[Senate Hearing 110-1215]
[From the U.S. Government Publishing Office]



                                                       S. Hrg. 110-1215
 
     OVERSIGHT OF THE CORPORATE AVERAGE FUEL ECONOMY (CAFE) PROGRAM

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


                                HEARING

                               before the

                         COMMITTEE ON COMMERCE,

                      SCIENCE, AND TRANSPORTATION

                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 6, 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
              Margaret Spring, Democratic General Counsel
   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 March 6, 2007....................................     1
Statement of Senator Boxer.......................................    34
Statement of Senator Carper......................................    44
Statement of Senator Dorgan......................................    23
Statement of Senator Inouye......................................     2
    Prepared statement...........................................     2
Statement of Senator Kerry.......................................    47
Statement of Senator Lautenberg..................................    37
Statement of Senator Pryor.......................................     1
Statement of Senator Rockefeller.................................    32
Statement of Senator Smith.......................................    29
Statement of Senator Snowe.......................................    40
    Prepared statement...........................................    42
Statement of Senator Stevens.....................................    21
    Prepared statement...........................................    22
Statement of Senator Sununu......................................    25
Statement of Senator Thune.......................................    98

                               Witnesses

Friedman, David, Research Director, Clean Vehicles Program, Union 
  of Concerned Scientists........................................    53
    Prepared statement...........................................    55
Greene, David L., Corporate Fellow, Engineering Science and 
  Technology Division, Oak Ridge National Laboratory.............    73
    Prepared statement...........................................    75
Lowery, Elizabeth A., Vice President, Environment and Energy, 
  General Motors.................................................    67
    Prepared statement...........................................    70
Nason, Hon. Nicole R., Administrator, National Highway Traffic 
  Safety Administration..........................................     3
    Prepared statement...........................................     4
Reuther, Alan, Legislative Director, International Union, United 
  Automobile, Aerospace & Agricultural Implement Workers of 
  America (UAW)..................................................    86
    Prepared statement...........................................    88
Siggerud, Katherine, Director, Physical Infrastructure, U.S. 
  Government Accountability Office (GAO).........................     6
    Prepared statement...........................................     8
Stricker, Tom, Director, Technical and Regulatory Affairs, Toyota 
  Motor North America............................................    80
    Prepared statement...........................................    82

                                Appendix

Speech given by Jim Press, President, Toyota Motor North America, 
  on July 18, 2006...............................................   105


     OVERSIGHT OF THE CORPORATE AVERAGE FUEL ECONOMY (CAFE) PROGRAM

                              ----------                              


                         TUESDAY, MARCH 6, 2007

                                       U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:30 a.m. in 
room SR-253, Russell Senate Office Building, Hon. Mark Pryor, 
presiding.

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

    Senator Pryor. Well, I want to thank the Members of the 
Committee for being here, and I also want to thank our 
witnesses and guests for being with us today. Chairman Inouye 
has bestowed an honor on me to allow me to chair the Committee 
today, and it's an honor for me to do that.
    Today, we'll look at both the Corporate Average Fuel 
Economy Program--the program that was designed to improve fuel 
efficiency for passenger cars and light trucks--and current 
efforts to improve the fuel economy of the entire passenger 
fleet. Last week, I was part of a bipartisan group of Senators 
that went to the White House to talk to President Bush and Vice 
President Cheney about energy issues here in the Senate--this 
is one of the things they wanted us to legislate on. They 
wanted us to come up with a new CAFE regime, or a new set of 
standards. And certainly, I think we can find common ground 
with the White House, Democrats and Republicans, House and 
Senate, all the way around on this very, very, important issue.
    Given the fact that we anticipate we will have a number of 
Senators here today, and we know there's a heavy committee 
schedule, so some will probably have to come and go, what I 
would like to do is for people to forego their opening 
statements, but do a 7-minute round of questions, so if people 
want to make a little opening statement during their round, 
that's certainly fine with the Chair, and I'm sure it will be 
with the Committee, but I want to give Senators 7 minutes 
during their rounds.
    In 1975, the Senate successfully passed the first fuel 
economy standards for passenger cars. It was part of the Energy 
Policy and Conservation Act of 1975. Manufacturers were 
required to achieve 27.5 miles per gallon for the passenger car 
fleet. The standard-setting legislation in 1975 proved to be 
effective, as the fuel economy of cars nearly doubled within 10 
years, and automobile fuel consumption was reduced by an 
estimated 2.8 million barrels of oil a day.
    After the original goal was met in 1985, focus on fuel 
efficiency seemingly went into idle, went into neutral. Since 
then, the CAFE program for passenger cars has not been updated, 
despite efforts by Chairman Inouye, myself, and many others on 
this committee and in the Senate. This inability to continue to 
improve our fuel economy standards is disappointing to many, 
since fuel efficiency technologies and designs have improved 
greatly over the past 20 years.
    Another year has passed, and the need to act has become 
more acute. President Bush even highlighted this issue in his 
State of the Union Address. I think updating the CAFE program 
in an achievable and logical manner is of critical importance.
    Families in Arkansas and Americans across the country can 
benefit immensely from greater fuel economy. I know that many 
of my constituents are growing tired of relying on unstable 
regions to provide energy to fuel their vehicles. I know my 
colleagues in Congress are growing tired of dealing with 
foreign policy decisions that are greatly complicated by our 
dependence on foreign oil. I know that we are all growing tired 
of paying upwards of $50 each time we head to the gas pump.
    I believe we must do better for our constituents, our 
country, and for the world we live in. Our constituents 
understand that more fuel-efficient vehicles can help reduce 
their dependence on foreign oil, lower costs at the pump, and 
limit the environmental damage caused by vehicle emissions. And 
they expect us to act.
    For these reasons, I look forward to this hearing, and it 
will begin our dialogue on this issue of fuel economy standards 
in the 110th Congress. I hope the Committee and the Senate will 
address this issue in a bipartisan manner and make substantial, 
measurable progress this year on CAFE legislation.
    Today, our witnesses will be comprised of two panels, and I 
look forward to hearing their testimony. But, first, I would 
like to recognize Senator Stevens for his opening statement.
    Senator Stevens. Mr. Chairman, I'll be happy to accept your 
suggestion and make my statement at the beginning of the 
questions. Thank you.
    Senator Pryor. OK.
    Chairman Inouye?

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

    The Chairman. May I ask that my statement be made part of 
the record?
    Senator Pryor. Without objection.
    [The prepared statement of Senator Inouye follows:]

 Prepared Statement of Hon. Daniel K. Inouye, U.S. Senator from Hawaii
    The Corporate Average Fuel Economy Program, or CAFE, has proven to 
be an effective tool to decrease the consumption of fuel in the 
passenger fleet. The National Academy of Sciences found in its 2002 
CAFE study that the CAFE program has significantly contributed to 
increased fuel economy of the Nation's passenger fleet since its 
inception in 1975. From the time CAFE was implemented until 1985, 
passenger cars achieved a 75 percent increase in fuel economy. Light 
truck CAFE standards led to a fuel economy increase of 50 percent. The 
National Academy also found that improvements to vehicle design between 
1975 and 1985 improved fuel economy by an average of 62 percent for all 
vehicles without loss of performance.
    Despite past progress, a lack of will and years of inaction in 
improving CAFE has led to increased fuel consumption in the passenger 
fleet, thereby increasing the rate of global warming and making us more 
dependent on foreign oil. Passenger car CAFE standards have remained 
stagnant for more than 20 years. The light truck standard was not 
improved by the Department of Transportation until 2003, and those 
efforts have been criticized as insufficient by many constituencies and 
Members of Congress.
    We cannot turn back the clock to reclaim lost opportunities, but we 
must take the necessary steps to reduce fuel consumption in the 
passenger fleet now. Several Senators have introduced legislation to 
improve CAFE standards, including the Vice Chairman. Several Members of 
this Committee have joined me in support of S. 357, the Ten-in-Ten Fuel 
Economy Act. It is also encouraging that the President announced in his 
State of the Union Address that he would set a goal of improving fuel 
economy by 4 percent annually, the same percentage increase proposed by 
S. 357.
    I look forward to today's testimony, and the opportunity to work 
with Members of this Committee to move CAFE legislation to the floor 
and ultimately to the President's desk.

    Senator Pryor. Our first panel is Honorable Nicole Nason, 
the Administrator of the National Highway Traffic Safety 
Administration, that we call NHTSA; and Katherine Siggerud, 
Director of the Physical Infrastructure Team at GAO.
    Ms. Nason, would you like to start?

  STATEMENT OF HON. NICOLE R. NASON, ADMINISTRATOR, NATIONAL 
             HIGHWAY TRAFFIC SAFETY ADMINISTRATION

    Ms. Nason. Thank you, Mr. Chairman.
    Good morning, Mr. Chairman, Mr. Chairman, Mr. Vice Chairman 
members of the panel. Thank you----
    Senator Stevens. Can you pull that mic toward you?
    Ms. Nason. Thank you for inviting me to be here today to 
discuss the Corporate Average Fuel Economy standards for 
passenger cars.
    In the State of the Union Address, the President announced 
his ``20 in 10'' proposal to reduce domestic gasoline 
consumption by 20 percent in 2017. A key component of this plan 
is to significantly boost fuel economy standards for cars. 
Toward that end, last month the administration forwarded draft 
legislation to Congress that would give the Secretary of 
Transportation the statutory authority to reform fuel economy 
standards for passenger cars.
    The Bush administration already has a history of reforming 
and raising fuel economy standards. Consider our record on 
light trucks, which comprise half of the vehicles sold today. 
This administration raised the CAFE standard for light trucks 
for 7 consecutive years, 2005 to 2011. Our 2006 light truck 
rule not only will save a record amount of fuel, it also 
regulated, for the first time, fuel economy for some of the 
heaviest light trucks.
    However, the method by which these accomplishments were 
achieve, we believe, is the most important. In its 2002 study 
on CAFE by the National Academy of Sciences, the NAS found 
that, while the CAFE program did fulfill its original goals, it 
contained flaws that were preventing the program from living up 
to its full potential. For example, one of the NAS criticisms 
was that the program concentrated most of the regulatory 
requirements on a few full-line manufacturers. This resulted in 
some manufacturers already above the standard not being 
required to make any further improvements in fuel efficiency. 
This means we are continuing to lose potential fuel savings 
from a significant portion of the fleet.
    Next, the NAS study estimated that CAFE probably had cost 
between 1,300 and 2,600 lives in 1 year alone, 1993, because 
the standards were structured in a way that enabled automakers 
to meet much of their compliance obligations by downsizing 
cars. NHTSA carefully considered the NAS study and methodically 
developed a new structure for light truck CAFE standards that 
addressed each of these criticisms. This new standard, which we 
call ``Reformed CAFE,'' is based on requiring automakers to 
achieve improved fuel economy, not by downsizing, but by adding 
fuel-saving technologies. Basing CAFE on adding fuel-saving 
technologies has a number of benefits. First, by setting fuel 
economy targets for every size of vehicle, instead of having 
one flat standard, every model will potentially have to improve 
fuel economy. Reformed CAFE helps to ensure that vehicles--
small, medium, or large--can become more fuel efficient.
    Second, under Reformed CAFE there is no longer an incentive 
for automakers to improve their fleet by downsizing. By 
removing this incentive, we can raise the CAFE standard without 
decreasing safety.
    And, third, since Reformed CAFE seeks to achieve greater 
fuel efficiency from every model vehicle affected, every 
automaker can share the regulatory burden for improving fuel 
economy, not just a few.
    Finally, our draft bill contains a voluntary CAFE credit 
trading provision, which could help alleviate regulatory costs 
for manufacturers.
    Mr. Chairman, the President has stated his desire to raise 
the fuel economy standard. We believe that having experts 
develop the standard, using sound science and data in an open 
and reviewable rulemaking process is the most responsible way 
to determine the new CAFE standard.
    If Congress authorizes the Secretary to reform CAFE for 
passenger cars, we will immediately begin a rulemaking to boost 
passenger car fuel economy. If the administration's draft 
legislation is enacted soon, cars rolling off the assembly line 
for the 2010 model year could have to meet a higher CAFE 
standard.
    Mr. Chairman, given NHTSA's recent experience with setting 
the fuel economy standard for light trucks, we believe we have 
demonstrated our capability to set balanced standards for 
passenger vehicles, given the authority for the reform.
    Thank you. I would be pleased to answer any questions.
    [The prepared statement of Ms. Nason follows:]

      Prepared Statement of Hon. Nicole R. Nason, Administrator, 
             National Highway Traffic Safety Administration
    Mr. Chairman, thank you for inviting me to discuss Corporate 
Average Fuel Economy standards (CAFE) for passenger cars.
    In January, the President announced in the State of the Union 
address his ``20 in 10'' proposal that would reduce domestic gasoline 
consumption by twenty percent in 2017. A key component of the 
President's ``20 in 10'' plan is to significantly boost fuel economy 
standards for cars. Toward that end, last month the Administration 
forwarded draft legislation at the request of Representatives Dingell 
and Boucher that would give the Secretary of Transportation the 
statutory authority to reform and raise fuel economy standards for 
passenger cars.
    The Bush Administration already has a history of reforming and 
raising fuel economy for light trucks. Consider our record: this 
Administration has raised the CAFE standard for light trucks for seven 
consecutive years, from 2005 to 2011. Our 2006 light truck rule not 
only will save a record amount of fuel, it also regulates for the first 
time fuel economy for some of the heaviest light trucks, such as the 
Hummer H2. This rule also boosted the CAFE target for some light trucks 
to a level that exceeds the Congressionally-mandated passenger car 
standard of 27.5 miles per gallon.
    While these are notable accomplishments, the method by which they 
were achieved is probably the most important. In its landmark 2002 
study on CAFE by the National Academy of Sciences, the NAS found that 
while the CAFE program did fulfill its original goals, it contained 
flaws that were preventing the program from living up to its potential.
    For example, one of the NAS criticisms was that the program 
concentrated most of the regulatory requirements on a few full line 
manufacturers. This resulted in some manufacturers who produced 
primarily smaller vehicles not being required to make any further 
improvements in fuel efficiency.
    Additionally, the study found that having a ``one-size-fits-all'' 
standard allowed some automakers to produce fleets that met the 
standard even though many of the cars in the fleets were relatively 
fuel inefficient. This meant that we were, and still are, losing fuel 
savings from a significant part of the fleet.
    Finally, and most disturbingly, the study estimated that CAFE 
probably had cost between 1,300 and 2,600 lives in 1 year alone, 1993, 
because the standards were structured in a way that enabled automakers 
to meet much of their compliance obligations by downsizing cars.
    NHTSA carefully considered the NAS study, and methodically 
developed a new structure for light truck CAFE standards that addressed 
each of these criticisms.
    This new system, called ``Reformed CAFE,'' is based on requiring 
automakers to achieve improved fuel economy not by downsizing, but by 
adding fuel-saving technologies. Basing CAFE standards on adding fuel-
saving technology instead of downsizing vehicles has a number of 
benefits. First, by setting fuel economy targets for every size of 
vehicle, this ensures that vehicles small, medium and large have to 
improve fuel economy.
    Second, under Reformed CAFE there is no longer an incentive for 
automakers to improve their fleet average by downsizing. Accordingly, 
no longer will raising the CAFE standard mean a decrease in safety.
    Third, since Reformed CAFE demands greater fuel efficiency from 
every model of vehicle affected, every automaker will share the 
regulatory burden for improving fuel economy, not just a few.
    Finally, the Administration's draft bill contains a CAFE credit 
trading provision. The NAS study pointed out how the current CAFE 
system makes it more expensive than necessary to achieve a given level 
of fuel economy in the vehicle fleet. Because one company may find it 
less expensive than another company to increase the fuel economy of its 
fleet, there are further cost-savings to be gained from allowing credit 
trading across companies.
    CAFE already allows a manufacturer to accumulate credits if its 
fleet mix exceeds the standard. These credits may be carried forward or 
``banked'' and used to offset future CAFE deficits by the same 
manufacturer. Credit trading is a natural extension of this framework.
    Credit trading would be purely voluntary, and we believe it will 
help lower the industry's cost of complying with CAFE.
    In 1975 when Congress wrote the original CAFE standard, it did so 
by taking the average fuel economy number for the fleet and doubling it 
over a ten-year period. Today, NHTSA can perform a much more 
sophisticated analysis on how to determine the CAFE standard. We can do 
this because we have the benefit of individualized data on the fuel-
saving capabilities of each car.
    Accordingly, there is no need to set an arbitrary fuel economy 
standard, there is no need to sacrifice safety for better fuel economy, 
and there is no reason why some auto companies have to shoulder nearly 
all the regulatory burden. Our light truck rule demonstrated that all 
of these problems can be overcome.
    Mr. Chairman, the President indicated in his State of the Union 
address his desire to raise the fuel economy standard. We believe that 
having experts develop the standard, using sound science and hard data, 
in an open and reviewable rulemaking process, is the most responsible 
way to determine a new CAFE standard.
    If Congress authorizes the Secretary to reform CAFE for passenger 
cars, we will immediately begin a rulemaking to boost passenger car 
fuel economy. If the Administration's draft legislation is enacted 
soon, cars rolling off the assembly line for the 2010 model year will 
have to meet a higher CAFE standard.
    Mr. Chairman, given NHTSA's recent experience with setting the fuel 
economy standard for light trucks, which comprise half the vehicle sold 
today, we believe we have demonstrated our capability to set balanced 
standards for passenger vehicles, given the authority for reform.

    Senator Pryor. Thank you.
    Ms. Siggerud?

      STATEMENT OF KATHERINE SIGGERUD, DIRECTOR, PHYSICAL 
        INFRASTRUCTURE, U.S. GOVERNMENT ACCOUNTABILITY 
                          OFFICE (GAO)

    Ms. Siggerud. Mr. Chairman, Mr. Chairman, Mr. Vice Chairman 
and Members of the Committee, I appreciate the invitation to 
testify on the Nation's approach to reducing oil consumption 
through fuel economy standards. It is important that any 
approach to reducing oil consumption in the United States 
include the transportation sector. Transportation accounts for 
68 percent of the Nation's oil consumption, and, within that 
sector, 60 percent of the oil is consumed by cars and light 
trucks.
    The Corporate Average Fuel Economy, or CAFE, program was 
developed in the 1970s to increase the fuel economy of cars and 
light trucks sold and driven in the United States. While the 
fuel economy standards for light trucks have been increased 
over time, and were recently restructured by NHTSA, the car 
standards have been largely static for two decades. Both the 
administration and Members of Congress have proposed changes 
that would increase fuel economy for cars.
    My testimony today is based on our ongoing work for the 
Chairman of this Committee, and will cover, first, recent and 
proposed changes to the CAFE standards; second, observations 
about the recent changes, the existing CAFE program, and plans 
to further revise the CAFE standards; and, third, observations 
about how the CAFE program aligns with other approaches and 
options for reducing oil consumption. We will be reporting on 
our work in full in July.
    With regard to the recent and proposed changes to CAFE, 
Administrator Nason has covered the administration's proposal. 
In addition to raising the light truck standards and including, 
for the first time, some light trucks that weigh up to 10,000 
pounds, the program was restructured to set different fuel 
efficiency standards for light trucks based on attributes; 
specifically, their footprint, which is closely related to 
their size.
    This restructuring was meant to address safety consequences 
and concerns about the disparate effects on manufacturers that 
had been cited as negative consequences of raising CAFE 
standards. Rather than reducing the weight of their vehicles to 
reach the standards, manufacturers now have an incentive to 
increase fuel economy across all their vehicles.
    The administration has proposed an attribute-based approach 
to raising the standards for cars, and also proposed to allow 
manufacturers that exceed the standards to trade credits to 
other manufacturers or to use them within their own fleets.
    The CAFE program has been successful in increasing and 
maintaining fuel efficiency, and we've found broad support for 
increasing the CAFE standards for cars. In our discussion with 
stakeholders from industry, academia, and the safety community 
we also found support for the changes NHTSA has made to the 
light truck program particularly the attribute-based approach.
    While the extent to which this approach will improve fuel 
economy will not be evident for several years, stakeholders 
explain that the restructured program takes important steps in 
addressing safety and fairness issues. Most were supportive of 
adopting a similar approach when increasing standards for cars.
    The proposal regarding credit trading is a new concept, 
supported by experts, that will need additional analysis to 
determine its potential. Experts we consulted also identified 
several other possible reforms to improve the program. These 
include, first, harmonizing light truck and car standards to 
reduce incentives to classify vehicles as light trucks because 
of their lower mileage standards. Second, reassessing the 
length of time for which standards are set in order to reduce 
cost for manufacturers. And, third, evaluating the distinction 
between the domestic and foreign fleets, given changes in where 
and how automobiles are manufactured.
    With regard to NHTSA's actions to change the car standards, 
Congress's prohibition from 1996 through 2001 against reforming 
the standards kept NHTSA from considering the kind of 
programmatic changes we have been discussing. As a result, the 
agency lost some expertise necessary for a significant revision 
of the program. But NHTSA's recent experience in restructuring 
the light truck standards helped to redevelop that expertise 
and provided a model.
    Unlike the light truck program, NHTSA cannot restructure 
the program for cars without congressional direction. Assuming 
that Congress provides this direction, there are additional 
ways NHTSA could improve its capabilities. These include, 
first, obtaining additional expertise on automotive engineering 
to review the product plans automakers submit in the CAFE 
rulemaking process; second, updating a 2002 National Academy of 
Sciences study on automotive technologies for improving fuel 
economy. It is now out of date with regard to the technologies 
it assessed and their associated costs.
    Finally, when the CAFE program was created, greenhouse gas 
emissions were not viewed as an important issue. Identifying a 
valuation of these emissions when estimating the costs and 
benefits of changes to CAFE's standards is important if the 
Nation decides to act to control these emissions. When we 
report, this summer, I anticipate placing the CAFE program in 
context of other existing and potential programs to reduce oil 
consumption by the transportation sector.
    While the CAFE program concentrates on the supply of 
vehicles, other programs focus on the demand for fuel-efficient 
vehicles by encouraging or requiring their purchase. It is also 
possible to integrate the transportation sector with other 
significant users of oil. We will identify policies that 
potentially decrease the effectiveness of the CAFE program, as 
well, when we report out, this summer.
    Mr. Chairman, that concludes my statement. I'm happy to 
take any questions you may have.
    [The prepared statement of Ms. Siggerud follows:]

     Prepared Statement of Katherine Siggerud, Director, Physical 
      Infrastructure, U.S. Government Accountability Office (GAO)
    Mr. Chairman and Members of the Committee:
    We appreciate the opportunity to provide testimony on the Nation's 
approach to reducing oil consumption through fuel efficiency standards. 
Concerns over national security, environmental stresses, and economic 
pressures from increased fuel prices have led to the Nation's interest 
in reducing oil consumption. Several Members of Congress have 
introduced bills proposing to mandate fuel economy increases, such as 
increasing car standards from the current 27.5 miles per gallon (mpg) 
to 40 mpg within 10 years. In addition, the President recently 
announced a nationwide goal to reduce oil consumption 20 percent from 
the levels that the administration projects would otherwise occur by 
2017.
    Efforts to reduce oil consumption will need to include the 
transportation sector, because transportation in the United States 
currently accounts for 68 percent of the Nation's oil consumption. And, 
within the transportation sector, 60 percent of the oil consumed is 
consumed by cars and light trucks. In the aftermath of the energy 
crisis of the early 1970s, Congress developed the Corporate Average 
Fuel Economy (CAFE) program to help reduce the fuel used by light 
trucks and cars. Under the CAFE program, manufacturers must ensure that 
the vehicles in their fleets, on average, meet a specified mpg standard 
or pay a penalty. The National Highway Traffic Safety Administration 
(NHTSA) within the Department of Transportation (DOT) is primarily 
responsible for setting and enforcing CAFE standards. Many changes in 
automotive technologies and the auto industry have occurred since the 
program was designed in the 1970s. These developments, along with the 
concerns mentioned above, have led to some changes in the CAFE program, 
along with calls to further alter the program, including raising CAFE 
standards or revising how the program applies the standards.
    My testimony today will discuss (1) recent and proposed changes to 
the CAFE standards; (2) observations about the recent changes, the 
existing CAFE program, and NHTSA's capabilities to further revise CAFE 
standards; and (3) observations about how the CAFE program aligns with 
other approaches and options for reducing oil consumption. My comments 
are based on ongoing work for this committee, and therefore my comments 
reflect our preliminary observations. We plan to issue our report in 
July 2007. To obtain information on the CAFE program and recent and 
proposed changes to the program, we reviewed relevant U.S. Code and 
program guidance, including rulemaking documents, and interviewed a 
wide range of program stakeholders, including NHTSA, the Environmental 
Protection Agency (EPA), the Department of Energy (DOE), the applicable 
automobile workers trade union (UAW), industry groups representing the 
automobile manufacturers, automotive safety experts, insurance industry 
representatives, and environmental advocates. To obtain information 
about recent program revisions and NHTSA's plans and capabilities to 
further revise CAFE standards, we interviewed NHTSA officials, experts 
in fuel economy and safety as well as reviewed CAFE program budgets, 
key studies, and other documentation. To obtain information on how the 
CAFE program aligns with other approaches and options for reducing oil 
consumption by cars and trucks, we interviewed experts in fuel economy 
and other industry stakeholders. We selected these experts by 
contacting officials who worked on a 2002 National Academy of Sciences 
report on CAFE standards. During conversations with these experts, we 
asked them for additional experts we should contact. We also contacted 
officials in selected foreign countries with programs designed to 
reduce oil consumption for passenger vehicles. We conducted our work 
for this statement from September 2006 through February 2007 in 
accordance with generally accepted government auditing standards.
    In summary:

   In 2003, NHTSA raised light truck CAFE standards from 20.7 
        mpg in 2004 to 22.2 mpg in 2007. Subsequently, NHTSA 
        restructured the CAFE program for trucks using a method that 
        categorizes light trucks based on their size. This new method 
        is meant to help address potential safety consequences and 
        other issues that had previously been cited as negative 
        consequences of raising CAFE standards. The nation's CAFE 
        standard for cars has changed little over the past 2 decades, 
        for example CAFE standards for cars have not risen above 27.5 
        mpg since 1990. Furthermore, Congress included provisions in 
        DOT's appropriations acts from Fiscal Years 1996 through 2001 
        preventing NHTSA from spending any funds to change CAFE 
        standards. The Secretary of Transportation recently asked 
        Congress for the ability to restructure CAFE standards for 
        cars. More recently, as part of the Administration's plan to 
        meet the President's oil reduction goal the Secretary of 
        Transportation submitted a plan to Congress that would allow 
        NHTSA to restructure the car CAFE program based on an attribute 
        of the vehicle, such as size. This plan mirrors NHTSA's recent 
        changes to the light truck program. In addition, several 
        Members of Congress have introduced legislation to raise CAFE 
        standards.

   The majority of experts with whom we spoke believe that CAFE 
        standards are an important approach to reducing oil 
        consumption; and NHTSA's recent reform of the light truck 
        standards addresses other concerns, including safety and 
        competition among individual car companies, among others. 
        However, these experts also identified some further revisions 
        to the CAFE program that could be considered in determining 
        ways to further optimize the CAFE program, including:

     evaluating a size-based approach for cars similar to 
            the one implemented for light trucks to address safety and 
            other concerns and encourage fleet-wide improvements in 
            fuel efficiency;

     considering harmonizing light truck and car standards 
            to have an integrated program and reduce incentives to 
            classify vehicles as light trucks;

     reassessing the length of time for which standards are 
            set to reduce costs for manufacturers;

     allowing trading of CAFE credits between vehicle 
            classes and among manufacturers to provide additional 
            incentives and flexibility in meeting CAFE standards; and,

     evaluating the need for the distinction between 
            domestic and foreign vehicles when calculating CAFE to 
            simplify the program and recognize changes in where 
            automobiles are manufactured.

    Further, experts and NHTSA officials also identified ways NHTSA 
        could improve its capabilities to revise CAFE standards 
        including:

     obtaining additional expertise on automotive 
            engineering to review product plans automakers submit in 
            the CAFE rulemaking process;

     updating a 2002 National Academy of Sciences study 
            that included information on the potential impact of 
            technologies that could improve fuel economy; and

     identifying a valuation of greenhouse gas emissions 
            used in analysis to estimate the costs and benefits of 
            changes to CAFE standards.

   Finally, while the CAFE program is an important program in 
        the Nation's efforts to reduce oil consumption, other policies 
        and programs exist or have been proposed to help the Nation 
        reduce oil consumption by the transportation sector that could 
        complement CAFE. We will be reporting in more detail on how 
        these options align with the CAFE program in July 2007. We will 
        also identify policies that potentially decrease the 
        effectiveness of the CAFE program in reducing oil consumption. 
        For example, experts with whom we spoke identified the program 
        that grants manufacturers a 1.2 mpg CAFE credit toward meeting 
        its fuel economy standard for selling flexible fuel vehicles, 
        even though these vehicles are not often run on fuel other than 
        gas.
Background
    Congress enacted the 1975 Energy Policy and Conservation Act (the 
Energy Act) during the aftermath of the energy crisis created by the 
Arab oil embargo of 1973 and 1974 to reduce oil consumption by the 
transportation sector in the United States.\1\ The Act established what 
is commonly known as the CAFE program, which requires that 
manufacturers meet separate fuel economy standards for passenger cars 
and light trucks.\2\ To reduce oil consumption, the program uses fuel 
consumption standards--measured in mpg--that cars and light trucks must 
meet. In addition to decreasing oil consumption by increasing the 
mileage driven on a gallon of gas, an increase in the standards also 
decreases tailpipe emissions, including greenhouse gases.
---------------------------------------------------------------------------
    \1\ Pub. L. 94-163.
    \2\ For CAFE purposes, NHTSA currently defines light truck as a 
four-wheel vehicle which is designed for off-road operation or which is 
designed to perform certain functions such as transporting more than 10 
people or transporting property in an open bed. This includes most 
pickup trucks, minivans, and sport utility vehicles. The most recent 
standards NHTSA set will apply to trucks up to 10,000 lbs. and pickup 
trucks up to 8,500 lbs.
---------------------------------------------------------------------------
    A manufacturer's compliance is based on a comparison of a 
manufacturer's fleet-wide fuel economy average against the appropriate 
CAFE standard.\3\ The Energy Act grants NHTSA the authority to 
calculate a car and light truck figure for each manufacturer, measuring 
compliance of domestically produced and imported cars, separately. The 
law considers a vehicle domestic if at least 75 percent of the cost of 
the vehicle to the manufacturer is attributable to value added in the 
United States, Mexico, or Canada.
---------------------------------------------------------------------------
    \3\ For example, manufacturers meet the standard if the average mpg 
of all the vehicles they manufacture in a year meet the CAFE standard 
for that year. Manufacturers have had to meet mpg of 27.5 for cars 
since 1990. EPA performs the tests that determine what mpg each 
manufacturer's model obtains. A model's CAFE figure generally differs 
from the window sticker a new vehicle displays showing its fuel 
economy. The window sticker mpg is determined through a different 
methodology than the CAFE figure.
---------------------------------------------------------------------------
    Congress set a standard for passenger cars (currently 27.5 mpg) but 
did not establish specific CAFE standards for light trucks in the 
Energy Act. Instead, the Energy Act grants NHTSA authority to establish 
both the structure of the CAFE program and the fuel economy standards 
for different classes of light trucks. Rather than Congress specifying 
a mpg target for light trucks as it did for passenger cars, NHTSA is 
required to set standards at the maximum feasible level using the same 
criteria and lead-time requirements used in setting standards for 
passenger cars. However, appropriations acts restricted NHTSA from 
increasing or otherwise changing CAFE standards from Fiscal Year 1996 
through 2001. For Fiscal Year 2002, Congress did not renew the 
multiyear freeze on NHTSA's CAFE rulemaking responsibilities and the 
agency resumed efforts for future rulemakings to raise CAFE standards 
for light trucks.
    The CAFE program is generally considered to have contributed to 
increasing the Nation's fuel economy. For example, a 2002 NAS report 
found that the CAFE program has been particularly helpful in keeping 
fuel economy above levels to which it might have fallen due to the low 
and declining real price of gas. The NAS study estimated that if fuel 
economy had not improved, gas consumption and oil imports would have 
been about 14 percent higher than they were in 2002.
    To help meet CAFE standards, manufacturers may earn credits that 
can be used to help them meet fuel economy standards. For instance, if 
a manufacturer exceeds the required fuel economy in a certain year, it 
earns credits that can be applied to past or future model-year fuel 
economy numbers. Credits, however, cannot be passed between 
manufacturers or among fleets. In addition, the Alternative Motor Fuels 
Act of 1988 encourages the use of alternative fuels by giving credits 
to manufacturers toward meeting CAFE standards for producing cars that 
can run on alternative fuels \4\ in addition to gas. Under the 
resulting ``Dual Fuel'' program, manufacturers may earn up to a 1.2 mpg 
credit for producing vehicles through model year 2010 that are capable 
of using both regular gasoline and an alternative fuel.\5\ If a 
manufacturer does not meet the standards and has no credits to apply, 
it must pay a civil penalty.
---------------------------------------------------------------------------
    \4\ Alternative fuels are fuels other than conventional fossil 
fuels and include ethanol, hydrogen, and batteries.
    \5\ NHTSA has the authority to continue this credit through 
rulemaking.
---------------------------------------------------------------------------
    In addition to CAFE standards administered by NHTSA, Congress and 
other Federal agencies have established programs to reduce oil 
consumption in the transportation sector. These programs include (1) 
vehicle acquisition requirements at Federal agencies to purchase 
alternative fuel vehicles, (2) research and development of alternative 
fuels and new vehicle technologies, and (3) tax incentives for 
consumers purchasing fuel efficient vehicles like hybrids.
    In addition to NHTSA, other Federal entities contribute to the 
Nation's efforts to reduce oil consumption. For example, DOE 
coordinates Federal research on strategies for reducing oil 
consumption; developing advanced technologies such as fuel cells; 
producing and using alternative fuels and more fuel efficient vehicle 
technology, as well as providing grants for research into such areas as 
plug-in hybrid \6\ technology and ways to expand the production and use 
of ethanol. In addition, the National Economic Council assists the 
administration in developing its energy initiatives.
---------------------------------------------------------------------------
    \6\ Hybrid technology refers to vehicles that run on both a 
gasoline-powered engine and an electric battery. Plug-in hybrids are 
vehicles that recharge their battery at battery charging stations.
---------------------------------------------------------------------------
NHTSA Recently Raised and Restructured Light Truck CAFE Standards and 
        Has Not Raised the Car CAFE Standard Since 1990, but Has 
        Requested Authority to Make Changes
    NHTSA has recently raised the light truck CAFE standard and 
reformed the program using a method that categorizes light trucks based 
on their size, doing so in part to address potential safety concerns. 
CAFE standards for cars have not changed since 1990. This is due, in 
part, to past congressional prohibitions against NHTSA using any of its 
appropriation to raise fuel economy standards and, more recently, 
NHTSA's preference to tie raising the car standard to restructuring the 
program. Recently, the administration has submitted a proposal to 
restructure and increase passenger car CAFE standards. Members of 
Congress also have submitted proposals to change the CAFE standards.
NHTSA Recently Increased Standards and Reformed the Light Truck CAFE 
        Program
    In April 2003, NHTSA released a final rule increasing light truck 
CAFE standards from 20.7 mpg in 2004 to 22.2 mpg in 2007. As part of 
this rulemaking, NHTSA explained the importance of increasing the CAFE 
standards for light trucks because of the growing market share of these 
vehicles. The impact of the light truck market on overall oil 
consumption in the United States had grown since the beginning of the 
CAFE program as market share for these vehicles has increased. 
Specifically, in 1980, shortly after the program began, light trucks 
composed about 20 percent of the new passenger vehicle market in the 
United States. By 2005, light trucks, including minivans, pickup 
trucks, and sport utility vehicles, accounted for about 50 percent of 
the new passenger vehicle market in the United States. The overall fuel 
economy of the U.S. vehicle fleet declined in the 1990s, in part due to 
the increased market share of light trucks. (See fig. 1 showing share 
of fleet composed by light trucks).


    While NHTSA took these steps to raise CAFE standards for light 
trucks, the agency also began investigating reforming the light truck 
CAFE program in part to address safety concerns. A 2002 National 
Academy of Sciences (NAS) report \7\ on the impact of CAFE standards 
\8\ stated that because the easiest way for an automobile manufacturer 
to increase vehicle fuel economy is to decrease vehicle weight, 
increases to CAFE standards were likely to have a negative impact on 
safety and result in more highway fatalities. The report recommended 
that NHTSA investigate implementing a CAFE system based on the 
attributes of a vehicle, such as size and/or weight, where there would 
be separate standards for vehicles with similar attributes.
---------------------------------------------------------------------------
    \7\ ``Effectiveness and Impact of Corporate Average Fuel Economy 
(CAFE) Standards,'' National Academy of Sciences (Washington, D.C.: 
2002).
    \8\ Congress requested that the National Academy of Science, in 
consultation with DOT, conduct a study to evaluate the effectiveness 
and impacts of CAFE Standards.
---------------------------------------------------------------------------
    In response, NHTSA released a rule in April 2006 that reforms the 
structure of the CAFE program for light trucks and continues to 
increase light truck CAFE standards for model years 2008 to 2011. Under 
the new rule, fuel economy standards are established based upon truck 
size instead of having one average standard for all light trucks. Each 
truck is assigned a fuel economy ``target'' based on a measure of 
vehicle size called ``footprint,'' the product of multiplying a 
vehicle's wheelbase (the distance from front to the rear axles) by its 
track width (the horizontal distance between the tires). (See fig. 2 
for a display of how the standard applies to trucks of different 
sizes).


    According to NHTSA officials, the reformed CAFE approach may enable 
the country to achieve larger reductions in oil consumption, while 
enhancing safety and preventing adverse economic consequences. Under 
the current standard, manufacturers of smaller light trucks may already 
exceed the fleet CAFE standard and, therefore, have little incentive to 
increase fuel economy. However, under the reformed standards, the 
required overall fuel economy of the light truck fleet will rise over 
time. In addition, the reformed standards include larger vehicles such 
as sport utility vehicles, but not pickup trucks, weighing between 
8,500 and 10,000 pounds that previously were exempt from the CAFE 
program. NHTSA estimates that including these vehicles in the CAFE 
program will save 7.8 billion gallons of fuel over the life of the 
vehicles sold between 2008 and 2011.\9\ In addition to these expected 
fuel savings, the reformed CAFE standards offer enhanced safety by 
discouraging downsizing of vehicles since, as vehicles become smaller, 
the applicable fuel economy target becomes more stringent. In addition, 
according to NHTSA, the reformed CAFE standards spread the regulatory 
cost burden for fuel economy improvements more broadly across the 
industry instead of concentrating it more exclusively on the 
manufacturers who may produce heavier, less fuel efficient vehicles.
---------------------------------------------------------------------------
    \9\ 71 Fed. Reg. 17566 (2006).
---------------------------------------------------------------------------
NHTSA Has Not Raised the Car CAFE Standard Since 1990 but Has Requested 

        Authority to Make Changes
    The 1975 Energy Act established CAFE standards for passenger cars 
for model years 1978 to 1980 and 1985 and thereafter. The standards 
called for manufacturers to produce vehicles averaging 18 mpg in 1978, 
rising to 27.5 mpg by 1985.\10\ In the 1980s, NHTSA reduced the CAFE 
standard for cars, and the agency did so for model years 1986 to 1989. 
NHTSA raised the car CAFE standard back to 27.5 mpg for the 1990 model 
year and has made no changes to the standard since then. See table 1 
showing CAFE standards over time.
---------------------------------------------------------------------------
    \10\ The Secretary of Transportation issued interim standards for 
1981 to 1984.



------------------------------------------------------------------------



  Table 1.--Fuel Economy Standards for Passenger Cars and Light Trucks,
                      Model Years 1985 through 2007
                          [in miles per gallon]
------------------------------------------------------------------------
      Model Year             Passenger Cars            Light Trucks
------------------------------------------------------------------------
1985                                       27.5                     19.5
------------------------------------------------------------------------
1986                                       26.0                     20.0
------------------------------------------------------------------------
1987                                       26.0                     20.5
------------------------------------------------------------------------
1988                                       26.0                     20.5
------------------------------------------------------------------------
1989                                       26.5                     20.5
------------------------------------------------------------------------
1990                                       27.5                     20.0
------------------------------------------------------------------------
1991                                       27.5                     20.2
------------------------------------------------------------------------
1992                                       27.5                     20.2
------------------------------------------------------------------------
1993                                       27.5                     20.4
------------------------------------------------------------------------
1994                                       27.5                     20.5
------------------------------------------------------------------------
1995                                       27.5                     20.6
------------------------------------------------------------------------
1996                                       27.5                     20.7
------------------------------------------------------------------------
1997                                       27.5                     20.7
------------------------------------------------------------------------
1998                                       27.5                     20.7
------------------------------------------------------------------------
1999                                       27.5                     20.7
------------------------------------------------------------------------
2000                                       27.5                     20.7
------------------------------------------------------------------------
2001                                       27.5                     20.7
------------------------------------------------------------------------
2002                                       27.5                     20.7
------------------------------------------------------------------------
2003                                       27.5                     20.7
------------------------------------------------------------------------
2004                                       27.5                     20.7
------------------------------------------------------------------------
2005                                       27.5                     21.0
------------------------------------------------------------------------
2006                                       27.5                     21.6
------------------------------------------------------------------------
2007                                       27.5                     22.2
------------------------------------------------------------------------
Source: NHTSA.

    NHTSA officials cited several reasons for not raising the CAFE 
standard over 27.5 mpg. First, for several years, Congress specifically 
prevented NHTSA from making any adjustments to CAFE. Beginning in 
Fiscal Year 1996 and lasting through Fiscal Year 2001, Congress 
included language in DOT's appropriations acts preventing NHTSA from 
expending any appropriated funds for rulemakings to adjust CAFE 
standards, for either cars or trucks. Second, although NHTSA officials 
state that the agency has the legislative authority to raise CAFE 
standards for cars above 27.5 mpg, as specified by the Energy Act, 
these officials stated the Energy Act prevents NHTSA from restructuring 
the program, for example, by developing a size-based standard as it 
recently did for light trucks.\11\ NHTSA is reluctant to raise the car 
standards without restructuring the program as it is concerned about 
the effect on safety, competition between auto manufacturers, and other 
issues.
---------------------------------------------------------------------------
    \11\ The Energy Act includes a so-called legislative veto provision 
allowing either the House of Representatives or the U.S. Senate to 
disapprove any attempt to increase CAFE standards above the current 
27.5 mpg level (or decrease them below 26.0 mpg). However, since the 
Energy Act was passed, the Supreme Court has held that such legislative 
vetoes are unconstitutional.
---------------------------------------------------------------------------
    However, in 2007 the NHTSA Administrator submitted proposed 
legislation to Congress that, if enacted, would give the Secretary of 
Transportation the authority to restructure and increase CAFE standards 
for cars. The proposal calls for the fuel economy standard to be the 
maximum level that NHTSA believes the manufacturers could achieve in a 
specific model year. The proposal would also give NHTSA the power to 
base the standard on one or more vehicle attributes similar to the 
light truck standard. In addition, the proposal calls for a credit 
trading system among manufacturers. If a manufacturer exceeds the 
mileage standard, it can sell its credits to another manufacturer or a 
broker. The proposal does not provide a specific goal or mpg standard; 
but, like the light truck standard, it sets an average fuel economy 
standard that is the maximum feasible average fuel economy level that 
the Secretary of Transportation decides the manufacturers can achieve 
in a specific model year. NHTSA officials indicate that they may follow 
a process similar to the rulemaking process they followed to recently 
reform and set new light truck standards.
    In addition to this proposed legislation, several Members of 
Congress have submitted bills that have some similarities to the 
Secretary's proposal but, if enacted, would set a specific fuel economy 
mpg standard for manufacturers to meet, rather than allow NHTSA to 
determine the maximum feasible level. For example, one bill calls for 
cars and light trucks achieve a combined CAFE average of 35 mpg by 
2019.\12\ Another bill would raise CAFE standards for passenger cars to 
40 mpg by 2017.\13\ These are only selected examples of the many bills 
currently pending in Congress on this topic.
---------------------------------------------------------------------------
    \12\ S. 357, 110th Congress.
    \13\ S. 183, 110th Congress.
---------------------------------------------------------------------------
A Majority of Industry Stakeholders and Experts Support NHTSA's Recent 
        CAFE Revisions, While Recommending Further Refinements to the 
        CAFE Program and Ways for NHTSA to Improve Its Capability to 
        Revise Standards
    The majority of industry stakeholders and experts with whom we 
spoke supported NHTSA's revisions to the light truck standards, and 
many of them specifically stated that NHTSA should consider further 
refinements to the CAFE program, such as restructuring the car CAFE 
standards based on the size of the vehicle. In addition to these 
refinements, stakeholders and experts identified issues about both the 
appropriate information for NHTSA's rulemaking deliberations and 
NHTSA's capabilities to most effectively revise car CAFE standards. For 
example the model that NHTSA uses to estimate the impact that changes 
in CAFE standards will have on oil consumption does not currently place 
a dollar value on the reduction of carbon emissions. If NHTSA is able 
to revise car standards, it may be an opportunity to consider how to 
value greenhouse gas emissions. Furthermore, many experts indicated 
that the agency would benefit from some additional expertise, for 
example, on automotive engineering to, among other duties, review 
product plans automakers submit in the CAFE rulemaking process.
Stakeholders and Experts Support Recent Restructuring of Light Truck 
        Standards
    While it is impossible to determine the extent to which NHTSA's 
recent restructuring of the light truck CAFE standards will reduce oil 
consumption since the standards will not take full effect until vehicle 
model year 2011, experts and industry stakeholders whom we interviewed 
generally praised the restructuring. Many, including representatives 
from the insurance industry, specifically praised the restructured CAFE 
program for removing most incentives manufacturers may have had to 
reduce vehicle weight in order to meet CAFE standards, and thereby make 
vehicles less safe. A number of experts also noted that the 
restructured standards treated all manufacturers more equitably, in 
that each company would now have an incentive to use additional fuel 
efficient technologies across its light truck fleets, rather than only 
in selected vehicles needing a boost to meet CAFE standards.
    Auto industry representatives with whom we spoke also supported the 
restructuring because it seemed to spread the burden of compliance 
evenly across the industry. Also, industry representatives stated that 
the reformed light truck standard did not favor big or small vehicles, 
so manufacturers could produce a range of vehicles that appeal to 
different segments of the market.
    A few experts with whom we spoke expressed concern regarding the 
reformed standards, stating that NHTSA did not raise CAFE standards far 
enough or that the system could not guarantee oil savings because 
manufacturers could choose to build--and consumers might elect to buy--
trucks with the largest footprints, which must meet lower fuel economy 
standards than smaller trucks.
Experts Have Recommended Further Refinements to the CAFE Program
    Many of the experts with whom we spoke identified several 
refinements to the CAFE program that could improve the program by 
improving safety, making the program more equitable for manufacturers, 
or reducing the costs that manufacturers incur to comply with the 
program. In addition to increasing fuel efficiency standards to reduce 
oil consumption, further refinements may help address safety concerns 
and improve the efficiency of the CAFE program. Some of these potential 
changes include the following:

   Evaluating footprint approach for cars: Currently, the car 
        standard uses a single, mpg standard as opposed to the recently 
        reformed light truck standard, which uses a footprint-based 
        standard. The majority of the experts with whom we spoke 
        believed that changing the structure of the light truck program 
        to a footprint-based standard was positive, and many of them 
        specifically stated that NHTSA should be allowed to evaluate a 
        similar structure for the car program. They believe that such a 
        structure will provide similar safety benefits to those 
        expected with the revised truck program and would also treat 
        car companies more equitably.

   Harmonizing light truck and passenger vehicle standards: 
        Currently, light truck and car standards are separate. However, 
        of those experts that expressed an opinion, almost all thought 
        the car and light truck CAFE programs should be harmonized if a 
        footprint system was instituted for cars as it has been for 
        light trucks. Experts noted several advantages of harmonizing 
        the programs, including reducing the current incentive for 
        manufacturers to reclassify vehicles from cars to light trucks 
        in order to be able to comply with a lower CAFE standard. One 
        expert also noted that harmonizing cars and light trucks was 
        appropriate, given that light trucks are now primarily used as 
        passenger vehicles rather than as cargo and agricultural 
        vehicles, as was the case when CAFE was instituted.

   Reassessing the length of time for which CAFE standards are 
        set: Currently, NHTSA sets new CAFE standards generally for 2 
        to 4 years at a time with the first new year of standards 
        beginning 18 months after the completion of a rule-making 
        process. Of those that expressed an opinion, almost all the 
        experts with whom we spoke stated that setting standards for 
        about 7 to 10 years out reduces costs for manufacturers by 
        allowing the manufacturers to capitalize on normally scheduled 
        plans to redesign models.

   Allowing CAFE credit trading between vehicle classes and 
        among manufacturers: Currently, if manufacturers exceed the 
        required fuel economy in a certain year, they earn credits that 
        can be applied to past or future model-year fuel economy 
        numbers. Such credits applied to previous model years are known 
        as ``carry-back'' credits, while those applied to future model 
        years are known as ``carry-forward'' credits. These credits 
        cannot be traded among manufacturers or between fleets (that 
        is, between cars and trucks). Of those who expressed an 
        opinion, many of the experts with whom we spoke thought that 
        the manufacturers should have greater flexibility in trading 
        CAFE credits than is now afforded under the ``carry-forward 
        carry-back'' approach. Economists in particular noted that 
        credit trading both between vehicle classes within a 
        manufacturer' own fleet and credit trading among manufacturers 
        would reduce the compliance costs of CAFE for manufacturers, 
        since manufactures for whom it would be very costly to achieve 
        a CAFE standard for a particular line could trade with another 
        line where exceeding the standard would be less costly.

   Removing the distinction between domestic versus import 
        vehicles to calculate CAFE standards: Currently, the CAFE 
        program determines a manufacture's compliance with CAFE car 
        standards for its domestic- and foreign-made fleets, 
        separately. According to a labor union official, this 
        distinction was designed as a way to keep some small car 
        production within the country and thus protect workers that 
        produce small cars domestically. Of those who expressed an 
        opinion, almost all the experts we spoke to believe that CAFE 
        compliance should no longer be calculated separately for 
        domestic and import fleets. Industry representatives noted that 
        cars produced in Canada and Mexico count as domestic vehicles 
        and that many foreign manufacturers make vehicles in the United 
        States, thus the distinction is not as meaningful as it once 
        was. However, the union believes that if this incentive is 
        removed, automakers will continue producing small cars in 
        foreign markets, but close domestic plants producing small 
        cars, thus adversely impacting U.S. jobs.
NHTSA and Experts Identified Ways to Improve NHTSA Capabilities to 
        Reform the CAFE Program
    As discussed above, the Secretary of Transportation has submitted 
legislation to Congress that, if enacted, would give the Secretary of 
Transportation the authority to revise CAFE standards for cars. Many of 
the experts with whom we spoke raised some concerns about NHTSA's 
capabilities to revise CAFE standards. These experts identified several 
ways NHTSA could improve its capabilities to revise CAFE standards in 
the future. In some instances, NHTSA officials acknowledged the benefit 
of these potential improvements.

   Expanding staff expertise and levels: Two experts with whom 
        we spoke cited the congressional prohibition on any work at 
        NHTSA to increase CAFE standards in the 1990s as a reason the 
        agency lost qualified, experienced staff. An expert stated that 
        in the past, NHTSA was more aggressive at critiquing cost 
        estimates and product plans that automakers submitted when the 
        agency was determining how much of an increase in CAFE 
        standards the auto manufacturers could handle technologically. 
        Several experts believed that NHTSA currently does not have the 
        capacity to do this sort of checking. NHTSA officials disagreed 
        with this assessment but stated that additional staff with 
        automotive engineering skills would help them in future CAFE 
        rulemakings and that they will hire an additional person with 
        an automotive engineering background. NHTSA officials agreed 
        that they are, to a degree, dependent on the information 
        automakers provide them about product plans and future 
        technological capabilities in enhancing fuel economy.

   Updating the NAS report: NHTSA officials involved in setting 
        the reformed light truck standard told us they relied 
        extensively on the 2002 NAS report that evaluated CAFE 
        standards. Specifically, these officials cited the report's 
        assessment of the impact on fuel economy and cost of emerging 
        automotive technologies as crucial to their decisionmaking 
        about how high to raise future CAFE standards and how quickly 
        to require future increases. Also, NHTSA officials stated that 
        because the report had been peer reviewed, it was even more 
        useful and mitigated criticism regarding the agency's 
        assumptions. NHTSA officials and several experts whom we 
        interviewed supported updating the study, as the original 
        information is now 5 years old and rapidly becoming outdated, 
        since technologies on automotive technologies change quickly, 
        and cost information also varies over time. For example, NHTSA 
        officials pointed out that the study did not include an 
        assessment of alternative technologies, such as electric 
        hybrids. These officials and experts stated that it would be 
        ideal to complete such an update before NHTSA issues a new car 
        or light truck fuel economy standard, and NHTSA has request 
        funding for such a study in its 2008 budget proposal to 
        Congress.

   Identifying a valuation for greenhouse gas emissions: 
        Several stakeholders and experts told us they were concerned 
        about certain inputs that NHTSA officials used in the computer 
        model maintained by DOT's Volpe Research Center. NHTSA uses 
        this model as a tool to help estimate the fuel savings that 
        will result from CAFE increases and to estimate how likely it 
        is that the manufacturers will comply with future CAFE 
        standards.\14\ Specifically, some experts were critical of the 
        fact that NHTSA and Volpe staff assigned a ``zero'' dollar 
        value to the benefit of reductions in greenhouse gas emission 
        that would result from an increased standard. NHTSA officials 
        stated they did this because the scientific community had not 
        reached a consensus on the value that should be assigned to 
        carbon dioxide, though researchers have developed a range of 
        values that could be considered in giving a dollar value to 
        greenhouse gas reductions. Therefore, according to one expert, 
        the results of the model may underestimate the total dollar 
        benefits to society of raising CAFE standards, since the dollar 
        value of reduced greenhouse gas emissions was not included in 
        the model's results. If the car CAFE program is revised, it may 
        provide an opportunity to revisit how to value a decrease in 
        greenhouse gas emissions through improved fuel efficiency.
---------------------------------------------------------------------------
    \14\ NHTSA also uses the model to predict the effect of efficiency-
increasing technologies on specific vehicle models and to calculate the 
resultant CAFE levels among vehicle manufacturers resulting from 
changes in CAFE standards. The model also predicts impact on energy 
use, and other monetary and nonmonetary externalities.
---------------------------------------------------------------------------
Other Federal Programs Also Seek to Reduce Oil Consumption in the 
        Transportation Sector
    While the CAFE program is an important program in the Nation's 
efforts to reduce oil consumption, other policies and programs 
currently exist to help the Nation reduce oil consumption in the 
transportation sector. The White House National Economic Council's 2006 
Advanced Energy Initiative and the Department of Energy's Strategic 
Plan both highlight a number of ongoing programs and initiatives in the 
transportation sector, such as developing and deploying alternative 
fuels that can help reduce oil consumption. Other existing programs 
include CAFE credits for manufacturers of ``flex fuel'' vehicles 
capable of running on gasoline or alternative fuels, a Federal vehicle 
acquisition program requiring Federal agencies buy vehicles capable of 
running on alternative fuels,\15\ tax incentives for consumers 
purchasing fuel efficient vehicles like hybrids, and taxes to 
discourage the purchase of cars with low fuel efficiency, known as the 
``gas guzzler'' tax. We will be reporting in July 2007 on the extent to 
which these programs complement or contradict the goals of the CAFE 
program. We will also report on other proposals to reduce oil 
consumption by cars and light trucks and their potential effects.
---------------------------------------------------------------------------
    \15\ We recently issued a report on the U.S. Postal Service's 
attempts to comply with this Federal requirement. GAO, U.S. Postal 
Service: Vulnerability to Fluctuating Fuel Prices Requires Improved 
Tracking and Monitoring of Consumption Information, GAO-07-244 
(Washington, D.C.: Feb. 16, 2007).
---------------------------------------------------------------------------
    However, many of the experts with whom we spoke have pointed out 
that the program granting manufacturers a maximum of 1.2 mpg CAFE 
credit toward meeting fuel economy standards for flex-fuel vehicles, 
currently may be actually increasing oil consumption among passenger 
vehicles. Specifically, the credit allows manufacturers to build these 
vehicles to meet a lower CAFE standard, and this credit is granted 
regardless of whether consumers are actually running the vehicles on 
gas or E85 (a blend of 85 percent ethanol).\16\ As a result, flex-fuel 
vehicles fueled with gasoline are generally less efficient than 
nonflex-fuel models because these vehicles have to meet a lower fuel 
efficiency standard than non-flex fuel models. Also, manufacturers have 
generally put this flex-fuel capacity in their larger, less efficient 
models. NHTSA officials pointed out, however, that they view this 
credit as providing an incentive to auto manufacturers to bring 
vehicles to the market that can run on E85 and other alternative fuels, 
which would help expand the infrastructure to make these fuels 
available to consumers.
---------------------------------------------------------------------------
    \16\ In 2006, there were about 1,000 E85 stations across the 
country (mostly in the Midwest) compared with 176,000 stations selling 
gas.
---------------------------------------------------------------------------
    Mr. Chairman, this concludes my statement. I would be pleased to 
answer any questions that you or other Members of the Committee may 
have at this time.

    Senator Pryor. Thank you.
    What we'll do is, we'll start a 7-minute round here.
    And, Ms. Siggerud, what I'd like to do is start with you 
and ask about your GAO study that, I believe, Senator Inouye 
requested. And I want to thank him for that. But in looking at 
NHTSA from your perspective, from the GAO's perspective, does 
NHTSA have enough expertise in-house to assess the accuracy of 
the information that the automakers provide?
    Ms. Siggerud. It's an important question. And I think if 
you had asked me that question 4 or 5 years ago, the answer 
would be somewhat different than it is today because of the 
prohibition, that I mentioned, against changing the program. We 
do believe that NHTSA needs to hire some additional expertise 
to review the project plans. NHTSA does have a proposal to hire 
one new staff member. At this point, we haven't evaluated 
whether, from our view, that is sufficient.
    I also want to point out and emphasize what I said in my 
statement that updating this study, and having it done by an 
independent panel, is extremely important in setting NHTSA up 
to be able to revise these standards to withstand the kind of 
scrutiny that they will be put under when it proposes revisions 
to the standards.
    Senator Pryor. So, if you have a concern that NHTSA may not 
have the expertise and resources necessary in-house, do they 
have sufficient resources and budget to go outside to hire 
expertise, when necessary?
    Ms. Siggerud. NHTSA has proposed funding the National 
Academy of Sciences study in this--I believe, in the Fiscal 
Year 2008 budget. That is an important step, and we are fully 
supportive of that concept. It also has an ongoing relationship 
with the Volpe Transportation Center, near Boston, that will 
need to update the model that it runs in order to revise the 
CAFE standards in the way that NHTSA has proposed.
    Senator Pryor. And right now when NHTSA collects monies, as 
I understand it, it's about $30 million a year? Do you know?
    Ms. Siggerud. Are you talking about in terms of fines?
    Senator Pryor. Yes.
    Ms. Siggerud. I don't have that number at my----
    Senator Pryor. OK.
    Ms. Siggerud.--fingertips.
    Senator Pryor. But, do you know, does that money go to the 
general treasury? Do you know?
    Ms. Siggerud. Administrator Nason is saying yes. I didn't 
know the answer----
    Senator Pryor. OK.
    Ms. Siggerud.--to that. But apparently that is a yes.
    Senator Pryor. OK.
    Let me ask the Administrator a couple of questions, as 
well. The President, in his State of the Union, talked about 
this goal that you mentioned of ``20 in 10.'' Could you, again, 
explain that for the Committee, please?
    Ms. Nason. Yes, thank you, Mr. Chairman. The ``20 in 10'' 
goal is the President's proposal for a 20 percent reduction in 
gasoline consumption in--by 2017. The 20 percent, 15 of which 
would come from the alternative and renewable fuels proposal, 
which is Department of Energy, largely, and 5 percent of which 
comes from CAFE--increase in the CAFE--in our estimate, as the 
President noted, 8.5 billion gallons of gasoline reduced in 
2017. In order to get there, you need a 4 percent, roughly, 
gradual increase from 2010 to 2017 for passenger cars. That is 
our proposal, we would like to reform the program while 
increasing the stringency. So, we have two pieces that we're 
asking for, from Congress. The one would be the authority to 
reform the passenger car program, and the second is to increase 
it. We believe we can do a straight increase, but we'd like to 
reform the program also. So, we'd like to marry the two.
    Senator Pryor. In your opinion, is the ``20 in 10'' 
achievable?
    Ms. Nason. Yes. As the President has noted, it's a heavy 
technology bet. I know the President has been traveling around 
the country, visiting various companies that are, for example, 
doing enzyme development to help break down cellulosic ethanol 
more quickly. For CAFE purposes, for our 5 percent, I think it 
is fair to say you would expect to see, with a goal--a targeted 
goal of a 4 percent annual increase--a far greater penetration 
in the fleet of the more expensive, but more fuel-efficient, 
technologies, such as hybridization and dieselization.
    Senator Pryor. And in your conversations with the auto 
industry since the State of the Union, what has been the 
response of the auto industry to the ``20 in 10''?
    Ms. Nason. Well, I've only have conversations with them 
about our 5 percent, about the CAFE, so I can't speak, 
necessarily, to the view on ethanol. I know many of the 
manufacturers have put out press releases announcing that they 
intend to double their ethanol production. So, I can assume 
there's some support for that.
    Regarding the CAFE proposal, we have heard, for example, 
strong criticism against credit trading. There has been some 
concern regarding our credit trading proposal. We offered it up 
as an alternative flexibility for the manufacturers, and some 
of them have said they would not be interested in that. It 
would be voluntary, so we think we can address that concern.
    I think, overall, and I know you have members representing 
the manufacturing sector, so I don't want to speak for all of 
them, because we haven't received a straight--a clear answer 
from overall automotive industry, where they are. Some are more 
supportive than others. Some have raised concerns about some 
pieces of it. So, I think, generally, we think we can work with 
the industry regarding reform. And then, there have been 
concerns about other pieces of the proposal, that we'd be happy 
to work with Congress on.
    Senator Pryor. Thank you.
    Chairman Inouye?
    The Chairman. I thank you very much.
    The administration has made it very clear that it wants the 
authority to set the standards. The last time it did so, on 
light trucks, it was 1.5 miles per gallon over 3 years. And 
now, you're asking for--in this most recent case--1.8 miles per 
gallon, which is a little worse than that. Do you believe you 
can really set this new standard with that record?
    Ms. Nason. Yes, thank you, Mr. Chairman. One of the most 
important things we believe we did with the light truck rule 
was reform the program so that it's very different from 
traditional CAFE. And we had, I believe, a 2 percent--under the 
light truck rule--annual increase. The goal for this proposal, 
for the ``20 in 10,'' would be a 4 percent increase. I 
certainly acknowledge it's a very aggressive proposal. But 
we've asked for product plans from the manufacturers. I think--
we believe we will see a greater improvement in the fuel 
efficiency just in the product plans that we will see. And 
then, we will build from there and include new fuel-saving 
technologies.
    The Chairman. I'm interested in the GAO report that noted 
that the ``statistical cost-benefit analysis model [your] 
agency uses does not fully account for the impact of greenhouse 
gas emissions in the computer model used to set a CAFE level.'' 
Experts note that the benefits of reducing greenhouse gas could 
be as much as $50 billion by 2020. But these benefits are 
virtually ignored in the cost-benefit analysis of your light 
truck rule. Is there any credence to this criticism by GAO?
    Ms. Nason. Yes, thank you, Mr. Chairman. We have heard the 
concern, and we understand the concern, about monetizing 
CO2 reduction. In the light truck rule, for example, 
we were able to quantify that we were reducing 73 million 
metric tons of CO2. The question then becomes, how 
do you place a value on that? And we looked at it. The agency 
looked at it when they were performing--when they were doing 
the light truck rule. And there's such a disparity right now in 
the scientific community about how to value CO2--
I've seen as low as negative 1 to negative 3 and as high as 
$1,600 a ton--that they made a determination during the light 
truck rulemaking, it was too difficult to try to monetize. One 
of the things I think GAO has suggested, or will suggest when 
the report is final, is perhaps looking at a range. Instead of 
trying to determine an actual number, we could look at a range. 
That is something that we considered last time. The range was 
too broad. I think we'd certainly be willing to look at it 
again to see if there's consensus in the scientific community.
    The Chairman. What does GAO say about this?
    Ms. Siggerud. We think that if the car standards are 
reformed in the way that your legislation or the administration 
has proposed, that it is important to revise that model to 
include greenhouse gas emissions in some way. If the 
administration is not ready, or cannot discern a consensus 
value at that time, a range would certainly be appropriate. But 
the time is here to move forward on including that information 
in some way in the model.
    The Chairman. Do you believe that the administration will 
be able to respond to this--raising CAFE standards in this 
bill?
    Ms. Siggerud. Are you referring to the bill that you 
sponsored, Senator Inouye?
    The Chairman. Yes.
    Ms. Siggerud. Because the administration has developed an 
attribute-based concept already for the light truck model, it 
has a bit of a headstart from where it would have been without 
doing that. So, we think that, if that is the model that is 
approached, that NHTSA can move forward fairly quickly, in 
terms of getting the information it needs into its modeling. 
And also, we feel it's very important to get this National 
Academy of Sciences study updated.
    Nevertheless, this will be a several year process to get 
that study updated, to revise the model, to get out the 
proposed rule and get the comments. The last rule, the light 
truck rule, there were 45,000 comments to respond to. So, I 
think we're looking at a several year approach here before a 
final rule can be in place.
    The Chairman. Is there anything you can suggest to this 
committee on how to improve the efficiency of passenger cars? 
You're the expert.
    Ms. Siggerud. Well, I'm not an engineer, but we have been 
talking to a lot of engineers in doing our work. There is a 
consensus out there, in the industry and in those who study the 
industry, that it is possible to improve the fuel efficiency of 
passenger cars. It has been static for 20 years. There are 
technologies on the horizon that will allow for potentially 
significant increases over the next 10 years. There are a 
number of--there are new diesel fuels available. When the study 
was done in 2002 on this issue, the--I think the extent that 
the hybrids would be available was not included in that study, 
or not really anticipated. So, there are technologies out there 
that will allow, over the next 10 years, the passenger car fuel 
economy standards and performance to improve.
    The Chairman. The events of the last several months, plus 
the statistics that indicate that in the 1970s General Motors, 
Ford, and Chrysler sold nine out of every ten cars in the 
United States, and today Toyota will be number one, above GM. 
These numbers and statistics frighten us, and we're not certain 
whether this bill is sufficient or insufficient. We hope we can 
work with you.
    Thank you very much.
    Senator Pryor. Vice Chairman Stevens?

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

    Senator Stevens. Mr. Chairman, please print my statement in 
full. At this point, I'll just summarize it a little bit.
    I do believe that this is one of the most serious issues we 
face, in terms of the energy crisis. The question of how to 
reduce our dependence on foreign oil has to be paramount, in my 
opinion. And I applaud the President for looking at a 
combination of initiatives, including conservation, domestic 
production, and alternative sources of energy.
    I introduced, at the beginning of this Congress, S. 183, 
the Improved Passenger Automobile Fuel Economy Act, which would 
set the goal at a minimum of 40 miles per gallon by 2017. And 
it's my feeling, Ms. Nason, that we ought to set out to do what 
President Reagan did, set the goals out further, and hope 
people will go toward achieving them, and give some discretion 
to the industry, if it's needed, later. But the goals ought to 
be very firm right now.
    And let me just say this, Ms. Nason, the claim was made by 
at least one manufacturer in the mid-1970s that the original 
CAFE standards were set so that only pint-sized cars would be 
able to make the 27.5 mile-per-gallon standard by 1985, as 
required by the statute. But the automobile industry met and 
exceeded that standard now, and fuel-efficiency gains have led 
to enhanced power, rather than fuel economy. Now, Ms. Nason, in 
setting CAFE standards, how does NHTSA strike the balance 
between furthering the public goals of CAFE with the 
competitive need of the manufacturer to produce a product with 
performance that will be marketable to consumers? Aren't 
consumers looking for more power, despite the fact we're 
setting higher mileage standards?
    Ms. Nason. Thank you, Vice Chairman Stevens. The challenge 
that we face under a Reformed CAFE proposal is to try to see an 
increase in fuel efficiency from all manufacturers. Some 
manufacturers may have to do much more than others. There may 
be some that are already exceeding the standards, and, under a 
rulemaking--for example, for a light truck rulemaking, there 
are some manufacturers who are already beyond where we're 
going. But our overall goal is to get as much fuel savings as 
possible from the program if we were to have a reform.
    So, we would do a balancing, a weighing, of technological 
feasibility and economic practicability. One of our basic 
policy tenets would be to be technology neutral. As the GAO 
noted, we really do need to update the study that was done by 
the National Academy of Sciences, because, at the time, hybrids 
and diesels were very cutting-edge, there were one or two on 
the market, and that is the bottom of the--or the top, maybe, 
of the technology list for the NAS. We need to find a way to 
show the manufacturers that it is feasible, there is a path, 
using technology. And we believe there are still gains to be 
made, even making changes to the good old internal combustion 
engine--again, also seeing an increase in hybrids and diesels. 
The manufacturers can then look at our path and decide that is 
not how they would like to go. They want to make their own 
changes, they'd like to go more towards direct injection, or 
they want to go more toward dieselization. Some of the 
manufacturers are looking more aggressively at diesels. We 
leave it open to them.
    What we need to do in a rulemaking is to demonstrate to 
them that it is technologically feasible to get this increase, 
to show them that it's possible, still balancing economic 
practicability, and then we allow them to choose which 
technologies they would like to use to get there. So, we try 
not to do anything that would reduce consumer choice. We'll 
just show the manufacturers there is a way, but, when they look 
at their own product plans, when they're making determinations 
about who their customers are and what their customers want to 
buy, they can decide for themselves which technologies they 
choose to apply.
    Senator Stevens. Well, should we include some limitation on 
power? Senator Inouye and I came out of the generation where a 
Ford V8 that had 85 horsepower was considered good enough for 
us.
    [Laughter.]
    Senator Stevens. Why do we have to have this race for 
power?
    Ms. Nason. There is--you're absolutely right, Senator 
Stevens. When you look at the distinction between fuel 
efficiency for some of the cars of a particular class--and we 
would be doing an overall attribute-based reform, so, by weight 
or by size--you see that you can get nearly the same fuel 
efficiency from a Toyota Avalon or a Chevy Impala, for example. 
But then, when you change the engine size, and you see some 
vehicles within that class that have a larger engine--a 
Chrysler 300, maybe, with a 6.1-liter engine is going to get 
worse fuel efficiency. The manufacturers, we believe, have 
determined that there is interest on the part of consumers in 
having the larger engines, and, when they are doing their 
product plans, as long as we can show them a path that is 
technologically achievable, they can make the decisions about 
whether or not they want to change their engine sizes. We don't 
want to do anything in a rulemaking--at least NHTSA doesn't--
that would prohibit an engine size. Some consumers feel very 
strongly that they need a larger engine, for a variety of 
reasons. And we don't want to eliminate that possibility.
    Senator Stevens. Well, it seems to me as long as you take 
that position, you're never going to achieve the CAFE 
standards.
    Thank you very much.
    [The prepared statement of Senator Stevens follows:]

    Prepared Statement of Hon. Ted Stevens, U.S. Senator from Alaska
    Mr. Chairman, thank you for calling this important hearing, and I 
thank the witnesses for their willingness to appear.
    The issue of fuel economy of our cars and light trucks is 
significant as our country faces an energy crisis. The September 11 
terrorist attacks and the current struggles in the Middle East have 
brought into focus the need to reduce our dependence on foreign oil. 
But addressing this problem will require a combination of initiatives. 
Conservation, domestic production, and the development of alternative 
energy sources are all part of the solution.
    In January, I introduced legislation that would 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.
    The Bill, S. 183, the Improved Passenger Automobile Fuel Economy 
Act, would make clear the Department of Transportation's authority to 
reform fuel economy standards for passenger cars, and require that the 
domestic passenger car fleet achieve a minimum fuel economy of 40 miles 
per gallon by model year 2017.
    However, the legislation does not contemplate an increase in fuel 
economy standards for light trucks given the recent reforms made by the 
Secretary of Transportation to the light truck CAFE program. I applaud 
the Secretary for taking that action, and believe that Congress should 
allow the reformed program to take effect before taking more action.
    While I am fully aware of the aggressiveness of the target standard 
set forth in S. 183, it is designed to begin a discussion that I look 
forward to having with the Chairman, and the rest of the Committee, as 
we develop a thoughtful bipartisan product.

    Senator Pryor. Thank you. And let me also remind staff that 
all Senators' statements will be made part of the record, and 
we'll leave the record open for 2 weeks for Senators to ask 
questions in writing.

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

    Senator Dorgan. Mr. Chairman, thank you very much.
    This--I understand the point you're making about consumer 
choice. I was thinking, whenever I pull up to a red light next 
to someone driving a Hummer or a humvee, I think of the broken 
Latin--since Latin wasn't taught in a high school class of 
nine--I think of broken Latin, totus porcus----
    [Laughter.]
    Senator Dorgan.--which, in my hometown, roughly translated, 
means ``whole hog.''
    You know, there's this old saying, ``If you don't care 
where you are, you're never going to be lost.'' You've got to--
it seems to me you have to set goals, set way-points, set 
destinations, and then get there. And I don't--I guess I don't 
quite understand the--the administration, at this point, is 
saying they want greater automobile efficiency. And that's 
certainly something we should aspire to achieve. It's been 20 
or 25 years with no change. And, in fact, to whatever extent 
there has been a change in efficiency, it's been converted into 
weight and power. And so, if you look at a car that you 
purchased 10 years ago, and then the equivalent vehicle today, 
you'll see that there's no difference in the mileage standards 
on those vehicles, by and large. We just did that with a car, 
and--so--but the seller of that car would say, ``Yes, but it's 
more efficient, because this is a heavier car with a bigger 
engine.'' So, that's the point.
    And I guess I have, in the past been satisfied with leaving 
this to the scientific inquiry at NHTSA and so on, so forth. 
I've--I'm not going to do that anymore. I think it's important 
for us to have enforceable CAFE standards. We don't have any 
choice. And the only way we're going to get to this point is to 
force the issue.
    The thing I don't understand, and perhaps someone can 
describe it for me, is, everything in a--in the vehicles these 
days has been the subject of breathtaking change--absolutely 
breathtaking--except there have not been quantum leaps in 
efficiency. And I don't understand why, for 20-25 years, we've 
had very little change with respect to efficiency.
    Ms. Nason, can you tell me why that's the case?
    Ms. Nason. Again, Senator Dorgan, I don't want to speak, 
necessarily, for the manufacturers. We regulate them; I don't 
speak for them. But I think when--a good example is the 
National Academy of Sciences' study that they did 5 years ago, 
maybe 6 years ago--they were looking at the technologies, and 
there have been dramatic breakthroughs just in the last 5 to 10 
years. I think there was--there's certainly an increase in curb 
weight, if you look at the weight of vehicles in the 1970s, and 
they essentially went on a diet, and then they got heavier 
again. We do have a concern with downsizing. There is, as the 
National Academy of Sciences noted, a safety penalty if 
manufacturers simply choose to downsize their vehicles, rather 
than increase technology to make the vehicles more fuel-
efficient. So, I think we share that goal with you. And I 
understand--we differ in how we might get there. But our 
overall goal is to have new fuel-efficient technologies apply 
to the vehicles rather than making changes simply to the weight 
of the vehicle as a way to increase the fuel efficiency. So, I 
do think we have agreement on that point.
    Senator Dorgan. But the technology changes in virtually 
every other part of the vehicle are just breathtaking. I mean, 
it's almost unbelievable. And yet, that same technology has not 
been brought to bear with respect to efficiency, and that's the 
point I don't understand.
    Again, the question, I think, for the Congress is, do we 
just keep going here, saying, ``Well, whatever the 
manufacturers decide to produce, whatever consumer choice, 
that's just the way it works,'' or do you say, ``In order for 
us to deal with this question of the unbelievable dependence on 
foreign oil, and the increasing dependence on foreign oil, we 
have to set some enforceable standards''? Is the 
administration--is it your testimony that the administration 
will oppose, and continue to impose, enforceable CAFE 
standards?
    Ms. Nason. No, Senator Dorgan.
    Senator Dorgan. OK.
    Ms. Nason. We enforce CAFE compliance right now.
    Senator Dorgan. No, I'm talking about setting new CAFE 
standards and----
    Ms. Nason. Oh, you mean if----
    Senator Dorgan. Yes.
    Ms. Nason. I'm sorry. If the----
    Senator Dorgan. I understand you----
    Ms. Nason.--Senate were to choose a number, it would be our 
preference to have the authority to reform the program, 
overall.
    Senator Dorgan. But if the Congress decides to increase 
CAFE standards and say, ``You know, we're going to have to bite 
the bullet here. It's been 20 years. We have more cars on the 
road. The average efficiency is still what it was 20-25 years 
ago.'' Will the President sign legislation that the Congress 
determines it wishes to pursue, that would mandate increases in 
CAFE standards?
    Ms. Nason. I think, from this table today, Senator, I can 
tell you that we would very much like to work with you to find 
ways to improve our draft legislation. If the Congress isn't 
comfortable, maybe, with the ``trust us'' message, which is 
part of what we heard last year when Secretary Mineta was 
testifying--we've heard concerns about backsliding, for 
example, that there needs to be some sort of floor. We've heard 
concerns about what is achievable. We need to have a ceiling. 
We would like the authority to reform the program. It becomes 
much more challenging for the agency to reform if there's a 
floor and a ceiling, because we're essentially directed in 
where to go. But I'm certainly not prepared to issue a veto 
threat from--that is the President's, alone.
    Senator Dorgan. Ms. Siggerud, let me just, finally, ask--
while I think there needs to be, now, enforceable new standards 
with respect to CAFE, and I hope the Congress will do that, it 
also seems to me, as I've looked at this issue, that American 
automakers, over the several decades, have been disadvantaged 
because of the fleet mix with respect to U.S. domestic 
automakers versus foreign automakers. Is that the case? And can 
you describe that for me?
    Ms. Siggerud. Well, yes, that is the case. Those 
manufacturers that make a full line, from small to large, heavy 
vehicles, have incurred more cost in responding to the CAFE 
standards since they were enacted in the 1970s. However, a 
number of the stakeholders we've spoken with on this issue 
viewed the recent reform--to use this attribute concept for the 
light trucks--as being somewhat mitigating of that issue, and 
spreading, shall we say, the cost or the impact somewhat more 
equitably across foreign and domestic automakers than we have 
seen with just a single average standard that--as has been used 
in the past. I would also like to say that I think there 
probably is a compromise to be reached here between a standard 
set by the Congress and allowing the administration some 
flexibility to study the technology and make recommendations, 
in terms of what the appropriate increase in standards is over 
time.
    Senator Dorgan. Well, I think all of us look for 
opportunities to find ways to have an effective standard here. 
But we've been talking, now, for the last 4 or 5 years, and, as 
we've talked, nothing has changed. And I think most people in 
Congress are becoming anxious about that and want to see some 
action.
    Thank you very much.
    Senator Pryor. Senator Sununu?

               STATEMENT OF HON. JOHN E. SUNUNU, 
                U.S. SENATOR FROM NEW HAMPSHIRE

    Senator Sununu. Thank you, Mr. Chairman.
    I note that Senator Stevens observed that 85 horsepower in 
a Ford was always good enough for him, and I absolutely believe 
that. But I would be remiss if I didn't point out that it was 
also members of his generation that turned 45 in 1967 and gave 
us the 427 and the GTO. So, there's always----
    [Laughter.]
    Senator Sununu.--a tradeoff to be made with the preference 
of the great consumer.
    Ms. Nason, I want to hear you talk a little bit more about 
the new light truck standard, because--and I don't have strong 
opinions about whether it's the right approach or the wrong 
approach, but it's obviously a change. And I want to understand 
how significant a change it is, and whether it will result in 
continued increase in performance and fuel efficiency 
standards. We all know that no new standards had been set for a 
number of years. And I think this is really the first 
rulemaking that raised standards significantly in the last few 
years.
    Currently, for the light trucks, what is the fuel 
efficiency standard, for model year 2007?
    Ms. Nason. I believe it's 22.2. We started at 20.7 in 2004, 
and we--and we end at 24 in----
    Senator Sununu. OK.
    Ms. Nason.--2011.
    Senator Sununu. So, between 2007 and 2011, you increase the 
fleet fuel efficiency standard every year.
    Ms. Nason. Yes, the reform takes place starting in 2008, 
from 2008 to 2011. The new CAFE--one of the issues that we have 
currently in litigation, Senator, is whether we should have 
given the manufacturers a choice. We allowed them to opt in or 
out to the reform proposal----
    Senator Sununu. For model years----
    Ms. Nason.--for 3 years, right.
    Senator Sununu.--2008 to 2011.
    Ms. Nason. Yes.
    Senator Sununu. But after 2011, everyone has to comply with 
the new vehicle footprint----
    Ms. Nason. Yes, sir.
    Senator Sununu.--standards.
    Ms. Nason. That's correct, Senator.
    Senator Sununu. And then, after that time, the way that 
improvements in the fuel efficiency will be implemented is to 
take that vehicle footprint----
    Ms. Nason. Correct.
    Senator Sununu.--standard, and continue to move it in the 
right direction, so that----
    Ms. Nason. Correct.
    Senator Sununu.--the overall fuel efficiency of any vehicle 
at any footprint has to be improved each year, correct?
    Ms. Nason. Exactly.
    Senator Sununu. OK.
    Ms. Nason. So, it----
    Senator Sununu. You also got rid of the two-fleet rule for 
light trucks, is that correct?
    Ms. Nason. The two-fleet rule was eliminated for light 
trucks several years ago.
    Senator Sununu. OK.
    Ms. Nason. It as--this was not part of this rulemaking.
    Senator Sununu. What's the value of that? Is there a value 
to that? Looking back over the years that it has been 
eliminated, what benefits do you think that provided?
    Ms. Nason. I think when NHTSA eliminated the two-fleet rule 
several years ago, it was because less than 1 percent of the 
light trucks were being imported. It essentially eliminated 
itself by decisions regarding production. We did not propose 
changes to the two-fleet rule in the passenger car reform 
proposal. We know that there is some interest in having 
conversations about two-fleet. When we were looking at sending 
draft legislation to the Congress, to be frank, Senator we 
looked at those provisions, those places where we could save 
fuel. This was not a fuel-saving----
    Senator Sununu. Fine.
    Ms. Nason.--issue.
    Senator Sununu. I appreciate that. So, it wasn't a useful 
rule, we got rid of it, which is actually very refreshing. We 
probably don't do quite enough of that in Congress.
    You made the point, or made the claim, that the curve 
prevents companies, manufacturers, from simply meeting the 
fuel-efficiency standard now by downsizing. And as I look at 
these curves, what that means--what I think that means--is that 
because a vehicle of a particular size now has to meet a 
particular standard, if they want to look good by improving 
their vehicle fleet fuel performance, they can't just reduce 
the size of the car, because if they reduce the size of the 
car, they have to meet an even higher performance. Is that 
correct?
    Ms. Nason. That's correct.
    Senator Sununu. So, that's----
    Ms. Nason. They would shift from----
    Senator Sununu.--the disincentive to downsizing simply in 
an effort to meet the regulation.
    Ms. Nason. Yes.
    Senator Sununu. And each year the performance standard for 
every vehicle at every size, including the Hummer, will be 
increased, correct?
    Ms. Nason. Right, by having new technologies added, new 
fuel-efficient technologies.
    Senator Sununu. Was there something you wanted to add?
    Ms. Nason. We did hear some concerns about reform, just to 
be--as long as we're discussing the issue--about creating an 
incentive to upsize, however; that if you look at that curve, 
if you look at the fact that a larger vehicle would have a 
lower fuel-efficiency target for that class, that size, or that 
weight vehicle, that there would be an incentive to go the 
other way, to upsize. And we disagree that there is an 
incentive. There's certainly no financial incentive. It's not 
as if we give a bonus or a credit if you upsize. But it would 
be, again, up to the manufacturers and how they would choose to 
set their vehicle fleet. And when you look at just what 
happened last year to the light--larger light trucks, I think 
most manufacturers are looking to manufacture vehicles that 
consumers want to buy. They don't manufacture vehicles based on 
CAFE, as far as we can ever tell in the history of the program.
    Senator Sununu. That's an interesting assertion. I don't 
know whether that's true or not. I look at it, and, while I 
understand the argument that someone might make, that there's 
now less of a penalty for upsizing----
    Ms. Nason. Right.
    Senator Sununu.--because you know where you need to fit on 
the curve, from a regulatory perspective, I think this makes it 
a lot easier for either Congress or the regulator to penalize a 
particular manufacturer of a particular size of car, because 
all I have to do now is raise the right-hand edge of that curve 
for larger vehicles.
    You can just push up fuel efficiency requirements on that 
side, and create huge disincentives to manufacture that car if 
it can't be done economically, if they can't meet the fuel 
standard. Today, the only lever a regulator has is to increase 
the average fleet----
    Ms. Nason. Right.
    Senator Sununu.--efficiency, which doesn't necessarily 
penalize anyone who's making large cars, as long as they're 
also making small cars.
    Ms. Nason. Correct.
    Senator Sununu. Under the footprint, if you want to really 
penalize the manufacturer of a large car, you know exactly what 
part of the curve, what part of the performance curve, you need 
to push up, and so, you just change the shape of the curve, and 
make it economically nonfeasible for someone to manufacture a 
car of a particular size. You could do the same at the smaller 
footprint size. I understand you're a regulator, and you take 
your job seriously, but it's basically a very effective tool 
for aggressively manipulating the vehicle footprint on the 
road.
    That's an observation, you don't have to comment----
    Ms. Nason. Yes, sir.
    Senator Sununu.--on that.
    Ms. Nason. I won't.
    [Laughter.]
    Senator Sununu. And I suppose there may be some people who 
are getting ideas, who I don't necessarily want to give ideas 
to, but----
    [Laughter.]
    Senator Sununu.--I think honesty is always the best policy.
    All right. Finally, one observation that you made in your 
testimony was that there are--two things--one, there are 
vehicles that are now covered under this light truck standard 
that previously weren't covered by----
    Ms. Nason. Yes.
    Senator Sununu.--fuel economy standards. And, two, that 
there are some light trucks that have been brought to a level 
that currently exceeds the overall passenger car standard of 
27.5 miles to a gallon. Could you expand on both of those 
points?
    Ms. Nason. Yes, Senator, thank you.
    The MDPV, the 8,500- to 10,000-pound vehicles have never 
been regulated before. We included those vehicles when we look 
at--again, it's consumer choice--there has obviously been a 
great explosion in these----
    Senator Sununu. The vehicles between 8,500 and 10,000 
pounds----
    Ms. Nason. Less than 10,000.
    Senator Sununu.--previously were not covered by any----
    Ms. Nason. Correct.
    Senator Sununu.--fuel economy standard, and they are now 
covered by this light truck curve.
    Ms. Nason. Not all of them. We include what we refer to as 
MDPVs, the medium duty passenger vehicle. So, not the largest 
work trucks, the largest pickup trucks, F-650 for example, that 
people are using back and forth to construction sites, or 
wherever they need them for work, but the larger vehicles that 
people are using to essentially drive around town. They're 
using them mostly as a passenger vehicle, and we've included 
those. So, it's essentially super large pickup trucks that were 
not included. Everything else is included.
    Senator Sununu. And cars that are----
    Ms. Nason. And what was your question on----
    Senator Sununu.--cars that are exceeding the standard?
    Ms. Nason. Well, there are.
    Senator Sununu. OK.
    Ms. Nason. And we--you know, when you look at 27.5 you're 
going to see some manufacturers who are above it and some 
manufacturers who are below it. You've got specialty 
manufacturers, for example, who would be way below it. But 
there are some manufacturers under our first--under the light 
truck rule, if that's what you're asking about, who are 
already----
    Senator Sununu. I----
    Ms. Nason.--at the----
    Senator Sununu. I'm over my time. I apologize, Mr. 
Chairman. One final question, though.
    Am I correct that we can take this curve, look at the 
number of cars that are manufactured, and calculate, sort of, 
an implied national light truck fleet efficiency standard, 
correct?
    Ms. Nason. We can still do an overall CAFE number----
    Senator Sununu. Congress could, if we wanted to, legislate 
that overall standard for 2015 or 2020 or 2025, but still allow 
that to be met using this approach. Is there an inconsistency 
there? I understand it might not be the administration's 
preference, but that could be done, could it not?
    Ms. Nason. We do think there is a way for us to compromise 
with Congress, understanding that there is concern about 
needing an increase and not having backsliding, but still 
having reform. It would just need to be written carefully, but, 
yes, we think----
    Senator Sununu. Thank you very much, Mr. Chairman.
    Senator Pryor. Senator Smith?

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

    Senator Smith. Thank you, Mr. Chairman.
    Ms. Siggerud, it seems to me that in Europe and in much of 
Asia, even China, they have fuel-efficiency levels that exceed 
ours. Is there something that we can learn from them? What are 
they doing that we're not doing?
    Ms. Siggerud. Sure.
    Senator Smith. And, by the way, you can get the same 
vehicles there as you get here, but they meet the standards 
abroad.
    Ms. Siggerud. To a great extent, yes.
    Senator Smith. OK.
    Ms. Siggerud. The Chinese standards are just--frankly, just 
being developed now. And so, we don't have a lot of 
observations there as to how effective they are or exactly how 
they are working, though, looking at Europe, what you have 
there is really a fuel efficiency standard that has been 
legislated through fuel taxes. Essentially, the fuel tax, as 
well as some European countries have changed the level of sales 
tax, depending on the fuel efficiency of a car, as well, to 
provide consumers incentives to buy more fuel-efficient 
vehicles.
    Senator Smith. So, they don't do it like we do?
    Ms. Siggerud. Right.
    Senator Smith. I see.
    Ms. Siggerud. The European community now has a voluntary 
standard, but is considering a compulsory standard that is 
focused more on the greenhouse gas issue than on the fuel 
economy standard itself.
    Senator Smith. But whether it's driven by tax policy or by 
CAFE policy, they're meeting much higher standards.
    Ms. Siggerud. Yes.
    Senator Smith. That seems to put in question claims that 
current U.S. standards are as high as they can possibly be 
without affecting the kind of choices consumers get and the 
safety they enjoy.
    Ms. Siggerud. Yes. I guess I wouldn't say the standards are 
as high as they could possibly be. That's why we're having this 
hearing today. And I think that, for passenger car vehicles, 
they certainly could be higher, as proposed both by the 
administration and by Members of Congress. I think what's 
important to keep in mind, though, that you've raised here, is 
that CAFE is, sort of, one piece of what could be a several-
piece puzzle. CAFE does focus on the supply of vehicles and try 
to provide manufacturers an incentive to manufacture more fuel-
efficient vehicles over time. There is the demand side, as 
well. And you've mentioned that in Europe there are various tax 
policies that one could implement to provide incentives for 
consumers, as well.
    Senator Smith. Did you find that NHTSA, when they admitted 
to needing additional expertise, that they became more 
conservative or more aggressive in the administration of CAFE 
standards?
    Ms. Siggerud. Well, as you know, NHTSA was not able to do 
anything with CAFE standards until Fiscal Year 2002. When it 
was allowed to start to make some changes, in fact, it did 
become more aggressive, and proposed a new light truck standard 
that we've been talking about today.
    Senator Smith. Ms. Nason, we have separate standards for 
vehicles and light duty trucks and for domestic and imported 
fleets, isn't that correct?
    Ms. Nason. Yes.
    Senator Smith. But, by law, a vehicle is considered a 
domestic vehicle if at least 75 percent of the cost of the 
vehicle is attributable to the value added in the United 
States, Mexico, or Canada.
    Ms. Nason. That's correct, Senator Smith.
    Senator Smith. So, how much of meeting CAFE standards 
becomes just a numbers game, where manufacturers make 
modifications to move a vehicle from its passenger vehicle line 
to its light truck fleet or from its foreign to its domestic 
fleet? Is it just a numbers game?
    Ms. Nason. I think--and certainly the National Academy of 
Sciences, even, has noted the least expensive way to meet a 
CAFE increase is to produce more small vehicles to offset some 
of your large vehicles. Downsizing is a concern, and certainly 
compatibility between large and small vehicles is a concern 
that the agency has, independent of CAFE. Compatibility--safety 
is something that we're working on. So, there are a little bit 
of numbers to it. I would note, again, that we have not seen or 
heard that there are manufacturers who are intending to change 
their product plans or make dramatic changes on production 
decisions, based on what the CAFE number might be. Some years, 
they make CAFE--some of the manufacturers--and some years, they 
don't. They either use the credits that they've built up, 
because we allow them to save their credits for 3 years if 
they're over the CAFE number, and some years they pay fines. 
But, so far as we can tell, they're not making production 
decisions based on the particular CAFE number.
    Senator Smith. Aren't there other ways to enhance safety, 
Nicole, such as by standardizing bumper heights, that aren't 
based on weight, but that can, in fact, increase safety?
    Ms. Nason. Yes, Senator, we have recently had conversations 
about making changes to bumpers, specifically.
    Senator Smith. I see.
    Ms. Nason. The bumper standard has changed since the 1980s. 
But one of the things that we're looking at--for example, is, 
when we're testing the vehicles, do we need to make changes in 
our barrier, the way that we run a barrier into a vehicle--
should we make changes so that it's a barrier that perhaps more 
closely replicates a real-world larger vehicle with a higher 
bumper? So, there are things that we are looking at, and we 
agree, there are improvements that can be made in safety in 
those areas.
    Senator Smith. I recently saw a report to that effect, that 
there is tremendous damage caused from the smallest kind of 
accidents because of----
    Ms. Nason. Right.
    Senator Smith.--bumper configuration. So, I would certainly 
draw your attention to that.
    Ms. Nason. Yes, sir.
    Senator Smith. In my part of the world, and, I think, in 
most of rural America, farmers are gearing up substantially, 
and are shifting crops to produce ethanol.
    Ms. Nason. Yes.
    Senator Smith. Obviously, fuel and food are now going to be 
very much in competition in this country. And yet, it's also a 
fact that ethanol burns less efficiently than gasoline. In 
fact, it reduces the mileage that vehicles will get. Have you 
factored that in to CAFE and what it all will mean, in terms of 
fuel efficiency standards?
    Ms. Nason. Well, we agree, Senator, yes, it does take more 
ethanol than it does gasoline. I think the President's overall 
goal is to help move the country toward energy security, and 
that is something that you gain with an increase in ethanol. 
Right now, if you are an alternative--a flex-fuel vehicle, a 
vehicle that could run, for example, on gasoline or E85, you do 
receive a credit. The credit is capped at 1.2, as you 
undoubtedly know, miles per gallon, and it goes down to .9, per 
the Energy Act of 2005. That is factored in by the EPA when 
they do the testing. So, when the numbers come to NHTSA for 
compliance purposes, whether we're going to give credits or 
impose a fine, we don't make any additional credits, we don't 
add on for ethanol, because that would be double-counting. EPA 
does it the first time.
    Senator Smith. But will you ultimately need to put in some 
factor for ethanol, as opposed to gasoline?
    Ms. Nason. At this time, I believe we--we think it makes 
sense to let EPA----
    Senator Smith. OK.
    Ms. Nason.--do accrediting for it. But we can discuss 
further, if you're interested.
    Senator Smith. Thank you, Mr. Chairman.
    Senator Pryor. Senator Rockefeller?

           STATEMENT OF HON. JOHN D. ROCKEFELLER IV, 
                U.S. SENATOR FROM WEST VIRGINIA

    Senator Rockefeller. Thank you, Mr. Chairman.
    There are several things I wanted to say, and then I'll ask 
a couple of questions.
    First of all, I have long supported CAFE increases. I can 
think of only one example in 23 years here where I have not, 
and I'm not particularly proud of that example. At the same 
time, I have opposed, always, what is sometimes referred to as 
universal percentage increase, or UPI. I need to explain.
    UPI is a CAFE reform that would require all automakers to 
increase fuel efficiency by a set percentage from today's 
corporate fuel standards. For example, Honda, Toyota--to some 
extent, Nissan--have much better CAFE numbers than the Big 
Three. Am I sympathetic to the Big Three? No. And I'll explain 
that in a moment.
    It is, in large part, because they made the technological 
and the innovation changes, these three other companies, to 
achieve their efficiencies while the Big Three concentrated on 
horsepower, plain and simple, with an occasional model to hint 
at otherwise. That's what Americans like. I don't particularly 
admire what people watch on television, but what Americans 
like, Americans get. And it's exactly and totally true with, 
particularly, the Big Three's attitude.
    So, it would be relatively easy, it would seem to me, to 
improve--if you're of the Big Three, to improve 10 percent from 
their current fuel efficiency numbers, because they're very 
low, they haven't done that much, they haven't been innovative. 
They're massive bureaucracies. I have hours of testimony I 
would be delighted to give you on that subject. A 10 percent 
increase would be very difficult, although perhaps not 
impossible, for the companies that I mentioned before that, 
Nissan, Toyota, and Honda.
    Now, very rarely does Senator Sununu make a mistake, but he 
made a big one this morning. And I want to get your views on 
it, because it's the law. The President and the various 
administration officials have said that the Congress needs to 
act to increase CAFE standards. I have been here when we last 
did that--I think, 14 years ago. Actually, that was--sort of, 
the price of gasoline--it went up 4.3 cents per gallon, the 
great gesture of efficiency. However, when the President and 
the administrative folks, like yourself, say that we require 
congressional action, that is not true. There is no further 
authorization of Congress required for NHTSA and the President 
to get together and do this very basic important matter, which 
is to: increase the fuel efficiency of our automotive fleets in 
one fell swoop--without the entanglements of two branches and 
535 Members of Congress--lessen our dependence on foreign 
sources of oil, improve the quality of the air we breathe, and 
reduce the carbon that the transportation sector is emitting.
    Now, I put that down as writ. Writ. I would encourage both 
of our Government witnesses to respond today--if they so 
choose? No, I would like you to respond. But I also want you to 
make an additional comment, and then I have additional 
questions, if I have time.
    Whoever has to take the lead, be it the Congress or the 
Administration, I sincerely hope we can agree--we must agree--
that we must increase automobile fuel efficiency. I, frankly, 
am a purist about this. No, I don't come from a big automobile-
producing state, and I have--ever since I've been here, for 23-
24 years, I've been a purist on this subject. Purist. With one 
exception, which I regret. I believe there should be a standard 
much higher than we have in place today, which every automaker 
should exceed or meet, and in a reasonable timeframe. And I 
don't think either of you have really risen to that excitement 
very much.
    So, let me just, for a moment, go back to the idea of the 
power of the President and NHTSA, or perhaps other agencies, to 
go ahead and do this on their own, without us, which is, in 
fact, the case, and which you have carefully avoided 
mentioning.
    Ms. Nason. Thank you, Senator Rockefeller. Perhaps you will 
be surprised that I do agree on both points. On UPI, on an 
uniform percentage increase, in our draft legislation, we 
proposed prohibiting that, making that not a way for the agency 
to increase CAFE, because, as you said, there are some 
manufacturers who have already made the investments, and others 
have not. So, we wouldn't want to ask for--our goal, for 
example, is 4 percent--a 4 percent increase may be easier at a 
lower end than it is at a higher end, and that is why we agree 
that a UPI would be an unfair imposition on some manufacturers.
    Regarding the authority to increase the CAFE number for 
passenger cars, I believe we do have the authority to increase 
the passenger car. Right now, the overall fleet average is 
27.5. We could probably--28 or 29 or 30. What we'd like to 
have, and what we are asking for--Congress for, is for two 
pieces, the ability to reform the program, similar to what 
we've done to light trucks, and to increase the stringency 
level. And we'd like to marry those two pieces together and 
reform CAFE in a way that the National Academy of Sciences has 
recommended, in a way that we believe is most responsible, but 
also guaranteeing an increase.
    Senator Rockefeller. If you mean what you say, the National 
Academy of Sciences, you agree with me, et cetera, but you want 
to marry these two in legislation, one supporting the other, 
either of which could bring the other down--535 people agreeing 
on a CAFE standard, to be then supported by the President of 
the United States, with a lot of pressure building up from all 
over the country, is not an easy thing to do. So, it seems to 
me that you'd do better to go ahead and do the first, and then 
come to us for the second, if you need to.
    One more point, Mr. Chairman. I think, frankly, it is an 
insult for those who would make this argument to the American 
worker, to say that somebody comes before Congress and--that 
our automakers cannot make efficient cars. I find that an 
extraordinary statement. Don't blame the workers for that. I 
blame the management for that. I've dealt with GM, Chrysler, 
and Ford management for many years. I have three Ford cars, if 
that'll do you any good. But it is astounding, it is one of the 
great examples of lassitude in our public policy in the last 
couple of generations.
    Thank you, Mr. Chairman.
    Senator Pryor. Thank you.
    Senator Boxer?

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

    Senator Boxer. Thank you so much.
    Administrator Nason, I think you do a very good job of 
testifying for this administration, but I have to tell you, for 
those who want to do nothing about fuel economy, you are the 
perfect spokesman. And it's amazing to me, because I've been 
listening. You're the perfect spokesman. And, you know, to me, 
I look at the world today, I look at the fact that we're at war 
in the Middle East, I look at the fact that we have a situation 
where we are dependent on countries we don't want to be 
dependent upon, and you are in a position, in this day, in this 
moment, to step up to the plate, and it is very sad that, you 
know, you just sit there and absorb these questions, and 
business as usual seems to be fine.
    Now, I want to ask you, do you think fuel economy is a good 
thing for our country? Do you think it's good that we try to 
push forward to get better fuel economy in our country?
    Ms. Nason. If you mean improve fuel economy, yes, Senator--
--
    Senator Boxer. OK.
    Ms. Nason.--Boxer, I do.
    Senator Boxer. Now, do you know what fuel economy was when 
Congress instituted the law in 1975?
    Ms. Nason. I believe the law doubled the fuel economy at 
the time.
    Senator Boxer. It was 13.5 miles per gallon. And if you 
were sitting in that seat for this administration back then, I 
would bet you would have the same type of responses. And then 
nothing got done since 1990. Nothing has gotten done. And it's 
extraordinary to me.
    Now, the automakers--and I want to talk about greenhouse 
gas emissions, because we have--myself, Senator Lautenberg, 
Senator Snowe--are very involved in meeting that challenge. And 
I want to ask you this. Do you know that the automakers have 
admitted that they're part of the greenhouse gas emissions 
problem? Are you aware that they've admitted that?
    [No response.]
    Senator Boxer. I mean, if--I will place in the record for 
you to see that they have--do you know what proportion of 
greenhouse gas emissions are traced to mobile sources in 
America today? How much of the problem?
    Ms. Nason. I believe it's 30 percent for the transportation 
sector.
    Senator Boxer. That is absolutely right. Why on earth would 
you have assigned a zero--a zero benefit for reduction of 
carbon dioxide? I don't understand it. Now, your answer that 
was given is, ``The scientific community has not''--this is not 
you, this is your organization--``The scientific community has 
not reached a consensus on the value that should be assigned to 
carbon dioxide.'' However, are you aware that they did give you 
a range of options, none of which were zero? Why would you pick 
zero?
    Ms. Nason. I believe, at the time, the agency did look at 
the range, and the range was very broad; and so, they were not 
able to narrow it. I do think----
    Senator Boxer. Did you ever heard of compromising between 
the low range and the high range. How do you give it zero? How 
do you give it zero? Reducing greenhouse gas emissions from 
vehicles has important long-term implications for our 
environment and our way of life. Have you not read the IPCC 
report? Have you seen the IPCC report?
    Ms. Nason. I have not read the report, but I----
    Senator Boxer. OK.
    Ms. Nason.--I have read our rulemaking. I do agree with 
you. That's what it says for light trucks. I think the range 
that we were looking at was somewhere between--even if you drop 
off the far-right and the far-left numbers----
    Senator Boxer. What do you mean, ``the far-right and the 
far-left''?
    Ms. Nason. Negative values, which we disagree with, to 
$1,600 a ton----
    Senator Boxer. But why do you say ``far-right and far-
left''?
    Ms. Nason. On the range, the----
    Senator Boxer. Oh, I thought you meant----
    Ms. Nason.--not----
    Senator Boxer.--politically. I was wondering----
    Ms. Nason. No, no, no.
    Senator Boxer.--because this is a scientific issue, and I 
was--when we say ``far right and far left,'' we talk about 
politics.
    [Laughter.]
    Senator Boxer. So, you mean the range on the left side of 
the page and----
    Ms. Nason. Right. Of the----
    Senator Boxer.--the right side.
    Ms. Nason.--the ledger.
    Senator Boxer. OK.
    Ms. Nason. The right and the left.
    Senator Boxer. But--so, you have read about the IPCC----
    Ms. Nason. Yes.
    Senator Boxer.--report. And the U.N. Foundation report that 
came out right after it. And you have heard the President 
mention climate change in his speech. And yet, you assign it a 
zero.
    Mr. Chairman, this is really sad. When you have a third of 
the problem coming from mobile sources, and you get zero credit 
for reducing greenhouse gas emissions.
    You know, I think you need to go back and take another look 
at that.
    Now, are you aware that--I'm sure you agree, because I 
think we all agree, that it's important for America to be able 
to sell its products in other countries. I'm sure you would 
agree with that.
    Ms. Nason. Yes.
    Senator Boxer. Yes. Well, are you aware that China, for the 
first time, is going to impose minimal fuel economy standards? 
Now, China has the worst environmental record of any country. 
You realize they're going to surpass us in greenhouse gas 
emissions very soon.
    Ms. Nason. I am aware they are discussing that in China. I 
don't believe that they've passed anything yet.
    Senator Boxer. Well, let me make my point.
    Ms. Nason. Yes.
    Senator Boxer. The draft--OK--that they have come up with 
would mean that some of our automakers, including the auto--
Chevrolet Blazer--would not measure up to the standards. Now, 
doesn't--as you sit there, does it give you any pause that 
China, you know, the worst leader on the environment, the worst 
leader on greenhouse gas emissions, is--may well, because of 
their legislative actions, say to American car companies, 
``Gee, if you don't modify, you're not going to be able to sell 
here?'' Does that give you pause? Does that not make you 
realize that sometimes when we do things around here, it 
actually helps our business? Are you aware that when seatbelt 
laws went in, the automobile companies said, ``Oh, don't do 
this to us.'' And then, they had the airbags, ``Oh, don't do 
this to us.'' And now, they take credit for it. They take 
credit for it. And now, you see ads where the companies are 
saying, ``We're doing better on fuel economy.'' Why? Because we 
took action.
    So, the point I'm trying to make is--when you were 
confirmed, I asked you a question in that confirmation hearing, 
and I said, ``How do you feel about fuel economy standards?'' 
And you answered you're going to work with us on this. Have you 
met with Senators here on this issue to discuss ways of making 
fuel economy better in America since you are going to celebrate 
your 1-year anniversary in your post pretty soon in a couple of 
months? Have you met with anyone?
    Ms. Nason. Yes, Senator, we met with some Members and staff 
last year and again this year.
    Senator Boxer. Do you support the legislation, say, of my 
colleagues, Senator Snowe and Senator Feinstein?
    Ms. Nason. I think we have the same goals.
    Senator Boxer. Do you support their legislation?
    Ms. Nason. Of course we support the administration's----
    Senator Boxer. Do you----
    Ms. Nason.--proposal to----
    Senator Boxer. Do you oppose their legislation?
    Ms. Nason. No, I don't think----
    Senator Boxer. Does NHTSA oppose the legislation?
    Ms. Nason. No, I don't think I'd say we----
    Senator Boxer. So----
    Ms. Nason.--oppose it. I think----
    Senator Boxer. So, therefore, we can say, at this hearing, 
because it's news, that NHTSA does not oppose Senator Snowe's 
legislation. Can we tell the people that at home?
    Ms. Nason. I think ``does not oppose'' and ``would like to 
work with the Senators to''----
    Senator Boxer. OK.
    Ms. Nason.--``make some changes'' is not the same as----
    Senator Boxer. And what would those changes--what would 
those changes be--look like?
    Ms. Nason. Well, the challenging issue for us in many of 
the pieces of legislation that we've seen, not just that 
particular bill, but others in the House and others in the 
Senate----
    Senator Boxer. Well, I'm talking about this particular 
bill.
    Ms. Nason. They have the same--the same theme seems to be 
coming through, which is that Congress would like to have a 
guarantee in statute of an increase, and Congress would like to 
make sure that there's a guarantee that there's no backsliding, 
if you will. So, there needs to be a guaranteed floor and a 
guaranteed ceiling. And the challenge that we have in doing a 
reform proposal is being hemmed in by specifics.
    Senator Boxer. OK.
    Ms. Nason. You must be a top and you must be a certain 
number at the bottom.
    Senator Boxer. OK. All right. Well, that says it all. Fuel 
economy standards are specific, and they are numbers.
    Thank you.
    Senator Pryor. Before I recognize Senator Lautenberg, I'd 
just like to tell the Committee and the witnesses that it looks 
like we're going to have a vote, around noon, which is in about 
10 minutes or so, and we're on a trajectory with two or three 
Senators remaining to wrap up this panel at about, maybe, 5 or 
10 after. So, we'll do that. What I'd like to do is just take a 
very brief 5- to 10-minute recess, and then have the second 
panel come back immediately after that vote.
    Senator Lautenberg?

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

    Senator Lautenberg. Thanks very much, Mr. Chairman. And I'm 
sorry that I was called to another committee.
    But this hearing, in my view, borders on the critical, 
because this is the one place that others have shown us that we 
can deal with. And it's pitiful, when you look at how we are 
smothered with information about global warming and the threats 
that it poses to my ten grandchildren, to everybody's 
grandchildren, to future generations, and we, kind of, sit 
back, and things don't happen. So, it pains me when I see what 
has happened. I don't think I can be here for the next panel, 
Mr. Chairman, but the next panel is a place that I'd like to 
discuss why America dropped the ball--when we had the goal 
posts, the stadium, the whole thing, and we dropped the ball. 
It's pitiful.
    All of us want America to lead, and, when it comes to 
reducing emissions that create global warming, we're behind. 
And we've got a chart here that my able chart-holder----
    [Laughter.]
    
    
    Senator Lautenberg.--and we see what has happened. These 
were projected goals. And we see that America is at the bottom. 
And if we look at the year 2006, where the projections have 
actually kind of been met, and China--China is doing better 
than we are. And the EU--you know, they're almost double our 
accomplishments to date, when you look at--here we are, we're 
hovering around the 22-24 miles to the gallon, and the others 
are now--Japan's over 40, and people are buying Japanese cars, 
and in pretty good quantity. Unfortunately--and the negative 
effect is on our jobs and is on our industry leadership and our 
growing import base. So, based on this, Japan, obviously, is 
currently leading the world. Many Japanese drivers are getting 
more than 40 miles per gallon. And when you look at us, we are, 
as I said earlier, behind. Our passenger cars have been getting 
27.5 miles to the gallon since 1990. And light trucks have been 
getting 21.6 miles per gallon. One-third of America's 
greenhouse gases, as you acknowledged, Ms. Nason, come from the 
tailpipes of cars and trucks. And to cut those emissions and 
fight global warming, we've got to increase our CAFE standards, 
and make those standards mandatory.
    This year, the Bush Administration adopted new CAFE 
standards for light trucks. Their standards are too weak. 
They're not going to cut emissions or global warming. We need 
stronger standards to cut emissions and save the environment. 
And I don't know where we're going to step up to the plate and 
do it. I'm an original cosponsor of legislation to improve fuel 
economy by 10 miles a gallon over 10 years, and I'm going to 
work with my colleagues on the Commerce Committee to promote 
mandatory laws that reduce greenhouse gases in our atmosphere.
    And I would ask you, Ms. Nason--the President's plan for a 
CAFE reform allows the Department of Transportation to revise 
CAFE standards up or down based on market conditions. What are 
the conditions that could lead NHTSA to reduce CAFE standards--
to reduce them?
    Ms. Nason. I can commit to you, Senator Lautenberg, that if 
we have the authority to reform the program, we will increase 
the standards.
    Senator Lautenberg. We want to increase them.
    Ms. Nason. Yes, sir.
    Senator Lautenberg. So, then, again, we are effectively 
having reductions by not meeting the more imposing conditions 
that we have upon us. I think Senator Boxer was quite clear in 
her expressions about where we are and why we're, kind of, 
sitting on our hands. We've got Americans traveling 33 million 
trips on public transportation each day, which significantly 
reduces the amount of people that get in their cars and drive--
--reducing congestion, pollution, et cetera. Now, what are the 
specific measures that the President's gasoline reduction 
proposal contained, that will increase the use of public 
transit? Do you see any?
    Ms. Nason. The President's proposal to reduce gasoline 
consumption----
    Senator Lautenberg. Yes, that will----
    Ms. Nason.--is 8.4 billion gallons.
    Senator Lautenberg.--that will take advantage of this one 
thing that we know about, that is to increase the use of public 
transportation.
    Ms. Nason. Well, there's nothing in the proposal that would 
decrease----
    Senator Lautenberg. No, no----
    Ms. Nason.--the use of public transportation. It's a----
    Senator Lautenberg. I know. So, we just stand still, then.
    Ms. Nason. It's a proposal directed toward cars and light 
trucks for an increase----
    Senator Lautenberg. Well, but----
    Ms. Nason.--in CAFE. It could be that if CAFE----
    Senator Lautenberg. Well, one of the ways that we can do 
that, we know, is to get people out of their cars----
    Ms. Nason. Right.
    Senator Lautenberg.--and get to more efficient use of 
public transportation. And so, we're looking at a--an 
opportunity here--for instance, I'm a strong advocate of 
improving Amtrak's ability to carry people, as you know, and 
the President offers us budgets that will put Amtrak into 
bankruptcy. And so, it seems to me that with that easy 
transition from the roadway to the better way--is something 
that we ought to be doing. And I have one last chart that shows 
you the BTU per passenger mile. Amtrak is--has the number 
2,935; cars, way up ahead of that; airlines, even more. So, 
there's an opportunity to do something here. And I would urge 
you to talk to the people you know in the administration, 
rather, and urge them to find the easy way out, just step up 
and support Amtrak all the way.
    []The chart referred to follows:]
    
    
    Senator Lautenberg. Thanks very much.
    [Laughter.]
    Ms. Nason. Thank you, Senator Lautenberg.
    Senator Pryor. Thank you, Senator Lautenberg.
    Senator Snowe, as always, you've been patient.

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

    Senator Snowe. Oh, thank you. Thank you, Mr. Chairman.
    Well, first of all, Administrator Nason, I share many of 
the statements that Senator Boxer raised. It is confounding to 
me that NHTSA would place a zero-value benefit to the 
reductions of carbon dioxide emissions that I think is a 
fundamental benefit of the CAFE standards. Why would you place 
a zero-value benefit to those reductions? I mean, since the 
United States represents 4 percent, 5 percent of the world's 
population, yet we contribute 25 percent of the world's carbon 
dioxide emissions--I mean, it's demonstrated, time and time 
again, that CAFE standards will reduce those emissions. Why 
would you provide a zero-value benefit?
    Ms. Nason. Thank you, Senator.
    We agree that it's a benefit, and we were able to quantify 
it for the light truck rule, 73 million metric tons. The 
difficulty we had was in monetizing the value of the benefit. 
So, we can quantify it, but we had a challenge--the agency had 
a challenge in trying to monetize that, because there was no 
consensus, when they did a review of the scientific literature, 
of what the appropriate value would be, as compared to, say, 
carbon monoxide or nitrogen oxide or particulate matter or 
VOC--there were--there was consensus in the industry--in the 
community on that. There was not consensus on CO2.
    Senator Snowe. Well, I think--Ms. Siggerud, do you have any 
comments on that? Is that possible to do for--and make a 
recommendation to this committee?
    Ms. Siggerud. Administrator Nason is right that there is 
some uncertainty on this issue; however, in running a cost-
benefit analysis that lays the foundation for the standards 
that have been proposed for light trucks, or that could be used 
to increase the car standard, there are ways of dealing with 
uncertainty in a model, developing a range, perhaps, and then 
using that information to set a standard.
    Senator Snowe. Well, Mr. Chairman, I'd recommend that we 
require NHTSA to come back, you know, with a model that 
includes a benefit regarding carbon dioxide emissions. I think 
there's no other way. I sense a great deal of foot-dragging, 
reluctance, and, frankly, you know, just bureaucratic obstacles 
to this whole process. I mean, it doesn't really exemplify--and 
I think you'll sense the frustration here today--the--America's 
``can do'' spirit, you know, that should be resonating at this 
point in time, where we're, you know, facing radical regimes, 
and we're--dependency on foreign oil, the whole issue 
concerning the crisis in climate change. We should be rising to 
the occasion. And that's just simply not happening. And that's 
why, you know, you see the concerns here, demonstrated, you 
know, in multiple ways, through legislation, through speeches, 
and so on, because we don't see amything but otherwise 
bureaucratic resistance and--you know, and obstruction, 
frankly, to this process.
    What I keep hearing is what we can't do. We have to reform 
the CAFE standards. Well, that doesn't have to be mutually 
exclusive by increasing the CAFE standards. I mean, the 
National Academy of Sciences report, you know, spoke to the 
enormous and measurable benefits that CAFE standards--
increasing CAFE standards have brought to this country. I mean, 
we increased it by 40 to 50 percent when we did it between the 
1970s and through 1990. What is preventing America today, in 
the 21st century, with the technological advancements in--it's 
just--it's astonishing to me what I'm hearing. Where we're 
facing a confluence, you know, of, you know, national security 
challenges, and it's central to our dependency on foreign oil, 
not to mention the environmental implications, and we're 
saying, ``Well, we've got all of these multiple bureaucratic 
steps to be taken, and we can't do it.'' Well, of course we can 
do it.
    And I just think that--Mr. Chairman, that we ought to be 
considering a requirement for NHTSA to come back with a model 
and--because it's obviously not going to happen, and, if it 
does happen, it's going to be such a long period of time.
    I mean, I'm just thinking--how long is it going to take to 
reform the CAFE program, Ms. Nason? What's your estimate of 
time? How long would it take to reform? What are you giving for 
time on that?
    Ms. Nason. Our goal would be to begin in--seeing an 
increase in model year 2010. By statute, the manufacturers have 
18 months to make changes to their product plans to meet CAFE, 
so we'd have to have a final rule out by next April 1, 
essentially, to guarantee an increase in model year 2010.
    Senator Snowe. Well, you know, frankly, that's why, you 
know, Senator Feinstein introduced the legislation. I think 
that all--you know, there are many of the Committee members who 
have supported it. Senator Boxer's been a leader on this 
question. I think, frankly, the time has come for Congress--I 
mean, I don't think we can afford, you know, to rely on 
bureaucratic passivity, frankly. And I think that's what we've 
got here. I mean, I really do. I don't see any sense of 
urgency. It's not what--you know, like President Kennedy did 
when he was, you know, in--you know, calling upon America and 
its entrepreneurial spirit to place a man on the Moon, and we 
did it within 10 years, and--actually, less than 10 years. I 
don't--I just cannot understand why we can't be, at this moment 
in time--and I just don't see it. I think we ought to be able 
to meet ``Ten-in-Ten'' without any question. We have that 
capacity. And I just--it just sounds like, to me, where we've 
got more, you know, impediments, you know, the--and I think 
it's just not willing to do--it's a lot of foot-dragging, 
frankly. That's what I sense here. And, frankly, it's minuscule 
on the light truck side. I mean, seriously. And that's all 
America can do? I mean, China's beating us--as Senator Boxer 
said. I mean, you know, elevating their CAFE standards? I don't 
know how we can be competitive in, you know, this global 
economy of the 21st century, if this is the kind of attitude we 
continue to exhibit, time and again, when we're facing some 
serious, you know, challenges. And, frankly, the CAFE standards 
is the least of which we can do. We're not saying it's mutually 
exclusive to all other propositions. But clearly it is a 
central force. And the reason why we're--we--if we could 
improve it, you know, by 50 percent--we increase the fuel 
efficiency standards, the--and, you know, it's between--from 18 
miles per gallon to 27.5 between 1978 and 1990, then can you 
imagine, if we'd been on this course, we would be at 40 miles 
per gallon. So, it's just not exhibiting the necessary approach 
and attitude and spirit that I think that these times require.
    Thank you, Mr. Chairman.
    [The prepared statement of Senator Snowe follows:]

  Prepared Statement of Hon. Olympia J. Snowe, U.S. Senator from Maine
    I want to thank the Chairman for holding this hearing, and look 
forward to working with my colleagues to ensure that this Committee 
asserts itself as an integral part of the holistic revision of our 
Nation's energy policy. Certainly as a longtime proponent of increasing 
CAFE standards, I believe increasing the fuel economy of America's 
automobiles, SUVs, and trucks is indispensable in attaining that goal.
    In a recent meeting of energy stakeholders, Thomas Friedman, the 
noted New York Times columnist, was approached by an industry 
representative. This individual stated that, although he appreciated 
the columnist's push towards alternative fuels and greater energy 
efficiency, he needed to recognize that petroleum was going to remain a 
significant part of our Nation's fuel supply. In other words, he said 
that we should be ``realistic.'' Mr. Friedman responded by saying it 
was fortuitous that this industry representative was not a stakeholder 
when President Kennedy addressed a Joint Session of Congress on May 25, 
1961, where the President famously said, ``I believe that this Nation 
should commit itself to achieving the goal, before this decade is out, 
of landing a man on the Moon and returning him safely to the Earth.''
    Although many at NASA and within the space industry found the 
challenge daunting, they were inspired by this initiative and fulfilled 
the President's dream with roughly 5 months to spare. I begin with this 
anecdote because I believe we should approach America's failed energy 
policy with a challenge that echos the magnitude of President 
Kennedy's.
    According to BusinessWeek, U.S. vehicles are currently the greatest 
consumers of petroleum in the world, accounting for 9 million barrels 
of gasoline a day. Furthermore, the transportation sector is projected 
to become an even larger percentage of our overall energy demands. 
Specifically, the Energy Information Agency in its 2007 Annual Energy 
Outlook projected that, between 2005 and 2030, 93 percent of the growth 
in the demand for liquid fuels will occur in the transportation sector, 
citing, ``Growing population, incomes, and economic output spur travel 
demand.'' EIA further notes that projected fuel efficiency will only 
improve ``slightly'' if we maintain our present course. The bottom line 
is that the transportation sector is the single largest contributor to 
our failing energy policy.
    It is particularly regrettable that Congress has not addressed CAFE 
standards because the effectiveness of such a policy should not be in 
question. Economics Professor Austan Goolsbee, of the University of 
Chicago Graduate School of Business, illustrated the rewards of CAFE 
standards in an opinion-editorial in The New York Times in January. In 
the article, Professor Goosbee illustrated that from 1980 the 
efficiency increases in the transportation sector were consistent with 
other sectors. However, from 1990 to the present day while other 
sectors have modestly improved their energy efficiency the 
transportation sector's energy efficiency has been stagnant. Professor 
Gossbee concluded that, ``Our regulations are now much less stringent 
than those in Europe, Japan and even China . . . Since 1990, the number 
of gallons we use, even on a per vehicle basis, rose substantially.''
    The fact is that, since 1990, Congress has neglected its 
responsibility to increase fuel efficiency standards, and I do not 
believe that Congress should continue to abrogate this responsibility. 
Since 2001, Senator Feinstein and I have introduced legislation that 
would have significantly increased CAFE standards by closing the SUV 
loophole. In this Congress, Senator Feinstein and I have introduced 
even broader legislation that would raise average fuel economy 
standards for all vehicles, including SUVs and sedans, from 25 miles 
per gallon to 35 miles per gallon average across a manufacturer's fleet 
by model year 2019. Like Kennedy's call in 1961, I believe our 
initiative rises to the energy policy challenge facing the United 
States. A compelling comparison is that my legislation would save 2.5 
million barrels of oil a day by 2025, which just happens to be nearly 
the same amount of oil that we import daily from the Persian Gulf.
    From 1978 to 1990, automobile fuel efficiency increased from 18 
miles per gallon to 27.5 miles per gallon--an increase of more than 50 
percent. If the United States had been consistent and continued this 
course our automobile fuel efficiency would be more than 40 miles per 
gallon. I believe it is imperative that this Congress resuscitate a 
policy that The New York Times called the ``most successful energy-
saving measure this country has ever seen'' and pass increased CAFE 
standards.
    I was dismayed to read in the GAO testimony that some experts were 
critical of the fact that NHTSA assigned a ``zero dollar'' value to the 
benefit of reductions in greenhouse gas emissions that would result 
from an increased CAFE standard. NHTSA officials stated they did this 
because the scientific community had not yet reached a consensus on the 
value that should be assigned to carbon dioxide. One expert told GAO 
that the results of the NHTSA model may underestimate the total dollar 
benefits to society if CAFE standards were raised since the dollar 
value of reduced greenhouse gas emissions was not included in the 
model's results.
    Researchers have indeed developed a clear value that should be 
considered in giving a dollar value to greenhouse gas reductions and I 
believe it is very important that a benefit value other than zero be 
given to reducing carbon dioxide emissions through increasing CAFE 
standards. As a matter of fact, the Feinstein-Snowe-Inouye Ten-in-Ten 
bill will eliminate 420 million metric tons of carbon dioxide emissions 
by 2025, the equivalent of taking 90 million cars (or 75 million cars 
and light trucks) off the road in 1 year. There is more than a ``zero 
dollar'' value to the benefit to society for these reductions.
    My concern is that, if NHTSA is given the jurisdiction by the 
Congress to revise the CAFE program that it will not put a value on a 
decrease in greenhouse gas emissions through improved fuel economy. It 
seems no one at NHTSA has read the February report from the 
Intergovernmental Panel on Climate Change on the dangers this planet is 
facing now and in the future from global warming. The IPCC said that 
there is at least a ninety percent certainty that humans are causing 
it.
    In light of the IPCC report, I find it unconscionable that NHTSA 
could draw up reforms for improving CAFE standards and present them to 
the Congress while using models where the benefits of reducing 
greenhouse gas emissions through greater fuel economy are given no 
dollar value. Until I see proof that NHTSA will change its model and 
put an appropriate dollar value on reducing CO2 emissions 
through greater fuel economy standards, I will not abrogate my 
responsibility to legislate that these benefits to society be used in 
NHTSA's models.
    Mr. Chairman, I would like to suggest that this committee require 
that NHTSA come back to Congress with a revised assigned dollar value 
on the benefits of greenhouse gas reductions from increases in CAFE 
standards before this committee votes to hand over jurisdiction for the 
CAFE standards program for passenger cars to NHTSA. We are now in the 
21st century and our climate is reaching crisis proportions because of 
the increases of manmade greenhouse gas emissions and this fact--and 
the facts of the IPCC--should not be dismissed out of hand by the 
Department of Transportation. Light vehicles use 60 percent of the 
polluting oil in the transportation sector in this country and NHTSA 
has placed a zero dollar value on the benefits to society if emissions 
were decreased through greater fuel economy. This is beyond my 
comprehension.
    When Congress passed an automobile efficiency title to the Motor 
Vehicle Information and Cost Savings Act in the 1973 Energy bill, the 
overall objective was to nearly double the fuel economy of new 
passenger vehicles sold in the United States--from 14 to 27.5 miles per 
gallon (mpg)--by model year (MY) 1985. And, guess what, the goal was 
met. Now, in 2007, the standard is still set at 27.5 miles per gallon 
because Congress has not demanded a higher goal--even in light of 
tremendous advances made in advanced technologies and vehicle 
construction.
    The Administration is asking for substantial new authority without 
guaranteeing any increase in fuel economy that we need to save oil and 
reduce global warming pollution, and which we know to be 
technologically feasible. We have the technology to improve fuel 
economy by 4 percent per year (34 mpg by 2017). According to the Union 
of Concerned Scientists, the U.S. industry could make a 41 mpg family 
car, a 37 mpg minivan, 34 mpg mid-size SUV, and a 30 mpg pickup. But 
this won't happen without direction from Congress given this 
administration's anemic track record on fuel economy.
    I thank the Chair.

    Senator Pryor. Thank you.
    Senator Carper?

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

    Senator Carper. Thanks, Mr. Pryor--Mr. Chairman.
    Senator Pryor was in Delaware--was it yesterday--was in 
Wilmington. When he was in Wilmington, he was about 5 miles 
away from an auto plant where we build all the Pontiac 
Solstices, all the Saturn Skyes in the world. And he was about 
20 miles from a DaimlerChrysler plant in Newark, where we build 
all the Dodge Durangos and all the Chrysler Aspens in the 
world.
    Just a couple of comments. Because we have two plants in my 
state, I like to go up to the Detroit Auto Show--if not every 
year, then every other year--just to see what's being built 
there, what's being conceptualized. And 2 years ago, at the 
2006 Auto Show, the neatest thing I saw was--actually two 
things--I was--the folks from Honda had a real cool idea with 
respect to hydrogen and being able to generate electricity from 
your onboard vehicle, and put it in the garage, sell 
electricity back on the grid, you know, use the electricity 
that was being created in the garage to, you know, charge 
your--get your car ready to go out and to be able to, you know, 
light your house, cool your house, warm your house, sell 
electricity back. It was really a cool idea. The other neat 
idea I saw a year ago was DaimlerChrysler's idea called 
BlueTEC, B-l-u-e-T-E-C. And BlueTEC is low-emission, 50-state 
diesel, EPA-approved diesel, and that gets real good gas 
mileage. And it's going to be, probably, on our roads next 
year. This year, at the Auto Show, I thought the neatest 
vehicle I saw was a Chevrolet product--it was a GM product, 
called a Chevrolet Volt. And the Chevrolet Volt is a great-
looking vehicle. I call it ``eye candy,'' visually very 
appealing. And it's kind of a sports car. And the neat thing 
about it is that it's a flex-fuel plug-in hybrid. And the 
battery can be recharged by putting your foot on the brake. But 
the batteries also could be recharged on it with an auxiliary 
power unit onboard--could be fuel cells, it could be internal 
combustion. And then, with flex fuel, it could be diesel, with 
flex-fuel biofuels. And the battery always moves the wheels. 
The auxiliary power units always recharge the battery. It's 
really an elegant solution, I thought, a flex-fuel plug-in 
hybrid.
    At the Auto Show, I talked to the folks from GM. And I 
talked to folks from all the major auto companies that were 
there, at least the U.S.-based, and some of the foreign folks. 
And I said, ``I'm really enamored with the flex-fuel plug-in 
hybrid concept that you've shown us here,'' and I said, 
``What's keeping us from making it?'' And they said, ``The 
thing that is keeping us from making it is that we don't have 
the battery.'' And then they said, ``Apparently, the Japanese 
are over there working on battery technology. They're not 
anxious to share it with us, because that would give us a leg 
up, and they want to have a leg-up, as you might imagine.'' I 
called on the President and also the--Rob Portman, OMB 
Director. I called on Secretary Bodman at the Energy 
Department, to put some real money in the budget for battery 
technology. And, lo and behold, he put $81 million in the 
Administration's budget, on battery technology. And y'all have 
been getting beaten on here pretty good today, which is 
probably not altogether bad. We've all been in--sitting in the 
seats that you've taken--and I must say that the 
administration's leadership on these issues has been 
disappointing, at best. But I must say, I was encouraged that 
there's real money for this battery technology and that we have 
the ability to move a little closer to having the ability to 
provide more energy-efficient vehicles. The bad thing is it 
just takes so long.
    And the last thing I want to say, Senator Lautenberg showed 
us some nice-looking charts up here, and multicolored, and 
they're looking at comparing BTU consumption for trains and 
planes and cars. It was just a good ``gee-whiz'' for y'all to 
take home with you. If you move a ton of freight by rail from 
Washington, D.C., to Boston, Massachusetts--a ton of freight by 
rail from Washington, D.C., to Boston, Massachusetts--it takes 
about 1 gallon of diesel fuel. Pretty good, isn't it? Move it--
1 ton of freight from Washington, D.C., to Boston, 
Massachusetts, by rail, takes about 1 gallon of diesel fuel. 
And I know the administration is not a big believer in trains, 
whether moving people or freight, for that matter, but I think 
that's part of the solution.
    Let me ask you, if I can in the 2 minutes that are left for 
me, if you were in my shoes, if you were in Senator Pryor's 
shoes, and you were looking at this issue, what would you do 
differently? What would you do--not the administration's 
proposal--but what would you do differently? Not to say it's 
totally without value, but what would you do if you were in our 
shoes?
    Ms. Nason. If--I agree with you, Senator. One of the huge 
challenges for all of the industry is battery technology. I 
mean, if you're looking to make improvements in CAFE, CAFE is 
not a program that you're going to see a turnaround at the 
price of the pump tomorrow. There was a lot of conversation 
last year about that. CAFE is a long-term gradual increase. 
But, still, the only way, overall, to have a higher fuel 
efficiency for the fleet, 40-mile-per-gallon type, is to move 
into new technologies, is to move away from a straight internal 
combustion engine and to move more toward, first, clean 
diesels, but also into hybrids and then into hydrogen fuel 
cells, into vehicles like the Volt, which I also saw at the 
Detroit Auto Show. And I think we do need to, and the 
administration has, as you said, put more money into battery 
research technology. That is the way of the future. If you're 
moving away from nickel-metal-hydride and into lithium-ion, you 
need to resolve some of the problems with lithium-ion, like 
catching fire, for example, is a safety issue that we need to 
address. You need to make them durable. You need to bring the 
cost down. So, that is something that I think we need to look 
at more closely, and be more supportive of, for the overall 
auto industry.
    Senator Carper. Thank you.
    Ms. Siggerud?
    Ms. Siggerud. Senator Carper, setting aside the Volt car, 
there are a number of other technologies that look to be 
available in the nearer future than that, that certainly make 
it possible to increase the car standard over time. It has been 
static for largely two decades, although the work that we've 
done showed it is possible and should be done. The question 
that the Congress needs to address at this point is whether to 
move ahead, have the administration simply set a higher 
standard over time, using the current program, or to make some 
revisions to it to address some of the equity and safety issues 
that are associated with increasing that standard. And that is 
really a decision for the Committee to make, whether to direct 
the administration to simply move ahead in a straight-line 
approach or to make some changes to the program. If the latter 
choice is the one you would choose, then the Congress does need 
to act to provide some different authority.
    Senator Carper. My time's expired. Let me just say, I think 
there are three things that we can do as a country--
administration, Congress, and private sector together--but, for 
the Federal Government, number one, use Federal monies to help 
fund R&D--basic R&D, whether it's fuel cells, whether it's 
battery technology--Federal funds going into new technology to 
enhance the energy performance of our vehicles. Number two, use 
the Government's purchasing power to help commercialize these 
technologies when they are produced--on the defense side and 
the civilian side--to use our purchasing power to help 
commercialization. Number three is, where it's appropriate, to 
provide tax credits to incentivize people to buy, whether it's 
a highly energy-efficient hybrid or a highly energy-efficient 
low-emission diesel, to use it--those are three things that I 
think we can do. And, to some extent, we're doing them; we just 
need to do more of them. Thank you.
    Thanks, Mr. Chairman.
    Senator Pryor. Senator Carper, thank you.
    And we've had a little change in plans. And that is, I'm 
going to recess the Committee probably for about 5 minutes. 
Senator Kerry is voting right now and is going to come right 
back, and he'll restart, because he wants to ask this panel 
some questions. And then, as soon as Senator Kerry finishes, I 
anticipate, unless other Senators show up that want to ask this 
panel questions, we'll go to the second panel. So, what we'll 
do is, we'll stand in recess here for approximately 5 minutes, 
until Senator Kerry comes back.
    [Recess.]

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

    Senator Kerry [presiding]. Well, we'll come back to order. 
Thank you all for already, I guess, being there. An orderly 
group. And thanks for staying over. I apologize--with the 
vote--but I wanted to have an opportunity to be able to ask a 
few questions.
    I've listened to some of the testimony. I was stuck back in 
my office, but I have been able to hear some of the 
questioning, certainly that of Senator Sununu, Senator 
Rockefeller, and others, Senator Boxer, so I'm a little--I've 
got some sense of what has transpired here.
    But let me, kind of, touch upon something that I don't 
think has really been yet established. There's been some 
discussion about the goal, the President's goal, and it being a 
goal, et cetera. The legislation that I am a cosponsor of, that 
others here in the Committee have joined in on, sets a mandate 
with respect to that goal, as you know, with the clear 
understanding and belief from the scientific community that 
it's achievable, as many of us believe it has been for some 
considerable period of time. So, let me ask you that--I mean, 
you're--obviously, you're familiar with the goal. A 2002 
National Academy of Sciences report shows that we could easily 
achieve this fuel economy improvement. So, given the 
President's stated goal, can you share with the Committee, why 
does your proposal fail to set or recommend any mandatory 
improvement to meet the goal? And, given that fact, why should 
the Committee not, therefore, embrace, codifying that goal and 
setting it?
    Ms. Nason. Thank you, Senator Kerry.
    The legislation that we sent up, the draft legislation, is 
very similar to the legislation that the administration sent up 
last year. And last year, when I was the Assistant Secretary 
here with Secretary Mineta, and he testified in both the House 
and the Senate, there was clear interest on the part of many of 
the members on the panel to have more of a guarantee that 
instead of simply saying, ``Give us the authority, give the 
agency the authority, and we will do a new rulemaking,'' there 
was a feeling that we--sense--that we needed to offer more, 
that there--there needed to be a stronger message. And so, the 
President, in the State of the Union, articulated, as you said, 
his goal of 8.5 billion gallons of gasoline saved in 2017. The 
way to get there is a 4 percent annual increase in CAFE. 
However, as the President also noted, the ability to do a full 
cost-benefit analysis is important to the agency. And so, no, 
it is not in--on any particular page in our draft legislation. 
Four percent is a goal. It's our target. But it is not 
something that we put into the legislation, because we did want 
to have the flexibility to review the product plans by the 
manufacturers, and to do a full cost-benefit analysis, and to 
see what is achievable. That is our target, and that is what we 
hope to achieve, a 4 percent annual increase, year over year, 
from 2010 to 2017. But it is not--you are correct, Senator, it 
not in the legislation.
    Senator Kerry. But some people have tried to argue and 
question whether or not NHTSA, in fact, has the authority to 
raise those standards. Do you--would you agree that you have 
the authority?
    Ms. Nason. I believe we have the authority to raise the 
number. As you noted, the National Academy of Sciences report, 
we do not have the authority to reform the program for 
passenger cars. We have it for light trucks. When Congress 
first passed the statute in 1975, there was a distinction 
between trucks and cars.
    Senator Kerry. Right.
    Ms. Nason. And trucks being a far smaller percentage of the 
market than they are now--now they are half, then they were 
about 20 percent--so, we have reformed light truck. We would 
like to have the authority to reform passenger car and increase 
the stringency.
    Senator Kerry. Well, yes, but the record on this is, in 
fact--I mean, it may go back to that period of time when the 
light truck/passenger fleet was divided and distinguished 
differently. But the fact is that, only a few years ago, we all 
tried very hard to change it based on the realization that that 
had--that balance had changed. And we ran into a buzzsaw of 
opposition. Senator Hollings and I introduced Senate 1926, 
which was the National Fuel Savings and Security Act of 2002, 
and it called for a combined fuel economy average in 2002--
that's 5 years ago, obviously--of 35 miles per gallon by 2015. 
That became part of the comprehensive energy bill. And then, 
the industry and others joined together with a couple of 
Senators who brought, you know, an amendment to the floor which 
created this elaborate set of standards that they gave to you. 
And it struck the Kerry-Hollings provision from the energy 
bill. So, we have been trying to respond to this for 5 years 
now, or more. You folks have, frankly, been way behind the 
eight ball on it, as you've heard from my other colleagues here 
this morning.
    So, my question, again, sort of, is, if the President sets 
a goal, and the goal is to have any meaning, why would you not 
require an increase that is clearly within the technological 
capacity of the United States to achieve, and the industry?
    Ms. Nason. Yes, again, thank you, Senator.
    What we would like to do is, as you know, to have 4 percent 
as a goal. But based on the most updated product plans from the 
manufacturers, we would like to see what is technologically 
feasible but----
    Senator Kerry. But haven't you seen that?
    Ms. Nason.--economically----
    Senator Kerry. I mean, everybody else has. Are you--aren't 
you familiar with the National Academy of Sciences studies and 
reports?
    Ms. Nason. Yes, I'm very familiar with them, Senator.
    Senator Kerry. Do you doubt the science?
    Ms. Nason. No, I think we agree that basing reform on their 
suggestions is the most responsible way to increase CAFE.
    Senator Kerry. Well, they've basically laid out a lot of 
the technology that's available now.
    Ms. Nason. Yes, and we agree that that report needs to be 
updated, based on new technologies, but the NAS has----
    Senator Kerry. Which might even give you better 
improvements----
    Ms. Nason. Yes.
    Senator Kerry.--correct? But just the de minimis 
improvements that they already lay out as feasible are well 
larger than the range that you're currently talking about. So, 
why do you have to stop to do this analysis? Why not embrace 
this?
    Ms. Nason. The National Academy of Sciences, Senator Kerry, 
was clear, in the report, that they don't endorse any 
particular CAFE number. They looked at some of the drawbacks to 
the program. It certainly was successful.
    Senator Kerry. Do you know what they said, Ms. 
Administrator? You know what they--sorry to interrupt you--but 
in 2001--that's 6 years ago now--they found that existing 
engine technologies were inexpensive enough to pay for 
themselves over the life of the vehicle, and could enhance fuel 
economy by 8 to 11 miles per gallon, with no net consumer cost. 
And with most fuel economy improvements for SUVs and other 
heavier vehicles, 34 percent increase from 18 to 28. That's 
what they found in 2001 technology. Here we----
    Ms. Nason. Yes----
    Senator Kerry.--are in 2007. You don't think we can do 
better?
    Ms. Nason.--and our light truck rule was a 9 percent 
increase. The passenger car fleet is a little bit higher than 
where the light truck fleet is.
    Senator Kerry. Right.
    Ms. Nason. So, it is more----
    Senator Kerry. Well, this has----
    Ms. Nason.--challenging to----
    Senator Kerry. Right.
    Ms. Nason.--increase fuel efficiency. But, again, what we'd 
like to do is to do a full reform, as NAS recommended, and to 
balance economic practicability with technological feasibility.
    Senator Kerry. Well, let me ask you, very bluntly, if we 
were to give you sort of a required reform authority--
additional reform authority--can you assure the Committee 
that--I mean, can you guarantee the Congress that you will 
require a 4 percent per year improvement in fuel economy?
    Ms. Nason. Senator, 4 percent, again, is a goal, it's our 
target, but without having the product plans and having the 
benefit of doing a full cost-benefit analysis, I can't, today, 
tell you exactly what percentage increase we would see, year 
over year.
    Senator Kerry. Well, then why----
    Ms. Nason. That is our goal.
    Senator Kerry.--did the President put the goal out there? I 
mean, this is meaningless. This is just a game.
    Ms. Nason. Yes, sir, I think we felt that having the 
President of the United States, in the State of the Union, 
address this and to speak specifically to 8.5 billion gallons 
of gasoline saved in 2017, is--that's the way to get there. And 
we certainly--the Secretary's position would be--and the NHTSA 
Administrator's position would be--that if the President sets 
that as a goal, you do everything you can to meet it. That 
would be our message today, that we will certainly do 
everything we can to meet it, but we'd like to have the ability 
to do a cost-benefit analysis to weigh the technological 
feasibility with the economic practicability, to look at the 
impact of other Federal motor vehicle safety standards on CAFE, 
to consider the need for the Nation to conserve energy, all of 
the statutory requirements that we have right now to do a full 
balancing of all those factors, and then propose a rulemaking.
    Senator Kerry. Well----
    Ms. Nason. But----
    Senator Kerry.--I think it's all--I mean, I have to tell 
you, it's been frustrating, over 22 years, to watch this 
process, watch it slide backward some of those years, stay the 
same, do worse than Europe and other countries, watch the 
Japanese and Germans clean our clock in the marketplace, and we 
just sit around and play games with this. You could get 500 
miles per gallon if you had a hybrid combined electric plug-in 
whatever--you guys just don't excite the marketplace. You're 
not willing to challenge it. So, I just think we have to. I 
really believe that. You know, if you had a mix of--I mean, if 
we were to take initiatives to get different fuels out there, 
and different mixes for automobiles, instead of Ford having had 
to lease, from Toyota, the technology to be able to produce a 
hybrid, we might have produced it. But there has been no push 
here, and a complete avoidance of the reality that, when you 
demand something, the marketplace responds. If you set a 
standard, the marketplace responds. And the fact is that, you 
know, there has been this myopia, and it goes back to the 
1960s, when Volkswagen first introduced the Bug, and everybody 
said, ``Oh, that's a niche market, that's not going to mean 
anything,'' and, boom, they got their clocks cleaned. And it's 
gone on one time after another after another. I mean, this 
would be a Harvard Business School case study in bad management 
and bad marketing, in the final analysis, having taken people 
who had unbelievable market share, unbelievable power in the 
marketplace, and just ignored the consumer realities and 
desires and a whole bunch of other things. And I think the same 
thing's happening here, in terms of fuel efficiency.
    Do you think a consumer--a mom with an SUV would rather 
spend 7,800 bucks on fuel that goes, half of it, to foreign 
countries, or would she rather spend a certain lesser 
percentage of that on a new technology that provides jobs and 
income to Americans?
    Ms. Nason. Well, I am a mom with an SUV. I have a Honda----
    Senator Kerry. Where would you rather have your money go?
    Ms. Nason.--and I agree that----
    [Laughter.]
    Senator Kerry. To Saudi Arabia?
    Ms. Nason. I think the administration's proposal is--as the 
President has noted, it's a heavy technology bid. We have to 
assume, and we would be seeing a far greater penetration in the 
fleet, with a 4 percent annual increase of hybrids and diesels, 
and moving forward with improved battery technology to hydrogen 
fuel cell and plug-in vehicles. That is where the industry 
needs to go to see greater fuel efficiency levels. We agree 
with you.
    Senator Kerry. So, why wouldn't you consider something like 
a $3,000 or $4,000 per vehicle tax credit for purchasers that 
go out and buy that kind of vehicle? You don't think the 
industry wouldn't leap at higher production level, and 
consumers would leap at the purchase?
    Ms. Nason. I think the administration has looked at--there 
are multiple ways to----
    Senator Kerry. But they aren't doing any of them. I mean, 
what is the plan? What is the plan for meeting the 4 percent 
goal?
    Ms. Nason. Our target of 4 percent----
    Senator Kerry. Target. What is the plan for meeting the 4 
percent goal--not a target--what is the plan to say to us, 
``We're going to meet the 4 percent goal?''
    Ms. Nason. We would treat reform, Senator, the same way we 
treated the light truck reform. We would do the same type of 
rulemaking. I'm not sure how else to help answer that question, 
other than to say that we understood--we understand that there 
is a great interest on the part of many of the members to try 
to find assurances in the legislation. We did not propose 4 
percent, because, as the President has said, he'd like to let 
the Department and the agency have the authority to do a full 
cost-benefit analysis and to do a full rulemaking. But, again, 
it's draft legislation, so, if there are ways that we can----
    Senator Kerry. How long have you folks been in office?
    Ms. Nason. I've been the NHTSA Administrator since last 
May.
    Senator Kerry. And how long has the administration been in 
office? Since 2001?
    Ms. Nason. Yes, well, as was noted by GAO, we did have a 
freeze for some years in Congress from making changes. But we 
did initiate a light truck----
    Senator Kerry. How do you think----
    Ms. Nason.--rulemaking.
    Senator Kerry.--that came about? You know that your rule on 
the light SUVs reaches only 2.8 percent of the 8.5 million 
light trucks that are sold annually. You think that's good 
enough? 2.8 percent of the 8.5 million light trucks?
    Ms. Nason. It's a 2 percent annual increase, and there are 
some manufacturers who, under the light truck rulemaking, are 
at the far end, and will need to make small to no changes, 
because their fuel efficiency--they've already invested in some 
of those technologies, and their fuel efficiency levels are 
already high enough that our rulemaking will not force a 
greater increase. One of the things we're trying to avoid in 
doing a reform proposal is asking all of the manufacturers to 
have the same percentage increase. Some of them have already 
invested in the higher-end technologies, and so, we have 
specifically said we do not want to have a uniform percentage 
increase from all the manufacturers. So, yes, there would be 
some, even under a reform passenger car, there would be some 
manufacturers who would have to make smaller improvements than 
others.
    Senator Kerry. Well, Mr. Chairman, I've gone over my time, 
and I appreciate it. But, you know, I'm just--I think there's 
such a--I know you sensed it from some of my other colleagues, 
there is such a frustration level up here with this--the sort 
of reluctance to excite the industry into a new performance 
standard, buying into, I think, some old views of things that 
are not realistic, measured against what others are doing, and 
measured against what the science tells us we could do. And 
that resistance has cost us a lot, not just in terms of 
gasoline consumption, oil dependency, but also health, jobs, 
economic advantage, I mean, a host of other things. I think the 
myopia has been unbelievably costly to the country, and I think 
it would be good for the administration--I mean, these 
technologies, we've talked about them here in this Committee 
for years. We've had any number of people come in and give us 
mix-and-match ways in which this could be done, but some people 
just don't want to do it. So, they sell a very complicated set 
of formulae to you and to others, and people don't do it. And 
the result is, we are where we are, but I think it's time for 
us, somehow, to seize the baton here and try to get something 
done that's more realistic.
    And obviously none of us want to lose jobs. We don't want 
to make an industry noncompetitive. I understand that, which is 
why I proposed, 2 years ago, putting a billion dollars, flat, 
right up front, into the industry, help them retool, put it 
into the plant retooling, put it into the ability to be able to 
do this, not to mention the tax credits you could give for the 
purchase of the vehicles or the assistance you could give in 
putting E85 into gas stations and a whole bunch of things. It 
would change the entire demand curve of our country.
    I'm not saying any one of those is the best thing to do, or 
100 percent correct, but I know this, we're not doing any of 
it. We are just nibbling at the margins in the most timid and 
reluctant and ineffective way. And it's costing us market 
share, and it's costing us jobs, and it's costing us health 
costs and--asthma and other things from the air quality. You 
name it. We're not even meeting those standards.
    So, I hope you all will, you know, do something. But, in 
the meantime, I hope we will, Mr. Chairman. Thanks.
    Senator Pryor [presiding]. Thank you, Senator Kerry.
    I want to thank the panel. You've been patient. And we've 
had that vote in the middle of the panel. You've gone through a 
lot of questions. And I'd like to excuse the first panel and 
then have the second panel come up.
    And you all come up and take your seats, and I'll go ahead 
and introduce you. And I know many of you, if not all, have 
opening statements, so we'll run through those, and then we'll 
ask questions after that.
    First, we have Mr. David Friedman, Research Director, Clean 
Vehicles Program, Union of Concerned Scientists; second, we 
have Ms. Elizabeth Lowery, Vice President, Environment and 
Energy, General Motors; third, we have Dr. David L. Greene, 
Corporate Research Fellow, Oak Ridge National Laboratory, 
National Transportation Research Center; next, we have Tom 
Stricker, Director, Technical and Regulatory Affairs, Toyota 
Motor of North America; and last, we have Alan Reuther, 
Legislative Director, International Union, United Auto Workers.
    So, if you, ladies and gentlemen, could take your seat, and 
as soon as everybody's seated, we'll recognize David Friedman. 
And I don't know if we'll have any other Senators join us. I 
know that, with the 7-minute rounds, with the number of 
Senators we have, this is going to go a little bit later than 
some Senators had scheduled, but----
    David Friedman, would you mind giving us your opening 
statement, please? And, by the way, there's a clock in front of 
you, so if you could just keep an eye on that, and maybe even 
keep it shorter than the time permits. Thank you.

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

    Mr. Friedman. Great, thank you, Mr. Chairman. I'll do my 
best.
    Recently, the country has reached a really important fuel 
economy milestone. Leaders in Congress, including Chairman 
Inouye and several members of this committee and the President, 
are basically in agreement with how far we should go to 
increase fuel economy standards over the next 10 years. The 
President's 8.5-billion-gallon conservation goal and the ``Ten-
in-Ten'' fuel economy bill would both require a fuel economy 
improvement of about 34 to 35 miles per gallon in 10 years. 
While these targets and dates are slightly different, the oil 
savings from both would be about the same, about 1.4 million 
barrels of oil per day in 2020. Basically, the ``Ten-in-Ten'' 
bill would make the President's goal the law of the land.
    Now, I think this general agreement on goals means that 
what we really need to do now is focus on how to get there. And 
obviously that's the devil in the details. By reforming and 
strengthening fuel economy standards, this committee has a 
significant opportunity to cut our oil addiction, to save 
consumers money, to create jobs, and, very importantly, to 
tackle global warming. Global warming is the single largest 
environmental challenge we face today. And our cars and trucks 
have impacts that are worldwide in scale. They require special 
attention because of that. Only the entire economies of the 
United States, China, and Russia produce more global warming 
pollution than just our cars and trucks. Those vehicles also 
are responsible for 40 percent of our oil addiction. In fact, 
we import about 60 percent of our oil and pay about $60 per 
barrel today. That's over $700 million per day, $500,000 per 
minute, leaving this country, that could have, instead, been 
spent to create U.S. jobs and strengthen our economy.
    Now, one of the main reasons why cars and trucks contribute 
so much to oil dependence and global warming is that the 
average fuel economy of the new car and truck sold in 2006 was 
lower than it was in 1986. Fuel economy standards can reverse 
this trend by steering automakers to use existing technology to 
put more high fuel economy choices on showroom floors. We can't 
afford to wait for hybrids, fuel cells, plug-ins, or 
alternative fuels to address these problems, when we have 
technology already in the hands of automakers.
    Technologies already on the shelf could be used across the 
fleet to reach more than 40 miles per gallon in the next 10 
years. But today automakers mainly offer compacts and a few 
family cars to consumers who want higher fuel economy. That 
leaves a mother with three children in car seats, or a farmer 
who needs a work truck, with no gas-sipping choices.
    Consumers aren't the only ones who are missing out. A 2006 
study from the University of Michigan shows that Detroit's Big 
Three could increase--increase profits by $1.3 billion in 2010 
if they invest in fuel economy, even if gasoline costs only $2 
per gallon. There's a real opportunity here. Existing 
technologies could create over 160,000 new jobs throughout the 
economy. In the automotive sector alone we could see an 
increase of over 40,000 new jobs. These jobs would be created 
by investing in better technology and because consumers would 
be spending less money on oil and more money here in America.
    Now, if the country is to realize these benefits, we 
recommend that Congress take the following three steps. First, 
Congress should establish a concrete fuel-economy target to 
guarantee that the President's oil savings goal is met. We have 
to guarantee that that happens. Adopting the ``Ten-in-Ten'' 
bill would achieve this goal, and, by 2027, would save as much 
oil as we currently import from the entire Persian Gulf.
    Congress should not cede this authority to NHTSA. NHTSA has 
not come through when setting the magnitude of fuel economy 
standards. They have reformed the system for light trucks and 
brought in size-based systems, which is a positive move, but 
the magnitude of their increase will save less than 2 weeks of 
gasoline each year from the most recent rule. And in--this is, 
in large part, because NHTSA is just not the right place to 
estimate the value of things like global warming pollution and 
oil dependence. Congress is the right place to show what 
consumers and the public think we should do about those 
problems.
    Now, second, Congress should provide NHTSA with the 
authority to extend these size-based standards to cars. This 
will give manufacturers, who make everything from compact cars 
to large pickups, the flexibility they have been asking for.
    Under the ``Ten-in-Ten'' bill, with size-based standards, 
this would mean a pickup would only have to meet 28 miles per 
gallon, not the 35 mile per gallon standard. The technology is 
out there to do that while saving consumers money.
    Now, finally, this pickup truck, of course, would have the 
same size, the same performance, and the same, or even better, 
safety than we have today by tapping into these existing 
technologies. Now of course this is going to require 
investments from automakers. And since the country is going to 
get a significant amount of benefits from increased fuel 
economy standards, in return for these improvements, Congress 
could provide incentives to companies that invest in the 
equipment and the people who will be needed to make these more 
fuel-efficient vehicles.
    At the end of the day, high oil and gasoline prices and 
continued increases in our oil addiction represent significant 
threats to our country, our economy, the climate, and U.S. auto 
jobs. Congress can do something about these problems by taking 
a leadership role on fuel economy.
    Thank you very much.
    [The prepared statement of Mr. Friedman follows:]

Prepared Statement of David Friedman, Research Director, Clean Vehicles 
                 Program, Union of Concerned Scientists
    Mr. Chairman and Members of the Committee, I would like to thank 
you for the opportunity to testify before you today. I am a research 
director and senior engineer with the Union of Concerned Scientists 
(UCS). UCS is a leading science-based nonprofit that has been working 
for a healthy environment and a safer world for over 30 years.
    I want to begin today by saying that I think we have reached an 
important milestone on fuel economy. It would appear that some leaders 
in Congress, including Members of this Committee, and the president are 
basically in agreement on how far we should increase fuel economy 
standards in about a 10-year period.
    In the President's State of the Union speech, he set a goal for 
America to conserve up to 8.5 billion gallons of gasoline by 2017. To 
do so, we would need to increase fuel economy standards for cars and 
trucks to about 34 miles per gallon by 2017, or about 4 percent per 
year. At the same time, the bill recently introduced by the Chairman 
and many members of this committee establishes a fuel economy target of 
35 mpg by 2019. Figure 1 shows the oil savings benefits of the existing 
Senate bills and the President's 8.5 billion gallon goal. The oil 
savings benefits of S. 357 are almost the same as the President's goal. 
Other members of the Senate and House have put forth bills with similar 
requirements in this and recent years.
    In addition, Senator Stevens, has introduced a bill to raise fuel 
economy standards for passenger cars to 40 mpg by 2017, or about a 39 
percent increase compared to the average fuel economy of cars today. If 
Senator Stevens applied the same improvement to the rest of the fleet, 
it would average just over 34 mpg by 2017. As it stands, the oil 
savings from S. 183 are half of the others since only half the fleet is 
included.
    I consider this a milestone because this significant agreement on 
fuel economy goals means that we can focus now on how best to reach 
them. By reforming and strengthening fuel economy standards for cars 
and trucks, this committee has a significant opportunity to help cut 
our oil addiction, save consumers money, create new jobs, and tackle 
the largest long term environmental threat facing the country and the 
world today, global warming.
Global Warming
    Carbon dioxide, the main heat trapping gas blanketing our planet 
and warming the Earth, has reached a concentration of about 380 parts 
per million. That is higher than the globe has experienced in the past 
650,000 years. We are already seeing the impacts of these elevated 
concentrations as eleven of the last 12 years rank among the 12 hottest 
on record (IPCC, 2007).\1\
---------------------------------------------------------------------------
    \1\ Reliable records began in 1850, when sufficient worldwide 
temperature measurements began.
---------------------------------------------------------------------------
    The worldwide costs of global warming could reach at least 5 
percent of global GDP each year if we fail to take steps to cut 
emissions (Stern Review, 2006). These costs would come in lives and 
resources as tropical diseases and agricultural pests move north due to 
our warming continent. These costs could also come from losing 60-80 
percent of the snow cover in the Sierras by the end of the century and 
the resulting impacts on agriculture in California and similar states 
that rely on snow melt for water. We will also see increased asthma and 
lung disease because higher temperatures will make urban smog worse 
than it is today.
    Global warming is a worldwide problem and our cars and trucks have 
impacts that are worldwide in scale. Only the entire economies of the 
United States, China, and Russia exceed the global warming pollution 
resulting from our cars and trucks alone. It is clear that the scope of 
pollution from our cars and trucks requires special attention as we 
begin to address climate change.
Oil Addiction
    In addition to the costs created by the pollution from our cars and 
trucks, our vehicles also contribute to 40 percent of our oil 
addiction. Overall, data from the Energy Information Administration 
indicates that we imported about sixty percent of our oil and other 
petroleum products in 2006. Last year alone, our net imports were more 
than 12 million barrels per day. When oil is at $60 per barrel, every 
minute that passes means over $500,000 that could have been spent 
creating U.S. jobs and strengthening our economy instead leaves this 
country. At the end of the day, high oil and gasoline prices and 
continued increases in our oil addiction represent one of the single 
biggest threats to U.S. auto jobs today.
Fuel Economy Background
    One of the main reasons our vehicles contribute so much to U.S. oil 
dependence and global warming is that the average fuel economy of the 
fleet of new cars and trucks sold in the U.S. in 2006 was lower than it 
was in 1986. And while automakers note the number of models on the 
market that get more than 30 miles per gallon on the highway, a look at 
EPA's 2007 fuel economy guide shows that there are more than 300 car 
and truck configurations that get 15 mpg or less in the city.\2\ Even 
if you exclude pickups and work vans, automakers still flood the market 
with nearly 200 car, minivan, and SUV configurations that get 15 mpg or 
less in the city. Consumers simply do not have enough high fuel economy 
choices when it comes to cars, minivans, SUVs and pickups.
---------------------------------------------------------------------------
    \2\ The EPA fuel economy guide configurations separate out two- and 
four-wheel drive and different engine sizes for each model. The number 
of models getting less than 15 mpg in the city will therefore be lower.
---------------------------------------------------------------------------
    Fuel economy standards were created to solve this exact problem. 
Just as we see today, automakers were not ready for the problems 
created in part by our gas guzzling in the early 1970s. As a result 
consumers jumped on the only option they had at the time, relatively 
poorly designed smaller cars. However, as fuel economy standards were 
fully phased in automakers switched from giving consumers poor choices 
to putting technology in all cars and trucks so car buyers could have 
options in the showroom with 70 percent higher fuel economy than they 
had in 1975 (2006 EPA Fuel Economy Trends Report). If the fuel economy 
of today's cars and trucks was at the level the fleet experienced in 
1975 instead of today's 25 miles per gallon, we would be using an 
additional 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 $2.50 per gallon, that represents $200 billion saved. That number 
could have been much better, however, if fuel economy standards had not 
remained essentially unchanged for the past two decades.
Technology to Create Consumer Choice
    Driving in America has become a necessity. Because of this and a 
lack of options, even the spikes in gasoline prices over the past 5 
years have not been enough to push consumers to significantly reduce 
their gasoline consumption.\3\ Better fuels and more alternatives to 
driving are important to helping consumers and cutting pollution, but 
the quickest route to reduced gasoline consumption and saving consumers 
money is put to more high fuel economy choices in the showroom.
---------------------------------------------------------------------------
    \3\ A recent University of California, Davis study concluded that 
consumers' short term response to gasoline prices has dropped by more 
than a factor of four since the 1970s. (Hughes, Knittel, and Sperling, 
2006) Data from the past 5 years indicates that a consumer would only 
decrease gasoline consumption by 3.4 to 7.7 percent in response to a 
doubling of gasoline prices compared to a 21 to 34 percent reduction in 
the late 1970s.
---------------------------------------------------------------------------
    The automobile industry has been developing technologies that can 
safely and economically allow consumers to get more miles to the gallon 
in cars, minivans, pickups and SUVs of all shapes and sizes. Figure 2 
shows the potential for these technologies to dramatically increase the 
fuel economy of an SUV with the size and acceleration of a Ford 
Explorer. This could be achieved using direct injection gasoline 
engines, high efficiency automatic manual transmissions, engines that 
shut off instead of wasting fuel while idling, improved aerodynamics, 
better tires and other existing efficiency technologies. These 
technologies have no influence on the safety of the vehicle. Others, 
such as high-strength steel and aluminum and unibody construction could 
actually help make highways safer.
    For just over $2,500 a consumer could have the choice of an SUV 
that gets more than 35 mpg. This is an SUV that alone could meet the 
fuel economy targets laid out by Members of this committee and the 
President. At $2.50 per gallon, this SUV would save consumers over 
$7,800 on fuel costs during the vehicle's lifetime. The technologies 
needed for this better SUV would even pay for themselves in about 3 
years. Automakers do already have vehicles on the road that can match 
this fuel economy, but most are compact cars. That leaves a mother with 
three children in car-seats or a farmer who needs a work truck with few 
vehicle choices until these technologies are packaged into higher fuel 
economy minivans, SUVs, pickups and other vehicles.
    The technologies in this better SUV could be used across the fleet 
to reach more than 40 miles per gallon over the next 10 years. The 2002 
study by the National Academies on CAFE showed similar results. Data in 
the report 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. (NRC, 2002)
    The question now is whether automakers will use these tools to 
increase fuel economy. Automakers have spent the past twenty years 
using similar technologies to nearly double power and increase weight 
by twenty-five percent instead of increasing fuel economy. (EPA Fuel 
Economy Trends Report, 2006) As a result, consumers today have cars and 
trucks with race-car like acceleration and plenty of room for children, 
pets and weekend projects. What consumers need now is to keep the size 
and performance they have today, while getting higher fuel economy. 
Without increased fuel economy standards, however, this future is 
unlikely. We are already seeing automakers market muscle hybrids, 
vehicles that use hybrid technology for increased power instead of 
increased fuel economy. And technologies such as cylinder cut-off, 
which increases fuel economy by shutting off engine cylinders when 
drivers need less power, are being used to offset increased engine 
power rather than increased fleetwide fuel economy.
    This committee is in a position to ensure that consumers can keep 
the power, size and safety they have in their vehicles today, and save 
thousands of dollars while cutting both global warming pollution and 
our oil addiction through deployment of technology aimed at better fuel 
economy across the vehicle fleet.
Economic and Employment Impacts of Setting Fuel Economy Targets
    Contrary to claims by the auto industry, investments in fuel 
economy technology, just like other investments in the economy, will 
lead to prosperity. No automaker would simply shut down a plant if it 
was making gas guzzlers that don't meet national fuel economy targets. 
Instead, they would make investments to upgrade their tooling to build 
more fuel efficient vehicles. A 2006 study from Walter McManus at the 
University of Michigan shows that automakers that invest in fuel 
economy, even as early as 2010, will improve their competitive position 
(Can Proactive Fuel Economy Strategies Help Automakers Mitigate Fuel-
Price Risks?). According to the study, Detroit's Big Three could 
increase profits by $1.3 billion 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.
    UCS has also sought to quantify the benefits of increased fuel 
economy. (Friedman, 2004, Creating Jobs, Saving Energy and Protecting 
the Environment) We estimated the effect of moving existing 
technologies into cars and trucks over 10 years to reach an average of 
40 miles per gallon (mpg). We found that:

  In 10 years, the benefits resulting from investments in fuel 
        economy would lead to 161,000 more jobs throughout the country, 
        with California, Michigan, New York, Florida, Ohio, and 
        Illinois topping the list.

  In the automotive sector, projected jobs would grow by 40,800 
        in 10 years.

    A similar analysis done by the economic-research firm Management 
Information Services (MIS) evaluated the potential job impacts of 
increasing fuel economy to about 35-36 mpg by 2015 and found even 
greater growth at more than 350,000 new jobs in 2015. (Bezdek, 2005, 
Fuel Efficiency and the Economy) This job growth included all of the 
major auto industry states.
    In both the UCS and the MIS studies these new jobs would be created 
both because of investments in new technologies by the automakers and 
because consumers would shift spending away from gasoline to more 
productive products and services.
    Requiring all automakers to improve fuel economy will increase the 
health of the industry. Companies like Ford, General Motors and the 
Chrysler division are currently in bad financial condition due to poor 
management decisions and elevated gas prices, not fuel economy 
standards, which have been stagnant for the past two decades. Those 
poor decisions have put them in a place where, just as in the 1970s, 
they do not have the products consumers need at a time of increased 
gasoline prices, and they are continuing the slide in market share that 
began the first time they made this mistake.
    By requiring Ford, GM, Chrysler and all automakers give consumers 
the choices they need, Congress can ensure automaker jobs stay in the 
U.S. and models like the Ford Explorer and Chevrolet Tahoe are still on 
the market 10 years from now--though they will go farther on a gallon 
of gas.
Safety Impacts of Setting Fuel Economy Targets
    While the NAS study clearly states that fuel economy can be 
increased with no impact on the safety of our cars and trucks, critics 
of fuel economy standards often point to the chapter, which takes a 
retrospective look at safety. Despite the fact that this chapter did 
not represent a consensus of the Committee (a dissenting opinion from 
two panel members was included in the appendices) and the fact that 
three major analyses have since shown that fuel economy and safety are 
not inherently linked, claims are still made to the contrary.
    First, David Greene (one of the NAS panel members) produced a 
report with Sanjana Ahmad in 2004 (The Effect of Fuel Economy on 
Automobile Safety: A Reexamination), which demonstrates that fuel 
economy is not linked with increased fatalities. In fact, the report 
notes that, ``higher mpg is significantly correlated with fewer 
fatalities.'' In other words, a thorough analysis of data from 1966 to 
2002 indicates that Congress can likely increase fuel economy without 
harming safety if the past is precept.
    Second, Marc Ross and Tom Wenzel produced a report in 2002 (An 
Analysis of Traffic Deaths by Vehicle Type and Model), which 
demonstrates that large vehicles do not have lower fatality rates when 
compared to smaller vehicles. Ross and Wenzel analyzed Federal accident 
data between 1995 and 1999 and showed that, for example, the Honda 
Civic and VW Jetta both had lower fatality rates for the driver than 
the Ford Explorer, the Dodge Ram, or the Toyota 4Runner. Even the 
largest vehicles, the Chevrolet Tahoe and Suburban had fatality rates 
that were no better than the VW Jetta or the Nissan Maxima. In other 
words, a well-designed compact car can be safer than an SUV or a 
pickup. Design, rather than weight, is the key to safe vehicles.
    Finally, a study by Van Auken and Zellner in 2003 (A Further 
Assessment of the Effects of Vehicle Weight and Size Parameters on 
Fatality Risk In Model Year 1985-98 Passenger Cars and 1985-97 Light 
Trucks) indicates that increased weight is associated with increased 
fatalities, while increased size is associated with decreased 
fatalities. While this study was not able to bring in the impacts of 
design as well as size, it helped inform NHTSA as they rejected weight-
based standards in favor of size-based standards based on the vehicle 
footprint.
    These studies further back up Congress' ability to set fuel economy 
targets as high as 40 mpg for the fleet in the next 10 years without 
impacting highway safety.
Getting Fuel Economy Policy Right
    Given broader agreement on how far fuel economy must increase, we 
now need policies to lay out how to get there. Congress should follow 
four key steps to ensure that the country gets the benefits of existing 
fuel economy technology:

  Establish a concrete fuel economy goal

  Provide NHTSA with additional flexibility to establish size 
        based standards

   Institute a backstop to ensure that the fuel savings 
        benefits are realized

  Provide consumers and/or automakers with economic incentives 
        to invest in technology for increased fuel economy
Set a Target of 34-35 mpg
    Congress can set a standard either meeting the President's goals of 
34 mpg by 2017 or 35 mpg by 2019 as in S. 357. Both of these fuel 
economy levels are supported by the guidance requested and received 
from the NAS and UCS analysis. By doing adopting S. 357, Congress would 
cut global warming pollution by more than 230 million metric tons by 
2020, the equivalent of taking more than 30 million of today's 
automobiles off the road. The bill would also cut oil dependency by 2.3 
million barrels of oil per day in 2027, as much oil as we currently 
import from the Persian Gulf.
    The key to reaching these goals, however, is that Congress must set 
these targets and not leave it up to NHTSA. NHTSA has proven to have a 
poor track record when setting fuel economy standards so far. Their 
recent rulemaking on light trucks will save less than 2 weeks of 
gasoline each year for the next two decades. This happened in part 
because they did not value the important benefits of cutting oil 
dependence and reducing global warming pollution from cars and trucks. 
By setting specific standards based on where technology can take us, 
Congress can make clear the importance of tackling these important 
problems which are hard to quantify analytically, but easy to qualify 
based on consumer discontent with gasoline prices last summer, 
political instability from dependence on oil from the Persian Gulf, and 
the surge in concern over global warming.
    Congress should not defer its regulatory authority to the 
Administration and it need not as it can base such standards on the 
scientific research it requested. Congress can be confident that the 
goals are technically feasible, cost effective, and safe.
Provide NHTSA Authority to Establish Size-Based Standards
    The bills in the Senate and the President's plans include the 
ability for NHTSA to set car and light truck standards based on vehicle 
attributes such as vehicle size. These size-based standards give 
manufacturers who make everything from compact cars to minivans to 
large pickups the flexibility they have been asking for and eliminate 
any arguments automakers have made about CAFE standards treating them 
inequitably.
    Size-based standards designed to increase fleet fuel economy to 35 
mpg might require a family car to reach 40 mpg, but a pickup would only 
have to reach about 28 mpg because it is larger. This is good news for 
farmers and contractors who rely on these vehicles. With existing 
technology, pickups could readily reach 28 mpg and would save their 
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.
Ensure No Backsliding
    The one challenge with size-based standards is that automakers can 
game the system and drive down fuel economy. Much as automakers 
switched to marketing SUVs because of the lower standards required of 
light trucks to date, automakers may also upsize their vehicles to 
classes with lower fuel economy targets when they redesign their 
vehicles every 4 to 7 years. Our analysis of NHTSA's most recent light 
truck rule shows that we could lose as much as half of the promised 
fuel economy gains, as small as they are, if the fleet of light trucks 
increased in size by just 10 percent over 10 years. Congress must 
require a backstop to ensure that fuel savings that would be generated 
from a 10 mpg fuel economy increase are not lost due to automakers who 
game the system.
Provide Incentives
    Because increased fuel economy will provide a wide variety of 
benefits for the Nation, it is in the Nation's interest to help 
automakers and suppliers who make cars and trucks in the U.S. that go 
farther on a gallon of gasoline. One way to help the auto industry is 
to provide tax credits, loan guarantees, or grants to companies that 
guarantee fuel economy improvements by investing in the equipment and 
people who will be needed to make these more efficient vehicles. This 
policy could be further supported by a set of charges and rebates 
applied to vehicles based on their fuel economy. These ``feebates'' 
will send market signals to producers and consumers in support of 
higher fuel economy standards and can even be made revenue neutral.
Conclusions
    Climate change represents the largest long-term environmental 
threat facing our country and the world today and the costs of our oil 
addiction continue to grow. Setting a fleet-wide target sufficient to 
meet the President's goal and guarantee fuel economy improvements of at 
least 10 mpg over the next decade while giving the President the 
authority to reach that target through size-based standards will save 
consumers money, stimulate the economy, create and protect jobs and 
preserve the safety of our vehicles. All of these benefits will come in 
addition to cutting our oil dependence and emissions of global warming 
pollutants from our cars and trucks.
    Consumers are clearly happy with the size and acceleration of their 
vehicles today. We don't have to change that. But consumers are clearly 
unhappy with the growing impacts of global warming and the high cost of 
gasoline and the pumps and on our economy and security.
    Congress has the opportunity to ensure that automakers spend the 
next decade or more using technology to curb our oil addiction. This is 
not a surprising role for Congress, the Federal Government has helped 
drive every major transportation revolution this country has seen, 
whether it was trains, planes, or automobiles. The next transition will 
be no different.
    Thank you for the opportunity to testify today. I would be happy to 
answer any questions you may have.
    I have attached several fact sheets to provide additional 
background information.




        Union of Concerned Scientists--Fact Sheet--January 2007

                S. 357--The Ten-in-Ten Fuel Economy Bill

    In the midst of high gasoline prices and continuing unrest in many 
oil-producing regions of the world, our country's vulnerability to its 
growing dependence on oil has been laid bare. The Ten-in-Ten bill 
directs the administration to save consumers money and cut projected 
oil demand from cars, SUVs, minivans and pickups by 10 percent in 2019. 
This is achieved by a modest fuel economy increase that would raise the 
fleet of new vehicles from today's 24.6 mpg to 35 mpg by 2019 while 
protecting highway safety and U.S. auto industry jobs.
    Figure 1 shows the amount of money consumers would save annually 
through 2025, even after accounting for a modest increase in vehicle 
price to cover fuel-saving technologies. In addition to saving 
consumers money at the pump, the Ten-in-Ten bill would reduce the 
Nation's dependence on oil and significantly cut the emissions of 
global warming pollution from cars and light trucks (Table 1). The 
reduction in oil demand in 2025 is equal to our current imports from 
the Persian Gulf.



  Table 1.--Benefits of Increasing Fuel Economy Standards to 35 mpg by
                                  2019
------------------------------------------------------------------------
                                                 2015     2020     2025
------------------------------------------------------------------------
Reduction in Oil Demand (million barrels per       0.4      1.4      2.1
 day)
------------------------------------------------------------------------
Net Consumer Savings with gasoline at $2.00         $3      $20      $41
 per gallon (billions per year)
------------------------------------------------------------------------
Reduction in Global Warming Pollution               66      233      358
 (million metric tons CO2-equiv. per year)
------------------------------------------------------------------------

    The Ten-in-Ten bill would give NHTSA the authority to set size-
based standards for all vehicles, as the President requested in 2006. 
When coupled with an overall target for improving the fleet average and 
a backstop to prevent the erosion of fuel economy gains, size-based 
standards can give the auto industry increased flexibility in complying 
with the strengthened standards.
    In a time of high gas prices, the technologies available to 
increase fuel economy are more cost effective than ever. A package of 
modest, proven conventional technologies is all that would be needed to 
meet a standard of 35 mpg. Today's size and acceleration could remain 
the same and safety could be improved. The technologies would add about 
$1,100 to the price of an average vehicle in 2019, an investment that 
would be recovered in less than 3 years of driving, assuming that 
gasoline costs $2.00 per gallon. Over the lifetime of the vehicle the 
owner would save a total of more than $3,600 in gasoline costs.
                                 ______
                                 

          Union of Concerned Scientists--Fact Sheet--May 2006

                Fuel Economy and Light Truck Technology

    There are many technologies available to cost-effectively improve 
the fuel economy of sport-utility vehicles (SUVs), pickups, and 
minivans--whether used for hauling, off-road travel, or the trip to the 
supermarket. Because these technologies have been left on the shelf for 
so long, there is an even greater potential to improve the fuel economy 
of light trucks compared to cars.
Improving Light Truck Fuel Economy
    The Union of Concerned Scientists has investigated the best ways to 
increase the fuel economy of SUVs, pickups and minivans. In each case, 
vehicle fuel economy potential was evaluated while providing the same 
performance, comfort and safety that consumers have today. We found 
that several packages of cost-effective technologies can be employed to 
save consumers money and increase fuel economy while giving consumers 
the performance and features they expect today.
    Near-Term Gains. Using technologies available on some of today's 
cars, the average fuel economy of SUVs, pickups, and minivans could 
easily be increased to 28 miles per gallon (mpg) while maintaining 
acceleration, towing capacity, and comfort along with improved safety. 
That would put light trucks above today's car fuel economy standard for 
less than $800.\1\ These vehicles would save consumers more than $3,900 
at the gas pump over their lifetimes compared to vehicles meeting the 
current standard of 21.6 mpg--these savings are nearly five times the 
cost of the fuel economy improvements.\2\ In other words, for less than 
the cost of air conditioning (or a 6-disc CD sound system), we could 
save consumers thousands of dollars while closing the light truck 
loophole that allows the average light truck to guzzle more than 30 
percent more fuel than the average car.
---------------------------------------------------------------------------
    \1\ Derived from light truck averages based on results in The 
Diesel Dilemma and year 2000 sales mix.
    \2\ Based on an average 15-year life with first year mileage of 
15,600 miles, declining at 4.5 percent per year, and a gasoline price 
of $2.50 per gallon. Ten percent rebound in vehicles miles traveled is 
assumed based on per-mile cost of fuel.
---------------------------------------------------------------------------
    Ten Years Away. If a more significant investment, around $2,600, is 
made to increase the fuel economy of our SUVs, pickups, and minivans, 
their average fuel economy could reach 36 mpg using technologies that 
could be in mass production within the next 10 years. Consumers would 
see benefits of nearly $7,000 in savings at the gasoline pump during 
the vehicle's lifetime.
Safety Benefits
    Most of the near-term improvements in the fuel economy of light 
trucks can be accomplished through optimizing transmissions and other 
engine improvements with no impact on vehicle safety. Further fuel 
economy gains can be made with additional technology that can improve 
both safety and fuel economy. This can be done through reducing the 
weight of light trucks using materials like high strength steel and 
aluminum and unibody construction--this means that SUVs can be just as 
large as they are today, but will be safer for the driver. Because 
light trucks pose a substantial risk to other vehicles on the road due 
to their mass and design, making them lighter will also save the lives 
of others on the road.
Great Potential for Pickup Trucks
    Pickup trucks represent one-third of the light truck market and 
must be improved if we are to truly address the global warming and 
energy security problems of booming sales of low fuel economy vehicles 
and if consumers are to reap the fuel saving benefits of efficiency 
technology. Questions have been raised about the potential for these 
vehicles to meet higher fuel economy levels. While it is true that 
pickup trucks do have a greater technical hurdle given the payload and 
towing capacities that are required for some applications, the broad 
range of technologies that exist to improve other light trucks can also 
increase pickup truck fuel economy significantly. In the end, pickup 
trucks may not be able to reach the same fuel economy levels as SUVs or 
minivans, but the significant improvements that are possible will help 
pickup owners save money, helping, not harming businesses, farmers, 
rural residents and others who purchase these vehicles.
    Fuel Efficient Pickups. Farmers, rural residents and businesses can 
be confident that using existing and emerging technologies, pickup 
truck fuel economy could reach at least 26 mpg using on the road 
technology and more than 33 mpg over the next 10 years. These levels of 
fuel economy improvements can save pickup drivers $4,300 to nearly 
$7,400 at the gasoline pump, three to six times the cost of the fuel 
economy improvements.
    Efficiency with Power. High-efficiency engines do not have to be 
low-power engines; pickups and other light trucks that achieve over 30 
mpg can perform at least as well as those on the road today. One key to 
maintaining towing performance and acceleration is the use of variable 
valve engines that are both more efficient and more powerful than most 
engines in trucks today. Also, using cylinder shut-off means you can 
have a powerful 8-cylinder engine when you need high torque and power, 
and an efficient 4-cylinder engine when half of the cylinders are shut 
off at low power to save fuel. Automakers have traditionally met fuel 
economy standards without sacrificing power. In fact, pickup truck 
horsepower has increased more than 50 percent over the past decade 
while fuel economy has remained relatively constant.
    Class-based Standards. In March 2006, the National Highway Traffic 
Safety Administration (NHTSA) finalized a set of structural changes to 
the light truck CAFE program. Chief among the structural changes was 
the introduction of size-based standards, which permit manufacturers 
who produce more large trucks to meet a lower standard than 
manufacturers focusing on smaller trucks. This change addresses 
longstanding industry concerns that increasing truck CAFE would force 
them to stop making large pickups. Technological improvements can 
increase fuel economy across the board, allowing automakers to continue 
selling a broad array of vehicles to meet consumer needs while meeting 
higher standards overall.
                                 ______
                                 

          Union of Concerned Scientists--Fact Sheet--May 2006

 National Academies National Research Council Report on: Effectiveness 
     and Impact of Corporate Average Fuel Economy (CAFE) Standards

        ``Because of concerns about greenhouse gases and the level of 
        oil imports, it is appropriate for the Federal Government to 
        ensure fuel economy levels beyond those expected to result from 
        market forces alone.'' [p. 5]

    In January 2002, the National Research Council (NRC) released their 
final report on Corporate Average Fuel Economy (CAFE) Standards. The 
report was requested by Congress and produced by a National Academy of 
Sciences (NAS) committee. UCS analysis of the results from that study 
indicate that it is both technically feasible and cost effective to 
raise the average fuel economy of new passenger cars and light trucks 
from today's level of 24 mpg to 37 mpg within 10 to 15 years, even if 
gas drops back to $2.50 a gallon.
Technical Potential
        ``Portney, chair of the National Research Council's Committee 
        on Effectiveness and Impact of CAFE Standards, noted that, upon 
        reflection, the Committee's 2001 report may have been too 
        conservative in its fuel economy recommendations . . . `It 
        might be possible to meet more stringent fuel economy standards 
        at lower costs than the Committee foresaw in 2001.' '' February 
        9, 2005 press release from Resources For the Future regarding 
        the former RFF President's statement before the House Science 
        Committee.

    The report explored three paths to increase fuel economy, two 
focused on existing technologies that could be used within 10 years, 
and one focused on emerging technologies that could be used in 10 to 15 
years. For each path, NAS estimated potential increases for each of ten 
major car classes (e.g., subcompacts, large SUVs). Based on Model Year 
2000 market shares and NAS estimates for the 10 year potential, a fleet 
fuel economy of 33 mpg is possible within the decade of the report 
publication (2002). Using the emerging technologies added in Path 3, 
the fleet could reach 37 mpg in the 2012 to 2017 timeframe.


    In the four years since the report was published, many of the 
emerging technologies have become available. Further, as recently noted 
by the panel's Chair, the report did not anticipate the progress that 
has happened with hybrids and cleaner diesel. The report also did not 
account for growing oil demand from the developed world, the full 
impact of 9/11, or Hurricanes Katrina and Rita.
    Even with the limits on the panel's work, the results are in close 
agreement with UCS analysis of fuel economy potential. While the panel 
either increased the weight of the vehicles or left it the same, UCS 
included the potential for even more improvements using high-strength, 
advanced materials to safely reduce vehicle weight.
Cost Effectiveness
    In evaluating costs, the NAS report undertook what they called a 
``cost efficiency'' analysis. This analysis identifies the fuel economy 
level where consumers save the most money, assuming a gasoline price of 
$1.50 per gallon. However, as analysis of the report shows, the higher 
the fuel economy the better when gasoline is at $2.50 per gallon.


    UCS's analysis of the NAS cost and fuel economy projections show 
that the technologies available for a 37 mpg fleet would yield very 
positive consumer benefits, saving drivers $2,500 more at the pump than 
the cost of the fuel economy improvements. Even in this case the NAS 
did not consider the use of hybrid technology, cleaner advanced diesel 
engines, or advanced high-strength materials, which would have made the 
potential fuel economy, and the savings to consumers, even higher.
Safety Impacts

        ``Thus, it is technically feasible and potentially economical 
        to improve fuel economy without reducing vehicle weight or 
        size, and, therefore, without significantly affecting the 
        safety of motor vehicle travel.'' [p. 70]

    The NAS committee could not come to agreement on the question of 
safety and fuel economy. Some panel members dissented from the 
conclusion that past fuel economy improvements have had a negative 
impact on safety. They cite several problems with the majority 
analysis. The majority findings are further predicated on the assertion 
that past data can be used to evaluate current and future safety 
implications. However, it is clear that the cars and trucks of today 
are not the same as those from 10-20 years ago--and those differences 
drastically influence the nature of accidents today. Since the release 
of the panel's report, several studies have shown that increasing 
weight is bad for highway safety. These studies cast further doubt on 
the theory of fuel economy having negative safety impacts.
    UCS and the Center for Auto Safety, in both Building a Better SUV 
and Drilling in Detroit, demonstrate that fuel economy can be improved 
while actually improving safety. First, both the NAS and the American 
Council for an Energy Efficient Economy conclude that large fuel 
economy gains are achievable simply through technical modifications 
that do not affect vehicle safety in any way. Second, if there is 
serious concern about the fact that over 40,000 people die on U.S. 
highways every year, then a significant focus should be placed on the 
most important factor, vehicle design--safety standards should be 
tightened to require better technology to avoid crashes and better 
protect occupants when crashes do happen. Third, even if weight were to 
be taken out of vehicles, high-strength materials that have superior 
crash safety performance can be used and vehicle size, a more important 
safety factor, can be maintained. Finally, reducing the weight 
disparity between heavy vehicles and light vehicles can actually 
improve safety of the overall fleet.
Regulatory Loopholes
    Light Truck Loophole. The NAS committee found that the distinction 
between cars and light trucks ``has been stretched well beyond its 
original purpose.'' [p. ES-4] and will lead to further erosions in fuel 
economy as new trucks replace older vehicles that had higher fuel 
economy. Recently enacted rules from NHTSA claim to address this, but 
since they only apply to light-trucks the rules will not close the 
loophole.
    Dual-Fuel Loophole. NAS also found that oil dependence is being 
increased by the CAFE provision allowing dual-fuel vehicles (vehicles 
that can run on gasoline or an alternative fuel) to garner extra CAFE 
credits and calls for the elimination of the credits. Less than 1 
percent of these dual-fuel vehicles ever use alternative fuels. Instead 
of closing the loophole, it was extended in the final version of H.R. 
6, the recently enacted energy bill.
                                 ______
                                 

          Union of Concerned Scientists--Fact Sheet--July 2006

            Modern Fuel Economy and Vehicle Safety Research

    Consumers and lawmakers can be confident that increased fuel 
economy standards and vehicle safety are compatible. While the specter 
of a deadly vehicle fleet is often raised by critics of improved fuel 
economy standards, it is just an attempt to scare away support from a 
path that will save consumers billions, improve America's energy 
security, reduce global warming pollution, and increase consumer 
choice.
    The myth that fuel economy and safety are not compatible has been 
discredited by several recent studies. These works are summarized below 
and demonstrate that:

  Increased fuel economy can be achieved with technologies that 
        have nothing to do with the safety performance of a car or 
        truck,

  Historically, higher fuel economy has not been linked with 
        increased fatalities,

  Large vehicles do not have inherently lower fatality rates 
        than smaller vehicles, and

  Increased weight is actually associated with increased 
        fatalities.
National Academy of Sciences, 2002--Effectiveness and Impact of CAFE 
        Standards
    This report, requested by Congress, concluded that there is 
technology already available that could raise the fuel economy of our 
vehicle fleet without compromising its safety. Most of technologies 
considered by the NAS relate to engines, transmissions, and other 
improvements that have no connection to crash safety. Opponents of fuel 
economy improvements often point to the chapter of the NAS report which 
took a retrospective look at safety, and gloss over the fact that this 
chapter did not represent a consensus of the Committee or modern safety 
research (appendices included a dissenting opinion pointing out 
problems with the majority's analysis).
S. Ahmad and D. Greene, 2004--The Effect of Fuel Economy on Automobile 
        Safety: A Reexamination
    Greene (one of the dissenting NAS panelists) and Ahmad demonstrated 
that higher fuel economy is not linked with increased fatalities. In 
fact, their report noted that ``higher mpg is significantly correlated 
with fewer fatalities.'' A thorough analysis of data from 1966 to 2002 
indicated if the past is precept, fuel economy could likely be 
increased without harming safety.
M. Ross and T. Wenzel, 2002--An Analysis of Traffic Deaths by Vehicle 
        Type and Model
    This analysis of Federal accident data from 1995-1999 demonstrated 
that quality of engineering, rather than weight, is the key determinant 
of vehicle safety. In other words, a well-designed compact car can be 
safer than an SUV or a pickup. The study pointed specifically to the 
Honda Civic and the Volkswagen Jetta as well-engineered compact cars 
that have lower driver fatality rates than the Ford Explorer, the Dodge 
Ram, or the Toyota 4Runner.
R.M. Van Auken and J.W. Zellner--A Further Assessment of the Effects of 
        Vehicle Weight and Size Parameters on Fatality Risk In Model 
        Year 1985-98 Passenger Cars and 1985-97 Light Trucks
    This study indicated that while increasing vehicle size tends to 
decrease fatalities, increasing vehicle weight increases fatalities. 
This study helped inform NHTSA as it chose to base its model year 2008-
2011 light truck rule on a size attribute rather than a weight 
attribute.

    Senator Pryor. Thank you.
    Ms. Elizabeth Lowery?

 STATEMENT OF ELIZABETH A. LOWERY, VICE PRESIDENT, ENVIRONMENT 
                   AND ENERGY, GENERAL MOTORS

    Ms. Lowery. Good afternoon, Mr. Chairman. My name is 
Elizabeth Lowery, and I'm Vice President for Environment and 
Energy at General Motors. I'm pleased to be able to speak to 
you today regarding GM's plans for advanced technologies that 
reduce dependence on petroleum and provide energy diversity. In 
addition, I will comment on the effectiveness of the CAFE 
program.
    Today's automotive industry provides more in the way of 
opportunities and challenges than we've seen in its entire 
history. On the challenge side, there are serious concerns 
about energy supply and availability that collectively we refer 
to as energy security. The key is energy diversity, which can 
help us displace substantial quantities of oil that are 
consumed by U.S. vehicles. This is a huge assignment, but it's 
also an extraordinary opportunity. By developing alternative 
sources of energy and propulsion, we have the chance to 
mitigate the many issues surrounding energy availability. This 
means we must continue to improve the efficiency of today's 
vehicles. But it also means we need to dramatically intensify 
our efforts to displace petroleum-based fuels by building more 
vehicles that run on alternative fuels and by significantly 
expanding and accelerating our commitment to the development of 
electrically driven vehicles.
    First, let me speak about biofuels. Last year, we committed 
to double our production of vehicles capable of running on 
renewable fuels by 2010, and, further, to make fully half of 
our annual production biofuel-capable by 2012, provided there 
is ample availability and distribution of E85. But, as you 
know, flex-fuel vehicles alone will not get the job done. So, 
we're partnering with government, fuel providers, and fuel 
retailers to help grow the E85 ethanol infrastructure. Since 
May of 2005, we've helped add 200 E85 fueling stations in 13 
states.
    But there's equally exciting opportunity for the future of 
our products, electrification of the automobile. There's a 
continuum of electrification of vehicles, and we're working on 
the entire range. For example, there are what most people think 
of as ``electric vehicles,'' pure battery-powered vehicles. 
Then there are gas-electric hybrids, which are not, per se, 
electric vehicles, but which are, in part, electrically driven.
    For 2007, GM currently has available--the Saturn VUE Green 
Line and we will be introducing four additional hybrids later 
this year, the Saturn Aura Green Line, the Chevy Malibu hybrid, 
and the Chevy Tahoe and GMC Yukon, with GM's two-mode hybrid 
system. Another variant of the hybrid is the so-called plug-in 
hybrid, which will be a conventional hybrid vehicle with a much 
more advanced battery capability, significantly more energy 
reduced, and, of course, be able to plug it in to your standard 
110-volt outlet. The result will be significantly better fuel 
economy, based on the petroleum consumption of the vehicle and 
the ability to use diverse energy sources. Given what we know 
today, it's pretty clear that it will take several years to see 
if the battery technology will let us bring to market such a 
plug-in hybrid, because it must meet all the requirements that 
are necessary in the marketplace.
    In the meantime, we are working on engineering two 
different systems for plug-in hybrids. One takes the form of 
our Saturn VUE hybrid and the other unveiled is the Chevy Volt 
at the auto show in Detroit that we heard from Senator Carper. 
There are other types of electrically driven vehicles that we 
expect to see in the future, as well, including hydrogen fuel-
cell vehicles.
    So, the technology front in automotive development and 
design looks very exciting. And as we pursue these 
technologies, and we think that Government also has a role to 
play. First, the Government should fund a major effort to 
increase advanced battery R&D and to develop domestic 
production of these batteries here in the United States. 
Second, biofuels production and infrastructure should be 
significantly expanded. Third, Government funding should expand 
development and demonstration of hydrogen and fuel cells. 
Fourth, Government purchasing should set the example. And, 
finally, there should be further incentives for advanced 
automotive technologies so they can be adopted by consumers in 
very large numbers.
    Having focused on advanced technology vehicles and 
renewable fuels as the answer to displacing and diversifying 
U.S. fuel sources, let me share our view on what we don't think 
is the answer.
    Over-reliance on CAFE is not the answer to U.S. oil 
dependence. Now, don't misunderstand what I'm saying here. We 
agree with the need to reduce Americans' dependence on 
petroleum, and we are committed to doing our part. But, despite 
dramatic increases in vehicle and fuel economy over the last 30 
years, its original goals--reducing U.S. oil consumption and 
oil imports--have not been met. Of the four factors that drive 
U.S. light-duty gasoline consumption--one, purchasing decisions 
of American consumers, the sales mix; two, total vehicle miles 
traveled; three, the size of the overall fleet; and, finally, 
four, individual fuel economy--CAFE only affects one factor. 
Data from the Government's own Energy Information 
Administration shows that CAFE requirements alone cannot 
overcome the increases in petroleum demand which are driven 
largely by the continued increase in vehicle miles traveled and 
the increasing size of the fleet.
    We understand, of course, that increasing vehicle fuel 
economy does play an important role. As competitive automakers 
looking to win consumer purchase of vehicles in the 
marketplace, we look for opportunities to increase the fuel 
economy of our new products each time they are introduced. But 
many of the recent legislative proposals to increase CAFE 
requirements are not based on any realistic measure of what is 
technically achievable and economically practical.
    Rather than having Congress try to pick an arbitrary rate 
of increase for CAFE standards, we believe that the regulatory 
process of the Department of Transportation should be used. 
That way, the agency can collect and review confidential and 
proprietary company product plans and can consider the 
opportunities to increase the fuel economies level--fuel 
economy levels consistent with consumer demands, choices, 
competitive implications, vehicle and highway safety, and the 
impact on U.S. jobs. This administration has twice undertaken 
such rulemakings for light truck CAFE levels and now has set in 
place increases for 7 consecutive years. These challenging 
increases in the CAFE requirements allow the automakers to make 
the progress they can with conventional technologies and still 
focus increasingly on the advanced technology systems in 
vehicles that can really make a difference in addressing U.S. 
gasoline consumption.
    In addition, before any increases are undertaken for the 
passenger car fleet, the agency should be given the authority 
to establish a reformed or attribute-based system similar to 
what was done for the light truck CAFE system. This will help 
reduce the competitive disparities, as well as avoid other 
consequences of raising fuel economy levels, like vehicle mass 
and size reductions that can adversely affect vehicle and 
highway safety.
    In summary, we believe tomorrow's automobiles must be 
flexible enough to accommodate many different energy sources. 
We need to all work together on a national energy strategy that 
helps promote these changes and, thus, more effectively address 
U.S. dependence on petroleum.
    Thank you very much, and I'd be pleased to answer any 
questions.
    [The prepared statement of Ms. Lowery follows:]

Prepared Statement of Elizabeth A. Lowery, Vice President, Environment 
                       and Energy, General Motors
    Good morning. My name is Elizabeth Lowery and I am Vice President 
for Environment and Energy at General Motors. I am pleased to be able 
to speak to you today regarding GM's technology plans for the future.
    Today's automotive industry provides more in the way of 
opportunities--and challenges--than we have seen in its entire history. 
On the challenge side, there are serious concerns about energy supply, 
energy availability, sustainable growth, the environment, and even 
national security issues that, collectively, have come to be called 
``energy security.'' And the fact of the matter is that it is highly 
unlikely that oil alone is going to supply all of the world's rapidly 
growing automotive energy requirements. For the global auto industry, 
this means that we must--as a business necessity--develop alternative 
sources of propulsion, based on alternative sources of energy in order 
to meet the world's growing demand for our products. The key is energy 
diversity, which can help us displace substantial quantities of oil 
that are consumed by U.S. vehicles today.
    This is a huge assignment. But it's also an extraordinary 
opportunity. By developing alternative sources of energy and 
propulsion, we have the chance to mitigate many of the issues 
surrounding energy availability. We will be able to better cope with 
future increases in global energy demand. We will minimize the 
automobile's impact on the environment.
    This means that we must continue to improve the efficiency of the 
internal combustion engine, as we have for decades. But, it also means 
we need to dramatically intensify our efforts to displace petroleum-
based fuels by building more vehicles that run on alternatives, such as 
E85 ethanol, and, very importantly, by significantly expanding and 
accelerating our commitment to the development of electrically driven 
vehicles.
    First let me speak about bio-fuels. One of the greatest 
opportunities for displacing U.S. gasoline is to ramp up the usage of 
bio-fuels. There are already over 6 million E85 capable vehicles on 
America's roads. If all flex-fueled vehicles on the road today ran on 
E85, we would displace the need for over 3.8 billion gallons of 
gasoline annually.
    Last year, we committed to double our production of vehicles 
capable of running on renewable fuels by 2010. That's almost one 
million E85 capable vehicles a year by the end of the decade Late last 
year, we also said that we are prepared to make fully half of our 
annual vehicle production biofuel-capable by 2012--provided there is 
ample availability and distribution of E85, as part of an overall 
national energy strategy. If all of these flex-fueled vehicles ran on 
E85, by 2017 we would displace the need for over 22 billion gallons of 
gasoline annually. As a nation, we need to be developing the necessary 
sources of these bio-fuels to make sure we can produce the volumes that 
can have this dramatic an impact.
    But as you know, flex-fuel vehicles alone will not get the job 
done. Right now, there are about 170,000 gas stations in the United 
States, but only slightly more than 1,100 E85 pumps. So, we are also 
partnering with government, fuel providers, and fuel retailers across 
the U.S. to help grow the E85 ethanol fueling station infrastructure. 
Since May of 2005, we've helped add 200 E85 fueling stations in 13 
states with more to come.
    Now let me turn to potentially the even more exciting opportunity 
for the future of our products--electrification of the automobile. Over 
the last few months, GM has made several announcements related to our 
commitment to electrically driven vehicles. The benefits of electricity 
include the opportunity to diversify fuel sources ``upstream'' of the 
vehicle. In other words, the electricity that is used to drive the 
vehicle can be made from the best local fuel sources--natural gas, 
coal, nuclear, wind, hydroelectric, and so on. So, before you even 
start your vehicle, you're working toward energy diversity. Second, 
electrically driven vehicles--when operated in an all-electric mode--
are zero-emission vehicles. And when the electricity itself is made 
from a renewable source, the entire energy pathway is effectively 
greenhouse gas emissions free. Third, electrically driven vehicles 
offer great performance--with extraordinary acceleration, instant 
torque, and improved driving dynamics.
    There is a continuum of electrification of vehicles--and we are 
working along that entire range. For example, there are what most 
people think of as ``electric vehicles''--pure battery-powered 
vehicles, such as GM's EV1. The EV1 ran solely on electricity that was 
generated outside the vehicle and was stored onboard the vehicle, in 
lead-acid and nickel-metal-hydride batteries.
    Then there are gas-electric hybrids--which are not, per se, 
electric vehicles--but which are, in part, electrically driven. This 
type of conventional hybrid vehicle has both an internal combustion 
engine and an electric drive. And, it can be powered by both systems 
simultaneously or by either system independently. The electric energy 
in a conventional hybrid vehicle is generated by the vehicle itself and 
stored onboard in a battery.
    We have several kinds of hybrid vehicles, either on the road or 
under development--from the heavy duty hybrid that is used in more than 
550 transit buses--to the Saturn VUE and Aura Green Line models (which 
use our high-value ``belt alternator starter'' system)--to our advanced 
``two-mode'' hybrid system (which will begin to show up on our full-
size SUVs and pickups later this year).
    At the Los Angeles auto show, we announced work on another type of 
hybrid, the Saturn VUE ``plug-in hybrid.'' A plug-in hybrid will be a 
conventional hybrid vehicle with an important difference--the battery 
will be much more advanced--storing significantly more energy and, of 
course, being able to be plugged into a standard outlet to recharge it. 
The result will be significantly better ``fuel economy''--based on the 
petroleum consumption of the vehicle--and the ability to use diverse 
energy sources.
    No major OEM has built a plug-in hybrid for retail sale because the 
required battery technology doesn't yet exist. In fact, given what we 
know today, it's pretty clear that it will take several years to see if 
the battery technology will occur that will let us bring to market a 
plug-in hybrid that will meet the expectations and real-world 
performance standards that our customers expect--things like safety, 
reliability, durability, driving range, recharge time, and 
affordability.
    The Saturn VUE plug-in hybrid will use an advanced battery, like 
lithium-ion. Production timing will depend on battery technology 
development. But, based on our work with EV1 and our different 
conventional hybrid-electric vehicles, we already have a lot of 
experience developing and integrating advanced battery technology into 
our vehicles, and we're already working today with a number of battery 
companies to develop the technology necessary to build a plug-in 
hybrid. The technological hurdles are real, but we believe they're also 
surmountable. I can't give you a date certain for our plug-in hybrid, 
but I can tell you that this is a top priority program for GM, given 
the huge potential it offers for oil consumption improvements.
    Earlier this year, we unveiled the Concept Chevrolet Volt at the 
North American International Auto Show in Detroit. The Chevrolet Volt 
is designed to be powered by GM's next-generation electric propulsion 
system, the E-flex System. The E-flex System can be configured to 
produce electricity for mechanical propulsion from gasoline, ethanol, 
biodiesel or hydrogen. The Volt uses a large high energy battery pack 
and a small, one liter turbo gasoline engine to produce electricity.
    The Concept Chevrolet Volt can be charged by plugging it into a 
110-volt outlet for approximately 6 hours each day. When the advanced 
lithium-ion battery pack is fully charged, the Volt is expected to 
deliver 40 city miles of pure electric vehicle range. When the battery 
pack is close to depletion, the small engine spins at a constant speed 
to create electricity and replenish the battery pack.
    One technological breakthrough required to make this concept a 
reality is the large lithium-ion battery pack. This type of electric 
car, which the technical community calls an ``EV range-extender,'' 
would require a battery pack that weighs nearly 400 pounds.
    There are other types of electrically driven vehicles that we 
expect to see in the future as well, including hydrogen fuel cell 
vehicles, such as the Chevrolet Sequel concept vehicle. A hydrogen fuel 
cell vehicle is, in fact, an electric vehicle. It drives on electricity 
that is created by the fuel cell. The fuel cell is little more than a 
battery that stores electricity in the form of hydrogen. The beauty of 
a fuel cell vehicle like the Sequel is that the electricity is 
generated onboard the vehicle without using petroleum-based fuel, and 
without emissions. And like electricity, hydrogen can be made from 
diverse energy sources before it ever powers a vehicle. As part of a 
comprehensive deployment plan dubbed Project Driveway, we are building 
more than 100 next-generation Chevrolet Equinox Fuel Cell vehicles that 
will operate and refuel with hydrogen in California, New York, and 
Washington, D.C.
    GM is developing a prototype fuel cell variant of the Chevy Volt 
that mirrors the propulsion system in the Chevrolet Sequel (fuel cell 
vehicle). Instead of a big battery pack and a small engine generator 
used in the Volt concept vehicle, we would use a fuel cell propulsion 
system with a small battery to capture energy when the vehicle brakes. 
Because the Volt is so small and lightweight, we would need only about 
half of the hydrogen storage as the Sequel to get 300 miles of range. 
In fact, we continue to make significant progress in this area, and we 
continue to see fuel cells as the best long-term solution for reducing 
our dependence on oil.
    Since I have mentioned that advanced technology vehicles that can 
promote the development of biofuels and electrification are ``the 
answer'' to displacing and diversifying U.S. fuel sources--let me share 
our view on what is not the answer. Over reliance on CAFE is not the 
answer to U.S. oil dependence. Now don't misunderstand what I am saying 
here. We agree with the need to reduce the Nation's dependence on 
petroleum. And the objectives for the original CAFE program were to: 
(1) reduce U.S. gasoline consumption and (2) reduce U.S. imports of 
petroleum. But despite dramatic increases in vehicle and fleet fuel 
economy over the 30 year existence of the CAFE program, U.S. gasoline 
consumption and oil imports have not declined.
    Since the CAFE program was enacted, U.S. consumption of gasoline 
has increased by 60 percent and U.S. imports of petroleum have 
increased from 35 percent of our supplies to over 70 percent of our 
supplies. At the same time, new vehicle fleet fuel economy has more 
than doubled for passenger cars and increased 60 percent for light 
trucks. But these increases have been overwhelmed by the increases in 
the size of the vehicle fleet and the number of miles traveled by 
Americans annually.
    There are four factors that drive U.S. light duty gasoline 
consumption: (1) purchasing decisions of American consumers--sales mix, 
(2) total vehicle miles traveled, (3) size of the overall fleet, and 
finally (4) individual vehicle fuel economy. CAFE only affects one of 
these four factors--only vehicle fuel economy. Data from the 
government's own Energy Information Administration shows that CAFE 
requirements alone cannot overcome our increases in petroleum demand--
due to the continued increase in vehicle miles traveled and the 
increasing size of the fleet. Even so, increases in CAFE standards 
continue to be one of the major focuses of how to address energy 
security issues.
    We understand, of course, that increasing vehicle fuel economy does 
play a role in helping address U.S. gasoline consumption. As 
competitive automakers looking to win consumer purchases of vehicles in 
the marketplace, we look for opportunities to increase the fuel economy 
of our new products each time they are introduced. But many of the 
recent legislative proposals to increase CAFE requirements (by 4 
percent or more) are not based on any realistic measure of what is 
technically achievable and economically practicable.
    Rather than having Congress try to pick an arbitrary rate of 
increase for CAFE standards, we believe that the regulatory process at 
the Department of Transportation should be used. That way, the agency 
can collect and review confidential and proprietary company product 
plans and consider the opportunities to increase the fuel economy 
levels consistent with consumer needs and choices, competitive 
implications, vehicle and highway safety, and the impact on U.S. jobs. 
This Administration has twice undertaken such rulemakings for the light 
truck CAFE levels. The most recent fuel economy rule for light trucks 
has now set in place increases for 7 consecutive years (2005-2011)--
increasing the standards by 16 percent (about 2 percent per year) and 
for the first time adding to the regulated fleet the largest SUV's in 
the market. These challenging increases in the CAFE requirements allow 
the automakers to make the progress that they can with conventional 
technology vehicles, and still focus increasingly on the advanced 
technology systems and vehicles that can really make a difference in 
addressing U.S. gasoline consumption.
    In addition, before any increases are undertaken for the passenger 
car fleet, the agency should be given authority to establish a 
reformed, or attribute-based system, similar to what was done for the 
light truck CAFE system. This will help reduce the competitive 
disparities as well as avoid other consequences of raising fuel economy 
levels--like vehicle mass and size reductions that can adversely affect 
vehicle and highway safety.
    Technology, biofuels and energy diversity are the best answers to 
oil security concerns. And, as we pursue these technologies--and more 
energy diversity--there are steps the government can take to help.

  First, the government should fund a major effort to 
        strengthen domestic advanced battery capabilities. Advanced 
        lithium-ion batteries are a key enabler to a number of advanced 
        vehicle technologies--including plug-in hybrids. Government 
        funding should increase R&D in this area and develop new 
        support for domestic manufacturing of advanced batteries.

  Second, biofuels production and infrastructure should be 
        significantly expanded. The market response to renewable fuels 
        is encouraging, but it needs to reach a self sustaining level 
        that is not lessened when gasoline prices fall. Steps to 
        increase the availability of biofuels should help increase its 
        use. Government should continue incentives for: the manufacture 
        of biofuel-capable flex fuel vehicles; increases in biofuels 
        production; increases for R&D into cellulosic ethanol; and 
        increased support for broad-based infrastructure conversion.

  Third, government funding should continue and expand 
        development and demonstration of hydrogen and fuel cells. 
        Tremendous progress has been made this decade on fulfilling the 
        promise of hydrogen powered fuel cells. The U.S. needs to stay 
        the course on the President's hydrogen program and begin to 
        prepare for the 2010-2015 transition to market phase. Funding 
        should continue for hydrogen and fuel cell R&D and 
        demonstration activities at DOE. The government should also 
        commit to early purchases by government fleets and support for 
        early refueling infrastructure in targeted locals in the 2010-
        2015 timeframe.

  Fourth, government purchasing should set the example. 
        Government fleets can help lead the way to bringing new 
        automotive technology to market and bringing down the cost of 
        new technologies. The government should continue to purchase 
        flex fuel vehicles; demand maximum utilization of E85 in the 
        government flex fuel fleets; use Federal fueling to stimulate 
        publicly accessible pumps; provide funding to permit purchase 
        of electric, plug-in and fuel cell vehicles into Federal fleets 
        as soon as technology is available.

  Finally, there should be further incentives for advanced 
        automotive technology so that these technologies may be adopted 
        by consumers in large numbers to help address national energy 
        security. Well crafted tax incentives can accelerate adoption 
        of new technologies and strengthen domestic manufacturing. 
        Consumer tax credits should be focused on technologies that 
        have the greatest potential to actually reduce petroleum 
        consumption and provide support for manufacturers/suppliers to 
        build/convert facilities that provide advanced technologies.

    In summary, we believe tomorrow's automobiles must be flexible 
enough to accommodate many different energy sources. And a key part of 
that flexibility will be enabled by the development of electrically 
driven cars and trucks. From conventional gasoline and diesel fuel--to 
biofuels that can displace them, like E85 and biodiesel--to 
electricity--whether it is stored or generated on the vehicle, with an 
internal combustion engine or a hydrogen fuel cell--we see a logical 
journey from stand-alone, largely mechanical automobiles to vehicles 
that run on electricity.

    Senator Pryor. Thank you.
    Dr. Greene?

        STATEMENT OF DAVID L. GREENE, CORPORATE FELLOW,

          ENGINEERING SCIENCE AND TECHNOLOGY DIVISION,

                 OAK RIDGE NATIONAL LABORATORY

    Dr. Greene. Good afternoon, Mr. Chairman and all the 
guests.
    Today, our transportation system faces serious energy 
challenges, reducing our dependence on oil, reversing the trend 
of increasing greenhouse gas emissions, and developing 
sustainable energy sources for an increasingly mobile world. 
Fuel economy standards alone cannot solve these problems, but 
increasing fuel economy must be the cornerstone of any 
effective policy strategy. Today, fuel economy improvements 
driven primarily by past fuel economy standards save American 
motorists more than 50 billion gallons of gasoline every year. 
In my opinion, proven cost-effective technologies exist to 
increase passenger car and light truck fuel economy by one-
third to one-half over the next 10 to 12 years. No reduction in 
vehicle power or size would be necessary, and, at current and 
projected gasoline prices, the value to consumers of the fuel 
saved would exceed the cost of the necessary fuel-saving 
technologies.
    You are presently considering bills requiring higher fuel 
economy standards. One calls for an increase to 40 mpg for 
passenger cars by 2017; the other, an increase to 35 mpg for 
passenger cars and light trucks combined. Both targets are 
within the range of what can be achieved cost-effectively. But 
solving our oil dependence problem and reducing greenhouse gas 
emissions will require a sustained commitment. I urge you to 
look beyond 2017 to a goal of increasing light-duty vehicle 
fuel economy by 75 to 100 percent by 2030.
    Effective fuel economy standards can take many forms. Japan 
and China have mandatory weight-based standards. The EU has 
voluntary industrywide carbon emission standards. And we have 
the mandatory Corporate Average Fuel Economy standards. Critics 
of the CAFE system have raised many objections to it over the 
past 30 years. Two criticisms have been especially potent in 
preventing progress. One, CAFE is unfair to domestic 
manufacturers. Two, CAFE is unsafe. The first is correct, but 
often exaggerated. The second is incorrect.
    I have addressed the fact that CAFE has not affected 
highway safety in other testimony and other publications, but, 
regardless of one's viewpoint on these two issues, the Reformed 
CAFE standard adopted by the National Highway Traffic Safety 
Administration for light trucks nullifies both criticisms. It 
adjusts each manufacturer's standard according to the size mix 
of vehicles it produces. It removes any incentive for 
downsizing that the unreformed CAFE system might create. At the 
same time, it keeps nearly all significant fuel economy 
technologies in play. It also creates the opportunity to 
finally eliminate the distinction between cars and light trucks 
in a unified set of footprint-based standards.
    I congratulate the staff of NHTSA for this important 
innovation. However, NHTSA should have done a thorough 
automotive engineering analysis of the potential for a 
footprint-based standard to have unintended consequences. If 
you decide to proceed with a footprint-based fuel economy 
standard, I urge you to require that this study be done.
    In 1975, Congress set ambitious standards for passenger 
cars and left the establishment of standards for light trucks 
to the NHTSA. The result was less ambitious standards for light 
trucks. On the other hand, over the past few years NHTSA has 
raised the light truck standards twice by modest, but 
meaningful, amounts, and has instituted an important change in 
the reform of the standards. Congress has not raised the 
passenger car standard in more than 30 years.
    I don't claim to know who will do the best job in the 
future, but I do have two observations. One, it seems more than 
likely that we will be struggling with the problem of climate 
change for decades. In my view, this argues for locating the 
authority over fuel economy, or, alternatively, greenhouse gas 
emissions standards, with the agency that has the greatest 
interest, and responsibility for, addressing climate change, 
unless the Congress opts to set the fuel economy standards 
itself. And here, I would note, with some sympathy toward the 
NHTSA Administrator, that the National Academies Committee also 
had a very difficult time deciding on the values of things like 
greenhouse gas emissions reductions and the values of energy 
security. And I think we asked the Congress for their judgment 
on those matters.
    I believe there is an effective market-based alternative to 
fuel economy standards, however, that is worth considering. 
That alternative is called ``feebates.'' Feebates give a rebate 
to purchasers of low-fuel-consumption vehicles and impose a fee 
on the buyers of high-fuel-consumption vehicles. Feebates 
create a continuing incentive to adopt energy-efficient 
technologies and use them to increase fuel economy.
    Fuel economy is the cornerstone of a meaningful policy 
strategy for addressing transportation's oil dependence, 
greenhouse gas emissions, and need for sustainable energy. But 
higher fuel economy is not sufficient. It's a necessary step.
    To achieve oil independence, for example, we will need to 
address all uses of petroleum throughout our economy, including 
heavy trucks, aircraft, home heating with distillate fuel, and 
even petroleum use in industry. And we will need to continue 
increasing energy efficiency and domestic energy production 
after 2017, as well. The good news is that oil independence 
does not mean we have to stop using oil, or even stop importing 
oil, and that once we implement effective policies, we will see 
steady improvement. Achieving oil independence, mitigating 
climate change, and securing sustainable energy for 
transportation are problems that require a comprehensive and 
sustained strategy.
    I thank this committee for its efforts to meaningfully 
address these very important issues and for this opportunity to 
offer my views for consideration. And I look forward to any 
questions.
    Thank you.
    [The prepared statement of Dr. Greene follows:]

 Prepared Statement of David L. Greene, Corporate Fellow, Engineering 
     Science and Technology Division, Oak Ridge National Laboratory
    Good afternoon. Thank you for inviting me to discuss the Corporate 
Average Fuel Economy Program and its current and prospective 
effectiveness. The views I express today will be entirely my own and do 
not necessarily reflect the views of Oak Ridge National Laboratory or 
the Department of Energy.
Energy Challenges
    Our nation and our world face crucial energy challenges. Our 
nation's oil dependence costs our economy hundreds of billions of 
dollars each year and undermines our national security (Greene and 
Ahmad, 2005). The threat to the global environment from human induced 
climate change fed by increasing emissions of carbon dioxide from the 
combustion of fossil fuels becomes clearer with each passing day. With 
demand for mobility growing rapidly around the world, sustainable 
sources of energy for the world's growing mobility demands must be 
found. There is no quick, easy solution. Strong, comprehensive, 
sustained policies are required. Significant technological advances are 
also essential. The fuel economy policies we address today are by 
themselves not enough to solve these energy challenges. But they are 
the cornerstone of any sufficient strategy.
We Can Do This
    Fuel economy standards have been successful in the past, not just 
in this country but around the world. They can take many forms. The EU 
has industry-wide voluntary standards. Japan and China have mandatory 
weight-based standards. The United States has mandatory Corporate 
Average Fuel Economy (CAFE) standards. What all these standards have in 
common is that they have successfully raised the energy efficiency of 
motor vehicle fleets and saved enormous amounts of energy without 
significant negative side effects. Our own CAFE standards brought about 
a 50 percent increase in on-road fuel economy over a period of 20 
years. This improvement saves American consumers more than 50 billion 
gallons of gasoline every year (Figure 1).


How High Should We Go?
    Fuel economy standards should be set at a level consistent with the 
urgency of our energy problems, at or an appropriate distance beyond 
what can be achieved cost-effectively with proven technologies that do 
not require significant changes in the size and performance of light-
duty vehicles. Timing is also an important consideration. Manufacturers 
should be given sufficient lead time to redesign their entire product 
lines (approximately 10 years). In this way the full impact of proven 
fuel economy technologies can be realized and manufacturers can be 
given a clear, long-term goal around which to plan.
    The National Research Council (NRC) Committee on the Impacts and 
Effectiveness of CAFE Standards, on which I was privileged to serve, 
defined the ``cost-efficient'' level of fuel economy as the level at 
which the marginal present value of fuel savings to the consumer of the 
next increment in fuel economy exactly equals the marginal cost of 
technology added to the vehicle to produce those savings (NRC, 2002). 
Further, the Committee's definition allowed no change in the size, 
weight, or performance of vehicles over a base year level. In my 
opinion, fuel economy standards should be set at least as high as the 
cost-efficient level but not a great deal higher. Figure 2 illustrates 
for an average passenger car the trade-off between increased price as a 
result of adding fuel economy technologies and the present value of 
fuel savings, based on the National Academies' panel's assessment. The 
difference between the value of savings and increased price, the net 
value, is what an efficient market would maximize (all other things 
equal). The difference between the lines graphed in Figure 2 and the 
NRC Committee's cost effective analysis is that a higher price for 
gasoline, $2.00 per gallon, is assumed in Figure 2. The cost-efficient 
level, the maximum net value to the consumer, is reached at 36 miles 
per gallon (MPG), 28 percent higher than the base year passenger car 
fuel economy.


    Why doesn't the market produce this level of fuel economy without 
being compelled by fuel economy standards? I addressed this question in 
my January 7, 2007 testimony to the Senate Energy Committee. Like the 
market for most other energy using consumer durable goods, the market 
for automotive fuel economy is not efficient. At the time of vehicle 
purchase, consumers do not fully value future fuel savings and 
therefore manufacturers, in general, do not make vehicles as energy 
efficient as they would if the market itself were efficient. It is more 
effective to sell cars based on other features that excite car buyers. 
And, of course, few new car buyers will voluntarily and on their own 
initiative pay more for the public benefits of reduced U.S. oil 
dependence or greenhouse gas emissions.
    Figure 2 also shows that it is possible to push beyond 36 MPG, to 
40 or even 42 MPG with little loss of net value ($100 to $300 per 
vehicle). This range of 36 to 42 MPG, approximately a 30 percent to 50 
percent increase in fuel economy, is where judgment about the 
importance of reducing oil use and carbon dioxide emissions should be 
exercised.
    In June of 2006, in response to a request from Senators Obama, 
Lugar and Biden, I calculated cost-efficient levels of light-duty 
vehicle fuel economy increases at higher gasoline prices than assumed 
in the NRC (2002) report. The results are summarized in Table 1 below. 
I used the NRC ``average'' fuel economy cost curves for all the numbers 
presented in Table 1. Cost and savings estimates are in 2005 dollars. 
The calculations in Table 1 apply to passenger cars and light trucks 
combined, unlike Figure 2 which applies only to passenger cars.


    As with all such analyses, there are some caveats. The NRC study is 
now 5 years old, and there have been significant technological 
developments since its publication. Some of the technologies used to 
construct the NRC fuel economy cost functions have already been adopted 
in existing vehicles but have been used to increase power and weight 
rather than fuel economy. On the other hand, important new technologies 
have also been developed. Second, at fuel costs above $3.50 per gallon 
the indicated cost-efficient fuel economy levels are beyond the range 
of what could be achieved using the fuel economy technologies 
considered by the NRC study. These numbers are printed in italics in 
Table 1.
    The cost-efficient analysis assumes constant light-duty vehicle 
weight and performance. Fuel economy technology can also be used to 
increase horsepower and weight while holding fuel economy constant. 
Setting fuel economy standards involves an implicit judgment about the 
importance of having even heavier and more powerful vehicles than we 
have today versus reducing oil dependence and mitigating greenhouse gas 
emissions.
    The cost efficient analysis is limited to existing, proven fuel 
economy technologies. There is no doubt that technological advances 
will be made over the next 10 years. This fact allows decisionmakers to 
have greater confidence that the targets set can be achieved without 
harm to the automobile industry or to motorists. Indeed, when the NRC 
committee finished its study just 5 years ago, it concluded that 
neither hybrid nor clean diesel engines could be considered proven 
technologies. Today there are a dozen hybrid models to choose from and 
clean diesels will soon be available. The cost-efficient method does 
not rely on technological progress but it does expect it.
Market-based Alternatives to CAFE
    Fuel economy standards are not the only effective way to realize 
greater fuel economy. Feebates are a way to emphasize the value of 
reducing petroleum via the purchase price of vehicles rather than 
future fuel savings. Feebates give a rebate to purchasers of low fuel 
consumption vehicles and impose a fee on buyers of high fuel 
consumption vehicles. While feebate systems can take many forms, 
perhaps the most appropriate formulation bases the rebate or fee on 
fuel consumption (gallons per mile), thereby giving equal value to 
every gallon of fuel saved.
    Feebate systems consist of a pivot point and a rate. Vehicles whose 
fuel consumption is below the pivot point receive a rebate while 
vehicles with fuel consumption above the pivot point are charged a fee. 
There can be a single pivot point or different pivot points for 
different types of vehicles. The rate specifies the additional value of 
saving fuel. Feebate rates on the order of $1,000 to $1,500 per 0.01 
gallons per mile should achieve fleet average fuel economy improvements 
of 30 percent to 50 percent (Greene et al., 2005). The feebate rate 
determines the incentive to use fuel economy technology to increase 
fuel economy. The pivot point determines which vehicles gain (receive a 
rebate) and which vehicles lose (pay a fee).
    Feebates have two important advantages over fuel economy standards. 
First, they are a continuing incentive to adopt energy efficient 
technologies and use them to increase fuel economy. Once a fuel economy 
standard has been met, there is no additional incentive for 
manufacturers to increase fuel economy beyond the value of future fuel 
savings to consumers. A feebate system (especially if indexed for 
inflation) provides a continuing added incentive. There is always a 
rebate to be gained or a fee to be avoided. Second, feebates put a cap 
on the costs manufacturers will have to incur to increase fuel economy. 
Manufacturers are required to meet fuel economy standards regardless of 
the cost.\1\ There is no reason why a manufacturer would spend more to 
gain a rebate or avoid a fee than its value. Thus, the feebate rate 
puts a cap on the economic costs that might be incurred to increase 
fuel economy.
---------------------------------------------------------------------------
    \1\ Fuel economy standards may include flexible provisions to limit 
excess costs. For example, the CAFE standards allow the NHTSA to grant 
a measure of relief to manufacturers by temporarily reducing the fuel 
economy standards in the event that unanticipated circumstances make it 
especially difficult to meet the CAFE requirements.
---------------------------------------------------------------------------
    The chief disadvantage of feebate systems is that they do not 
guarantee that a desired level of fuel economy improvement will be 
achieved. Feebates depend on manufacturers and consumers efficiently 
trading off the higher cost of fuel economy technology and the value of 
rebates or fees. Since both affect the purchase price of a vehicle, 
there is good reason to expect markets to respond efficiently, but 
there is no guarantee.
    Today, we have half of a feebate system for passenger cars in the 
form of the Gas-Guzzler Tax. There is no comparable policy for light 
trucks. I can think of no good reason for taxing inefficient passenger 
cars but not light trucks. Furthermore, half of a feebate system is 
less than half as effective as a full feebate system. I urge you to 
consider a complete well formulated feebate system for all light-duty 
vehicles. Should you decide not to implement a complete feebate system, 
I would urge you to abolish the gas-guzzler tax for passenger cars in 
favor of higher fuel economy standards for all light-duty vehicles.
What Form?
    Critics of the CAFE system have raised many objections to it over 
the past thirty years. Two criticisms have been especially potent in 
preventing progress: CAFE is unfair. CAFE is unsafe. The first is 
accurate. The second is incorrect. I have addressed the safety issues 
in other testimony and other publications (Greene, 2005; Greene and 
Keller, 2002; Greene, 2007). Regardless of one's viewpoint on these two 
issues, the reformed CAFE standard adopted by the National Highway 
Traffic Safety Administration (NHTSA) for light trucks nullifies both 
criticisms. It adjusts each manufacturer's standard according to the 
size mix of vehicles it produces. It removes any incentive for 
downsizing that an unreformed CAFE system might create. At the same 
time, it keeps nearly all significant fuel economy technologies in 
play. It also creates the opportunity to finally eliminate the 
distinction between cars and light trucks in a unified set of 
footprint-based standards. I congratulate the staff of NHTSA for this 
important innovation.
    However, there is one loose end that needs to be tidied up. The 
NHTSA should have done a careful automotive engineering analysis of the 
potential for a footprint-based standard to have unintended 
consequences. Is it likely to cause design changes that could be 
undesirable with respect to safety, consumer satisfaction, or roadway 
geometry? I doubt it. But prudent regulation requires that such 
possibilities be expertly examined. And so, if the Senate decides to 
proceed with a footprint-based fuel economy standard, I urge you to 
require that such a study be done.
    Let me add that feebates can take as many forms as fuel economy 
standards. There is no reason, for example, why a footprint-based 
feebate system could not be implemented. Instead of basing the feebate 
rate on gallons per mile, it would be based on gallons per footprint 
mile (square feet  miles)
Who Should Decide?
    An important issue that has received too little analysis is who 
should set the fuel economy standards? Should it be the Congress or the 
Executive Branch? If it is the Executive Branch, should it be the 
Department of Transportation, the Department of Energy or the 
Environmental Protection Agency? In 1975, Congress set ambitious 
standards for passenger cars and left the establishment of standards 
for light trucks to the NHTSA. The result was less ambitious standards 
for light trucks. Yet over the past few years, NHTSA has raised the 
light truck standards twice by modest but meaningful amounts and has 
instituted important changes in the form of the standards. Congress has 
not raised the passenger car standards in more than 30 years. In my 
opinion, a one time increase in fuel economy standards will not be 
adequate to address the problems of climate change and of oil 
dependence. A 50 percent increase in fuel economy by 2020 would need to 
be followed by an increase of 100 percent over current levels by 2030.
    I don't claim to know who should set fuel economy standards but I 
do have some observations that I believe are relevant. First, oil 
dependence is a problem that we ``solved'' temporarily and incompletely 
twenty years ago. And when we ``solved'' the problem we seemed to lose 
interest in the policies necessary to keep it solved. And so it has 
come back. We will be struggling with the problem of climate change, in 
my opinion, for decades, much as we have done with urban air pollution. 
Indeed, climate change appears to be even more difficult and has a much 
longer time horizon. Twenty years from now, I think that it will still 
be clear that we have not solved the problem of climate change and that 
we must keep working at it. In my view, this argues for locating the 
authority over fuel economy standards with the agency that has the 
greatest interest in and responsibility for addressing climate change.
Congressional Guidance Is Needed
    If Congress elects not to set fuel economy targets itself, it is 
absolutely critical that Congress give clear and strong guidance about 
the importance of fuel economy standards to addressing the problems of 
oil dependence, greenhouse gas emissions and sustainable energy for 
transportation. There are many ways that strong guidance could be 
given. It could take the form of statements about the importance of the 
problems fuel economy standards help solve. It could be in the form of 
recommended targets.
    Regardless of the form of its guidance, Congress should clearly 
express to the regulating agency how important increasing fuel economy 
is to solving our oil dependence problem, mitigating carbon dioxide 
emissions to reduce the probability of dangerous climate change, and 
developing sustainable energy sources for transportation. Congress' 
guidance should be clear and emphatic enough to sustain progress when 
some might think the oil dependence problem is solved. It should give 
clear direction to regulators about the importance of mitigating 
greenhouse gas emissions versus continuing the horsepower race. As the 
2002 NRC report pointed out, Congress has both the authority and 
responsibility for establishing the priority of these societal goals.
    Thank you for this opportunity to present my views. I hope they are 
helpful as you pursue your important work. I look forward to your 
questions.
References
    Greene, D.L. 2007. ``Policies to Increase Passenger Car and Light-
Truck Fuel Economy,'' testimony to the U.S. Senate Committee on Energy 
and Natural Resources, January 30.
    Greene, D.L. 2005. ``Improving the Nation's Energy Security: Can 
Cars and Trucks be Made More Fuel Efficient?'' Testimony to the U.S. 
House of Representatives Committee on Science, February 9, Serial No. 
109-3, U.S. G.P.O., Washington, D.C.
    Greene, D.L. and S. Ahmad. 2005. Costs of U.S. Oil Dependence: 2005 
Update, ORNL/TM-2005/45, Oak Ridge National Laboratory, Oak Ridge, 
Tennessee.
    Greene, D.L. and M. Keller. 2002. ``Dissent on Safety Issues: Fuel 
Economy and Highway Safety'' in National Research Council's Impacts and 
Effectiveness of Corporate Average Fuel Economy (CAFE) Standards, 
National Academies Press, Washington, D.C.
    Greene, D.L., P.D. Patterson, M. Singh and J. Li. 2005. ``Feebates, 
Rebates and Gas-Guzzler Taxes: A Study of Incentives for Increased Fuel 
Economy,'' Energy Policy, vol. 33, no. 6, pp. 721-827.
    (NRC) National Research Council. 2002. Impacts and Effectiveness of 
Corporate Average Fuel Economy (CAFE) Standards, National Academies 
Press, Washington, D.C.
    (U.S. DOT/FHWA) U.S. Department of Transportation, Federal Highway 
Administration. 2004. Highway Statistics 2004, table VM-1, Washington, 
D.C.
    (U.S. EPA) U.S. Environmental Protection Agency, Office of 
Transportation and Air Quality. 2006. Light-Duty Automotive Technology 
and Fuel Economy Trends: 1975 through 2006, EPA420-R-06-011, Ann Arbor, 
Michigan.

    Senator Pryor. Thank you.
    Mr. Stricker?

 STATEMENT OF TOM STRICKER, DIRECTOR, TECHNICAL AND REGULATORY 
              AFFAIRS, TOYOTA MOTOR NORTH AMERICA

    Mr. Stricker. Thank you, Senator Pryor, and good afternoon.
    Toyota believes that reducing America's reliance on 
petroleum requires a coordinated national strategy that 
addresses the challenge at every opportunity. From a vehicle 
perspective, there is no single fuel or technology solution. 
Simply put, there is no silver bullet. This is why Toyota is 
pursuing multiple technology paths, including advanced 
gasoline/diesel engines, hydrogen fuel cells, and ethanol-
capable vehicles. Underpinning all of this is our hybrid 
electric power-train strategy, which is a core strategy for 
Toyota in the future. And we are actively researching plug-in 
hybrids.
    As of January of 2007, we've sold over 866,000 hybrids 
globally, including 472,000 here in the U.S. But hybrids still 
represent only about 2 percent of new vehicle sales in this 
country.
    Some have characterized hybrid technology as an interim 
approach. We view hybrids as an integral approach of our 
vehicle strategy for the long term, and we intend to 
incorporate it across our product line when and where it makes 
sense.
    Toyota supports increasing both car and truck CAFE 
standards in a way that balances our need to reduce oil 
consumption with the practical realities of technology 
development, product cycles, consumer behavior, and a level 
competitive playing field. We believe NHTSA is best suited to 
evaluate these issues and set future CAFE standards.
    By moving to a size-based system, where each manufacturer 
has its own target for CAFE based on the vehicles it sells, 
NHTSA has eliminated concerns about the competitive impact of 
CAFE for trucks. Further, no longer can downsizing, which many 
claim may have negative safety consequences, be used as a 
compliance tool. The net result is that improving CAFE will 
require every manufacturer to apply technology across every 
type of vehicle. We support Congress giving NHTSA the authority 
to consider a similar attribute-based reform for cars.
    What else can Congress do? First, the administration's 
requested authority for a credit-trading system among auto 
manufacturers. We believe the likelihood of manufacturers 
trading among one another is much lower than a manufacturer 
trading within its own regulated fleet of vehicles. Trading 
within a manufacturer's own fleets would likely provide--would 
likely prove more useful, so we encourage Congress to consider 
both of these options as you move forward.
    Second, Congress should continue to reject any form of CAFE 
standards that discourage early compliance. For example, 
requiring a uniform percentage increase in CAFE penalizes early 
compliance by locking manufacturers with higher CAFE into 
higher standards, precluding them from competing in certain 
market segments even if their products in those segments are 
more fuel efficient. The National Academy of Sciences has 
repeatedly rejected UPI as a counterproductive approach to fuel 
savings.
    Another way Congress can incentivize early compliance is to 
extend the life of earned CAFE credits from the current 3 years 
to something longer, perhaps 5 years. Again, this would not 
only reward early compliance, but would provide another tool 
for manufacturers to cope with CAFE increases.
    Finally, Toyota was pleased that Congress recognized the 
need to bring consumers into the equation by passing the 
consumer tax credits contained in EPAct 2005. Indeed, these 
credits helped to move and strengthen the market for hybrid 
vehicles. As you know, the amount of the credit available to 
consumers begins phasing out after a manufacturer sells 60,000 
eligible vehicles. We urge Congress to lift the cap on 
eligible--vehicles eligible for the credit in order to 
stimulate even greater demand and bring the cost of new 
technology down.
    While we urge you to consider these potential enhancements, 
we continue to believe that NHTSA is best equipped to weigh the 
various tradeoffs inherent in setting the level of CAFE 
standards.
    One real challenge in setting future fuel-economy 
requirements is understanding the pace at which available 
technology can be added in the context of product cycles. Once 
we commit to a technology strategy for a given model, it's 
generally a 4- to 6-year commitment. Unfortunately, this means 
we can't add technology every year to every model, even if the 
technology is, quote, ``on the shelf.'' To put this into 
perspective, the recent 2 percent rate of increase established 
by NHTSA for trucks would require an 11 percent fuel economy 
improvement in every model every time it was redesigned. By the 
same token, a 4 percent increase would require a 20 percent 
improvement in every vehicle model every time it was redesigned 
as a result of 4- to 6-year product cycles.
    In closing, Toyota has a strong record of bringing advanced 
fuel economy technology to market and achieving leading levels 
of fuel economy. We've always exceeded CAFE standards. In fact, 
over their lifetime, the past 10 model years of Toyota vehicles 
sold in the U.S. will consume 11 billion fewer gallons of 
gasoline than what the law would have allowed. These same 
vehicles will emit over 100 million metric tons less 
CO2 than if we had simply met the CAFE standards. 
Our core philosophy is one of continuous improvement. This will 
drive us to pursue additional technology advances in the years 
to come.
    Thank you, once again, and I look forward to your 
questions.
    [The prepared statement of Mr. Stricker follows:]

Prepared Statement of Tom Stricker, Director, Technical and Regulatory 
                  Affairs, Toyota Motor North America
    Good morning Mr. Chairman and Members of the Committee. My name is 
Tom Stricker. I am Director of Technical and Regulatory Affairs for 
Toyota, and I appreciate the invitation to share Toyota's views on the 
Corporate Average Fuel Economy program.
    We believe that in order to reduce America's reliance on petroleum 
and reduce CO2 emissions, we must develop a coordinated 
national strategy that addresses the challenge at every opportunity, 
including all oil-consuming sectors of the economy, consumers, the 
fuels themselves, and of course, improved vehicle fuel efficiency.
    While we should not understate the importance of a multi-faceted 
approach, I will focus my remarks today on vehicle efficiency and the 
CAFE program.
    From a vehicle perspective, there is no single fuel or technology 
that can, by itself, solve these challenges. Simply put, there's no 
silver bullet. This is why Toyota is pursuing multiple technology 
paths, including advanced gasoline and diesel engines, hydrogen fuel 
cells, and ethanol-capable vehicles. Underpinning all of this, our 
hybrid-electric powertrain has become a core technology for Toyota, and 
we are actively researching plug-in hybrids.
    As of January 2007 we have sold over 866,000 hybrids globally, 
including 472,000 in the U.S., where we offer six hybrid models 
covering a wide range of vehicle types and buyers. In spite of these 
numbers, hybrids still represent only about 2 percent of U.S. new 
vehicle sales.
    Some have characterized hybrid technology as an interim approach--a 
bridge to fuel cells. In our view, this underestimates the value of the 
hybrid system. The fuel cell vehicles we are testing in the United 
States are themselves hybrids and, in fact, use many of the same 
components found in our current hybrid vehicles. We view hybrids as an 
integral approach to our vehicle strategy for the long-term and we 
intend to incorporate it across our product line when and where it 
makes sense to do so.
    While CAFE may not be a perfect system, it appears it will remain a 
key part of the solution to improving fuel economy for the foreseeable 
future. To that end, Toyota supports increasing both car and truck CAFE 
standards, in a way that balances our need to reduce oil consumption 
with the practical realities of technology development, product cycles, 
consumer behavior and a level competitive playing field. We believe 
NHTSA is best suited to evaluate these issues and determine future CAFE 
standards.
    The recent reform by NHTSA of the light-truck CAFE standards is a 
good example of changes that can be made within the CAFE program to 
enhance its effectiveness and address some of the key criticisms of the 
past.
    By moving to an attribute-based system, where each manufacturer has 
its own CAFE target based on the vehicles it sells, concerns about the 
competitive impacts of CAFE for trucks have been eliminated. Further, 
no longer can downsizing, which many claim may have negative safety 
consequences, be used as a compliance tool. The net result is that 
improving CAFE will require application of technology across every type 
of vehicle. While Toyota remains comfortable operating in either the 
old CAFE system or the new reformed system, we support Congress giving 
NHTSA the authority to consider attribute-based CAFE reform for cars. 
It is not clear sitting here today what would be the appropriate 
attribute for cars, but NHTSA should to be given authority to examine a 
range of options.
    We think there is even more that Congress can do to improve the 
CAFE program: First, as standards are increased, one way to help 
industry meet higher standards is to increase compliance flexibility. 
The Administration has requested authority for a credit trading system 
among auto manufacturers. We believe the likelihood of manufacturers 
trading among each other is much lower than a manufacturer trading 
within its own regulated fleets--that is, between its own car and truck 
fleets, and between its own import and domestic car fleets. Although 
not included in the Administration's request, trading within a 
manufacturer's fleets would likely prove more useful, and we would 
encourage you to consider both of these options as you move forward. 
CAFE is by definition an averaging program--some vehicles are above the 
standard while others are below, but the overall target must still be 
met. This same thinking should apply not just across vehicle models, 
but also across regulated fleets. It is less important whether energy 
savings and emissions reductions are achieved in one fleet or the 
other, so long as overall reductions are achieved.
    The second area where Congress can help is through incentives for 
early compliance. To this end, Congress should continue to reject any 
form of CAFE standards that would discourage early compliance. One 
example that would have such perverse impacts is a requiring a uniform 
percentage increase in manufacturer's CAFE. UPI--as its known--clearly 
penalizes early compliance by locking manufacturers with higher CAFE 
into higher standards. This has the practical result of precluding them 
from competing in certain market segments, even if their products in 
those segments are more fuel efficient. The National Academy of 
Sciences has repeatedly rejected UPI as a counterproductive approach to 
fuel savings.
    Another way Congress can incentivize early compliance is to extend 
the life of earned CAFE credits from the current 3 years to something 
longer, perhaps 5 years. Again, this would not only reward early 
compliance but would provide another tool for manufacturers to cope 
with CAFE increases.
    The final area involves the consumer. Actions to stimulate consumer 
demand for more efficient vehicles are a key part of any comprehensive 
approach to reducing petroleum use and CO2. In addition, 
consumer purchasing decisions directly impact a manufacturer's 
compliance with CAFE standards.
    Toyota was pleased that Congress recognized the need to bring 
consumers into the equation by passing the consumer tax credits 
contained in EPAct 2005. Indeed, these credits helped to move and 
strengthen the market for hybrid vehicles. As you know, the amount of 
the credit available to consumers begins phasing-out once a 
manufacturer sells 60,000 eligible vehicles. We urge Congress to lift 
the cap on vehicles eligible for the credit in order to stimulate 
greater demand and bring the cost of new technology down.
    While we urge Congress to consider these potential legislative 
enhancements to the CAFE program, we continue to believe that NHTSA is 
best equipped to weigh the various trade-offs inherent in setting the 
level of future CAFE standards, such as manufacturers' confidential 
product plans, product design cycles, technology cost, technology 
availability, and other factors. In our view, the real challenge in 
targeting future fuel economy potential is the pace at which technology 
can be developed, its cost, fuel prices, consumer preferences, and 
perhaps most importantly--the extent to which available technology can 
be added in the context of product cycles.
    When we design a vehicle, we have to predict what our customers 
will want some 4-6 years into the future in order to complete 
development, testing and re-testing, production preparation, supplier 
development, government certification, and ultimately, production. Once 
we commit to a technology strategy for a given model, it is generally a 
4 to 6 year commitment. Unfortunately, this means we cannot add 
technology to every vehicle every year, even if technology is ``on-the-
shelf''.
    To put this into perspective, the 2.2 percent annual truck increase 
promulgated by NHTSA for seven consecutive model years--if continued 
into the future--would require about an 11 percent fuel economy 
improvement in every model, every time it was redesigned. This is a 
significant challenge given the often competing demands by consumers. 
By the same token, a 4 percent annual increase would require about a 20 
percent improvement in every model, every time as a result of 4-6 year 
product cycles.
    Targeting future fuel economy improvements hinges on many factors 
that require detailed analyses that NHTSA is best suited to evaluate.
    In closing, Toyota has a strong track record of bringing advanced 
fuel economy technology to market and achieving leading levels of fuel 
economy. We've always exceeded CAFE standards--in fact, over their 
lifetime, the past ten model years of Toyota vehicles sold in the U.S. 
will consume 11 billion fewer gallons of gasoline (or nearly 265 
million fewer barrels of oil) than what the law would have allowed. 
These same vehicles will emit over 100 million metric tons less 
CO2 than if we had simply met the CAFE standards. Our core 
philosophy of ``continuous improvement'' will drive us to pursue 
additional technology advances in the years to come. Thank you once 
again, and I'd be happy to answer any questions.









    Senator Pryor. Thank you.
    Mr. Alan Reuther?

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

    Mr. Reuther. Mr. Chairman, my name is Alan Reuther. I am 
the Legislative Director for the UAW. We appreciate the 
opportunity to testify at this hearing on the CAFE program.
    UAW believes that global warming and our Nation's 
dependence on foreign oil are serious problems that need to be 
addressed by Congress and the Bush administration. However, it 
is important to recognize that the CAFE program, by itself, 
cannot solve these problems. UAW supports the establishment of 
an economy-wide, mandatory, tradable permits program that will 
reduce greenhouse gas emissions. We believe this type of cap-
and-trade program should be done on an upstream basis in order 
to minimize regulation and to assure that all sectors of the 
economy participate in a proportionate manner.
    The UAW also believes Congress should pursue initiatives to 
promote the use of alternative fuels in motor vehicles. We 
would support legislation mandating that a certain percentage 
of all vehicles sold in the U.S. by each automaker must be 
flex-fuel capable by specified dates. We also believe there is 
a need for incentives to overcome bottlenecks in the production 
and distribution networks for alternative fuels.
    In addition, the UAW urges Congress to use tax and other 
incentives to encourage domestic production of advanced 
technology vehicles, the hybrids and diesels, and their key 
components. As was demonstrated by a November 2004 study by the 
University of Michigan, this type of approach would create 
thousands of automotive jobs in this country, while reducing 
global warming emissions and our dependence on foreign oil.
    The Bush administration has requested the authority to 
establish an attribute-based CAFE system for passenger cars 
similar to the system that NHTSA has already implemented for 
light trucks. The UAW recognizes that this approach would 
eliminate the discriminatory impact of the current passenger 
car CAFE rules against full-line producers. However, it would 
also enable 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. Almost 50,000 American workers produce 
parts for these vehicles. To prevent companies from offshoring 
these jobs, and to prevent companies from subverting the 
objective of any new CAFE system by upsizing many of their 
vehicles, resulting in worse overall fuel economy, the UAW 
urges Congress to impose an anti-backsliding requirement on any 
new CAFE rules. 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.
    Some Members of Congress have put forward proposals to 
increase CAFE to 35 mpg for the combined passenger car and 
light truck fleets, or to 40 mpg for passenger cars, or to 
require 4 percent annual increases in the CAFE standards. The 
UAW is deeply concerned about the economic feasibility of these 
proposals. In light of the extremely serious financial 
conditions of GM, Ford, and DaimlerChrysler and the disparate 
burdens they face in retiree health care legacy costs, the UAW 
believes that the imposition of CAFE increases of this 
magnitude could lead to calamitous results. This could include 
the closing of additional facilities and the loss of tens of 
thousands of additional automotive jobs, as well as the loss of 
health coverage for 500,000 retired workers and their families.
    In order to meet higher CAFE standards, the auto 
manufacturers will have to incur significant retooling costs. 
But the companies do not have a level playing field, in terms 
of their ability to shoulder these retooling costs. Thus, the 
UAW believes that any proposals for CAFE increases must also 
include measures that will help to level the playing field in 
the automotive industry and provide struggling manufacturers 
with the resources needed for any retooling efforts. Such 
assistance should be tied to investments in domestic production 
that will generate jobs for American workers and help the U.S. 
economy. It should also be structured in a manner that 
recognizes and helps to address the fundamental imbalance in 
the auto industry related to retiree health care legacy costs.
    Rather than simply turn to the CAFE program, the UAW urges 
Congress to consider other mechanisms for improving vehicle 
efficiency that might be more consistent with economy-wide 
efforts to reduce oil consumption and greenhouse gas emissions. 
For example, Congress should explore whether it would be better 
to establish carbon reduction requirements that each auto 
manufacturer would have to meet. This approach might be more 
effective in achieving the desired objectives of greenhouse gas 
reductions and oil savings, and it would also avoid some of the 
gaming and other complications that have plagued the CAFE 
program.
    In conclusion, the UAW looks forward to working with this 
committee in fashioning measures that will enable the U.S. to 
make progress in addressing the climate change and energy 
security issues 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 appreciates 
the opportunity to testify before this Committee at this oversight 
hearing on the Corporate Average Fuel Economy (CAFE) program.
    The UAW represents over one million active and retired workers 
across the country, many of whom work or receive retirement benefits 
from auto manufacturers or auto parts companies. We were deeply 
involved in the original enactment of the CAFE program, and continue to 
have a very strong interest in this program because of its impact on 
automotive production and employment in this country and the jobs and 
benefits of our members.
    Interest in the CAFE program has recently been heightened by a 
number of factors. This includes the national security implications of 
our Nation's dependence on foreign oil. It also includes rising 
concerns about global warming and the need to limit greenhouse gas 
emissions.
    The UAW believes that these 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.
Need for Economy-Wide Energy Policies
    It is important to recognize that the CAFE program, by itself, 
cannot solve these problems. All light duty vehicles (passenger cars 
and light trucks) in the United States only account for 16.3 percent of 
greenhouse gas emissions. The CAFE program only affects new vehicles 
sold each year, which represent a very small percentage (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. Thus, by 
definition any changes in CAFE can only have a modest short-term impact 
on reducing our greenhouse gas emissions and dependence on foreign oil.
    To address these problems in a meaningful way, the UAW believes we 
need broader, comprehensive energy policies. In our judgment, these 
policies should require all sectors of the economy to come to the table 
and help to reduce our Nation's oil consumption and greenhouse gas 
emissions. Each sector should be required to contribute to these 
objectives in proportion to the oil consumption and greenhouse gas 
emissions of that sector. 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 production and employment 
in specific industries.
    To be sure, the auto industry has an important role to play in 
addressing the energy security and climate change issues. The UAW is 
prepared to support legislation that requires the industry to do its 
share, so long as this is part of broader measures that also require 
other sectors to share proportionately in the burdens that will be 
required to meet these challenges.
    Specifically, the UAW strongly supports the establishment of an 
economy-wide mandatory tradable-permits program that will gradually 
slow the growth of, and eventually reduce, greenhouse gas emissions in 
the United States. We believe this type of ``cap-and-trade'' 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 such a 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 could 
make a major contribution to reducing greenhouse gas emissions and our 
dependence on foreign oil.
Promotion of Alternative Fuels
    At the same time, the UAW recognizes the need for additional 
measures to reduce oil consumption and greenhouse gas emissions from 
the automotive sector. But, to be successful, it is essential that this 
effort focus on two interrelated factors: (1) the fuels that go into 
vehicles; and (2) the efficiency of these vehicles themselves.
    The UAW believes it is critically important for Congress to pursue 
a range of initiatives to promote the use of alternative fuels in motor 
vehicles. This can 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 expand the use of alternative fuels, there is also a need to 
overcome bottlenecks in the production and distribution networks. Thus, 
the UAW supports the continuation of existing incentives for the 
production of bio-fuels. We also support additional incentives to 
encourage the conversion of existing filling stations so they have the 
capability to distribute alternative fuels. We welcome the Bush 
administration's proposal to increase the renewable fuels mandate. And 
we believe that the fuels carbon cap that was recently proposed by 
Governor Schwarzenegger represents a thoughtful approach that is worth 
examining on a Federal level.
Vehicle Efficiency--Tax Incentives, CAFE, and Other Approaches
    In addition to pursuing measures to increase the use of alternative 
fuels in motor vehicles, the UAW believes that Congress should consider 
initiatives that will make vehicles more efficient, and reduce their 
consumption of oil and emission of greenhouse gases. There are a number 
of possible approaches to achieve these objectives.
A. Tax Incentives
    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 with higher domestic content with vehicles that 
have much lower domestic content. As a result, the consumer tax credits 
effectively wind up 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 lifting the cap on the 
number of qualifying vehicles.
    Some persons have proposed the establishment of a so-called ``fee 
bate'' system, under which the Federal Government would provide tax 
incentives for more fuel-efficient vehicles, without any link to 
specific technologies. Because most of these proposals involve a tax 
credit for the consumer, the UAW believes they suffer from the same 
defect as the consumer tax credit for advanced technology vehicles. In 
the end, this could subsidize the offshoring of automotive production 
and jobs. In addition, depending on how any ``fee bate'' system is 
constructed, it could have a negative impact on sales, production and 
jobs at particular companies.
    Instead of these flawed approaches, the UAW urges Congress to use 
tax and other 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 was pleased that this type of proposal for a manufacturer's 
tax credit to encourage domestic production of advanced technology 
vehicles and their key components was included in a number bipartisan 
bills that were introduced in the last Congress. We urge this Committee 
to include this proposal in any energy legislation that is considered 
the 110th Congress.
B. CAFE
    The Bush administration has proposed a number of changes in the 
CAFE program. In particular, it has requested the authority to 
establish an attribute-based CAFE system for passenger cars, similar to 
the system that the National Highway Traffic Safety Administration 
(NHTSA) has already implemented for light trucks. In addition, the 
administration has proposed that auto manufacturers be permitted to 
trade CAFE credits. It has also proposed that NHTSA be prohibited from 
adopting any CAFE system based on a uniform percentage improvement 
(UPI) formula.
    The UAW recognizes that moving to an attribute-based CAFE system 
for passenger cars similar to the system for light trucks would have 
the benefit of eliminating the discriminatory impact of the current 
passenger car CAFE rules against full line producers. We would strongly 
applaud this development. The UAW has long complained that the 
structure of the current passenger car CAFE rules does not take account 
of differences in the product mix of the various auto manufacturers. As 
a result, it imposes a heavier, unfair burden on companies that have a 
product mix more oriented toward larger passenger cars. Moving to an 
attribute-based CAFE system for passenger cars would correct this 
problem, and require all companies to make similar efforts to improve 
fuel economy across their entire line of vehicles.
    However, as the UAW indicated in our testimony on May 9, 2006 
before the Subcommittee on Surface Transportation and Merchant Marine 
of the Senate Commerce Committee, moving to an attribute-based CAFE 
system for passenger cars would also have the major down side of 
enabling auto manufacturers to offshore all of their small car 
production. Under the existing passenger car CAFE program, the 
combination of the fleet wide averaging and the two-fleet (domestic and 
foreign) rules ensures that full line auto manufacturers must maintain 
small car production in North America. This is because the production 
of smaller, more fuel efficient vehicles is needed to offset the 
production of larger, less fuel efficient vehicles.
    As a matter of national energy policy, the UAW believes it is vital 
that the U.S. retain domestic production of smaller, more fuel 
efficient passenger cars. As we have all witnessed, sharp increases in 
gas prices can lead to shifts in consumer demand toward smaller, more 
fuel efficient vehicles. Unless we retain domestic production of such 
vehicles, consumers interested in this segment of the market could be 
forced to purchase foreign-made vehicles.
    Over 17,000 American workers are currently employed in seven U.S. 
assembly plants that produce small passenger cars. This includes GM, 
Ford, DCX, and NUMMI plants in Lordstown (Ohio), Spring Hill 
(Tennessee), Wayne (Michigan), Belvidere (Illinois), and Fremont 
(California). Almost 50,000 American workers produce parts for these 
vehicles. The jobs of these workers would be directly threatened by any 
CAFE proposals that undermine fleet wide averaging and/or the two-fleet 
rule for passenger cars. The loss of these jobs would inevitably have a 
negative ripple effect on the rest of the economy.
    Some commentators have tried to dismiss concerns about the loss of 
small car production by arguing that the companies will simply 
substitute large car or light truck production at these facilities, 
leaving the overall production and employment levels unchanged. This 
ignores the harsh reality that there currently is significant over 
capacity in the auto industry. The real-world impact is that certain 
companies would take advantage of any shift to an attribute-based CAFE 
system for passenger cars to further downsize their operations by 
closing their small car facilities. The net result is that tens of 
thousands of automotive jobs would be lost, without any compensating 
replacements with large vehicle production and jobs. Because of the 
high multiplier effect of auto industry employment, this also would 
lead to a net loss of hundreds of thousands of jobs in the overall 
economy.
    As the UAW testified last year, there is an easy way to obtain the 
benefits of moving to an attribute-based CAFE system for passenger 
cars, while avoiding the down side of losing our small car production 
and jobs. Specifically, the UAW urges Congress to impose an ``anti-
backsliding'' requirement on any new CAFE rules that NHTSA would be 
authorized to promulgate for passenger cars. This requirement should 
specify that both the domestic and foreign passenger car fleets for 
each auto manufacturer would still have to meet or exceed the CAFE 
standard under the current system (i.e., the 27.5 flat MPG fleet wide 
standard). This ``anti-backsliding'' benchmark should be increased in 
line with the overall fuel economy improvements required under any 
attribute-based passenger car CAFE system.
    The adoption of this type of ``anti-backsliding'' requirement would 
prevent companies from offshoring all of their small car production and 
jobs. This would protect the jobs of tens of thousands of American 
workers, and guarantee that we would continue to maintain domestic 
production capacity for smaller, more fuel efficient vehicles.
    This type of ``anti-backsliding'' requirement also would ensure 
that the auto manufacturers cannot subvert the objective of any new 
CAFE system by ``up-sizing'' many of their vehicles, resulting in worse 
overall fuel economy. It would guarantee that the companies will 
actually improve fuel economy across the entire range of their 
passenger cars, and that consumers and our Nation will indeed receive 
the benefits of more fuel efficient vehicles.
    The imposition of this type of ``anti-backsliding'' requirement 
would not be burdensome for the auto manufacturers. It could be 
structured in a manner that still allows the companies to obtain the 
benefits of moving to a CAFE system that takes into account product mix 
differences between the companies. If the companies are genuinely 
taking steps to improve fuel economy across their entire range of 
passenger vehicles, and if they do not shift small car production 
overseas, they should easily be able to meet this requirement.
    Thus, the UAW would support legislation authorizing NHTSA to 
establish an attribute-based CAFE system for passenger cars, provided 
this is coupled with an ``anti-backsliding'' requirement that protects 
small car production and jobs in this country. If this type of ``anti-
backsliding'' requirement is not included, then we would vigorously 
oppose such legislation.
    The UAW believes that the establishment of a ``credit trading'' 
system that would allow auto manufacturers to buy and sell CAFE credits 
for passenger cars and/or trucks 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. It could also aggravate the uneven playing field that 
currently exists between foreign and domestic auto manufacturers. For 
these reasons, we oppose the proposals put forward by the 
Administration and others for such ``credit trading'' systems.
    The UAW also strongly objects to the administration's proposal to 
prohibit NHTSA from adopting a uniform percentage increase (UPI) 
approach to CAFE improvements. We have long maintained that the UPI 
approach would be the fairest means of implementing fuel economy 
improvements. It would require all companies to improve the fuel 
economy of their fleets. At the same time, it would take into account 
existing differences between the companies based on their product 
mixes. We find it particularly ironic that the administration would 
tout the administrative expertise of NHTSA in setting CAFE standards, 
while at the same time attempting to circumscribe their discretion and 
expertise by outlawing a UPI approach.
    One of the key issues in any discussion of the CAFE program is the 
stringency of and timeframe for any proposed increases in the fuel 
economy standards. In his State of the Union address, President Bush 
estimated that the CAFE changes advocated by the administration would 
save 8.5 billion gallons of gasoline by 2017. Back-up materials 
provided by the administration indicated that this assumes a 4 percent 
annual increase in CAFE standards for both passenger cars and light 
trucks. However, so far the administration has not produced any 
documents or analyses explaining the basis for its estimates and 
assumptions. We understand that NHTSA has indicated that it does not 
have any basis for such projections. A number of Members of Congress 
have also put forward proposals to increase CAFE to 35 mpg for the 
combined passenger car and light truck fleets (S. 357), to 40 mpg for 
passenger cars (S. 183), or to require 4 percent annual increases in 
the CAFE standards.
    The UAW remains very skeptical about all of these proposals. We 
question whether increases of this magnitude are technologically 
feasible. In our view, the study by the National Academy of Sciences in 
2002 does not support increases of this magnitude.
    Even more importantly, the UAW is deeply concerned about the 
economic feasibility of these proposals. Specifically, in light of the 
extremely serious financial conditions of GM, Ford and DCX, and the 
disparate burdens they face in retiree health care legacy costs 
compared to their competitors, the UAW believes that the imposition of 
CAFE increases of this magnitude could lead to calamitous results. This 
could include the closing of additional facilities and the loss of tens 
of thousands of additional automotive jobs in this country. It could 
also include the loss of health coverage for 500,000 retired workers 
and their families.
    In the past 2 years, we have already seen these companies post 
shattering losses. In response, they have announced unprecedented plans 
to downsize their operations, involving the closing of numerous 
automotive facilities and buyout programs that could result in the loss 
of almost 90,000 jobs. Meanwhile, speculation continues about further 
industry restructuring that could lead to more plant closings and job 
loss.
    The difficulties in the U.S. automotive industry extend beyond GM, 
Ford and DCX. Overall, the industry has lost over 310,000 jobs since 
the last employment peak in February 2000. These losses have occurred 
in both the auto parts and the assembly sectors. A number of parts 
companies have filed for bankruptcy, including Delphi. In addition to 
the enormous loss of jobs in the auto parts sector, there has been 
tremendous downward pressure on the wages and benefits for the workers 
that remain.
    The UAW submits that any consideration of CAFE increases must take 
into account the terribly difficult and precarious financial situation 
for a large part of the U.S. automotive industry. Regardless of one's 
views on the technological feasibility of any CAFE increase, there is 
no dispute that meeting higher standards would necessarily entail 
significant retooling costs for the auto manufacturers. It is also 
apparent that there is not a level playing field among the companies in 
terms of their ability to shoulder these retooling costs. The recent 
profit/loss situations at GM, Ford and DCX are very different than 
Toyota or Honda. In addition, because they have been operating for a 
long period of time and have many retirees, GM, Ford and DCX have very 
substantial retiree health legacy costs. In contrast, Toyota and Honda 
have few retirees from their operations in this country, and the health 
care costs from their Japanese facilities are heavily subsidized 
through a national health care system.
    Thus, the UAW believes that any proposals for CAFE increases must 
also include measures that will help to level the playing field in the 
automotive industry, and provide struggling manufacturers with the 
resources needed for any retooling effort. Such assistance should be 
tied to investments in domestic production that will generate jobs for 
American workers and help the overall U.S. economy. It should also be 
structured in a manner that recognizes and helps to address the 
fundamental imbalance in the auto industry related to retiree health 
care legacy costs.
    The Federal Government already provides substantial subsidies to 
agri-business to promote alternative fuels. In our view, it makes equal 
sense to provide comparable assistance to the auto manufacturers to 
promote greater vehicle efficiency.
C. Other Approaches to Improving Vehicle Efficiency
    Rather than blindly turn to the CAFE program, the UAW urges 
Congress to also consider other mechanisms for improving vehicle 
efficiency that might be more consistent with economy-wide efforts to 
reduce oil consumption and greenhouse gas emissions. For example, 
Congress should explore whether it would be better, in lieu of 
increasing CAFE standards, to establish carbon reduction or oil savings 
requirements that each auto manufacturer would have to meet. Such 
approaches might be more effective in achieving these desired 
objectives, and might also avoid some of the gaming and other 
complications that have plagued the CAFE program. These approaches 
could also provide a mechanism for raising the revenue that would be 
needed help struggling companies with retooling and retiree health 
legacy costs. The UAW is prepared to work with Congress in exploring 
these innovative approaches.
    We recognize that any assistance to the auto manufacturers must be 
tied directly to measures that will guarantee public benefits through a 
reduction in carbon emissions and oil consumption from the light duty 
automotive fleet. As previously indicated, we also believe any 
assistance should be structured in a manner that promotes domestic 
production and jobs and protects retiree health care benefits.
    By structuring assistance in this manner, Congress can 
simultaneously achieve a number of critically important objectives. It 
can require auto manufacturers to produce vehicles that are more 
efficient, and reduce our consumption of foreign oil and emission of 
greenhouse gases. At the same time, it can create tens of thousands of 
jobs for American workers, and ensure that the U.S. will be producing 
the vehicles of the future. It can also help to foster a level playing 
field in the automotive industry, while protecting hard earned health 
care benefits for retirees and their families.
Conclusion
    In conclusion, the UAW appreciates the opportunity to testify 
before the Senate Commerce Committee at this oversight hearing on the 
CAFE program. We look forward to working with this Committee in 
fashioning measures that will enable the U.S. to make progress in 
addressing the climate change and energy security issues, while 
protecting jobs and benefits for American workers and retirees.

    Senator Pryor. Thank you, Mr. Reuther.
    Let me start with you, if I may, Mr. Reuther, just for 
point of clarification. Do you oppose higher CAFE standards?
    Mr. Reuther. No. We think the CAFE program could be 
increased, but we think, at the same time that is being done, 
that the Federal Government should help provide the----
    Senator Pryor. Right.
    Mr. Reuther.--resources to the struggling manufacturers, 
and help to provide a level playing field in the industry.
    Senator Pryor. Right. And do you believe that Congress 
should set the target or the goal, or do you think we should 
leave that to NHTSA's discretion?
    Mr. Reuther. We're agnostic on that issue. We supported the 
original CAFE law, when Congress set the standard. We've 
supported NHTSA in their light truck standard. We think the 
real issue is, what is the standard that we're talking about--
not who is going to be deciding it.
    Senator Pryor. And you mentioned a level playing field. Do 
you--is that, in your mind, a difference in domestically 
produced autos and foreign produced autos? Tell me what you 
mean by ``level playing field.''
    Mr. Reuther. Well, it refers to two things. One, that 
there's obviously a very great different right now in the 
financial conditions of GM, Ford, and DaimlerChrysler, compared 
to Toyota and Honda. That affects the ability of the companies 
to afford the retooling costs. Also, underlying that, there's a 
huge imbalance in the industry, in terms of the retiree health 
care burdens. GM, Ford, and DaimlerChrysler, because they've 
been in operation so long, have hundreds of thousands of 
retirees that they're paying health care for. Toyota of 
America, Honda of America, have virtually no retirees. At their 
facilities in Japan, those health care costs are subsidized by 
national health care systems. So, you have this fundamental 
imbalance in health care burdens, and that will impact on the 
ability of the companies to afford the retooling costs.
    Senator Pryor. And are you saying that CAFE factors into 
the automakers decision on where they build their vehicles?
    Mr. Reuther. If there was a move toward an attributed-based 
passenger car system, if that is not coupled with an anti-
backsliding rule, we will see the loss of all the domestic 
small car production, and the parts production that goes into 
that. That would be a very significant job loss for this 
country. So, we think some mechanism, such as an anti-
backsliding rule, should be included to prevent that result.
    Senator Pryor. All right. Connect those dots for me. Why 
would--if we don't have the anti-backsliding--which, by the 
way, I'm not necessarily opposed to--but if we don't have that, 
why do our domestic manufacturers of small cars go away? Why is 
that?
    Mr. Reuther. Right now, the current CAFE structure is a 
fleetwide average and a two-fleet requirement. You have to meet 
the fleetwide average for your domestic fleet, and meet it 
separately for your foreign fleet. Anything that changes either 
the fleetwide average requirement or the two fleet requirement 
would jeopardize small car production. Right now, companies 
have to keep small car production in this country to balance 
out the bigger cars that they produce here. Moving to an 
attributed-based system gets rid of the fleetwide average 
requirement. Companies would, therefore, no longer have to keep 
the small cars here to balance out the larger ones they produce 
here.
    Senator Pryor. OK.
    Now I have questions for the two scientists. First, I'd 
just like to get your general impressions of NHTSA. And the 
reason I'm asking this is, I think there's a suspicion, in some 
quarters at least, that NHTSA, under this administration, is 
very reluctant to be aggressive on new CAFE standards. And I 
would like to hear from the two scientists your impressions. I 
know you're not tied to NHTSA in any way, and you deal in this 
world a lot. So, Dr. Greene, do you want to just take that?
    Dr. Greene. Well, I think my answer is, sort of, ``on the 
one hand/on the other hand,'' I'm afraid. NHTSA has, of its own 
initiative, raised the light truck fuel economy standards 
twice. That's more than happened previously, when they were not 
allowed to even enter into rulemakings. So, they have shown 
some initiative. But I think, as we saw in the first panel's 
discussion, a bureaucratic agency has a great deal of 
difficulty in deciding on the values of things. And, in 
particular, our discussion this morning focused on the value of 
greenhouse gas emissions. And I think the criticism was 
absolutely justified, that there--you cannot assign a zero 
value to increasing greenhouse gas emissions. But I think what 
we saw is that, in the face of great uncertainty, this was 
exactly the solution that the agency decided on. To do 
something else is to stick your neck out, in a sense, and say, 
``Well, I think it's $25 a ton of CO2.'' And then 
someone will criticize you for that. I think we could have had 
the same discussion around the national defense--the foreign 
policy values of reducing oil dependence, where, similarly, 
essentially, there was no value given. So, I think this poses a 
very difficult problem for an administrative agency to decide 
on these values. And my view would be that, if the Congress 
does not, itself, want to set a specific fuel economy target, 
then the Congress will need to give very strong guidance to an 
administrative agency about the values of reducing greenhouse 
gas emissions and the value it attaches to reducing oil 
dependence.
    Senator Pryor. Mr. Friedman?
    Mr. Friedman. Thank you, Mr. Chairman.
    I think that NHTSA has strengths and weaknesses when it 
comes to dealing with fuel economy standards. I think one place 
that is--one job that's appropriate, and very appropriate for 
NHTSA, is to figure out the details once Congress sets a 
target, of how to get there; what the structure should look 
like, how to balance differences between manufacturers, based 
on product plans that they can get from those automakers. 
However, Congress is best situated both to really translate the 
concerns and the will of the American people, in terms of how 
much to value these important issues, such as climate change 
and global warming pollution, not to mention the significant 
lack of choice consumers face in the marketplace today.
    Congress has the ability, and has called, for example, on 
the National Academy of Sciences, to provide them with guidance 
to make sure that they can set a standard that is not 
arbitrary, that is, in fact, based in science and based on how 
far the technologies can go. Once Congress sets this goal, as 
it did in 1975, NHTSA is definitely a good place to figure out 
exactly how to get there, between what mix of vehicles, what 
mix of standards, and what are the appropriate rules.
    Senator Pryor. Well, Mr. Friedman, it sounds like you're 
comfortable with the National Academy of Sciences and their 
ability to come up with science-based findings. Is that fair to 
say?
    Mr. Friedman. I think that in evaluating the technological 
potential, the previous National Academy of Sciences panel did 
a very good job. If you look at the fleet that could be made 
from all the technologies in that report, it could reach up to 
37 miles per gallon based on the fleet mix they analyzed. That 
has changed a little bit over time, but I think that is very 
clear and very useful input to Congress so that they can avoid 
making any arbitrary standards. I would argue they were 
actually conservative, and, maybe with updating that analysis, 
they will go even farther.
    Senator Pryor. Getting back to NHTSA just for a second, do 
you believe that NHTSA has the capability in-house to analyze 
all the data, whether it be from NAS or from the auto 
manufacturers or whatever, and pull that together and come up 
with the right kind of CAFE standards?
    Mr. Friedman. I think that, historically, NHTSA was starved 
of staff and of funding. I think that has started to change. 
But I do think there is a role for increased funding for NHTSA 
so that there can be additional staff to help analyze these 
problems. But, as Dr. Greene said, at the end of the day there 
are some questions NHTSA cannot answer, and that is the role of 
Congress.
    Senator Pryor. Dr. Greene, do you have a comment?
    Dr. Greene. I would like to add one more thing. I think, 
historically, we can see that NHTSA has set standards over a 
relatively short time period into the future. And this is also 
true with the standards they just recently set for light 
trucks. This is--they don't look 10, 12, 15 years ahead. And I 
think that prevents them from setting a higher level of 
standard in the future, because, as Mr. Stricker pointed out, 
it takes time for the manufacturers to redesign all of their 
product lines. And so, this is, I think, a reflection of the 
difficulty of dealing with risk. It's hard to look very far 
into the future. There are market risks, there are technology 
risks, and so on. And I think NHTSA has had a difficulty in, 
let's say, being bold enough to set standards for a decade or 
more in the future.
    Senator Pryor. Dr. Greene, let me ask one last question to 
you about greenhouse gases. We've talked about how, when NHTSA 
looks at it, there's a value of zero. I think most people would 
think that when reducing greenhouses gases, there ought to be 
some value attached. But how does that factor into a CAFE 
standard? How would you quantify a reduction in greenhouse 
gases? And how does that work into the formula or become a 
credit in the CAFE world?
    Dr. Greene. Right. As--NHTSA did this in much the same way 
that the National Academies did, they looked at the marginal 
costs of improving fuel economy and the marginal benefits. So, 
the marginal costs are essentially the costs of the 
technologies that must be added. And they try to find a level 
at which the last increment of cost and fuel economy is equal 
to the value of the fuel saved. Well, part of the value of the 
fuel saved is the actual price you pay for the fuel minus the 
taxes, because the tax would be a transfer payment. Then they 
have to add, on top of that, the social value. And that's where 
we get into difficulty. What is the social value of reducing 
greenhouse gas emissions? What is the social value of reducing 
oil dependence? And there's a great deal of uncertainty about 
those. And so, they have to come up with some number. Is it 25 
cents a gallon that's the social value of reducing greenhouse 
gas emissions and oil dependence, or is it 50 cents a gallon? 
And this can make quite a bit of different in determining where 
you set the level of fuel economy.
    Senator Pryor. Dr. Greene, you have a number on that?
    Dr. Greene. Do I have a--it's like the joke, I have lots of 
them, yes.
    Senator Pryor. OK. But you don't see a--sort of a 
recognized or a consensus number out there where you think it 
ought to be set?
    Dr. Greene. I think--in the case of greenhouse gas 
emissions, you heard that it might be $25 a ton of 
CO2, it might $100 a ton of CO2, and 
that's likely to change over time, as well. I think the problem 
is, what exactly is going to happen as a result of climate 
change? And there's still great uncertainty about that. And so, 
it's very difficult for a scientist to tell you what exactly is 
the value of reducing a ton of carbon dioxide.
    On the national defense side, it's extremely controversial, 
for example, to say, ``Well, this much of our military budget, 
or this much of our expenses on national defense, or due to our 
dependence on oil.'' It's extremely difficult, technically, and 
highly controversial. And so, there, you know, you just can't 
find--I mean, people have tried to do it, but there is no 
consensus.
    Senator Pryor. OK. And that makes it understandable why 
NHTSA has not been able to--or not willing, at least, to set a 
number.
    Mr. Friedman. Senator, I just wanted to make two more 
comments, because I think this discussion of global-warming 
pollution is extremely important. I think one of the things 
that we have to remember--as Dr. Greene said, there is a lot of 
uncertainty here with global-warming pollution, but we know 
it's--we know global-warming pollution is there, we know humans 
are causing this problem. And what we've also found, from 
scientists' findings over the last several years, is, each time 
we think that we've figured out how bad the problem is, the 
science usually tells us it's worse. Glaciers are melting 
quicker than we thought, tropical diseases are potentially 
moving quicker than we thought as a result. So, I would argue, 
at a minimum, for a precautionary principle, when it comes to 
global-warming pollution, when we look at these numbers.
    I would also add that--Dr. Greene talked about costs, maybe 
$25 or $50 per ton of carbon dioxide. This really points out 
one of the challenges with addressing car and truck pollution 
from cap-and-trade systems. UCS strongly supports cap-and-trade 
systems for the entire economy. But if carbon dioxide is valued 
at $25 to $50 per ton, you're talking about effectively 
increasing gasoline prices by tens of cents, maybe half a 
dollar, on the more extreme. If we look at what's happened over 
the past several years, gas prices have more than doubled, at 
times, and we've seen very little response from consumers. We 
cannot expect a cap-and-trade system, an economy-wide cap-and-
trade system, to adequately deal with the global-warming 
pollution from our cars and trucks. This is where something 
like a national system to control that global-warming pollution 
from those vehicles, or CAFE standards, has to come into play. 
We do need an economywide cap-and-trade system, but it's not 
going to effectively deal with our cars and trucks.
    Senator Pryor. I'd like to hear, very quickly from General 
Motors and Toyota, about whether they think a greenhouse gas 
emissions factor should be included in CAFE standards. Do you 
all have a position on whether you should factor in greenhouse 
gas emissions when you're looking at CAFE?
    Ms. Lowery. Either one of us can go first.
    I mean, CAFE standards regulate CO2 now. I mean, 
basically that's what you're doing, you're having fuel economy 
regulated through CAFE. So, I'm not exactly sure, with respect 
to the question, other than you're asking, what would the value 
be if you do the cost-benefit analysis? And, I think, as people 
have noted, it's very uncertain what that value is. And I think 
there needs to be more research and more work done in that 
area.
    Senator Pryor. Toyota?
    Mr. Stricker. I think I would probably agree and echo what 
Ms. Lowery said. I--you know, not being an economist, myself, 
I'm not sure exactly how you value the various different kinds 
of externalities, such as Dr. Greene mentioned, in terms of 
energy security or CO2, et cetera. And--at the end 
of the day, though, I think that, no matter what, if such a 
factor were included, it doesn't change the sort of fundamental 
pace of technology, and progress that we can make in 
technology, to put on the vehicle side.
    Senator Pryor. OK.
    We've been joined by Senator Thune.
    Senator Thune?

                 STATEMENT OF HON. JOHN THUNE, 
                 U.S. SENATOR FROM SOUTH DAKOTA

    Senator Thune. Thank you, Mr. Chairman. It is down to you 
and me.
    [Laughter.]
    Senator Thune. I'm sorry I missed--I've had three hearings 
going at the same time today. But I appreciate the panels and 
their testimonies and their patience.
    Just a couple of questions, if I could, fairly quickly 
here. And maybe this is direct and I know we have a couple of 
panelists who are from the scientific community, but what do 
you think the goal of the CAFE program should be? Should it be 
to reduce U.S. oil consumption? Should it be used to reduce 
U.S. consumption of foreign sources of oil? Should it be used 
to reduce greenhouse gas production? Should there be some other 
goal? I guess my question is, what do you see as the overriding 
goal of CAFE standards? Anybody want to take a stab at that?
    Mr. Friedman. You want to go first, David? I'll follow up.
    Dr. Greene. I think there are, chiefly, three goals, and 
you've stated two of them. One is to reduce dependence on oil. 
But dependence on oil, of course, goes beyond light-duty 
vehicles. And it goes beyond fuel economy, as Ms. Lowery has 
pointed out, to alternative fuels. So, in that sense, CAFE is a 
part of a comprehensive strategy, but not the whole strategy, 
in and of itself. And it's probably the most important part of 
a comprehensive strategy.
    Also, CAFE helps to reduce greenhouse gas emissions, and 
that's an important goal. And, I think, finally, we haven't 
talked about it much, but we are nearing the point where we 
will begin to make a transition--and, in fact, in some senses, 
we already have begun to make a transition from conventional 
oil to alternative sources of energy for transportation. These 
might be oil sands, heavy oil, oil shale, coal to liquids, gas 
to liquids, something like that. But as the countries outside 
of OPEC find it more and more difficult to increase oil 
production in order to meet increasing mobility demands for the 
world, we're going to bring on other fuels. I think that CAFE 
also helps us postpone that--slow down that process of 
transition, because the choices we make are going to be choices 
that remain with us for a long time, and if we choose to go to 
high carbon sources, like coal to liquids, like oil sands and 
oil shale, then we have a very serious problem of how to 
mitigate those carbon emissions.
    Senator Thune. Mr. Friedman?
    Mr. Friedman. In general, I would agree with what Dr. 
Greene said. Originally, of course, fuel economy standards were 
focused on reducing our oil addiction. And they have clearly 
had that impact. If we--if our cars and trucks were stuck at 
the fuel economy levels they were back in the 1970s, we would 
be consuming 50 to 80 billion gallons of additional gasoline. 
That's hundreds of billions of dollars that consumers would be 
paying today if we didn't have the CAFE standards we have right 
now.
    Of course, if those standards had continued to increase, 
consumers would be saving a lot more money. So, I would argue, 
definitely fuel economy standards should have as a goal 
reducing total oil consumption, because whether you're reducing 
imports or domestic oil use, you're reducing the impacts that 
our oil addiction will have on our economy and our environment.
    Fuel economy standards will definitely help reduce global-
warming pollution, but, as Dr. Greene said, you also need fuel 
standards, cleaner fuel standards in order to deal with that, 
as well as finding ways to get consumers to reduce their amount 
of travel.
    And finally, fuel economy standards can save consumers 
money. That is one of the most impressive things about these 
technologies. It's an investment up front, by both the 
automakers and by consumers, but, at the end of the day, 
consumers are going to save thousands of dollars on gasoline. 
And if you're not sending that money to--exported to other 
countries, it's being spent here in this country, it's creating 
new jobs, it's helping the auto industry, and it's helping 
consumers.
    Senator Thune. I appreciate the fact that it has been 
reduced in terms of billions of gallons. I don't like the fact 
that 30 years later we're still at 60 percent--I remember as a 
kid when I was growing up in the 1970s, and we had the gas 
lines and the gas wars, and everybody said, ``We've got to get 
less dependent upon foreign energy,'' and, at that time, we 
were about 50 percent dependent upon foreign energy, and today 
we're still getting 60 percent. Now, that being said, of 
course, the economy's grown dramatically, and obviously on a 
relative scale or level, we still have an awful long ways to go 
to get away from energy dependence. I know that this is just 
one component part of that. And there are lots of other things 
we need to be doing, including shifting away from some of our 
traditional historic energy sources toward renewables and 
alternative energy sources.
    And that's what I want an answer for--I guess, for the car 
manufacturers who are here. There have been some who have 
raised the concern about the 1.2 mile per gallon CAFE credit 
that automakers receive for selling flex-fuel vehicles, arguing 
that the credit doesn't help decrease oil consumption, because 
too many flex-fuel vehicles are purchased in areas with little 
or no E85 availability, and, therefore, never run on anything 
but unleaded gasoline. Now, that's a problem with our 
infrastructure. And I've--as many of you know, have introduced 
legislation, along with Senator Salazar, to try to help solve 
that infrastructure problem. I guess the basic question is, do 
you agree that our E85 infrastructure and other alternative 
fuel infrastructures need to be strengthened? And, second, does 
the bill I've introduced with Senator Salazar take us in the 
right direction?
    Ms. Lowery. Thank you, Senator.
    I do think it's very important that we focus on the 
infrastructure. So, with respect to the E85 flex-fuel credit 
for vehicles, my view, and the company's view, is that the 
incentive worked. We have more than 6 million vehicles on the 
road today as an industry that can run on flex fuels. And so, 
what needs to happen is, we need to have incentives for the 
infrastructure. We think it's very important that we do have 
this integrated approach. So, while we've had a lot of 
discussion today about fuel economy, that is a piece of it, it 
certainly is not the whole answer, and we need to make sure 
that we talk about the fuel piece, the consumer piece, and 
definitely, on flex fuels, the infrastructure piece. GM alone 
has more than 2 million vehicles on the road that run on flex 
fuels. We also have worked in 13 different states, and will 
have more coming, where you put together partnerships to help 
that infrastructure, to take advantage of some of the 
incentives that were passed in the energy bill and other 
incentives that could be in the marketplace. But we need to get 
the fuels to the customers.
    Senator Thune. Mr. Stricker?
    Mr. Stricker. Yes, thank you, Senator.
    Toyota does not yet, in the U.S., make a flexible-fueled 
vehicle. We've announced plans for our Toyota Tundra V8 model 
to be flexible-fuel in late 2008 as a 2009 model year vehicle. 
Clearly, as Ms. Lowery said, the flexible-fuel vehicle credit 
appears to have been very effective in getting FFVs into the 
market. And clearly, as she said, as well, the challenge is 
really to get the fuels out there into the market. That's one 
of the reasons that we haven't been in the market up to this 
point, is that there really hasn't been a market, so to speak.
    But, in addition to expanding the infrastructure, which, of 
course, would be necessary to expand the volume of fuel, the--
we think one of the other real challenges is to increase the 
volume of alternative fuels that are available in the 
marketplace. And to do that, we probably need to move beyond 
current production methods for some of these alternative fuels. 
There is really--we're not agricultural folks, but our 
understanding, based on a lot of studies and a lot of 
discussion with folks, is that, with the current production 
methods, maybe 15 billion gallons of ethanol a year might be a 
feasible number--some are higher estimates, some are a little 
bit lower--that we can get from current sources of production. 
And with a large volume of ethanol going toward E10 blending, 
basically gasohol, not E85, there's but so much additional 
ethanol available that can go into fueling an E85 fleet. So, 
really we think that one of the key challenges to making the 
E85 equation work long term is to move toward some sort of 
cellulosic process, or even other kinds of biofuels, that can 
extend and expand the volume of these fuels that would be 
available. And, of course, they're going to have to be cost-
competitive with gasoline on a per-mile basis. That's a big 
challenge. And I think a lot of research still needs to be done 
in that area.
    Senator Thune. Well, and that's happening. The transition 
from corn-based to cellulosic is from other biomass materials 
already taking place. And so, I think and I hope that your 
company will begin to manufacture flex-fuel vehicles, and that, 
when you do, you will get an interest in agriculture, and that 
I'm sure you all will want to endorse the Thune-Salazar 
refueling station bill when that happens, as well.
    But I do think these are all things that have to be married 
up. You've got the production side of this, and, in my state, 
you know, we've got 11 ethanol plants, five under construction. 
We'll, by the year 2008, be producing about a billion gallons 
of ethanol in South Dakota alone, and we stand, I think, 
positioned well for the next wave of that, which is making it 
out of switchgrass or bluestem or cornstover. But, that being 
said, I don't think we can do enough. And I was glad to see the 
President in his State of the Union address, set that goal out 
there at 35 billion gallons by the year 2017. That's very 
ambitious. But I think that we can get there although it is 
going to take a concerted effort. And I know that we're going 
to need to have the infrastructure, we're going to need to have 
the market, obviously, and we're going to have to have the 
production. And all these things have to come together. But 
it's the right direction, in my view, to go. And so, I 
encourage your continued support and willingness to work with 
us as we try to achieve that goal.
    Mr. Chairman, thank you very much.
    Senator Pryor. Thank you.
    Senator Thune. Thank the witnesses.
    Senator Pryor. Thank you for your joining us.
    I really just have a couple more questions, really for the 
auto manufacturers. And I know we've gone much longer than we 
thought we would, but it's been a good hearing, and very 
interesting and informative.
    I have a couple of questions, about batteries, for the auto 
manufacturers. There was a brief mention--I believe it was by 
the NHTSA Administrator today--that maybe the batteries catch 
fire. You know, I've heard that here and there. I know most of 
these batteries, if not all of them, are not manufactured in 
the U.S., they're manufactured overseas. Is there a problem 
with current battery technology? I think Senator Carper, if I 
recall, mentioned allocating more dollars in the budget to do 
battery research. What is the challenge with battery 
technology? Toyota, can----
    Mr. Stricker. OK, certainly, thank you.
    Let me just make one point clear at the outset, is that 
there is not a concern with fire in current hybrid vehicles 
that are on the road, in the battery technology. The batteries 
that are currently out there are nickel-metal-hydride 
batteries. The--I think the reference to fires was in regards 
to some of the consumer electronics issues that have cropped 
recently with lithium-ion batteries. And, granted, the future 
wave for battery technology in vehicles may very well be 
lithium-ion technology, as well. There are different 
chemistries that you can use to deal with thermal management 
issues, which is how we refer to them.
    But the challenge with plug-in hybrid vehicles, electric 
vehicles, is, indeed, the battery. That's the A-number-1 
obstacle right now in getting that kind of vehicle into market. 
The current--on the current Prius, with a nickel-metal-hydride 
battery, we have to keep the state of charge--you know, we 
can't have a completely discharged battery or a completely full 
battery--we have to maintain the state of charge of that 
battery in a very narrow range of perhaps 70 to 90 percent 
state of charge. You can't charge the battery all the way up, 
and you can't discharge it all the way down, like we all do 
with our BlackBerrys and our cell phones. That damages the 
battery very quickly. And, you know, you have big warranty 
problems then. So, basically, we have to manage the state of 
charge of the battery in a very narrow window. So, you can't 
use that kind of battery technology, let's say, on a plug-in 
type application, where you want a much longer range of 
operation, let's say, without the internal combustion engine 
charging the battery. So, we have to move to a different kind 
of battery technology.
    When you have lithium-ion batteries, you can have a much 
broader range of state of charge of the battery, and you also 
are able to determine the state of charge of the battery much 
more easily with a--the current nickel-metal-hydride batteries, 
one of the other reasons we have to keep the state of charge 
narrow is that, just because of the battery technology, it's 
difficult to tell what the state of charge is. So, we have to 
narrow it even further. With a lithium-ion battery, it's much 
easier to tell what the charge of the battery is, and you can 
charge and discharge it further.
    But to move into plug-in applications, much more work is 
going to need to be done. First, we have to get to lithium-ion. 
Then we have to be able to increase the capacity, the energy 
output, reduce the cost and the size of the battery. You know, 
it has to be able to fit in the back of the vehicle.
    Do you want to add something?
    Ms. Lowery. No, I agree with those challenges. I also agree 
that every product we put on the road would not have any issue 
with respect to thermal-management issues, as raised from a 
battery standpoint.
    We certainly are working hard. We have a couple of 
codevelopment agreements with some battery companies to get to 
the next level of lithium-ion batteries, because we do believe 
that electrification of the vehicle, the plug-in hybrids, 
eventually fuel cells, all that's very important. The reference 
was the fact that there isn't any battery manufacturing 
technology here in the U.S., and also, we could have more 
funding from the U.S. Government with respect to the research 
and development for that technology for automotive application. 
So, lithium-ion batteries are in wide applications, but not for 
automotive, at this point in time.
    Senator Pryor. Right. Ms. Lowery, let me ask, would one 
advantage of lithium-ion maybe be that it's lighter? Does that 
help?
    Ms. Lowery. With respect to--well, go ahead.
    Mr. Stricker. It helps. You--what you can do is, you can 
get more--you can get more charge----
    Senator Pryor. Work or----
    Mr. Stricker.--out of the batteries, so----
    Senator Pryor. Yes, pound or whatever.
    Mr. Stricker.--to get the equivalent amount of work, you 
don't need a battery that's the same----
    Senator Pryor. Right.
    Mr. Stricker.--size. You can have a smaller battery.
    Senator Pryor. Lighter. And is there an environmental 
hazard with either the manufacturer or the disposal of these 
batteries?
    Mr. Stricker. No. The--there are--you know, every 
manufacturing process has its own challenges. One of the issues 
with batteries, of course, is we need a system for recycling 
the batteries. We've set up such a system for the nickel-metal-
hydride batteries in the current Toyota and Lexus hybrid 
products, and generally that's a recycling program that's put 
in place for when there are accidents and the vehicle is 
totaled or whatever, and you have this extra battery sitting 
there. We have not run into situations where people's batteries 
have just stopped working, you know, from a durability 
perspective, so we're not recycling batteries, for that reason, 
but mainly from when they're in an accident.
    Ms. Lowery. I would say that all those issues are 
manageable, so, just like we would--with the lead acid 
batteries, came up with a system for recycling, then--and 
nickel-metal-hydride--I'm sure, with lithium-ion, as that--
technologies develop for automotive application, we'll deal 
with those issues, as well.
    Senator Pryor. That's why I asked, because, you know, 
sometimes when you have this great solution, there are these 
other sort of hidden challenges that come with it. In fact, 
someone was telling me, last night--I didn't know this--about 
the little fluorescent bulbs you can buy now. Apparently they 
have just a trace amount of mercury in them, and, you know, the 
theory would be when millions and millions and millions of 
those come out on the market, that little trace amount of 
mercury could be a real problem.
    Well--I'm sorry, did you want to----
    Mr. Friedman. I'm sorry, Senator Pryor. Thank you very 
much.
    I just wanted to note I'm actually--I'm very excited about 
these plug-in hybrids. I'm very excited about the potential of 
cleaner biofuels. I actually helped build a plug-in hybrid 
about 10 years ago, with a team of students. It was very 
exciting. These technologies have huge promise, and they're 
basically the equivalent of hitting home runs. The problem is, 
sometimes even your best home-run hitter strikes out. And we 
need to make sure that, while we're focusing on these long-run 
high-risk technologies, that we absolutely are going to need in 
the next 20-30 years, that we also do the basics, that we get 
the singles, we get the doubles, we increase fuel economy with 
the simple technologies that automakers already have. This 
isn't about a focus, as even Toyota said, about silver bullets. 
We need to take a comprehensive approach, and that means the 
simple steps, with more efficient engines, better 
transmissions, high-strength materials--that's like singles or 
doubles; and yes, ultimately we want some of those home runs. 
We're going to need some of those home runs if we're going to 
kick our oil addiction and tackle climate change.
    Senator Pryor. Good.
    Well, listen, I want to thank the panel. Y'all have been 
very, very patient. And I will put you on notice that Senators 
can submit questions over the next couple of weeks, so it's 
possible you'll get some written questions. And the staff will 
work with you on that. And, like I said, if y'all have your 
statements to put in the record, Senators will put their 
statements in the record. And I just want to thank you for 
doing this and being here today.
    And the hearing is adjourned.
    [Whereupon, at 1:50 p.m., the hearing was adjourned.]
                            A P P E N D I X

   Speech Given by Jim Press, President, Toyota Motor North America 
                            on July 18, 2006

             National Press Club Luncheon, Washington, D.C.

    Thanks Jonathan and good afternoon everyone.

    With a name like mine . . . being here . . . at the National PRESS 
Club . . . in the National PRESS building . . . with members of the 
National PRESS . . . is not only a dream come true . . . it feels like 
a big family reunion! . . . so thank you for making me feel so welcome.
    According to my watch, in exactly 468 days . . . 11 hours . . . and 
30 minutes . . . Toyota will celebrate its 50th anniversary in America.
    And because we've made many great strides here, a lot of people 
think we've always been a highly successful company.
    But like America itself . . . Toyota comes from humble beginnings 
and had its share of hard times.
    It may surprise you to know that Toyota actually started out as a 
textile loom company. In 1924 . . . after watching his mother's 
frustration with broken threads while weaving fabric . . . our founder, 
Sakichi Toyoda, created a revolutionary automatic loom that shut down 
if it detected a broken thread . . . saving time and materials.
    Later, Sakichi sold the patent for the loom and gave the proceeds 
to his son to start an automobile company.
    The year was 1937 . . . and the company became Toyota Motor 
Corporation.
    Sakichi passed on more than the legacy of his company, however. He 
also passed on key principles that still form the central values of 
Toyota to this day.
    One is a fundamental belief in balancing business needs with the 
needs of society. In fact, our vision has always been ``to enrich 
society through building cars.''
    Two other key values are respect for people and ``kaizen'' . . . 
the drive for continuous improvement.
    Over the years, these values have served us well . . . but like all 
companies . . . we've had our ups and downs.
    Toyota may be profitable today, but we almost went bankrupt in the 
early 1950s . . . and our first product in America was a real dud.
    It's true.
    During a recession in early 1950, Toyota experienced severe 
financial problems and was forced to lay off some workers . . . the 
lowest point our business ever experienced.
    Shortly thereafter, however, the company began its comeback by 
supplying powerful, all-terrain utility vehicles to the U.S. Army for 
use in Korea. That highly popular vehicle went on to become the Toyota 
Land Cruiser . . . still one of the most admired motor vehicles on 
earth.
    Toyota learned from these difficult times . . . and has tried to 
stay responsive ever since. It also realized it needed to be a business 
of the world to survive long-term.
    So, Toyota came to America in 1957, opening a showroom/office in 
Hollywood, California, the same year Elvis sang ``All Shook Up'' and 
the Russians launched Sputnik.
    With high hopes and a post-war boom creating the need for a second 
family car, Toyota launched a sturdy sedan with a strange name . . . 
the Toyopet Crown. Don't ask me why . . . I was still in grade school 
at the time.
    Although the Toyopet had some remarkable features for its time, it 
was badly underpowered and drove like a tank. That's because it was 
originally designed for the roads of Japan where it was used 
extensively as a taxi . . . not the wide-open . . . high-speed . . . 
highways of America.
    After a year . . . the company had sold just 287 Toyopets and one 
Land Cruiser.
    Sales peaked a year later at just over 1,000 and then dropped off 
until 1961 . . . when we withdrew the Toyopet from the U.S. market. We 
survived by selling our Land Cruiser . . . the only model we've sold 
continuously in America for nearly 50 years.
    This failure taught us a key lesson . . . you have to design and 
build products that people want and will fulfill their needs . . . not 
factory needs.
    So, we spent the next 5 years studying the needs of American 
consumers and returned in 1965 with an all-new Corona, a compact sedan 
that was powerful, economical and dependable. It became an overnight 
sensation and we've never looked back. Today, Toyota has the Number 1-
selling passenger car in America . . . Camry . . . the Number 1-selling 
luxury line in America . . . Lexus . . . and the Number 1 gas/electric 
hybrid . . . the Prius.
    Our Corolla compact sedan . . . now in its 9th generation . . . is 
the world's best-selling passenger car of all time . . . and is built 
in the U.S., Canada and a dozen other countries.
    We've also become a big manufacturer in America with 9 major 
vehicle and parts plants across the nation, and the 10th set to open 
this fall in San Antonio. We're also adding a new Camry production line 
and 1,000 new jobs to a Subaru plant in Indiana.
    Having key manufacturing plants in 8 states . . . and one each in 
Canada and Mexico . . . means nearly 3 out of 5 vehicles we sell here 
are made . . . here . . . in North America.
    In fact, we directly employ 32,000 Americans . . . more than 
General Mills . . . Texas Instruments . . . or Cisco Systems . . . and 
our dealers and suppliers create another 177,000 jobs.
    When you add other spin-off employment resulting from our presence, 
the Center for Automotive Research estimates Toyota is responsible for 
a total of nearly 400,000 American jobs . . . roughly equivalent to a 
city the size of Miami.
    Toyota also purchases $28 billion in parts, materials and services 
annually from 400 suppliers in 35 states, led by Michigan.
    And, we're proud of the fact that we're ranked No. 1 in the 
industry for supplier and dealer relationships . . . a tribute to our 
belief that . . . if we help them be more successful . . . we will be 
more successful.
    In addition, we're building a new North American research and 
development complex in Ann Arbor, Michigan on land six times the size 
of Disneyland. It will house 1,100 engineers and designers and serve as 
the hub for all our efforts to design cars and trucks by Americans . . 
. for Americans.
    So we've come a long way in 50 years . . . and we plan to keep 
moving forward.
    Toyota's philosophy is to build cars where we sell them . . . and 
our global chairman . . . Fujio Cho . . . is asking those of us in 
North America to take on even greater responsibility for designing, 
building, selling and servicing vehicles in this, the world's Number 1 
automotive market.
    At the same time, we're also trying to live up to our vision of 
contributing to American society through our business practices and 
community work. And, we're equally proud of those results.
    During our first half century here, Toyota has made significant 
contributions to American business and culture, including: new fuel 
economy, safety and hybrid technologies . . . lean manufacturing 
processes . . . kaizen improvements . . . trustworthy relationships 
with dealers and suppliers . . . close cooperation with government 
agencies . . . and community education programs like family literacy 
centers.
    Underlying all this success, however, are the fundamental 
principles that Sakichi Toyoda instilled in our organization three-
quarters of century ago.
    I come to Washington today with THAT spirit of optimism . . . 
determination . . . and cooperation.
    I truly believe Toyota CAN BE part of the solution to the great 
issues of our times . . . issues like energy independence . . . air 
pollution . . . health care . . . safety . . . and global warming.
    And that's what I want to talk about today . . . the state of the 
auto industry . . . the contributions it makes to America . . . and how 
it can play a leading role in helping solve some key issues of society.
    Despite some of today's headlines, the automotive industry is 
alive, well and expanding.
    Globally, sales are rising because people in major developing 
countries like China, India, Russia and Brazil are gaining a higher 
standard of living and discovering the freedom that cars provide. In 
some ways, they are like America was in the Roaring 20s.
    Here in the United States, business is steady . . . and as 
America's population approaches 300 million . . . the future is full of 
promise.
    The U.S. auto industry is coming off its third best year in 
history, and sales so far this year are nearly on the same pace.
    General Motors and Ford are taking bold steps to recover, and there 
are signs good things are starting to happen. Both were profitable in 
Asia, Europe and Latin America in the first quarter and their sales 
have doubled so far this year in China . . . rapidly becoming the 
world's second largest auto market.
    I firmly believe GM and Ford will both come back stronger than ever 
and be very successful. And that's important because they are vital to 
our industry and our national economy.
    What we're seeing is not the demise of the U.S. auto industry . . . 
but rather its globalization. Companies are re-structuring and re-
deploying resources to meet the needs of markets all around the world.
    In fact . . . last year . . . for the first time in its long 
history, General Motors sold more vehicles OUTSIDE the United States 
than it did in America. And we'll see more of that in the future . . . 
it's the way of life in the 21st Century.
    That's one of the reasons behind the proposed GM-Nissan-Renault 
alliance.
    All major companies are looking for creative ways to meet the 
challenges of increasing competitive pressures and the escalating costs 
of developing new technologies.
    Toyota has had a good working alliance with General Motors for more 
than two decades, sharing operations at the only West Coast auto plant 
and doing some joint research on advanced technology.
    I can't speculate on what will happen if GM and Nissan come 
together, but it does illustrate just how tough and expensive it is to 
compete on a global basis as well as the constant need for efficiency 
in operations.
    It also points to the fact that international auto companies are 
helping change the face and direction of the auto industry.
    Here in the United States, international automakers like Toyota, 
Honda and BMW are building new plants and adding jobs to the economy 
almost as fast as GM and Ford are shedding them to meet the new 
realities of the global market.
    In fact, international automakers have contributed almost ALL OF 
THE GROWTH in the U.S. motor vehicle industry for the past 10 years, 
according to a 2005 study by the Michigan-based Center for Automotive 
Research.
    The end result is still the same . . . a healthy and resilient auto 
industry . . . it just looks a bit different than it did 20 years ago.
    Challenges remain, of course . . . volatile gas prices . . . rising 
interest rates . . . and increasing raw material costs . . . but 
overall . . . the industry is successfully responding to the market and 
is still growing.
    At Toyota, we expect U.S. industry sales of about 17 million this 
year, up just a hair over 2005. That would make 2006 one of the top 
three or four in automotive history.
    For the long term, annual industry sales of 20 million vehicles . . 
. 3 million higher than now . . . are within reach during the next 
decade . . . and the whole industry will benefit from the rising tide.
    So . . . where's the boom coming from?
    First, people are living longer and driving longer. CNW Research 
found that 7 vehicles--more than half of the 13 cars the average 
American buys over a lifetime--are purchased AFTER the head of the 
household turns 50.
    Sixty percent of the U.S. population will be 50 or older in the 
next 5 years, and Baby Boomers won't reach the peak of their spending 
power until 2009, so there are enormous opportunities for growth ahead.
    Generation X is maturing and moving in to their prime income 
earning years. As a result, they're buying more than a fifth of all new 
cars and starting to purchase cars for their children.
    And . . . the 63 million people of Generation Y . . . the second-
largest generation of all time . . . have come of age and are starting 
to flex their spending power. By 2010, they'll be buying one of every 
four new cars.
    All these trends converging at once will create a unique 
opportunity because . . . during the next 19 years . . . the U.S. 
population will increase by 70 million . . . roughly the populations of 
California, New York and New Jersey COMBINED!
    Market drivers are on our side too. Our gross domestic product is 
growing . . . consumer spending is positive . . . jobs are increasing . 
. . and productivity is rising.
    This period has all the makings of a new ``Golden Era'' for the 
auto industry . . . a time of prosperity for auto companies to develop 
new designs . . . technology . . . and safety measures . . . that will 
excite people, save lives and help cars live more in harmony with the 
earth.
    Now that we know the future is bright, I think it's important to 
understand why having a thriving auto industry is SO vital to America.
    If you study history, you know that just about every leading 
developed country in the world grew under the wings of mighty 
industries . . . with the auto industry leading the way.
    The United States . . . Great Britain . . . Germany . . . Italy . . 
. and Japan . . . all rose to prominence by fostering a strong 
automotive industry. That's why you see countries like China, Korea, 
Russia and India now plowing money into their fledgling auto 
industries.
    They know the auto industry is a powerful economic engine that not 
only provides mobility for people and commerce, but also creates long-
term prosperity.
    And while the auto industry has taken some hits in the U.S., it's 
still a massive contributor to America's economy.
    For instance:

        --It's the largest manufacturing industry in the Nation . . . 
        responsible for one out of every 10 American jobs

        --It generates nearly 4 percent of the Nation's GDP

        --The U.S. auto industry spends more than $15 billion on 
        Research & Development . . . more than any other manufacturing 
        industry

        --We buy more metals, plastics, rubber and textiles than any 
        other business . . . including more computer chips than even 
        the computer industry!

        --And my personal favorite . . . all the top 12 American 
        Fortune 500 . . . AND Global Fortune 500 companies . . . are 
        either automakers or support the auto industry in some 
        significant way

    But the auto industry is more than just big . . . it also makes a 
positive difference in people's lives . . . everyday.
    Cars arouse our aspirations . . . tug at our emotions . . . and 
stimulate our desires.
    They free us . . . please us . . . give us privacy . . . and 
provide nearly unlimited possibilities.
    That's why we love them so much and why they're still one of the 
most popular products on earth.
    Today, I believe the time is right to enlist the immense talent and 
might of our industry to help solve some of the key issues resulting 
from a car-loving world . . . namely . . . oil dependency . . . air 
pollution . . . traffic accidents . . . and global warming.
    And the good news is . . . the auto industry is starting to make 
some positive progress in meeting those challenges. At Toyota, alone, 
we're spending an average of $22.7 million PER DAY on research and 
development.
    Through the industry's use of lighter materials, advanced engine 
and transmission technology along with cleaner fuels, conventionally 
powered cars are cleaner today than they've ever been.
    In fact, today's vehicles are 99 percent cleaner in smog-forming 
emissions than their counterparts from the 1970s. And today's light 
trucks produce fewer smog-forming emissions than cars did in 1993.
    In California . . . more than 20 car models offered by 12 
automakers . . . including our Camry and Prius . . . are rated Partial 
Zero Emission Vehicles. They're not only the cleanest gasoline engines 
ever produced, they're built to maintain near zero emissions throughout 
their entire life on the road.
    But that's not enough . . . so we're inventing a new wave of 
powertrain technologies. Right now . . . this day . . . more than 40 
hybrid or alternative fuel vehicles are for sale in the United States 
and 8 million are on the road. Plus, another 35 models will be 
introduced in the next 12 months.
    I'm extremely proud that Toyota introduced the world's first mass-
produced gas/electric hybrid car . . . the Prius . . . nearly 10 years 
ago.
    Today's Prius has the room of a mid-size sedan, delivers about 
twice the mileage of conventional cars and produces 70 percent less 
smog-forming emissions than the average new car today.
    It's been so popular that we can't keep it in stock. There's still 
a two-month wait to get one . . . nearly 3 years after we started 
selling the current model.
    And Prius was just the beginning.
    Currently, we sell five Toyota or Lexus hybrids, including a Camry 
hybrid that will be built at our Kentucky plant. And . . . early next 
year . . . we'll offer a sixth one . . . the world's first V-8 hybrid 
in our flagship Lexus LS sedan.
    In total, we've sold more than 351,000 hybrids in the United 
States.
    It's a great business for us. We're making money, saving gas and 
helping the environment . . . all at once. In fact, we've sold more 
U.S. hybrids so far this year than Cadillac . . . Buick . . . or 
Mercedes Benz . . . has sold cars.
    And more will follow because they are making a difference.
    We estimate that all the hybrids we have sold in America have saved 
more than 155 million gallons of gas . . . enough to fill FIVE tanker 
ships . . . not to mention eliminating more than 3 BILLION pounds of 
greenhouse gases.
    But the real beauty of all hybrids is that they are available right 
NOW. Americans can pick one up at a dealer today and don't have to make 
any major sacrifices to drive them.
    Even better, hybrid technology can be teamed with every other 
promising technology to make it even more efficient and fuel-stingy . . 
. whether its high-tech gas engines . . . clean diesels . . . bio-
diesel . . . ethanol . . . plug-in hybrids . . . or hydrogen fuel 
cells.
    Make no mistake about it, hybrids ARE the technology of the future 
and WILL PLAY a starring role in the automotive industry during the 
21st century . . . no matter what fuel we use or cars we drive.
    That's why Toyota is NOT backing off its strong commitment to 
hybrids. We know they are absolutely essential to the future success of 
this industry.
    So we're working hard to bring down hybrid premiums significantly 
by reducing the size of components by up to 75 percent and costs by 
half.
    Our target is to offer hybrid options throughout our entire lineup 
of cars and trucks.
    And we're not alone in our confidence about hybrids.
    Honda has three and plans to add a fourth . . . Ford has two and 
plans to add three more . . . and nearly every other automaker . . . 
from Hyundai to Porsche . . . plans to introduce hybrids in the very 
near future.
    Why?
    Because . . . increasingly . . . Americans realize hybrids are a 
simple way to make an important difference in curtailing foreign-oil 
dependence . . . air pollution . . . and greenhouse gases . . . all at 
once . . . plus . . . they're a heck of a lot of fun to drive.
    Being able to thumb your nose at gas stations on a regular basis is 
icing on the cake. As good as hybrids are . . . however . . . we're not 
stopping there.
    Our global president . . . Katsuaki Watanabe . . . recently 
challenged all of us to redouble our efforts to contribute to society 
in our work.
    He told of us of his dream to create cars of the future that can 
travel across the United States on one tank of fuel . . . clean the air 
while they are being driven . . . and prevent accidents and injuries.
    It's a dream at this point, but that's where we are headed . . . 
and Mr. Watanabe has committed to vigorously promoting the research and 
development needed to get us there.
    In traffic safety . . . the auto industry is already making 
tremendous strides by using computers . . . sensors and other advances 
to ensure people are better protected and cars are smarter in avoiding 
and handling crashes.
    Today, global automakers are offering more safety features than 
ever . . . including energy absorbing crumple zones . . . headlights 
that swivel to better light turns . . . lane departure warnings . . . 
cruise control that can stop a car in city traffic . . . and air bags 
for nearly every body part . . . including my favorite . . . dual-stage 
knee bags!
    And it's working. Traffic fatalities on U.S. roads today are the 
lowest since the government began tracking them in 1966 . . . 40 years 
ago.
    So . . . overall . . . there are many good things happening in our 
industry today, but a lot more needs to be done.
    And when we talk about being part of the solution, those of us in 
the auto industry realize it's a challenging time because we operate in 
a market where half of all the vehicles bought by Americans are trucks, 
vans or SUVs. They love the utility.
    We can't disregard the needs of our earth . . . nor can we afford 
to ignore the needs of our customers.
    So we have to strike a balance in our lineups between big trucks 
and SUVs to gas/electric hybrids . . . clean diesels . . . flex-fuel 
vehicles . . . plug-in hybrids . . . and eventually . . . hydrogen fuel 
cells.
    And we'll have to help develop ways to produce and distribute a 
wide array of alternative fuels needed to supplement gasoline.
    To make this happen, it will take monumental cooperation among all 
key players . . . automakers . . . oil companies . . . suppliers . . . 
labor . . . government . . . educators . . . NGO's . . . communities . 
. . and other industries.
    I know all of these thorny issues seem daunting at first glance, 
but the time is right and the stakes are too high for us to ignore 
them.
    Our customers . . . readers . . . viewers . . . and constituents . 
. . want us . . . and expect us . . . to come together for the greater 
good of society. We must heed that call.
    And I think it starts with the auto industry being more proactive. 
It's time for us to stop being the ``against'' industry . . . and to 
come out strong ``for'' something important . . . like a better earth 
and a better quality of life.
    Automakers need to work with government to set reasonable goals to 
improve fuel economy standards and reduce greenhouse gases in a way 
that doesn't severely damage the health of one of America's most vital 
industries. Reasonable people may disagree, but they can also 
compromise . . . find common ground . . . and move forward.
    That's what I will be working on in the future . . . with the full 
backing of a company founded by an inventor who wanted to help people 
and contribute to a better world.
    Today, I'm happy to announce two key American developments from 
Toyota that have been highly anticipated. . . .
    First . . . Toyota is strongly considering introducing a flex-fuel 
vehicle program in the United States in the near term. We're already 
developing vehicles that can operate in ethanol-rich Brazil and we're 
optimistic that we can offer similar vehicles to American consumers.
    And . . . second . . . we are pursuing a ``plug-in'' hybrid vehicle 
that can travel greater distances without using its gas engine . . . 
conserving more oil AND slicing smog and greenhouse gases to nearly 
imperceptible levels.
    Both projects will help to solve some of the key issues facing 
society . . . as well as encourage other automakers to keep moving 
forward.
    Well, I hope . . . that in the past few minutes . . . I've helped 
re-kindle some of that unbridled spirit of optimism . . . determination 
. . . and cooperation I spoke of earlier.
    At Toyota, we pledge to do our part . . . to lend a hand . . . and 
to work hard with the rest of the world to help create real solutions 
to the problems we all face.
    That's how we spent our first half-century here . . . and that's 
how we'll spend our next 50 years in America.
    Because . . . in the end . . . that relentless pioneer fortitude to 
improve and make life better . . . not only drives America . . . it 
also drives Toyota . . . and if we let it . . . will drive us all to 
new heights of prosperity in the 21st Century.

                                  
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