floor, a motion to 
recommit said let us have some of this technology go to coal to 
liquid technologies. That was defeated on the floor. I have a 
real skepticism that this new Democratic majority really is 
understanding the importance of fossil fuels in this country.
    So, in this provision, and getting to meet the goals which 
we have laid out, or you have laid out, we have this 35 billion 
gallons, and we use the terminology alternative fuels. Could 
you give me the definition of that, alternative fuels?
    Mr. Lazear. I can do it. We wanted to make that as broad as 
possible, and again, I think the reason for that is basic 
economic principles, which is that we don't want to pick the 
winners. We want the market to pick the winners. So, we want to 
allow for alternative fuels, hydrogen would be one, coal to 
liquid, as you mentioned, biodiesel, there are a number of 
alternatives, and frankly, we simply don't know where the 
technology is going to take us over the next few years, and we 
don't want to try to steer in a particular direction.
    Mr. Shimkus. And I applaud that, because I, too, agree that 
is kind of where we have to go. In the energy bill that we 
passed, we had 7.5 billion gallon renewable fuel standard. It 
was not definitive. It has primarily been met by ethanol 
production, but of course, also being soybean area in the 
country, biodiesel has made great progress, especially the B20 
mixture in diesel fuel has been very, very beneficial and 
supportive, and that is part of this whole RFS.
    So, for my friends who are afraid that this is just a big 
ethanol push, that is not correct, especially if my friends on 
the other side would start opening up the public policy debate 
on coal to liquid applications, and coal to liquid debate, and 
it is my understanding that the alternative language here would 
include not only coal to liquid, but again, would help us 
bridge to the hydrogen economy. And that is really part of the 
debate on having a modernized CAFE system.
    My good friend Denny Hastert talked about flex fuel 
vehicles. They are different. I have 22 fuel and filling 
stations in my district. You can go from Chicago to Kansas City 
now on all E-85. It is moving in the right direction. The 
automobile industry will eventually work on an engine that will 
have the same compression ratio, so you will get the same, but 
when you are averaging 20 cents less a gallon, the miles per 
gallon drop-off is almost a wash.
    So, I will end with, again, people have been trying to pin 
you down on this 4 percent, and if there is a numeric number 
assigned to this standard. Is there?
    Ms. Nason. No, sir. The number we are using is 8.5 billion. 
That is the President's goal.
    Mr. Shimkus. Thank you, and that is my time. I yield back.
    Mr. Hastert. Would the gentleman yield, if he still has 
some time?
    Mr. Shimkus. I am out of time, Mr. Chairman.
    Mr. Boucher. At this time, the Chair recognizes the 
gentlewoman from California, Ms. Harman, for 5 minutes.
    Ms. Harman. Thank you, Mr. Chairman. My district is home to 
the North American Headquarters of Toyota and Honda, which 
build a few cars in this country, I think everyone has noticed, 
and have robust R&D facilities, and have, I think, of course, I 
am totally unbiased, been pushing technology because they have 
produced vehicles that have hybrid and various forms of clean 
engines, even without being required to do so.
    And I just want to commend them for their forward leaning 
approach, and to say that I think we all can benefit from 
things that they have done, but also, things that we can do to 
set higher standards, so that everybody knows that in the 
future, the way we have produced cars engines, and the fuel 
efficiency of cars, has to change.
    I would observe that this has been a kind of soft and fuzzy 
hearing, but I think there are tough questions that need to be 
asked, and so, in that spirit, let me just sort of waddle in.
    As a friend of mine in this audience pointed out to me 
before the hearing started, NHTSA has authority right now to 
set higher CAFE standards. Is that true?
    Ms. Nason. Yes.
    Ms. Harman. So, I am not recommending this, but if you 
wanted to, you could, say, by X date, instead of the current 
CAFE standard we have, which was set in 1975, and I think 
everyone gets that, that was quite a long while ago, before 
half in this audience were born, instead of that standard, we 
could double that standard by a date certain. Is that right?
    Ms. Nason. Yes. The Agency believes we have the authority 
to raise it. We just don't have the authority to reform the 
program.
    Ms. Harman. You have the authority to raise the standard, 
but not reform the program.
    Ms. Nason. Raise, absolutely.
    Ms. Harman. Well, that strikes me as not an optimum 
situation. Obviously, I would suggest we have to reform the 
program as well. Would you agree with that?
    Ms. Nason. Yes.
    Ms. Harman. OK.
    Ms. Nason. Completely.
    Ms. Harman. And we have to take a look at all the 
loopholes, and the way we have treated different categories of 
vehicles differently, do we not?
    Ms. Nason. Yes. That is an important issue.
    Ms. Harman. OK. All right. But while I think these goals 
and attributes, and a bunch of kind of soft words are useful, 
when will NHTSA, or will NHTSA set a higher CAFE standard?
    Ms. Nason. If we can have reform authority, we can have a 
rulemaking out by, we would have to have it out for model year 
2010 by next April 1. So, the end of next March. It would be 
very challenging, but we could do it, if we get the authority.
    Ms. Harman. Well, I think the times we live in are very 
challenging, and I don't think we are the best body to set an 
arbitrary standard. I have held that view for many years. I 
think you are much better equipped, but I think the time for 
boldness is here, and we have heard discussion on both sides 
about new forms of engines and all kinds of things that are out 
there. I surely agree with statements that have been made that 
we shouldn't pick winners and loser, but if we don't have bold, 
tough standards out there, we are not going to drive change. Is 
that right?
    Ms. Nason. We agree, Congresswoman. That is why we are 
proposing the authority, the reform authority. We agree.
    Ms. Harman. Would you have any comment on this?
    Mr. Lazear. No, I agree completely. I think the President's 
goal is to propose bold standards, and to do it in the way that 
is economically responsible. So, I think we agree completely 
with you.
    Ms. Harman. Oh. Well, and let me second the point about 
economic responsibility. I think this can be a win-win, would 
you agree with that? If we do this right, but we have to do it, 
in my view, boldly, couldn't this be a win-win, because it 
creates huge opportunities for innovation, and they require 
human beings, well-trained human beings, to execute?
    Mr. Lazear. Absolutely. We are betting on that.
    Ms. Harman. OK. Well, that is very exciting. Let me just 
ask you about, let us see here. Governor Schwarzenegger, who 
was here yesterday, and who recently signed an executive order 
mandating a low carbon fuel standard, oh, I am almost out of 
time, and he, his point is that rather than setting fuel 
economy standards for automakers, this approach requires a 
maximum, a minimum 10 percent reduction in the carbon footprint 
of transportation fuels by 2020, and shifts some of the burden 
from automakers to fuel producers.
    My time is up, but do you see this as a good complementary 
approach to reforming and increasing CAFE standards?
    Ms. Nason. Yes. I believe even the manufacturers have said 
that they are pleased with the low carbon proposal by Governor 
Schwarzenegger.
    Ms. Harman. Any comments?
    Mr. Lazear. We believe that the President's proposal is a 
step in that direction. In fact, we believe that if these 
proposals are implemented, we will be successful in slowing 
and, perhaps, stopping the growth in carbon emissions, in that 
way.
    Ms. Harman. Thank you. And thank you, Mr. Chairman, for 
indulging me.
    Mr. Boucher. Thank you, Ms. Harman. Mr. Walden for 5 
minutes.
    Mr. Walden. Thank you, Mr. Chairman.
    Before I get into CAFE standards, Mr. Lazear, you are 
Chairman of the Council, White House Council of Economic 
Advisers, right?
    Mr. Lazear. Yes, sir.
    Mr. Walden. Can you tell me what happened in the markets 
yesterday and why?
    Mr. Lazear. There are a number of different factors. The 
story started with China, of course.
    Mr. Walden. Right.
    Mr. Lazear. But the phenomenon in China that triggered that 
event, at least to most analysts' view, was something having to 
do with their tax policy, taxes on profits, which was a rumor 
not substantiated.
    The problem with that explanation is there is no obvious 
reason why that would then trigger the events in other 
countries, in fact, could even go the other way. So, we don't 
really know what happened.
    I guess, let me just say one thing, first of all, that the 
Chinese market responded today by making up about half the 
gains, and our market is now up by about 99 points, so it looks 
like whatever happened yesterday was anomalous. These kinds of 
things are not unusual, and we just kind of write it off to one 
day's activity. We don't think of it as reflecting anything 
about the fundamentals in the economy, which I believe are 
quite strong.
    Mr. Walden. So, you still believe the fundamentals are 
strong?
    Mr. Lazear. Absolutely.
    Mr. Walden. All right.
    Mr. Lazear. The best evidence of that is the labor market.
    Mr. Walden. That is the old journalist in me. I got the 
head of the White House Council of Economic Advisers here, and 
the biggest story in the world is the economy, and we are 
dancing around it. OK, thank you.
    Ms. Nason, if Congress were to pass this bill today, does 
the technology exist to increase the fuel economy to a level 
greater than it is now, and if so, how much greater? I mean, 
this is the debate I get in in this building and back home, is 
how far can you go without reducing the safety standards, what 
is technologically possible, and what is the cost of that to 
consumers?
    Ms. Nason. Right. Well, as the President has said, 
Congressman, this is a heavy technology bet. We do believe the 
technology exists, and I would note that the automotive 
manufacturing industry spends billions on R&D. When we say 
apply technologies, we do think there are fuel efficiencies to 
be gained still from the good old internal combustion engine, 
and improvements to the transmission, and aerodynamic drag and 
those things, but we would, to reach a goal of 4 percent, we 
certainly would be expecting a far greater market penetration 
of diesels, dieselization, hybridization.
    Mr. Walden. All right. But dieselization, I remember 
reading something a year or two ago, about if we start to 
switch over to diesel, we are going to have a diesel supply 
issue in this country. If we try to mimic Europe, because we 
don't necessarily have access to that diesel right now. Is that 
accurate? What kind of supply issues will we face?
    Ms. Nason. Well, we have, the situation compared to Europe. 
In Europe, nearly of the vehicles are diesel.
    Mr. Walden. Right.
    Ms. Nason. In the United States, it is a much smaller 
percentage, maybe 3 to 4 percent. The situation is the EPA's 
requirements, we have low sulfur, much cleaner diesel 
requirements, but we do think that we are in a position to, the 
manufacturers are in a position to make diesels that meet our 
requirements, and that we can get the fuel out there.
    Mr. Walden. Is there refinery capacity, though, for that 
much diesel, if we make the kind of shift you are talking 
about?
    Ms. Nason. Yes. Well, I shouldn't definitively answer that. 
We would certainly have to look at it. We are not talking about 
a market penetration of 50 percent.
    Mr. Walden. Right.
    Ms. Nason. The way you would see in Europe. It would still 
be 10 or 12, 15, we do think we have----
    Mr. Walden. What is the market penetration right now of 
these flex fuel vehicles, and what we have done in terms of 
ethanol usage, do you know?
    Ms. Nason. I don't know off the top of my head what 
percentage.
    Mr. Walden. It is not huge, though.
    Ms. Nason. No. It is small, and part of the problem, as 
Congressman Hastert noted, is E-85 available stations.
    Mr. Walden. Right. There is probably single digits. Would 
that be----
    Ms. Nason. Oh, yes.
    Mr. Walden. OK. I look at that, and say, and I voted for 
some of that, and the subsidy we have is something like how 
much a gallon, 50 cents a gallon, that we are putting into 
ethanol?
    Ms. Nason. Well, for the credit, they get a 0.9 miles per 
gallon credit. It does take more ethanol to fill----
    Mr. Walden. Right, but we are subsidizing the ethanol 
industry through a direct tax provision, as I recall, or a 
direct subsidy.
    Ms. Nason. Fifty-one cents.
    Mr. Walden. I thought that was the number, and I guess I am 
looking, then, at the market disruption that is occurring if 
you are raising hogs or if you are raising beef cattle, trying 
to finish them off, and Mr. Lazear, can you talk to that at 
all? I mean, I want to be careful what we are doing, because 
we, I don't think most of us understood the unintended 
consequence that we are now finding ourselves in in the 
agriculture sector.
    Mr. Lazear. There is no doubt that when we increase the 
demand for a particular factor for other uses, that is going to 
put pressure on prices. It does put upward pressure on prices.
    That stimulates other actions, of course, as well, so we 
find different ways of producing corn, more efficient corn.
    Mr. Walden. Sure.
    Mr. Lazear. That has come about. We do believe that the 
technology will help us on that front. That said, that was one 
of the reasons that we think it is extremely important to have 
safety valves built into this program. One of the things that 
the safety valve does, particularly the alternative fuels 
mandate safety valve, what that would do is that would limit 
the amount by which corn prices could go up, because if ethanol 
prices get very, very high, you have an alternative. You can go 
use the safety valve, and that limits the damage. And that is 
an important component of this plan, because again, we focused 
very heavily on thinking about the economic consequences of 
this, as we went through the strategy.
    Mr. Walden. Very good. Thank you. Thank you, Mr. Chairman.
    Mr. Boucher. And the Chair will recognize, I am sorry, Mr. 
Markey, for 8 minutes.
    Mr. Markey. Thank you, Mr. Chairman, very much.
    The United States went from importing 45 percent of our oil 
in 1995 to importing 60 percent of our oil in 2006. During that 
period, we had a Republican-controlled Congress, from 1995 to 
2000, that actually put a law on the books which prohibited 
your agency, Ms. Nason, from even considering increasing the 
fuel economy standards in our country. And from 2001 through 
2007, now, the Bush administration has not improved the fuel 
economy standards for automobiles in our country, 12 years, and 
we have gone from 45 percent of our oil imported to 60 percent 
of our oil imported.
    Now, this is as we have 130,000 young men and women in 
Iraq, with a surge of an additional 20,000 men and women that 
is imminent. We have seen a corresponding surge in oil 
importation from overseas at the same time, $300 billion worth 
of oil a year, we import into our country, much of it going 
into the hands of those who are actually funding al-Qaeda, 
funding terrorists. Plus an additional $100 billion for our 
military to fight a war in Iraq.
    So, for 12 years, the Republicans have stopped any 
improvement in fuel economy standards, and it is a national 
security disgrace. It has made our country so much more 
vulnerable than we should have been, that it is, in my opinion, 
the overarching issue of our time.
    And it is also an environmental scandal, because of the 
dramatically increased greenhouse gases that we are sending out 
into the atmosphere, that is causing tremendous additional 
environmental and health problems for our planet. So, we are 
looking to you, Ms. Nason, and we are looking to you, Mr. 
Lazear, to help us to do something about this problem.
    Ms. Nason, the President has called for a 4 percent 
increase in CAFE standards, but there is nothing in the Bush 
bill that I can find that actually mandates a 4 percent 
increase. Where is the 4 percent increase in the legislation 
which President Bush and Vice President Cheney have sent to 
this committee? Where is it?
    Ms. Nason. That is correct, Congressman Markey.
    The President has said 4 percent is a goal, but we have 
asked for flexibility in the legislation to do the cost-
benefit----
    Mr. Markey. So, there is no 4 percent, Ms. Nason. The 
President and Vice President are deliberately, once again, 
misleading the American people about his goals, in this 
critical national security area.
    There is nothing in President Bush's bill that gives us any 
guarantee that there is going to be a 4 percent increase. It is 
a national security scandal. We cannot ask 150,000 young men 
and women to take on all of the terrorists and al-Qaeda in the 
world, and then back here--and a mandate, by the way, a mandate 
that the President continues to insist upon, that these 
soldiers and Marines have to keep going back over and over and 
over again, a mandate upon them. Well, where is the mandate in 
his legislation on the automotive manufacturing industry, on 
the appliances industry, that will meet minimum security, 
national security standards?
    There is no mandate on us, on us here at home. He is saying 
it is just going to be discretionary. That is a scandal, Ms. 
Nason. It is a scandal.
    Let me ask you one quick question. Do you believe that the 
Ford Escape hybrid, which gets 32 miles per gallon in the city, 
and 29 on the highway, is less safe than a Ford Escape which 
gets 21 miles per gallon in the city, and 24 miles per gallon 
on the highway? Is it less safe?
    Ms. Nason. No, sir.
    Mr. Markey. It is not less safe, is it?
    Ms. Nason. No.
    Mr. Markey. No. So you can have a hybrid that improves the 
fuel economy by 40 percent without compromising safety at all. 
Is that not true?
    Ms. Nason. Absolutely. It would still have to meet all of 
our safety standards.
    Mr. Markey. But it does meet all of your safety standards. 
Is that correct?
    Ms. Nason. Yes, sir.
    Mr. Markey. OK. So, if we are, then, looking at these 
issues, where, why should we have any confidence in you? The 
National Academy of Sciences has already said in 2002 you could 
improve it 4 percent a year. It is 5 years later. And they said 
using existing technologies in 2002, and that did not include 
hybrids.
    Why can't the President just say the words? We said it in 
1975. President Ford signed a bill which doubled it from 13 
miles per gallon to 27 miles per gallon. Do you know we went 
from 36 percent dependence to 26 percent dependence upon 
imported oil in that 10-year period? Do you know that, Ms. 
Nason?
    Ms. Nason. I trust you, Congressman.
    Mr. Markey. OK. Thank you.
    Why won't the President make the same kind of statement, 
the same kind of mandate, given the national security crisis 
that our country is in on this oil dependency? Can you tell me 
that, Ms. Nason?
    Ms. Nason. Yes, Congressman Markey. Last year, when we 
discussed this issue, there was a great reluctance in the, for 
lack of a better way to term it, the trust us message that 
NHTSA was putting forward. People were looking for numbers or 
percentage increases, and so, I don't think we could make a 
bigger commitment on behalf of the administration than having--
--
    Mr. Markey. No, you are looking. Ms. Nason, you are 
looking----
    Ms. Nason. The President speak--in the State of the Union--
--
    Mr. Markey. Ms. Nason, you are looking for flexibility to 
do less than 4 percent. That is what you are asking the 
Congress to give you. You are asking for flexibility to do 
less. Less. Not more.
    You are not saying you might do 5 percent or 6 percent, you 
are saying we might do 3 percent. We might do 2 percent. That 
is what I am hearing you and the President's Chief Economic 
Adviser saying. I am hearing economics. I am not hearing 
national security. I am not hearing national crisis. I am 
hearing we might do less.
    It is not in the bill. It is just rhetoric, and it has been 
rhetoric for 12 years of Republicans, 12 years, and we are 
hearing just the same thing.
    Finally. OK. Let me go to you, Mr. Lazear.
    There is a law that was passed in 1978. That law imposed a 
gas guzzler tax on big automobiles in the United States. It is 
about $1,000 a car. So, if you buy a big Chrysler that gets 20 
miles a gallon, you pay an extra $1,000. But that is not the 
majority of cars at all.
    But if you bought an SUV that got 14 miles a gallon, you 
don't pay a gas guzzler tax at all. There is a loophole, and 
the loophole actually drives consumers to less efficient 
vehicles. That is the tax policy.
    Don't you think that tax policy makes no sense, given the 
national security crisis facing our country?
    Mr. Lazear. There are a number of ways to motivate 
consumers to choose more efficient cars. One is taxes, as you 
mentioned. The other is market prices. To my mind, most of the 
action that we see in the market is primarily driven by 
gasoline prices. So, if we look over time at the pattern of 
consumption, that seems to follow gasoline prices probably more 
closely than anything else.
    Mr. Markey. So, you don't think this gas guzzler tax works 
at all.
    Mr. Lazear. Oh, no, no. I didn't say that at all. No, no. 
Taxes surely work. All I said is----
    Mr. Markey. But does is it a factor in driving people to 
less efficient SUVs, because the automobile has an extra tax on 
it?
    Mr. Lazear. When there is a tax on it, that discourages use 
of that car. When there is no tax on it, it doesn't discourage 
use.
    Mr. Markey. Should there be a tax----
    Mr. Boucher. Mr. Markey, your time has expired, and with 
that particular answer----
    Mr. Markey. He is not answering my question. I want to know 
if there should be a tax exemption for SUVs. Would you answer 
that, sir?
    Mr. Boucher. Time is expired. I think he attempted to 
answer. We have to live with his response.
    Mr. Markey. He did not answer yes or no. He gave me an 
economist's answer, not a yes or no. Should there be an 
exemption, sir, for the SUV?
    Mr. Boucher. Mr. Markey, your time is up, and I am going to 
be recognizing the ranking member of the full committee, Mr. 
Barton.
    Mr. Barton. OK. Thank you. Thank you.
    It is a terrible thing when you don't answer a question 
like a Congressman wants it answered. I mean, it just, we ought 
to make that unconstitutional. Give him the answer he wants, 
not the answer you think is correct, and that way, we can all 
go have lunch, and not have indigestion, and life will go on.
    Now, Mr. Markey just, in his usual entertaining style, has 
given both his monologue and asked his questions. I used to 
enjoy them when I knew I had the votes. They are not quite as 
enjoyable now that he may have the votes. We will see.
    But I think, to be fair, we need to point out that he has 
never voted for ANWR, he has never voted for extended drilling 
in the OCS. He didn't vote yes on the CAFE bill that passed 
this committee. His amendment to increase CAFE has failed every 
time in this committee that it has come up for a vote, and 
every time on the House floor. It is a little bit disingenuous 
for my good friend to be sitting here, tongue-lashing these two 
distinguished witnesses, when he has certainly not been a part 
of any solution efforts that have become law.
    Now, we can disagree, but I have had extended private 
discussions with my good friend about trying to get a CAFE 
increase in exchange for ANWR, so you get a production and a 
conservation. So far, he has said no on that, so I think it is 
a little unfair to insinuate that it is all the fault of these 
two witnesses, or the Bush administration, that we haven't done 
anything.
    His conclusion is correct. CAFE has not gone up. That is a 
correct conclusion. But it is not because good people on both 
sides of the issue haven't tried in some way to find a 
consensus solution.
    So, I just want to put that on the record.
    My first question, I guess it would be to the economic 
advisor, do you know what percent of the greenhouse gas is 
emitted by humans in the United States is because of tailpipe 
emissions, as opposed to stationary source emissions?
    Ms. Lazear. Thirty percent is the number.
    Mr. Barton. Thirty percent?
    Mr. Lazear. Thirty percent, sir.
    Mr. Barton. OK.
    Mr. Lazear. Yes.
    Mr. Barton. So, on the larger question that Chairman 
Boucher was asking, if we consider a cap-and-trade system for 
stationary sources, should we consider a cap-and-trade system 
for mobile sources of greenhouse gas emissions in the United 
States?
    Mr. Lazear. Go ahead.
    Ms. Nason. I guess there are two ways to answer that. 
First, we have proposed a tradable credit system. We have not 
proposed a cap-and-trade for CAFE legislation, just on CO\2\ 
emissions, as I noted earlier. We have had difficulty with even 
monetizing CO\2\ emissions. We can tell you the reduction, but 
to monetize that value is very challenging, and we haven't seen 
any consensus in the scientific data.
    Mr. Barton. Well, I am not an advocate of a cap-and-trade 
system, so I am just saying that those that are, if 30 percent 
of our human emissions in the United States are tailpipe, our 
mobile source emissions, and we are going to do cap-and-trade, 
I would think that 30 percent of the problem ought to be 30 
percent of the solution, and my hunch is that the proponents of 
cap-and-trade don't want to look at mobile sources with the 
same scrutiny that they want to look at stationary sources.
    In the Energy Policy Act of 2005, Section 773 has a study 
of the feasibility and effects of reducing the use of fuel in 
automobiles, basically to see if there is not some alternative 
to the current CAFE system. Can you tell me, Ms. Nason, if that 
study was conducted, and if it was, what the results are of it? 
And if you need to get back to me, I am fine.
    Ms. Nason. They have to get to Congressman Harman's point. 
I was alive in 1975.
    Mr. Barton. No, no. This is 2005.
    Ms. Nason. But I was alive.
    Mr. Barton. This is 2005.
    Ms. Nason. Oh, yes.
    Mr. Barton. This is 2 years ago, OK?
    Ms. Nason. I am sorry. I thought you meant in the original 
statutes.
    Mr. Barton. No.
    Ms. Nason. Yes, actually. We have, and we can provide you 
with that information.
    Mr. Barton. So, you have done the study?
    Ms. Nason. Yes.
    Mr. Barton. OK. And you can give us the result. Do you 
happen to know off the top of your staff's head what the 
results of that study are?
    Ms. Nason. Our conclusions were, not surprisingly, 
Congressman, that we would like to increase and reform the 
passenger car CAFE.
    Mr. Barton. My time has expired, Mr. Chairman.
    Mr. Boucher. Thank you very much, and the Chair will 
recognize the gentleman from Utah, Mr. Matheson, for 8 minutes.
    Mr. Matheson. Thank you, Mr. Chairman.
    Ms. Nason, in your testimony, you did make reference to the 
National Academy of Sciences study.
    Ms. Nason. Yes.
    Mr. Matheson. And I was wondering if you could expand on 
what you, how you used that study to come up with your proposal 
for the Reformed CAFE.
    Ms. Nason. Thank you, Congressman. The National Academy of 
Sciences looked at a variety of options for reforming the CAFE 
program, and one of their findings was that an attribute-based 
system, and when we say attribute, we mean size or weight, was 
a way to reform the program, to still gain fuel efficiency, in 
making improvements and raising the CAFE standard, without 
sacrificing safety.
    One of the concerns the National Academy of Sciences raised 
is that the least expensive way for a manufacturer to meet a 
higher CAFE standard would be to simply downsize to make 
smaller, many more smaller vehicles, which exacerbate the 
problem we have right now between compatibility of large and 
small.
    So, when we looked at that study, we wanted to make sure 
that as we reform the proposal, we don't sacrifice safety, 
which is something NAS was very strong on, but we still gain 
the fuel efficiencies from all of the manufacturers, whether 
they are above or below an arbitrary number. So, we think 
reform, with an increased stringency, is the most responsible 
way to go.
    Mr. Matheson. It is also my understanding that in that 
study, it was determined that existing technologies, and it 
assumed a gas price of around $1.50, that there was opportunity 
for substantial savings over a 10-year timeframe.
    Did you incorporate that into your proposals? I have heard 
this 4 percent number bandied about, that that was 4 percent 
total. I think the National Academy had a far more aggressive 
projected capability for fuel savings. How did you respond to 
what the National Academy said there? And that was technology 
of 5 years ago.
    Ms. Nason. Right. The 4 percent that we are proposing as a 
goal is a 4 percent year over year increase, so it is, we 
believe, extremely aggressive.
    Mr. Matheson. So, that is an annual increase.
    Ms. Nason. Oh, yes.
    Mr. Matheson. I am not sure that was clear, as the 
committee was discussing that. OK.
    Ms. Nason. Oh, I apologize. It is a very aggressive goal.
    Mr. Matheson. Let me ask you. In your testimony, you talked 
about your Reformed CAFE proposal, and you want to do it by, 
you said in the previous CAFE effort, a lot of it was 
accomplished by downsizing the vehicles, or vehicle weight, and 
now, the Reformed CAFE will look at adding fuel saving 
technology as a way to achieve savings.
    When you are going to do your rulemaking, and when you 
anticipate setting your rules, how are you going to determine 
what is possible? How are you going to decide what fuel saving 
technologies are out there?
    Ms. Nason. Thank you, Congressman.
    We used the list that the National Academy of Sciences 
looked at, and we add technologies until costs and benefits are 
level.
    Mr. Matheson. How are you going to do that going forward? 
How are you going to do this if you set these rules for 2010 or 
whatever?
    Ms. Nason. Right, for up 2017.
    Mr. Matheson. Yes.
    Ms. Nason. You mean, is it possible that the technologies 
will outpace----
    Mr. Matheson. Yes, I want to know how you are going to 
assemble what the world of possible technologies are, and how 
you are going to come up with setting these standards 
accordingly.
    Ms. Nason. Right.
    Mr. Matheson. And the follow-up question, which I will just 
throw in right now, is let us say you do it now, the 
rulemaking.
    Ms. Nason. Yes.
    Mr. Matheson. And then, 3 years later, new technologies 
come out. Are you going to reopen the rule, or how are you 
going to accommodate technological change over time?
    Ms. Nason. Right. Those are excellent questions, and we are 
struggling with some of those. The National Academy of Sciences 
actually proposes a list, from very small changes, low 
friction, high viscosity oils, for example, to direct injection 
engines. And so, we would start with changes to the internal 
combustion engine, based on the manufacturer's product plans.
    What we would be required to do, under reform, is to find a 
technologically feasible way for a manufacturer to get to, let 
us say we can reach 4 percent, a 4 percent annual increase. 
Now, a manufacturer may look at our list and say we don't want 
to go with a five speed or six speed transmission. We don't 
want to use the technologies that you are applying. We want to 
go straight to hybrids or diesels. That would be their 
alternative.
    One of our basic tenets is that we are technology neutral. 
We allow the manufacturers, we create a path to show that it is 
feasible, but we allow them to decide whether or not they want 
to take their own path.
    The point of your second question is you are correct. When 
NAS was first looking at this list, the far end of 
technologies, hybridization and dieselization, and we 
obviously, I think there were one or two vehicles on the market 
at the time that were hybrids, and so, we have seen an 
increase, obviously, in those technologies. One of the things 
we are doing right now is working with the National Academy of 
Sciences to update the list, because we do need to go beyond 
hybrids and diesels, and to consider some of the research that 
manufacturers are doing. They are going to be getting ahead of 
us, so we do need to update the list. We agree with you.
    Mr. Matheson. See, I think you are in a bind when you say 
you want to be technologically neutral. We all think that 
letting the marketplace decide is a good bias to have, and yet, 
you are going to be making decisions based on your 
understanding of what technologies are when you go out and set 
these standards, so by definition, you are picking available 
technologies, at least from your perspective, at least through 
your rulemaking.
    Ms. Nason. Well, again, we choose, we have to demonstrate, 
by statute, that it is technologically feasible, but a 
manufacturer does not, in any way, have to use any of our 
technologies. They can determine that they can get to 4 percent 
through a different path, and there is nothing in our 
rulemaking that would prohibit them from using their own 
technologies, and looking at their own product plans, and 
deciding we want to make a heavy investment into diesels, for 
example, even if we don't propose a greater penetration in the 
fleet of dieselization, they could, an individual manufacturer 
could.
    We could get to a point in 2017, or maybe beyond, where we 
will need to update the technology list, which is why we are 
starting that work right now with NAS, but we do think there 
are significant gains that we can make, both with improvements 
to engines and transmissions right now, and adding, 
acknowledging that we would be adding higher end, better fuel 
efficiency, but more costly technologies like dieselization and 
hybridization.
    Mr. Matheson. And you have the flexibility, just to repeat, 
let us say, 5 years from now, some new technology comes up you 
didn't know about, you have the flexibility to go in and change 
it, then.
    Ms. Nason. Yes, again. We don't dictate in any way the 
technology. We demonstrate that it is possible.
    Mr. Matheson. No, but to change your potential standards, 
though. Let us say a new technology comes up, and you can say 
wait a minute, whatever rulemaking we did when we set this as 
our fuel economy standard, attribute-based or however it would 
be set up, what if something happens where you say wait a 
minute, we can suddenly do a lot better? Do you have the 
flexibility to go in and change it then?
    Ms. Nason. Well, it would depend on Congress giving us the 
flexibility to do the reform program the way we would like to 
reform CAFE, but yes, with our light trucks, for example, we 
believe that we can continually allow for different 
technologies to be used in the marketplace, and that is a very 
important basic tenet of our proposal.
    Mr. Matheson. One last question, and it is going to move 
just a little bit off of CAFE, because CAFE talks about new 
vehicles coming out on the market, but I read last week the 
same thing I read probably 10 or 15 years ago, which said it is 
the 10/50 rule, that 10 percent of the vehicles on the road 
account for 50 percent of the emissions that exist in our 
country from vehicles, and I heard that 15 years ago about, and 
I heard it last week again.
    Is that true, and if we want to talk about carbon emissions 
and whatnot, should we be looking, and I know this is getting 
off of your topic, what with the CAFE, but should we, have you 
been looking at that issue? Is that still true, where a certain 
small percentage of older vehicles on the road create a 
disproportionate impact, in terms of carbon emissions in our 
atmosphere?
    Ms. Nason. Thank you, Congressman. One of the things that 
we received some criticism for, for example, in our light truck 
rule, is that we made estimates about percentage of vehicles 
that were still on the road 30 or 35 years later, and people 
were critical that we were allowing vehicles to stay on the 
road for 30 years. We have to make those estimates. It is maybe 
2 percent would be our number of vehicles on the road, but 
there are people who keep their cars and trucks for a long, 
long time, and we do have to account for that in our 
rulemaking.
    So, that is something that we are aware of, and we do try 
to take into account, even as we are asking for an increase, 
and higher fuel efficiency, we do have to take into account 
that there are people who keep their vehicles for decades.
    Mr. Boucher. Thank you, Mr. Matheson.
    Mr. Matheson. Thank you.
    Mr. Boucher. And the Chair now recognizes the gentleman 
from Oklahoma, Mr. Sullivan, for 5 minutes.
    Mr. Sullivan. Thank you, Mr. Chairman. I have learned a lot 
today. It is a good meeting, but one thing I, you are talking 
about technologies, and I think the technology, he was talking 
about that, would change, I am sure you would adjust if they 
came up with a carburetor, for example, that would save a lot 
of mileage, you would probably look at that.
    But one thing--I have four kids, and one thing I am 
concerned about is safety. And I think you can achieve some of 
these efficiencies through technology that wouldn't change the 
weight or structure of the car, but I think there does come a 
point where you do have to change, manufacturers would, the 
structure of the car, or the weight, and do you know, have you 
done an analysis on how many lives would be lost achieving 
these fuel efficiency standards?
    Ms. Nason. Yes, thank you, Congressman. We have, actually, 
a very clear analysis through the National Academy of Sciences, 
that under CAFE, current CAFE structure, the unreformed 
structure, as I noted in my opening testimony, up to 2,300 
lives could be lost, this was their estimate, between 1,600 and 
2,300 in 1993, they looked at that one year alone, because the 
least expensive way to meet CAFE standards is to downsize the 
vehicles. Now, that doesn't necessarily mean that small 
vehicles aren't safe and large vehicles are safe. It just 
exacerbates the problem that we currently have between 
compatibility of large and small.
    That is something that we are very concerned about, and we 
looked very carefully at those provisions in the National 
Academy of Sciences study, when we proposed our Reformed CAFE 
structure, because we do not want to have any negative impact 
on safety, and the safety penalty, that is the NAS term, not 
mine, the safety penalty is something that we want to look at, 
and we have looked at very carefully, which is why when we talk 
about reforming CAFE, we talk about it in two separate pieces, 
changing the program, and increasing the stringency. We want to 
make sure that we look at both carefully, so that we do not 
have any negative impact on safety.
    Mr. Sullivan. Do you analyze any type of crash tests, or 
anything like that? Do you do those?
    Ms. Nason. Yes.
    Mr. Sullivan. OK.
    Ms. Nason. Every day.
    Mr. Sullivan. And let us say they are achieving a certain 
level, you take that car, and you would have the crash test, 
and you would see exactly the impact data and all of that, that 
would potentially kill people?
    Ms. Nason. Yes. We would not permit a manufacturer to make 
a change to a vehicle that makes it much more fuel-efficient, 
but then, it doesn't pass all of the Federal motor vehicle 
safety standards. Any vehicle that is being sold on the road 
needs to pass all of our safety requirements in addition to 
being more fuel-efficient. That is why we have noted that a 4 
percent annual increase would be very challenging for the 
manufacturers, because they still have all of the other 
standards that they are required to meet. But that is our goal.
    Mr. Sullivan. What percentage do you think they could 
achieve in the short term without jeopardizing any safety?
    Ms. Nason. Well, we think, for example, when we looked at 
the product plans from several years ago for the light truck 
rule, we had it 2 percent, end over end, annual increase. We 
actually think that can be higher, but as was noted earlier, we 
have requested the product plans from the manufacturers. We 
look at their confidential product plans--we don't share this 
with other manufacturers and we don't share it with the 
public--to determine where they are making their investments, 
and to make sure that there is no potential impact on safety.
    Mr. Sullivan. Thank you.
    Ms. Nason. Thank you.
    Mr. Boucher. The Chair now recognizes the gentleman from 
Texas, Mr. Gonzalez, for 8 minutes.
    Mr. Gonzalez. Thank you very much, Mr. Chairman. Welcome 
back, Administrator Nason. It is good to see you.
    Ms. Nason. Thank you.
    Mr. Gonzalez. I think we can have disagreements once in a 
while, but I think everyone admires the enthusiasm and the 
knowledge that you bring to your job.
    I want to touch on, I guess, some fundamentals that I think 
I have an understanding of them, and maybe, they pretty well 
establish where we go in the future. Because you are building 
on these particular fundamentals.
    And the first one is the classification of vehicles. What 
we are discussing today are passenger vehicles, but the very 
definition of them may not, may be more of a fiction than 
anything else. My understanding that under light trucks come 
SUVs, crossovers, and minivans. Do you know what percentage of 
Americans today actually use what type of vehicle to carry 
passengers?
    Ms. Nason. Yes. Good morning, Congressman. Thank you.
    It is nearly half. It is almost an even split for the way 
we classify between light trucks and passenger cars, and back 
when CAFE was first created, it was 20 percent less, and 20 
percent were in light trucks, nearly all Americans were in 
passenger cars.
    Mr. Gonzalez. Well, policy may have driven manufacturers a 
certain way, and I mean, I think that is really the obvious 
thing, because if you don't have stringent CAFE standards, and 
also, let me ask you, do you have different emission standards 
depending on the classification of the vehicle? Let us say 
everything that comes under a light truck as opposed to a 
passenger vehicle? Are they the same?
    Ms. Nason. We don't set emissions standards at NHTSA, 
Congressman. That's the EPA's role.
    Mr. Gonzalez. No, but I understand that. But I am saying 
that there are certain advantages to maybe promote, build, 
manufacture, and so on, vehicles that are not subject to as 
stringent standards, whether it be CAFE standards or emissions. 
Would you agree?
    Ms. Nason. Oh. Well, you mean, incentives for manufacturers 
to build them? Incentives for manufacturers to build them?
    Mr. Gonzalez. Wouldn't you say that is more of an 
incentive? And this is all history.
    Ms. Nason. Right.
    Mr. Gonzalez. You weren't around, as I heard a minute ago, 
back then. Unfortunately, I was not just around, I had been 
around for a while. But what I am saying is, right now, as you 
speak, what you are addressing here are passenger vehicles, 
which is really half of the equation maybe.
    Ms. Nason. Right.
    Mr. Gonzalez. And increasing numbers are on that other part 
of the equation, light trucks. You have the authority, we don't 
have any question about whether the Supreme Court is right or 
wrong, da da da, you are moving forward on that.
    Ms. Nason. Right. We are moving forward on the trucks.
    Mr. Gonzalez. Where do you make the most difference in the 
shortest period of time, when you look at what the President is 
attempting to achieve on alternatives, gas mileage, savings, 
all of it, do you do it with the subject we discussed today, 
passenger vehicles, or more accurately, do you do it under the 
category of what we refer to as light trucks?
    Ms. Nason. Oh, absolutely, Congressman. We still think 
there are gains, tremendous gains to be made in the light truck 
category as well. It is part of our proposal.
    Mr. Gonzalez. And we are not going to change the 
classification, are we? So, what I am saying is, and when we 
talk about cost-benefit, I really see this debate, and we need 
to be very cognizant of it, and I know that I have some dear 
friends that would say we need to leapfrog, and there may be a 
real danger in leapfrogging, because when I look at what might 
be at stake, it may well be the future of the domestic 
automaker. And that has serious consequences.
    It doesn't mean that we don't strive to improve and have 
realistic target dates, but the question before us is if we 
don't move prudently, do you believe that it is possible, if we 
fast forward without considering the impact and consequences of 
policy, that a major manufacturing base for the United States 
could well be jeopardized?
    Ms. Nason. That absolutely is something we would want to 
avoid, Congressman, which is why we have put the draft 
legislation, and we are engaging in this conversation with you 
about the best way to do it.
    Mr. Gonzalez. The other thing, and we have had this 
discussion before, because I know you are depending on studies 
by other agencies and entities, such as the National Academy of 
Sciences and such, but you also depend on the EPA, right?
    Ms. Nason. Yes.
    Mr. Gonzalez. And you depend on the EPA to establish the 
manner and method of the testing to establish CAFE standards, 
and to arrive at these numbers. Now, last time we had this 
discussion, you told me, and you can't speak for EPA, that EPA 
was in the process of retooling that test and making it more 
realistic.
    Now, I am going to tell you this is all hearsay, I have no 
idea how they conduct it, but someone told me that the way they 
conduct this test to arrive at your 26, 27, or whatever the 
representation is on the sticker there, is that they drive the 
vehicle for 2 miles at 48 miles an hour, something to that 
effect.
    Are you familiar with the present test? What is the status 
of any revision?
    Ms. Nason. Yes, Congressman, and the last time we talked, 
EPA had not completed their revision of the test. It is 
something that I know they had not just groups like the 
National Academy of Sciences, but consumers were writing in to 
say they were not getting the numbers, as you say, the fuel 
efficiency, that they had seen on the sticker, during actual 
driving conditions.
    EPA has completed that rulemaking, I believe, December, and 
they did make several important changes, which we have 
supported, that will help consumers get accurate information 
about----
    Mr. Gonzalez. It is amazing. I mean, we are looking at from 
the viewpoint of the consumer, but you as the Administrator, 
depending on these particular numbers, and the administration 
basing all sorts of assumptions on gas mileage that is being 
established by a test that does not accurately reflect what a 
vehicle gets in gas mileage.
    I mean, that is my whole point, is we may have set a 
foundation by having the two categories, that has always been a 
fiction and not realistic, but we have to live with it, but 
surely, we can have a test that accurately gives you numbers on 
what you will predicate policy targets and goals, that are 
supposed to be attainable, but they are not going to be 
attainable if realistically, we are not getting that kind of 
gas mileage out there.
    And you might say, that is important for the consumer, but 
I would say that we are predicating policy on fiction again, 
and unless you and I, Congress, right, go to EPA and say how 
realistic are these numbers, should we be basing any policy 
assumptions on it, and someone just handed you something, and I 
take it that they might have something of interest there, and 
if not, I guess it must say when are we going to lunch, and I 
think it is going to be in a few minutes.
    Doctor Lazear I really don't have any questions for you 
because I am afraid you will give me one of those answers that 
you gave Mr. Markey, which I more or less understood, but was 
not sufficient. But again, I want to thank both of you for your 
testimony today.
    Mr. Lazear. Thanks a lot.
    Mr. Gonzalez. And I yield back.
    Mr. Boucher. Thank you, Mr. Gonzalez. The Chair is pleased 
to recognize the gentleman from Mississippi, Mr. Pickering, for 
5 minutes.
    Mr. Pickering. Thank you, Mr. Chairman.
    Chairman Lazear, have you all looked, I know the 
administration has looked at different ways to encourage higher 
standards, and your proposal has that, but did you also look at 
ways that you could encourage individual consumers to get their 
older and less efficient cars off the road? For example, a 
resale tax credit that would encourage car owners with a older 
car, less efficient car, to be able to trade that in, get a 
resale tax credit, and then purchase a more efficient vehicle? 
Did you all look at that individual-based approach?
    Mr. Lazear. I would say we looked at individual-based 
approaches, but not the specific one that you are talking 
about. In some sense, trading old cars for new cars comes 
about, in large part, as a reflection of the price mechanism. 
If things become expensive, if gasoline becomes expensive, and 
you have an old car that is a real gas guzzler, you might move 
in a direction of a new car, simply to save money. That would 
come about indirectly, but the kind of direct approach that you 
are talking about is not something that I looked at personally.
    Mr. Pickering. Then, and current standards are based on a 
split fleet analysis and assessments. Did you look at how you 
could do that on a unified basis?
    Mr. Lazear. Again, we thought about the different 
attributes, I mean, you can think of the split fleet, in some 
sense, as being like a big attribute on which we base this. We 
believe that the Department of Transportation is better able to 
handle this in a much more sensible and gradual way, by using 
the standards that we have right now, and that was primarily 
the logic behind the proposal.
    Mr. Pickering. Would it make sense to move to a unified 
fleet?
    Mr. Lazear. Go ahead.
    Ms. Nason. Congressman, we have looked at that issue. One 
of the distinctions we have now is the light truck fleet is 
operating under a reformed, a changed CAFE structure, and the 
passenger car is not. We don't have the authority to do that, 
so we left that issue. It would be something, I think, we might 
be interested in discussing at some point, but we thought it 
was important to give the manufacturers the opportunity to 
adjust to new CAFE under light truck, and hopefully, new CAFE 
under passenger car for some period of years, and then, we 
could have further conversations.
    Mr. Pickering. As far as domestic production and jobs, 
would there be any advantage to moving to a unified fleet 
versus a split fleet, or would it disadvantage domestic 
production and foreign investment, and other initiatives that 
we see now developing in the automotive sector?
    Mr. Lazear. We don't see any direct relationship there. The 
issue, again, is how is this implemented, how are the 
attributes used, and how do they cut across different companies 
and different kinds of vehicles, and obviously, it will affect 
them in different ways depending on how it actually is 
implemented.
    But there is no obvious kind of if we go this way, you are 
going to get more jobs than if you go that way. I don't think 
there is an automatic connection there.
    Mr. Pickering. And the last question is just one of overall 
context. As we look at different initiatives that would look at 
both our fuel efficiency and fuel security, for the energy 
security over the long term, and the climate change issues, the 
CO\2\ emissions from the automotive, the automobiles 
nationally, how does that compare in its contribution to say 
housing or manufacturing? Do you all have data that gives you a 
breakdown of which each sector contributes, and how much?
    Mr. Lazear. Yes. We certainly have a breakdown. The number 
that came up earlier was if we are just looking at automobiles. 
It is about 30 percent of the emissions. I am sorry. Go ahead.
    Mr. Pickering. And what would the housing be?
    Mr. Lazear. I don't want to do this off of the top of my 
head. I just talked to one of my colleagues about this 
recently, Jim Connaughton, who is our, the administration's 
expert on that, and I just don't recall the exact number, but 
it is very significant.
    Mr. Pickering. Would it be a greater amount than the 
automobile contribution?
    Mr. Lazear. I think it is about the same. Ann, do you have 
the numbers? Just bear with me here. OK. Here, we got it. OK, 
40 percent in energy, 30 percent transportation, 20 percent 
industry, and 10 percent is households.
    Mr. Pickering. Repeat that one more time.
    Mr. Lazear. Forty percent is from energy production, 30 
percent is from transportation, 20 percent is from industry, 
and 10 percent is from the households. And obviously, those are 
approximate numbers, since we are giving you rounded to tens.
    Mr. Pickering. Yes. And this is my last question, Mr. 
Chairman, and do you have the breakdown between manmade 
greenhouse emissions, CO\2\ emissions, versus naturally 
occurring?
    Mr. Lazear. I don't have that with me. Again, I would have 
to check those numbers. That is sort of outside my lane, to be 
honest with you, and I could get that for you, but I don't have 
that on the top of my head.
    Mr. Pickering. Thank you, Mr. Chairman.
    Ms. Nason. And just to clarify, Congressman, that 30 
percent is all transportation, so it is about 60 percent, I 
believe, of the 30 percent would be cars and light trucks.
    Mr. Pickering. Thank you very much.
    Mr. Boucher. Thank you, Mr. Pickering. The gentleman from 
Texas, Mr. Burgess, for 5 minutes.
    Mr. Burgess. Thank you, Mr. Chairman, and I apologize for 
being in and out. Wednesdays is always a busy day, even when 
you work five days a week.
    Let me ask a question, and I apologize if it has already 
been covered, but on the Twenty in Ten paper that I have, it 
talks a little bit about the renewable fuel standard, expanding 
it to an alternative fuel standard, and includes within that 
ethanol, cellulosic ethanol, biodiesel methanol. Under the 
biodiesel part of that, can you expound upon that just a little 
bit for me? Either one of you.
    Mr. Lazear. What specifically would you have in mind there?
    Mr. Burgess. Well, how large a role do you see for 
biodiesel in the future, going forward? What sort of support do 
you see from the administration? What do you anticipate from 
Congress? What things would you like to have, as far as 
promoting biofuels as a source for American energy?
    Mr. Lazear. We believe that biofuels are certainly one of 
the areas in which we are going to see a lot of development, 
particularly biodiesel in the future. The President has put a 
significant amount of money into research on that, and we 
expect to see more of that coming over the next couple of 
years, and we hope you will support that. We think it is a 
promising area. As you know, the President believes that 
cellulosic ethanol and biodiesel are probably going to be the 
things that we see in the most, in the nearest future.
    But again, the policy does not want to select one over 
another. The basic approach behind the policy is to allow the 
market to decide what is the most efficient way, what is the 
most efficient direction in which to go, and we are happy to 
see anything develop, as long as it is consistent with the 
President's policies of making us more secure, in terms of our 
energy.
    So, if you had suggestions, specifics on that, we would 
welcome them. I think we have been thinking about them. We put 
out some proposals ourselves, but we don't have a monopoly on 
this, and if you had specific ideas, we would welcome hearing 
them.
    Mr. Burgess. When we passed our energy bill a couple of 
years ago, the tax credit or tax relief of $1 a gallon on 
biofuels made from virgin stock, if you will, but fuel that was 
recycled, Colonel Sanders was only credited at 50 cents a 
gallon. Just seems to me to make sense to include that, those 
biofuels that are developed from what otherwise would be 
something that would go and clog our sewers and our landfills, 
and our water treatment plants, and I just know they have done 
a little bit of that, or maybe a great deal of that in my 
district, and it has been pretty well received by the 
restaurants and companies that would have grease to recycle, or 
fry oil to recycle, and again, I just think that is an 
opportunity that we might be missing, that perhaps we should 
embellish.
    Now, I am a fan of the hybrid vehicle. I believe they are 
safe. I haven't had to replace a battery yet, so I might feel 
differently then. I got it, again, to deal with issues of air 
quality, but then when gas prices went up so high, it gave me a 
feeling of moral superiority to be driving a hybrid, and I like 
that. Do you think the standards that we are talking about, 
that the administration is talking about, would increase the 
number of hybrids that are currently offered by American 
manufacturers? Because that has been one of the problems is the 
technology has largely come to us from overseas, and it would, 
I think it would benefit the country, that these were hybrids 
offered by American manufacturers. So, do you have any evidence 
of recent trends, and how we might anticipate this impacting 
the American market?
    Ms. Nason. Thank you, Congressman.
    We have seen, obviously, an increase, a growing penetration 
of the fleet overall, not just from overseas manufacturers, but 
from U.S.-based manufacturers and others, an increase in 
hybridization, offering alternative not just cards, but light 
truck hybrid vehicles. And I guess the best way to answer is we 
could see an increase.
    One of the basic tenets of our proposal is to try to remain 
technology neutral, so that if there is a manufacturer who 
believes that dieselization, for example, clean diesel, is a 
better way to go, they can choose that path, and we are not 
limiting them. So, we wouldn't be requiring hybridization under 
the rulemaking, but we certainly acknowledge that at 4 percent, 
year over year, we would expect to see greater penetration in 
the fleet of hybrids and diesels. As the President noted, it is 
a heavy technology bet, but we think the technology is there.
    Mr. Burgess. Just one last question, then, on the trading 
of the credits.
    Ms. Nason. Yes, sir.
    Mr. Burgess. I mean, do you really believe that Ford Motor 
Company is going to go to Honda, and say we want to buy some of 
your credits, and you really Honda is going to sell them to 
Ford? I mean, is this, has anybody explored this as a market-
based strategy?
    Mr. Lazear. Yes, we have explored that. We do believe that 
the most effective way to do this is to run it through a third 
party, so you wouldn't necessarily see Ford going to Honda to 
buy credits. What they would do is they would go to a market, 
and credits would trade, not only in the spot market, but also 
in futures. You could buy and sell and bank credits, and we 
believe that is probably the best way to implement the policy.
    We also believe that, to the extent that the credit price 
goes up, firms will also occasionally opt to use the safety 
valve, and we think that is a very important feature of the 
program. It is essential that you have a safety valve, where 
firms can simply pay a fee, and pay it directly to the 
Government, to avoid having to bring in technologies that would 
be too costly and too disruptive. And that is part of the 
program. We think that is an important part of the program.
    Mr. Burgess. I would agree with that. I think I referenced 
the Yugo in my opening statement, and I have never driven a 
Yugo, but I have driven a Geo Metro on Texas freeways, and that 
does not fall into the category of highway safety.
    Thank you.
    Mr. Boucher. The time of the gentleman has expired. I am 
going to ask unanimous consent that we insert in the record the 
copy of the Wall Street Journal article that was referenced by 
Chairman Dingell in the course of his questions, and without 
objection, that is so ordered.
     Mr. Markey, do you want to do a second round of questions?
    Mr. Markey. Yes. Very much so. Very much so.
    Mr. Boucher. We are expecting recorded votes very shortly 
on the floor, and it is about an hour's worth of votes.
     I want to be agreeable. Our witnesses have been here for a 
long time. Can we do 3 minutes of questions?
    Mr. Markey. Excellent. Whatever.
    Mr. Boucher. We will recognize the gentleman from 
Massachusetts for 3 minutes, and then, if Mr. Burgess wants to 
be recognized, we will recognize him for 3 minutes. So now, you 
can see the light at the end of the tunnel here.
     Mr. Markey.
    Mr. Markey. Thank you, Mr. Chairman.
    I wanted to refer back to what Mr. Barton said earlier 
about my comments being disingenuous, and because I think, 
again, he continually misses the point, that the United States 
only has 3 percent of the oil reserves in the world. We cannot 
drill our way out of this problem. Two-thirds of the oil 
reserves are in the Middle East. That is our biggest national 
security problem, and his whole idea that we are drilling our 
way out of it just defies geology.
    We are a technological giant. We can take our automobiles, 
our SUVs, our planes, our utilities, our appliances, and 
revolutionize technologically our relationship with imported 
oil and other energy sources, and I think every time he says 
that, he clearly is demonstrating that he is missing the point 
about how much oil we have as reserves.
    Mr. Lazear, I would like to move back to you quickly if I 
can, on this gas guzzler tax. Again, we don't have a tax 
imposed on a person who buys a gas guzzling SUV, but we have a 
gas guzzler tax that we impose on an automobile. If we are 
going to get this tax code correctly, don't you think that we 
should have the same tax on the same type of vehicle, if it is 
going to be something that is economically coherent, in terms 
of achieving a national public policy goal?
    Mr. Lazear. I don't believe that bringing in additional 
taxes is the best way to go right now. I think the most 
efficient way for us to achieve our goals----
    Mr. Markey. So, would you repeal the gas guzzler tax?
    Mr. Lazear. Again, what I would say is that the policy that 
we have put forward----
    Mr. Markey. No. As I say, it is an inconsistent policy. 
Should we impose a tax on, should we close the loophole so that 
a Hummer is covered, or should we just exempt Hummers and big 
gas guzzling vehicles? Which way would you go?
    Mr. Lazear. The way I would go is the way that the 
President proposed right now, which is to take the current 
proposal, which built into it standards for CAFE.
    Mr. Markey. OK, not to do anything. OK. I get it. The 
President won't do anything.
    Let me ask you another question. If we pass legislation 
that has a 4 percent standard over the next 10 years, but it is 
mandatory, would you recommend a veto to the President, if it 
was mandatory?
    Mr. Lazear. The President makes his own decisions about 
vetoes.
    Mr. Markey. Yes. Ms. Nason, would you recommend a veto to 
the President?
    Ms. Nason. I am not prepared today to issue a veto threat 
on behalf of the administration. That is the President's 
decision alone.
    Mr. Markey. I would advise both of you that you should tell 
the President that from 1975 to 1986, we actually doubled the 
fuel economy standard from 13 to 27, and we actually backed out 
2 million barrels of oil a day, and we went down to only 26 
percent oil dependence, and if the President thinks that it is 
a national security issue, I would urge him not to veto a bill 
that did something that was actually more modest 
technologically than what we did as a country in 1975 and to 
1986, when we responded to the last crisis. Thank you, Mr. 
Chairman.
    Mr. Boucher. The time of the gentleman has expired.
    Mr. Markey. Thank you, Mr. Chairman.
    Mr. Boucher. Mr. Burgess.
    Mr. Burgess. Thank you, Mr. Chairman.
    I, having purchased a vehicle that was subject to the gas 
guzzler tax, I have never been a big fan of that. On this 
credit that we are talking about, or the proposal that we are 
talking about from the administration, and the new attribute-
based standards, the currently mandated average of 27.5 miles 
per gallon, would that be preserved?
    Ms. Nason. We did not propose that as a backstop, 
Congressman. We have heard from some who have concern that we 
need to have some sort of a backstop in legislation, and to be 
frank, we couldn't find a way to write it without undoing some 
of the reform. The issue with 27.5 is some manufacturers are 
below it, and some are above it, so we didn't want to make the 
assumption that everyone was above the current 27.5. But having 
said that, we understand that there is a concern among many 
that we need to have some marker somewhere, and we would be 
happy to work with you on trying to write changes, if you have 
a proposal.
    Mr. Burgess. Is there, let me just ask you, is it more than 
just a theoretic concern that some fleets could end up with an 
average mile per gallon rating of less than 27.5?
    Ms. Nason. If we are able to meet a 4 percent annual 
increase, then we could go well past 27.5.
    Mr. Burgess. So that, as a floor, really there is no danger 
of piercing that or penetrating that?
    Ms. Nason. The danger, the concern that we have with doing 
it is it makes the assumption right now that all manufacturers 
are above--CAFE challenges are different for different 
manufacturers. For example, a small two-seater sports car has a 
much greater challenge, so specialty manufacturers may have 
greater CAFE challenges than others, which is why we want to be 
careful about where we would put a backstop. But we would be 
open to ideas.
    Mr. Burgess. Thank you, Mr. Chairman. With that, I will 
yield back.
    Mr. Boucher. Thank you very much, Mr. Burgess.
    And on behalf of the subcommittee, let me thank both 
witnesses for joining us here today. And Ms. Nason, I want to 
thank you in particular, because I understand you have 
laryngitis, and this has been something of a struggle for you 
today, but you have performed very well, and we appreciate your 
answer to all of your questions.
    We will be having additional hearings on our climate change 
inquiry. In fact, additional hearings next week and throughout 
the month of March, and so, since there is no further business 
to come before this subcommittee today, this hearing stands 
adjourned.
    Ms. Nason. Thank you very much.
    [Whereupon, at 12:42 p.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]

                       Statement Nicole R. Nason

    Mr. Chairman, thank you for inviting me to discuss 
Corporate Average Fuel Economy standards (CAFE) for passenger 
cars.
    Last month, the President announced in the State of the 
Union address his ``20 in 10'' proposal that would reduce 
domestic gasoline consumption by 20 percent in 2017. A key 
component of the President's ``20 in 10'' plan is to 
significantly boost fuel economy standards for cars. Towards 
that end, earlier this month, at your request and that of 
Chairman Dingell, the administration forwarded draft 
legislation that would give the Secretary of Transportation the 
statutory authority to reform and raise fuel economy standards 
for passenger cars.
    The Bush administration already has a history of reforming 
and raising fuel economy for light trucks. Consider our record: 
this administration has raised the CAFE standard for light 
trucks for seven consecutive years, from 2005 to 2011.
    Our recent light truck rule not only will save a record 
amount of fuel, it also regulates for the first time fuel 
economy for some of the heaviest light trucks, such as the 
Hummer H2. This rule also boosted the CAFE target for some 
light trucks to a level that exceeds the congressionally-
mandated passenger car standard of 27.5 miles per gallon.
    While these are notable accomplishments, the method by 
which they were achieved is probably the most important. In its 
landmark 2002 study on CAFE by the National Academy of 
Sciences, the NAS found that while the CAFE program did fulfill 
its original goals, it contained flaws that were preventing the 
program from living up to its potential.
    For example, one of the NAS criticisms was that the program 
concentrated most of the regulatory requirements on a few full 
line manufacturers. This resulted in some manufacturers who 
produced primarily smaller vehicles not being required to make 
any further improvements in fuel efficiency. Additionally, the 
study found that having a ``one-size-fits-all'' standard 
allowed some automakers to produce fleets that met the standard 
even though many of the cars in the fleets were relatively fuel 
inefficient. This meant that we were, and still are, losing 
fuel savings from a significant part of the fleet. Finally, and 
most disturbingly, the study estimated that CAFE probably had 
cost between 1,300 and 2,600 lives in one year alone, 1993, 
because the standards were structured in a way that enabled 
automakers to meet much of their compliance obligations by 
downsizing cars.
    NHTSA carefully considered the NAS study, and methodically 
developed a new structure for light truck CAFE standards that 
addressed each of these criticisms.
    This new system, called ``Reformed CAFE,'' is based on 
requiring automakers to achieve improved fuel economy not by 
downsizing, but by adding fuel-saving technologies. Basing CAFE 
standards on adding fuel-saving technology instead of 
downsizing vehicles has a number of benefits. First, by setting 
fuel economy targets for every size of vehicle, this ensures 
that vehicles small, medium and large have to improve fuel 
economy.
    Second, under Reformed CAFE there is no longer an incentive 
for automakers to improve their fleet average by downsizing. 
Accordingly, no longer will raising the CAFE standard mean a 
decrease in safety.
    Third, since Reformed CAFE demands greater fuel efficiency 
from every model of vehicle affected, every automaker will 
share the regulatory burden for improving fuel economy, not 
just a few.
    Finally, the administration's draft bill contains a CAFE 
credit trading provision. The NAS study pointed out how the 
current CAFE system makes it more expensive than necessary to 
achieve a given level of fuel economy in the vehicle fleet. 
Because one company may find it less expensive than another 
company to increase the fuel economy of its fleet, there are 
further cost-savings to be gained from allowing credit trading 
across companies.
    CAFE already allows a manufacturer to accumulate credits if 
its fleet mix exceeds the standard. These credits may be 
carried forward or ``banked' and used to offset future CAFE 
deficits by the same manufacturer. Credit trading is a natural 
extension of this framework. Credit trading would be purely 
voluntary, and we believe it will help lower the industry's 
cost of complying with CAFE.
    In 1975 when Congress wrote the original CAFE standard, it 
did so by taking the average fuel economy number for the fleet 
and doubling it over a 10-year period. Today, NHTSA can perform 
a much more sophisticated analysis on how to determine the CAFE 
standard. We can do this because we have the benefit of 
individualized data on the fuel-saving capabilities of each 
car.
    Accordingly, there is no need to set an arbitrary fuel 
economy standard, there is no need to sacrifice safety for 
better fuel economy, and there is no reason why some auto 
companies have to shoulder nearly all the regulatory burden. 
Our light truck rule demonstrated that all of these problems 
can be overcome.
    Mr. Chairman, the President indicated in his State of the 
Union address his desire to raise the fuel economy standard. We 
believe that having experts develop the standard, using sound 
science and hard data, in an open and reviewable rulemaking 
process, is the most responsible way to determine a new CAFE 
standard.
    If Congress authorizes the Secretary to reform CAFE for 
passenger cars, we will immediately begin a rulemaking to boost 
passenger car fuel economy. If the administration's draft 
legislation is enacted soon, cars rolling off the assembly line 
for the 2010 model year will have to meet a higher CAFE 
standard.
    Mr. Chairman, given NHTSA's successful experience with 
setting the fuel economy standard for light trucks, which 
comprise half the vehicle sold today, we believe we have 
demonstrated our capability to set balanced standards for 
passenger vehicles, given the authority for reform.
    I would be pleased to answer any questions.
                              ----------                              


                     Testimony of Edward P. Lazear

     Good morning Mr. Chairman and members of the committee. 
Thank you for giving me the opportunity to be here to discuss 
the President's plan to enhance energy security.
     The President's plan has four pillars. The first two 
pillars focus directly on the President's goal of reducing the 
use of gasoline in the United States by 20 percent in ten 
years. First, the President has called for an increase in the 
supply of renewable and other alternative fuels by setting a 
mandatory alternative fuel standard to require 35 billion 
gallons of renewable and other alternative fuels in 2017, which 
is nearly five times the current requirement for 2012. 
Approximately three-quarters of the targeted reduction in 
gasoline would come through the alternative fuel standard. 
Second, the President believes that we should reduce our demand 
for fuel by reforming and modernizing the Corporate Average 
Fuel Economy (CAFE) standards for cars. Changes to CAFE 
standards account for the remaining quarter of saving necessary 
to meet the President's goal, potentially saving another 8.5 
billion gallons per year by 2017. Third, the President has 
proposed additional funding for energy innovation and 
technology, including bio-energy research, and loan guarantees 
for cellulosic ethanol plants. Fourth, the President proposed 
doubling the capacity of the Strategic Petroleum Reserve to 
enhance our ability to deal with severe supply disruptions 
caused by natural disasters or a terrorist attack to the supply 
chain.
     The President believes that bold steps are warranted. 
Improving our energy security is a goal on which we can all 
agree. To do this, he has outlined a variety of measures that 
will diversify our energy supply and increase energy 
efficiency. The 20-in-10 plan was designed with these goals in 
mind. Additionally, the plan undertakes to accomplish these 
goals in an environmentally sensitive way.
    Most important, the President has made clear that we must 
accomplish these goals without damaging the American economy. 
This is foremost in his mind, especially because the market, 
unfettered by government, is the most effective driver of 
innovations that strengthen energy security. Changes in prices 
create the incentives necessary for scientists, farmers, 
industry leaders and entrepreneurs to find the means to 
diversify our fuel supply and increase efficiency. As such, the 
policies the President has proposed--while bold--are not 
Draconian. The proposals build on existing programs and the 
reforms allow for American companies to comply with the targets 
in ways that will not compromise their ability to compete 
internationally.
    Two principles are important when evaluating these 
proposals: technology neutrality and flexibility. The 
President's alternative fuel proposal builds on the existing 
renewable fuel standard to include virtually all alternatives 
to gasoline rather than just renewable fuels. This design 
feature helps to ensure the Government is not picking winners 
and losers in the marketplace, a task for which it is ill-
suited. Additionally, there is flexibility embedded in both the 
alternative fuel standard and the CAFE proposals so that 
significant distortions to the economy can be avoided. The 
proposed alternative fuel standard includes two ``safety 
valves'' one through administrative discretion, one automatic--
that would limit the economic costs. Furthermore, discretion is 
given to the Secretary of Transportation who can alter CAFE 
targets in ways that are compatible with preserving safety, 
technological developments, and cost-benefit analysis. These 
provisions prevent a system on automatic-pilot from taking us 
down unanticipated paths that are inconsistent with the goals 
we set. It means that we can be responsive to uncertain 
technology developments and adjust our standards as the market 
determines.
    The CAFE provision also extends the existing credit 
framework by allowing credits to be traded, granting 
manufacturers additional flexibility and lowering their costs. 
Finally, as my colleague Nicole Nason explains in her 
testimony, the President's call for an attribute-based CAFE 
system for cars would help address both safety and 
distributional concerns.
    By remaining open to new technologies and ensuring 
flexibility, the policies proposed by the President have the 
virtue that they cause minimal economic disruption, yet yield 
the promise of moving us toward a worthy goal. I welcome your 
questions.

                                 
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