[Senate Hearing 110-1213]
[From the U.S. Government Publishing Office]



                                                       S. Hrg. 110-1213

       PENDING CORPORATE AVERAGE FUEL ECONOMY (CAFE) LEGISLATION

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

                                HEARING

                               before the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 3, 2007

                               __________

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









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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                   DANIEL K. INOUYE, Hawaii, Chairman
JOHN D. ROCKEFELLER IV, West         TED STEVENS, Alaska, Vice Chairman
    Virginia                         JOHN McCAIN, Arizona
JOHN F. KERRY, Massachusetts         TRENT LOTT, Mississippi
BYRON L. DORGAN, North Dakota        KAY BAILEY HUTCHISON, Texas
BARBARA BOXER, California            OLYMPIA J. SNOWE, Maine
BILL NELSON, Florida                 GORDON H. SMITH, Oregon
MARIA CANTWELL, Washington           JOHN ENSIGN, Nevada
FRANK R. LAUTENBERG, New Jersey      JOHN E. SUNUNU, New Hampshire
MARK PRYOR, Arkansas                 JIM DeMINT, South Carolina
THOMAS R. CARPER, Delaware           DAVID VITTER, Louisiana
CLAIRE McCASKILL, Missouri           JOHN THUNE, South Dakota
AMY KLOBUCHAR, Minnesota
   Margaret L. Cummisky, Democratic Staff Director and Chief Counsel
Lila Harper Helms, Democratic Deputy Staff Director and Policy Director
   Christine D. Kurth, Republican Staff Director and General Counsel
Kenneth R. Nahigian, Republican Deputy Staff Director and Chief Counsel

















                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on May 3, 2007......................................     1
Statement of Senator Boxer.......................................     9
    Prepared statement...........................................     9
Statement of Senator Cantwell....................................     7
    Prepared statement...........................................     7
Statement of Senator Carper......................................     5
Statement of Senator Dorgan......................................     8
Statement of Senator Inouye......................................     1
Statement of Senator Kerry.......................................     2
Statement of Senator Klobuchar...................................     3
Statement of Senator Lautenberg..................................     4
Statement of Senator Lott........................................     9
Statement of Senator McCaskill...................................     4
    Prepared statement...........................................     4
Statement of Senator Nelson......................................     9
Statement of Senator Stevens.....................................     1

                               Witnesses

Blair, Admiral Dennis C., USN (Ret.), former Commander-in-Chief, 
  U.S. Pacific Command, USN; Member, Energy Security Leadership 
  Council; Omar Bradley Chair of Strategic Leadership, Army War 
  College and Dickinson College..................................    34
    Prepared statement...........................................    36
Feinstein, Hon. Dianne, U.S. Senator from California.............    16
Friedman, David J., Research Director and Senior Engineer, Clean 
  Vehicles Program, Union of Concerned Scientists................    29
    Prepared statement...........................................    31
Levin, Hon. Carl, U.S. Senator from Michigan.....................    10
    Prepared statement...........................................    13
McCurdy, Dave, President and CEO, Alliance of Automobile 
  Manufacturers..................................................    54
    Prepared statement...........................................    56
McGinn, Vice Admiral Dennis, USN, (Ret.), Senior Vice President 
  and General Manager, Energy, Transportation and Environment 
  Division, Battelle Memorial Institute..........................    43
    Prepared statement...........................................    45
Reuther, Alan, Legislative Director, International Union, United 
  Automobile, Aerospace & Agricultural Implement Workers of 
  America (UAW)..................................................    21
    Prepared statement...........................................    23
Stabenow, Hon. Debbie, U.S. Senator from Michigan................    18
Stanton, Michael J., President and CEO, Association of 
  International Automobile Manufacturers, Inc....................    39
    Prepared statement...........................................    41

                                Appendix

Pryor, Hon. Mark, U.S. Senator from Arkansas, prepared statement.    83

 
       PENDING CORPORATE AVERAGE FUEL ECONOMY (CAFE) LEGISLATION

                              ----------                              


                         THURSDAY, MAY 3, 2007

                                       U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 3:02 p.m. in room 
SR-253, Russell Senate Office Building, Hon. Daniel K. Inouye, 
Chairman of the Committee, presiding.

          OPENING STATEMENT OF HON. DANIEL K. INOUYE, 
                    U.S. SENATOR FROM HAWAII

    The Chairman. Today's witnesses have been invited to 
comment on S. 357, the Ten-in-Ten Fuel Economy Act, a bill to 
improve the Corporate Average Fuel Economy Program that was 
introduced earlier this session by Senators Feinstein, Snowe, 
and Inouye, as well as five other members of the Committee. A 
number of other Senators on the Committee have introduced or 
cosponsored legislation to improve CAFE standards, including 
the Vice Chairman, Senator Stevens. I've asked the witnesses to 
be prepared to discuss all the bills pending before the 
Committee.
    Increasing CAFE standards is both a national security and 
ecological imperative. The issue is not simply that the United 
States is dependent on foreign oil imports, but that it imports 
a substantial portion of these imports from areas that are 
politically unstable and could become hostile to America 
overnight. It is in our national security interest that 
Congress takes practical steps now to reduce our dependence on 
foreign oil.
    In addition, car exhaust is a major contributor to global 
warming. By increasing fuel efficiency, we can decrease the 
amount of carbon dioxide released in the atmosphere, and slow 
the harm to the planet.
    I believe that everyone here shares the dual desire of 
improving our environment and strengthening our national 
security through decreasing our dependence on oil, and I look 
forward to hearing from our expert panel about the best way to 
achieve these goals.
    May I call upon my Vice Chairman?

                STATEMENT OF HON. TED STEVENS, 
                    U.S. SENATOR FROM ALASKA

    Senator Stevens. Thank you, Mr. Chairman, for calling this 
hearing today. I think it's important, and look forward to 
hearing our colleagues, so I'll be very short.
    The issue of fuel economy of our cars and light trucks is 
significant as our country faces an increasing energy crisis. 
And I think since September 11, the need for us to reduce our 
dependence on foreign oil increases. I'm not going to talk 
about ANWR today, so you can forget about that----
    [Laughter.]
    Senator Stevens.--for a while, that is.
    [Laughter.]
    Senator Stevens. As the Chairman said, I introduced 
legislation in January to address conservation, and, with it, a 
reduction in greenhouse gas emissions. As the impacts of 
climate change are more evident in Alaska than anywhere in the 
country, this bill would provide authority to the Department of 
Transportation to reform the passenger car fleet fuel economy 
program and set an aggressive target for the passenger car 
fleet by 2017.
    Since then, I have worked with the Chairman and his staff 
to try to develop an approach that would not only advance our 
national security interest in reducing dependence on foreign 
oil sources, but also an approach that will avoid unintended 
consequences that would adversely impact the domestic auto 
industry and consumer choice. It's my hope that I will be able 
to join the Chairman in introducing his bill.
    I still am worried about how to deal with light trucks. 
These are extremely important to the West, and particularly 
important to my state. So, I want to continue to work with my 
good friend on that portion of the bill, but I do hope that 
today's hearing will be helpful in advancing the Committee's 
progress.
    Mr. Chairman, thank you very much.
    The Chairman. Well, thank you, sir.
    Senator Kerry?

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

    Senator Kerry. Mr. Chairman, thank you. Thanks for having 
this hearing. Thank our colleagues for coming and testifying.
    We've been at this for a long time on this Committee and in 
the Congress. I think, since 1985, at the 27 mile per gallon 
limit. We really haven't made any progress. In fact, we've gone 
backward in some areas.
    I see we are going to hear from Alan Reuther, and I welcome 
him here. And I've talked to a lot of folks in the auto 
industry over these last years, and all of us want a strong 
domestic auto industry. All of us want cars made in America, 
and we want Americans to buy American cars. And we want our 
workers to be producing them, as much as possible. So, we're 
sensitive to that need as we think about this.
    But there's a convergence of two major issues here, and we 
need to figure out what the best approach is going to be. One 
is obviously oil dependency and energy dependency itself--
independence. And the other is global climate change and 
emissions. And one of the questions we need to examine here 
today is which is the right standard or is there a mix of a 
standard, because part of the--I mean, there are many experts 
who are convinced that what we do at the--in the tailpipe, 
and--that the mileage is not, in fact, going to liberate 
America with respect to fuel, but, on the other hand, it's the 
CO2 emissions that are perhaps the larger concern, 
and whether that might not be more of the focus in the context 
of our overall approach.
    So, I think there are a lot of issues on the table. I'm 
glad we're going to have this hearing. I think it's a very 
important one.
    I do note, as I will in the question period, that, you 
know, Detroit, at one point, was producing a terrific electric 
car. And it stopped. I've driven in that car. It's a superb 
car. And I think the question has always been open, why it 
stopped.
    The other day, I visited a car here in Washington, just 
outside the Russell Building, which is--it happens to a Prius, 
unfortunately--but it had a battery conversion, which is 
available in the market today, a retro-conversion, and it gets 
150 miles to the gallon. The average commute of Americans is 40 
miles. And batteries have the capacity today to take people 
those 40 miles. So, there's a serious question here about why 
these kinds of technologies and opportunities aren't being 
grabbed more rapidly, and why we aren't producing those. And I 
look forward to exploring those today.
    Thank you, Mr. Chairman.
    The Chairman. Senator Klobuchar?

               STATEMENT OF HON. AMY KLOBUCHAR, 
                  U.S. SENATOR FROM MINNESOTA

    Senator Klobuchar. Thank you, Mr. Chairman, for holding 
this hearing. And thank you, to my colleagues, for being here.
    I come from Minnesota, where, I have to tell you, in the 
last year, there has just been more and more focus on trying to 
make our country more energy independent. And I think some of 
it comes from people who live in rural areas, who are trying to 
fill up their tanks with gas, and find out it's so expensive, 
they can only fill up half a tank, or it's kids worrying about 
penguins drowning, or it's people putting their fish-houses out 
and realizing that, you know, they're having to put it out a 
month later than they ever used to do.
    And so, it's really--the climate change issue has gone from 
just a--something that scientists are talking about and writing 
about in reports, to real people wanting real changes. And it's 
about climate change, but it's also about the cost of oil. 
We're spending over $200,000 a minute on foreign oil in this 
country. And it's also about our national security.
    And, I think, for the first time, the people in this 
country are seeing it themselves, and I think they're way ahead 
of where we are in Washington, in terms of getting laws passed. 
And, like Senator Kerry, I'm very concerned that we've been 
going backward. The efficiency of the American car and truck is 
at its lowest level in 20 years. And that's why I'm very glad 
that we're holding this hearing. I see this as potential jobs 
for our rural areas, if we can move more to biodiesel and 
ethanol, as well as better for our climate and better for our 
national security.
    The Chairman. Senator McCaskill?

              STATEMENT OF HON. CLAIRE McCASKILL, 
                   U.S. SENATOR FROM MISSOURI

    Senator McCaskill. Mr. Chairman, I would--with consent, I 
would like to submit a statement for the record.
    Senator McCaskill. I would say that I think the challenge 
we have is trying to respond to two issues. One is global 
warming, and the other is our dependence on foreign oil. And I 
think sometimes when we try to mix the two, and--we are not as 
disciplined as we should be about making sure that everyone 
understands what we're doing, what we're trying to get at, 
whether we're trying to get at global warming or whether we're 
trying to get at dependence on foreign oil. And, in both 
issues, I think we have to be doing things legislatively that 
most effectively do both. And so, I think it's important we 
stay focused on that as we look at the legislation that's 
pending.
    I also think it's very important that we make sure that we 
move forward on getting more fuel efficiency at the same time 
we don't penalize American manufacturers. And so, the devil is 
in the details and how we get to those places, and I look 
forward to hopefully finding the right way that accomplishes 
all of the goals I've talked about.
    Thank you, Mr. Chairman.
    [The prepared statement of Senator McCaskill follows:]

Prepared Statement of Hon. Claire McCaskill, U.S. Senator from Missouri
    Thank you Mr. Chairman,
    This is a very difficult decision I have to make. On the one hand I 
believe that this Committee and this Congress have an obligation to do 
everything necessary to help curb our dependence on foreign oil not 
only for the purpose of our national security, but also to address 
global climate change. On the other hand, we also have an obligation to 
the hundreds of thousands of workers who manufacture automobiles and 
automobile parts in the U.S., thousands of those workers are located in 
my home state of Missouri. We must do everything necessary to protect 
not only these workers, but perhaps even more importantly, the 550,000 
retirees and their families. Candidly, they are potential victims that 
could be devastated by the lack of foresight by American car 
manufacturers. And these manufacturers must be forced to face the 
future responsibly.
    Additionally, we must not lose sight on the fact that this is only 
one small portion of a larger portfolio of problems related to global 
climate change and energy independence. We must make sure that we do 
not continue to put the onus on one industry. This is a challenge that 
should be borne by many.
    In the end, I think this bill is a good start. But there is still a 
lot of work to be done, much of which lies outside the confines of this 
Committee's jurisdiction. Therefore, I cannot support this bill in its 
present form. I do, however, look forward to working with the Committee 
and other Senators to craft comprehensive legislation that will move us 
closer to our goals of energy independence, start to slow global 
climate change, and protect the thousands of Americans jobs that are at 
stake.

    The Chairman. Senator Lautenberg?

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

    Senator Lautenberg. Thanks, Mr. Chairman.
    Holding this hearing is really important and a timely 
thing, and I thank you for doing it. But I want to look at the 
unvarnished truth about where we are.
    America's current fuel economy standards are insufficient 
and are hurting our natural world. Our standards contribute to 
global warming by letting too much greenhouse gas into the air. 
And these gases are already harming our planet.
    The average global temperature in 2006 was 2.2 degrees 
warmer than the average temperature during the 20th century. 
And it's not an anomaly, this is a recurring fact. The last 
seven 5-year periods were the warmest 5-year periods on record. 
And we can trace some of these directly to the tailpipes of our 
cars and trucks, because that's where one-third of America's 
greenhouse gases come from.
    Well, if we want to reduce global warming, then we've got 
to begin to act now to cut the emissions coming from our 
vehicles. And I'm pleased that there seems to be consensus in 
this Committee that we should act to increase our country's 
fuel economy.
    We lag behind the rest of the world in the fuel economy of 
our cars. And I want to just have a chart shown here for a 
moment. The one that says that we've been at the same standard 
since--somebody help him, please--since 2002. We were at the 
lowest level then, and we continue to be at a lower level far 
more than we were before. And as that chart shows, Japan is 
leading the world at fuel economy, at more than 40 miles a 
gallon. Now look at the United States. We are way behind. Our 
passenger cars have been regulated at 27 and a half miles per 
gallon since 1990, and our light trucks are just at 21.6 miles 
a gallon. We can, and we must, do better.
    Time to improve our fuel economy and tackle global climate 
change. And I believe that we have the ability, with our 
manufacturers, to rise to the challenge. And I sure hope that, 
working with this Committee and the Senate on this issue, we 
can do better.
    Thank you, Mr. Chairman.
    The Chairman. Senator Carper?

              STATEMENT OF HON. THOMAS R. CARPER, 
                   U.S. SENATOR FROM DELAWARE

    Senator Carper. Thanks, Mr. Chairman.
    I want to thank our colleagues for coming by to--listening 
to our opening statements.
    [Laughter.]
    Senator Carper. And we look forward to listening to yours 
in just a few minutes.
    Sitting right behind Senator Feinstein, in the--two rows 
back, is Dave McCurdy, with whom I once served in the House of 
Representatives--in fact, someone with whom a number of us once 
served--and he now is--heads up the Auto Alliance. He's going 
to be one of our witnesses.
    I remember, I joined the House in the beginning of 1983. I 
think it was, maybe, 8 years after CAFE was first enacted, if 
my memory is correct. And at the--for most of the time that I 
was in the House, the time I was Governor, and the time I've 
been in the U.S. Senate, we've heard from our friends, and they 
really are friends, within the auto industry, the domestic auto 
industry--we've heard, ``Don't do anything further on CAFE, 
because if you do, it will cost us market share. Don't do 
anything more on CAFE, because if you do, we will lose money. 
Don't do anything more on CAFE, because if you do, we'll be 
forced to close plants. Don't do anything more on CAFE, because 
if you do, we're going to have to lay off employees.'' And, 
really, for pretty much the last 25 or so years, we've not 
touched CAFE. And over the last 25 years, actually--especially 
the last 10 years, the last several years--we have seen the Big 
Three lose market share, we have seen the Big Three lose money, 
close plants, and lay off a lot of employees. And all the time, 
we've been trying to protect them from the evils of--or the 
problems, or the challenges posed by changing our approach to 
CAFE. There's an irony there. And it's one that's not lost on 
us. And I would say to our friends from the auto industries, 
``If you come to us looking for us to do not much on CAFE, we 
listen to those arguments with a bit of skepticism. While we 
still love you, and we do; while we want you to be successful, 
and we still do; we need to do something.''
    I sat here next to Senator McCaskill, and I said, ``Have 
I--did I miss your opening statement?'' And she says, ``I'm not 
going to give one.'' And then she turned around and gave my 
opening statement.
    [Laughter.]
    Senator Carper. And the points that--among the points that 
she made, there are three things that we--I think we need to 
accomplish. One is to reduce the amount of oil that we consume, 
especially that which is derived from foreign sources, and we 
have--we're too heavily dependent on them. We all know that. 
Second, we need to improve our air quality, and we need to 
reduce the threat of global warming, climate change. And, 
third, we need to do the first two without further undermining 
the competitiveness of our auto industry.
    And I think we also need to remember that reducing fuel use 
in pollution involves addressing more than just auto 
efficiency, but also the availability of cleaner fuels and 
reducing fuel use by providing some alternatives to driving, 
get us out of our cars.
    Over the last 6 years or so, we've had similar contentious 
debate over regulating CO2 emissions from utilities. 
And I, along with some of my colleagues, including Senator 
Feinstein and others here at the dais, took the approach that 
we should set a goal, and then lay out steps for reaching that 
goal. And what we've done in some of our legislation is to say 
we want to reduce CO2 emissions from utilities by 
some 20-25 percent by a date certain, while increasing the cost 
of electricity by just a little. And I would suggest to my 
colleagues we may want to take a similar approach with respect 
to CAFE.
    And the last thing I would say is, I think we ought to set 
achievable steps that might require CAFE improvements slowly at 
first, ramp up over time, and there should be credits for early 
action, and maybe provide some off-ramps in case we, in 
Congress, set some goals that are not technologically feasible. 
And we should support attribute-based standards that are 
sensitive to varying fleet mixes between different 
manufacturers.
    Thank you.
    The Chairman. Thank you.
    Senator Cantwell?

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

    Senator Cantwell. Thank you, Mr. Chairman. I'll put a 
statement in for the record, that's a longer statement.
    Thank you for having the hearing.
    I hope today we hear as much about flex-fuel cars as we 
hear about CAFE. I plan to offer some language on that if we go 
to a markup on legislation regarding fuel efficiency.
    Thank you.
    [The prepared statement of Senator Cantwell follows:]

   Prepared Statement of Maria Cantwell, U.S. Senator from Washington
Introduction
    Thank you, Mr. Chairman.
    I very much appreciate you holding this hearing today on what I 
believe is an absolutely vital effort to tackle one of the preeminent 
problems facing our nation--our over reliance on oil. I look forward to 
hearing from today's witnesses and markup of our bipartisan bill next 
Tuesday.
Facing a Very Challenging Energy Situation
    I think every member on this Committee, and hopefully the entire 
Congress, realizes that we are facing a very challenging energy 
situation. We are just a major hurricane, or turmoil in a major oil 
producing nation, or, god forbid, some terrorist attack or accident 
that takes part of our energy infrastructure out of commission, from 
energy prices spikes that could stop our economy cold. And that's in 
the short-term.
    Looking even a few years out--I am concerned if we stay on the path 
we are on, if we don't challenge Americans to work together and harness 
our innovative spirit and ingenuity, we are headed for years of 
crippling high energy costs and a severe global warming crisis.
    That would mean continued distortions to our foreign policy 
objectives, oil companies continuing to reap exorbitant profits, and 
hundreds of billions of dollars more would be drained from the 
pocketbook of American families to the Middle East and other nations 
that don't necessarily have our interests at heart.
We Must Make Our Tranportation System More Productive
    I know that's a future we all want to avoid. But the only way to 
really tackle the problem, the only way to start really improving our 
energy, environmental, and homeland security is to make our 
transportation system more efficient and enable it to run on 
alternatives to petroleum.
    I believe the key to this strategy is making our cars and light 
trucks go farther for each gallon of fuel we buy, and create new 
markets for alternatives to gasoline and diesel.
An Announcement of Intention to Offer Flex Fuel Amendment
    As several witnesses noted in their prepared testimony, biofuels 
are a particularly promising clean-burning alternative fuel. But 
despite considerable government and public support to date, their 
growth has been hampered by the classic ``chicken-and-egg'' dilemma.
    Farmers don't want to start growing biofuel feedstocks if they 
aren't sure there will be a market. Entrepreneurs don't want to invest 
in biofuel processing facilities if there aren't any feedstocks. Car 
manufacturers don't want to build many flex fuel vehicles if there 
isn't any biofuel being produced or places where people can get it. And 
gas stations don't want to put in biofuel pumps if there aren't any 
cars that can use them.
    Well as many of my fellow members of the Energy Committee can 
attest, yesterday we took an important step forward on one aspect of 
this dilemma by passing out a bill that significantly increases the 
Renewable Fuels Standard to 36 billion gallons by 2022.
    But that just deals with the supply part. On the demand side we 
need to put in requirements to ensure a minimum amount of biofuel 
infrastructure and then allow the market to grow from there.
    Today, almost all the cars on our roads can only use up to 10 
percent ethanol, meaning all together they can only utilize around 15 
billion gallons of ethanol. That's why we need make sure there are 
enough flex fuel capable vehicles--that is cars able to use either 
petroleum or biofuels or any mix in between to absorb billions of more 
gallons of biofuels required under any RFS increase and we need boost 
the number and distribution of pumps to deliver the fuels.
    That's why I plan to introduce an amendment on Tuesday--based on 
legislation I introduced last Congress with 24 other cosponsors--that 
would require a certain percentage of vehicles sold in the U.S. be flex 
fuel capable, as well ensure the availability of a minimum number 
biofuel pumps.
Need for Government Leadership
    History proves how effective Congressional action in this area can 
be. Following the first oil embargo in the 1970's--by the same Middle 
Eastern countries who we are even more dependent on today--Congress 
legislated the CAFE program as one of the least controversial 
provisions of the Energy Policy and Conservation Act of 1975.
    Thirty years ago, this body heard many of the same warnings we are 
hearing today. We heard that fuel economy standards will render this 
Nation's auto manufacturers extinct, that it will cost thousands of 
jobs, that it will reduce vehicle safety. But the 94th Congress 
rejected those erroneous claims and passed a visionary law that was in 
the best interests of our Nation.
    The record affirms their foresight. In the decade following 
enactment, our Nation doubled the fuel economy of our Nation's 
passenger vehicles. Those savings mean that today our Nation is 
importing nearly three million barrels per day less than we would have 
without the 1975 legislation. Put another way, American consumers are 
avoiding paying for an amount of oil equivalent to what we today import 
annually from the entire Persian Gulf.
Conclusion
    Now once again Congress is in a position to take action and moves 
things forward. I am proud to be a cosponsor of Senator Feinstein's 
Ten-in-Ten Fuel Economy Act along with the Chairman and several members 
of this Committee because I believe that it takes the right approach.
    Mr. Chairman, now is the time to provide the leadership on this 
issue that has been missing for the last 20 years.
    Simply put, improving the fuel economy of our Nation's vehicles is 
the easiest and most cost-effective way to reduce our Nation's 
vulnerability to oil supply shocks and dependence on unfriendly 
regimes.
    I look forward to hearing the witnesses and working with my 
Committee colleagues to endorse and act on the numerous security, 
environmental, and consumer benefits that increasing the efficiency of 
our Nation's transportation system.
    Thank you.

    The Chairman. Thank you.
    Senator Dorgan?

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

    Senator Dorgan. Mr. Chairman, Thank you very much.
    I won't prolong this at great length, but I--I mean, cars 
have changed--our vehicles have changed dramatically. We have 
heated seats and iPod docks and never-lost navigation and 
keyless entries, and what a wonderful thing, but one thing that 
hasn't changed very much is efficiency. It just hasn't. And 70 
percent of the oil that we use--nearly 70 percent--goes for our 
transportation fleet. I was one of those who said, ``Let's have 
NHTSA figure this out.'' The fact is, they haven't, and they 
won't.
    I have introduced, as you know, a piece of legislation 
called the SAFE Act, which would establish efficiency 
standards. I don't think it's an end-all or be-all to talk 
about efficiency of vehicles. There's so much else--so many 
other things we need to do. But we can't move forward any 
longer without dealing with this. We suck about 85 million 
barrels of oil out of this planet every day, and we use a 
little over 20 million barrels of it here in this country. 
Seventy percent of that is for transportation. We can't 
continue to look the other way when it comes to the question of 
making these vehicles more efficient.
    One final point. We looked, recently, at a vehicle that we 
purchased 10 years ago, at the new version of that vehicle. Ten 
years later, the mileage on the window sticker was identical to 
what it was 10 years ago. And they say, ``Well, the car's more 
efficient, because it's heavier.'' Oh, yes? Well, it is still 
using the same amount of petroleum, isn't it? I mean, there's 
no efficiency in the mileage standards.
    We need to do something. And I appreciate very much your 
hearing, and I hope that the markup next week can be 
productive, as well.
    The Chairman. Senator Lott?

                 STATEMENT OF HON. TRETT LOTT, 
                 U.S. SENATOR FROM MISSISSIPPI

    Senator Lott. Mr. Chairman, I'm just looking forward to 
hearing our panel of experts.
    The Chairman. Thank you.
    Senator Nelson?

                STATEMENT OF HON. BILL NELSON, 
                   U.S. SENATOR FROM FLORIDA

    Senator Nelson. Mr. Chairman, I can sum it up. Increased 
mileage equals increased national security through increased 
energy independence, and that means that we have a better 
chance of saving our planet. That's my summary.
    I'm a cosponsor of Senator Feinstein. She goes to 35 miles 
per gallon. I think it ought to go to 40.
    The Chairman. Thank you.
    Senator Boxer?

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

    Senator Boxer. Mr. Chairman, I'll just put my statement in 
the record. I'm extremely supportive of Senator Feinstein's 
bill.
    The Chairman. Without objection, so ordered.
    Senator Boxer. Thank you.
    [The prepared statement of Senator Boxer follows:]

 Prepared Statement of Hon. Barbara Boxer, U.S. Senator from California
    Mr. Chairman, thank you for holding this important hearing today.
    The United States' dependence on oil has grave environmental, 
geopolitical, and environmental consequences.
    Raising Corporate Average Fuel Economy (CAFE) standards is a 
meaningful way to help reduce our country's unhealthy dependence on oil 
and thereby minimize its negative consequences. I have long been an 
advocate for boosting the CAFE standards that auto manufacturers must 
meet.
    There is available and proven technology to produce vehicles that 
are fuel-efficient while also being safe and featuring excellent 
performance. Increasing CAFE standards will ensure that more such 
vehicles are available on the market.
    One key benefit of increased use of fuel-efficient vehicles is 
environmental. With all the gasoline we consume in this country--over 
nine million barrels per day--we are polluting the air we breathe, and 
contributing to global warming. Transportation accounts for one-third 
of our annual emissions of carbon dioxide pollution.
    Another advantage of placing an increased number of fuel-efficient 
vehicles on the market, as would occur with higher CAFE standards, is a 
decreased dependence on foreign countries for our country's energy 
needs. Sixty percent of our oil consumption is from imports. This 
dependence on foreign oil is a national security liability.
    Finally, maximizing the use of fuel-efficient vehicles on America's 
roads will translate to a reduced demand for gasoline, which should 
cause prices to ease. Gasoline prices this week are unusually high for 
this time of year: $2.97 per gallon nationwide, and $3.36 in 
California. Since Americans consume so much gasoline, high prices take 
a bite out of the budgets of both individuals and business owners, and 
are a drag on the economy that we cannot afford.
    When you add together the all the environmental, geopolitical, and 
economic costs of America's oil dependence, it is obvious that we need 
auto manufacturers to start giving us more fuel-efficient vehicle 
options.
    It is also important that our Federal Government leads by example 
when it comes to fuel-efficient vehicles. That is why I reintroduced a 
bill this year that would ensure that cars purchased and leased by the 
Federal Government for the Federal fleet are the most fuel-efficient 
possible.
    Each year, the Federal Government purchases more than 60,000 
passenger vehicles. Unfortunately, the average fuel economy of the new 
gasoline-powered vehicles acquired for the fleet in 2005 was an abysmal 
21.4 miles per gallon.
    That is pathetic when there are hybrid cars on the market that can 
achieve over 50 miles per gallon.
    I drive a Toyota Prius and can attest that there is no loss of 
performance associated with vehicles that get great fuel economy.
    Mr. Chairman, I look forward to the Committee voting on this 
important issue next week and hope that we can see action on the floor 
soon.

    The Chairman. And now I'll call upon the panel of experts, 
politicians.
    [Laughter.]
    Senator Lott. Expert politicians?
    Senator Levin. Do you want to bypass us altogether?
    [Laughter.]
    The Chairman. May I first recognize Senator Levin?

                 STATEMENT OF HON. CARL LEVIN, 
                   U.S. SENATOR FROM MICHIGAN

    Senator Levin. Mr. Chairman, let me thank you and the 
members of the Committee for holding this hearing.
    It's a very important hearing, for all the reasons that 
you've given. I don't think there's anybody in this room that 
does not share the thoughts that have been expressed by every 
member of this Committee, in terms of the need to address the 
problems of global warming, particularly, and the threat of 
imported oil. And the real question is, how do you go about 
that in a way, hopefully, which can also support American 
manufacturing, which has been hit hard by a lot of causes, some 
of which are their own making, but many of which are because 
they're operating in a global economy, where other countries 
support their manufacturing. Our companies are not competing 
with foreign companies, they're competing with foreign 
countries. When it comes to currency manipulation, when it 
comes to restrictions on our exports, when it comes to joint 
R&D projects with other countries, we are in a competition 
against other countries, not just against other companies.
    I believe the way that we can reduce the use of oil and 
gasoline is by leap-ahead technologies. And the CAFE system is 
a poor alternative to investing in those leap-ahead 
technologies. The CAFE system, if you get to a 4 percent 
increase over the number of years you're talking about, will 
produce a minute improvement in the amount of CO2.
    We have a chart here, which will show you that improvement.
    If you can get to the back charts first.
    I want to first show you the amount of CO2 
currently going into the air.
    The other one.
    This is the current--the blue box is the current amount of 
CO2 production in the world, the U.S. contribution. 
And I think copies of this may be in front of each of you. The 
U.S. contribution is about a fifth, 21.8 percent. The 
transportation percentage of that is 6.8 percent. The passenger 
vehicle and light truck part of transportation, it's only--it's 
two-thirds of that, so you're at 4.2 percent. That's the 
passenger-vehicle and light-truck contribution to world 
CO2 production, that lower yellow box.
    Now, if you adopt the proposed CAFE change, and achieve a 4 
percent reduction by the year 2030--OK, this is with a 4 
percent increase in CAFE--this is what the reduction will be in 
carbon dioxide. It's that little red box at the bottom. That's 
what will be achieved.
    It's a--that doesn't mean we shouldn't achieve it, by the 
way. I think we can do a lot better if we would invest in the 
leap-ahead technologies--the fuel cells, the plug-in hybrids, 
the advanced diesels--instead of going the CAFE route. We can 
do better than CAFE if we use the resources that we have to 
invest in leap-ahead technologies instead of these incremental 
changes that are very minute, but which are aimed at trying to 
meet these 2 or 3 or 4 percent increases. That's my first 
point. Put our resources where they will make a heck of a lot 
bigger difference than that minute difference that will be made 
by a 4 percent increase in CAFE.
    Now I want to address Senator Lautenberg's point. You put 
up a chart, Senator Lautenberg, which shows that the Japanese 
fuel--that the fleet of Japanese vehicles are more efficient 
than our fleet. The impression that is created--and, I think, 
erroneously--is that Japanese vehicles are more fuel efficient 
than ours. And they are not. It's an impression which is in the 
minds of a lot of people, but it is a wrong impression. And if 
we're going to do the right thing and not do harm needlessly 
and unfairly to an American industry, we then have got to look 
at the facts relative to the efficiency of vehicles.
    First, let me put up four vehicles, the same weight. This 
is a minivan, and I'm going to just go through these very 
quickly. This is the fuel economy, same weight, a Buick 
Terraza, Dodge Caravan, Honda Odyssey, Nissan Quest. They're 
all the same weight, they all get the same miles per gallon. 
That is true across the fleet. The same weight, approximately--
and sometimes exactly--the same number of miles per gallon.
    Let me just give you one more example of this. The Ford 
Freestyle, 4,250 pounds, does better than the Toyota 
Highlander, 4,250 pounds--2 miles per gallon better.
    I'm not trying to prove that American vehicles are more 
fuel efficient than the Japanese. What I do want you to accept 
as a fact is that Japanese and other vehicles, pound for pound, 
are no more fuel efficient than American vehicles. Until you 
get to the hybrid, obviously. We're talking about comparing 98 
percent of the fleet. Hybrids are different, and that's why we 
should focus on getting to the leap-ahead technologies.
    Instead of a CAFE system which discriminates against 
American vehicles, because, historically, that system is based 
on the entire fleet, and, when the fleet has concentrated on 
the larger cars instead of smaller, historically, which have 
been in demand in America, those companies which have produced 
a larger percentage of smaller vehicles have room to sell all 
the larger vehicles they want. It's perverse. It works against 
American jobs, with not a darn bit of benefit to the air. It 
doesn't do the environment one bit of good for Toyota to be 
able to sell more and more Highlanders, but Ford not to be able 
to sell Freestyles, because they bump up against the CAFE 
limit. It doesn't do the air any good. It doesn't do the 
environment any good. And it hurts American jobs.
    So, our plea, my plea, is that whatever system you put in 
place, eliminate the discriminatory features of the CAFE 
system. And the way to do that is to have the same miles per 
gallon based on the same size or class. Do this by class, not 
by fleet.
    And I want to commend Senator Feinstein. In her bill, the 
first part of her bill does that. She has the same miles per 
gallon, class--not the same--she goes miles per gallon size--
depending on the size. In other words, class by class by class, 
she has the same miles per gallon across the class, and does 
not impose the same standard on each company, even though their 
fleets are designed so differently.
    And I want to--I want to just point that out. That part of 
the Feinstein bill is an--a very significant improvement to 
avoid going by the entire fleet, and to do this class by class, 
so that the Highlander and Freestyle class will be treated the 
same way. And the discrimination in that regard will end.
    Now, we can argue whether CAFE makes sense or if you want 
to go leap-ahead versus incremental. That's an argument which, 
it seems to me, is an important argument. You can do a lot 
better if you get companies to commit to use their research and 
development dollars on leap-ahead technologies. Sign agreements 
with companies to invest in the leap-ahead technologies, the 
way we've done, as I understand, in a number of other areas.
    However, if you're going to go CAFE, follow the approach 
that Senator Feinstein has used in the--going by class, rather 
than by company fleet.
    However--and I want to end with this--there is language--
there is language in the Feinstein--I want to--I just want to 
read one thing, from the National Academy of Sciences, before I 
change my point. The National Academy of Sciences, in 2002, 
made the exact point that I just made, and I want to read it to 
you, ``A policy decision to simply increase the standard for 
light-duty trucks to the same level as passenger cars would 
operate in this inequitable manner. Some manufacturers have 
concentrated their production in light-duty trucks, while 
others have concentrated production in passenger cars. But 
since trucks tend to be heavier than cars, and are more likely 
to have attributes, such as 4-wheel drive, that reduce fuel 
economy, those manufacturers whose production was concentrated 
in light-duty trucks would be financially penalized relative to 
those manufacturers whose production was concentrated in cars. 
Such a policy decision would impose unequal costs on otherwise 
similarly situated manufacturers.''
    The National Academy of Sciences has it right. And, by the 
way, I believe that Senator Carper made the same point, that we 
ought to go attribute-based, as he put it which means by class, 
which essentially means by size, rather than by going company 
fleet by company fleet.
    Now, there's other language in here--I will close--there's 
other language in the Feinstein bill which some have 
interpreted--and I believe, now, erroneously interpreted--that 
goes in the opposite direction and would require NHTSA to set 
for each company a combined car and truck standard of 35 miles 
per gallon by 2019. Such a requirement would exacerbate the 
discriminatory impact of the current CAFE system and hurt our 
American manufacturers disproportionately, because they have a 
higher percentage of trucks in their overall fleet.
    And now, I want to just state this very carefully, so this 
part I'm going to read.
    ``I discussed this matter yesterday with Senator Feinstein 
and her staff, and conferred further with the Commerce 
Committee staff as to the intent of the language in setting a 
combined standard of 35 miles per gallon by 2019. I was 
reassured to learn that the intent of S. 357 is not to set a 
combined standard for each company, but, rather, to set a 
number globally across the entire fleet of new vehicles sold in 
the U.S., and to give NHTSA the discretion to achieve that 
number by setting fuel economy standards using different 
attributes for different classes of vehicles.'' Senator 
Carper's point. ``The intent of that language, in S. 357, in my 
judgment, needs to be clearer in order to avoid worsening the 
discriminatory impacts of the CAFE system; that is, the 
intention of this bill is to give NHTSA the flexibility to meet 
the industry-wide fuel economy number, taking into 
consideration both technological feasibility, the size and 
weight of different types and classes of vehicles, and the 
differences in each manufacturer's overall fleet mix.''
    ``The goal of CAFE reform through a class-based standard is 
an important advance and must not be set back or reversed by a 
combined standard.''
    Thank you very much, Mr. Chairman.
    [The prepared statement of Senator Levin follows:]

   Prepared Statement of Hon. Carl Levin, U.S. Senator from Michigan
    Mr. Chairman, thank you for the opportunity to appear today to 
testify on the Corporate Average Fuel Economy bills pending before your 
Committee.
    As temporary stewards of the planet, we all need to be conscious of 
our impact on the global environment and take actions to address our 
dependence on oil and our contribution to global greenhouse gas 
emissions.
    As Chairman of the Committee on Armed Services, I am also very 
conscious of the effects of our continued reliance on oil that comes 
from unstable regions of the globe. I am also concerned that global 
climate change may present new security challenges in some of the most 
volatile regions of the world. I believe that we can address both of 
these challenges, but I also believe that there are ways of doing it 
that boost American manufacturing.
    America has lost 3 million manufacturing jobs since 2001, over 
200,000 jobs in the automotive sector. Our companies face enormous 
competition in the global marketplace without sufficient support from 
the U.S. Government. Our companies are not just competing against other 
global companies--they are competing against other governments that 
strongly support their manufacturing sectors with currency manipulation 
and trade barriers against our products. American companies must 
compete against those who are protected from import competition by 
their government, have cheap labor costs, do not pay health insurance 
and legacy costs, or do not have to meet our strict environmental 
standards. Our manufacturers can compete with anyone on a level playing 
field but right now that field is tilted against them.
    We can reduce our dependence on oil, reduce our greenhouse gas 
emissions, and improve the overall fuel economy of our vehicles on the 
road while supporting our American manufacturers in the global market 
place. To do that, we need a major public-private partnership and major 
investments in leap-ahead energy technologies, including advanced 
technology vehicles. We need a massive infusion of resources and a 
commitment from both the private sector and the Federal Government to 
support efforts to reach these important goals. In other words, we need 
a comprehensive American Manufacturing Initiative. But at a minimum, we 
cannot have our government act in ways that will unfairly disadvantage 
our American manufacturers against their global competitors.
    In the area of autos specifically, it would be better for our 
resources to be invested in leap-ahead advanced vehicle technologies 
rather than in the incremental approach to vehicle fuel economy 
improvement that the CAFE regulatory scheme requires. To the extent 
that the constrained R&D resources of our manufacturers are used on 
incremental improvements in current technology, it limits their ability 
to commit those R&D resources to advanced leap-ahead technologies. 
Better those resources be invested in big leaps ahead, such as advanced 
hybrids and advanced batteries, hydrogen and fuel cells, advanced clean 
diesel, and alternative fuel technologies such as biofuels. One way to 
accomplish that would be to have companies commit a certain amount of 
money for R&D on these technologies as an alternative to the 
incremental approach of CAFE.
    The current CAFE system is also an example of where our own 
regulatory scheme has discriminated against American manufacturers. 
There is a common misconception that Japanese vehicles are more fuel-
efficient than American cars. That simply is not the case. Pound for 
pound, the vehicles are the same. The Japanese vehicles are no more 
fuel-efficient than ours.
    CAFE has historically been built around the average fuel economy of 
manufacturer's total fleet of cars or light trucks. Because American 
manufacturers have historically offered more full-sized vehicles, they 
have typically had a lower fleet-wide average fuel economy than their 
foreign competitors. Even when individual American models have fuel 
economy performance equal or superior to comparably-sized foreign 
models, the ``product mix'' of the American manufacturers has produced 
a lower ``fleet average.''
    Under the perverse logic of the CAFE system, therefore, an American 
manufacturer of a full-size pickup truck, such as the GM Silverado, 
which gets 18 miles to the gallon, is constrained in how many of these 
pickup trucks it can sell and still meet the overall CAFE fleet average 
requirement, which is now 22.2 miles per gallon. At the same time, CAFE 
allows a foreign manufacturer to sell several hundred thousand more 
comparable pickup trucks that get 16 miles to the gallon. This is 
because the foreign manufacturers have produced more small vehicles 
historically. In essence, a foreign manufacturer has more ``headroom'' 
to increase its market share of full-size pickup trucks, without any 
requirement to increase the fuel economy of these vehicles.
    There are numerous examples of similar size and weight vehicles, 
made by domestic manufacturers and foreign manufacturers, all of which 
have the same fuel economy for the same size and weight. For instance, 
the Ford Freestyle small SUV gets 23 mpg, while the Toyota Highlander 
small SUV gets 21 mpg. Both are the same size and weight--4,250 pounds. 
The Chevy Suburban and the Toyota Sequoia are both large SUVs, and both 
weigh 5,500 pounds--the Suburban gets 17 mpg while the Sequoia gets 16 
mpg. One last example--four different minivans, made by four different 
manufacturers, each of which weighs 4,750 pounds, and each gets 21 mpg.
    In 2002, the National Academy of Sciences recognized these 
inherently discriminatory features of CAFE, stating the following in 
its report, the Effectiveness and Impact of Corporate Average Fuel 
Economy Standards.

        One concept of equity among manufacturers requires equal 
        treatment of equivalent vehicles made by different 
        manufacturers. The current CAFE standards fail this test.
        If one manufacturer was positioned in the market selling many 
        large passenger cars and thereby was just meeting the CAFE 
        standard, adding a 22-mpg car (below the 27.5-mpg standard) 
        would result in a financial penalty or would require 
        significant improvements in fuel economy for the remainder of 
        the passenger cars. But, if another manufacturer was selling 
        many small cars and was significantly exceeding the CAFE 
        standard, adding a 22-mpg vehicle would have no negative 
        consequences.
        A policy decision to simply increase the standard for light-
        duty trucks to the same level as for passenger cars would 
        operate in this inequitable manner. Some manufacturers have 
        concentrated their production in light-duty trucks while others 
        have concentrated production in passenger cars. But since 
        trucks tend to be heavier than cars and are more likely to have 
        attributes, such as four-wheel drive, that reduce fuel economy, 
        those manufacturers whose production was concentrated in light-
        duty trucks would be financially penalized relative to those 
        manufactures whose production was concentrated in cars. Such a 
        policy decision would impose unequal costs on otherwise 
        similarly situated manufacturers.''

    Over many years, CAFE has allowed an unfair competitive advantage 
to foreign vehicle manufacturers, without improving our fuel economy or 
reducing CO2. Proposed increases in CAFE would barely make a 
dent in CO2 emissions, while, if done in a discriminatory 
way, could do huge damage to American jobs. It could also be a step 
back on environmental improvement if American manufacturing is sent to 
countries with less stringent environmental standards.
    If we must have a CAFE system, then it needs to be significantly 
revamped so that it is not discriminatory against our companies, and 
the numbers should be set in a non-discriminatory way by experts who 
understand what can and cannot be done from a technology standpoint. We 
need to give this authority to the National Highway Transportation 
Safety Administration, or NHTSA, and give them the tools to set 
standards in a way that treats manufacturers fairly and ensures 
sufficient lead time to get new technologies into the market. NHTSA 
should be given the authority to set standards by class for passenger 
cars as they have done for light trucks. It would also promote leap-
ahead technologies instead of incremental changes if NHTSA is clearly 
authorized to set a five-year CAFE number instead of an incremental 
annual approach, using a CAFE system based upon attributes, such as 
size or weight.
    In her bill, S. 357, Senator Feinstein provides authority for NHTSA 
to set separate standards for different classes of passenger 
automobiles. NHTSA already has that authority for light trucks. That is 
an important and positive step forward in terms of fairness to our 
American manufacturers.
    There is other language included in S. 357, however, that some have 
interpreted--erroneously, I now believe--to go in the opposite 
direction and require NHTSA to set for each company a combined car and 
truck standard of 35 mpg by 2019. Such a requirement would exacerbate 
the discriminatory impacts of the current CAFE system and hurt our 
American manufacturers disproportionately because they have a higher 
percentage of trucks in their overall fleet.
    I discussed this matter yesterday with Senator Feinstein and her 
staff, and conferred further with the Commerce Committee staff as to 
the intent of the language in setting a combined standard of 35 mpg by 
2019. I was reassured to learn that the intent of S. 357 is not to set 
a combined standard for each company, but rather to set a number 
globally across the entire fleet of new vehicles sold in the U.S. and 
to give NHTSA the discretion to achieve that number by setting fuel 
economy standards using different attributes for different classes of 
vehicles. The intent of that language in S. 357 needs to be clearer in 
order to avoid worsening the discriminatory impacts of the CAFE system, 
i.e., that the intention is to give NHTSA the flexibility to meet an 
industry-wide fuel economy number, taking into consideration both 
technological feasibility, the size and weight of different types and 
classes of vehicles, and the differences in each manufacturer's overall 
fleet mix. The goal of CAFE reform through a class-based standard is an 
important one and must not be set back or reversed by a combined 
standard.
    I want to emphasize again that I support improvements in fuel 
economy, and I fully support efforts in this Congress to reduce our 
dependence on oil and reduce our greenhouse gas emissions. I believe it 
is our duty to future generations.
    But it is important to recognize where U.S. auto emissions fit into 
the overall picture. World CO2 production is 28 billion 
metric tons. The U.S. contribution is 6 billion metric tons, or 21.8 
percent of world production. U.S. transportation contributes 6.8 
percent of the world production, and U.S. passenger vehicles and light 
trucks contribute 4.2 percent of world CO2 production. The 
U.S. passenger vehicle contribution to world emissions is less than 
one-fifth of the U.S. contribution. Therefore, CAFE can make but a 
small contribution to the overall reduction in CO2 
production. That should not stop us from making improvements in our 
vehicle technologies, but it should drive us to solutions that can give 
us the greatest bang for the buck.
    We all want to reduce carbon dioxide emissions from vehicles, but 
we need to do it in a way that is fair to all manufacturers and in a 
way that unleashes great technological advances in vehicles. We can 
make leaps ahead in hydrogen use; in hybrid use, including plug-in 
hybrids; and biofuels. We need to focus on these leap-ahead 
technologies and give the incentives to manufacturers to develop and 
move to those technologies. If we focus instead only on CAFE as the 
main mechanism for CO2 reductions, we will miss an 
opportunity to do real good and might do real harm. Our manufacturing 
sector in America has been damaged already. We must, therefore, be 
doubly cautious about further disadvantaging our American manufacturers 
by pursuing the wrong approach.
    I am committed to work with this Committee and others in the 
Congress to develop the right approach to improving fuel economy, 
reducing our dependence on oil, and reducing our contribution to global 
climate emissions.

    The Chairman. Thank you very much.
    Senator Feinstein?

              STATEMENT OF HON. DIANNE FEINSTEIN, 
                  U.S. SENATOR FROM CALIFORNIA

    Senator Feinstein. Thank you very much, Mr. Chairman.
    I was very heartened to hear the comments of the Senator 
from Michigan, and very much appreciative of them. We did work 
together yesterday. His staff--my staff did meet with your 
staff, who helped draft this section. And so, I think the 
intent is clear.
    I want to thank you, Mr. Chairman, for being an original 
cosponsor of this bill, along with Senators Snowe, Durbin, 
Kerry, Senator Boxer, Senator Nelson, who's here, Cantwell, 
Lautenberg, Lieberman, Menendez, Collins, Reed, Leahy, Sanders, 
Dodd, and Akaka.
    The thrust of this bill would raise CAFE standards to 35 
miles per gallon by model year 2019. This is essentially a 40 
percent increase over 10 years. Similar increases are contained 
in virtually every CAFE bill proposed this year, including 
bills offered by Senator Dorgan and Craig, and by Senators 
Obama and Lugar.
    In the President's State of the Union speech, he set a goal 
for America to conserve up to 8 and a half billion gallons of 
gasoline through better fuel economy by 2017. Now, what would 
it take to achieve this goal? An increase in fuel economy for 
cars and trucks of about 4 percent per year, which is, again, 
in line with our bill.
    Now, we all know what's causing the remarkable agreement on 
how much we can accomplish through CAFE legislation. And the 
simple truth is this: national security imperatives, global 
warming concerns, and public opinion are all aligned in favor 
of a cleaner fleet. The devil's in the details of how we get 
there.
    By 2025, this simple step would reduce emissions of 
greenhouse gases from United States cars and light trucks by 18 
percent below projected levels, the equivalent of taking 50 
million of today's cars and light trucks off the road in 1 
year. As I think Senator Boxer knows, and others know on this 
Committee, the transportation sector is responsible in this 
country for about 33 percent, or a third, of global warming 
gases. Of that 33 percent, the passenger and light truck part 
of the transportation industry is about 25 percent. So, that's 
what we have.
    The bill would save 2.1 million barrels of oil per day, or 
nearly the amount of oil we import today from the Persian Gulf.
    The Ten-in-Ten bill is also fair, as I think Senator Levin 
stated, to the domestic auto industry. Detroit has suggested 
that the bill would require each manufacturer to produce 
vehicles averaging 35 miles per gallon. In other words, General 
Motors, Toyota, and Honda would all have to make enough high-
mileage cars for model year 2020 to offset their low-mileage 
light trucks and average 35 miles per gallon.
    However, as Senator Levin just pointed out, this is not the 
way this bill works. Instead, it is the entire nationwide fleet 
of cars and light trucks sold in this country that must average 
the 35 miles. NHTSA will set size-based mileage standards 
dependent on the mix of vehicles in the entire U.S. fleet. 
Companies that manufacture mostly larger vehicles will only 
have to meet lower mileage standards for these vehicles. To be 
sure, every type of vehicle, from the smallest to the largest, 
will have to improve its mileage to the extent possible.
    Critically, as Senator Levin stated, the National Highway 
Traffic Safety Administration, NHTSA, will retain the 
discretion to decide the most appropriate combination of 
mileage improvements for each vehicle class that will get the 
nationwide average to 35 miles per gallon. So, it can be class-
by-class. Neither American nor foreign manufacturers will be 
especially advantaged or disadvantaged. Each manufacturer will 
have to improve the vehicle it makes to meet the standards that 
the agency sets.
    This bill, I deeply believe, is fair to all American 
manufacturers, and it is also fair to the car-buying public. 
Some have expressed concerns that drivers would have to choose 
between fuel efficiency and acceleration, safety, or space. But 
experts at the National Academy of Sciences have shown that we 
can increase the fuel economy of mid-sized SUVs to 35 miles per 
gallon; large cars, to 39 miles per gallon; minivans, to nearly 
37 miles per gallon, and large pickups, close to 30. This is 
the NAS report of 2002, pages 41, 45, at tables 3 and 4.
    If you average the improvements that the National Academy 
considers achievable over the next decade for these different-
sized classes of passenger cars and light trucks, you can 
actually get to 37 miles per gallon for the U.S. fleet, even 
better than the 35 miles per gallon required in this Ten-on-Ten 
bill. The source of this is a Union of Concerned Sciences 
analysis of the NAS study based on the 2005 sales mix.
    So, all of this can be done, we believe, without 
sacrificing performance or safety.
    In conclusion, the average fuel economy of new vehicles 
sold today is lower than it was two decades ago. That goes to 
some of the comments made by members of this Committee.
    The Ten-in-Ten bill, I think, offers a straightforward and 
sensible solution. One, it can be done with existing 
technology. Two, it would satisfy the public's desire for a 
more fuel-efficient fleet. And, third, it would reduce carbon 
emissions and limit America's reliance on foreign oil.
    In 1963, President Kennedy set a national goal of putting a 
man on the Moon within the decade. Technology, paired with 
American ingenuity and hard work, achieved this historic 
objective.
    Today, we're advocating, certainly, a less lofty goal, 
raising fuel economy standards by 40 percent over the next 
decade. And I think it, too, can become a reality.
    Mr. Chairman and those members that are cosponsors of this 
bill, I thank you for that.
    To both Senator Levin and Senator Stabenow, I'm certainly 
prepared to work with you. We began yesterday. I think we 
achieved something yesterday.
    I thank you very much, Mr. Chairman, for your work on this, 
as well as the expertise of this Committee's staff.
    Thank you very much.
    The Chairman. Thank you.
    Senator Stabenow?

              STATEMENT OF HON. DEBBIE STABENOW, 
                   U.S. SENATOR FROM MICHIGAN

    Senator Stabenow. Well, thank you, Mr. Chairman.
    And I want to also thank Senator Feinstein. She's allowing 
us to surround her today. So----
    Senator Feinstein. Yes.
    [Laughter.]
    Senator Stabenow.--we appreciate that, and very much 
appreciate, Mr. Chairman, your holding this hearing, and to all 
of our colleagues.
    I don't disagree at all about the importance of creating 
more fuel efficiency. We've got to decrease our reliance on 
foreign oil. It is a national security issue. We need to 
address, from an environmental standpoint, what's happening. 
There's no question in my mind that global warming is real, and 
every sector of the economy has to do its part.
    So, for me, this is not about the goals, but it is very 
seriously about how we achieve it, because it very much impacts 
the American manufacturing economy and jobs if we don't get it 
right. And so, that's what I'm asking today.
    First, though, I want to just speak a moment about the auto 
industry, because I think it's very important for us to 
recognize that our American auto industry really helped create 
the middle class of this country and is key to continuing it. 
This isn't your father's factory anymore. This is high-tech 
manufacturing. And if you have not had an opportunity to visit 
a plant recently, we would welcome you to do so. It is 
extremely impressive.
    But, unfortunately, this industry has faced a lot of 
difficult challenges right now that, frankly, have nothing to 
do with quality of the vehicle or the competitiveness of the 
vehicles. Unfair trade practices, like currency manipulation 
and counterfeiting; rising healthcare costs, where they compete 
with other companies whose countries pay for the costs of those 
dollars of healthcare. GM, Ford and DaimlerChrysler, in 2005, 
spent $12.2 billion on healthcare, and they covered 2 million 
Americans. Experts predict that future health liabilities for 
Detroit automakers range from anywhere from $70 billion to $140 
billion.
    Now, why would I say that in a hearing on CAFE and on the 
issue of increasing fuel efficiency? Because, frankly, every 
time one of our automobiles adds $1,435, which it does, on 
average, to pay for healthcare, that's not $1,435 that's going 
into new technologies, all of which we want to have happen.
    So, this is connected. What is happening to manufacturing, 
where the dollars are going, is all connected. And, frankly, I 
want to free up those dollars so that we can put more of that 
into those technologies and where we want to go.
    Meanwhile, other countries are able to put their money into 
new technologies. Just to give you an example, the Governments 
of Japan and South Korea are spending five times more on new 
battery technologies. There's something wrong when we see Ford, 
with the Escape, the hybrid using battery technologies, by--
having to look to another country to get the battery. And part 
of what we've got to do is make sure whatever incentives we do 
are creating the jobs here, not just the new science and the 
new technology.
    But Japan invested $50 million last year, and South Korea 
invested $70 million, committed over the next 6 years. In 
comparison, our budget has $11 million, for one of the most 
critical technologies to doing what all of us want to do.
    And I believe the American auto industry's really hit 
twice, because we're not investing in those technologies, we're 
not addressing competitiveness costs, and we regulate our 
automakers in different ways than their foreign competitors.
    I'm here today, though, not to say we should do nothing. 
Far from it. In fact, we've got to move ahead, and we've got to 
be smart about it, and we've got to raise the bar, in terms of 
increased fuel efficiency and technology innovations.
    Now, let me speak to the concerns about increasing CAFE, 
Mr. Chairman. And certainly in light of Senator Feinstein's 
comments, I certainly appreciate that we've had some good 
discussion, and we can look at how we move so that these issues 
are addressed.
    But there's no question that a fleetwide average does not 
increase fuel efficiency, as Senator Levin said. If you have--
if it's company-by-company, and one company is making larger 
vehicles, and the other, smaller, then the one making smaller 
cars can have a lot of room to go up on a cap, and those 
vehicles don't have to be efficient. Those pickup trucks and 
SUVs don't have to be efficient, and you still don't meet the 
cap. That's not fair.
    In the United States, the majority of our jobs are coming 
from those pickup trucks, are coming from trucks, light trucks, 
SUVs, and larger vehicles. And so, that is a critical issue for 
us as it relates to CAFE.
    And, second, I would argue that CAFE creates a situation of 
incremental change that I believe is slower than how we need to 
do this. If we are looking at something year to year, where--
we're looking at situation that forces the companies to look at 
short-term strategies, not investing for the next 5 years, but 
looking at the weight of the car, the size of the engine, 
what's involved in the vehicle. It may mean as--cutting 
vehicles from the fleet. For those of us that produce 
automobiles, that means cutting plants, potentially. It means 
limiting production of certain kinds of automobiles.
    And those are the kinds of things, in the short run--you 
can address the weight or the size of the engine--but we need 
something bolder than focusing on these short-term, incremental 
approaches to increasing fuel efficiency. And that's what I'm 
most concerned about.
    Senator Levin talked about bold, leap-forward strategies. 
And I believe that's exactly what we need to do, not talking 
about 4 percent here or 6 percent there. We need to be looking 
at cutting-edge technologies that reach exactly what Senator 
Feinstein said.
    I have no doubt that if we do this right, and we can set a 
requirement on where we need to be. And if we boldly invest in 
the technology, we can meet those numbers and surpass it.
    It's a question of how we set it up and whether they're 
forced to look at short-term strategies or longer-term 
strategies.
    And I also, Mr. Chairman, would have to say that we need to 
remember that our automakers, both foreign and domestic, have 
already invested millions of dollars in developing cleaner, 
better technologies. We are seeing the focus on the electric 
technology, the Volt, by General Motors. And right now we're--
the key question is the advanced battery technology and how 
fast we can get this to a point where they can bring it to 
market. But we also have biodiesel, and DaimlerChrysler 
focusing on important efforts that relate to diesel, clean 
diesel--I know Senator Carper has been focused on that--and 
biodiesel. For example, with new technology, today's clean 
diesel engines achieve 20 to 40 percent better fuel economy 
than the equivalent gasoline engine. And over a lifetime of the 
vehicle, this is very, very significant.
    Just as an example, this year the 2007 Jeep Cherokee will 
use 418 fewer gallons of gasoline each year than a traditional 
Jeep Cherokee. And we want all of them to do that. Also, as 
compared, for instance, to--a hybrid Honda Civic to a 
conventional Civic, that has a savings of about 154 gallons.
    If we have all new Jeep Cherokees with new diesel engines, 
we would save 23 million gallons of gasoline a year. And 
they're moving in that direction. It's not that this isn't 
happening. That's where they're going.
    Another example is flex fuel vehicles. We all know about 
ethanol and what is happening there, and what we can achieve, 
and what we can achieve with cellulosic ethanol. There are 
extraordinary things that are happening. Fueling half of the 
fleet by 2012, which is less than 5 years away, would save us 
3.9 billion gallons of gasoline, or approximately 42 percent of 
our 2012 fleet's projected annual consumption of gas. Moreover, 
77 million tons of carbon would be saved. And, frankly, that is 
more than what we're talking about through these CAFE 
standards. There are bolder, better, bigger ways to get to 
where we want to go.
    And so, Mr. Chairman, I would say, in summary, that just 
two new technologies, flex-fuel vehicles and new diesels, 
together, are on track to reduce American gasoline consumption 
by over 4 billion gallons of gasoline annually in less than 5 
years.
    What I believe our challenge is, is to make sure, 
particularly as it relates to biofuels, that the infrastructure 
is there, and that's where many of us are working to make sure 
that it is.
    As a comparison, a CAFE increase would save just 2.8 
billion, instead of 4 billion, by focusing on a CAFE increase 
as has been traditionally structured.
    We need to move ahead more boldly. We have many committees 
that are working on this together, not only this distinguished 
Committee, but the Finance Committee, where we are focusing on 
tax credits and incentives; we have the Energy Committee, that 
reported, yesterday, some very, very positive things, a new 
requirement to reduce America's gasoline consumption by more 
than 32 million gallons per year, the same amount of ethanol 
that we can help produce in the Agriculture Committee with the 
farm bill, where we are also working; EPW, with Senator Boxer. 
We have the opportunity to work together to do what I believe 
is something very, very bold and also something very good for 
our economy, creating jobs. And I would urge us to look more 
broadly than just this one strategy. And I believe we can get 
there faster than the incremental change that has been the type 
of change in the structure, which started in the 1970's--we've 
got a 1970's structure of CAFE, and we're in 2007, with a whole 
different set of challenges that are bigger and more serious. 
And I think there's a bigger, bolder way for us to address 
those, and I look forward to working with the Committee.
    Thank you, Mr. Chairman.
    The Chairman. Senator Levin, Senator Feinstein, Senator 
Stabenow, on behalf of the Committee, I thank all of you.
    Senator Feinstein. Thank you. Thank you, Mr. Chairman.
    The Chairman. And I think this just demonstrates to all of 
us that the forthcoming debate will be a very serious, mature, 
and productive one.
    Thank you very much.
    Senator Levin. Mr. Chairman, I would ask consent that my 
entire--I would ask consent that my entire statement and an 
attachment be made part of the record.
    The Chairman. It is so ordered.
    Senator Levin. Thank you.
    The Chairman. And now, we will call upon the panel of 
experts: Mr. Alan Reuther, Legislative Director of the United 
Auto Workers International Union; Mr. David Friedman, Research 
Director of the Clean Vehicles Program of the Union of 
Concerned Scientists; Admiral Dennis Blair, United States Navy 
(Retired), former Commander-in-Chief of the United States 
Pacific Command, and presently Omar Bradley Chair of Strategic 
Leadership, Army War College and Dickinson College; Mr. Michael 
J. Stanton, President and Chief Executive Officer of the 
Association of International Automobile Manufacturers; Vice 
Admiral Dennis McGinn (Retired); and Mr. David McCurdy, 
President of the Alliance of Automobile Manufacturers.
    May I first call upon Mr. Reuther.

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

    Mr. Reuther. Thank you, Mr. Chairman.
    My name is Alan Reuther. I am the Legislative Director for 
the UAW. We appreciate very much the opportunity to testify 
today before this Committee on the subject of the pending CAFE 
legislation.
    For several reasons, the UAW strongly opposes these bills. 
The auto manufacturers will have to incur enormous retooling 
costs to achieve the fuel economy improvements mandated by 
these bills. The Bush administration has estimated that GM, 
Ford, and DaimlerChrysler would have to spend $85 billion, or 
about 75 percent, of these costs. The UAW is deeply concerned 
that the magnitude of these costs and their disproportionate 
impact on GM, Ford, and DaimlerChrysler would inevitably lead 
to calamitous results in the auto industry.
    Unlike their competitors, GM, Ford, and DaimlerChrysler are 
facing extremely serious financial situations. In the past 2 
years, they have posted shattering losses, closed numerous 
facilities, and downsized their workforces by almost 90,000 
jobs. At the same time, GM, Ford, and DaimlerChrysler face much 
heavier retiree health legacy cost burdens than their 
competitors. GM has almost 3 and a half retirees for every 
active worker. Ford and DaimlerChrysler have over one retiree 
for each active worker. Together, these three companies spend 
over $5 billion each year to provide healthcare for 550,000 
retirees and their families.
    Thus, it is abundantly clear that we do not have a level 
playing field in the U.S. auto industry. The CAFE increases 
proposed in the pending legislation would severely aggravate 
this situation by imposing huge, disproportionate retooling 
costs on GM, Ford, and DaimlerChrysler. If these three 
companies are forced to shoulder these costs, they will be 
placed at a further competitive disadvantage. Something will 
have to give. The most likely result is that they will be 
forced to shutter more facilities, destroying jobs for tens of 
thousands of additional workers, and weakening the economic 
base in many communities across this country. They will also be 
pressured to reduce, or completely eliminate, retiree health 
insurance for their 550,000 retired workers and their families.
    UAW believes that this economic and human toll is 
unacceptable. Accordingly, we strongly urge this Committee to 
reject legislation requiring drastic increases in fuel economy 
unless it is accompanied by measures to provide assistance to 
the struggling auto manufacturers and to help level the playing 
field in the auto industry.
    UAW is prepared to work with this Committee to develop 
mechanisms, such as Federal loan guarantees, that can provide 
meaningful assistance to the companies.
    The UAW is also concerned about structural problems in the 
pending CAFE bills. We were very pleased to hear the discussion 
in the panel before us, between Senator Feinstein and Senator 
Levin, that the intent of S. 357 is not to impose a flat 35 mpg 
fuel economy requirement on the combined passenger car/light 
truck fleets of each manufacturer, but, instead, to have a 
global, industrywide target. We think that's a much better 
approach, and we look forward to working with the Committee to 
clarify the language in that regard.
    We are also concerned that all of the pending CAFE bills 
would allow NHTSA to promulgate an attribute-based CAFE system, 
but do not contain an adequate anti-backsliding rule, or else 
allow for credit trading between the manufacturers. As a 
result, these bills would jeopardize the continuation of small 
car production and jobs in the United States. I would note that 
S. 357 does attempt to do an anti-backsliding rule. We think, 
again, the language needs to be clarified so it has the 
intended result, and that we don't lose our small car 
production in this country.
    The UAW shares the growing national concerns about climate 
change and energy security. We believe the best approach to 
address these problems would be an economywide mandatory 
tradable permits program to reduce greenhouse gas emissions. In 
addition, we believe Congress should establish carbon 
performance standards to require reductions in the carbon 
emissions of light-duty vehicles, as well as reductions in the 
carbon intensity of fuels that go into those vehicles.
    We also support other initiatives to promote the use of 
alternative fuels in motor vehicles. This includes mandating 
that certain percentages of all vehicles sold in the U.S. by 
each automaker must be flex-fuel capable by specified dates, as 
well as additional incentives or mandates relating to the 
conversion of filling stations so they have the capability to 
distribute alternative fuels.
    Finally, the UAW urges Congress to provide incentives to 
encourage domestic production of advanced-technology vehicles 
and their key components. This would help to maintain and 
create tens of thousands of automotive jobs in this country. At 
the same time, it would help to accelerate the introduction of 
these vehicles, and, thereby, reduce global warming emissions 
and our dependence on foreign oil.
    In conclusion, the UAW appreciates the opportunity to 
testify before this Committee. We look forward to working with 
you and the entire Senate to fashion new policies that will 
enable the United States to make significant progress in 
reducing greenhouse gas emissions and oil consumption while 
protecting jobs and benefits for American workers and retirees.
    Thank you.
    [The prepared statement of Mr. Reuther follows:]

Prepared Statement of Alan Reuther, Legislative Director, International 
Union, United Automobile, Aerospace & Agricultural Implement Workers of 
                             America (UAW)
    Mr. Chairman, my name is Alan Reuther. I am the Legislative 
Director for the International Union, United Automobile, Aerospace & 
Agricultural Implement Workers of America (UAW). The UAW represents 
over one million active and retired workers across the country. Many of 
these UAW members work or receive retirement benefits from auto 
manufacturers and parts companies. The UAW appreciates the opportunity 
to testify before this Committee on the subject of pending Corporate 
Average Fuel Economy (CAFE) legislation. This includes the ``Ten-in-Ten 
Fuel Economy Act'' (S. 357), sponsored by Senator Feinstein; the 
``Improved Passenger Automobile Fuel Economy Act of 2007'' (S. 183), 
sponsored by Senator Stevens; the ``Fuel Efficiency Energy Act'' (S. 
1118), sponsored by Senator Dorgan; and the ``Fuel Economy Reform Act'' 
(S. 767), sponsored by Senator Obama.
    The UAW strongly opposes these CAFE bills for several reasons. 
First, we are deeply concerned that the stringent fuel economy 
improvements mandated by these bills would impose enormous retooling 
costs on the auto manufacturers. GM, Ford and DCX cannot afford these 
costs because of their serious financial conditions and large retiree 
health care legacy costs. The net result is that the bills could lead 
to further plant closings and job loss, as well as cut backs in or the 
elimination of health insurance coverage for 550,000 retirees and their 
families.
    Second, the CAFE increases in some of these bills contain severe 
structural problems. Imposing a much higher flat mpg requirement on the 
combined car and light truck fleets would discriminate against auto 
companies whose product mix is more oriented toward light trucks. 
Furthermore, authorizing NHTSA to adopt an attribute-based CAFE system 
for passenger cars, without establishing an adequate anti-backsliding 
rule, would jeopardize small car production and jobs in the United 
States.
    The UAW shares the growing national concerns about climate change 
and energy security. We believe these serious challenges can best be 
addressed through an economy wide cap-and-trade program that limits 
greenhouse gas emissions, along with additional performance standards 
that require reductions in the carbon content of fuels and improvements 
in vehicle efficiency. This type of approach can also help to provide 
various industries, including struggling auto manufacturers, with the 
resources needed to make investments in the advanced technologies that 
will provide significant reductions in greenhouse gas emissions and oil 
consumption.
Economic Feasibility
    There is no dispute that the improvements in fuel economy mandated 
by the pending CAFE bills would necessarily entail enormous retooling 
costs for the auto manufacturers. The Bush administration has estimated 
that to comply with a 4 percent rate of increase in the CAFE standards 
that would save 8.5 billion gallons of oil by 2017, all of the 
automakers would have to incur retooling costs of $114 billion. 
However, these costs would not be distributed uniformly among the 
companies. GM, Ford and DCX would have to incur $85 billion, or about 
75 percent of these costs.
    The UAW is deeply concerned that the magnitude of these costs, and 
their disproportionate impact on GM, Ford and DCX, would inevitably 
lead to calamitous results in the auto industry. GM, Ford and DCX are 
already facing extremely serious financial situations. In the past 2 
years they have posted shattering losses. In response, they have 
announced unprecedented plans to downsize their operations, involving 
the closing of numerous automotive facilities and buy-out programs that 
could result in the loss of almost 90,000 jobs. Speculation continues 
about further industry restructuring that could lead to even more plant 
closings and job loss. In contrast, Japanese, German and Korean 
competitors have been making large profits and expanding their 
operations.
    At the same time, GM, Ford and DCX face much heavier retiree health 
care legacy cost burdens than their competitors. GM has about 3\1/2\ 
retirees for every active worker; Ford and DCX have over 1 retiree for 
each active worker. Together these three companies spend over $5 
billion each year to provide health care to about 550,000 retirees and 
their families Many of these retirees are younger than 65, and thus are 
not covered under Medicare. In contrast, the Japanese, German and 
Korean operations in this country are relatively new, and thus have 
very few retirees. And the health care costs from facilities in their 
home countries are heavily subsidized through national health care 
systems.
    Thus, it is abundantly clear that we do not have a level playing 
field in the U.S. auto industry. The CAFE increases proposed in the 
pending legislation would severely aggravate this situation, by 
imposing huge, disproportionate retooling costs on GM, Ford and DCX.
    The stark reality is that GM, Ford and DCX do not have the ability 
to shoulder these additional, discriminatory costs. If they are forced 
to do so, they will be placed at a further competitive disadvantage. 
Something will have to give. The most likely result is that these 
companies will be forced to shutter more facilities, destroying jobs 
for tens of thousands of additional workers and weakening the economic 
base of many communities across this country. They will also be 
pressured to reduce or completely eliminate health insurance coverage 
for their 550,000 retired workers and their families.
    The UAW believes that this economic and human toll is unacceptable. 
Accordingly, we strongly urge this Committee and Congress to insist 
that any legislation requiring improvements in fuel economy must be 
accompanied by measures to provide assistance to struggling auto 
manufacturers and to level the playing field in the industry. Because 
none of the pending CAFE bills include adequate measures to achieve 
these objectives, the UAW urges you to reject these bills.
Structural Problems in Pending CAFE Bills
    The UAW remains skeptical about the magnitude of the CAFE increases 
proposed in the pending bills. We do not believe the study by the 
National Academy of Sciences in 2001 supports increases of this 
magnitude. However, we also are deeply concerned about several 
structural problems in the pending CAFE bills.
    First, the ``Ten-in-Ten Fuel Economy Act'' (S. 357) would combine 
the passenger car and light truck fleets under the CAFE program, and 
impose a flat 35 mpg fuel economy requirement on the combined passenger 
car-light truck fleet. This is often referred to as closing the ``SUV 
loophole.''
    This approach would greatly increase the magnitude of the proposed 
fuel economy increase, since light trucks are starting from a lower 
base line. Even worse, this approach would have a severe discriminatory 
impact on GM, Ford and DCX, because their product mix is much more 
oriented toward light trucks than other companies. In effect, GM, Ford 
and DCX would be required to make their passenger car fleets meet 
extremely high mpg standards in order to balance out their much larger 
fleets of light trucks. Or, they would be forced to curtail production 
and/or close many of their light truck operations.
    This problem is not ameliorated by the fact that S. 357 gives NHTSA 
the authority to do an attribute-based CAFE program for passenger cars, 
as well as light trucks. This bill still mandates that every company 
must meet the flat 35 mpg standard for its combined passenger car-light 
truck fleet, and thereby imposes a much larger burden on GM, Ford and 
DCX.
    The UAW submits that this discriminatory approach is fundamentally 
unfair. In our judgment, all companies should be required to improve 
the fuel economy of their entire fleets in a comparable manner. Fuel 
economy requirements should take account of the significant product mix 
differences between the companies, so that any requirements are even 
handed and do not impose disparate costs and technological burdens on 
certain companies.
    Second, all of the pending CAFE bills would allow or require NHTSA 
to promulgate an attribute-based CAFE system for passenger cars, as 
well as light trucks. But these bills do not appear to contain an 
adequate anti-backsliding rule, or else would allow credit trading 
between manufacturers. As a result, these bills would jeopardize the 
continuation of small car production and jobs in the United States.
    Under the existing passenger car CAFE program, the combination of 
the fleet-wide averaging and the two-fleet (domestic and foreign) 
requirements ensures that full line auto manufacturers must maintain 
small car production in North America. This is because the production 
of smaller, more fuel efficient vehicles is needed to offset the 
production of larger, less fuel efficient vehicles. However, if NHTSA 
is authorized or required to promulgate an attribute-based CAFE system 
for passenger cars, this would undermine the fleet-wide averaging 
requirement, and would therefore enable the auto manufacturers to 
offshore all of their small car production and jobs.
    Over 17,000 American workers are currently employed in five U.S. 
assembly plants that produce small passenger cars. This includes GM, 
Ford, DCX, and NUMMI plants in Lordstown (OH), Spring Hill (TN), Wayne 
(MI), Belvidere (IL), and Fremont (CA). Almost 50,000 American workers 
produce parts for these vehicles. The jobs of these workers would be 
directly threatened by the pending CAFE bills because they would allow 
or require NHTSA to promulgate an attribute-based system for passenger 
cars, and therefore would undermine the fleet wide averaging 
requirement. The loss of these jobs would inevitably have a negative 
ripple effect on the rest of the economy.
    As the UAW has previously testified, there is an easy way to obtain 
the benefits of moving to an attribute-based CAFE system for passenger 
cars, while avoiding the down side of losing our small car production 
and jobs. Specifically, the UAW urges Congress to impose an ``anti-
backsliding'' requirement on any new attribute-based CAFE rules that 
NHTSA would be authorized or required to promulgate for passenger cars. 
This requirement should specify that both the domestic and foreign 
passenger car fleets for each auto manufacturer would still have to 
meet or exceed the CAFE standard under the current system (i.e., the 
27.5 flat mpg fleet wide standard). To be effective, this ``anti-
backsliding'' benchmark must be increased in line with the overall fuel 
economy improvements required under any attribute-based passenger car 
CAFE system.
    The establishment of this type of ``anti-backsliding'' requirement 
would prevent companies from offshoring all of their small car 
production and jobs. It also would ensure that the auto manufacturers 
cannot subvert the objective of any new attribute-based CAFE system by 
``up-sizing'' many of their vehicles, resulting in worse overall fuel 
economy.
    Unfortunately, S. 1118 does not contain any anti-backsliding 
provision. Although S. 357 and S. 183 do contain versions of an anti-
backsliding rule, these provisions are poorly drafted and would not be 
effective in protecting small car production and jobs. Because S. 357 
combines the passenger car and light truck fleets, the benchmark set 
forth in its anti-backsliding rule is set too low to be effective. 
Similarly, because S. 183 merely adopts the existing 27.5 mpg standard 
as the benchmark for its anti-backsliding rule, and does not increase 
this in line with overall improvements in fuel economy, this also would 
not be effective.
    In addition, S. 357 and S. 767 would establish a ``credit trading'' 
system that would allow auto manufacturers to buy and sell CAFE credits 
for passenger cars and/or light trucks. This would also have the effect 
of undermining the two fleet rule and/or fleet wide averaging. As a 
result, it would inevitably jeopardize the continuation of small car 
production and jobs in this country.
    The UAW is concerned about a number of other problems in the 
pending CAFE legislation. A number of the bills would expand the CAFE 
program to cover heavier vehicles (above 8,500 lbs.), thereby 
substantially increasing the stringency of the overall program and 
making it even more difficult and costly for the auto manufacturers to 
comply with the proposed standards. Similarly, S. 1118 would eliminate 
the flex fuel CAFE credit. This also represents a back door means of 
increasing the stringency of the overall program, as well as the 
compliance costs for the companies. Both of these proposed changes in 
the CAFE program would have an especially negative impact on GM, Ford 
and DCX, because their fleets contain more heavier and flex fuel 
vehicles.
    Two of the pending CAFE bills, S. 1118 and S. 767, would require 
the auto manufacturers to improve the fuel economy of their passenger 
car and light truck fleets by 4 percent per year. Although the bills 
purport to give NHTSA the discretion to allow a more reasonable rate of 
increase, the findings that it would have to make in order to do this 
are so stacked that it would be impossible for the agency to ever make 
such a determination. In effect, the so-called ``off-ramps'' are 
illusory.
    Because of the foregoing structural problems in the pending CAFE 
bills, the UAW urges the Committee to reject these measures, and 
instead to explore better approaches for addressing the pressing 
problems of climate change and energy security.
Need for Better Approach to Reduce Greenhouse Gas Emissions and Our 
        Dependence on Foreign Oil
    The UAW shares the growing national concern about climate change. 
Scientific studies have confirmed that human use of fossil fuels is 
contributing to global warming. These studies underscore the major 
environmental challenges posed by global warming, including rising sea 
levels, changes in climate patterns and threats to coastal areas. To 
avoid these dangers, the growth in greenhouse gas emissions must be 
reduced, and ultimately reversed.
    The UAW is also concerned about the national security implications 
of our Nation's dependence on foreign oil. Currently, 28 percent of the 
world's oil is produced in the Persian Gulf. Although less than 11 
percent of the oil used by the U.S. comes from this volatile region, 
disruptions in this oil supply can still create serious problems for 
our economy. As a result, in recent years our Nation has become 
entangled in deadly, costly conflicts in the Middle East. In our 
judgment, the long range economic and national security interests of 
the U.S. would better be served by implementing policies to reduce our 
dependence on foreign oil.
    The UAW believes that climate change and energy security are 
serious problems that need to be addressed by Congress and the Bush 
administration. We urge Congress to pursue initiatives that will deal 
with these issues in an integrated and balanced manner that protects 
jobs and benefits for American workers and retirees.
    It is important to recognize, however, that these problems cannot 
be solved through measures such as the pending CAFE bills. Light duty 
vehicles (both passenger cars and light trucks) account for 
approximately 16 percent of greenhouse gas emissions and 42 percent of 
oil consumption in the United States. The CAFE program only affects new 
vehicles sold each year, which represent about 7 percent of the total 
vehicle stock on the road. It takes about 14 years for the U.S. vehicle 
fleet to completely turn over. Furthermore, because of the long lead 
time needed to retool vehicles, any changes in the CAFE program will 
necessarily have a delayed impact.
    Thus, it is apparent that the proposals in the pending legislation 
to increase the stringency of the CAFE program would only have a very 
modest impact in the short term in reducing greenhouse gas emissions 
and oil consumption.
    In addition to these shortcomings, there are a number of other 
reasons why focusing on the CAFE program does not represent the best 
approach for addressing the problems of climate change and energy 
security. The CAFE program does nothing about the fuels that go into 
vehicles. It is not integrated with any broader economy-wide cap-and-
trade program to limit greenhouse gas emissions. Historically, the CAFE 
program has been subject to gaming by the auto companies. And it does 
not generate any revenue that could be used to assist struggling auto 
manufacturers in doing the retooling needed to meet stiffer vehicle 
efficiency requirements.
    To address the problem of global warming in a meaningful way, the 
UAW believes we need a broad, comprehensive policy. In our judgment, 
this policy should require all sectors of the economy to come to the 
table and help to reduce our Nation's greenhouse gas emissions. This 
includes all mobile sources, not just light duty vehicles. It also 
includes stationary sources, such as power plants and factories. And, 
of course, it includes our fossil fuels such as coal, oil and natural 
gas. Each sector should be required to contribute to the reduction of 
greenhouse gases in a proportionate manner. No sector should enjoy a 
free ride. No sector should be required to bear a disproportionate 
burden, or to shoulder costs that would have a devastating impact on 
its operations or employment.
    Specifically, the UAW strongly supports the establishment of an 
economy-wide mandatory tradable-permits program that will slow the 
growth of, and then reduce greenhouse gas emissions in the United 
States. We believe this type of ``cap-andtrade'' program should be done 
on an ``upstream'' basis in order to minimize regulation and to ensure 
that all sectors of the economy participate in a proportionate manner. 
We also believe this program should include a ``safety valve'' cost cap 
to ensure that no sector is hit with unacceptable burdens that would 
have a negative impact on economic growth and jobs. In addition, this 
program should include measures to ensure that our businesses and 
workers are not placed at an unfair competitive disadvantage with U.S. 
trading partners and developing countries.
    The UAW believes that this type of ``cap-and-trade'' program can 
make a major contribution to reducing greenhouse gas emissions. It 
would ensure that such reductions are accomplished in an economically 
efficient manner. Because of the ripple effect of higher oil prices 
throughout the economy, it would also help to reduce oil consumption.
    To adequately address the problems of global warming and energy 
security, the UAW recognizes the need for additional measures to deal 
with the automotive sector. To be effective, we believe it is 
critically important that these measures address the fuels that go into 
vehicles, as well as the efficiency of the vehicles themselves. 
Furthermore, any auto sector policies should recognize that it is much 
more expensive to achieve reductions in greenhouse gas emissions from 
light duty vehicles than from other sectors. In our judgment, the best 
way to address this disparity would be to integrate any auto sector 
policies with economy-wide efforts to reduce greenhouse gas emissions. 
At a minimum, the Federal Government should provide assistance to the 
auto industry to offset this much higher compliance cost.
(A) Auto Carbon Limits
    Instead of becoming mired in the old dead-end debate over the CAFE 
program, the UAW urges Congress to explore the feasibility of 
establishing an additional carbon control policy that would require 
reductions in the carbon emissions of light duty vehicles sold in the 
United States, as well as reductions in the carbon intensity of the 
fuels that go into these vehicles. This two-pronged approach could make 
a direct, major contribution to reducing greenhouse gas emissions. At 
the same time, it also could contribute enormously to a reduction in 
oil consumption.
    Under this approach, auto manufacturers would have a strong 
incentive to improve the efficiency of their vehicles. But there also 
would be a strong incentive to increase the availability and use of 
alternative fuels. This approach could be integrated with an economy-
wide cap-and-trade program, thereby increasing the overall efficiency 
of efforts to reduce greenhouse gases and oil consumption. It could 
also avoid the gaming and other complications that have arisen in 
connection with the CAFE program. Significantly, through the allocation 
of allowances, this approach could help to generate the revenues needed 
to provide assistance to struggling auto manufacturers and to level the 
playing field in the auto industry.
    Obviously, there are many details that would have to be worked out 
in order to establish this type of carbon system for the auto sector. 
The UAW is prepared to work with this Committee and the entire Senate 
to fashion this type of system.
(B) Alternative Fuels
    There are a range of other initiatives that Congress could pursue 
to promote the use of alternative fuels in motor vehicles. These 
initiatives could make an enormous contribution to reducing greenhouse 
gas emissions and our reliance on foreign oil.
    Obviously, there is a need to promote the production of vehicles 
that are capable of running on alternative fuels. The technology 
required to make vehicles flex fuel capable is relatively inexpensive--
about $150 per vehicle. GM, Ford and DCX have already voluntarily 
committed to making 50 percent of their fleets flex fuel capable by 
2012. The UAW would support legislation mandating that certain 
percentages of all vehicles sold in the U.S. by each automaker must be 
flex-fuel capable by specified dates. Meanwhile, to avoid any 
counterproductive disincentive, the CAFE credit for flex fuel vehicles 
should be extended and expanded to cover bio-diesel.
    To increase the use of alternative fuels, there also is a need to 
overcome technical hurdles facing cellulosic ethanol and bottlenecks in 
distribution networks. Thus, the UAW supports the continuation of 
existing incentives for the production of bio-fuels. We also support 
additional incentives or mandates relating to the conversion of 
existing filling stations so they have the capability to distribute 
alternative fuels.
    The UAW welcomes the Bush administration's proposal to increase the 
renewable fuels mandate. We also believe the fuels carbon cap recently 
proposed by Governor Schwarzenegger represents a thoughtful approach 
that is worth examining on a Federal level.
(C) Assistance to Encourage Domestic Production of Advanced Technology 
        Vehicles
    The Federal Government currently provides tax credits to consumers 
who purchase certain advanced technology (hybrid, diesel, fuel cell) 
vehicles. These incentives are designed to encourage consumers to 
purchase more fuel-efficient vehicles. However, the tax credits are 
available regardless of where the vehicles and their key components are 
built. They are not tied to domestic production. Unfortunately, many 
advanced technology vehicles currently are assembled in other nations. 
Even worse, virtually all of the key components (hybrid electric 
motors; diesel engines) for these vehicles are built overseas, 
including the key components for vehicles assembled in this country, as 
well as those assembled in other countries. As these advanced 
technology vehicles gain a larger share of the market, this means we 
are replacing vehicles that have higher levels of domestic content with 
vehicles that have much lower domestic content. As a result, the 
consumer tax credits are effectively subsidizing the movement of 
automotive jobs overseas. For this reason, we believe it would be a 
major mistake for the Federal Government to rely solely on these 
consumer tax credits to encourage the expansion of advanced technology 
vehicles. Certainly, these tax credits should not be expanded by 
increasing the amounts or lifting the cap on the number of qualifying 
vehicles.
    Instead of this flawed approach, the UAW urges Congress to provide 
incentives to encourage domestic production of advanced technology 
vehicles and their key components. As was demonstrated by a November 
2004 study conducted by the Office for the Study of Automotive 
Transportation (OSAT) of the University of Michigan Transportation 
Research Institute, and commissioned by the bipartisan National 
Commission on Energy Policy, this type of approach would help to 
maintain and create tens of thousands of automotive jobs in this 
country. At the same time, it would help to accelerate the introduction 
of these advanced technology vehicles, and thereby reduce global 
warming emissions and our dependence on foreign oil. Moreover, in light 
of the highly competitive nature of the U.S. auto market, any savings 
realized by the auto manufacturers and parts companies would inevitably 
be translated into cost reductions for consumers, and thereby encourage 
sales of these more efficient vehicles. Significantly, the OSAT study 
indicated that the increased tax revenues for Federal, state and local 
governments generated from the jobs created for American workers would 
more than pay for the costs of such manufacturer incentives.
    The UAW is pleased that proposals for a manufacturer's tax credit 
to encourage domestic production of advanced technology vehicles and 
their key components were included in a number of bipartisan bills in 
the last Congress, and that a similar proposal is included in one of 
the pending CAFE bills, S. 767. However, because of the current 
financial situations of GM, Ford and DCX, such tax credits would be of 
limited value to them. Thus, the UAW urges this Committee look at other 
mechanisms for providing assistance to auto manufacturers to encourage 
domestic production of advanced technology vehicles and their key 
components. This could include proposals for Federal loan guarantees 
and/or tax exempt status for any bonds issued to cover such 
investments. It also could include allowing auto manufacturers to 
monetize banked R&D and/or AMT credits that they have accumulated, 
provided the funds are used for such investments.
(D) Leveling the Playing Field in the Auto Industry
    As previously indicated, to make it economically feasible for GM, 
Ford and DCX to shoulder the retooling costs associated with any 
improvements in vehicle efficiency, Congress needs to help level the 
playing field in the auto industry relating to retiree health care 
legacy costs. There are a number of ways Congress could do this. This 
includes allowing auto manufacturers to use federally guaranteed and/or 
tax exempt bonds to help fund retiree health care benefits, or to buy 
their early retirees into the Medicare program or a catastrophic 
reinsurance program. It also includes expanding the existing 65 percent 
refundable, advanceable health care tax credit so it applies to early 
retirees of older manufacturing companies that have large numbers of 
retirees. The UAW is prepared to work with this Committee and the 
entire Senate to craft these or other proposals so they will help the 
struggling auto manufacturers and level the playing field in the auto 
industry. We believe it is essential that such proposals accompany any 
legislation that would impose stiffer vehicle efficiency requirements 
on the auto manufacturers.
Conclusion
    In conclusion, the UAW appreciates the opportunity to testify 
before this Committee concerning the pending CAFE legislation. We look 
forward to working with this Committee and the entire Senate to fashion 
new policies that will enable the U.S. to make significant progress in 
reducing greenhouse gas emissions and oil consumption, while protecting 
jobs and benefits for American workers and retirees.

    The Chairman. Thank you, Mr. Reuther.
    And may I now recognize Mr. Friedman.

 STATEMENT OF DAVID J. FRIEDMAN, RESEARCH DIRECTOR AND SENIOR 
ENGINEER, CLEAN VEHICLES PROGRAM, UNION OF CONCERNED SCIENTISTS

    Mr. Friedman. Mr. Chairman, members of the Committee, I 
really appreciate the opportunity to testify before you today; 
in part, because our country is faced today with a critical 
question, and it's the same question and the same decision that 
this Committee faces, are we going to act to decrease our oil 
addiction? Are we going to reduce the greenhouse gas emissions 
from our cars and trucks, which are currently responsible for 
more global warming pollution than the entire economy of India? 
It may have looked small on that chart that Senator Levin 
showed, but that's only because our country produces so much. 
We also have to ask, are we going to give consumers a solution 
to $3 a gallon gasoline prices? Unless you pass a strong 35 
mile per gallon or 4 percent per year fuel economy bill out of 
this Committee, you will be answering no to these questions. 
But Americans need you to answer yes.
    You can say yes with confidence, because the facts have 
moved beyond the old debates. First, there is absolutely 
nothing arbitrary about relying on research from our Nation's 
top scientists and engineers in setting fuel economy standards. 
By relying on the congressionally requested research from the 
National Academy of Sciences, Congress can set fuel economy 
standards of at least 35 miles per gallon over the next 10 
years, or about a 4 percent per year increase.
    Nobody is claiming that fuel economy standards are a silver 
bullet. We will also have to tap into low-carbon renewable 
fuels and, in the long run, fuel cells and plug-in hybrid 
electric vehicles. We will also have to ask consumers to take 
responsibility for the number of miles they drive. But a good 
dose of common sense, loophole-free fuel economy policy and 
good engineering can deliver the cars and trucks this country 
needs to tackle our oil addiction.
    Second--and we heard some of this, I think, in the earlier 
panel--a size-based system completely changes the way you 
should look at fuel economy standards. Hopefully, you have 
before you a chart, where I tried to show an example of how 
size-based standards fulfilling the 35 mile per gallon 
requirement would treat different vehicle classes.
    If you look at the chart, you will see that large pickups 
would only have to reach about 28 miles per gallon, 
significantly less than the 35 mile per gallon fleet average. 
Instead of large pickup trucks having to meet that average, all 
vehicles will have to improve fuel economy under a size-based 
system.
    Automakers have already developed the technology for large 
pickups to reach 28 miles per gallon. The National Academy of 
Sciences says so. Our analysis says so. These pickups would 
have the same performance, size, and safety they have today. 
The added fuel economy technology would pay for itself in less 
than 2 years at today's gas prices, and pickup truck owners 
would save an additional $4,500 on gasoline over the life of 
the vehicle. Higher fuel economy standards will help farmers 
and small businesses.
    Now, for the same reason pickups are protected, size-based 
standards effectively eliminate any arguments about 
competitiveness between automakers based on the standards. 
Individual manufacturers who have to sell more small vehicles 
to offset--sorry. Individual manufacturers will not have to 
sell more small vehicles to offset sales of large vehicles. A 
company that focuses more on cars, like Volkswagen, would only 
have to--would have to reach about 39 miles per gallon, while 
General Motors, which sells vehicles in all size classes, would 
only have to reach 34, 5 miles per gallon lower, even though 
the Nation's fleet would average 35.
    Now, this also means that the light-truck loophole can be 
eliminated, because the new size-based system provides 
automakers with added flexibility.
    The third important fact that has changed is that 
increasing fuel economy will boost profits and create more jobs 
in the United States. We've heard 30 years of concern, and 
understandable concern, about how fuel economy standards will 
impact our manufacturers. But a recent 2006 study from the 
University of Michigan shows that Detroit's Big Three could 
increase profits by $1.3 billion in 2010 if they invest in fuel 
economy, even if gasoline only costs $2 per gallon. Our own 
work shows that auto-sector jobs could grow due to higher fuel 
economy standards, compared to the shrinking world autoworkers 
are facing today.
    Finally, fuel economy standards are the only policy under 
consideration today that will cut consumer spending at the 
pump. A 35 mile per gallon fuel economy standard is equivalent 
to cutting today's $3 per gallon gasoline price by 65 cents, 
even after paying for the technology to reach that goal.
    Mr. Chairman, Americans have moved beyond the old debate, 
and it's time for Congress to do the same. A recent New York 
Times poll showed that over 90 percent of Americans support 
increasing fuel efficiency. A Detroit Free Press poll showed 
that a majority of Michiganders favored higher fuel economy 
standards. And a yet-to-be-released poll by the Mellman Group 
shows that 84 percent of American pickup truck owners support a 
mandatory increase in the fuel efficiency of cars, SUVs, and 
trucks, even when it is made clear to them that they would have 
to pay more up front in order to save money on gasoline in the 
long run. Americans are ready to do their part. They want to 
buy more patriotic cars and trucks that cut oil dependence, 
reduce global warming pollution, and save them money. What 
America needs is leadership from you. Saying yes to guaranteed 
35 miles per gallon over 10 years, or a guaranteed 4 percent 
per year increase in fuel economy standards, will deliver what 
Americans are asking for.
    Thank you very much.
    [The prepared statement of Mr. Friedman follows:]

 Prepared Statement of David J. Friedman, Research Director and Senior 
                Engineer, Union of Concerned Scientists
    Mr. Chairman and Members of the Committee, I appreciate the 
opportunity to testify before you today.
    I appreciate the opportunity because our country is faced with a 
critical decision, the same decision faced by this committee. Are we 
going to continue to increase our addiction to oil?
    There are many important ways to ask the same question:

   Are we going to continue to weigh down our economy by paying 
        to import 60 percent of our oil at more than $60 per barrel?

   Are we going to continue to produce more global warming 
        pollution from our cars and trucks than the entire economy of 
        India?

   And are we going to continue to leave consumers with no 
        solutions to $3.00 per gallon gasoline prices?

    We have been asking these questions for 30 years, and, for a long 
time, it seemed like we were having the same debate over and over 
again, but the facts have now moved beyond the old debate.
    Fact: There is nothing arbitrary about relying on research from our 
Nation's top scientists and engineers in setting fuel economy 
standards. By relying on Congressionally requested research from the 
National Academies of Science and research from MIT, Porsche 
Engineering, the American Council for and Energy Efficient Economy, and 
the Union of Concerned Scientists, Congress can set science-based fuel 
economy standards of at least 35 mpg for the fleet of new cars and 
trucks over the next 10 years, or about a 4 percent per year increase 
in fuel economy. Analysis of the NAS data shows that a 37 mpg fleet is 
possible using existing technology. Our own analysis shows that we 
could top 40 mpg.
    There is no reason to leave the standard setting task to the 
National Highway and Traffic Safety Administration (NHTSA) which has a 
very poor record when it comes to increasing standards.
    The Ten-in-Ten bill would:

   Cut our oil dependence by 2.1 million barrels per day in 
        2025--almost as much as we currently import from the Middle 
        East.

   Save consumers over $40 billion in 2025, even if gasoline is 
        only $2.00 per gallon.

   Reduce global warming pollution by more than 350 million 
        metric tons of carbon dioxide equivalent--an 18 percent 
        reduction that is equivalent to taking about 50 million of 
        today's typical cars and trucks off the road.

    Fact: Pickups are protected under the reformed fuel economy 
standards and farmers and small businesses will get the performance 
they need while saving thousands of dollars. The administration is 
asking for the ability to use vehicle size when setting fuel economy 
targets--a size-based system completely changes the way you should look 
at CAFE. Automakers would not have to sell more small vehicles to 
offset sales of large vehicles. All vehicles will have to use better 
technology to improve fuel economy, not just big vehicles.
    The chart below is an example of how a sized-based standard 
fulfilling the 35 mpg fleetwide requirement would treat different 
vehicle classes.



[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    Combining a fleetwide fuel economy standard of 35 mpg with the 
President's request to use size-based standards means that large 
pickups would only have to reach about 28 mpg--they will not have to 
hit the fleetwide 35 mpg average. Instead, all vehicles will have to 
improve fuel economy, including compact cars which would have to reach 
about 40 mpg.
    With existing technology, the NAS showed that full-size pickups 
could reach 29.5 mpg. Our analysis shows that a pickup achieving 28 mpg 
would save its owners over $6,000 on gasoline during the life of the 
vehicle. The pickup would have the same power, performance, size and 
safety it has today, and would cost an additional $1,500. However, the 
added fuel economy technology would pay for itself in less than 2 years 
with gasoline at $2.50 per gallon. Higher fuel economy standards will 
help farmers and small businesses who rely on trucks as much or even 
more than the average consumer.
    Fact: Automakers that concentrate on the pickup market won't have 
to compete on fuel economy with automakers that focus more on cars--the 
old competitiveness arguments are effectively eliminated. The 35 mpg 
goal applies only to the aggregate fleet of new cars and trucks sold by 
all automakers. NHTSA will be able to set separate fuel economy targets 
for different classes, so a company that focuses more on cars, like 
Volkswagen, would have to reach 39 mpg, while GM, which is spread out 
more across different size classes, would only have to reach 34 mpg. 
The new system requires all automakers to invest in fuel economy, 
addressing automaker complaints that they are currently being treated 
unfairly if they sell more large vehicles.
    This also means that the light truck loophole, and its problematic 
impacts, can be eliminated because the new size-based system provides 
automakers with added flexibility around larger vehicles.
    Fact: Increasing fuel economy will boost Big 3 profits and create 
more jobs in the U.S. A 2006 study from the University of Michigan 
shows that Detroit's Big Three could increase profits by $1.3 billion 
in 2010 if they invest in fuel economy, even if gasoline costs only $2 
per gallon. However, if they follow a business-as-usual approach their 
lost profits could be as large as $3.6 billion if gasoline costs $3.10 
a gallon.
    There is a real opportunity here. If existing technologies are used 
to reach a 40 mpg fleet in 10 years, we found that these investments 
would lead to 161,000 more jobs throughout the country. In the 
automotive sector, projected jobs would grow by 40,800. These new jobs 
would be created because of investments in new technologies by the 
automakers and because consumers would shift spending away from 
gasoline to more productive parts of the economy.
    Fact: Adding a fleetwide goal to size-based standards addresses the 
key Achilles heel of that system. Size-based standards alone can create 
an incentive to make vehicles bigger to avoid meeting tougher 
standards, even if consumers are not pushing for bigger vehicles. This 
would allow automakers to push down America's fuel economy and increase 
our oil dependence. A fleetwide goal eliminates that incentive by 
requiring all automakers to add technology if they push up the size of 
the fleet. On the other hand, if consumers do demand bigger vehicles on 
their own, they can get them under this system. All vehicles, whether 
large or small, will just have to add more of the existing technology.
    Fact: Fuel economy standards are the only policy currently under 
consideration that will cut consumer spending at the pump. A 35 mpg 
fuel economy standard is equivalent to cutting today's $3 per gallon 
gasoline price by 65 cents, even after paying for the improved 
technology. That represents a 22 percent cut in summer gas prices.
    Gasoline savings would pay for the added cost of fuel economy 
technology ($1,100) in about 2 years. After that, the average consumer 
would save $3,400 more on gasoline over the remaining life of the 
vehicle. Looking at it another way, assuming you are the typical person 
and you take out a loan on the car, your monthly gasoline costs will go 
down more than your monthly loan payments will increase to pay for the 
added fuel economy technology, so you will begin saving money on the 
first day you own the car.
    Fact: Fuel economy standards work. If we still had the same fuel 
economy we did in the early 1970's, we would be using an additional 80 
billion gallons of gasoline on top of the 140 billion gallons we will 
use this year. That would represent an increase in oil demand by 5.2 
million barrels of oil per day, or a 25 percent increase in our oil 
addiction. At last year's average price for regular gasoline, about 
$2.50 per gallon, that represents $200 billion dollars saved. That 
number could have been much better, however, if fuel economy standards 
had not remained essentially unchanged for the past two decades.
    Fact: These standards can be met by putting existing efficiency 
technology to work; we don't even need hybrids, though they certainly 
can contribute.
    Fact: These standards can be met while maintaining or improving 
highway safety. Major reports from researchers at Oakridge National 
Labs, Lawrence Berkeley National Labs, the University of Michigan, and 
DRI demonstrate that fuel economy is not linked with increased 
fatalities, large vehicles do not have lower fatality rates when 
compared to smaller vehicles, and increased weight is actually 
associated with increased fatalities.
    Fact: A 35 mpg fleet can keep the performance we have now. Today, 
you can buy a family car that goes from 0 to 60 mph as fast as a late 
1960s Mustang or Porsche 911. Using technology to increase fuel economy 
will allow us to keep that performance but focus new technology 
applications on the crisis at hand: oil addiction, climate change and 
high gas prices.
    Fact: Consumers are trying to buy cleaner and more efficient 
vehicles, but they don't have many choices. The higher fuel economy 
version of America's top selling car, the Toyota Camry outsells the 
lower fuel economy version by nearly four to one. But even that vehicle 
does not break the 30 mpg barrier for EPA combined fuel economy. The 
auto industry's version of a 30 mpg vehicle is a compact car, leaving 
millions of Americans who need minivans, family cars and SUVs with no 
option.
    Fact: Americans have moved beyond the old debate.

   A recent New York Times poll showed that over 90 percent of 
        Americans support requiring automakers to make more efficient 
        cars.

   The same holds true for people living at the center of the 
        auto industry--a majority of Michiganders favor higher fuel 
        economy standards for cars and trucks, with some supporting 
        increases to 40 miles per gallon or more, and many would pay 
        hundreds of dollars extra for more-efficient vehicles, 
        according to the latest Detroit Free Press--Local 4 Michigan 
        Poll.

   Pickup drivers also want higher fuel economy. A yet to be 
        released poll by the Mellman Group shows that 84 percent of 
        American pickup truck owners support a mandatory increase in 
        the fuel efficiency of cars, SUVs, and trucks--even when it was 
        made clear that they would have to pay more up front to save 
        money on gasoline. These findings held across party lines and 
        were even stronger among owners who live in rural areas than 
        those who live in cities.

    It is time for Congress to move beyond the old debate too.
    Americans are ready to do their part, they want to buy more 
patriotic cars and trucks that cut oil dependence, reduce global 
warming and save them money. What Americans need is leadership from 
you. Requiring higher fuel economy standards will ensure consumers can 
have the choice to buy the higher fuel economy cars and trucks that the 
National Academies say are possible--a 29.5 mpg pickup, a 34 mpg SUV, a 
37 mpg minivan, and a 41 mpg family car. These standards should be 
size-based, but should put in place steps to eliminate or counteract 
any loopholes.
    Nobody is claiming that fuel economy standards are a silver bullet. 
We will also have to tap into low carbon renewable fuels and ask 
consumers to take responsibility for the number of miles they drive. 
Nobody should be allowed to shirk their patriotic responsibility to cut 
our oil addiction and address the high costs climate change will have 
on our economy. But a good dose of common sense fuel economy policy and 
good engineering can deliver the cars and trucks this country needs to 
help tackle these critical problems.
    For further information, I have attached my recent testimony before 
this committee for additional details on these important issues. I have 
also attached a fact sheet on the Ten-in-Ten bill, the National 
Academies report, and the fuel economy potential both for the country 
and for trucks. I hope you find these helpful.

    The Chairman. Thank you very much, Mr. Friedman.
    Admiral Blair?

   STATEMENT OF ADMIRAL DENNIS C. BLAIR, USN (RET.), FORMER 
 COMMANDER-IN-CHIEF, U.S. PACIFIC COMMAND, USN; MEMBER, ENERGY 
 SECURITY LEADERSHIP COUNCIL; OMAR BRADLEY CHAIR OF STRATEGIC 
       LEADERSHIP, ARMY WAR COLLEGE AND DICKINSON COLLEGE

    Admiral Blair. Thank you, Mr. Chairman.
    This afternoon, I'm speaking on behalf--turn it on. All 
right. This afternoon, I'm speaking on behalf of the Energy 
Security Leadership Council. We're a group of 20 business 
executives and retired senior military officers. We're led by 
Fred Smith, of FedEx, and General P.X. Kelley, retired United 
States Marine Corps. And our driving belief is that the oil 
dependency that we have severely threatens the economic and the 
national security interests of the United States. And this is 
one of the most important security issues facing this country.
    In December, we unveiled a set of recommendations to the 
Nation on reducing U.S. oil dependence, and we recommended a 
comprehensive program, specific measurable steps to cut in half 
the number of barrels of oil that we consume to produce a 
dollar of GDP by 2030; that is, to halve the oil intensity of 
this country. And, based on these recommendations, Senator 
Dorgan and Senator Craig have designed the Security and Fuel 
Efficiency Energy Act of 2007, that Senator Dorgan referred to, 
and they recently introduced the fuel economy sections of this 
bill as the Fuel Efficiency Energy Act of 2007.
    And we've already heard the contributions that many 
distinguished Senators in this Committee have made in 
recognizing that transportation fuel efficiency is a vital 
national security imperative. The iron logic is, we import 60 
percent of the 20 million barrels of oil we use every day. 
Seventy percent of that is used in the transportation sector. 
The transportation sector depends on oil. A strategy for 
reducing oil dependency has got to tackle the transportation 
sector. That's not all it has to tackle, but it has to tackle 
that.
    So, under our Council's proposal, we propose that the fleet 
of new passenger cars and light trucks sold in the United 
States each year, the entire fleet, will have to get 4 percent 
better mileage every year than the fleet sold the year before. 
We also would apply the same standards to commercial trucks, 
which have never previously been subject to limitations.
    This 4 percent is not a number plucked out of thin air. 
It's in line with the historical annual gains that we made when 
we took this thing seriously and we last committed ourselves to 
fuel economy, and this has been cited several times. This is 
consistent with technical study results. We can do it.
    We also believe that these new standards have to have 
flexibility. We believe that NHTSA ought to have the discretion 
to establish attribute-based classes of vehicles so that there 
could be a different standard for freight-hauling vehicles from 
that for passenger vehicles.
    We also believe that there ought to be off-ramps. If NHTSA, 
based on expert opinion and data, judges that 4 percent in a 
given year is either technologically infeasible or it endangers 
safety or it's not cost-effective, then they should have the 
ability to change it.
    And so, we believe that this idea of a 4 percent standard, 
vehicle classes based on attributes, and off-ramps gives credit 
to American ingenuity, technological prowess, and it will 
protect business from value-destroying mandates.
    And finally, the legislation that we favor contains a 
variety of consumer and manufacturer tax credits that will help 
car makers and car buyers to adjust to buying cars which have 
greater fuel economy. And this will result in, we think, two 
outcomes. It'll improve our energy security and will also 
provide for a domestic automobile industry that is competitive.
    Now, I personally honor and respect the historical 
contribution to national defense that companies like GM and 
Ford have made. More than half a million ``deuce and a half'' 
trucks carried U.S. troops and their gear around in World War 
II. The Ford's Willow Run plant, by itself, produced nearly 
9,000 B-24s. And we think the American auto industry can 
contribute to the national defense in the future, as it has in 
the past.
    One question we're often asked is, what is a bunch of 
retired senior officers doing getting so worked up about fuel-
efficient cars? And I guess the answer is that we've seen 
firsthand how increasing U.S. dependence on oil from 
underdeveloped volatile areas overseas creates security risks 
for the country. It puts strains on our military forces and 
assigns them expensive missions for which they're the wrong 
instrument of national power.
    When I first joined the Navy, in 1968, the entire U.S. 
military presence in the Persian Gulf was one flagship and two 
destroyers. Now our security policy in the Gulf is dominated by 
the use of major military force units. It's expensive. The 
Persian Gulf is on the other side of the world. It takes over 
three ships to maintain one over there. It takes three 
soldiers, airmen, or marines. You just got back, you're there, 
or you're going. And it's difficult to do it right. When we put 
major force units into underdeveloped volatile countries, it 
has major unintended consequences, rarely turns out to be 
quick, controlled, and short-lived, and our forces there of 
this size with this duration cause local resentments and 
dangers that really work against what we're trying to achieve 
with our overall security policy.
    You look at new sources of oil, like Central Asia, West 
Africa, they're drawing U.S. military forces into similarly 
underdeveloped volatile regions. We can see the same playbook 
being rewritten. We need to find a better approach to oil 
security, and we have to reduce our dependence on overseas oil.
    So, let me tie things back to the policy objectives of this 
Committee. Improved security will require greater conservation, 
as well as increased production of petroleum and alternatives 
here at home. So, improved fuel economy will increase not just 
our energy security, but our military security, our overall 
national security. We'll be less susceptible to being whipsawed 
by events in the Persian Gulf, Central Asia, and West Africa. 
We'll not have to be on a hair-trigger for major military 
involvements in these regions with their expense and all the 
difficulties of doing the mission successfully and extracting 
cleanly.
    So, let me finish by encouraging you to support amendments 
that ensure an aggressive, but flexible, approach to increasing 
fuel economy of the entire--the entire--U.S. transportation 
fleet. The essential elements of this approach are a 4 percent 
annual increase applied to all on-road vehicles, including 
medium and heavy trucks, and containing these off-ramps that 
will protect consumers and manufacturers.
    And we, on the Council, are committed to working with you 
to continue making this an important--getting the work done. 
And we just all feel that it's really time to move and reverse 
this increasing energy dependency, which is endangering our 
national security. We can do it in a bipartisan way that the 
entire country can support.
    Thank you, Mr. Chairman.
    [The prepared statement of Admiral Blair follows:]

   Prepared Statement of Admiral Dennis C. Blair, USN (Ret.), former 
Commander-in-Chief, U.S. Pacific Command, USN; Member, Energy Security 
 Leadership Council; Omar Bradley Chair of Strategic Leadership, Army 
                   War College and Dickinson College
    I would like to thank the Committee for the opportunity to discuss 
fuel-economy legislation from the perspective of national security. I 
speak to you on behalf of the Energy Security Leadership Council 
(Council), a non-partisan group that brings together twenty business 
executives and retired senior military officers who are concerned about 
the perilous state of U.S. and global energy security. We are led by 
Frederick W. Smith, Chairman, President and CEO of FedEx, and General 
P.X. Kelley (Ret.), the 28th Commandant of the United States Marine 
Corps. And we are united in the belief that oil dependence severely 
threatens the economic and national security of the United States.
    On December 13, 2006, the Council unveiled a set of Recommendations 
to the Nation on Reducing U.S. Oil Dependence. This report outlines a 
comprehensive energy security strategy. It replaces the false hope of 
domestic energy independence with strategies for better managing the 
reality of global energy interdependence. The suggested initiatives are 
aggressive while being balanced and credible. Where the market cannot 
be expected to provide solutions, government has been asked to apply 
workable standards capable of spurring the needed private-sector 
responses. The members of the Council have pledged to continue working 
until these policy recommendations are enacted into law.
    During the last few months, the Council has collaborated with 
Senator Byron Dorgan and Senator Larry Craig to design legislation that 
incorporates the central elements of the Recommendations. This 
collaboration has given rise to the ``Security and Fuel Efficiency 
Energy Act of 2007 (SAFE Energy Act),'' which was formally introduced 
on March 14. Senators Dorgan and Craig recently introduced just the 
fuel economy sections of this bill as the ``Fuel Efficiency Energy Act 
of 2007.'' I want to commend Senators Dorgan and Craig for their 
leadership and commitment.
    I also want to thank Chairman Inouye and Vice Chairman Stevens 
along with Senators Feinstein, Snowe, and all others who have 
recognized that increased transportation fuel efficiency is a vital 
national security imperative. Our nation consumes more than 20 million 
barrels of oil per day (mbd), more than 60 percent of it imported. 
Nearly 70 percent of our oil consumption goes to fuel the 
transportation sector. Transportation relies on oil for 97 percent of 
delivered energy with almost no substitutes available. By any measure 
that I know of, such extraordinary dependence is inconsistent with 
national security.
    The Council's approach tackles oil dependence through many 
policies, but none of these is more crucial than reformed and 
strengthened vehicle fuel economy standards. Standards are necessary 
because there is no free market for oil. Oil prices may be a function 
of supply and demand, but the oil market is well removed from the free-
market ideal. As much as 90 percent of all oil and gas reserves are 
held by national oil companies (NOCs) that are either partially or 
fully controlled by governments, not public companies operating in the 
free market. Moreover, the market is highly cartelized, with one 
group--OPEC--setting prices and supply based on a variety of pressures 
including political concerns. The marketplace alone will also not act 
preemptively to mitigate the enormous damage that would be inflicted by 
a serious and sudden price increase. Thus, government must apply 
workable standards capable of spurring private-sector responses.
    Under the Council's proposal, the fleet of new passenger cars and 
light trucks sold in the United States each year will have to get 4 
percent more miles per gallon than the fleet of cars and light trucks 
sold the year before. The same will be true of commercial trucks, which 
have never previously been subject to fuel efficiency standards. The 
proposal gives the National Highway Traffic Safety Administration 
(NHTSA) the discretion to require different percentage increases for 
different classes of vehicles in pursuit of 4 percent annual fuel 
economy improvement for the entire new vehicle fleet.
    These measures will help us reduce the oil intensity of this 
country. Oil intensity--the amount of oil needed to generate a dollar 
of GDP--has been cut in half since the oil shock of the 1970s. The 
result is a U.S. economy that still sees steady growth despite high oil 
prices such as those experienced over the last few years. 
Unfortunately, progress in further lowering oil intensity has slowed 
noticeably in the last decade. We must do better.
    Four percent is not an arbitrarily chosen number. It is right in 
line with the historical annual gains that were achieved when the 
Nation last committed itself to fuel economy. It is also perfectly 
consistent with scientifically-validated forecasts of cost-effective 
future fuel economy improvements. Between 1975 and 1985, the miles per 
gallon (mpg) performance of passenger cars in the U.S. increased 5.5 
percent per year. The figures for light trucks rose 4.2 percent per 
year over the same period.
    In its 2002 study of CAFE, the National Academy of Sciences (NAS) 
concluded that the fuel economy of large U.S. passenger cars could be 
cost-effectively raised by as much 27 percent within a decade using 
available and emerging technologies. For the largest light trucks, the 
potential improvement was 42 percent. The implied potential fuel 
economy for the entire fleet given the existing mix of vehicles was 
30.3 mpg, more than 25 percent above the current figures. 
Significantly, these improvements were premised on the use of existing 
and emerging technologies without altering the average weight, size-
mix, or performance of the fleet. The 2002 study was conducted on the 
basis of gasoline prices of $1.50 per gallon. One of the principal 
authors of the 2002 study, Dr. David L. Greene of Oak Ridge National 
Laboratory, has incorporated today's higher fuel prices into the NAS 
model while holding technology assumptions constant. A retail gasoline 
price of $2.50 per gallon raises the expected cost-effective fuel 
economy of the entire fleet to 33.9 mpg. Even these projections may be 
too pessimistic in light of accelerating technological progress. 
Indeed, since diesels and hybrids did not figure in the cost curves 
utilized for the 2002 study, but are now viewed as promising candidates 
for large-scale introduction in the U.S. marketplace, Dr. Greene is 
optimistic that current fuel economy levels can be raised by as much as 
50 percent--even after applying the same weight and performance 
constraints used in the 2002 study.
    The new standards are designed to be very flexible. For instance, 
pickup trucks may not be able to obtain the same fuel-economy levels as 
SUVs or minivans, but the ESLC proposal does not require them to do so. 
To reiterate, NHTSA will have the discretion to require different 
percentage increases for different classes of vehicles in pursuit of 4 
percent annual fuel-economy improvement for the entire new vehicle 
fleet. Vehicle classes will be determined by key attributes, and under 
this approach it would be perfectly justifiable to hold primarily 
freight-hauling vehicles to a lesser fuel-economy standard than would 
be applied to vehicles designed first and foremost for transporting 
passengers. By assessing multiple attributes, NHTSA can constructively 
classify vehicles to maximize fuel economy while tailoring the 
standards so that pickups will not be forced to compete with sedans 
that are roughly as long and as wide.
    Flexibility is further ensured by ``off-ramps'' that may be 
employed if NHSTA finds 4 percent improvement in a given year to be 
technically infeasible, unsafe, or not cost-effective. These are not 
loopholes, since expert opinion and data will be required to invoke 
them. But, together, the 4 percent annual improvement standard and the 
off-ramps give credit to American ingenuity and technological prowess 
while protecting business from unachievable or value-destroying 
mandates.
    Finally, the proposed legislation contains a variety of consumer 
and manufacturing tax credits that will help car makers and car buyers 
adjust to greater fuel economy.
    Overall, this approach aims for two highly desirable outcomes: 
improved energy security and a competitive domestic automotive 
industry. To improve energy security, America needs to get millions of 
fuel efficient cars on the road. But we will not have a secure source 
of these vehicles without public policies that expedite the needed 
transition of U.S.-based manufacturing capacity. In order to level the 
playing field and enable domestic manufacturers to effectively compete 
in the growing market for advanced-technology vehicles, we support tax 
incentives for the retooling of domestic automobile parts and 
manufacturing facilities.
    Let me say that I recognize and respect the historical contribution 
that car companies like GM and Ford have made to our defense. More than 
half a million GMC ``Deuce and a half'' trucks gave U.S forces in World 
War II unmatched logistical support. Ford's Willow Run plant by itself 
produced nearly 9,000 B-24 bombers that provided the U.S. Army Air 
Corps with much of its strategic punch. I am asking these companies to 
continue this legacy of service to the Nation by embracing the mission 
of improved fuel economy.
    Having outlined the fuel-economy legislation we support, I'd like 
to devote the rest of my time to describing why improvement is so 
necessary. I will do this from a military vantage point, since this is 
where my expertise and knowledge are concentrated. Put simply: the 
increasing U.S. dependence on oil imported from underdeveloped volatile 
regions of the world is putting a strain on our military forces and it 
is assigning them expensive missions for which they're really the wrong 
instrument of national power.
    This problem is best understood by looking at the Persian Gulf 
which is home to the five countries with the greatest proven 
conventional petroleum reserves. When I first joined the Navy in 1968, 
the entire U.S. military presence in that part of the world was a one 
star Navy admiral and two destroyers that would deploy to hold simple 
exercises with Gulf countries. As I recall gas at that time ran 30 to 
40 cents a gallon for my Austin Healey 3000, and the Persian Gulf was a 
rare duty station for members of the armed forces.
    In the late 1970's two serious threats to Persian Gulf oil were 
identified by the Carter Administration, which became seized by the 
issue. The first was a potential Soviet invasion from the north into 
the oil regions around the Gulf, a concern heightened by the Soviet 
occupation of Afghanistan. The second was an aggressive and 
fundamentalist Iran, which was led by a regime that had permitted and 
then exploited the takeover of the American Embassy in Tehran. In 
response, the Department of Defense created the Rapid Deployment Joint 
Task Force, the RDJTF, a planning headquarters and contingency force 
that could quickly deploy to the Gulf to defeat a major land invasion. 
In 1983 as part of its general military buildup against the Soviet 
Union, the Reagan administration upgraded this task force to a regional 
command like the European Command and the Pacific Command, where I 
served and where I ultimately commanded. So this Central Command had 
full time responsibility for U.S. interests in the region.
    Every commander of the Central Command, which was what the new 
organization was called, has had the mission of ensuring the security 
of oil from the Persian Gulf since that time. In response to the 1987 
attacks on tankers by Iran and Iraq as part of their war, the United 
States gave Kuwaiti tankers U.S. registry and provided naval escorts 
for them as well as for tankers of allied nations. So, by 1990 America 
had a functioning military command structure, had deployed major forces 
to the Gulf both for exercises and for combat operations, and had 
established a military commitment to oil security. The military 
component of American security policy in the Gulf region had greatly 
increased, and--as we saw--it crowded out diplomacy, reliance on the 
market, and more indirect instruments of national power.
    U.S. security policy in the Gulf since then has been in the 
headlines, familiar to everyone, and dominated by the use of major 
military force: operations Desert Shield and Desert Storm in 1991; 
during the course of the 1990's the maintenance of Air Force and Navy 
air wings in the Gulf on a full time basis to enforce no-fly zones in 
the north and the south of Iraq; an Army brigade full time in Kuwait; 
periodic bombings of Iraq during that period. And then following 9/11, 
the intervention in Afghanistan and invasion and occupation of Iraq. 
For those of us in the armed forces the operations in this region of 
the world are expensive and tactically problematic.
    As a general rule, the use of large scale military force in 
volatile regions of underdeveloped countries is difficult to do right, 
has major unintended consequences and rarely turns out to be quick, 
effective, controlled and short lived. The Persian Gulf is just about 
on the other side of the world from the United States. It takes more 
than 3 ships in the U.S. Navy to keep one ship on station: one there, 
one going, one coming. Pretty much the same ratio holds for airplanes 
and, as we're learning in Iraq, for soldiers and Marines. You just got 
back, you're there or you're getting ready to go again. A major 
military presence in the Gulf region raises local resentments and 
dangers that work against what we're trying to achieve. This is not 
just a post-9/11 phenomenon. It was true well before 9/11 in terms of 
the effect of major U.S. military forces staged or spending large 
amounts of time in the Gulf region. So after all this major military 
effort, what's the bottom line? Gas is pushing $3 a gallon, we're 
extending the tours of soldiers in the Gulf region to 15 months, and 
we're more subject to events in the Persian Gulf than we ever were in 
the past.
    Now, why has American security policy developed in this way? The 
fast pace of operations in the region has given little pause for 
reflecting on overall trends and effectiveness. American forces have 
been engaged in the Middle East since the tanker wars of 1987, and 
events have seemed to demand increasing our military force, not 
reducing it. But driving this engagement is America's ever growing 
dependence on overseas petroleum. This dependence has influenced 
successive administrations to strengthen military engagement rather 
than to search for other means--perhaps politically more difficult but 
in the long run more cost-effective means--for boosting energy 
security.
    This expensive and somewhat clumsy model is shaping our energy 
security approach in other regions of the world outside the Gulf. 
Consider Central Asia, home to an increasing share of the world's oil 
and natural gas reserves in the future. Already we see recourse to some 
of the early chapters to the same play book we followed in the Persian 
Gulf, 20 and 30 years ago.
    In conclusion, let me tie things back to the policy objectives of 
the Committee: improved security will require greater conservation as 
well as increased production of petroleum and alternatives here at 
home. Put another way, improved vehicle fuel economy will increase our 
military flexibility and our overall national security, not just our 
energy security. We'll be less susceptible to being whip-sawed by 
events in the Persian Gulf, Central Asia and West Africa. We will not 
have to be on a hair-trigger for major military involvements in these 
regions with their great expense and all the difficulties of successful 
mission execution and withdrawal of forces. And we will be in position 
to break the cycle of increasing oil dependence followed by increased 
deployments of major U.S. forces into volatile and underdeveloped 
regions where they are often poorly matched to the mission of oil 
security.
    So let me conclude by encouraging you to support amendments that 
ensure an aggressive but flexible approach for increasing the fuel 
economy of the entire U.S. transportation fleet. In keeping with the 
Council's fuel-economy proposal as it is embodied in the SAFE Energy 
Act and the Fuel Efficiency Energy Act of 2007, future fuel-economy 
provisions should:

        1. require 4 percent annual increases in vehicle fuel economy,

        2. be applied to all on-road vehicles, including medium and 
        heavy trucks, and

        3. contain ``off-ramps'' that will protect consumers and 
        manufacturers by relaxing the 4 percent annual increases if 
        they prove to be too costly, unsafe, or technically infeasible. 
        These are not loopholes, since expert opinion and data will be 
        required to invoke them.

    The Council is committed to working with you in true bipartisan 
fashion to achieve these goals. Our nation deserves no less.

    The Chairman. I thank you very much, Admiral Blair.
    Mr. Stanton?

      STATEMENT OF MICHAEL J. STANTON, PRESIDENT AND CEO,

  ASSOCIATION OF INTERNATIONAL AUTOMOBILE MANUFACTURERS, INC.

    Mr. Stanton. Thank you, Mr. Chairman.
    AIAM and its members have historically taken progressive 
positions on fuel economy, energy security, and global climate 
change. We have consistently supported the need to addresses 
these issues and the auto industry to play a role in this 
process.
    In a 2001 statement before the National Academy of 
Sciences, AIAM recognized the seriousness of these issues and 
urged that consideration be given to the adoption of an 
attribute-based CAFE program. AIAM supports NHTSA's 
restructuring of the light truck CAFE program based on vehicle 
footprint. Although this program is new, we are optimistic that 
NHTSA has promulgated a good final rule. Consequently, we favor 
legislation to authorize similar restructuring of the 
passenger-car standards, leading to the adoption of some form 
of an attribute-based system.
    Such a system is desirable, since it enables NHTSA to set 
standards at levels that are feasible for manufacturers, 
offering different mixes of vehicles and more flexibility in 
responding to changing market conditions. In addition, this 
approach helps ensure that future gains in fleet fuel economy 
will be the result of technology, and not shifts in fleet mix.
    Lead time for any new standards is also critical. Current 
law requires NHTSA to set standards with a minimum of 18 months 
lead time. However, 18 months is sufficient only for standards 
that impose little increase in stringency. For more aggressive 
standards, substantial lead time is necessary to allow for the 
development and implementation of new technology. AIAM 
recommends that NHTSA set standards in 3-year increments and 
provide a minimum of 3-year lead time.
    AIAM unequivocally opposes the adoption of a uniform 
percentage improvement requirement or any other similarly 
discriminatory program such as a specific manufacturer total 
carbon tailpipe cap-and-trade system.
    AIAM supports the elimination of the domestic import fleet 
requirements for passenger cars. This requirement was 
originally intended to inhibit domestic manufacturers from 
importing large numbers of small captive-import vehicles as a 
compliance strategy. In practice, this provision has created a 
disincentive for foreign-based companies to increase the U.S. 
content of their vehicles to levels above 75 percent. This 
disincentive is real, and has cost U.S. jobs.
    We also support enhanced trading of CAFE credits between a 
manufacturer's fleets. The law should allow credits to be 
traded between import and domestic passenger car fleets, if the 
distinction is not eliminated, and between passenger cars and 
light trucks. This approach would maintain the fleet average 
concept central to the determination of compliance under the 
existing law.
    And we also believe the carry-forward and carry-back 
provisions in current law should be extended from 3 years to 5 
years. This will have no adverse effect on fuel savings, but 
will provide additional compliance flexibility. Enhanced credit 
trading has, in fact, been recommended by the National Academy 
of Sciences as a means of increasing manufacturers' compliance 
flexibility while reducing costs.
    AIAM is concerned that State-level fuel economy standards, 
or standards that are functionally equivalent to fuel economy 
standards, would impose severe manufacturing and marketing 
burdens. As a result of the Supreme Court's decision in 
Massachusetts versus EPA, NHTSA has authority to set fuel 
economy standards, and EPA has authority to set emission 
standards. However, we believe that the methods of complying 
with CAFE standards, on the one hand, and with carbon dioxide 
standards, on the other hand, are virtually indistinguishable. 
AIAM favors a national program that avoids separate 
requirements.
    Finally, the effectiveness of CAFE would be significantly 
enhanced if coupled with appropriate market-based incentives 
for consumers. Tax credits for advanced technology vehicles are 
an example of an incentive that is potentially very effective. 
Such credits are helpful in overcoming the high initial cost of 
new technology.
    And thank you for the opportunity to testify today. AIAM 
and its members look forward to working with the Committee as 
it moves forward on this important subject.
    [The prepared statement of Mr. Stanton follows:]

     Prepared Statement of Michael J. Stanton, President and CEO, 
      Association of International Automobile Manufacturers, Inc.
    Good afternoon, Mr. Chairman and members of the Committee. I am 
Michael J. Stanton, President and CEO of the Association of 
International Automobile Manufacturers, Inc. (``AIAM''). I appreciate 
the opportunity to discuss with you today the very important matter of 
legislation regarding the Corporate Average Fuel Economy (CAFE) 
standards program.
    AIAM is a trade association representing 14 international motor 
vehicle manufacturers who account for 40 percent of all passenger cars 
and light trucks sold annually in the United States. AIAM members have 
invested over $35.5 billion in 47 U.S. vehicle plants, component 
manufacturing facilities and R&D centers which employ 92,500 Americans 
with a payroll of nearly $7 billion. AIAM member company U.S. 
facilities produced 3.37 million units in 2005--more than 31 percent of 
total U.S. production. More than half (54 percent) of all vehicles sold 
by AIAM members in the United States are made in the United States.
    AIAM members plan to invest another $3 billion in the United States 
to create 7,000 new American jobs by 2009 by constructing three new 
vehicle assembly plants and an engine plant and expanding existing 
facilities. AIAM companies purchased nearly $52 billion in parts and 
materials from U.S. suppliers in 2005 and that number is growing.
    AIAM member companies have for many years been leaders in offering 
fuel-efficient vehicles for the U.S. market. Historically, vehicles 
produced by our member companies have topped the Environmental 
Protection Agency's (EPA) annual list of most fuel-efficient vehicles. 
Nine of the top ten models on the EPA's Fuel Economy Leaders list for 
2007 are manufactured by AIAM members. Member companies have achieved 
this fuel economy leadership to a significant degree by pioneering the 
introduction of advanced automotive technology into their vehicles. In 
recent years, this leadership has been demonstrated with the 
introduction and popular acceptance of hybrid vehicles and continuously 
variable transmissions and successful development work on other 
advanced technology vehicles including fuel cells. Starting in 1999, 
AIAM members were the first to offer American consumers hybrid electric 
vehicles and have now sold more than a half-million hybrids in the 
United States. For the 2007 model year, AIAM members offer eight hybrid 
models--six cars and two SUVs. Our member companies continue to 
introduce a variety of advanced technology models.
    AIAM and its members have historically taken progressive positions 
with regard to the related issues of fuel economy, energy security and 
global climate change. We have consistently supported the national need 
to address these matters and for the auto industry to play a 
constructive role in that process. In a 2001 statement before the 
National Academy of Sciences (NAS), AIAM recognized that the 
seriousness of energy security and global climate change justify a 
regulatory role for the Federal Government in enhancing vehicle fuel 
efficiency. At that time we urged that consideration be given to the 
adoption of an attributebased CAFE standards system, such as one based 
on vehicle market class, size, or weight. AIAM supports increasing CAFE 
standards through rulemaking by the U.S. Department of Transportation 
(DOT) as a reasonable approach to enhancing national security and 
energy conservation and reducing greenhouse gas emissions from motor 
vehicles. Our support for such standards is conditioned upon the 
standards being technologically achievable, providing manufacturers 
adequate leadtime for compliance, and being established in a form that 
does not discriminate against any segment of the auto industry. We 
prefer the approach of allowing DOT to set the standards, since it 
assures that the standards are analytically based, reflects well-
understood technology developments and statutory considerations, and 
provides an open process for the consideration of public comments on 
proposed standards. It is impossible to predict future fuel prices or 
the rate of technology development. This makes it impossible to 
accurately predict the optimum level for CAFE standards. Thus, it is 
essential that an expert agency, such as DOT, evaluate the pace of 
technology development and fuel prices and adjust the standards, up or 
down, as needed.
    The issue of adequate leadtime for new standards is critical. The 
current law allows DOT to set standards with a minimum of 18 months 
leadtime. However, the 18 month period is sufficient only for standards 
that impose little or no increase in stringency. For more aggressive 
standards, substantial leadtime is necessary to allow for development 
and implementation of new technology, with the most efficient 
technologies generally requiring the longest leadtime. Moreover, given 
the need for substantial in-use vehicle fleet turnover before new 
technology achieves widespread market penetration, the benefits of 
implementation of new technology take significantly longer to 
substantially affect total in-use fuel consumption. In any event, major 
improvements in new vehicle fuel economy cannot be achieved with the 
current statutory leadtime. AIAM recommends that the National Highway 
Traffic Safety Administration (NHTSA) set standards in 3 year 
increments and provide a minimum of 3 years leadtime.
    We generally support NHTSA's recent restructuring of the light 
truck CAFE standards based on size class principles. Although this 
program is new and we have no practical experience with it yet, we 
think NHTSA promulgated a good final rule based on an extensive 
analysis of complex data. Consequently, we favor legislation to 
authorize a similar restructuring of the passenger auto standards 
leading to the adoption of some form of attribute-based system. Such a 
system is desirable since it enables DOT to set standards at levels 
that are feasible for manufacturers that offer different mixes of 
vehicles, and it is more flexible in responding to changed market 
conditions. In addition, future gains in fleet fuel economy will be the 
result of technology and not shifting fleet mix.
    AIAM unequivocally opposes the adoption of a uniform percentage 
improvement (UPI) standards format, or any other similarly 
discriminatory program. Simply stated, such standards represent bad 
public policy. The UPI format has been roundly criticized and 
thoroughly discredited by several respected organizations, including 
two National Academy of Sciences Committees that considered the CAFE 
program, the Office of Technology Assessment, and the U.S. Department 
of Justice. The UPI format would create unique fuel economy standards 
for each manufacturer, based on the manufacturer's performance in a 
base year. The same percentage increase would be required for each 
company, but the actual standards differ due to differences in the fuel 
economy baselines. Under UPI standards, if two manufacturers were to 
produce the same mix of vehicle sizes and technology in the same year, 
one manufacturer could be assessed civil penalties while the other 
could be awarded credits, due to differences in the two companies' 
baselines. We believe that a system that assigns differing compliance 
consequences to the same conduct by two entities is fundamentally 
discriminatory.
    Moreover, a UPI regulatory system would penalize those 
manufacturers that have exceeded CAFE standards, thereby discouraging 
any fuel economy accomplishments above the baseline in the future. The 
approach is also unfair because the currently available technology for 
improving fuel economy might already have been incorporated in the base 
year by the manufacturer that faces the most stringent future-year fuel 
economy requirements, leaving fewer technological options to increase 
fuel economy in the future. In addition, the selection of the base year 
could create arbitrary advantages or disadvantages for the 
manufacturers due to the product mix or technology that was applied by 
the manufacturers in that year. Under a UPI system, manufacturers with 
high average fuel economies would be impeded in entering U.S. markets 
for larger vehicles because such entry--even if they produce more 
efficient larger vehicles than are currently available--could prevent 
them from meeting the new standards. Thus, competition would suffer and 
the fuel efficiency of a whole category of vehicles could be kept 
artificially low.
    AIAM supports the elimination of the domestic/import separate fleet 
requirement for passenger autos. The current law requires dividing a 
manufacturer's passenger automobile fleet into domestic and import 
classes that must comply separately with fuel economy standards. There 
is no similar requirement for light trucks. This requirement was 
originally intended to inhibit domestic manufacturers from simply 
importing large numbers of small, ``captive import'' vehicles as a 
compliance strategy. This provision has created a disincentive for 
foreign-based companies to increase the U.S. content of their vehicles 
to levels above 75 percent, since doing so would place the vehicles in 
a separate compliance fleet. This disincentive is real, not 
theoretical, and has cost U.S. jobs. This domestic/import separate 
fleet requirement has also had the perverse effect of content 
manipulation to move a model from a manufacturer's domestic fleet to 
its import fleet. Attribute-based standards remove any incentive for 
U.S.-based manufacturers to achieve compliance by simply importing 
large numbers of very small vehicles.
    We also support enhanced trading of CAFE credits between a 
manufacturer's fleets. The law should allow credits to be traded 
between import and domestic passenger car fleets and between passenger 
autos and light trucks. We envision this expanded credit trading 
authority as being conceptually consistent with the current authority 
for year-to-year transfer of credits. In the current system, credits 
are calculated as the product of a number of tenths of a mpg by which 
the standard for a class of vehicles is exceeded multiplied by the 
number of vehicles in the credit earning class, with the total credit 
amount thus calculated being available to offset a CAFE shortfall. This 
approach would maintain the fleet average concept that is central to 
the determination of compliance under the existing law. The carry-
forward and carry-back provisions in current law should also in our 
view be extended from 3 years to 5 years. This will have no adverse 
effect on fuel savings but will provide additional compliance 
flexibility. Enhanced credit trading has been recommended by the NAS as 
a means of increasing manufacturers' compliance flexibility while 
reducing costs.
    AIAM is concerned that state fuel economy standards or standards 
that are functionally equivalent to fuel economy standards would impose 
severe manufacturing and marketing burdens on manufacturers due to 
multiple inconsistent design or distribution targets. As a result of 
the Supreme Court's decision in Massachusetts v. EPA, NHTSA has 
authority to set fuel economy standards and EPA has authority to set 
emission standards. We believe that the methods for complying with CAFE 
standards and with carbon dioxide emissions standards are so similar as 
to be virtually indistinguishable. AIAM favors a national program that 
avoids separate state requirements. Congress should address this issue 
as it moves forward.
    The effectiveness of CAFE would be significantly enhanced if 
coupled with appropriate, market-based incentives for consumers. Tax 
credits for advanced technology vehicles are an example of an incentive 
that is potentially very effective. Such credits are helpful in 
overcoming the effect of high initial costs of new technology, 
assisting in stimulating sufficient demand for the new technology to 
allow production volumes to increase to levels where costs begin to 
decrease.
    The energy security and climate change issues are real. AIAM and 
its members look forward to working with the Committee as it moves 
forward on this important subject.

    The Chairman. I thank you very much, Mr. Stanton.
    And now, may I recognize Admiral McGinn.

 STATEMENT OF VICE ADMIRAL DENNIS McGINN, USN, (RET.), SENIOR 
              VICE PRESIDENT AND GENERAL MANAGER, 
   ENERGY, TRANSPORTATION AND ENVIRONMENT DIVISION, BATTELLE 
                       MEMORIAL INSTITUTE

    Admiral McGinn. Thank you, Mr. Chairman, Mr. Vice Chairman, 
members of the Committee. It is an honor to appear before you 
today to discuss the critically important need for tough fuel 
economy standards based on the imperatives of national 
security, energy dependence, and climate change. Today, I'd 
like to talk about the national security impacts of our oil 
dependency right now, not in 10 years.
    In my view, our continued dependence on oil constitutes a 
clear and present danger to our national security, 
economically, militarily, and diplomatically. The United States 
consumes 25 percent of the world's annual petroleum production, 
and we depend on oil to supply 97 percent of our transportation 
needs. Yet we only hold 3 percent of the world's oil reserves, 
and two-thirds of the reserves are situated in that core of 
global instability, the Persian Gulf. Even if we tapped every 
last drop of oil on our soils and off our shores, we could 
still not produce enough to meet U.S. oil demand in the present 
business-as-usual mode.
    Our burgeoning demand for oil weakens U.S. diplomatic 
leverage around the globe, burdens our Armed Forces, and leaves 
the U.S. economy vulnerable to unpredictable price spikes and 
an ever-growing trade imbalance. Taken together, these dynamics 
create a daunting national security challenge that must be met 
immediately.
    Terrorist networks have openly called for, planned, and 
carried out attacks on the global oil infrastructure, because 
they know that oil is the economic lifeblood of the U.S. and 
the world's economy. Just last week, a major oil infrastructure 
attack plan was disrupted by Saudi Arabia at the 11th hour. Had 
it been successful, the adverse consequences would likely have 
been severe, immediate, and felt around the globe.
    Our fine men and women in the Armed Forces serve our Nation 
with honor protecting American interests abroad. The major 
focus of their activities for nearly 30 years has centered in 
the Middle East, a region from which so much of the 
instability, strife, root causes of terrorism, and Persian Gulf 
oil flow.
    The economic impact of our oil dependency threatens our 
national security, as well. We lose $25 billion from our 
economy every month, at a rate of $500,000 a minute. And oil 
imports now account for nearly a third of our Nation's trade 
deficit. Our economy is exposed on a daily basis to oil shocks 
and supply disruptions. Regardless of how they are caused--by 
global market dynamics, natural disasters, terrorist attacks, 
or politically motivated oil embargoes--our economy grows more 
vulnerable each day. The trends of our growing oil demand in a 
business-as-usual mode will make those price shocks much more 
frequent, more deeply felt, and longer-lasting.
    There's a great urgency to reverse this dependence on oil, 
and this urgency is twofold. Our dependency on unfriendly 
regimes is increasing, not decreasing, and the impacts of 
global warming emissions, if not swiftly and significantly 
reduced, will have profoundly negative national security 
impacts. According to top retired military leaders in a recent 
report from the Center for Naval Analysis, global warming poses 
a, ``serious threat to America's national security,'' acting as 
a, ``threat multiplier for instability,'' in some of the 
world's most volatile regions, adding tensions to stable 
regimes, worsening terrorism, and likely dragging the U.S. into 
fights over water and other resources shortages.
    We need to solve our oil dependency problem within the 
context of global warming, and the solution must include tough 
fuel economy standards for vehicles. In this regard, Corporate 
Average Fuel Economy standards have proven to work. After 
Congress set fuel economy standards for vehicles in 1975, our 
dependence on oil imports decreased very quickly, from 46 
percent in 1977 to 27 percent in 1985, even though the price of 
oil fell in 1981.
    Ten years of CAFE progress saved the U.S. billions in oil 
and money. Without those standards that motivated automakers to 
increase fuel economy from the 1975 level to today's average of 
25 miles per gallon, we would be using an additional 80 billion 
gallons of gasoline each year. At today's average price for 
regular gasoline, about $2.75 a gallon, that represents $220 
billion saved. If CAFE had not stalled after 1985, the U.S. 
would have saved additional billions more in oil and dollars, 
especially in light of tremendous advances in technology 
available to improve vehicle fuel economy for both cars and 
light trucks.
    Americans, as has been pointed out earlier, do not have to 
sacrifice safety, comfort, or utility in their vehicles in 
order to achieve much greater fuel economy. The technology 
advances that have been primarily used to increase power and 
weight can now be directed to fuel economy. Data in the 2002 
report on CAFE standards by the National Academy of Sciences, 
that Senator Levin mentioned in the previous panel, on CAFE 
indicate that technology exists to reach 37 miles per gallon in 
a fleet of the same make-up as the one that the National 
Academy analyzed, even ignoring hybrids and cleaner diesels. 
And I would make the comment that in my view, tough CAFE 
standards do not preclude leap-ahead technologies; in fact, 
they motivate the auto industry to produce them.
    One of the most important steps that Congress can take now 
to avert the worst consequences of oil dependency and global 
warming is to substantially raise fuel economy standards. As we 
have in our Nation's past struggles, dedicated and concerned 
Americans from every part of the country want to play a role in 
decisively meeting the energy and environmental challenges 
which we already face and which grow greater every year we 
delay taking action.
    The key questions, in my mind, for this hearing, and as 
various legislative proposals move forward, are: How will the 
actions on CAFE by this Congress be viewed in 10 or 20 years? 
Will we be able to look back and say that a bold, 
comprehensive, and enlightened mandate produced substantial oil 
savings, increased our national security, helped our economy, 
and significantly reduced carbon emissions?
    We have less than 10 years to change our course in 
significant ways. Our Nation's security depends on the swift, 
serious, and thoughtful response to these challenges by you, 
our elected officials.
    Thank you, Mr. Chairman, Mr. Vice Chairman, and members of 
the Committee. I look forward to your questions.
    [The prepared statement of Admiral McGinn follows:]

 Prepared Statement of Vice Admiral Dennis McGinn, USN, (Ret.), Senior 
    Vice President and General Manager, Energy, Transportation and 
           Environment Division, Battelle Memorial Institute
    Mr. Chairman, Members of the Committee, Ladies and Gentlemen, it is 
an honor to appear before you today to discuss the critically important 
need for tough fuel economy standards based on the imperatives of 
national security, energy independence and climate change. Thank you 
for the opportunity to share my views which are based on over thirty-
five years of service to the Nation in the United States Navy and as a 
senior executive presently involved on a daily basis with the science 
and technology of energy, transportation and the environment.
    The rationale and urgency for holding this important hearing was 
clearly underscored by the world's leading scientists earlier this 
month in their warning to the world that we have a short window of time 
to begin reducing our global warming emissions if we are to avert the 
worst impacts.
    Today, I'd like to talk about the national security impacts of our 
oil dependency right now, and not just in 10 years.
    Our continued dependence on oil constitutes a clear and present 
danger to our national security--economically, militarily and 
diplomatically.

   Data from the Energy Information Administration indicates 
        that we imported about 60 percent of our oil and other 
        petroleum products in 2006. Last year alone, our net imports 
        were more than 12 million barrels per day.

   The United States consumes 25 percent of the world's annual 
        petroleum production and depends on oil to supply 97 percent of 
        its transportation fuels.

   Yet the U.S. holds only 3 percent of the world's oil 
        reserves, while two-thirds of reserves are situated in that 
        core of global instability, the Persian Gulf. Even if we tapped 
        every last drop of oil in our soils and waters, we could not 
        produce enough to meet U.S. oil demand.

   As a key leader of the global economic community, we must 
        rely on foreign energy sources, with many of them in hostile, 
        unstable regions, to provide us with our economic lifeblood and 
        quality of life.

   Our burgeoning demand for oil weakens U.S. diplomatic 
        leverage around the globe, burdens our armed forces and leaves 
        the U.S. economy vulnerable to unpredictable price spikes and 
        an ever growing trade imbalance. Taken together, these dynamics 
        create a daunting national security challenge that must be met 
        immediately.

    U.S. oil dependency weakens U.S. leverage, undermines foreign 
policy and leaves us vulnerable to unstable or hostile regimes.

   According to a new Rice University study, 77 percent of the 
        world's 1.148 trillion barrels of proven reserves are in the 
        hands of the national companies; 14 of the top 20 oil-producing 
        companies are state-controlled.\1\

   With oil at $60 a barrel, $500,000 a minute is flowing out 
        of our country, increasing our trade deficit, creating huge 
        opportunity costs and, most significantly, putting money into 
        the hands of some regimes that are hostile to our interests.

   Last year Iran's supreme leader, Ayatollah Ali Khomeini 
        warned that ``if the Americans make a wrong move toward Iran, 
        the shipment of energy will definitely face danger and the 
        Americans would not be able to protect energy supply in the 
        region.'' \2\

   In the southern hemisphere, we seem to be on a collision 
        course with Venezuela's President Huge Chavez over access to 
        some of the most coveted energy resources outside the Middle 
        East. Chavez represents a direct threat to the advances of 
        democracy and free markets in our Hemisphere. The false 
        promises of his populist appeal in Latin America have been 
        compared with the pan-Arabism of Col. Muammar el-Qaddafi of 
        Libya two decades ago.\3\

   Terrorist networks have openly called for, planned and 
        carried out attacks on the global oil infrastructure because 
        they know oil is the economic lifeblood of the U.S. and the 
        world's economy. Just last week, a major oil infrastructure 
        attack plan was disrupted in Saudi Arabia at the eleventh hour. 
        Had it been successful, the adverse consequences would have 
        been severe, global and immediate.

   By enriching the coffers of fundamentalist regimes with our 
        gasoline purchases, we are inadvertently financing, but 
        directly enabling, the spread of a flawed and deadly brand of 
        Islam which is tilting key regions in a more intolerant and 
        dangerous direction.\4\

    U.S. oil dependency burdens our military forces and exacts a huge 
price tag in protecting sea-lanes, military bases of operations and 
maintaining continuous high level of forward presence.

   Our fine men and women in the Armed Forces serve our Nation 
        with honor, protecting American interests throughout the globe. 
        The major focus of their activities for nearly thirty years has 
        centered in the Middle East, a region from which so much of the 
        instability, strife, root causes of terrorism and Persian Gulf 
        oil flow.

   The October 2000 terrorist attack on the USS COLE, while on 
        a refueling stop in Yemen, was a tragic reminder of the 
        convergence of oil, instability, terrorism, and the need for 
        ever vigilant presence by American servicemen and women who are 
        forward deployed.

   Recent energy-market disruptions and increasing awareness of 
        the vulnerability and insecurity of supplies world-wide have 
        added urgency to the U.S. military's efforts to curb its use of 
        oil and other fuels.\5\

   One study estimates that in peacetime the ``true'' cost of 
        oil in a given year is $800 billion dollars, assuming 2004 oil 
        prices.

   Retired Air Force General Charles Wald estimates that if the 
        true cost of military security were incorporated into the price 
        of gasoline, we would be paying between $6.50 and $7 a gallon.

    The economic impact of our oil dependency threatens national 
security.

   We lose $25 billion from our economy every month, and oil 
        imports now account for nearly a third of our Nation's trade 
        deficit. Our economy is exposed on a daily basis to oil price 
        shocks and supply disruptions. Regardless of how they are 
        caused, by global market dynamics, natural disasters, terrorist 
        attacks, or politically motivated oil embargoes, the trends of 
        our growing oil demand in a ``business as usual'' mode will 
        make those price shocks much more frequent, deeply felt and 
        longer lasting.

   Every event overseas--Iran's capture of British soldiers, 
        Nigeria rebels warn of attacks on oil industry--causes our 
        stock market to roil. Just last week, oil prices surged causing 
        stocks to tumble in response to political turmoil and possible 
        election fraud in Nigeria underscoring our daily vulnerability 
        resulting from oil dependency.\6\

   There are nightmare scenarios--much more than conjecture at 
        this point--that are already having an impact on our economy. 
        The Wall Street Journal recently wrote about oil traders' 
        concern over an obstruction of oil traffic through the Persian 
        Gulf. Under the scenario, Iran, in a bid to preempt or respond 
        to U.S. military action, closes the Strait of Hormuz, the 
        Persian Gulf chokepoint through which 20 percent of the world's 
        oil supply passes. The consequence would be swift: by most 
        experts' reckoning, oil prices would soar to $100 a barrel and 
        even higher, potentially plunging the world economy into a 
        depression.\7\

   A Wall Street Journal survey of economists found strong 
        support for government intervention in the transition away from 
        fossil fuels. When asked to pick the greater geopolitical 
        threat to the economy, by nearly a 3-to-1 margin the economists 
        chose a disruption in crude oil supplies caused by tensions in 
        the Mideast over the impact on spending and confidence that 
        could follow a major terrorist attack.\8\

    Our oil consumption puts money in pocket of terrorists.

   Former Republic National Committee Director of 
        Communications Clifford D. May wrote, ``Every time we fill the 
        tanks of our cars with gasoline we put money in the pockets of 
        terrorists intent on killing Americans.'' \9\
There is great urgency to reverse our dependence on oil.
    The urgency is two-fold. As a result of our increasing oil 
consumption: (1) Our dependency on unfriendly regimes is increasing not 
decreasing; (2) The impacts of global warming emissions, if not swiftly 
and significantly reduced, will have profoundly negative national 
security impacts.

    The world oil supply is tightening as demand surges leaving little 
elasticity in a very volatile market and creating increased U.S. 
reliance on the Middle East.

   Energy analysts expect global oil-demand growth to surge 
        this year to an additional 1.39 million barrels a day from 
        growth of 800,000 bpd in 2006, according to a new Reuters' 
        poll. OPEC's biggest producer, Saudi Arabia, may be incapable 
        of raising its production any time soon.\10\

   Government data shows U.S. crude and gasoline stockpiles are 
        much lower than analysts had forecast.\11\

   Oil analysts say that the market has not fully recognized 
        the constraints on oil supply in Venezuela, Iran and 
        Kazakhstan. Other factors favoring higher prices: rapidly 
        rising demand in China and India, and the location of much of 
        the world's oil reserves in politically volatile and unstable 
        countries.\12\

   Mexico's oilfield Cantarell--one of the largest offshore oil 
        fields ever found--is dying, losing a staggering one-fifth of 
        its production, with daily output falling to 1.6 million 
        barrels from two million within the last year. Cantarell, which 
        currently produces one of every 50 barrels of oil on the world 
        market, is fading so fast analysts believe Mexico may become an 
        oil importer in 8 years.\13\

   The continued deterioration of the world's second-biggest 
        field by output puts pressure on prices on the global oil 
        market, where supplies are barely keeping up with growing 
        demand as it is. Our growing dependence would leave the U.S. 
        even more dependent on Middle Eastern supplies--and that much 
        more vulnerable to political tumult in that region.\14\

   Some predict we will reach peak of oil production within a 
        few years, others say peak oil won't arrive until 2030 or 
        later. In either case, our demand is going in the opposite 
        direction while oil is getting harder and more expensive to 
        extract.

    OPEC, which added Angola as its newest member this year, will 
likely see its clout reinforced in coming years as it is poised to 
control more than 50 percent of the oil market in coming years, up from 
35 percent today.\15\
The threat of climate change is a national security matter.
    Climate change acts as a threat multiplier for instability in some 
of the most volatile regions of the world.

   According to top retired military leaders in a recent report 
        from the Center for Naval Analysis, global warming poses a 
        ``serious threat to America's national security'', acting as a 
        ``threat multiplier for instability'' in some of the world's 
        most volatile regions, adding tension to stable regions, 
        worsening terrorism and likely dragging the U.S. into fights 
        over water and other resource shortages. On the simplest level, 
        it has the potential to create sustained natural and 
        humanitarian disasters on a scale far beyond those we see 
        today. The consequences will likely foster political 
        instability where societal demands exceed the capacity of 
        governments to cope.\16\

   Climate change is different from traditional military 
        threats, according to C.N.A. report author Vice Admiral Richard 
        H. Truly because it is not like ``some hot spot we're trying to 
        handle.'' ``It's going to happen to every country and every 
        person in the whole world at the same time.'' \17\

   Not only will global warming disrupt the environment, but 
        its effects will shift the world's balance of power and 
        money.\18\

   Drought and scant water have already fueled civil conflicts 
        in global hot spots like Afghanistan, Nepal and Sudan, 
        according to several new studies. The evidence is fairly clear 
        that sharp downward deviations from normal rainfall in fragile 
        societies elevate the risk of major conflict, according to 
        experts at Columbia University.\19\

   The world's leading scientific panel on climate change--
        including more than 200 scientists and officials from more than 
        120 countries and the U.S.--released its most detailed portrait 
        on the impacts of human induced climate change, predicting 
        widening droughts in southern Europe and the Middle East, sub-
        Saharan Africa, the American Southwest and Mexico, and flooding 
        that could imperil low-lying islands and the crowded river 
        deltas of southern Asia.\20\

   Without action to curb carbon emissions, man's livable 
        habitat will shrink starkly, said Stephen Schneider, a Stanford 
        scientist and IPCC report author. ``Don't be poor in a hot 
        country, don't live in hurricane alley, watch out about being 
        on the coasts or in the Arctic, and it's a bad idea to be on 
        high mountains with glaciers melting.'' ``We can fix this,'' by 
        investing a small part of the world's economic growth rate, 
        said Schneider. ``It's trillions of dollars, but it's a very 
        trivial thing.'' \21\

   James Hansen, a pioneering climate researcher at NASA's 
        Goddard Institute and at Columbia University, says, ``If human 
        beings follow a business-as-usual course, continuing to exploit 
        fossil fuel resources without reducing carbon emissions or 
        capturing and sequestering them before they warm the 
        atmosphere, the eventual effects on climate and life may be 
        comparable to those at the time of mass extinctions.'' \22\

    Ignoring global warming undermines U.S. international leadership 
and influence.

   The United States will emit about 20 percent more greenhouse 
        gases by 2020 than it did in 2000, according to a draft report 
        that the Bush administration was scheduled to submit to the 
        United Nations a year ago. \23\

   Recently the U.N. Security Council held its first-ever 
        discussion of the link between climate change and international 
        conflict. An overwhelming majority of nations voiced grave 
        concerns about climate change and many urged stricter worldwide 
        controls on greenhouse gases. \24\

   The harmful effects of global warming on daily life are 
        already showing up, and within a couple of decades hundreds of 
        millions of people will not have enough water, according to the 
        authoritative IPCC. ``Things are happening and happening faster 
        than we expected,'' said Patricia Romero Lankao of the National 
        Center for Atmospheric Research, a report co-author.\25\

    Climate change, national security, and energy dependence are an 
interrelated set of global challenges. As President Bush noted in his 
2007 State of the Union speech, dependence on foreign oil leaves us 
more vulnerable to hostile regimes and terrorists, and clean domestic 
energy alternatives help us confront the serious challenge of global 
climate change. Because the issues are linked, solutions to one affect 
the other. Technologies that improve energy efficiency also reduce 
carbon intensity and carbon emissions.\26\
    Without swift and serious legislative action and investment, the 
U.S. will continue barreling headlong toward the catastrophic national 
security, economic and human suffering effects of climate change.
    As retired Marin Corps General Anthony C. Zinni, former Commander 
of U.S. Central Command said ``The intensity of global temperature 
change can be mitigated somewhat if the U.S. begins leading the way in 
reducing global carbon emissions.'' He concluded ``We will pay now to 
reduce greenhouse gas emissions today . . . or we will pay the price 
later in military terms and that will involve human lives.'' \27\
Key principles for reducing oil dependence and greenhouse gas 
        emissions.
    First and foremost, the size and speed of the solution must match 
the size and speed of the problem.
    We must solve our oil dependency problem within the context of 
global warming--to do otherwise would be at the risk of our national 
security.
    The solution must include both market and mandates. We cannot do 
one without the other.
    Key players in the global market are already responding to their 
perception of regulation certainty. The right kind of regulations can 
create certainty and spur the market to a much more stable and 
productive future. Leading international businesses, investors and 
industry sectors recognize this fact and are asking for market 
certainty through an effective, long-term cap on emissions.

   ConocoPhillips recently became the first U.S.-based oil 
        company to join ten of the Nation's largest companies, 
        including GE, DuPont and Duke Energy, to call for mandatory 
        cuts in global warming emissions. Such action likely means 
        higher costs for these companies, but they fear the 
        Administration's failure to engage will leave them with a 
        hodgepodge of state and foreign restrictions.\28\

    The solution must include fuel economy standards for vehicles.

   Vehicles are the source of 20 percent of U.S. greenhouse gas 
        emissions and directly account for more than 40 percent of our 
        oil dependency.

   By mid-century, the world's vehicle population is expected 
        to reach 2 billion, almost triple the current figure. To limit 
        global vehicle emissions to 50 percent more than today's 
        levels, the average fuel economy of cars and trucks on the road 
        would have to rise to about 60 mpg in 50 years or less, 
        according to calculations by the Carbon Mitigation Initiative 
        at Princeton University, a research effort funded in part by 
        Ford. Because it takes a decade or two for new technology to 
        make it into every car on the road, all new vehicles within 35 
        years or less would need to reach 60 mpg.\29\

   Yet, as a new report from National Highway Traffic Safety 
        Administration (NHTSA) reveals, the average fuel efficiency of 
        U.S. cars and trucks sold in the 2006 model year showed no 
        improvement from the year before at 25.4 mpg.\30\

    Corporate Average Fuel Economy standards (CAFE) work.

   After Congress set fuel economy standards for vehicles in 
        1975, our dependence on oil imports decreased very quickly from 
        46 percent in 1977 to 27 percent in 1985, even though the price 
        of oil fell in 1981.

   Ten years of CAFE saved the U.S. billions in oil and money. 
        Without standards that forced automakers to increase fuel 
        economy from the 1975 level to today's 25 mpg, we would be 
        using an additional 80 billion gallons of gasoline on top of 
        the 140 billion gallons we will use this year. That would 
        represent an increase in oil demand by 5.2 million barrels of 
        oil per day, or a 25 percent increase in our oil addiction. At 
        today's average price for regular gasoline, about $2.75 per 
        gallon, that represents $220 billion saved.

   Even today, these standards continue to save nearly 3 
        million barrels of oil per day, according to the National 
        Academies of Sciences. Since 1985, however, fuel economy has 
        been stagnant and our imports have grown.

   IF CAFE hadn't stalled after 1985, the U.S. would have saved 
        additional billions more in oil and dollars, especially in 
        light of tremendous advances in technology available to improve 
        fuel economy.

   The United States is falling behind other nations pushing 
        for better fuel economy as concerns mount over global warming. 
        Even China, oft touted as the reason why the U.S. shouldn't 
        act, has tougher fuel economy standards.\31\

    Voluntary action does not work.

   Automakers did not meet voluntary agreements to reduce 
        greenhouse gas emissions in Europe. As a result, the European 
        Commission in Brussels is moving to mandate automakers to limit 
        carbon dioxide emission to an average of 130 grams per 
        kilometer for all new cars by 2012.\32\

    Detroit plays a critical role in reducing U.S. dependency on oil.

   James Hansen of NASA's Goddard Institute and at Columbia 
        University, says that the biggest obstacles to avoiding greater 
        climate disaster are utility plants and motor vehicles that 
        inefficiently use too much fuel. ``Automakers oppose efficiency 
        standards and prominently advertise their heaviest and most 
        powerful vehicles, which yield the greatest short-term 
        profits,'' according to Hansen.\33\

   A recent draft report from the Environmental Protection 
        Agency (EPA) finds that the U.S. transportation sector accounts 
        for about a third of greenhouse gas emissions and is the 
        fastest growing major source of greenhouse gases, according to 
        a recent summary.\34\

   The automotive industry is in a period of unprecedented 
        technology development but up to now, domestic automakers have 
        used technology advances to nearly double power and increase 
        weight by twenty-five percent instead of increasing fuel 
        economy.\35\

   Americans do not have to sacrifice safety, comfort or 
        utility in their vehicles in order to achieve much greater fuel 
        economy. The technology advances that have been used for power 
        and weight can now be directed to fuel economy. Data in the 
        2002 report by the National Academies of Sciences on CAFE 
        indicate that the technology exists to reach 37 mpg in a fleet 
        of the same make-up as the NAS analyzed, even ignoring hybrids 
        and cleaner diesels.\36\

   Paul Portney, Chair of the NAS committee, noted that, ``It 
        might be possible to meet more stringent fuel economy standards 
        at lower costs than the Committee foresaw.'' \37\

    Detroit's future competitiveness requires a more fuel-efficient 
fleet.

   Toyota just unseated GM as the world's number one automaker, 
        shattering several sales records, as domestic automakers 
        continue to lose sales and market share due to an over-reliance 
        on fuel-inefficient cars and trucks, continuing the trend of 
        the last 2 years.\38\

   Dr. Walter McManus, a former GM market analyst now at the 
        University of Michigan, reported recently that if U.S. 
        automakers increased their vehicle fuel efficiency to 
        accommodate increasingly conservation-minded customers, they 
        could collectively increase profitability by $2 billion in 
        model year 2010. Following their current plans, Dr. McManus 
        concluded, they are projected to lose $3.6 billion that 
        year.\39\

    The American people, and Michigan citizens, specifically, want the 
government to take action to reduce greenhouse gas emissions and 
increase fuel economy.

   A new Gallup poll shows overwhelming support to strengthen 
        government restrictions on greenhouse gas emissions and to 
        spend more taxpayer money to develop alternative energy 
        sources, with 79 percent supporting higher auto emissions 
        standards.\40\

   The latest Detroit Free Press-Local 4 Michigan Poll shows a 
        majority of Michigan citizens favor higher fuel economy 
        standards for cars and trucks, with some supporting increases 
        to 40 miles per gallon or more. Many would pay hundreds of 
        dollars extra for more efficient vehicles. When asked how much 
        they would be willing to pay for an 8 mpg improvement in fuel 
        economy for vehicles similar to what they drive now, 47 percent 
        said they would pay $1,000 to $2,000 more, and 20 percent said 
        $500 to $700.\41\

   Forty-six percent of today's car shoppers say the feds ought 
        to force automakers to meet higher fuel economy standards, 
        according to Kelly Blue Book Marketing Research.\42\

   There is ``a significant shift in public attitudes toward 
        the environment and global warming [with] fully 83 percent of 
        Americans now saying global warming is a `serious' problem, up 
        from 70 percent in 2004,'' reports the Yale Center for 
        Environmental Law and Policy.\43\
Policy Recommendations
    We can no longer afford any aspect of energy policy that undermines 
our national security by funneling billions of dollars to our enemies 
around the world, and continues to increase emissions of heat trapping 
gases that cause global warming. Our oil dependence and global warming 
problem require immediate and comprehensive action from Congress in 
order to address both challenges together.
    Scientists warn that we have only a short window for action to 
prevent catastrophic global warming. Delay--as many recent economic 
studies reveal in sharp relief--would make emissions reduction more 
difficult and more costly than action now.
    One of the most important steps Congress can take now to avert the 
worst consequences is to substantially raise fuel economy standards.
    In the immediate term, I urge the Congress to raise vehicle fuel 
economy standards to at least 35 miles per gallon by 2018--the level 
recommended by the National Academies of Sciences and consistent with 
the President's proposal of 4 percent per year improvement.
    By making this level of improvement binding, rather than leaving it 
up to this or future administrations, we could save as much oil as we 
currently import from the Persian Gulf, benefiting our economy and our 
long-term strategic interests.
    Congress should follow key steps to realize substantial oil savings 
and emission reduction benefits from available vehicle technology:

        1. Require at least 35 mile per gallon fuel economy for cars 
        and light trucks by 2018, and regular rate of improvement 
        thereafter.

        2. Give the administration flexibility to restructure the 
        standard, but do not leave goal-setting up to the 
        administration. The only way to ensure guaranteed oil savings 
        is for Congress to direct the Department of Transportation and 
        NHTSA to raise standards to a certain level.

        3. Provide consumers and/or automakers with economic incentives 
        to invest in technology for increasing fleet wide fuel economy.

    Current Congressional proposals will have significant impact on our 
oil dependency.
    As the chart below shows, a 4 percent per year increase in vehicle 
efficiency will produce significant savings and will make real progress 
in reducing our dependency on imported oil.



[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    As next chart shows, while a 4 percent per year path would still 
leave us 7 years behind Australia, 9 years behind China, and more than 
15 years behind the European Union, the 4 percent per year path would 
cut oil dependence, slow global warming, and save American consumers 
billions at the pump.



[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



Conclusion
    Our actions as Americans cannot stop with these measures. As noted 
earlier--the size and speed of the solution must match the size and 
speed of the problem.
    Throughout our history, Americans have successfully met critical 
challenges in both war and peace. Building a new, clean energy economy 
has become one of the great challenges of our time. Together we can 
move our Nation toward clean and secure energy supplies with policies 
that promote energy efficiency and the greatly increased the use of 
renewable energy. As we have in our Nation's past struggles, dedicated 
and concerned Americans from every part of the country want to play a 
key role in decisively winning the energy and environmental victory.

        How will the actions on CAFE by this Congress be viewed in ten 
        or twenty years? Will we be able to look back and say that a 
        bold, comprehensive and enlightened mandate produced 
        substantial oil savings, increased our national security, 
        helped our economy and significantly reduced carbon emissions?
    We have 10 years to change course in significant ways. Our Nation's 
security depends on the swift, serious and thoughtful response of you, 
our elected leaders in Congress.
    Thank you.
Endnotes
    \1\ Krauss, Clifford and Simon Romero. ``In Venezuela, a Showdown 
Looms Over Oil.'' The New York Times (Apr. 10, 2007).
    \2\ Farivar, Masood and Ian Talley. ``Crisis Sparks Oil-Supply 
Fear/U.K.-Iran Standoff/Has Traders Pricing/In Risks of a Disruption.'' 
The Wall Street Journal (Apr. 2, 2007).
    \3\ Krauss, Clifford and Simon Romero. ``In Venezuela, a Showdown 
Looms Over Oil.'' The New York Times (Apr. 10, 2007).
    \4\ Friedman, Thomas. ``The Power of Green.'' The New York Times 
(April 15, 2007).
    \5\ Farivar, Masood. ``Military Seeks Oil Savings/Rising Demand, 
Supply Risks/Spur Conservation Move.'' The Wall Street Journal (Jan. 9, 
2007).
    \6\ McKay, Peter. ``Dow 13000 Takes Detour'' Wall Street Journal 
(April 24, 2007) Wall Street Journal Roundup ``Observers Call Election 
in Nigeria Deeply Flawed'' The Wall Street Journal (April 23, 2007).
    \7\ Farivar, Masood and Ian Talley. ``Crisis Sparks Oil-Supply 
Fear/U.K.-Iran Standoff/Has Traders Pricing/In Risks of a Disruption.'' 
The Wall Street Journal (Apr. 2, 2007).
    \8\ Izzo, Phil. ``Is It Time for a New Tax on Energy?/Economists 
Say Government Should Foster/Alternatives--But Not How Bush Proposes.'' 
The Wall Street Journal (Feb. 9, 2007).
    \9\ May, Clifford D. ``Diversity Can Pave the Road Toward Energy 
Security.'' Scripps Howard News Service (Jan. 25, 2007).
    \10\ Gongloff, Mark. ``Oil Demand Growth to Double; Can OPEC Meet 
It?'' The Wall Street Journal (Mar. 8, 2007).
    \11\ Chambers, Matt. ``Crude, Gasoline Prices Surge/Decline in 
Imports/Helps Cut Reserves; `Temporary Blip'?'' The New York Times 
(Mar. 8, 2007).
    \12\ Bruner, Jon. ``Stock Focus/Sliding Back Into Oil.'' Forbes 
(Feb. 2, 2007).
    \13\ Luhnow, David. ``Mexico Tries to Save A Big, Fading Oil Field/
Cantarell's Drop-Off/Faster Than Expected;/Turning to Technology.'' The 
Wall Street Journal (April 5, 2007).
    \14\ Ibid.
    \15\ Mouawad, Jad. ``Oil Innovations Pump New Life Into Old 
Wells.'' The New York Times (March 5, 2007).
    \16\ CNA Report on ``National Security and the Threat of Climate 
Change'' 
http://securityandclimate.cna.org/report/National%20security
%20and%20the%20Threat%20of%20Climate%20Change.pdf (April 16, 2007).
    \17\ ``Military on Climate Change'' The Washington Post (April 15, 
2007).
    \18\ Informed Reader column ``How Global Warming Will Play With 
Investors'' The Wall Street Journal (March 9, 2007).
    \19\ Revkin, Andrew ``Global Warming Called Security Threat.'' The 
New York Times (April 15, 2007) http://www.ciesin.columbia.edu/pdf/
waterconflict.pdf.
    \20\ http://www.ipcc.ch/SPM6avr07.pdf Kanter, James and Andrew C. 
Revkin. ``Scientists Detail Climate Changes, Poles to Tropics.'' The 
New York Times (April 7, 2007). Jolis, Anne and Alex MacDonald. ``U.N. 
Panel Reaches Agreement On Climate-Change Report.'' The Wall Street 
Journal (Apr. 6, 2007).
    \21\ Max, Arthur. ``Climate report: Poor will suffer most.'' 
Associated Press (April 6, 2007).
    \22\ Brown, Peter and Harry Stoffer. ``The heat is on/How global 
warming is closing in on the U.S. auto industry.'' Automotive News 
(February 7, 2007).
    \23\ Revkin, Andrew, ``U.S. Predicting Steady Increase for 
Emissions.'' The New York Times (March 3, 2007).
    \24\ The New York Times ``Global Warming and Security'' (April 20, 
2007).
    \25\ Associated Press Editorial Reprint. ``Top Scientists Warn of 
Water Shortages and Disease Linked to Global Warming.'' New York Times 
(March 12, 2007).
    \26\ CNA Report on ``National Security and the Threat of Climate 
Change'' 
http://securityandclimate.cna.org/report/
National%20security%20and%20the%20
Threat%20of%20Climate%20Change.pdf (April 16, 2007).
    \27\ Washington Post ``Military on Climate Change'' (April 15, 
2007).
    \28\ Ball, Jeff ``Conoco Calls for Emissions Cap'' The Wall Street 
Journal (April 11, 2007); Murray, Alan. ``Bush Health-Care Plan Finds 
Business Backers.'' The Wall Street Journal (January 24, 2007); 
Barringer, Felicity. ``A Coalition for Firm Limit on Emissions.'' The 
New York Times (January 19, 2007).
    \29\ Brown, Peter and Harry Stoffer. ``The heat is on/How global 
warming is closing in on the U.S. auto industry.'' Automotive News 
(February 7, 2007).
    \30\ Hyde, Justin. ``U.S. Cars Show No Fuel Efficiency Gains'' 
Detroit Free Press (April 24, 2007).
    \31\ Freeman, Sholnn. ``Democrats Plan to Press Automakers on Fuel 
Efficiency.'' The Washington Post (March 10, 2007).
    \32\ Hutton, Ray. ``Emissions row divides carmakers/Europe's motor 
industry can't decide how to deal with tough new limits on carbon 
emissions.'' Sunday Times (March 18, 2007).
    \33\ Brown, Peter and Harry Stoffer. ``The heat is on/How global 
warming is closing in on the U.S. auto industry.'' Automotive News 
(February 7, 2007).
    \34\ http://epa.gov/climatechange/emissions/
usinventoryreport07.html.
    \35\ EPA Fuel Economy Trends Report, 2006.
    \36\ NRC, 2002.
    \37\ Portney, Paul. (February 9, 2005).
    \38\ Chozick, Amy ``GM Slips into Toyota's Rearview Mirror.'' The 
Wall Street Journal (April 25, 2007); Terlep, Sharon. ``Big 3 Sales 
Sink'' Detroit News (April 4, 2007).
    \38\ (http://www.osat.umich.edu/research/economic/
FuelEconStrat.pdf).
    \40\ Saad, Lydia. ``Most Americans Back Curbs on Auto Emissions, 
Other Environmental Proposals/Solid majority opposes drilling for oil 
in Alaskan wilderness.'' Gallup News (April 5, 2007).
    \41\ Hyde, Justin. ``Michigan Poll/Most favor tougher auto mileage 
rules, but not at Detroit's expense.'' Detroit Free Press (March 20, 
2007).
    \42\ PR Newswire. ``More Than Half of Vehicle Shoppers Still 
Affected by Gas Prices.'' Kelley Blue Book Market Research (October 26, 
2007).
    \43\ http://www.yale.edu/envirocenter/yale_epoll2007_pr.pdf.

    The Chairman. Thank you very much, Admiral McGinn.
    Now may I call upon Mr. McCurdy?

   STATEMENT OF DAVE McCURDY, PRESIDENT AND CEO, ALLIANCE OF 
                    AUTOMOBILE MANUFACTURERS

    Mr. McCurdy. Thank you, Mr. Chairman.
    And I thank my colleagues. At one point, I counted six of 
my former colleagues on the panel.
    As an introduction, I want to make it clear that it's the 
view of the Alliance of Automobile Manufacturers that enhancing 
energy security and reducing carbon dioxide emissions are 
priorities to all Americans and the auto industry, which must 
continue to aggressively pursue our innovation agenda.
    In a March 14th House Energy and Commerce Committee 
hearing, CEOs from DaimlerChrysler, Ford Motor Company, General 
Motors, and Toyota all committed to working with Congress to 
find new ways to address the issues of climate change and fuel 
economy. I'm here today to share that message with this 
Committee.
    As a former Member of Congress with an extensive national 
security background--I notice that Admiral McGinn mentioned the 
CNA report; I serve on their Defense Advisory Board--I'm very 
sensitive to how our dependence on foreign sources of oil 
impacts our foreign policy. However, autos are only one part of 
our energy security picture.
    Alliance members support enhancing energy security, 
promoting fuel diversity, and increasing fuel efficiency 
through accelerating the availability of the growing number of 
advanced technology and alternative fuel automobiles in the 
market. Alternative fuel autos, including vehicles that run on 
biofuels, diesel, electricity, hydrogen, natural gas, and 
others, will help our country address the growing concerns 
about U.S. gasoline consumption and oil imports.
    Today 10.5 million alternative fuel vehicles are already on 
the road, and the Alliance members are offering more for sale 
this year. Additionally, there are 60 models of alternative 
fuel vehicles on sale today, up from 12 in 2000, and many more 
models are planned for future production.
    However, many substantial infrastructure and technology 
challenges need to be overcome before the promise of 
alternative-fuel automobiles can be fully realized. Thousands 
of automotive engineers are working on innovative technologies 
every single day, but many promising technologies, such as 
plug-in hybrids and fuel cells, still need significant research 
and development before they will be commercially ready.
    Federal and State incentives for consumers who purchase 
alternative-fuel automobiles and incentives to help expand the 
alternative-fuel infrastructure will help accelerate the 
continued introduction of these highly fuel-efficient vehicles. 
Working together, we believe that government and industry can 
put more alternative-fuel automobiles on our roadways.
    We've been talking about CAFE, enacted in 1975. But, as 
history has shown, the U.S. cannot achieve energy security 
through CAFE alone. CAFE is a one-dimensional and incomplete 
program. Additionally, higher CAFE standards would have no 
near-term impact on gasoline use. First, increases in the size 
of the overall fleet, and the number of vehicle miles traveled 
each year, are far greater influencers of U.S. oil consumption 
and gasoline prices than CAFE requirements. Because CAFE is 
based on the mix of vehicles sold each year, whether a 
manufacturer meets the CAFE standard or not depends both on 
what products are offered and, as importantly, on what products 
consumers purchase. And, while consumers value fuel economy, 
they also want many other attributes in today's vehicles, such 
as safety, passenger and cargo room performance, towing and 
hauling capacity, and others. Our challenge is to develop 
vehicles that combine these attributes with improved fuel 
efficiency and an affordable price.
    Automakers offer close to 200 models that have an EPA 
estimated highway rating of 30 miles per gallon or more; 
however, each year since 2001, American consumers have 
purchased more light trucks than passenger cars. By failing to 
take into account the cost of fuel and consumer buying habits, 
CAFE addresses only one component of the fuel economy equation. 
Consumers value fuel economy, but they typically value more 
attributes of the vehicles that they purchase.
    Regarding S. 357, as well as S. 183 and S. 1118, the most 
important message of Alliance members is very clear. And, Mr. 
Chairman, this may actually come as a shock to some, but we 
support improving fuel efficiency to the maximum feasible 
level. Improving fuel economy is a consumer issue, an economic 
issue, a climate change issue, and an energy security issue, 
and, thus, a priority. The Alliance supports NHTSA obtaining 
the authority to reform the CAFE standard for cars into an 
attribute-based system, as we've heard today. The Alliance, 
however, opposes legislation that is not technologically 
feasible, because of the proposed arbitrary CAFE target and/or 
the proposed arbitrary lead time.
    The Alliance believes Congress should look beyond CAFE, and 
should consider a multisector integrated transportation energy 
policy that motivates all stakeholders to make decisions 
consistent with the shared goal of reducing petroleum imports. 
An effective transportation energy policy needs to foster more 
alternative-fuel choices, especially more low-carbon renewable 
fuels; implement an aggressive program to enhance the 
alternative fuels infrastructure in America; empower the 
research and development community to move us closer to 
breakthroughs on technologies like batteries for full electric 
vehicles, as well as for plug-in hybrids and fuel cells. We 
need to motivate consumers to conserve fuel and to consider 
purchasing one of the many fuel-efficient autos on sale today.
    Today, Mr. Chairman, there is a clear choice before the 
Committee. Policymakers can continue to look backwards, 
reworking a 1970's program that was created in a very different 
world, or policymakers can move forward, focusing on broader 
climate change issues in a rapidly changing world.
    Increasing fuel economy and reducing carbon dioxide 
emissions is a shared responsibility that must include vehicle 
miles traveled, fuel substitution, and vehicle technology. 
Attempts to address concerns about energy security and carbon 
dioxide emissions cannot succeed by focusing only on one 
component of gasoline demand. An economywide approach is 
needed. A market-driven, market-responsive approach is needed. 
Any effective program needs to consider the realities of the 
marketplace.
    And finally, Mr. Chairman, an effective approach needs to 
be comprehensive and nationwide. The United States needs a 
consistent national policy that avoids the marketplace chaos 
that would surely arise from a patchwork of conflicting State 
fuel economy and carbon dioxide mandates.
    Once again, autos are only one part of the energy security 
picture. Broader-based policies in addressing fuels, and the 
use of those fuels by consumers, need to be explored, as well.
    And, Mr. Chairman, we look forward to working with you and 
the Committee, and I'd be glad to take questions.
    [The prepared statement of Mr. McCurdy follows:]

             Statement of Dave McCurdy, President and CEO, 
                  Alliance of Automobile Manufacturers
    Mr. Chairman,
    Good afternoon, my name is Dave McCurdy and I am the President and 
CEO of the Alliance of Automobile Manufacturers. The Alliance is the 
auto industry's leading trade association representing nine 
manufacturers including BMW, DaimlerChrysler, Ford Motor Company, 
General Motors, Mazda, Mitsubishi, Porsche, Toyota and Volkswagen.
    On behalf of our members I'd like to thank you for giving me an 
opportunity to be here today to share with you both the industry's 
progress in, and future challenges to, increasing fleet fuel economy. 
Alliance members share the concerns of our customers, the Congress and 
the American public about fuel economy and carbon dioxide emissions.
    As an introduction, it is the view of the Alliance of Automobile 
Manufacturers that enhancing energy security and reducing carbon 
dioxide emissions are priorities to all Americans, and the auto 
industry must continue to aggressively pursue its innovation agenda. At 
a March 14, House Energy and Commerce Committee hearing, CEOs from 
DaimlerChrysler, Ford Motor Company, General Motors and Toyota all 
committed to working with Congress to find new ways to address the 
issues of climate change and fuel economy. I am here today to share 
that message with this Committee.
    Because the only feasible way to reduce the amount of current 
carbon-based fuel from automobiles is to reduce the amount of fuel a 
vehicle uses, auto engineers are working hard to include a diverse 
range of highly fuel-efficient technologies in new vehicles. Today, 
every model is available with some kind of fuel-efficient technology, 
including direct fuel injection, four cylinder engines, variable valve 
timing, continuously variable transmissions, cylinder deactivation and 
more.
    Automakers are investing significantly in advanced technology 
vehicles powered by electricity, biofuels, diesel, hydrogen and 
compressed natural gas. Still, autos are only one part of the energy 
security picture. Through the Corporate Average Fuel Economy (CAFE) 
program, we are already a ``carbon-constrained'' industry and one that 
is heavily regulated.
    Manufacturers believe that the best way to enhance energy security 
and reduce carbon dioxide emissions is through the use of alternative 
fuels including E85 and flexible fuel vehicles. Today, 10.5 million 
alternative fuel autos that operate with hybrid technology or run on 
fuels like clean diesel, ethanol, hydrogen and others are already on 
the road, and Alliance members are offering more for sale this year. 
Additionally, there are 60 models of alternative fuel vehicles on sale 
today, up from 12 in 2000 and many more models are planned for future 
production.
    Since the 1970s, new vehicles have continued to become more fuel-
efficient. EPA data demonstrates that fuel efficiency has increased 
steadily at 1-2 percent per year on average from 1975 for both cars and 
light trucks. Passenger car fuel economy has more than doubled from 
14.2 mpg in 1974 to 29.8 mpg in 2006 and light truck fuel economy has 
increased by 60 percent since 1974. But as we have noted on many 
previous occasions, the ultimate decisions about what vehicles are 
purchased and how they are driven belong to American consumers.
    And while consumers value fuel economy, they also want many other 
attributes in today's vehicles, such as safety, passenger and cargo 
room, performance, towing and hauling capacity. Our challenge is to 
develop vehicles that combine these attributes with improved fuel 
efficiency . . . and an affordable price.
    The auto industry leads the way when it comes to investing in 
research and development. Automakers are committed to being first to 
market with breakthrough technologies that can produce new generations 
of autos with advanced powertrains and fuels. Automakers are competing 
to bring these vehicles to market, as soon as the technology is 
feasible, affordable and meets consumer expectations.
    The U.S. cannot achieve energy security through CAFE alone. CAFE is 
a one-dimensional and incomplete program. Any transportation energy 
policy must be comprehensive and multi-dimensional to be effective, and 
we believe that all sectors of the economy, not just transportation and 
certainly not just automakers, should strive to reduce petroleum 
consumption.
    The Alliance believes Congress should look beyond CAFE and should 
consider a multi-sector, integrated transportation energy policy that 
motivates all stakeholders to make decisions consistent with the shared 
goal of reducing petroleum imports. An effective transportation energy 
policy needs to:

   Foster more alternative fuel choices, especially more low-
        carbon, renewable fuels;

   Implement an aggressive program to enhance the alternative 
        fuels infrastructure in America;

   Empower the research and development community to move us 
        closer to breakthroughs on technologies like batteries for full 
        electric vehicles, as well as for plug-in hybrids and fuel 
        cells;

   Encourage the U.S. investment community to stimulate 
        economic investments in our future fuels and technologies;

   Involve all levels of government; and

   Motivate consumers to conserve fuel and to consider 
        purchasing one of the many fuel-efficient autos on sale today.
Corporate Average Fuel Economy
    The Corporate Average Fuel Economy (CAFE) program was established 
by Congress in 1975 to reduce U.S. dependence on foreign oil by 
reducing overall fuel consumption. The Energy Policy and Conservation 
Act directed the National Highway Traffic Safety Administration (NHTSA) 
to set national fuel economy standards at the ``maximum feasible'' 
level taking into account key elements such as technological 
feasibility, affordability, safety, emissions controls, consumer 
choice, disparate impacts on manufacturers and effects on American 
jobs.
    For Model Year (MY) 2008, each automaker's fleet must average 27.5 
mpg for cars and 22.5 mpg for light trucks (pickups, vans, minivans and 
sport utility vehicles). For light trucks, NHTSA recently reformed the 
standard setting system for light trucks. Automakers are currently in 
the fourth year of seven straight years of light truck CAFE increases, 
which started in MY 2005 and proceeds through MY 2011.
    When reforming light truck Corporate Average Fuel Economy (CAFE) 
standards, NHTSA used an attribute-based approach that acknowledged 
consumers require different sized vehicles for their business and 
family needs. NHTSA's attribute-based approach addressed some of the 
previous concerns about safety and about inequitable effects on 
different manufacturers arising from the previous ``one size fits all'' 
standards.
    The Alliance supports NHTSA's obtaining the authority to reform the 
CAFE standard for cars into an attribute-based system, but NHTSA should 
not prejudge the issue by assuming that the footprint-based system used 
in the light truck reform rulemaking makes the most sense for cars. The 
Alliance supports a rulemaking process that maximizes consumer choice, 
avoids safety concerns, and allocates the burdens of the CAFE program 
equitably among manufacturers, without injuring competition or any 
individual automaker. Attribute-based approaches, when properly 
designed, can help achieve these objectives, but ultimately, success in 
meeting these objectives depends on the provisions of the program, such 
as the specific attributes or set of attributes that are chosen, the 
level at which standards are set, and the adequate provision of lead-
time. Whatever attributes are considered for cars must preserve the 
diverse types of passenger cars.
CAFE, Consumers and Gasoline Use
    While the CAFE program targets the fuel economy of the new vehicles 
that automakers produce, other factors have dramatically increased 
gasoline use in the light duty fleet. Relatively low fuel costs 
(compared to the rest of the world) coupled with increasingly fuel-
efficient autos have resulted in consumers driving more miles. The 
Department of Transportation documents that ``vehicle miles traveled'' 
(VMT) has increased 40 percent during the timeframe CAFE has been in 
effect, from 10,000 miles per licensed driver in 1977 to almost 14,000 
miles per licensed driver in 2001. Analysts predict that, as auto fuel 
efficiency continues to improve, VMT will continue to increase.
    Higher CAFE standards would have no near term impact on gasoline 
use. First, increases in the size of the overall vehicle fleet and the 
number of vehicle miles traveled each year are far greater influencers 
of U.S. oil consumption--and gasoline prices--than CAFE requirements. 
(Even though the fuel economy of the light duty fleets of vehicles has 
increased dramatically since the 1970s, U.S. demand for oil has not 
declined and imports have increased substantially.) Second, with over 
230 million vehicles on the road and only 17 million new vehicles sold 
each year, it takes 15-20 years for higher fuel economy vehicles to 
displace the ones on the road today.
    Automaker product decisions alone cannot guarantee compliance with 
CAFE standards. Because CAFE is based on the mix of vehicles sold each 
year, whether a manufacturer meets the CAFE standard or not depends 
both on what products are offered, and on what products consumers 
purchase. While the law holds manufacturers responsible for meeting 
CAFE standards, in reality consumer purchases play a huge role in 
determining whether a manufacturer meets, exceeds or falls short of the 
standard in any given year.
    When considering what kind of vehicle to buy, consumers evaluate 
all the different uses they will demand of their new car or light 
truck. Most consumers select vehicles that best serve their peak uses, 
whether carrying kids, carpooling adults, towing trailers, hauling 
supplies, accommodating handicapped, handling adverse terrain and 
weather, addressing recreational needs and/or meeting job/business 
demands--even if these attributes may be used infrequently.
    Automakers share the goal of increasing fuel efficiency as they 
develop vehicles that meet the various needs of American families and 
are committed to offering fuel efficient vehicles in every segment. 
According to www.fueleconomy.gov, automakers offer close to 200 models 
that have EPA-estimated highway ratings of 30 miles per gallon or more. 
However, each year since 2001 American consumers have purchased more 
light trucks than passenger cars. In 2006, for the fifth year in a row, 
pickups, minivans, vans and SUVs outsold passenger cars. More than 53 
percent of all new vehicles purchased last year were light trucks.
    By failing to take into account the cost of fuel and consumer 
buying habits, CAFE addresses only one component of the fuel economy 
equation. Consumers value fuel economy, but they typically value even 
more the other attributes of the vehicles they purchase. As a result, 
when CAFE pushes automakers to add technology or reduce size/weight of 
vehicles, the additional costs involved and the tradeoffs of other 
attributes may not be embraced by consumers. These vehicle decisions 
can have dramatic and adverse competitive implications among 
automakers.
Proposed CAFE Legislation
    Regarding S. 357, as well as S. 183, S. 1118, and S. 767, the most 
important message of Alliance members is very clear:

        We support improving fuel efficiency to the maximum feasible 
        level. Improving fuel economy is a consumer issue, an economic 
        issue, a climate change issue, an energy security issue, and a 
        priority.

    The Alliance opposes legislation that is not technologically 
feasible, because of the proposed arbitrary CAFE target and/or the 
proposed arbitrary lead time. The Alliance also opposes CAFE targets 
that are not based on a balance of objective criteria. When setting 
``maximum feasible'' fuel economy standards for the Nation, Congress 
required NHTSA to gather extensive data on technological feasibility, 
affordability, safety, emissions, consumer choice and effects on 
American jobs. This approach balances the many trade-offs and 
consequences, and it remains a solid policy approach.
    We oppose the provision in S. 357 that would combine car and light 
truck CAFE standards. Starting with the 2010 model year, the overall 
car/truck fleet would face an increase in CAFE requirements of over 40 
percent by 2019. Based on today's 50/50 split between cars and light 
trucks, achieving this level would require the car fleet to reach 
nearly 40 mpg and the light truck fleet to reach nearly 32 mpg. These 
are essentially the same levels of increase that have been proposed 
legislatively in the last three energy bill debates and soundly 
defeated in both the House and the Senate.
    Existing Federal law rightfully separates cars and light trucks in 
the CAFE program by setting differing fuel economy standards for each. 
Cars and light trucks have distinct characteristics, so the two 
programs should not be combined into a single standard, as these 
characteristics are essential and need to be preserved for consumers 
who value different attributes in their vehicles. Combining car and 
light truck standards would raise the costs of many popular utility and 
work-related vehicles, hurting small businesses, trades people, farmers 
and others who are dependent on light duty trucks for their 
livelihoods. However, automakers support both the car and light truck 
programs being based on attribute-based systems, though the attributes 
may differ since cars and light trucks have different characteristics.
Alternative Fuel Autos
    Alliance members support enhancing energy security, promoting fuel 
diversity and increasing fuel efficiency through accelerating the 
availability of the growing number of advanced technology and 
alternative fuel automobiles in the market. Alternative fuel autos, 
including vehicles that run on hybrid-electric technology, clean 
diesel, and alternative fuels like E85 ethanol and hydrogen, will help 
our country address the growing concerns about U.S. gasoline 
consumption and oil imports.
    Federal and state incentives for consumers who purchase alternative 
fuel automobiles can accelerate the introduction of these highly fuel-
efficient vehicles. Working together, we believe that government and 
industry can put more alternative fuel automobiles on our roadways.
    An important provision of the Energy Policy Act of 2005 (EPAcT 
2005) is the increased promotion of renewable fuels in the 
transportation sector. Since 1996, auto manufacturers have been 
producing vehicles capable of using high concentration blends of 
ethanol, including E85. Currently there are more than five million of 
these E85 capable vehicles on the road with nearly one million more 
being added each year.
    And while EPAcT 2005 will help in E85 infrastructure development by 
raising the requirement for the use of ethanol and other renewable 
fuels to 7.5 billion gallons per year by 2012 and providing tax 
incentives aimed at making more E85 pumps available to the driving 
public and helping to reduce reliance on oil imports, we still have a 
long way to go before widespread availability of E85 is achieved. Of 
the more than 170,000 fueling stations nationwide, roughly 1,200 
currently offer E85 to consumers.
    Hybrid-electric vehicles are on sale today and already saving fuel. 
The number of these vehicles will increase substantially over the next 
years. They offer significant improvements in fuel economy, up to 50 
percent, and reduced emissions. These vehicles use electric motors for 
propulsion and to reduce some burdens on the traditional internal 
combustion engine, and they capture usable energy through regenerative 
braking. By 2010, more than 50 hybrid nameplates are expected to be 
available in North America, with volumes approaching one million 
vehicles. Hybrid technology can also be applied to diesels, alternative 
fuel and fuel cell vehicles.
    Vehicles that are powered by clean diesel technology, such as 
direct injection diesels, offer greater fuel economy and better 
performance than conventional gasoline-powered engines. In Europe more 
than 50 percent of all new vehicles purchased are diesel vehicles, 
compared to less than 1 percent in the U.S. Diesel-powered vehicles are 
popular in Europe for several reasons. Economic incentives have been 
established to enhance their appeal. Because of higher fuel costs, 
European drivers tend to put a premium on fuel economy. In the European 
Union, tax policies drive consumers to highly value fuel economy. The 
EU taxes gasoline at $4.02/gallon and diesel at $3.04, which 
incentivizes diesel. In contrast, the U.S. taxes gasoline at $.38 per 
gallon and diesel at $.45 per gallon.
    The EU also prioritizes fuel economy over nitrogen oxides 
(NOX) emission standards. For instance, NOX 
standards for diesel in the light-duty fleet are more than seven times 
higher in the EU than in the U.S. Achievement of U.S.-level 
NOX standards would require expensive after-treatment, 
raising the costs of diesel vehicles, eroding the fuel-economy 
benefits, and reducing consumer demand.
    Recently, ultra-low sulfur diesel fuel (ULSD) that is 97 percent 
cleaner went on sale in the U.S. This new diesel fuel opens the door 
for a new generation of highly fuel-efficient diesel vehicles to be 
sold in the U.S. that will run dramatically cleaner than their 
predecessors.
    These types of vehicles could provide fuel economy gains of up to 
30 percent compared to conventional vehicles. In addition, most diesels 
are capable of running on good quality biodiesel blends of up to 5 
percent (B5) and many are designed to use up to 20 percent or 100 
percent biodiesel fuel (B20 or B100). If all diesel vehicles on the 
road today were fueled with B5 (5 percent biodiesel) we could displace 
1.85 billion gallons of petroleum per year; and 7.4 billion gallons per 
year if B20 (20 percent biodiesel) were utilized.
    Several manufacturers have also announced progress toward the 
introduction of plug-in hybrid vehicles. Once batteries become 
available in affordable power trains, these products may be of interest 
to consumers. Plug-in hybrid-electric vehicles, which are hybrid cars 
with a larger capacity battery, look and perform much like ``regular'' 
cars but they can be plugged into a 110-volt outlet (for instance each 
night at home, or during the workday at a parking garage) and charged. 
Plug-in vehicles can reduce oil consumption and rely on domestically 
produced energy for a greater portion of their operation. Once the 
range of the battery is exceeded, the vehicle will automatically switch 
to a conventional internal combustion engine. Manufacturers are still 
working on several significant issues, including size, lifetime cost 
and recyclability of the battery, but we remain optimistic.
    From a vehicle perspective, hydrogen-powered fuel cells offer the 
greatest potential improvement in fuel efficiency and emissions 
reductions. They also create a great opportunity for eliminating 
dependency on petroleum. However, widespread commercialization of this 
technology and establishment of the hydrogen infrastructure are some 
years away.
    Another promising and enabling technology is hydrogen-powered 
internal combustion engines (ICEs). The concept of using hydrogen ICEs 
offers several advantages: near-zero emissions, maintaining the 
utility, flexibility, and driving dynamic of today's automobile, 
assisting in the development of hydrogen storage technology, and 
developing hydrogen distribution channels and helping to promote 
hydrogen refueling infrastructure.
    While fuel-efficient technologies are on sale today, more 
technology is being developed for possible future introduction. 
Thousands of automotive engineers are working on innovative 
technologies every day, but many promising technologies, such as plug-
in hybrids and fuel cells, still need significant research and 
development before they will be commercially ready.
Conclusion
    Today, there is a clear choice before the Senate Commerce, Science, 
and Transportation Committee. Policymakers can continue to look 
backward, reworking a 1970s program that was created in a very 
different world. Or, policymakers can move forward, focusing on broader 
climate change issues in a rapidly changing world.
    In March, the auto industry testified before the House Energy and 
Commerce Committee to consider the creation of a broad, multi-sector 
cap and trade approach to regulating carbon dioxide. While the Senate 
Commerce, Science, and Transportation Committee is focusing on CAFE, we 
encourage the Senate to consider autos in the context of a broader 
carbon dioxide program. There are strong reasons to do so.
    CAFE alone does not address consumer preferences. In the U.S., 70 
percent of the new vehicles purchased by consumers have a 6-cylinder or 
8-cylinder engine. In the European Union, fleet fuel economy is about 
35 mpg, or the goal of S. 357. But in Europe, 89 percent of new 
automobiles are sold with a 4-cylinder or smaller engine. In the U.S., 
92 percent of new autos are sold with automatic transmissions, compared 
to 20 percent in Europe.
    Vehicle miles traveled (VMT) will continue to increase in the 
United States. VMT is a result of population growth and affluence, two 
factors that policymakers should never seek to restrict. In fact, as 
autos become more fuel-efficient, consumers tend to drive more, which 
ultimately has the opposite effect of increasing gasoline use. CAFE has 
no effect on the price of gasoline, so a broader approach is needed.
    The carbon burden needs to be shared. Reducing carbon is dependent 
on three intertwined factors: VMT (which includes consumers), fuels 
substitution, and vehicle technology. Attempts to address concerns 
about energy security and carbon dioxide emissions cannot succeed by 
focusing only on one component of gasoline demand. Vehicle fuel economy 
will continue to increase as new and improved technologies find their 
way into the market, but vehicle technology alone will not slow the 
growing demand for gasoline in the U.S. transportation sector.
    Clearly, an integrated approach is needed. In 1999, President 
Clinton signed into law EPA's landmark regulations called Tier 2. These 
regulations are noteworthy because for the first time, autos and fuels 
were regulated as a system. Our clean autos needed clean fuels, and the 
higher sulfur fuel sold in the 1990s would have disabled our new clean 
vehicle technology. As Congress considers the broader climate change 
issue, one important goal is to consider fuels and autos together. 
Automakers need to invest to accommodate alternative fuels, and energy 
providers need certainty that more alternative fuel autos will be on 
U.S. roads.
    An economy-wide approach is needed. The costs of reducing a ton of 
carbon dioxide are not the same in every sector. For autos, the costs 
of reducing carbon dioxide are extremely high compared to other 
sectors. The most effective way to reduce carbon, as well as the most 
cost-effective way, may be through an economy-wide cap and trade 
program.
    An economy-sensitive approach is needed. Many segments of our 
economy depend on cars and light trucks. Farmers, tradesmen, small 
businesses and others need vehicles, especially larger cars and light 
trucks, for their livelihoods. Any program that reduces the 
availability of these work vehicles or significantly raises their costs 
represents a burden on the U.S. economy, and especially a burden on 
independent and small businesses.
    A market-driven, market-responsive approach is needed. Any 
effective program needs to consider the realities of the marketplace. 
CAFE can create distortions in the market, depending on the price of 
gasoline. By contrast, incentives in place for the renewable fuels 
program enable competitive pricing of ethanol, which is resulting in 
increased consumer demand for this alternative fuel.
    Incentives are needed to encourage real reductions in carbon 
dioxide. Incentives can encourage consumers to purchase the many 
advanced technology autos on sale today. Incentives can encourage 
energy providers to increase availability of alternative fuels. And 
incentives can reward automakers for high achievement in developing new 
technologies and producing more alternative fuel autos. CAFE, by 
contrast, has few incentives and fails to bring consumers into the 
equation.
    Any effective, broader program to reduce carbon dioxide needs to 
allow for companies to grow and thrive, without imposing provisions 
that would result in job loss. The ultimate goal is real reductions in 
tons of carbon dioxide, not wealth transfer among companies or higher 
cost autos.
    Fuel economy/carbon dioxide targets are important as part of a 
reformed, broader-based economy-wide program, but lead time is 
critical. Some climate change program proposals incorporate a ``step-
down'' approach, which includes reductions over a specified period of 
years, such as every 5 years. This approach provides more certainty to 
manufacturers, and a step-down approach enables an industry such as 
auto manufacturing that requires 5 years to develop and introduce a new 
model, and 7 years to make significant changes to power trains.
    Finally, any effective approach needs to be comprehensive and 
nationwide. The United States needs a consistent national policy that 
avoids the marketplace chaos that would surely arise from a patchwork 
of conflicting state fuel economy/carbon dioxide mandates.
    Once again, autos are only one part of the energy security picture. 
For 30 years we have been a ``carbon-constrained'' industry. Broader 
based policies addressing fuels and the use of those fuels by consumers 
need to be explored as well. To be effective, these policies must 
incorporate all stakeholders, including alternative energy suppliers, 
the R&D community, the investment community, government at all levels, 
and especially consumers. To be successful, the goal of reducing 
petroleum consumption and carbon dioxide must be viewed as a shared 
responsibility.
    I thank the Committee for giving me the opportunity to testify and 
welcome any questions you may have regarding the Alliance positions on 
improving fuel economy and reducing carbon dioxide.

    The Chairman. Thank you very much, Mr. Stanton.
    To demonstrate our interest in this issue, and because of 
the importance of this issue, I'm certain you've noted that we 
have not imposed any time limitation on speaking, and nor did I 
impose any limitation on Senators to speak. And I can assure 
you that this Committee will do its absolute best to try to 
come up with something workable.
    Senator Stevens?
    Senator Stevens. Well, thank you very much, Chairman. I 
congratulate you. I do, too, agree with your concept of letting 
all the witnesses speak fully on the statements. And I'm sorry 
to say I have to go now, but I do want to thank Admiral Blair 
and Admiral McGinn for bringing in the security issue. I hope 
the Senate and the Committee listened to you, because the 
security issue is the turning point on this, as far as I'm 
concerned. And I think if we listen to you, we will get a bill 
that will make some sense.
    I do thank you very much, Mr. Chairman.
    The Chairman. I thank you, sir.
    Senator Kerry?
    Senator Kerry. Mr. Chairman, thank you.
    Thank you, all, on the panel.
    Picking up on what Senator Stevens just said about the 
security issue, Admiral McGinn, I heard you use the reference 
to the 10-year window here. And I think that's a really 
important framework. In my judgment, there's a threshold that 
you've got to begin to, sort of, look at this whole picture 
through, if you will. And that is, sort of, what's driving 
this. Really, we're back here having this discussion, not 
because the, the automatics of 20 years of delay have suddenly 
expired or run their course, it's because a whole new set of 
compelling facts are staring us in the face. And the bottom 
line of those facts is, essentially, if you accept Jim Hansen's 
notion, and the scientific consensus, there's a 10-year window 
here. We have a 10-year window within which to deal with the 
climate change issue appropriately. Now, that's if you accept 
the science. I do. And I accept it, because the feedback that 
we're getting from the predictions made by all of those 
scientists, 2,000-plus strong from 130 countries, is coming 
back at a greater rate and in greater amount than they had 
predicted. So, their alarm bells are ringing.
    Given that, and recognizing that we need a 10-year concept 
here, then if you also accept that you need an economywide cap, 
because the economywide cap is the only way you're going to 
begin to get at all the pieces of this sufficiently to get 
somewhere between a 65 to 80 percent reduction by 2050--and I 
assume it's the 80 percent, frankly, because of the rate that 
things are coming back--therefore, everything's got to be part 
of it, and that includes automobiles.
    One gallon of gasoline, I believe, is about 22 pounds of 
CO2. So, every gallon of gasoline that you don't use 
because you're not driving or you have a more efficient car, 
you're beginning to reduce your CO2. So, that's one 
reason to compel.
    The other is obviously the security issue about who we 
depend on for our fuel, and what we're relying on, and how 
independent America is with respect to that.
    So, let me ask you, based on that, are we able to believe 
that the 35 miles per gallon standard that they want to set, 
fleetwide--let me just say parenthetically here, I accept 
Senator Levin's argument. Senator Levin and I met yesterday. 
I've talked to him over several years on this argument. And we 
had a runaround on this when Senator McCain and I were the 
leaders on the CAFE effort a number of years ago on the floor. 
And I believe there is a legitimate argument, Mr. Chairman, 
that we do have to take into account, about the discrimination. 
It doesn't make sense that a foreign manufacturer can come in 
here and sell a light truck to a greater degree, which gets the 
same mileage, or worse, than an American truck, but they can do 
it, because the corporate average says you've got a whole--your 
fleet has a whole bunch less--you know, you've got a lot more 
small cars, a lot less trucks, so go ahead and sell the trucks, 
and you make up the difference, because we're going to measure 
the whole average. It doesn't make sense anymore. I believe we 
ought to have a nondiscriminatory attribute-based system of 
some kind or another.
    But the question, to come back, is: Is it adequate, is it 
responsible, within the framework of what you're saying, to 
have 35? Senator Stabenow and Senator Levin said that, ``We 
think maybe we ought to be pushing the''--what was the term 
they used? I think--``leap-ahead technology and large 
technology and so forth''--well, one of those leap-ahead 
technologies is obviously a plug-in hybrid, which I talked 
about earlier. I mean, if you've got people who can drive 
around and get 150 miles per gallon today, why can't we leap 
ahead and have a whole bunch more of those vehicles available 
to Americans, which doesn't require them to give up size, to 
give up ability to take the kids to the soccer game, to do all 
the things we've heard about in these arguments for years, but 
could do it at much less cost and greater efficiency? And we 
could provide a $3,000 or $4,000 tax credit, which I, 
incidentally, proposed 3-4 years ago, that would cover the 
entire cost for the consumer.
    So, should we be thinking of a larger concept than 35? And, 
do we get enough of what we're trying to grab out of the 
standard we're talking about here? And, the third part of the 
question is, why won't it do the things that Alan Reuther has 
said it'll do to the industry, in your judgment?
    Admiral McGinn. Thank you, Senator Kerry.
    In my view, CAFE is not--it's necessary, but not 
sufficient. It's a good start. We have to start in a lot of 
areas.
    In terms of breakthrough technologies, certainly plug-in 
hybrids are a key part. I believe Mr. Reuther mentioned that in 
his testimony, that the idea of bringing some of the key 
components that would go into plug-in hybrids to be built here 
so for example we can manufacture longer-lasting, higher-
capacity batteries to extend the vehicle miles on a daily basis 
of plug-in hybrids, reducing the requirement to burn any type 
of liquid fuel, whether it's gasoline or, more importantly and 
more likely in the future, bio-based fuels. I think there's a 
lot that can be done in this country, in terms of the entire 
choice of fuels. This needs to be done beyond gasoline or 
hydrocarbons, in carbohydrate-based fuels, in a way that isn't 
simply, ``Let's make ethanol from corn,'' but, rather, ``Let's 
make ethanol from prairie grass, switchgrass, biomass from 
farms.'' And, I think, also there's a great place for newer, 
high-efficiency diesels. In a plug-in hybrid, the internal 
combustion engine can be literally anything. It can be 
gasoline-powered, diesel-powered, the fuel that goes into it 
can be a whole variety of bio-based or hydrocarbon.
    Senator Kerry. That's--sorry.
    Admiral McGinn. But I think that we need to recognize that 
these technologies are available now, they can be improved by 
American manufacture----
    Senator Kerry. Let me stop you there, just for a minute. If 
they are available now, then what's going to get them out there 
into the marketplace faster? I met with one of the----
    Admiral McGinn. Right.
    Senator Kerry.--Big Three CEOs a few years ago, and I sat 
there and asked that question several years ago, and I won't 
say who it was, but you know what the answer was from the CEO 
of one of the Big Three? ``Well, the American consumer isn't 
asking for it.''
    Admiral McGinn. Yes.
    Senator Kerry. So, we've lost those 3 years, essentially. 
You want to answer that, Mr. McCurdy, you can. I don't want 
to--let the Admiral----
    Admiral McGinn. I would just----
    Mr. McCurdy. Let the Admiral finish. I want to----
    Admiral McGinn. I would just say that incentives, as you've 
pointed out, Senator, are certainly a way to help stimulate 
that market. There are external forces that you also mentioned 
that are--and I have really focused on in my testimony--that 
are really going to influence the market. People understand 
about high gas prices. They really got a dose of it--we got a 
dose of it--post-Katrina. That is not going to get less 
frequent or less intense, it's going to get more frequent and 
more intense. And we live in a very, very dangerous world. The 
threat of terrorism, the threat of political embargoes all are 
real, and the American people understand that, and they 
understand what it can do, right to their pocketbook, on 
practically a daily basis as the prices go higher at the gas 
pump.
    The other point I would make is that as a result of the 
science being more and more consistent, longer-term, things 
like the Intergovernmental Panel on Climate Change reports 
series that is going now, people understand that climate change 
is a real threat, not just in an abstract sense, but in a very 
personal way for us today, and, in particular, when we think 
about our children and grandchildren.
    Senator Kerry. The one part you didn't answer is to Mr. 
Reuther's testimony about this negative impact that it will 
have on the industry.
    Admiral McGinn. I believe it's an opportunity for the 
industry to seize on these technologies, the ones that exist, 
the ones that are about ready to come into production, or could 
come into production, and really do the leap-ahead.
    CAFE will, or rather could be, looked at in retrospect as 
an artifact of an old technology marketplace. If we really, 
really invest, the way that Americans can, the way American 
industry can, in the right kinds of automotive technology, CAFE 
does not preclude great advances in fuel efficiency, it 
motivates them to be produced.
    Senator Kerry. Mr. McCurdy?
    Mr. McCurdy. Thanks, Senator.
    Couple of quick points. You asked the question why some of 
the technology is available. And, actually, Admiral McGinn, in 
his formal statement, quotes a person whom I have a great deal 
of respect, and, having an Air Force background, probably lean 
that way a little bit more--and that's General Chuck Wald. And 
General Wald, who's part of the group, indicated that if you 
factor in the cost of military security into gasoline, that the 
real price of gasoline is somewhere between $6.50 and $7 a 
gallon. And, as a matter of fact, Senator Lugar's Committee 
last year, when he was Chair, had hearings and testimony that 
said it was closer to $10. The price of gasoline--equivalent--
in London today is $6.17 a gallon. The reason that the European 
prices are high are because they have energy taxes. Those taxes 
drive consumer behavior. What's available in Europe today, 53 
percent of the vehicles in Europe are diesel. They're clean 
diesel. It's not the diesel that we used to think about in the 
1980's, and, you know, in the United States. This technology 
could be available. Now, it's having to be certified in 
California, but, you know, we're getting to that point.
    But the fact is, the important factor--and that's what I 
tried to raise earlier--it's one thing to talk about vehicles, 
it's another thing to talk about fuels, which have to go hand-
in-hand. It's why you have to have a comprehensive approach. 
But if you leave the consumer out, I don't believe the market's 
going to work. And the market does have a real role to play.
    And in some of my conversations with the SAFE group, one of 
the concerns I have is that they do not argue--they do not 
believe that gas tax or that the price signals are sufficient 
to drive that consumer behavior. However, within the NHTSA 
criteria, they would like to have a cost factor added on the 
cost-effectiveness that would, in effect, add 50 percent to the 
price of a gallon of gasoline. So, what we see here is a hidden 
tax that--I think it should be much more transparent, and that 
the consumer know what these costs are. We're passing on the 
cost to one sector. And all we're asking is--we're prepared to 
do our share. We had the four CEOs testify. They support real 
movement on climate change and caps. And other groups may say 
they----
    Senator Kerry. But are you suggesting that caps alone is--
would----
    Mr. McCurdy. No.
    Senator Kerry. OK.
    Mr. McCurdy. I think it has to be a combination. There will 
be a performance metric for automobiles that should be applied. 
I don't think it's the old CAFE, but it could be a 
CO2 equivalent grams per mile. That is fair, and 
that is an appropriate way to do it.
    Senator Kerry. I don't want to abuse my time here, Mr. 
Chairman but I do have more questions. But I just--you know, 
again you come back to the 10-year framework, and you come back 
to the, sort of, leadership issue necessary, both on national--
security in terms of global climate change and security in 
terms of supply of fuel and dependency on the Middle East and 
elsewhere. And, incidentally, we're not--that's not--the Middle 
East isn't the number-one supplier. But the bottom line is that 
we have a responsibility to put in place whatever incentives 
are going to bring about that consumer behavior; not wait for 
the consumer, but we have to lead the consumer. And that's what 
I think has been, sadly, absent somewhat in the leadership out 
in--you know, with respect to the designs and what they've been 
willing to embrace.
    Prius, you know, and Insight, are out there like crazy. 
They're selling like mad.
    Go ahead.
    Mr. McCurdy. Senator, I just want to make one comment here. 
For the last 3 months, there have been incentives on hybrids. I 
own a hybrid. And they're great technologies. There are second 
generations that will be occurring. But when I was Chairman of 
the Subcommittees on Armed Services, and Science and Space, and 
the Intelligence Committee--and these gentlemen know it well--
one of the biggest challenges the military faced and NASA faced 
is battery technology. It's power storage. And we still have 
challenges there.
    Senator Kerry. I completely----
    Mr. McCurdy. That is----
    Senator Kerry.--understand that.
    Mr. McCurdy.--where government can, in fact, help a great 
deal. But the fact of the matter is that fuel-efficient 
vehicles today, even at $3 a gallon, are not selling--there was 
early adoption, but there is less demand today for that, and 
manufacturers actually lose money on those sales.
    Senator Kerry. They do, today. And I understand that. But I 
don't think they have to. If we were to put the right policies 
in place, is the bottom line. And also, you know, it depends 
partly on what you're marketing to people. I mean, you can see 
the marketing differential between muscle vehicles and big 
power. We've even gone up in power nowadays. We're--you know, 
this is--it's a question of where your priority is and what you 
want to start to go out and tell--sort of, suggest to people is 
important. And, I might add, I think, from a leadership 
perspective, given what our troops are sacrificing on our 
behalf, it wouldn't have been a bad idea to ask Americans to 
join in this effort. And that might have begun to change 
behavior.
    So, I think there are a lot of options that were available 
to us with respect to that. And I know, from personal 
experience, I own several hybrids, one here in Washington, one 
up in Massachusetts. I would have loved to have been able to 
buy a van. I have a van up there, because I have to run around 
the state with press in the car, and staff in the car, and I 
need the room. I couldn't find the vehicle.
    So, we're not getting the kind of choice that we ought to 
be getting. And I hope that that will change, rapidly.
    Mr. Reuther?
    Mr. Reuther. Senator, there has been discussion about 
incentives to encourage quicker penetration of the advanced 
vehicles. And I just want to underscore, if all you do is have 
enhanced consumer incentives, we're going to lose all the jobs 
associated with producing these vehicles and the key 
components. What we need is to have a manufacturer's incentive 
that says, yes, here's assistance that's going to make it 
cheaper, and so we get the vehicles in quicker, but we want to 
tie it to the work being done in this country, so we also keep 
the jobs.
    Senator Kerry. As you recall very well, Alan, because you 
and I worked together closely on all of this, my proposal in 
2004 was to put $1 billion on the table immediately for the 
retooling for the industry to assist in that, and $2 billion 
directly into some of the clean technologies so we could 
accelerate this development. We are playing at the margins 
right now, in terms of what is really the national emergency, 
urgent issue. It's not being treated that way. Now, hopefully 
we have an opportunity--we do have an opportunity, and the 
Chairman's leadership--and I appreciate it enormously, because 
this hearing is important and long overdue.
    The last question, Mr. Chairman, Mr. Friedman, or anybody 
on the panel, again, I think there are a lot of opportunities 
here. I think there's an enormous amount of money to be made. I 
think we can resuscitate the industry. I think there's just a 
brilliant opportunity staring us in the face, with the right 
marketing and the right joint venture partnership here. Mr. 
Reuther is articulating concerns about what this does to the 
industry if we don't put these other pieces in place. Do you 
accept the notion that we also have a responsibility to try to 
put these incentives and cushions in place in order to 
facilitate this transition?
    Mr. Friedman. Well, I think you've actually heard a 
remarkable amount of agreement today. Everyone says cars need 
to do something, but so does the rest of the economy. And I 
think you will probably get a lot of agreement that we need 
incentives. Automakers are going to be able to increase profits 
by selling higher fuel economy cars and trucks. Why? In part, 
because if consumers are spending less money on gasoline, they 
can buy better cars, they can buy more expensive cars. They can 
also, maybe, rent an extra DVD or also spend some time creating 
jobs in other parts of the economy. But, at the end of the day, 
increasing fuel economy will increase profits and increase jobs 
in the auto industry.
    Are there going to be transition costs? Absolutely. Are you 
going to need to make investments in technology? Absolutely. Is 
there a role for the Government to play to help industry making 
those investments? Absolutely. Consumers are in a position to 
save tens of billions of dollars a year. Consumers' savings 
will dwarf the investment cost to the auto industry. So, it 
absolutely makes sense for consumer tax dollars to help the 
industry along the way.
    It also makes sense to recycle some of those tax dollars to 
help steer consumers toward better vehicles. I think part of 
the challenge here is, we absolutely need to address all parts 
of the issue, but you've got to start. You've got to start 
walking before you run. And the way you start is by raising 
fuel economy standards.
    I sat before you, about 6 years ago, December of 2001, 
talking about this very issue. You were chairing this 
Committee. And we were talking about 40 miles per gallon back 
then. We've gone backward in some ways, despite the fact that 
technology has gone forwards. So, absolutely can we do more.
    Can we switch to fuel-cell vehicles tomorrow? No. Can we 
switch to plug-in vehicles tomorrow? No. These are really 
exciting technologies, and they will have a substantial role to 
play 20 or 30 years from now. Ten years ago, I helped build a 
plug-in hybrid vehicle while I was studying engineering in 
graduate school. We took a Ford Taurus, we converted it into a 
plug-in, and we got over 60 miles per gallon. Clearly, it can 
be done. But right now, the batteries are too expensive, and 
they don't last long enough. You can do it in small volume, but 
not yet in large volume.
    Fuel-cell vehicles are too expensive right now. But that 
doesn't mean we should stand still. We should invest in that 
technology. But in that 10-year window you talked about, the 
single biggest thing that we can do to cut our oil dependence 
and reduce global warming pollution is to invest in auto 
mechanics, is to invest in engineering, it's to take these 
simple steps with technologies automakers have already 
developed, that can raise fuel economy standards, by our 
analysis, to 40 miles per gallon over 10 years. I'll take 35 to 
start, but we can definitely go farther.
    I also, just quickly, in mentioning the price issue, I have 
to say that I'm a little concerned. It's a little disingenuous 
to hear the auto industry talking about gas prices, when I 
don't really hear the auto industry lobbying to raise gas 
taxes. It also concerns me a little bit that the auto industry 
is talking about Europe, where gas prices are higher, and they 
absolutely are, and fuel economy is higher, but it's not high 
enough. The European Union is setting standards to reduce 
global warming pollution from cars and trucks, because their 
prices haven't been enough. So, even $6 a gallon gasoline in 
Europe isn't enough. Before we raise prices for consumers, 
let's save them money. Maybe down that road we'll need to 
invest money in highways and make sure that we can do that, but 
let's start off by saving consumers money, providing them 
incentives, and getting better fuels out there.
    Senator Kerry. Thank you very much.
    Mr. Chairman, thank you for the time. And, as I close, I'd 
just mention, I hope we will work through this issue. You know, 
I don't know which one we're going to wind up with, or where, 
but I just have a concern about the off-ramp piece, just given 
the record and experience we've had on NHTSA and so forth. I 
think we've got to really be firm here, and strong. So, I want 
to work through it. I talked to Fred Smith earlier today, and 
want to follow up on how we might think about it.
    But, Mr. Chairman, thank you very much. You've been very 
generous with the time. And I thank my colleague from Delaware 
for his patience.
    The Chairman. Thank you.
    Senator Carper?
    Senator Carper. Thanks, Mr. Chairman.
    To our witnesses, welcome, and thank you very much for 
joining us today, and, for some of you, for joining us in 
recent days and weeks.
    Mr. Friedman, just a quick thought that comes to mind. Did 
you say it was 10 years ago that you and some of your 
colleagues in graduate school worked on a--did you say it was a 
hybrid?
    Mr. Friedman. A plug-in hybrid----
    Senator Carper. Plug-in hybrid on a--the Ford Taurus?
    Mr. Friedman. On a Ford Taurus, exactly.
    Senator Carper. I'm just wondering why Ford didn't hire 
you. Maybe if they had hired you and some of your friends, we'd 
still be making Ford Tauruses in this country, and selling them 
around the world.
    Mr. Friedman. Well, frankly, there are a lot of really 
talented engineers in the auto industry. They don't need me 
there. They've got a lot of great engineers who have already 
developed a lot of this technology. But, even then, we knew 
that that plug-in wasn't quite ready. But some of the 
technologies we put in that vehicle were ready. In fact, that 
vehicle was produced by Ford and made out of aluminum. The auto 
industry had the technology to cut the weight out of cars and 
trucks while maintaining, or even improving, safety, and 
increasing fuel economy. We also put in a more efficient engine 
design at that time. Many of those technologies are still here. 
The challenge I think we've heard before is, for the last 10 
years--and really for the last 20 years--most of that 
technology has gone to nearly doubling the power of our cars 
and trucks. A family car today--you can buy a family car that 
accelerates as fast as a late-1960s Mustang or a late-1960s 
Porsche 911. That's great. Let's keep it. That's what we did 
for the last 20 years. But let's spend the next 20 years taking 
the technology we've got to increase fuel economy.
    Senator Carper. Good. Thank you for that comment and for 
your insights.
    Mr. Chairman, there are just a couple of things I want to 
get off my chest, and then I want to ask a question or two.
    And some of the folks in the audience here have heard me 
say this before. I would just ask you to be indulgent with me.
    Lee Iacocca has a new book out. I think it's, maybe, 
titled, ``Leadership''. And he was interviewed recently on NPR. 
They were talking about the auto industry and how we ended up 
in the situation where we have figured out how to lose market 
share, close plants, lay off employees, and lose a ton of money 
over the last 10 or so years, even longer than that. And he 
said--I'll paraphrase him--he said we weren't very smart. What 
he actually said, I think--I'm told he said we were very 
stupid. And, you know, it's easier on this side of the dais, 
looking at the industry. But we could have gone to flexible 
manufacturing, where you'd make not just one vehicle in a 
plant, but maybe two, maybe three, maybe four; you'd be able to 
vary your production for the different vehicles in accordance 
with what's being demanded by the marketplace. Or you'd have a 
pilot vehicle that you're working on, we could have done that. 
Frankly, we're sort of, ``Johnny come lately's'' on it.
    Alan Reuther says, with great precision and accuracy, we 
spend a whole lot more money on healthcare for the folks that 
are building a--we'll say, a Durango that we build in Newark, 
Delaware, compared to what they spend building a similar kind 
of SUV in another part of the world.
    Having said that, though, there are a lot of things we can 
do to reduce the cost of healthcare in this country, and I'm 
just going to go through a real quick list, real quick. We can 
harness health information technology. We can incentivize folks 
to actually take better care of themselves, to exercise, to eat 
the right foods, to not smoke, not drink to excess. We can do 
those things. We can do a better job of chronic disease 
management. We can adopt things like stem cell research, 
whether you want to get embryonic stem cell or different kinds. 
We can build more community-based health centers so that folks 
have, right in their communities, access to healthcare, that 
they're not using the hospital emergency rooms. We can put 
employee-based health clinics for primary healthcare right in 
places where folks work. We can institute pay for performance, 
where we actually are paying for better healthcare and better 
results. We can actually use the mapping of the human genome to 
develop what I call boutique drugs that target in on certain 
populations that are going to be helped more by small molecule 
or large molecule drugs. We can help incentivize the creation 
of small business purchasing pools to enable small businesses 
to have the kind of advantages that we have as Federal 
employees. We can better inform consumers in consumer-directed 
health insurance, about health savings accounts, so they'll 
make the right kinds of decisions. We can help bring down the 
cost of defensive medicine. We can do that. It's not just the 
folks sitting here on this panel, but the industry, the 
economy, a lot of our folks. There's a lot that we can do.
    If we're really smart, the auto industry and other 
industries in this country will figure out how to do a variety 
of those, to help rein in the grown of healthcare costs. And I 
hope we'll be that smart.
    I want to--under the banner of ``we weren't very smart,'' 
go back to Lee Iacocca. I remember a conversation I had with 
the leader in one of our Big Three auto companies back in 2001. 
I think, Mr. Friedman, you talked about testifying for a panel 
that Senator Kerry was a part of. That same year, I remember 
being in Detroit, meeting with the leader of one of our auto 
companies, I said to him, ``Doesn't it frost you that we're 
letting Honda and Toyota steal an environmental march on you, 
and we're not creating, really, any product to compete in that 
sector, something highly energy efficient?'' And he said to me 
at the time, he said, ``You know, for every Prius that they 
build over at Toyota, they're going to lose $20,000.'' They may 
lose some money on Priuses but one of the things they do is use 
that to draw people into the showrooms. And if they don't buy a 
Prius, they buy something else. That's smart. And our friends 
at GM have learned how to build Pontiac Solstices, at a loss. 
They build them in Wilmington, Delaware. They don't make money 
on them, but it brings a lot of people into Pontiac showrooms, 
and they buy something else. They've learned how to build 
Saturn Skyes. They lose a little money, I believe, on the 
Saturn Skyes, but it sure brings a whole lot of people into the 
showroom. I think maybe Toyota figured that out with the Prius. 
Eventually, they may be smart enough to figure out how to make 
money on them. They're also smart enough to figure out how to 
make not one vehicle in a plant, not two vehicles--maybe not 
three--but maybe four. We ought to be that smart, as well.
    Under the banner of ``we weren't very smart,'' same 
company, someone--a fairly senior guy there said to me--we were 
talking about energy efficient vehicles, and he said, ``Well, 
we're going to put our eggs in the fuel-cell basket.'' This is 
6 years ago. ``We're going to put our eggs in the fuel-cell 
basket, because that's where we think the future lies.'' And 
I'd say, ``Shouldn't there be a bridge to the future? Maybe, 
shouldn't there be something like a hybrid or like a flex-fuel 
hybrid, or a plug-in hybrid bridge to the future?'' At the 
time, 6 years ago, ``No, the future is fuel cells, and that's 
where we're going to invest our money.'' To their credit, the 
hottest car I saw unveiled at the Detroit Auto Show this year 
was the Chevrolet Volt. A great-looking vehicle. It's smart. 
It's not just a plug-in hybrid. It recharges the battery by 
putting on the brakes. It's a plug-in hybrid with a flexible-
fuel power generator with it. The battery runs the wheels and 
you recharge the battery when you put on the brakes. You also 
recharge the battery with a fuel-cell power system onboard, or 
a diesel-powered system, or an internal combustion engine 
onboard. They're always recharging the battery. That is so 
smart. And as some of you have said, the impediment for us is: 
How do we--play catchup with the Japanese and others on the 
battery technology? And we're going to come back to that in 
just a moment.
    But the idea for us to have been saying, 6 years ago, 
``We're going to put all of our eggs in the fuel-cell basket. 
There doesn't have to be a bridge to the future''--now we 
realize there does. We're just behind the eight ball.
    And last rant and then I'll get over it, and then I'll, 
maybe, ask a question or two. We have a DaimlerChrysler plant 
in my state. It's in Newark, Delaware, just south of the 
University of Delaware, right off of I-95. When I was State 
Treasurer, a million years ago, I actually negotiated a State's 
loan to Chrysler to help--along with other states and the 
Federal Government--to help save the company when it was about 
to go under. This is something I care about a whole lot, and 
have thought about a whole lot. That's a plant that has been on 
the bubble for a long time.
    2001, my first year, I had just stepped down as Governor, 
been elected to the Senate, 2001, and had a meeting here in 
Washington. Senator Biden, Congressman Castle and myself had 
the privilege of meeting with a number of the folks from 
DaimlerChrysler. At the time DamilerChrysler was saying, 
``We're going to try to figure out whether to build a second-
generation Durango, and where to build it, if we do.'' And the 
great news they shared with us that day: they're going to build 
a second-generation Durango. We were delighted. The first one 
was being built in Newark, Delaware. They said, ``We're going 
to build the vehicle in Delaware,'' so that was great news. And 
they said, ``The third piece of good news is that we're going 
to offer a hybrid option starting in 2004.'' Bingo. It was like 
the hat trick, it was a triple play. And we were delighted, and 
left the meeting. A year later, we got back together with the 
same folks, you know, from DaimlerChrysler, ``Still going to 
build a second-generation Durango, still going to build it in 
Newark, Delaware. We're not going to offer a hybrid option.''
    Now, last year, when gas prices rose over $3 a gallon, it 
was about 150-day inventory of unsold Durangos in dealer lots 
across the country. You know, we're really--Iacocca's right, 
sometimes, not very smart. Smart thing, though, that we did 
in--on the tail end of that is, our friends from GM, 
DaimlerChrysler, BMW got together, created a partnership, a 
consortium, and now that partnership has led to the creation of 
a new next-generation hybrid. They're going to be in Dodge 
Durangos next year. They'll be in Chrysler Aspens next year. 
That's wonderful. It's too bad they weren't in them 2-3 years 
ago.
    All right, I've got that off my chest. Thank you for 
bearing with me. That'll give us all something to think about.
    One of the great values of having panel like this--and I 
thought about this when Senators Levin, Feinstein, and Stabenow 
were before us--I thought, if we could get the three of them to 
agree on a path forward, we could probably get something done, 
and something good for our country. Just sitting here today, 
Mr. Chairman, looking at this panel, I'm thinking, you know, if 
we can get this panel to agree on a path forward, it would 
probably be pretty good for our country and for the industry, 
as well.
    As I've listened to y'all speak here today and our Senators 
before you, a couple of things have come to my mind that we 
agree on. I want to ask, Are we in agreement on this?
    One, I think we agree that the status quo is unacceptable. 
I think we agree that we have a great deal at stake here, in 
terms of our national security--not just our economic security, 
but our national security. I think we agree on that. I think we 
agree that we need to get started, sooner rather than later, 
but there's a need to acknowledge that there are start-up 
delays because of technology. You just can't turn a crank and 
do this overnight, produce the vehicles overnight, because of 
the--R&D, engineering, developing the parts, and so forth. But, 
over time, we can do better. But we need to get started. I 
think we agree on that.
    I think I heard consensus here today that for manufacturers 
that do get started earlier, they ought to get credit for early 
action. I think I heard consensus on that.
    I think I heard consensus on the need for whatever approach 
we take, whether we take the attribute approach--which I think 
makes sense, and I think others do, too--that there be some 
exit ramps. In case we have missed something here, if the world 
changes in some way that we haven't thought about, that there 
are sort of escape valves--not easy ones, but real ones. I 
think, for the most part, I've heard us say that.
    I think that we agree on the need to have not just a focus 
on, fuel efficiency, but also this issue of vehicle miles 
traveled. We've got to think about not just how much fuel we're 
using in our vehicles, but how do we get people out of their 
vehicles sometimes. How do we actually deal with land use to 
promote that? I think I heard us agree on biofuels, say we need 
to turn some of those cornfields into oil fields, and some of 
those soybeans into oil fields. I believe I heard a number of 
people say that.
    A couple of you talked about a way to sort of morph from a 
CAFE-based approach to a more of an economy-wide approach that 
deals with CO2--to find a way to morph from one to 
the other as a good approach. I think I heard folks say that.
    Here's my question. Did I misstate any of those? In terms 
of things that we agree on. Secondly, how do we not just say to 
the industry, ``We're going to have this tough-love approach 
with you on fuel efficiency and trying to change gears here''? 
How do we help them? How do we help the industry? I know Mr. 
Reuther has called for us doing a good deal more on healthcare. 
I'm going to set that aside for right now. But how do we help 
the industry, especially the domestic industry?
    I think I've heard some of you say, ``Invest in new battery 
technology. It's one of the best things we can do.'' Does it 
make sense for us to try to find a way to include in the 
legislation that we're going to take to the floor or bring up 
on the floor authorization for significant new investments 
over, maybe, a 5-year period of time, but a multiyear period of 
time, in new battery technology? Does it make sense for us to 
include in the legislation that we move, either out of this 
Committee or on the floor, biofuel standards, to actually 
create a biofuel standard for--B20 or B30 fuel for greater 
biofuel content in our diesel? Does it make sense to try to 
include some adjustments of our tax credit for low-emission 
diesel so that--for example, does DaimlerChrysler, whose 
BLUETEC technologies is actually going to produce--is producing 
a Bin8--not Bin5, but a Bin8 emission vehicle? Does it make 
sense to try to move up their eligibility to use Bin8 as a 
basis for consumer tax credit?
    Finally, does it make sense for us to include in the 
language we take to the floor further incentives, for the 
creation of additional biofuels? I'll tell you what I have in 
mind. Not just how we turn corncobs into ethanol. How do we 
turn cellulosic materials into ethanol? Also, how do we develop 
follow-on biofuels, like biobutanol? At the DuPont company, do 
you know we're making biobutanol out of sugar beets? We can 
make it out of switchgrass and a lot of other waste materials. 
Should we use this legislation as a way to incentivize not just 
R&D on that stuff, but to actually commercialize the 
technology?
    What do we append to this legislation of the, four areas 
that I discussed, things that can actually help the industry, 
but also help reduce our country's dependence on foreign oil?
    Thank you.
    Mr. Reuther. Senator, if I could say I think assistance 
with battery development is important, but I don't think that 
should be the only thing. The retooling costs that the 
companies are going to have to incur to meet significantly 
higher CAFE standards are very large, and I think there's a 
role for this Committee and the Senate to play in helping to 
provide that assistance through loan guarantees or otherwise.
    Yes, we've talked about healthcare, but it's not just 
healthcare, it's the whole range of retooling costs. And, you 
know, there has been a lot of talk on the panel in--today about 
the national security importance of reducing oil consumption. 
And we agree with that. But if you're talking about national 
security, that's something that benefits the whole country, and 
we share the cost of our national defense. And we think a 
similar rationale applies here, that we should be sharing, as a 
country, the cost of having the industry have these retooling 
costs, not have the costs all borne by the workers and retirees 
in the industry.
    Senator Carper. All right, thank you. Again, let's just say 
to the panel, my questions--just so we're clear--of those 
things--I went through about eight or nine elements of things 
that I thought we agreed on, or I think we--I heard us agree 
on. And I want--did I miss something? Did I misstate something? 
And next, in terms of reporting language out of here, a bill 
out of here next week, to go to the floor, should we try to 
append to it some of the--I mentioned about four ideas to try 
to add either on the--in the Committee or on the floor. So, 
those are my questions.
    Yes. Mr. Friedman?
    Mr. Friedman. Senator--should I go down the line? Thank 
you.
    Well, relative to the list that you went through, I would 
say, generally, I think we agree very strongly with the 
majority of them. One question is exit ramps. I think we have 
to think very, very carefully about exit ramps. At a minimum, 
we know we've got the technology to hit at least 35 miles per 
gallon over the next 10 years. Maybe after that, it might be 
time for some off-ramps. But, for the next 10 years, our 
country needs to stay on the highway, going at top speed toward 
cutting our oil dependence.
    Second, you asked about an economywide cap and morphing 
CAFE into some sort of similar approach. Well, the great thing 
is, actually, CAFE is already set up to fit perfectly well 
within an economywide cap. How do you reduce global warming 
pollution from cars? You improve efficiency, you use low-carbon 
fuels, and you drive less. Well, if you have a cap on global 
warming pollution, and if you have a standard to increase 
efficiency, you've taken care of one of those things. What else 
do you need? A low-carbon fuel standard. I would actually say 
that's even better than a renewable fuel standard, because 
you're directly targeting global warming pollution, and you're 
getting oil at the same time. Plus, you want to make sure, of 
course, that you're growing those biofuels sustainably. But 
let's target the carbon on those, and that way you know how to 
treat the different fuels. Not all biofuels are created 
equally. Let's make sure we account for that. And, of course, 
we definitely need policies to reduce VMT.
    Do we need research for better batteries for better fuel 
cells, for cellulosic ethanol, for biobutanol--in part, to 
reduce some of the potential health hazards that you could get 
with low bends of ethanol? Absolutely. Government has that role 
to play.
    Senator Carper. Good.
    Mr. Friedman. The Government also has a role to play to 
provide incentives and--there are already tax credits for 
diesel vehicles and hybrids. For the largest vehicles, there's 
a Bin8 classification. Over time, actually, that should come 
down, because the technologies you're talking about, they're 
targeting Bin5----
    Senator Carper. I think in 2009 they'll have the Bin5 ready 
to roll, and I think in 2008, they'll still be with Bin8. Thank 
you very much.
    Congressman McCurdy and then Mr. Stanton.
    Mr. McCurdy. Tom, I actually wrote 12 questions down, so 
the--and it's a clean dozen, so I'll put it that way.
    Yes, the status quo is unacceptable. And the Alliance--and 
I know Mike Stanton and I agree--between the two of us, our 
associations represent probably 100 percent of--or 99 percent 
of the automobile manufacturers that sell in the United States. 
And we both agree that there has to be fuel-economy 
improvements and performance improvements. We support, the 
reform of a passenger-car rule, and we think attribute-based 
system makes sense. So, that is an important step.
    There is a lot at stake. There's not only a lot at stake 
internationally from the climate change issue, but also 
economic and national security.
    We do want to get started. CAFE doesn't really kick-start 
action on climate change but there are other things that can do 
it, and some of the things that you mentioned are not 
contingent on CAFE.
    I do want to spend a few minutes on exit ramps, but I'm 
going to leave it until last.
    Biofuels, yes, absolutely. Flex-fuels are important. I 
think Congress has to be a little careful, though, not to get 
swept up and try to pick winners and losers. The agriculture 
community is looking very excitedly at some of the 
technologies, and that's important, but long-term cellulosic 
and other types of ethanol production are critical, and enzyme 
production, all those things that go with that are critical.
    I do believe that it makes sense to--and I believe--because 
our CEOs testified before the Congress and made a commitment 
that they would work toward a--an economywide cap-and-trade 
system. The reason they did that is not to shift the cost from 
the transportation sector, or from just automotives. We believe 
it is a national problem. It's a global problem. It's not a 
State problem, or local. It's a global problem. We have to deal 
with China and India and other developing countries, but we do 
believe it's time to step up and try to do that. A good place 
to start is in transportation, by including the fuels that you 
mentioned here.
    There is--biofuels standards, absolutely. You know, MIL 
Spec--we know, where there's a B20, there could be a civilian 
on commercial B20. They're the kinds of steps that are 
important.
    Tax credits are good for consumers. And I think there need 
to be other incentives.
    Mr. Friedman mentioned exit ramps, and Senator Kerry did, 
as well. When you look at the----
    Senator Carper. I'm going to ask you to sum up quickly so 
we can hear from Mr. Stanton.
    Mr. McCurdy. OK.
    Senator Carper.The Chairman has been very----
    Mr. McCurdy. And if you've like to have a----
    Senator Carper.--generous with his time.
    Mr. McCurdy.--separate discussion on off-ramps, we could do 
that after this, because I don't want to interrupt the flow 
with the rest.
    But I do think it's worth bearing just a couple of minutes 
on the off-ramps, of what it really means, and that they're 
serious.
    Senator Carper. OK, good. Well, let's have that 
conversation. I'm sure we will.
    Mr. Stanton?
    Mr. Stanton. I'll, kind of, pick up there, because the off-
ramps are very important to us, too.
    Senator Carper. OK.
    Mr. Stanton. Obviously, we don't know what the world's 
going to look like in 10 years. We are approaching this today--
all of our members are because we recognize the fact that we do 
have a national problem, and we do have to move forward, and we 
do have to move forward aggressively.
    One of the recommendations that we would make is that we 
treat all of the alternative fuel sources equitably. We don't 
know whether or not we're going to get through to cellulosic 
ethanol. We know we need to do work there. We know we need to 
do work on battery technology development. We know to do work 
on raw materials. Nickel, right now, is a scarcity, and we've 
got nickel-metal-hydride batteries, which we're using a lot now 
for the hybrids. Every--obviously, everyone would like to go to 
lithium-ion batteries. We need breakthroughs to get there. So, 
there's an urgency about all of this that we want to convey 
today.
    We certainly support all that Dave said, the need for the 
standards, as well. We would also, though, say that we're very 
familiar with the CAFE program. We know what it is. We know 
that it's not the answer, certainly; it's a part of the answer. 
If there is changing to another metric, like CO2, 
the truth of the matter is, is that CO2 is one way 
of measuring mpgs. You can go back and forth. We just want to 
make sure that, as the Committee goes forward, we work with 
you, and we come up with something that is reasonable. Our 
preference would be that NHTSA set the requirements to do that. 
We're sensitive to the need that the members here want to have 
a number. If they pick a number, please give us good off-ramps.
    Senator Carper. Admiral Blair?
    Admiral Blair. Yes, Senator Carper, your grasp of all of 
these aspects of this problem is certainly impressive. But I 
just want to emphasize one major thing.
    I remember a lesson in leadership I learned early on in my 
career as a Navy officer. There was something that really--the 
ship really had to do, everybody knew we had to do it. I asked 
for volunteers. Nobody volunteered. I went back and talked to 
some of the sailors later and said, ``You know, what happened? 
We all know this has to be done. Asked for a volunteer. Nobody 
volunteered.'' Our sailor he said, XO, if this has to be done, 
just tell us to do it, and we'll do it, and we'll support it. 
We all know this has to be done. Polls show it has to be done. 
People just want to be told to do it, and they'll do it.
    And so this business of getting a big move that sets in a 
standard that we know is achievable with some work, that 
appeals to the best in America, that everybody wants to line up 
behind, I think that's what we need to do, and not get too 
bogged down into, you know, a little incentive for this guy and 
a little one for that guy and so on. But let's put it out 
there, where all the people will say ``OK, let's do it.''
    Senator Carper. Thank you. I was an old naval flight 
officer for 23 years. I----
    [Laughter.]
    Senator Carper.--appreciate what you just said. Thank you.
    Admiral McGinn. Senator----
    Senator Carper. Vice Admiral?
    Admiral McGinn.--I agree with Mr. Friedman on off-ramps. 
Off-ramps, to me, presume too much of a high probability of 
failure. We want to be focused on success and positive 
outcomes. And I do believe we have the technology to do that.
    We have a history of legislative action on fuel standards 
that are just fraught with loopholes. And we don't want to do 
that, going forward. The problem is pretty clear, and the 
solution ought to be clear.
    I agree with a lot of the comments and subjects that you 
brought up. Investment in the battery technology. It is 
basically all about, how do you store electrons and can you do 
it for cars? We also need to be able to do it for renewable 
forms of energy, like wind energy and solar energy, when the 
wind isn't blowing and the sun isn't shining. So, this type of 
investment--national investment and private-sector investment 
in electron storage, battery storage, is very, very important, 
has a lot of implications for our future.
    Biofuels are not just about the feedstock, where it comes 
from. We need to be able to break biomass down for ethanol 
production. Cellulosic ethanol is an example of that. But we 
also need to have the right kinds of industrial processes or 
plants that have the ability to capture and sequester carbon, 
not just from when we're doing coal to electricity or--but, 
when we're doing ethanol production or biodiesel production.
    Clean diesels, absolutely. There's a lot of good progress 
that has been made, particularly in some of the European 
countries, that we need to either replicate, improve upon, or 
import.
    Incentives, selected incentives for consumers can, in fact, 
move the market in the right direction, but, as Admiral Blair 
said, I think it's got to be an important message, ``This is 
the right thing to do. It's a real problem. Let's get moving on 
it.''
    I think, also, there are aspects to planning land use, that 
you mentioned, total--trying to reduce vehicle miles traveled. 
Tremendously positive.
    But all of that said, I think the clarity of this CAFE 
legislation ought to be unencumbered by too much complexity in 
amendments. It ought to be clear. Yes, those other things are 
good, and there are other legislative bills that could deal 
with them more directly and more clearly. And my recommendation 
would be, let's focus on the major opportunity here, and keep 
it to that.
    Thank you, sir.
    Senator Carper. Thank you, all.
    Mr. Chairman, thank you for your patience and generosity.
    The Chairman. Thank you.
    Senator Klobuchar?
    Senator Klobuchar. Mr. Chairman, thank you for allowing me 
to return with some questions. I was presiding over the Senate, 
as we do, many hours a week as freshmen. And I got back in 
time. So, I wanted to thank you.
    And I appreciated your remarks, Admiral Blair, about 
putting those standards in place. As I said in my opening 
comments, I think the American people are crying out for that 
kind of leadership right now.
    I'm on the Agriculture Committee, as well as the 
Environment and Public Works Committee and this one, so I, kind 
of, live and breathe these issues. And I knew things were 
getting bad when I came home the other day and my 11-year-old 
daughter was working on a big tagboard, and it had this sea 
with these little heads bobbing above, and I said, ``What are 
you doing? What are those?'' She said, ``Those are drowning 
penguins.'' She was doing a report on global warming. So, 
anyway hopefully, she has not been completely corrupted by all 
of this discussion.
    But I think that as we go forward, one of the things I 
struggle with is how we make sure we get to that economywide 
level that you're talking about, Mr. McCurdy. And I understand 
that it may not all be in one bill, but I think we have to 
start doing it sector by sector. Certainly, these CAFE 
standards, and doing them in a way that we understand some of 
the issues that have been raised about the American auto 
industry, but also, we have to start somewhere, and I think if 
we are doing the CAFE standards, we're doing some of the 
building efficiency work that the Energy Committee is working 
on. It's going to be a lot easier for us to work on some of the 
power industry in the bills that Senator Carper and others have 
as we go forward. I think you certainly know this isn't going 
to be singling out one industry as we go forward.
    As I mentioned, Minnesota has a huge growing biodiesel, 
biomass industry. I'm taking the lead in the Senate side on the 
cellulosic ethanol issue in the Agriculture Committee, because 
we see so much potential there as we move forward and build on 
the other kinds of ethanol. I'm curious about the flex-fuel 
vehicle issue. And I just would ask both of you at the end 
there what the percentages are for how many vehicles we're 
producing now that are flex-fuel, and if left to its own 
devices, where it's going.
    Mr. McCurdy. I'll take a run at that. Last year, 2006, 
there were 1.5 million flex-fuel vehicles sold. There are 10.5 
million on the road today. The challenge, Senator, is that 
there's not the appropriate fueling opportunities for those 
vehicles. There's just over 1,000--I think it's 1,079--stations 
that provide E85----
    Senator Klobuchar. And, Mr. McCurdy, do you know how many 
are in Minnesota?
    Mr. McCurdy. Most of them. Actually----
    Senator Klobuchar. 312.
    Mr. McCurdy. That's right. And that's out of 177,000 gas 
stations in----
    Senator Klobuchar. Right.
    Mr. McCurdy.--this country. So, there's----
    Senator Klobuchar. Exactly.
    Mr. McCurdy.--an infrastructure issue there. So, if ethanol 
is there, there are some standards issues, there are other 
issues that need to be addressed. And this is where we do have 
to work together.
    There will be more. And if you look at a map of the United 
States, where those 10 and a half million--there are 17 million 
vehicles sold every year, so you're talking about 10 percent. 
That would increase dramatically, provided there was fuel. 
Unfortunately, consumers often don't know that they have that 
capability, because it's not there, they don't see the fuel.
    And diesel--you know, I'm a big supporter of cellulosic and 
other forms of ethanol, but I think we really shouldn't neglect 
diesel. Fifty percent or more of the vehicles in Europe, where 
they have 25 to 30 percent more fuel efficiency--and they 
aren't compromising on size and weight with that.
    Senator Klobuchar. And also, I mean----
    Mr. McCurdy.--is an important technology----
    Senator Klobuchar.--diesel--I'm sorry to interrupt, but----
    Mr. McCurdy. Biodiesel is an important----
    Senator Klobuchar. Right.
    Mr. McCurdy.--part of it. The Senator from North Dakota, 
who's not here, they're just producing the canola bean factory 
in biodiesel. So, there's a lot going on there, and I think 
it's an important component of this, and we support it.
    Senator Klobuchar. Given that biodiesel's more fuel 
efficient, do you think that the higher CAFE standard would 
actually encourage the promotion of more biodiesel and 
production if it?
    Mr. McCurdy. No, I actually think where you get to that is 
if you are looking at a cap-and-trade, that you have some fuel 
standards, and you bring the fuels into the transportation mix. 
If you look at the amount of transportation fuels that are in 
the system, it is a significant part, but that's--autos and 
light trucks are one-half of the transportation fuels. That's a 
lot of carbon going into it. It's actually 2,000 million metric 
tons. That's something that you could capture. And I think--if 
you were looking at the broader sense. So, we're part of that. 
We're half of that. But there's a whole bunch more that you 
could capture. And that's where these other standards on specs 
on B20 and others really come into play.
    Mr. Stanton. And, Senator, from our point of view--we 
support the research, development, and use of all biofuels, but 
we think that the jury's still out on which ones will 
eventually be the winners. Maybe there's a shared market for 
each one of the fuels. But it's still early in the process, 
quite honestly. We need the breakthrough on the enzymes on the 
cellulose.
    Senator Klobuchar. Mr. Friedman?
    Mr. Friedman. Thank you.
    I think everyone is justifiably excited about the potential 
for biofuels. They are, among the alternative fuels, probably 
the technology that is likely to be brought on the quickest, 
especially if we put smart policy in to support to them.
    One of the problems today, though, is our fuel economy 
policy is not smart about some of the biofuels. There's a 
loophole in the current fuel economy policy that gives credit 
to flex-fuel vehicles, even if they're not using alternative 
fuels. Now, does that mean flexible-fuel vehicles are bad? Of 
course not. It just means we need to close a loophole that's 
draining away and increasing some of our oil dependence. I 
think we should just ask the auto industry to follow through on 
what they've talked about, in terms of the potential to deliver 
about half their fleet as flex-fuel vehicles. I think consumers 
would gladly pay an extra $50 or $100 to know that they can 
fill up their tank with an alternative fuel. Of course, we need 
the infrastructure, and your state has clearly been a leader. 
We need to replicate that around the country. And we need low-
carbon fuel standards to get us out there.
    One other important issue about biodiesel that you 
mentioned, one of the challenges for many consumers today is, 
most diesel engines are only warranteed to about 5 percent 
biodiesel. So, one other things I'm looking forward to is the 
auto industry bumping up that warranty, getting in the 
technology on those diesels, so that you can take advantage of 
the efficiency benefit of a diesel, about 25 percent, plus, 
where you can get it, the biodiesel benefits, as well.
    Senator Klobuchar. So, do you think raising the CAFE 
standards is helping to promote the production of biodiesel?
    Mr. Friedman. I would argue CAFE's focus is vehicle 
efficiency. If you make a dedicated alternative-fuel vehicle, 
then, yes, it can have an impact. But right now, we're--the 
vehicles are focused on flexible fuel, and so, you can't 
guarantee they're actually going to use the fuel. Maybe you can 
change that loophole so that you get credit based on the 
previous year's alternative-fuel use. But I think the best way 
is just to--let's get the vehicles out there, with one policy. 
Let's get the fuels out there, with a low-carbon fuel policy. I 
think--you know, as other people have said, maybe you don't 
marry them, maybe you do. I think it depends on what the Senate 
can deliver in the next few months. But let's just not let the 
perfect be the enemy of the good. There are a lot of really 
good solutions out there.
    Mr. McCurdy. Since you're on the Agriculture Committee, you 
know about the chicken and the egg. The problem is, you're 
requiring the vehicles to be produced, but there's no fuel. If 
the fuel's not there, how in the world are they going to be 
able to do it? So, it is a tremendous technology, it should be 
explored, it can be expanded. But, again, you're putting all of 
it on one sector. In the fuel sector, let me tell you, they're 
not losing money. They actually ought to be in to--in this 
system. So, I think that's something that--I know the other 
committees of jurisdiction are looking at that. The difference 
between the House and the Senate, there you have one big 
Committee that's pulling all this together----
    Senator Klobuchar. Well----
    Mr. McCurdy.--here it's a little more----
    Senator Klobuchar.--I just think we should think of it that 
there are a lot of eggs being laid everywhere. And I would--
part of this is getting some incentives, which we're working 
on, as well, into the Agriculture bill, to help farmers and co-
ops and to put more of these pumps in place. Part of it is 
making sure that we have these flex-fuel vehicles, and getting 
that in place. And the other is, as we've talked about all day 
today, raising the CAFE standards in a way that is not going to 
destroy our auto industry, but in a way that encourages some 
changes that we just haven't been seeing the last few years.
    Thank you.
    Mr. McCurdy. Senator Carper, could we revisit, for just 1 
minute, your off-ramp issue?
    The Chairman. Is it my turn now?
    [Laughter.]
    Mr. McCurdy. Mr. Chairman----
    Senator Carper. We yield to the Chairman.
    Mr. McCurdy.--you always control the table.
    The Chairman. With all the discussions we've had this 
afternoon, my announcement may come as a surprise. This bill 
before us will be on a markup next Tuesday. However, based upon 
your testimony, and upon the studies that we have made, we have 
concluded that there's much agreement among us. One, that 
there's a fuel problem, an energy problem. As the Admiral 
stated, our national security is dependent upon the 
availability--steady availability of fuel. We know that none of 
us here want to put our domestic auto manufacturers out of 
business. We want to keep them not only alive, but prosperous. 
Based upon this, the Committee staff, together with the staffs 
of Senator Stevens, Senator Snowe, Senator Smith, Senator 
Dorgan, in consultation with the staff of Senator Levin and 
Senator Feinstein, have been working, for the last 10 days, day 
and night. I feel confident enough to tell you that, by 
tomorrow, close of business, we will have a bill, a managers' 
bill, which we will present--we will send copies to all of you, 
and we will present at the markup on Tuesday as a substitute to 
the Feinstein bill. I think you'll be pleased with it. Not 
completely, but sufficiently.
    It will not have credits in it, because that's not within 
the jurisdiction of this Committee, but we will be recommending 
that that be seriously considered. And I'm certain that when 
this measure is considered on the floor, some amendment will be 
presented to provide tax credits and grants.
    The record will be kept open for another 2 weeks. Now, you 
may be wondering why the record will be kept open for 2 weeks 
when the markup is on Tuesday. I've been in this business now 
for 50 years, and I know that the best way to legislate is to 
have a target. If we have a managers' bill, you'll have 
something to work upon. If you have five bills, you don't know 
which one to hit. You'll have one bill to hit. And we invite 
all of you to study the managers' package and come forth with 
any modification you wish to make. You will find that most of 
your concerns have been addressed.
    Having said that, I have just one question to ask. It will 
not be part of this bill, but it is an energy question. It's 
obvious to me that you cannot develop an automobile in 6 months 
that will come forth with the golden answer. It's going to take 
some time to do some research and some development and you 
don't produce a new vehicle in a year. It takes a little while. 
I think it's obvious that we will still be dependent upon a 
foreign source of fuel. Even if we do pass the bill, you'll 
still be dependent upon foreign energy.
    So, my question is, what are your thoughts on ANWR? I 
realize it's a very contentious, controversial question. But 
geologists tell us that the oil supply in ANWR is equivalent to 
that in the oil fields of Saudi Arabia.
    Let's go down the line.
    [Laughter.]
    Mr. Reuther. Quite frankly, we've had our hands full 
dealing with the CAFE issue.
    [Laughter.]
    Mr. Reuther. I would defer to others on ANWR.
    Mr. Friedman. Senator, there have been studies that have 
shown that tapping into the Arctic National Wildlife Refuge 
would, maybe, affect gasoline prices by about a penny.
    The Chairman. You know, we speak of the Arctic Wildlife 
Refuge, but if the ANWR section is the size of California, the 
area that had been designated for drilling is less than the 
size of Los Angeles city. So, we're not talking about all of 
Alaska.
    Admiral Admiral McGinn. Senator, each day, we consume, as 
Americans, about 19.5 million barrels of oil, an annual total 
of about 7 billion barrels. And, given this rate of 
consumption, if Arctic oil was our Nation's only source, it 
would last for 6 months. There are not sufficient oil reserves, 
particularly in ANWR, to justify any type of a long-term policy 
resting on the assumption that it will be a big part of the 
solution. It could be, if we were desperate. But I believe 
there are so many more effective actions that we can take with 
fuel efficiency, energy efficiency, across the board, for every 
use of liquid fuel, that would return so much more, that we 
should put ANWR oil drilling at the very end of the list of 
available options. There are so many more productive things 
that we can do with our time and with our resources.
    The Chairman. Admiral Blair?
    Admiral Blair. Mr. Chairman, we handle lots of very 
dangerous materials in the Armed Forces of the United States 
every day, and the way that we do that is to set up very rigid 
and well-controlled and -enforced procedures in order to make 
sure that things that are inherently dangerous get done in a 
safe way. And I believe that we are to the point where we have 
to drill for oil in places in the United States that run risks, 
and we, therefore, need to put in those sorts of tight 
controls, tight inspections on them, and that we ought to go 
ahead and do them, including ANWR.
    The Chairman. Mr. Stanton?
    Mr. Stanton. Senator, as an association, we have not taken 
a position on ANWR, but I think ANWR has been around almost as 
long as CAFE, and is--probably has been just as contentious. I 
remember the votes, back in the--1990s.
    I think it has taken on a symbolism that maybe it doesn't 
deserve anymore. Today, we all testified about the need to move 
our country forward, to decouple us with the climate change 
issues and with the energy security issues. I think it ought to 
be back on the table, but in a rational way. If we could de-
pedestalize it and have a good, honest discussion about whether 
or not it's necessary, I think that would go a long way.
    The Chairman. Mr. McCurdy?
    Mr. McCurdy. Mr. Chairman, you have a marvelous way of 
putting people on the spot.
    Since I now represent an association, our association, like 
Mike, has not taken a position on ANWR. But I think you know, 
sir, that I was a Congressman from an oil state, and so, I 
probably have less reservation about types of drilling than 
some, and I'm going to leave it at that.
    The Chairman. Well, I thank all of you. And I hope that we 
will succeed. As one who represents the State of Hawaii, I'm 
certain you realize that our gas prices are the highest in the 
Nation. While you were paying $2, we were paying $3, so we'll 
reach $4 before you reach $4.
    With that in mind, I wish all of you the best. Tomorrow, 
we'll have a new bill.
    The meeting is adjourned.
    [Whereupon, at 5:45 p.m., the hearing was adjourned.]
                            A P P E N D I X

   Prepared Statement of Hon. Mark Pryor, U.S. Senator from Arkansas
    Thank you Chairman Inouye and Vice Chairman Stevens for holding 
this important hearing on legislation to improve fuel economy standards 
for American vehicles.
    I want to also thank the witnesses for appearing here today to 
assist the Committee in this effort.
    I believe we must move forward quickly in this area for our 
constituents, our country, and the world we live in.
    More fuel efficient vehicles can help reduce our dependence on 
middle Eastern oil, decrease emissions, and make our country more 
secure.
    For these reasons, I look forward to this hearing as it will allow 
Congress to continue to make progress in our efforts to get a bill to 
the President that would make a substantial and committed step forward 
on this issue.
    Throughout this process, I intend to work in a bipartisan manner 
with my colleagues in the Senate so that we can make measurable 
progress this year on legislation to improve fuel economy standards and 
reduce our dependence on petroleum.

                                  
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