Vehicle Fuel Economy: Reforming Fuel Economy Standards Could Help
Reduce Oil Consumption by Cars and Light Trucks, and Other
Options Could Complement These Standards (02-AUG-07, GAO-07-921).
Concerns over national security, environmental stresses, and high
fuel prices have raised interest in reducing oil consumption.
Through the Corporate Average Fuel Economy (CAFE) program, the
National Highway Traffic Safety Administration (NHTSA) requires
cars and light trucks to meet certain fuel economy standards. As
requested, GAO discusses (1) how CAFE standards are designed to
reduce fuel consumption, (2) strengths and weaknesses of the CAFE
program and NHTSA's capabilities, and (3) market-based policies
that could complement or replace CAFE. To do this work, GAO
reviewed recent studies and interviewed leading experts and
agency officials.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-07-921
ACCNO: A73848
TITLE: Vehicle Fuel Economy: Reforming Fuel Economy Standards
Could Help Reduce Oil Consumption by Cars and Light Trucks, and
Other Options Could Complement These Standards
DATE: 08/02/2007
SUBJECT: Alternative fuels
Energy consumption
Energy costs
Environmental law
Environmental monitoring
Fuel conservation
Fuel consumption
Fuel research
Fuel taxes
Motor vehicles
Program evaluation
Program management
Standards
Program implementation
EPA Corporate Average Fuel Economy
Program
******************************************************************
** This file contains an ASCII representation of the text of a **
** GAO Product. **
** **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced. Tables are included, but **
** may not resemble those in the printed version. **
** **
** Please see the PDF (Portable Document Format) file, when **
** available, for a complete electronic file of the printed **
** document's contents. **
** **
******************************************************************
GAO-07-921
* [1]Results in Brief
* [2]Background
* [3]The CAFE Program Is Designed to Reduce Oil Consumption by Ca
* [4]NHTSA and EPA Implement a Prescribed Process to Ensure Compl
* [5]NHTSA Recently Increased Standards and Reformed the Light Tr
* [6]NHTSA Has Not Changed the Car CAFE Standard Since 1990 but H
* [7]The CAFE Program Has Saved Billions of Barrels of Oil, but C
* [8]The CAFE Program Has Several Strengths, Including Saving Oil
* [9]Several Weaknesses in the CAFE Program Exist
* [10]Experts Suggest That Refinements to the Car CAFE Program Cou
* [11]NHTSA Generally Has the Capabilities to Reform CAFE Standard
* [12]Some Market-Based Policy Options Could Complement the CAFE P
* [13]Market-Based Consumer Incentives for Purchasing Fuel-Efficie
* [14]Tax Credits Can Encourage Consumers to Purchase Vehicles
wit
* [15]Taxes Can Discourage the Purchase of Vehicles with a Low
Fue
* [16]Other Tax Policies with Different Goals Might Affect
Consume
* [17]Taxes on Gasoline, Carbon Emissions, or Vehicle Miles Travel
* [18]Efforts to Expand the Market Demand for Biofuels Have Been I
* [19]A Carbon Cap-and-Trade Program Would Combine Regulatory and
* [20]Conclusions
* [21]Matters for Congressional Consideration
* [22]Recommendations for Executive Action
* [23]Agency Comments
* [24]GAO Contact
* [25]Staff Acknowledgments
* [26]Order by Mail or Phone
Report to the Chairman, Committee on Commerce, Science, and
Transportation, U.S. Senate
United States Government Accountability Office
GAO
August 2007
VEHICLE FUEL ECONOMY
Reforming Fuel Economy Standards Could Help Reduce Oil Consumption by Cars
and Light Trucks, and Other Options Could Complement These Standards
GAO-07-921
Contents
Letter 1
Results in Brief 2
Background 6
The CAFE Program Is Designed to Reduce Oil Consumption by Cars and Light
Trucks and Has Been Restructured for Light Trucks but Not for Cars 8
Several Weaknesses in the CAFE Program Exist 21
Some Market-Based Policy Options Could Complement the CAFE Program 32
Conclusions 46
Matters for Congressional Consideration 48
Recommendations for Executive Action 48
Agency Comments 49
Appendix I Scope and Methodology 53
Appendix II Selected Manufacturers' CAFE Performance, Selected Years from
1990 through 2005 56
Appendix III Comments from the Department of Energy 58
Appendix IV GAO Contact and Staff Acknowledgments 61
Tables
Table 1: Current CAFE Standards 3
Table 2: CAFE Penalties by Manufacturer Model Years 2001 through 2005 10
Table 3: Total CAFE Penalties Paid by Individual Manufacturers, 1983
through 2005 24
Table 4: BMW CAFE Performance 56
Table 5: Ford CAFE Performance 56
Table 6: General Motors (GM) CAFE Performance 56
Table 7: Honda CAFE Performance 57
Table 8: Toyota CAFE Performance 57
Figures
Figure 1: Increased Share of Light Trucks in the U.S. Passenger Vehicle
Market 12
Figure 2: Application of Footprint-Based Light Truck CAFE Standards to
Light Trucks of Different Sizes for Model Year 2011 14
Figure 3: Sources of Greenhouse Gas Emissions in the Transportation
Sector, 2003 21
Figure 4: Gas Guzzler Tax Structure 36
Abbreviations
CAFE Corporate Average Fuel Economy
CARB California Air Resources Board
CBO Congressional Budget Office
DOE Department of Energy
DOT Department of Transportation
EPA Environmental Protection Agency
EPCA Energy Policy and Conservation Act
GM General Motors
GPS Global Positioning System
GVWR gross vehicle weight rating
INS Immigration and Naturalization Service
IRS Internal Revenue Service
MPG miles per gallon
NHTSA National Highway Traffic Safety Administration
NAS National Academy of Sciences
SUV sport utility vehicle
UAW United Auto Workers
USPS United States Postal Service
VMT vehicle miles traveled
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. However, because this
work may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this material
separately.
United States Government Accountability Office
Washington, DC 20548
August 2, 2007 August 2, 2007
The Honorable Daniel K. Inouye
Chairman
Committee on Commerce, Science, and Transportation
United States Senate
The Honorable Daniel K. Inouye
Chairman
Committee on Commerce, Science, and Transportation
United States Senate
Dear Mr. Chairman: Dear Mr. Chairman:
Recent concerns over national security, environmental stresses, and
economic pressures from increased fuel prices have led to a heightened
interest in reducing oil consumption. For example, the President announced
in early 2007, a nationwide goal to reduce gasoline 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
cars and light trucks consume 60 percent of the oil consumed in the
transportation sector. Recent concerns over national security,
environmental stresses, and economic pressures from increased fuel prices
have led to a heightened interest in reducing oil consumption. For
example, the President announced in early 2007, a nationwide goal to
reduce gasoline 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 cars and light trucks consume 60 percent
of the oil consumed in the transportation sector.
In the aftermath of the energy crisis of the early 1970s--to reduce the
nation's reliance on oil, a large part of which comes from other
countries--Congress developed the Corporate Average Fuel Economy (CAFE)
program for cars and light trucks. Under the CAFE program, manufacturers
must ensure that the new vehicles in their fleets, on average, meet a
specified miles per gallon (mpg) standard or pay a penalty. In the
aftermath of the energy crisis of the early 1970s--to reduce the nation's
reliance on oil, a large part of which comes from other
countries--Congress developed the Corporate Average Fuel Economy (CAFE)
program for cars and light trucks. Under the CAFE program, manufacturers
must ensure that the new vehicles in their fleets, on average, meet a
specified miles per gallon (mpg) standard or pay a penalty.
The National Highway Traffic Safety Administration (NHTSA), an
administration within the Department of Transportation (DOT), is primarily
responsible for setting and enforcing CAFE standards, although the
Environmental Protection Agency (EPA) also plays a role in the program and
the Department of Energy (DOE) is involved in setting national energy
policy. Many changes in automotive technologies and the auto industry have
occurred since the program was designed in the 1970s. These developments,
along with the recent security, environmental, and economic concerns
mentioned above have led to some changes in the CAFE program and to calls
for further alterations, including raising CAFE standards or revising the
way the program applies the standards. Several proposals to implement
policies apart from the CAFE program would also attempt to increase
vehicle fuel economy or reduce oil consumption through regulation,
incentives, tax credits, or other means. The National Highway Traffic
Safety Administration (NHTSA), an administration within the Department of
Transportation (DOT), is primarily responsible for setting and enforcing
CAFE standards, although the Environmental Protection Agency (EPA) also
plays a role in the program and the Department of Energy (DOE) is involved
in setting national energy policy. Many changes in automotive technologies
and the auto industry have occurred since the program was designed in the
1970s. These developments, along with the recent security, environmental,
and economic concerns mentioned above have led to some changes in the CAFE
program and to calls for further alterations, including raising CAFE
standards or revising the way the program applies the standards. Several
proposals to implement policies apart from the CAFE program would also
attempt to increase vehicle fuel economy or reduce oil consumption through
regulation, incentives, tax credits, or other means.
To assist Congress in addressing these issues, you asked us to discuss (1)
how the CAFE program is designed to reduce oil consumption by cars and
light trucks and the status of the program; (2) the strengths and
weaknesses of the current CAFE program and NHTSA's capabilities to revise
the program; and (3) other market-based policies--both existing and
proposed--that are available to complement or possibly replace CAFE in
reducing oil consumption by cars and light trucks and some strengths and
weaknesses of these policies. To obtain information on how the CAFE
program is designed, we reviewed U.S. Code and program guidance, including
rule-making documents, and interviewed officials from federal agencies
involved in the program, including NHTSA, EPA, and DOE. To obtain
information about the strengths and weaknesses of the CAFE program and
NHTSA's capabilities to further revise CAFE standards, we reviewed CAFE
program budgets, key studies, and other documentation and interviewed
NHTSA officials and experts in fuel economy and safety. We also
interviewed 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 on other policy options for reducing oil consumption
by cars and trucks, we reviewed published research and interviewed more
than 30 experts in fuel economy from universities and advocacy
organizations, and other industry stakeholders. We selected these experts
in part by contacting officials who worked on a 2002 National Academy of
Sciences (NAS) report on CAFE standards. During these conversations, we
asked them to identify additional experts for us to contact. We also
contacted officials in selected foreign countries with programs designed
to reduce oil consumption for cars and light trucks. We did not, however,
evaluate the costs and benefits of these alternatives, nor try to rank
them in terms of overall effectiveness or efficiency. We conducted our
work from August 2006 through June 2007 in accordance with generally
accepted government auditing standards. See appendix I for further details
on the scope and methodology.
Results in Brief
The CAFE program is designed to reduce oil consumption by cars and light
trucks by holding automobile manufacturers responsible for meeting or
exceeding specified mpg standards for cars and light trucks and assessing
penalties for manufacturers who do not meet those standards. NHTSA has
overall responsibility for setting standards and administering the
program. EPA collects information on vehicle models' fuel economy so that
NHTSA can calculate the annual CAFE results for manufacturers' fleets. See
table 1 for current CAFE standards.
Table 1: Current CAFE Standards
Domestic Car CAFE Imported Car CAFE Light Truck CAFE
Model Year Standard Standard Standard
2007 27.5 mpg 27.5 mpg 22.2 mpg
Source: NHTSA.
Manufacturers whose average mpg does not meet NHTSA's standards for each
fleet in any given year will be subject to a penalty if they did not earn
"credits" by exceeding the standards in the previous 3 years, or do not
submit a plan to exceed the standards up to 3 years in the future. Also,
manufacturers may increase their CAFE levels if they sell vehicles that
can run on fuels other than gasoline. In terms of the status of the
program, in 2003 NHTSA raised the light truck CAFE standard from 20.7 mpg
in model year 2004 to 22.2 mpg in model year 2007. Subsequently, NHTSA
restructured the CAFE program for light trucks using a method that
categorizes light trucks based on their size and sets different standards
for different sizes of light trucks beginning on a mandatory basis in
model year 2011. However, NHTSA has not changed the CAFE standard for
cars--27.5 mpg--since 1990, in part, because of provisions in DOT's
appropriations acts for fiscal years 1996 through 2001 that prevented
NHTSA from spending any funds to change CAFE standards. Recently, NHTSA
officials stated that they wanted to restructure the car CAFE program
before raising the car standard to avoid potential negative safety
effects. However, NHTSA does not have the authority to restructure the
program for cars. In 2007, as part of the administration's plan to meet
the President's gasoline-reduction goal, the administration proposed
legislation to Congress that would allow NHTSA to restructure the car CAFE
program based on an attribute of the vehicle, such as size. This
legislation is similar to NHTSA's recent changes to the light truck
program. Several members of the 110th Congress have also introduced
legislation to raise CAFE standards for cars and light trucks. In June
2007, the Senate passed a bill that would raise the CAFE standards for
cars and light trucks and, among other things, allow a restructuring
similar to that proposed by NHTSA. As of July 2007, the House has not
acted on this bill.
According to estimates by the National Academy of Sciences (NAS) and other
experts we consulted, the CAFE program has helped save billions of barrels
of oil and could continue to do so in the future, but the program has
several weaknesses and is not the only potential solution to reducing the
nation's oil consumption over time. Several strengths make the CAFE
program a viable and effective tool to help the nation meet its current
oil-saving goals. First, as noted, many experts have concluded that CAFE
has helped save oil--for example, a study by NAS^1 estimated that in 2002
CAFE contributed to saving 2.8 million barrels of fuel a day, or 14
percent of consumption in that year--and that increases to CAFE standards
would contribute to future oil savings. NAS also stated that as of 2002,
automakers could improve the fuel economy of most vehicle classes without
large increases in vehicle costs. In addition, NHTSA's recent reform of
the light truck program to a new attribute-based standard helped address
safety, consumer choice, and manufacturer equity concerns. Through this
reform, NHTSA was able to increase fuel economy standards for light trucks
while also ensuring that CAFE was compatible with other important issues
affecting cars and light trucks, such as safety. However, the CAFE program
has several characteristics that hinder its effectiveness. For example,
most manufacturers are already meeting or exceeding CAFE standards, so
decisions by NHTSA and Congress not to raise the car CAFE standard since
1990 have reduced the incentive manufacturers have to increase the fuel
economy of new cars. Furthermore, CAFE is not the most cost-effective^2
approach to reducing oil consumption. To further reduce the nation's oil
consumption over time therefore may require more comprehensive and
cost-effective approaches--some of which are discussed in the next
section. Further, several refinements to the CAFE program could improve
its effectiveness and make it less costly, such as instituting a CAFE
credit-trading program to give manufacturers more flexibility in meeting
the standards. The bill the Senate passed in June 2007 would institute an
attribute-based CAFE system for cars and create a program where
manufacturers could trade accrued CAFE credits with one another. Finally,
our evaluation of NHTSA's capabilities suggests the agency could act
quickly to implement new standards so CAFE standards could help the nation
work toward reducing oil consumption in the immediate future.
Through reviews of our past reports and other studies, interviews with
experts, reviews of recently proposed legislation, and analysis of
existing programs in the United States and other countries, we identified
several market-based policies involving cars and light trucks that could
complement and strengthen the CAFE program's contribution to reducing oil
consumption or that could serve as broader-reaching and potentially more
cost-effective alternatives to CAFE. Market-based consumer incentives
could complement CAFE by increasing consumer interest in purchasing
vehicles with a high fuel economy. Several of these incentives already
exist, such as the "Gas Guzzler Tax" on cars with a low fuel economy and
tax credits for the purchase of fuel-saving hybrids. However, our review
of these existing initiatives identified several limitations. Further we
found other existing incentives that appear to work at cross purposes to
those intended to reduce oil consumption, such as the relatively generous
write-offs for purchases of sports utility vehicles for businesses. These
incentives, if improved, could complement CAFE's fuel-saving effects;
however, such incentives may not be enough to meet future goals for
reducing oil consumption, even in conjunction with CAFE, because they are
narrowly focused on influencing car purchases. Finally, market-based
incentives to increase the availability and use of biofuels are being used
to displace oil consumption.^3 However, our recent report on these efforts
identified several limitations, and the cost-effectiveness of these
programs is unclear.^4 Several options, such as a tax on fuel and carbon
emissions or a carbon cap-and-trade program, provide incentives for
consumers to engage in a number of fuel-saving behaviors. For example,
increased gasoline taxes would likely influence consumers to reduce the
amount of miles they drive in addition to purchasing fuel-efficient cars.
In addition, such options could help the nation reach its oil consumption
goals in a more cost-effective manner than the CAFE program. While these
strategies could lead to larger reductions in oil consumption at lower
cost to the nation, it would take time to design, garner support for, and
implement each one.
^1Effectiveness and Impact of Corporate Average Fuel Economy (CAFE)
Standards. National Research Council. (Washington, D.C.: 2002).
^2A cost-effectiveness analysis is used to determine the least-cost option
for achieving a specified objective with a given level of benefits. It is
one of the commonly used tools to determine whether government investments
or programs can be justified on economic principles. These tools also help
to identify the best alternative from a range of competing investment
alternatives.
^3Biofuels are a type of alternative fuel made from corn or soybeans or,
in the case of cellulosic ethanol from low value agricultural byproducts
like cornstalks that are in abundant supply. Alternative fuels include a
wider set of fuels that are not made from petroleum, including biofuels,
hydrogen, natural gas, and potentially fuels produced by converting coal
to liquid, and others. Biofuels offer several environmental advantages,
including coming from renewable resources and emitting lower levels of
carbon dioxide when they are consumed compared with conventional gasoline
and alternative fuels such as those produced from coal.
^4GAO, Biofuels: DOE Lacks a Strategic Approach to Support Increasing
Production with Infrastructure Development and Vehicle Needs,
[27]GAO-07-713 (Washington, D.C.: June 8, 2007).
This report includes matters for congressional consideration that, should
Congress decide to increase fuel economy standards, it provide NHTSA with
(1) express authority to reform the car CAFE program, (2) the resources to
update information on new technologies, and (3) the flexibility to adjust
the program in the future in response to changes in the passenger vehicle
market. Also, to help ensure future CAFE standards are as affordable and
effective as possible, we are recommending that NHTSA determine whether
enhancements--including, but not limited to, credit trading, eliminating
incentives to classify vehicles as light trucks, and indexing CAFE
penalties to keep pace with inflation--should be made to the CAFE program.
In addition, to ensure that existing and potential policies meant to
reduce fuel consumption are achieving their goals, we are recommending
that DOT, in cooperation with other relevant government agencies, evaluate
what impact these policies are having or might have on fuel consumption.
DOT, EPA, and DOE commented on a draft of this report. DOT officials
generally concurred with the report's findings, did not believe indexing
civil penalties to inflation would achieve further compliance with CAFE
standards, and will consider the recommendations. Without more definitive
research on the effect of increased penalties for not meeting CAFE
standards, we continue to recommend that NHTSA consider studying the
issue. EPA generally agreed with the report and recommendations and
suggested we include more discussion on the issue of safety, which we did.
Finally, DOE did not comment on the recommendations and did not agree with
our finding that policy options other than CAFE, such as taxes and
cap-and-trade programs, have the potential to produce fuel savings beyond
what could be achieved through CAFE in a more cost-effective manner. We
provided more information on the existing research we used to conclude
that other approaches to reducing fuel use have the potential to be more
cost-effective that the current program.
Background
Congress enacted the 1975 Energy Policy and Conservation Act (EPCA) 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.^5 EPCA established the CAFE program, which requires that
manufacturers meet fuel economy standards for passenger cars and light
trucks. To reduce oil consumption, the program uses fuel economy
standards--measured in mpg--that cars and light trucks must meet
separately. In addition to decreasing oil consumption by increasing the
mileage driven on a gallon of gasoline, an increase in the standards also
decreases some greenhouse gas tailpipe emissions.
^5Pub. Law 94-163, codified as positive law at 49 U.S.C. Ch. 329.
EPCA established CAFE standards for passenger cars for model years 1978
through 1980 and 1985 and thereafter and gave NHTSA responsibility for
administering the program and the authority to change the standards.
However, the law prevents NHTSA from making structural reforms to the car
CAFE program, such as basing the car CAFE standard on vehicle attributes
such as size or weight. EPA also plays a role in the CAFE program. EPA
implements testing procedures and tests vehicles to determine each model's
fuel economy and determines the procedures for calculating the fuel
economy values for CAFE for each manufacturer and for displaying the fuel
economy levels on a new vehicle's window sticker.^6 The procedures for
calculating fuel economy values are specified by the statute and include a
separate test for city and highway fuel economy.
The standards called for manufacturers to produce passenger car fleets
averaging 18 mpg in 1978, rising to 27.5 mpg by 1985.^7 In the 1980s,
NHTSA reduced the CAFE standard for cars from 27.5 mpg to 26.0 mpg for
model years 1986 through 1988, and to 26.5 mpg for model year 1989, in
response to petitions from automakers who noted that consumers were
demanding larger cars and engines, largely due to a decline in gasoline
prices.
NHTSA issues new CAFE standards through a rule-making process. In the
rule-making process, NHTSA issues a proposed rule and accepts comments
from the public and stakeholders such as automakers, labor unions, and
environmental advocacy groups. When determining what levels CAFE standards
should be under an attribute-based system, as now exists for light trucks,
NHTSA uses a cost-benefit model to determine the impact of various
increases in CAFE standards on areas such as oil consumption and
pollution. NHTSA must set standards at least 18 months before they take
effect.
^6A model's CAFE figure generally differs from the window sticker a new
vehicle displays showing its fuel economy. The law [49 U.S.C. S 32904(c)]
requires that CAFE values be determined through a specific set of test
procedures in place at the time EPCA was passed, while window stickers are
based on EPA's best estimates of real world fuel economy. Based on the new
fuel economy labeling methodology that EPA adopted in 2006, CAFE values
are, on average for the industry as a whole, about 25 percent higher than
window sticker fuel economy values. CAFE test procedures do not take into
account real-world driving conditions such as the use of air conditioning
and high-speed driving. EPA officials stated that this results in CAFE
figures that are higher than the fuel economy that consumers actually
receive from their vehicles.
^7The Secretary of Transportation issued interim standards for 1981 to
1984.
The CAFE Program Is Designed to Reduce Oil Consumption by Cars and Light Trucks
and Has Been Restructured for Light Trucks but Not for Cars
To reduce oil consumption by light trucks and cars, NHTSA sets CAFE
standards and levies penalties against manufacturers that do not meet the
standards. In 2003, NHTSA raised light truck CAFE standards from 20.7 mpg
in model year 2004 to 21.0 mpg in model year 2005, 21.6 mpg in model year
2006, and 22.2 mpg in model year 2007. Subsequently, NHTSA restructured
the CAFE program for light trucks using a method that categorizes them
based on their size and sets different targets for different sizes of
light trucks to meet, beginning on an optional basis in model year 2008
and a mandatory basis in model year 2011. NHTSA has not raised the CAFE
standard for cars above 27.5 mpg since 1990 because, among other reasons,
NHTSA officials wish to first restructure the program to mitigate
potential negative effects on safety of raising the standards. To that
end, in 2007 the administration submitted a plan to restructure the
program.^8 Several members of the 110th Congress introduced legislation to
raise CAFE standards for cars and light trucks, and the Senate passed a
bill in June 2007 increasing standards for cars and light trucks. The
House had not acted on this bill as of July 2007.
NHTSA and EPA Implement a Prescribed Process to Ensure Compliance with Fuel
Economy Standards
NHTSA determines a manufacturer's compliance with CAFE standards by
comparing its fleet-wide fuel economy average against the appropriate CAFE
standard.^9 Manufacturers, for their passenger car and light truck fleets,
must meet separate CAFE standards, measured in mpg, or pay a penalty. In
addition, manufacturers must separately meet CAFE standards for their
imported and domestic passenger car fleets.^10 NHTSA defines light trucks
as vehicles that are designed to perform functions such as carrying cargo,
having an open-bed, carrying more than 10 passengers, or operating
off-road.^11 Sport utility vehicles (SUV), short-bed pickup trucks, and
passenger vans with a gross vehicle weight rating (GVWR) between 8,500 and
10,000 pounds have been considered medium-duty vehicles, and NHTSA has
excluded them from the CAFE program until model year 2011, when NHTSA will
include them in the CAFE program as light trucks.^12 Vehicles with a GVWR
over 10,000 pounds are considered heavy-duty vehicles and are not subject
to the CAFE requirements.
^8The Administration submitted similar plans in 2002, 2005, and 2006, but
Congress did not act on them.
^9For example, a manufacturer meets the standard if the average mpg of all
the vehicles it manufactures in a model year meet the CAFE standard for
that model year. Manufacturers have had to meet an mpg of 27.5 for cars
since 1990.
^10EPCA considers a vehicle to be 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. Through rule making, NHTSA required
manufacturers to meet the same fleet distinction rule for light trucks,
but eliminated it starting in model year 1996. Thus, light truck CAFE
standards are calculated as one distinct fleet of a given manufacturer.
EPA allows manufacturers to test their own vehicles to determine their
fuel economy, but EPA tests a sample of new vehicles at its National
Vehicle and Fuel Emissions Laboratory in Ann Arbor, Michigan, to confirm
the manufacturers' results. EPA reports the yearly CAFE results for each
manufacturer to NHTSA for CAFE enforcement. NHTSA then determines if the
manufacturers comply with the CAFE standards and assesses civil penalties
against manufacturers who do not meet the standards. Compliance with the
standards is measured by calculating a sales-weighted harmonic mean of the
fuel economies of a given manufacturer's product line, with domestically
produced cars, imported cars, and all light trucks measured separately. A
manufacturer whose CAFE level for its passenger car or light truck fleet
does not meet the standard for a given model year is subject to a civil
penalty of $5.50 per tenth of a mpg that the manufacturer's CAFE level is
below the required CAFE level multiplied by the number of vehicles in the
affected fleet manufactured for a given model year. NHTSA collected more
than $678 million in civil penalties from model years 1983 through
2005--mostly from European manufacturers producing high-performance,
luxury vehicles.^13 Asian and domestic manufacturers have historically not
paid penalties because they have either met or exceeded passenger car and
light truck fleet CAFE requirements. See table 1 for a list of CAFE
penalties paid, by manufacturer, for 2001 through 2005.
^1149 C.F.R. S 523.5.
^12GVWR represents the weight of a vehicle when fully loaded with
passengers and cargo.
^13CAFE penalties are deposited in the U.S. Treasury and are not retained
by DOT. The $678 million noted here is not adjusted for inflation.
Table 2: CAFE Penalties by Manufacturer Model Years 2001 through 2005
Light truck
Passenger car Light Passenger car penalty in
Model import truck import penalty 2006
year Manufacturer penalty penalty in 2006 dollars dollars
2001 Volkswagen $0 $173,118 $0 $196,159
2001 Porsche 4,997,190 0 5,662,281 0
2001 BMW 27,985,925 1,497,991 31,710,655 1,697,363
2001 Fiat 817,443 0 926,239 0
2001 Lotus 35,744 0 40,501 0
2002 Porsche 4,357,782 0 4,845,053 0
2002 BMW 14,066,124 0 15,638,947 0
2002 Fiat 1,344,222 0 1,494,528 0
2002 Lotus 36,850 0 40,970 0
2003 Ferrari/Maserati 1,139,710 0 1,242,024 0
2003 Porsche 3,348,609 189,635 3,649,221 206,659
2003 BMW 8,861,776 1,676,752 9,657,318 1,827,278
2004 Ferrari/Maserati 1,511,125 0 1,605,263 0
2004 Porsche 3,225,453 3,171,564 3,426,387 3,369,141
2004 Volkswagen 0 3,474,372 0 3,690,813
2004 DaimlerChrysler 8,537,364 0 9,069,212 0
2005 BMW 2,975,496 0 3,067,446 0
2005 DaimlerChrysler 16,895,472 0 17,417,585 0
2005 Ferrari/Maserati 2,426,413 0 2,501,395 0
2005 Porsche 2,238,082 0 2,307,244 0
2005 Porsche 0 1,977,250 0 2,038,352
2005 Spyker 3,157 0 3,255 0
2005 Volkswagen 0 1,136,668 0 1,171,794
Source: NHTSA.
Note: No manufacturers of domestic passenger cars needed to pay penalties
during this period.
Another penalty that manufacturers might pay for producing car models that
have low fuel economy levels is the so-called "Gas Guzzler Tax."^14 EPA
reports the fuel economy test results for each manufacturer to the
Internal Revenue Service (IRS), which imposes a tax on manufacturers of
new model year cars that fail to meet a fuel economy level of 22.5 mpg.
IRS collects the tax from the manufacturer after production has ended for
the model year. The amount of the tax paid is displayed on a new vehicle's
fuel economy window sticker. Although related, the Gas Guzzler Tax is not
part of the CAFE program. Gas Guzzler Tax revenues are deposited into the
Treasury, like CAFE penalties. Light trucks are not subject to the Gas
Guzzler Tax.
^1426 U.S.C. S 4064.
Apart from paying penalties, manufacturers have another option if they do
not comply with the CAFE standards in one model year--using so-called CAFE
credits earned in other model years. For example, when the average fuel
economy of either a manufacturer's passenger car or light truck fleet for
a particular model year "overcomplies," or exceeds the established
standard, the manufacturer earns credits it can use to make up a deficit
in another model year.^15 These surplus credits can be applied to a
deficit in any of the 3 consecutive model years immediately prior to or
subsequent to the model year in which the credits are earned.
Manufacturers must use any credits within 3 years of earning them. If a
manufacturers has a deficit, but no (or not enough) credits available, the
manufacturer can either pay the penalty or submit a plan to NHTSA on how
the manufacturer will make up the deficit by earning a sufficient amount
of credits in the next 3 years. NHTSA officials stated there is no express
authority for trading credits between manufacturers, or for a manufacturer
to transfer credits among different classes of a manufacturer's fleets
(such as between cars and light trucks).
In addition, the Alternative Motor Fuels Act of 1988 gave credits to
manufacturers for producing vehicles that could run on alternative fuels
in addition to gasoline.^16 Under this so-called "Dual Fuel" program,
manufacturers may increase their CAFE by up to 1.2 mpg for vehicles
through model year 2010 that are capable of using both regular gasoline
and an alternative fuel.^17
^15The number of credits a manufacturer earns is determined by multiplying
the tenths of a mpg that the manufacturer exceeded the CAFE standard for a
class of vehicles in a model year by the amount of vehicles it
manufactured in that class in that model year.
^16Alternative fuels are fuels or energy sources other than conventional
fossil fuels and include ethanol, hydrogen, and batteries.
^17NHTSA has the authority to continue this credit through rule making.
NHTSA Recently Increased Standards and Reformed the Light Truck CAFE Program to
Help Address Declining Fuel Economy
NHTSA recently increased standards for and reformed the light truck CAFE
program. The impact of the light truck market on overall oil consumption
in the United States has grown since the beginning of the CAFE program as
market share for these vehicles has increased. For example, 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).
Figure 1: Increased Share of Light Trucks in the U.S. Passenger Vehicle
Market
To help address the overall declining fuel economy of the U.S. passenger
vehicle fleet, in April 2003, NHTSA promulgated a final rule increasing
light truck CAFE standards from 20.7 mpg in model year 2004 to 21.0 mpg in
model year 2005, 21.6 mpg in model year 2006, and 22.2 mpg in model year
2007. In addition, the agency began investigating the possibility of
reforming the light truck CAFE program in part to address safety concerns.
The 2002 NAS report on the impact of CAFE standards stated that because
the lowest cost way for an automobile manufacturer to increase vehicle
fuel economy is to decrease vehicle weight, increases to CAFE
standards--under the original CAFE system currently still in use for
cars--could adversely affect safety and result in more highway
fatalities.^18 The report also stated that past increases in CAFE
standards had likely contributed to additional highway deaths, though
other factors were also involved. The report recommended that NHTSA
investigate implementing a new CAFE system based on the attributes of a
vehicle.^19
NHTSA issued a final rule in April 2006 that restructures the CAFE program
for light trucks and continues to increase light truck CAFE standards for
model years 2008 through 2011. Under the new rule, fuel economy standards
are established based on truck size instead of having one average standard
for all light trucks produced by a manufacturer. 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). By model year 2011, all manufacturers will be required
to comply with the reformed, footprint-based CAFE standard with a range of
21.8 mpg for the largest footprint trucks to 30.4 mpg for the smallest
footprint trucks. NHTSA estimates that under the footprint-based system,
light trucks will average 24.0 mpg in model year 2011. To facilitate the
transition to the new system, NHTSA set both reformed and unreformed
standards for model years 2008 through 2010 and manufacturers may choose
to meet either standard during those years.
^18This conclusion of the NAS report was not unanimous. Two members of the
panel that authored the 2002 report dissented from this conclusion. Also,
the panel concluded that manufacturers could improve fuel economy while
maintaining vehicle weight and that the safety impact of future increases
in CAFE standards would depend on many factors. NAS recommended further
research on this issue.
^19The law does not prevent NHTSA from reforming the light truck CAFE
program, as it does the car program.
Figure 2: Application of Footprint-Based Light Truck CAFE Standards to
Light Trucks of Different Sizes for Model Year 2011
According to NHTSA officials, the footprint-based CAFE approach may enable
the country to achieve larger reductions in oil consumption while
enhancing safety.^20 Under the old standard, manufacturers who build a
relatively larger share of smaller light trucks may already exceed the
fleet CAFE standard and, therefore, would have little incentive to
continue increasing the fuel economy of their light trucks. However, under
the footprint-based standards, the required overall fuel economy of the
light truck fleet will rise over time, since NHTSA has stated the targets
will rise over time. NHTSA officials told us they believe this approach
will spread the regulatory cost burden for fuel economy improvements more
broadly across the industry instead of concentrating it more exclusively
on the manufacturers of heavier, lower fuel economy vehicles. In addition,
the footprint-based standards include some larger vehicles such as sport
utility vehicles, with a GVWR between 8,500 and 10,000 pounds that
previously were excluded from the CAFE program. NHTSA estimates that
including these vehicles in the CAFE program will save 251 million gallons
of fuel over the life of the vehicles sold in 2011.^21 In addition to
these expected fuel savings, the footprint-based CAFE standards offer
enhanced safety by discouraging downsizing of vehicles since, as vehicles
become smaller, the applicable fuel economy target becomes more stringent.
NHTSA Has Not Changed the Car CAFE Standard Since 1990 but Has Requested
Authority to Reform the Program
NHTSA has not changed the car CAFE standard since 1990, but it has
requested authority to reform the program so that it can raise the
standard in the future. After reducing the 27.5 mpg car CAFE standard for
model years 1986 through 1989, NHTSA raised it back to 27.5 mpg for the
1990 model year, and the standard has remained at 27.5 mpg since then.
NHTSA officials cited several reasons for not raising the car CAFE
standard over 27.5 mpg. First, for 6 years, Congress specifically
prevented NHTSA from adjusting the CAFE standards. 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 rule makings to adjust CAFE standards for either
cars or light trucks. Second, although NHTSA officials state that the
agency has the legislative authority to raise the CAFE standard for cars
above the 27.5 mpg standard, specified by the law, these officials stated
that the law does not provide NHTSA with express authority for
restructuring the program by, for example, developing a size-based
standard for cars as it recently did for light trucks.^22 NHTSA officials
stated they are reluctant to raise the car standard without also
restructuring the program because they are concerned that increases in the
car CAFE standard under the existing program could have a negative impact
on safety by giving auto manufacturers an incentive to reduce the weight
of the vehicles they build in order to meet increased fuel economy
standards. NHTSA officials pointed out that, according to the 2002 NAS
report, reducing the weight in vehicles may make vehicles less crashworthy
and lead to increased highway fatalities.^23
^20Some experts have noted that if manufacturers shifted their fleet mix
toward light trucks with the largest footprints, the average fuel economy
of the light truck fleet could decrease from current levels. It is unclear
whether complying with the new CAFE standards would cause manufacturers to
make larger vehicles, but some experts have suggested that if this became
a problem an "antibacksliding" provision could be incorporated in the
program to ensure fuel savings. Such a provision would establish a single
standard based on the current fleet average below which a manufacturer's
fleet could not fall, regardless of compliance with the attribute-based
standards.
^2171 Fed. Reg. 17566 (2006).
In 2007, the administration submitted proposed legislation to Congress
that, if enacted, would give the Secretary authority to restructure and
increase the CAFE standard for cars. The proposal calls for the
continuation of the current statutory requirement that fuel economy
standards be set at the maximum level that NHTSA believes the
manufacturers could achieve in a specific model year. The proposal would
also give NHTSA the authority to base the standard on one or more vehicle
attributes, such as size, similar to the light truck standard, so that
there would be different targets for cars with different attributes. Since
product mix typically differs from manufacturer to manufacturer, each
manufacturer would likely be subject to a unique CAFE requirement for its
car fleet. In addition, the proposal calls for a credit trading system
among manufacturers. If a manufacturer exceeds the mileage standard, it
could sell its credits to another manufacturer or a third-party broker.
The proposal does not provide a specific goal or mpg standard, but, as for
the light truck standard, calls for setting a fuel economy standard that
is the maximum feasible average fuel economy level that NHTSA decides the
manufacturers can achieve in a specific model year.
^22EPCA included a so-called legislative veto provision allowing either
the House of Representatives or the U.S. Senate to disapprove any attempt
to increase car CAFE standards above the current 27.5 mpg level (or
decrease them below 26.0 mpg). However, the Supreme Court has held that
this provision is unconstitutional. INS v. Chadha, 462 U.S. 919 (1983).
The law does not restrict NHTSA's ability to adjust the light truck CAFE
standard or restructure the light truck CAFE program.
^23This conclusion of the NAS report was not unanimous. Two members of the
panel that authored the 2002 report dissented from this conclusion. Also,
the panel concluded that manufacturers could improve fuel economy while
maintaining vehicle weight and that the safety impact of future increases
in CAFE standards would depend on many factors. NAS recommended further
research on this issue.
In addition to this proposed legislation, several Members of Congress
submitted bills that have some similarities to the Secretary's proposal
but, if enacted, would set a minimum fuel economy standard for
manufacturers to meet. For example, the Senate passed a bill that calls
for cars and light trucks to achieve a combined CAFE average of 35 mpg by
2020.^24
The CAFE Program Has Saved Billions of Barrels of Oil, but Car Standards Have
Not Changed for Decades
According to estimates by NAS, the CAFE program has contributed to saving
billions of barrels of oil and could continue to do so in the future, but
several weaknesses in the program exist. Experts and industry stakeholders
with whom we spoke generally attributed this success to the fact that CAFE
was a mandatory standard, unlike voluntary standards in many other
nations. Also, most of these experts and stakeholders agreed that NHTSA's
recent reforms to the light truck CAFE program enhanced the program by
reducing incentives for manufacturers to make vehicles less safe to meet
CAFE standards and making the program more equitable for all
manufacturers. In addition, experts and stakeholders cited the program's
unintended effect of reducing greenhouse gas emissions as a strength of
the program. However, the program has not kept pace with consumer
preferences for larger vehicles, technology, or growing concern about fuel
economy. These experts and stakeholders also cited several weaknesses in
the program, noting that there are other cost-effective strategies to
reduce oil consumption, the program is not automatically reviewed and
adjusted over time, the program has not had its penalty structure changed
since 1997, and the program--under the dual fuel program--gives CAFE
credits to manufacturers who build vehicles that can run on alternative
fuels, regardless of whether the drivers actually use those fuels. Our
evaluation of NHTSA's capabilities and the agency's recent reform of the
light truck program suggest that the agency generally has the capabilities
to reform standards and could act quickly in the future to reform the car
program if the necessary authority is provided. However, some of NHTSA's
capabilities could be improved, such as increasing staff levels and
updating data on fuel-efficient technology for use in its cost-benefit
analysis.
^24H.R. 6 as amended, 110th Congress.
The CAFE Program Has Several Strengths, Including Saving Oil; Compatibility with
Other Issues, Such as Safety of Cars and Light Trucks; and Slowing the Increase
in Greenhouse Gas Emissions
Experts, NHTSA officials, and representatives from auto manufacturers with
whom we spoke cited several strengths of the CAFE program. Most of these
experts said CAFE was somewhat effective in reducing fuel consumption, and
a study by NAS estimated that in 2002 CAFE, along with other factors,
contributed to saving about 2.8 million barrels of fuel per day, or about
14 percent of consumption in that year. Many experts thought that CAFE's
effectiveness is largely derived from introducing a mandatory standard
that all auto manufacturers had to meet, unless the manufacturer was
willing to pay a penalty. Compared with programs in other nations that
have voluntary fuel economy standards the CAFE program's enforceable,
mandatory standards have achieved favorable results though, in many of
those countries, high fuel taxes and high fuel prices, especially in
Europe, have reduced the need for fuel economy standards. In addition,
according to NHTSA officials citing NAS results, the program has had a
demonstrable record of increasing fuel economy in passenger cars and light
trucks. These officials said they had concluded that if the CAFE program
did not exist, auto manufacturers would produce less fuel-efficient cars
than they currently produce. For example, before Congress established CAFE
and set the standard for cars, there was no minimum standard for fuel
economy in the United States. Between model years 1967 and 1974, the
average domestic passenger car's fuel economy dropped from 14.8 mpg to
12.9 mpg. From model year 1978, when CAFE was first imposed, domestic
passenger car fuel economy increased from 18.7 mpg to 30.0 mpg in 2004.^25
In the future, NHTSA officials stated they could further enhance fuel
savings beyond what could be expected from the current CAFE program, with
its single standard for all cars, by requiring fuel economy increases
across a wide range of vehicles with different attributes, such as size,
if they receive the authority to do so. As noted, NHTSA has made this
change to the light truck program; and as of model year 2011, light trucks
will be required to meet size-based CAFE standards, and the agency would
like to institute a similar change for cars. The 2002 NAS report stated
that the technology exists to increase fuel economy without large
increases in vehicle costs.^26 Manufacturers with whom we spoke agreed,
though they preferred incremental increases to CAFE standards to ensure
they could adjust to any new standards over aggressive CAFE increases over
a short-term period.
^25Some production classified as foreign in 1978 would likely be
classified as domestic today, as NHTSA now treats vehicles manufactured in
Canada or Mexico as domestically made vehicles.
^26In this study, NAS assumed no increase in vehicle performance, such as
additional horsepower.
According to NHTSA and several experts with whom we spoke, NHTSA's actions
to reform the light truck standard allowed the agency to increase fuel
economy standards for light trucks while also ensuring that CAFE was
compatible with other important issues affecting cars and light trucks,
including the following:
o Enhancing Safety: According to NHTSA officials and several
experts with whom we spoke, the new size-based standard for light
trucks removes the incentive for manufacturers to comply with CAFE
by pursuing strategies that entail safety risks associated with
increased highway deaths, such as downsizing vehicles and
designing some vehicles to be classified as light trucks rather
than cars, which may increase the vehicle's propensity to roll
over. According to NHTSA, the size-based approach enables NHTSA to
increase standards without encouraging these safety risks. For
example, the approach does not provide incentives for
manufacturers to downsize vehicles because smaller vehicles must
meet more stringent CAFE standards.
o Reflecting Consumer Choice: NHTSA officials also stated that the
attribute-based light truck CAFE program addresses some concerns
about consumer choice. For instance, under the previous system,
instead of installing more fuel-saving technologies across their
fleets, manufacturers might have moved toward building fewer large
vehicles and more smaller vehicles to meet new CAFE standards,
even though consumers typically have not demanded them. In the
attribute-based system, manufacturers must improve the fuel
economy of all light trucks, no matter their size. As a result,
according to NHTSA, manufacturers can continue to build a greater
range of vehicles of varying sizes.
o Creating a More Equitable Regulatory Framework: The
attribute-based standard also addresses concerns that raising CAFE
standards in the previous system would tend to require only those
manufacturers that produce a relatively larger share of light
trucks to increase fuel economy in their vehicles to comply with a
new standard, which places most of the cost and compliance burdens
on manufacturers that make a wide range of vehicles, including
larger vehicles. Under the attribute-based system, however, NHTSA
officials stated that it is more likely that additional
manufacturers would have to increase the fuel economy of at least
some of their vehicles in order to meet the new, size-based light
truck CAFE standard. Most experts with whom we spoke agreed that
additional manufacturers would have to increase fuel economy under
the reformed system.
In addition to these strengths, the CAFE program has had the
additional, positive, impact of slowing the rate of increase in
transportation-related greenhouse gas emissions. A link exists
between the amount of fuel burned and the growing amount of
greenhouse gases in the atmosphere, which many agree contributes
to global climate change. When the CAFE program increased fuel
economy standards, it reduced greenhouse gas emissions from
passenger cars and light trucks because as fuel economy is
increased, the reduction in gasoline consumption translates into a
reduction in carbon dioxide emissions. The transportation sector
accounted for 27 percent of U.S. greenhouse gas emissions in 2003.
EPA estimates that cars and light trucks account for 62 percent of
the transportation sector's greenhouse gas emissions, as shown in
fig. 3. Congress has pending several bills that would increase
CAFE standards, in part, to reduce greenhouse gas emissions that
are linked to climate change. Additionally, the California Air
Resources Board (CARB) plans to implement fuel economy regulations
for cars and light trucks sold in California that would exceed
current CAFE standards, and several other states have announced
similar plans, if EPA grants them the authority to do so.^27
^27In April 2007, the Supreme Court, in a case arising out of EPA's denial
of a petition by the state of Massachusetts, among others, ruled that EPA
has the authority to regulate greenhouse gas emissions from vehicles and
that the agency must either regulate greenhouse gases or explain why it
will not or cannot regulate these gases. In denying the petition, EPA
officials had stated that one reason they had not issued regulations to
reduce greenhouse gas emissions by passenger vehicles was that DOT, not
EPA, had the authority to regulate fuel economy, and therefore greenhouse
gas emissions, through the CAFE program. However, the Court stated that
EPA and DOT could coordinate any rule makings on fuel economy and stated
that "there is no reason to think the two agencies cannot both administer
their obligations and yet avoid inconsistency."
Figure 3: Sources of Greenhouse Gas Emissions in the
Transportation Sector, 2003
Several Weaknesses in the CAFE Program Exist
Despite the strengths of the CAFE program, experts and industry
stakeholders with whom we spoke said aspects of the program were
outdated and the program has not been revised to recognize or
accommodate changes in technologies, consumer demand or the
economics of the auto industry that have occurred since the
program took effect in 1978. A longer discussion of these cited
weaknesses follows:
o Fuel economy standards have been allowed to stagnate: The car
CAFE standard has remained stagnant for nearly 2 decades.
Meanwhile, there have been increases in the market share of larger
vehicles, with relatively lower fuel economy ratings such as SUVs
and minivans. Since the car CAFE standard returned to 27.5 mpg for
the 1990 model year, the number of vehicle miles traveled on U.S.
roads has also increased by about 31 percent, and the market share
of light trucks has increased from about 20 percent to about 50
percent of the new vehicle fleet, resulting in more miles traveled
by light trucks. This increase in the use of light trucks, along
with consumers' preferences for higher performance vehicles, which
generally achieve lower fuel economy than lower performance
vehicles, has resulted in the overall fuel economy of the fleet
declining from a high of 26.2 mpg in 1987 to 24.6 mpg in 2004,
though the fleet fuel economy increased to 25.2 in 2005.
Historically low gasoline prices over much of the last 2 decades
have compounded this weakness, according to an expert with whom we
spoke, since these low prices gave consumers little incentive to
demand vehicles with higher fuel economy. However, two recent
studies stated that the recent increase in gasoline prices is
showing that consumers may be willing to pay more for
fuel-efficient vehicles than in the past. One of the studies also
cited consumers' growing concern about climate change as another
reason to consider vehicles with a higher fuel economy. However,
the level of emphasis consumers will be willing to place on these
concerns remains to be seen and depends, in part, on the future
level of gasoline prices.^28 During the time the car CAFE standard
has remained stagnant, the industry average has met or exceeded
the standard consistently. (See app. II for a description of
selected manufacturers' CAFE performance since 1990.)
o Lower-cost policies could achieve the goals of the program:
Although the CAFE program has contributed to reduced fuel
consumption by cars and light trucks in the past and would
continue to do so in the future, recent research and the experts
with whom we spoke indicate that CAFE standards are not the most
cost-effective option available. For example, studies done by GAO,
the Congressional Budget Office (CBO), and others have found that
the same fuel- saving goals could have been reached at lower cost
to society if a more flexible policy that directly increased the
cost of using these fuels or other petroleum products had been
adopted. CBO has noted that the CAFE program could be made less
costly and more effective than it currently is by instituting, for
example, a broader credit trading program. However, other options,
several of which are discussed later in this report, would also
offer a less costly and more effective approach than the CAFE
program.
o The program's distinction between foreign and domestic cars is
complicated and costly and may no longer be relevant: Some experts
also cited the distinction the CAFE program draws between foreign
and domestic cars as a weakness in the program. Since the creation
of the CAFE program, many domestically based manufacturers have
begun to produce vehicles abroad, and many foreign manufacturers
have begun to produce vehicles in the United States. For example,
more than half of all the vehicles sold by foreign manufacturers
in the United States are produced in the United States. Also,
because of the North American Free Trade Agreement, NHTSA treats
vehicles made in Mexico or Canada as part of a manufacturer's
domestic fleet. Several experts cited the distinction that the
CAFE program is required to make between foreign and domestic cars
as an outdated facet of the program that simply makes it more
complicated or costly for auto manufacturers to comply with CAFE
standards by adding more factors for manufacturers to consider
when deciding about where to produce their vehicles. NHTSA
officials stated they abolished the foreign and domestic vehicle
distinctions they had created in the light truck CAFE program
beginning in the 1996 model year in part because manufacturers
were importing almost no light trucks into the United States.
However, NHTSA has no authority to remove this distinction from
the car CAFE program, and the administration did not request this
authority in its proposal to Congress to grant NHTSA authority to
reform the car CAFE program. Auto manufacturers and experts with
whom we spoke supported abolishing this distinction but the
UAW--the labor union that represents most workers at U.S.-owned
auto manufacturers--opposes this, stating that the distinction
gives manufacturers an incentive to produce all types of vehicles,
including small vehicles, in the United States and expressing
concerns that abolishing the distinction would result in auto
manufacturers moving U.S. auto manufacturing jobs overseas.
However, the 2002 NAS report reviewed this issue and found no
perceptible effect on auto industry employment because of this
distinction in the CAFE program.
^28"Can Proactive Fuel Economy Strategies Help Consumers Mitigate Fuel
Price Risks?" University of Michigan Transportation Research Institute
(Ann Arbor, Michigan: Sept. 14, 2006); and Espey and Nair, "Automobile
Fuel Economy: What Is It Worth?" Contemporary Economic Policy, fall 2005.
o Penalties may not be a strong deterrent as they have not
increased since 1997: Several experts with whom we spoke noted
that penalties for violating CAFE standards have not increased
since 1997, when, pursuant to the Federal Civil Penalties
Inflation Adjustment Act of 1990, NHTSA raised the penalty from $5
to $5.50 per vehicle for every 0.1 mpg (or $55 per 1 mpg) by which
a manufacturer's fleet falls short of the CAFE standard.^29
Several experts stated that this is not enough of a monetary
incentive for manufacturers to comply with CAFE. For example, 22
manufacturers paid penalties during model years 1983 through 2005
(see table 3), including 5 companies that paid penalties 10 times.
However, several experts also recognized that many auto
manufacturers attempt to comply with CAFE standards more to avoid
the negative public relations impact of not complying with CAFE
standards than the actual financial penalty. Representatives of
the domestic auto manufacturers confirmed this interpretation. A
number of foreign manufacturers with whom we spoke stated that the
civil penalty provisions in the law for failing to meet CAFE
standards present a deterrent because they mean a violation is
"unlawful conduct." These manufacturers believe it is an
unacceptable business practice to plan to routinely fail to meet
standards. Also, NHTSA staff told us the agency has not analyzed
how the penalty structure could be modified to achieve higher
compliance rates among foreign manufacturers that currently do not
meet CAFE standards, but they noted that generally the
manufacturers that pay penalties are manufacturers of luxury or
specialty high-performance vehicles. NHTSA staff believes that as
the sales of those vehicles are significantly dependent on their
current level of performance, raising the penalty would not be
likely to induce these companies to produce more fuel-efficient
vehicles. Rather, NHTSA staff said that, in their opinion,
customers of these vehicles would absorb the cost of higher
penalties.
^29NHTSA officials stated that, in addition to the authority the Federal
Civil Penalties Inflation Adjustment Act of 1990 under EPCA, NHTSA has the
authority to raise CAFE penalties to $10 per 0.1 mpg shortfall.
Table 3: Total CAFE Penalties Paid by Individual Manufacturers,
1983 through 2005
Manufacturer Penalty in nominal dollars
Aston Martin Lagonda, Ltd. $2,550
Autokraft, Ltd. 2,590
BMW of North America, Inc. 225,531,779
Consulier Industries 150
DaimlerChrysler Corp. 25,432,836
Ferrari Maserati North America, Inc. 5,077,248
Fiat Motors of North America, Inc. 10,791,076
Jaguar Cars, Inc. 40,069,650
Lotus Cars USA, Inc. 239,934
Maserati Automobiles of America, Inc. 121,600
Mercedes-Benz USA, LLC. 226,128,170
Panoz Auto Development Corp. 26,918
PAS, Inc. 294,500
Peugeot Motors of America, Inc. 2,855,205
Porsche Cars North America, Inc. 52,437,258
Rover Group, Ltd. 23,092,226
Sterling Motor Cars 4,309,780
Spyker 3,157
Sun International 45
Vector Aeromotive Corp. 4,350
Volkswagen of America, Inc. 5,461,528
Volvo Cars of North America 56,421,280
Total $678,303,827
Source: NHTSA.
Note: Amounts rounded to the nearest dollar and not adjusted for
inflation.
o NHTSA does not have authority to revise the car CAFE program
according to vehicle attributes: NHTSA's recent revision of the
light truck CAFE program generally addressed safety and equity
concerns; however, these concerns have not been addressed in the
car CAFE program. NHTSA officials stated that one reason the
agency had not increased the car CAFE standard is that under the
current system, manufacturers may have an incentive to meet higher
CAFE standards, primarily by making vehicles lighter and thus
increasing their fuel economy. NHTSA told us it would prefer to
institute an attribute-based standard for cars but does not have
the authority. Officials also said that they were mindful of the
2002 NAS report, which stated that increases in CAFE standards in
the late 1970s and early 1980s contributed to additional highway
fatalities when manufacturers built smaller, lighter vehicles to
meet the higher CAFE standards. One reason NHTSA reformed the
light truck standard is to avoid having such adverse safety
consequences again when raising CAFE standards for light trucks.
However, NHTSA does not have the legal authority to revise the car
CAFE program to implement a system of attributes that would
include increases over time. Instead, it must use a single number
for the entire fleet, though the administration has several times
requested that Congress provide such authority, and Congress is
now considering these requests.
o The current CAFE program for cars may create competitive
advantages for certain manufacturers: According to some experts
with whom we spoke, the current car CAFE standard creates a
competitive advantage for some auto manufacturers. For example,
manufacturers that responded to growing consumer demand for larger
vehicles by selling large sedans or SUVs must work harder and
devote more of their resources to comply with CAFE because the
larger vehicles lower their fleet fuel economy average. However,
these vehicles are often among manufacturers' most profitable to
sell. Manufacturers whose sales are focused mostly on smaller
vehicles, which tend to have relatively higher fuel economy due to
their relatively low weight, have less incentive to further use
their expertise and install more fuel-saving technologies and do
not have to spend resources attempting to meet higher standards.
As a result, the manufacturers may be able to spend those
resources on developing new models, marketing, or other activities
giving them an advantage. However, raising the CAFE standard by
instituting an attribute system requires all manufacturers to
increase the fuel efficiency of their vehicles.
o The Dual Fuel program allows manufacturers to achieve a lower
fuel economy than otherwise would be required under CAFE: The Dual
Fuel program, which was established by the Alternative Motor Fuels
Act of 1988, provides for auto manufacturers an opportunity to
increase their CAFE rating in return for producing flex-fuel
vehicles capable of running on conventional gasoline or
alternative fuels (typically an ethanol blend known as E85). The
program was designed to encourage development and increased the
availability of alternative fuels by creating a market for these
fuels by giving manufacturers an incentive to build vehicles that
could run on them. EPA and NHTSA officials with whom we spoke
estimated that adding equipment to make vehicles capable of using
alternative fuels in addition to gasoline costs manufacturers
between $100 to $175 per vehicle. As an incentive to assume this
extra cost, manufacturers receive a special fuel economy
calculation that enables manufacturers to boost their fleet CAFE
by up to 1.2 mpg toward complying with CAFE standards. This means
that producing flex-fuel vehicles and obtaining the benefit of the
special fuel economy calculation has the effect of allowing
manufacturers to comply with a lower CAFE standard than they
otherwise would be required to meet. As a result, the Dual Fuel
program has weakened the CAFE program's effectiveness in reducing
oil consumption in the short-term, both because it lowers the fuel
economy standards with which manufacturers must comply and because
most flex-fuel vehicles are usually run on regular gasoline.^30
Furthermore, manufacturers have generally put flex-fuel capacity
in their larger, relatively lower fuel economy models,
particularly light trucks. For example, about 80 percent of
flex-fuel vehicles available in model years 2006 and 2007 were
light trucks. Light trucks in general must meet a lower CAFE
standard than cars, and represent about 50 percent of the new car
market. That manufacturers can build these vehicles to an even
lower fuel economy standard if they produce light trucks with
flex-fuel capabilities, and because these vehicles usually run on
gasoline, this erodes potential reductions in fuel consumption
that could otherwise come from the CAFE program. Also, as
discussed later in this report, our previous work found it is not
clear whether the Dual Fuel program has actually increased the
availability or use of alternative fuels like E85. For example,
although the number of fuel stations offering E85 has increased
since 2004, fewer than 1 percent of fuel stations in the country
offered E85 as of early 2007.
^30A 2002 report by DOT, EPA, and DOE estimated that 1 percent of the fuel
that flex-fuel vehicles consumed was E85, though this number is likely
higher now due to increased availability of E85.
Some of the weaknesses that we identify here, such as the
potential negative safety impact from raising current car CAFE
standards and the distinctions the program makes between foreign
and domestic cars could be remedied through revisions to the car
CAFE program. However, NHTSA does not have the authority to make
changes to the car CAFE program, though the administration has
requested this authority from Congress, and a bill the Senate
passed in the 110th Congress would give NHTSA that authority.^31
Experts Suggest That Refinements to the Car CAFE Program Could
Increase Fuel Savings and Address Some Program Weaknesses
Experts with whom we spoke suggested that several refinements to
the structure of the program could increase fuel savings and
address weaknesses in the program. The refinements selected for
discussion represent those supported by many of these experts and,
in some cases, were also supported by research. In addition, we
included refinements based on our work on 21st Century Challenges,
which concluded that a fundamental review of major program and
policy areas can serve the vital function of updating these
programs to meet current and future challenges.^32 This is
especially important for programs and policies designed decades
ago to respond to trends and challenges that existed at the time
of their creation. While these refinements show promise to enhance
the CAFE program, additional analysis of the potential outcomes
would be needed before implementation. Proposed refinements to the
CAFE program include the following:
o Reform the car program to an attribute-based system, as NHTSA
recently reformed the light truck program. In changing the light
truck system to a footprint-based approach, NHTSA cited several
benefits, including increased fuel savings, enhanced safety, and a
more equitable framework for manufacturers because compliance
costs are spread more evenly across the industry. Experts with
whom we spoke generally agreed with NHTSA that these changes
enhanced the light truck CAFE program. NHTSA has requested
authority to convert the car program to an attribute-based system,
and anticipates that it would use size as it has for the light
truck program but has indicated that it might perform some
research to confirm size is the best attribute.
^31H.R. 6, as amended, 110th Congress.
^32GAO, 21st Century Challenges: Reexamining the Base of the Federal
Government, [28]GAO-05-325SP (Washington, D.C.: February 2005).
o Periodically review the basic structure of the CAFE program. A
regular and periodic review of the basic structure of the CAFE
program could allow NHTSA to ensure that the program keeps pace
with current conditions like changes in the fleet mix so that the
program's effectiveness in producing oil savings could be
maximized, assuming Congress grants NHTSA the authority to make
changes to the program's structure. Such a review could also be
used to determine whether its new size-based system for light
trucks is increasing fuel economy as intended.
o Remove incentive for manufacturers to classify cars as light
trucks: Currently, the definitions of cars and light trucks are
structured in a manner that allows manufacturers to make modest
design changes in order to classify a vehicle as a light truck,
and thus meet a lower CAFE standard. For example, vehicles capable
of off-highway operation (i.e., four-wheel drive) or that have
removable seats to expand cargo space may be considered light
trucks. However, recent changes in fleet mix and the use of light
trucks (i.e., primarily as passenger vehicles), for example, make
the definition outdated. NHTSA recently took some steps to address
this concern by issuing revised criteria for classifying vehicles
as light trucks, including requiring a vehicle to have three rows
of seating to qualify as a light truck. This will result in the
removal of wagon-type vehicles such as the PT Cruiser from the
light truck classification. However, this concern could be further
addressed by an additional revision to the definition of light
trucks that more accurately captures attributes of vehicles used
for light duty work. Alternatively, if NHTSA implemented an
attribute-based system for cars, the distinction between cars and
light trucks could be eliminated, and fuel economy standards could
be based on attributes.
o Allow CAFE credit trading between vehicle fleets and among
manufacturers: As discussed previously, 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. These credits cannot be traded among manufacturers or
between fleets (that is, between cars and light trucks). Greater
flexibility in the use of CAFE credits--specifically, trading
among manufacturers as well as transferring between fleets--than
is now afforded could reduce compliance costs to manufacturers.
Specifically, manufacturers for whom it would be particularly
costly to achieve a CAFE standard for a particular fleet could
trade with another manufacturer who could achieve the standard at
less cost or transfer credits between the car and light truck
fleets or their foreign and domestic car fleets. Although credit
trading would give manufacturers flexibility in how they meet CAFE
standards, the fleet would still need to meet the overall
standard. For example, if one manufacturer exceeded the car CAFE
standard under the current system by 1 mpg, it could sell that 1
mpg credit to a manufacturer that was 1 mpg under compliance.
Collectively, the average of both manufacturers would meet the
CAFE standard. In the 2007 State of the Union address, President
Bush proposed a credit trading system under which manufacturers
could trade CAFE credits with one another to improve fuel economy
at the lowest possible cost and the Senate passed a bill in June
2007 that would institute a program where manufacturers could
trade accrued CAFE credits with one another. As of July 2007, the
House has not acted on this bill. Industry representatives have
indicated that they would not trade credits with other
manufacturers due to competitive concerns, but they thought that
many manufacturers would trade within their own fleets, such as
between their car and light truck fleets, if that option was
available.
o Raise CAFE penalties with inflation: CAFE penalties for
noncompliance were established as a part of the program and were
first applied to model year 1983. NHTSA increased the penalty in
1997 from $5.00 to $5.50 per 0.1 mpg below the standard per
vehicle, but it has not increased them since then. Most
manufacturers--including all domestic manufacturers--comply with
CAFE and do not pay penalties, and it is not clear whether an
inflation-based increase in penalties would cause noncompliant
manufacturers to comply. However, in previous work, we have
recommended that agencies collecting penalties should review their
programs regularly to determine if penalties need to increase to
ensure that they continue to deter noncompliance.^33 Because CAFE
penalties have not risen since 1997, despite increases in
inflation, noncompliance now costs less, in real terms, for
manufacturers than it did before 1997. If CAFE penalties had kept
pace with inflation since NHTSA raised the penalties in 1997, they
would currently be set at around $7 per 0.1 mpg for 2007.
o Eliminate or revise the dual fuel credit: As previously noted,
the Dual Fuel program has the effect of allowing manufacturers to
meet lower CAFE standards, and it is not clear to what extent the
program has helped increase the production and availability of
alternative fuels. Of those who commented, many experts with whom
we spoke thought this program should be eliminated or at least
revised. For example, the credit could be granted for flex-fuel
vehicles sold in states that have a higher concentration of
fueling stations offering E85. Alternatively, a lower CAFE credit
than the maximum 1.2 mpg credit currently available could be
provided. Given that flex-fuel vehicles are not always run on
alternative fuels, lowering the credit to more accurately reflect
how often these vehicles are actually run on alternative fuels
could be appropriate.
^33GAO, Civil Penalties: Agencies Unable to Fully Adjust Penalties for
Inflation under Current Law, [29]GAO-03-409 (Washington, D.C.: Mar. 14,
2003).
The Senate recently passed legislation that would make several
changes to the CAFE program, including revising the car CAFE
program to an attribute-based program and allowing manufacturers
to trade with each other CAFE credits they accrue for exceeding
the standards.
NHTSA Generally Has the Capabilities to Reform CAFE Standards and
Act Quickly in the Future, but Some Capabilities Could Be Improved
NHTSA's recent reform of the light truck CAFE program showed that
the agency generally has the capabilities to reform standards and
could act quickly in the future to reform the car program, but
some of NHTSA's capabilities could be improved. To reform the
light truck program, NHTSA leveraged the work of outside experts.
For example, in 2001, at the direction of Congress, NHTSA
contracted with the National Academies of Science to conduct a
peer-reviewed study of CAFE and automotive technologies. The NAS
report included several findings and recommendations and a study
on the feasibility of automotive technologies for increasing fuel
economy in the future. The study, completed in 5 months, was the
basis for much of NHTSA's rule-making affecting light trucks
produced in model years 2008 through 2011.
To solicit additional input and ensure openness in its
deliberations, NHTSA published advance notices to collect
information from the automotive community and others with
expertise in CAFE to assist in developing a proposed light truck
rule. NHTSA received over 45,000 comments, and NHTSA officials
stated that they changed the final rule to use size instead of
weight as the attribute on which CAFE standards would be based and
revised some of its assumptions in producing the final rule for
the light truck rule, based on information provided in the
comments. For example, NHTSA officials stated that they revised
their analysis and assumptions related to the rate at which it was
practicable for manufacturers to add fuel-saving technologies to
their fleet.
In developing the revised light truck CAFE standard, NHTSA also
used a computer model to help estimate the costs and benefits of
increasing CAFE standards. NHTSA worked with DOT's Volpe National
Transportation Systems Center to develop the model. Also, because
of its past work with the automotive industry producing previous
light truck standards, NHTSA has established a good working
relationship with the automotive industry. Officials at one
automotive organization said NHTSA properly handled its
confidential data and produced science-based results.
While, in general, NHTSA had the capability to reform the light
truck program in a manner supported by the automotive experts,
manufacturers and safety experts with whom we spoke, these
stakeholders said that there are areas where NHTSA could improve
its capabilities for managing and revising the CAFE program in the
future. For example, some experts observed that NHTSA has lost
staff since the 1990s and stated that this reduction may stem from
the congressional prohibition on NHTSA's making any changes to
CAFE. NHTSA officials told us they need an additional staff member
with expertise in automotive engineering and computer modeling to
assist NHTSA in estimating the potential impact of new
technologies on fuel economy and to perform other tasks in
preparation for possible future changes to CAFE standards. Also,
NHTSA currently relies on the Volpe Center and the NAS report to
provide the detailed information on the capabilities of new
technologies that NHTSA uses to set future CAFE standards. Such
independent information is important to NHTSA when developing CAFE
standards. However, NHTSA officials told us that they rely heavily
on the technological assumptions related to the impact of new
technologies on fuel economy in the 2002 NAS report and that they
fear the study's assumptions are becoming out-of-date. These
officials stated they would like to update the NAS study and have
requested additional staff and funding for an update of the NAS
study in NHTSA's fiscal year 2008 budget request.
Lastly, several stakeholders and experts said they were concerned
about certain inputs that NHTSA officials used in the computer
model maintained by DOT's Volpe Center. NHTSA uses this model as a
tool to help estimate the fuel savings that will result from CAFE
increases and to estimate is the likelihood that manufacturers
will comply with future CAFE standards, based on the confidential
data NHTSA received from the manufacturers. Specifically, some
experts were critical because NHTSA and Volpe staff did not assign
a dollar value to reductions in greenhouse gas emissions that
would result from an increased standard. NHTSA officials said they
did not assign a value because the scientific community had not
reached a consensus on the worth of reductions in carbon dioxide
emissions, though researchers have developed a range of values
that could be considered. 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. Revisions to the car CAFE program, if they occur, may
provide an opportunity to revisit this issue and to conduct
additional sensitivity analyses, possibly in conjunction with
other government agencies such as DOE and EPA, to examine how
alternative values for greenhouse gas emission reductions affect
the model's results. NHTSA has indicated it will examine this
issue in the next CAFE rule making.
Some Market-Based Policy Options Could Complement the CAFE Program
Through reviews of our past reports and other studies, interviews
with experts, reviews of recently proposed legislation, and
analysis of existing programs in the United States and other
countries, we identified several market-based policies involving
cars and light trucks that could complement and strengthen CAFE's
fuel-saving effects or that could be broader reaching and
potentially more cost-effective alternatives to the CAFE program.
The policies discussed in this section represent those that
experts viewed as most promising to reduce fuel consumption by
cars and light trucks. Market-based consumer incentives could
complement CAFE by increasing consumer interest in purchasing
fuel-efficient vehicles, and some incentives already exist.
However, some of these incentives may work at cross purposes to
programs intended to reduce fuel consumption. Also, although some
policies we identified could complement CAFE's fuel-saving
effects, the policies may not be able to produce large enough fuel
savings to achieve broader goals in the future. Market-based
incentives have also been used to increase the availability and
use of biofuels, but our recent report on these efforts identified
several limitations, and the cost-effectiveness of these programs
is unclear.^34 Several options, including a tax on fuel or a
carbon cap-and-trade program, affect a broader range of
fuel-saving behaviors among consumers and could be more
cost-effective. Such options could help the nation reach larger,
long-term fuel-saving goals at a lower cost than CAFE, but time
would be needed to design and garner support for each before it
could be implemented.
^34 [30]GAO-07-713 .
Market-Based Consumer Incentives for Purchasing Fuel-Efficient
Vehicles Exist, but They Are Narrowly Targeted and Have
Implications for Federal Spending
Market-based incentives to encourage consumers to choose higher
fuel economy vehicles may be particularly important as options to
complement CAFE. Specifically, while CAFE encourages a supply of
vehicles with a relatively high fuel economy, it does not create a
demand for them. Auto manufacturers with whom we spoke told us
that consumers generally choose a vehicle based on other
attributes, such as performance, interior and trunk capacity, and
safety features, though recent high gasoline prices have had some
impact on the demand for higher fuel economy. Consumer incentives
could help create a stronger market for vehicles with higher fuel
economy, which could encourage manufacturers to develop new
fuel-saving technologies more quickly. A few policies that
encourage a market for fuel-saving vehicles are currently in
place, and while we identified weaknesses with existing
incentives, such policies could be improved to complement any
efforts Congress takes to improve the CAFE program. These policies
are described in the following sections.
Tax Credits Can Encourage Consumers to Purchase Vehicles with
a Higher Fuel Economy, but Related Costs Must Be Considered in
Designing Such a Policy
The Energy Policy Act of 2005 established a tax credit for the
purchase of a hybrid vehicle, which is propelled by a standard
gasoline (or diesel) internal combustion engine in combination
with an electric motor and battery storage system.^35 Hybrid
technology can significantly improve fuel economy--for example,
according to the DOE's Fuel Economy Guide, the most efficient
model year 2007 hybrid car is rated at 60 mpg for city driving and
51 mpg on the highway. The tax credits range from $250 to $3,400,
depending on the fuel economy of the model; and the credit is
phased out once a manufacturer has sold 60,000 vehicles. The
60,000 vehicle limit was intended to prevent tax credits from
accruing excessively to foreign hybrid manufacturers. Almost
216,000 model year 2006 hybrids have been sold.
Although recent surges in gasoline prices above $3 per gallon may
be changing consumer behavior, previous research has found that
consumers purchasing new vehicles consider several factors in
choosing a model, but fuel economy has not typically been a
priority. Of those experts who discussed the issue with us, most
supported the use of tax credits to encourage consumers to place a
higher value on fuel economy. A recent report by the Center for
Clean Air Policy^36 noted that credits can lower the cost of a
fuel-saving car, thus making these vehicles more appealing to
consumers, and also can encourage manufacturers to roll out new
technologies in their fleet by helping to overcome market
barriers. Specifically, cars with new technologies are generally
more expensive than those with conventional technologies because
it takes time for manufacturers to reach economies of scale, and
some portion of these costs are passed onto the consumer. Tax
credits can help to offset the cost differential between cars with
advanced and conventional technologies, which means that consumers
will not face as much of a price disincentive for choosing a car
with new fuel-saving technologies.
^35The act also created tax credits for purchasing diesel, fuel cell, and
dedicated alternative fuel vehicles.
^36Dierkers, G.; Houdashelt, M.; Silsbe, E.; Stott, S.; Winkelman, S.; &
Wubben, M. CCAP Transportation Emissions Guidebook Part Two: Vehicle
Technology and Fuels, Center for Clean Air Policy; Washington, D.C.
Available online at [31]www.ccap.org/guidebook .
One weakness of the hybrid tax credit that some experts identified
is that by targeting specific technologies, such credits may give
an advantage to technologies that ultimately are not the most
efficient or cost-effective technology available to achieve
fuel-saving goals. For example, the current tax credits that
encourage consumers to purchase vehicles with hybrid technology
may discourage the development of other promising fuel-saving
technologies, because those technologies would not have the cost
advantage of a tax credit to support their sale.
To address this weakness, some experts suggested offering tax
credits based on a performance standard. For instance, a credit
could be provided for any vehicle achieving a fuel economy higher
than 40 mpg, regardless of the technology the vehicle uses. Such
an approach could also support environmental goals by including
performance measures related to pollution emissions as well. This
approach would target a broader range of fuel-saving technologies
but could also increase the costs of the policy to the federal
government. As we have stated in recent reports, tax credits are a
type of tax expenditure that results in revenue loss for the
federal government, and as such, they need to be evaluated to
determine if their benefits in achieving clear, outcome-oriented
goals exceed their costs.^37
^37GAO, Government and Performance Accountability: Tax Expenditures
Represent a Substantial Federal Commitment and Need to Be Reexamined,
[32]GAO-05-690 (Washington, D.C.: Sept. 23, 2005). Also, the Government
Performance and Results Act of 1993 requires executive branch agencies to
evaluate tax expenditures that affect their missions, and we have noted
that outcome-oriented performance goals are important in such evaluations.
One option that would address the costs associated with providing
credits for purchasing vehicles with a higher fuel economy is a
feebate program, which would incorporate both incentives and
disincentives by taxing the purchase of vehicles that achieve a
lower fuel economy and applying those revenues to subsidize a
rebate or credit for the purchase of vehicles that achieve a
higher fuel economy. Although the amount of the fees and rebates
might need to be relatively high to affect consumer choices,^38
the system could be designed to be revenue-neutral, where the
amount of rebates paid out is covered by the fees collected. In
addition, feebates can be adjusted as CAFE standards are increased
to ensure that there is always a market element to complement
CAFE. Such a system is being considered in Canada to complement
Canada's voluntary fuel economy standards.
One limitation noted by some of the experts with whom we
spoke--and a potential reason to use feebates to complement rather
than replace CAFE--is that feebates have not been tested on a
large scale, and the market may not respond as expected. In
addition, some industry representatives told us that such a system
should be national, rather than state-initiated, to prevent car
buyers from going to certain states to buy vehicles that achieve
higher fuel economy so they can obtain a rebate or, conversely,
going to other states to buy vehicles that achieve lower fuel
economy to avoid paying a fee.
Taxes Can Discourage the Purchase of Vehicles with a Low Fuel
Economy and Provide a Revenue Stream for Other Fuel-Saving
Programs, but Can Face Consumer Resistance
Taxes on vehicles with a low fuel economy are another type of
market-based incentive to encourage consumers to choose vehicles
with a higher fuel economy and are another option to complement
the CAFE program. Such taxes have been implemented in the United
States and other countries. Specifically, consumers can buy a
vehicle with a high fuel economy without paying a tax penalty or
buy a less fuel-efficient vehicle that fits other needs, but they
will incur a tax penalty. The public benefits from either consumer
decision, through fuel savings or collection of revenue that the
government can put toward other fuel-saving programs--for
instance, federal research and development programs on
fuel-efficient technology or alternative fuels.
The U.S. Gas Guzzler Tax is an example of an existing disincentive
against purchasing vehicles that obtain relatively low fuel
economy ratings. The tax is levied on the sale of new cars whose
fuel economy does not meet certain levels. The tax is paid by the
manufacturer, which must disclose the amount to potential buyers
by including it on the fuel economy window sticker. The tax
applies only to cars and not to light trucks, and the tax is
collected by the Internal Revenue Service. Manufacturers currently
begin paying a tax when their cars obtain less than 22.5 mpg, and
the tax increases incrementally for cars with lower fuel economy
(see fig. 4). In general, manufacturers of luxury or sports cars
primarily pay the Gas Guzzler Tax, such as Aston Martin, Ferrari,
and Mercedes.
^38One expert estimated that a feebate system that included a rebate of
about $2,000 to $2,500 for fuel- efficient vehicles would roughly double
demand for these vehicles. Another study estimated that a feebate system
paying or charging a minimum of $1,000 could be effective. We did not
evaluate the accuracy of these estimates.
Figure 4: Gas Guzzler Tax Structure
Several issues may limit the effectiveness of the Gas Guzzler Tax. First,
although the tax was intended to discourage the production and purchase of
vehicles obtaining a low fuel economy, its structure has not been updated
since 1990, and the extent to which the tax serves as an effective
disincentive is not clear. Because the amount of the tax has not been
adjusted for inflation since 1990, it is less expensive for manufacturers
to pay the tax now than it was in years prior to 1990, so the tax might be
less of a disincentive now than in the past. Second, as previously noted,
light trucks are not subject to the Gas Guzzler Tax. In 1979, the year
before the Gas Guzzler Tax took effect, light trucks accounted for about
10 percent of the new light vehicle market. By 2004, light trucks
accounted for almost 53 percent of the new light vehicle market and,
according to NHTSA, in many cases are primarily used as passenger
vehicles, despite having low fuel economy. This is a significant change in
the conditions of the auto market, one that the original lawmakers who
developed the tax may not have anticipated. Finally, it is not clear to
what extent the Gas Guzzler Tax encourages consumers to choose a vehicle
with a higher fuel economy. As noted, the tax generally is paid by
manufacturers of luxury and sports cars. If the tax were applied to a
broader range of vehicles--for example, by increasing the fuel economy
standard to which the tax applied--the tax could influence more consumers'
car purchasing decisions. While expanding the Gas Guzzler Tax would
encourage consumers to buy fewer vehicles subject to this tax, those
already owning such vehicles before the tax goes into effect may choose to
hold onto those vehicles longer than they otherwise would. If new cars
subject to an expanded Gas Guzzler Tax had better fuel economy than these
cars, then holding onto them longer would be at cross purposes with the
objective of reducing fuel consumption.
One alternative to the Gas Guzzler Tax that has been implemented in other
countries is a structure of graduated registration fees that corresponds
to different levels of fuel economy. This type of tax is paid yearly with
the renewal of an owner's vehicle registration rather than only once at
the time of purchasing a new car, and the fee increases as a vehicle's
fuel economy rating decreases. Denmark, France, and the United Kingdom
have implemented a graduated registration tax, and the cost of registering
a fuel inefficient vehicle can be high. For example, if the current
structure of Denmark's "Green Owner Tax" were applied in the United
States, it would cost annually as little as about $30 to register a
fuel-saving compact car, compared with about $1,160 for a luxury sedan
with a much lower fuel economy.^39 Such recurring fees may increase the
value consumers place on purchasing vehicles with higher fuel economy
ratings. In addition, while the Hybrid Tax Credit and the Gas Guzzler Tax
apply only to new model year cars being sold, graduated registration fees
would apply to all vehicles, and therefore might influence consumer
choices, even for used vehicle purchases. Furthermore, because graduated
registration fees would apply to all vehicles, they could have a less
adverse effect on the market for new cars than a tax on new cars only.
^39On June 11, 2007, the exchange rate was 1 Denmark Kroner = 0.179372
U.S. Dollars.
Other Tax Policies with Different Goals Might Affect Consumer Choice of
Vehicles
Other tax incentives that are designed to support goals other than
reducing oil consumption, but that nonetheless affect consumer choices in
purchasing a vehicle, may negate some benefits from oil-saving programs.
For example, small businesses can obtain a tax savings through
depreciation write-offs for the purchase of an SUV over 6,000 lbs. The
depreciation write-off on cars, including hybrids, are treated less
generously, offering much smaller write-offs due to more stringent
depreciation limitations As a result, businesses seeking to maximize a tax
write-off may choose to purchase an SUV, which generally have lower fuel
economy ratings than hybrid cars. In addition, tax laws such as those that
exclude from income and payroll tax a portion of employer-paid parking
expenses may encourage individuals to commute by passenger car or light
truck, which could increase fuel consumption. Although these laws were not
intended to save fuel, the majority of experts with whom we spoke thought
that policy should be integrated and aligned to produce fuel savings. In
addition, we have recommended that government programs be periodically
reexamined to ensure that they are meeting current challenges and national
goals.^40
Taxes on Gasoline, Carbon Emissions, or Vehicle Miles Traveled Could Affect a
Broader Range of Consumer Decisions That Relate to Fuel Consumption
Other tax options, including a tax on gasoline or carbon emissions^41
would create incentives that could affect a broader range of consumer
choices, including how much to drive, whether to use vehicles with a
higher fuel economy, and when to retire older, less efficient vehicles. A
tax on the number of miles driven by an individual (vehicle miles traveled
tax or VMT tax) would encourage consumers to drive less. However, unlike a
gasoline or carbon tax, a VMT tax does not vary depending on how many mpg
a vehicle achieves; thus, it does not provide a direct incentive to
purchase a vehicle with a higher fuel economy. Because a gasoline or
carbon tax could have such broad effect on consumer decisions, it could be
used to complement CAFE or, if set at an appropriate level, to replace
CAFE standards. The economic literature we reviewed indicates that a
gasoline or carbon tax would produce greater oil savings than increasing
CAFE standards alone and at less cost. Furthermore, this literature and
all of the economists with whom we spoke stated that a tax on gasoline or
carbon would be cost-effective, whereas increasing CAFE standards would
not be as cost-effective. For example, CBO estimated that increasing the
gasoline tax to achieve a 10 percent reduction in fuel consumption would
cost far less than an increase in CAFE standards.^42
^40 [33]GAO-05-325SP .
^41In a system of carbon taxes, each fossil fuel would be taxed, with the
tax in proportion to the amount of carbon dioxide released in its
combustion. In this and later sections, "carbon" refers to carbon dioxide.
In addition to being cost-effective and influencing a broader range of
consumer decisions than tax incentives on new car purchases, a gasoline or
carbon tax offers a number of other benefits in terms of potentially
reducing fuel consumption:
o It would result in a wide range of fuel-saving responses from
all consumers rather than only from those purchasing a new
vehicle. For example, a higher tax on gasoline or carbon would
provide a financial incentive for all drivers to buy vehicles with
higher fuel economy, retire vehicles with lower fuel economy
sooner, and drive less. By comparison, CAFE standards or consumer
incentives to buy vehicles with a higher fuel economy influence a
much smaller group of consumers--namely, those choosing to
purchase a new vehicle, which limits the effects of these
strategies on fuel consumption. In addition, because increases to
CAFE can increase the cost of new vehicles through the addition of
new technology, CAFE can slow the sale of new cars and extend the
life of older vehicles, which may have lower fuel economy ratings.
o Higher gasoline prices resulting from either a gasoline or
carbon tax could sustain consumers' interest in fuel-saving
vehicles, leading to a more predictable demand for these vehicles,
which is important to the car manufacturing industry. Industry
representatives told us that it is difficult for them to respond
to rapid changes in consumer interest triggered by fluctuations in
fuel prices because auto manufacturers generally plan their
products years in advance. For example, in 2005 Hurricane Katrina
and other factors caused disturbances in regional gasoline
supplies, and gasoline prices climbed to a nationwide average of
almost $3 per gallon. During this time, sales of light trucks
declined, causing manufacturers like Ford to significantly reduce
production.
^42CBO. The Economic Costs of Fuel Economy Standards Versus a Gasoline
Tax, December 2003. Washington, D.C. CBO's estimate assumes that
manufacturers with high cost of complying with CAFE standards cannot buy
"credits" from those that exceeded the standards. Under this assumption
gas tax would achieve the targeted reduction in fuel consumption at 19
percent less cost per year compared to increased CAFE standards after all
vehicles have been turned over and replaced by vehicles meeting the new
CAFE standard. If the credit trading is allowed, CBO estimated that
increasing the gas tax would still cost less than increasing CAFE
standards but not by as much--about 3 percent annually. CBO's estimates
are consistent with what economists told us and the findings of the
empirical studies we reviewed. For example, Murphy and Rosenthal,
"Allocating the Added Value of Energy Policies" Energy Journal, 2006. Vol.
27, No. 2; pg. 143; Sarah E West, Roberton C Williams III, "The Cost of
Reducing Gasoline Consumption", American Economic Review, 2005. Vol. 95,
No. 2; pg. 294-300; David Austin, Terry Dinan, "Clearing the air: The
costs and consequences of higher CAFE standards and increased gasoline
taxes, "Journal of Environmental Economics and Management, 2005. Vol. 50,
No. 3; pg. 562. The studies all found that increasing the tax on gasoline
or instituting a tax on carbon is more cost effective than tightening CAFE
standards in reducing gasoline consumption.
o A gasoline or carbon tax could complement increased CAFE
standards by helping address the rebound effect--an increase in
driving among those with fuel-saving cars because the per-mile
cost of driving is lower. The rebound effect reduces the fuel
savings that can be produced by increasing CAFE standards.^43 A
gasoline or carbon tax would provide a financial incentive for
consumers to drive less, which could mitigate the rebound effect.
o We recently reported that additional taxes on oil or carbon
would be the most economically efficient means of increasing the
production and use of biofuels because those taxes would allow
biofuels to be used at the level where they provide the greatest
economic, environmental, and other benefits.^44
o Some revenues from the gasoline and carbon tax could be
"recaptured," or used to fund other efforts to reduce fuel
consumption, such as funding research and development of
fuel-saving technologies for cars and light trucks. The current
federal gasoline tax is $0.184 per gallon, of which $0.183 goes to
fund highway and mass transit trust funds.
An alternative to a gasoline or carbon tax that more directly
addresses the effect of increased driving on oil consumption is a
VMT tax. The number of overall vehicle miles traveled has
increased by 22 percent from 1994 to 2003, and increases in VMT
result in increased fuel consumption, pollutants and carbon
emissions, congestion (which further increases fuel consumption),
and road maintenance requirements. A VMT tax effects drivers'
choices about how much to drive, and therefore, could help the
nation meet several goals. Also, it could be used to complement
CAFE standards and could address the rebound effect by creating a
disincentive for people to drive more when improved fuel economy
makes driving less costly.
^43According to Fischer, Harrington and Parry, "Should Automobile Fuel
Efficiency Standards Be Tightened?" Resources for the Future, 2007, the
range of the rebound effect is 6 to 10 percent, which is consistent with
the estimate Small & Van Dender, "Fuel Efficiency and Motor Vehicle
Travel: The Declining Rebound Effect" Energy Journal, No. 28, 2007.
However, in its estimation, NHTSA used a range of 10 to 20 percent for
rebound effect based on earlier studies.
^44 [36]GAO-07-713 .
In 2006, Oregon tested the feasibility of replacing the state
gasoline tax with a VMT tax. The Global Positioning System (GPS)
was used to track the miles driven, and participants pay the VMT
tax ($0.012 per mile traveled) instead of the state gasoline tax
when they fill up at gasoline pumps that can read information from
the GPS. Using a GPS could also track mileage in high congestion
zones, and the tax could be adjusted upward for miles driven in
these areas or during more congested times of day such as rush
hour--a strategy that might reduce congestion and save fuel. In
addition, the system could be designed to apply different tax
levels to vehicles, depending on their fuel economy. On the
federal level, a VMT tax could be based on odometer readings,
which would likely be a simpler and less costly way to implement
such a program.
Some limitations exist for a gasoline, carbon, or VMT tax. For
example, the effectiveness of such taxes in reducing fuel
consumption would depend in part on setting the tax at a level
that would change consumer behavior. In addition, each of these
taxes would increase the overall costs of driving, which could
disproportionately affect rural residents, who often must drive
more because of limited public transportation and greater
distances to obtain services, and low-income drivers. Some
economists believe that this disadvantage can be addressed through
"revenue recycling," a measure in which behaviors considered to be
valuable to the economy are lowered to offset some or all of an
increased tax on behaviors that create additional costs for the
public. For example, taxes on income could be lowered to offset
increased taxes on gasoline consumption or miles driven. In
addition, a VMT tax--unless it is adjusted based on the fuel
economy of the vehicle--does not provide incentives for customers
to buy vehicles with higher fuel economy ratings because the tax
depends only on mileage. Also, because the tax would likely be
collected from individual drivers, a VMT tax could be expensive
for the government to implement, potentially making it a less
cost-effective approach than a gasoline or carbon tax. By
comparison, the government collects the federal gasoline tax from
fuel producers, not individual consumers, which simplifies and
lowers the cost of administering the tax. However, the most
difficult obstacle for the use of a gasoline, carbon, or VMT tax
continues to be public resistance, which stems from the high
visibility to the consumer of the cost of these types of taxes. By
comparison, policies like CAFE also create costs to the
consumer--such as a higher price for new vehicles due to new
technology to save fuel--but these costs may be less obvious to
consumers because they are incorporated in the sale price of the
vehicle.
Efforts to Expand the Market Demand for Biofuels Have Been
Initiated, but Several Barriers Impede Progress
Developing renewable and alternative fuels has been a prominent
part of the administration's plans to reduce oil consumption. For
example, in the State of the Union address in January 2007, the
President established a goal to reduce gasoline consumption by 20
percent of projected use in 2017. About 15 percent of oil savings
will come from renewable and alternative fuels and 5 percent is
expected to come from increased CAFE standards. Fuels such as
ethanol--which is made from renewable feedstocks like corn--are
currently available on the market, while other renewable fuels,
like cellulosic ethanol--which is made from sources like corn
stalks that are in abundant supply--shows promise although
technological advances are still needed to reduce the cost of its
production. Biofuels offer several environmental advantages
compared with other types of alternative fuel, including coming
from renewable resources and emitting lower levels of carbon
dioxide when they are consumed compared with conventional gasoline
and alternative fuels such as those produced by converting coal to
liquid fuel.
Expanding the use of alternative fuels can work in parallel with
CAFE standards to reduce oil consumption. Although fuel economy
standards do not create an incentive for consumers to seek
opportunities to use biofuels, as we reported in June 2007,
strategies to develop both the supply and demand for biofuels in
the transportation sector are currently in place, but several
barriers impede progress.^45 We found that although the production
of ethanol, one of the most commonly available biofuels for cars
and light trucks, has increased significantly,^46 most of this
supply is being used as an additive in gasoline (10 percent or
less) to improve the emissions of conventional gasoline and to
extend gasoline supplies rather than being made into the
alternative fuel, E85. In addition, few fueling stations offer
E85--in early 2007 approximately 1,100, or fewer than 1 percent of
the fuel stations in the United States, offered E85, and these
were primarily concentrated in the Midwest. As our June 2007
report indicated, other significant barriers to expanding the
availability of E85 also exist, including higher costs of
production, limits on available land to grow the feedstocks used
to create E85, and increases in food costs associated with greater
use of corn and soybeans to make these fuels instead of food
products, which may discourage use of biofuels.
^45 [37]GAO-07-713 .
^46Ethanol production increased from 3.4 billion gallons in 2004 to 4.9
billion gallons in 2006.
To support public and private investments in expanding the
production and availability of alternative fuels, including
biofuels, two programs work to expand the market demand for these
fuels: (1) an incentive that aids efforts to meet the CAFE
standards for auto manufacturers and (2) requirements that federal
agencies purchase flex-fuel vehicles. As noted earlier in the
report, auto manufacturers receive a maximum increase of 1.2 mpg
toward meeting CAFE standards for producing flex-fuel vehicles
capable of running on E85 or conventional gasoline. Although
manufacturers have increased their production of flex-fuel
vehicles and more models are available now than in the past, a
2002 DOT, EPA, and DOE report estimated that less than 1 percent
of the fuel consumed by these vehicles was E85, though this number
may be higher now that E85 is in greater supply. As noted, E85 is
not widely available to consumers and while most E85 fueling
stations are located in the Midwest, we recently reported that,
according to the Alliance of Automobile Manufacturers, in 2006,
the largest number of privately owned flex-fuel vehicles were in
Texas, Florida, and California.
A second program to increase the availability of flex-fuel
vehicles and alternative fuels by increasing demand for both was
included in the Energy Policy Acts of 1992 and 2005, which
required federal agencies to increase their purchase of flex-fuel
vehicles and use alternative fuels to fuel these vehicles. We
recently evaluated the extent to which the United States Postal
Service (USPS) has been able to comply with these requirements,
and we reported that these requirements may not be contributing to
passenger vehicle oil savings. For example, to comply with the
laws, USPS purchased a large fleet of flex-fuel vehicles to reduce
its reliance on petroleum-based fuels, yet the limited nationwide
alternative fueling infrastructure and the often higher cost and
lower efficiency of E85, compared with regular gasoline have
prevented USPS from using alternative fuels. As of 2006,
alternative fuels accounted for only 1.5 percent of the total fuel
consumed by USPS's internal fleet. USPS officials have had success
in improving gasoline mileage by using hybrids, which the
officials indicated are well suited to the stop-and-go driving of
mail delivery, but hybrids are not considered flex-fuel vehicles
and therefore do not help USPS comply with the Energy Policy Act
of 2005.^47
The federal government also uses tax credits to promote the
greater availability and use of biofuels. For example, the
American Jobs Creation Act of 2004 created a tax credit for
ethanol use that provides a 51 cent per-gallon tax credit to fuel
blenders for ethanol they blend with gasoline as well as tax
credits for installing fuel stations providing alternative
fuels.^48 We recently reported that, according to Treasury
Department data, these credits cost the government about $2.7
billion in forgone revenue in 2006. Whether these credits create
energy independence or environmental benefits sufficient to
justify their costs is a matter of debate.^49
^47GAO, U.S. Postal Service: Vulnerability to Fluctuating Fuel Prices
Requires Improved Tracking and Monitoring of Consumption Information,
[38]GAO-07-244 (Washington, D.C.: Feb. 16, 2007).
^48Pub. Law 108-357.
^49In addition to GAO's June 2007 report, cited above, see also
Congressional Budget Office's discussion of the exemption for alcohol
fuels from excise taxes. Congressional Budget Office. Budget Options.
(February 2007) Washington, D.C., pp. 324-325.
A Carbon Cap-and-Trade Program Would Combine Regulatory and
Market-Based Elements, but Including Cars and Light Trucks
Could Be Complicated
Several bills have been introduced in both the House and Senate
proposing a multi-industry cap-and-trade program to reduce
greenhouse gas emissions, including carbon dioxide emissions.
Cap-and-trade programs combine a regulatory limit or cap on the
amount of a substance--in this case, carbon dioxide--that can be
emitted into the atmosphere with market elements like credit
trading to give industries flexibility in meeting the cap.^50 The
cap can be reduced in outlying years in order to steadily decrease
the total amount of carbon dioxide emitted; and, in this scenario,
individual companies would comply with the cap by either reducing
their emissions to the cap's limit or buying credits from a
company that is below the cap. Because burning gasoline produces
carbon dioxide emissions, a cap on carbon dioxide, if applied to
cars and light trucks, would also improve fuel economy and reduce
fuel consumption.^51
^50A current example is the cap-and-trade program for sulfur dioxide under
the Clean Air Act. This program includes electric utilities, which are the
primary emitters of sulfur dioxide, and established a cap on the
utilities' emissions. Sulfur dioxide allowances were primarily given
(rather than auctioned) to companies. The program is noteworthy because it
represented the first large-scale attempt to set overall emissions levels
by using marketable allowances and a choice of compliance methods to
control emissions rather than using regulations that specify what actions
must be undertaken.
^51We are currently convening a panel of economists to evaluate the
benefits, costs, and trade-offs of climate change policy options. We
expect to complete this work in early 2008.
Research indicates that by combining regulatory (namely the carbon
cap) and market-based elements (such as credit trading),
cap-and-trade programs can produce cost-effective outcomes,
especially when compared with regulatory programs. For example,
the cap sets a predetermined limit on emissions, but credit
trading allows the industry to achieve the goal in the least
costly manner by allowing companies for whom compliance costs are
low to overcomply and sell allowances to those companies for whom
compliance costs are high, all while remaining within the overall
cap. In addition, the costs are borne and shared by all those
industries participating in the program--and some portion of these
compliance costs are passed on to the consumer. Research also
suggests that for a carbon cap-and-trade program to maximize its
cost-effectiveness, it would need to include all major sources of
carbon emissions from a broad range of industries, such as
electric utility companies, oil producers, auto makers, and
others, which would spread the cost of compliance broadly.^52
Designing a cap-and-trade program would be complicated and would
take time to develop, and its effectiveness in producing fuel
savings and reduced greenhouse gas emissions would depend in part
on how aggressively the cap was reduced. For example, when a
program is established, the government must give or auction
allowances for the right to emit carbon dioxide up to the total
number of allowances equal to the cap. Determining whether to
auction or give allowances to companies is important in designing
a cap-and-trade program because it has cost implications for the
government and society and can create competitive advantages for
participating companies. For example, if allowances are auctioned,
the government will receive revenues, which could be used to
offset the costs of managing the program or fund research and
development on technology to reduce carbon emissions.
In addition, a carbon cap-and-trade program could be designed to
incorporate cars and light trucks, which would influence fuel
consumption but would also create additional design challenges
that would impose different requirements and costs on auto
manufacturers. One approach would introduce an "upstream" cap on
fossil fuels in which all producers and importers of oil, coal,
and other fossil fuels would be required to hold allowances based
on the carbon content of their fuel. Such a design would link the
pricing of transportation fuels to their carbon content, which
would in turn affect consumer behavior in a similar manner to a
carbon tax by encouraging consumers to buy more fuel-saving
vehicles and drive less. This approach would not require a CAFE
standard or any type of carbon cap on auto manufacturers, but
instead it would allow fuel pricing to drive changes in the
market.
^52For example, see Resources for the Future (2007). Emissions trading
versus CO[2] taxes. Washington, D.C.
Alternatively, some proposals under consideration in Congress
would establish a cap-and-trade program and would include some
form of cap for auto makers. This could be accomplished by using
CAFE standards as a proxy for carbon emissions, increasing the
CAFE standards over time, and developing a credit trading program
between CAFE credits and the carbon trading among other
industries. However, maintaining the CAFE system within a larger
cap-and-trade program could result in higher compliance costs for
auto manufacturers, making it more costly for manufacturers to
reduce emissions, compared with other industries.
Conclusions
Reducing the nation's growing oil consumption, particularly for
cars and light trucks, is a formidable challenge. Despite its
limited scope, the CAFE program has reduced oil consumption by
cars and light trucks over what it would have otherwise been, and
the evidence suggests that increasing CAFE standards would save
additional oil. However, the average vehicle fuel economy of cars
and light trucks in the United States has stagnated since 1990 due
to several factors, including the low price of oil during much of
this period and an increase in the number of large cars and SUVs
in the market for which there have not been comparable increases
in CAFE standards. Most, but not all, manufacturers have been
exceeding the car CAFE standard for some time and therefore do not
oppose incremental increases in these standards. Furthermore,
experts with whom we spoke, and NAS in its 2002 report, stated
that the technology exists to increase fuel economy without large
increases in vehicle costs.
As shown by its recent revision of the light truck CAFE program,
NHTSA has the technological capabilities to perform the analysis
required to raise the car CAFE standard while balancing fuel
economy improvements against concerns about vehicle safety and
cost. As a result, NHTSA could move quickly to increase the car
CAFE standard and revise the car CAFE program. However, updating
the 2002 NAS study would be helpful in giving NHTSA the most
up-to-date technological information for determining future CAFE
standards. In its fiscal year 2008 budget request, NHTSA has asked
for funding to update this study, so that it is not reliant on
outdated technological data. Also, under current law, NHTSA does
not have the authority it believes it needs to revise the car CAFE
program, though the administration has asked Congress several
times to provide this authority, without success. Congress could
choose to set new standards for CAFE, or it could give NHTSA the
authority to reform the car CAFE program, much as it recently
revised the light truck program, or both. Either approach would
provide an opportunity for NHTSA to evaluate the car CAFE standard
and increase fuel economy while attempting to minimize any adverse
effects on safety and the equity and consumer choice concerns
associated with the current car CAFE program. In addition,
evaluating the impact of refinements such as the current CAFE
penalty structure and incentives to classify vehicles as light
trucks would be an important component to maximize the
effectiveness of any CAFE program revisions. The recently passed
Senate bill would address some of these refinements, including
creating an attribute-based car CAFE program and instituting a
system of credit trading for manufacturers.
While CAFE has been an important tool to reduce oil consumption by
cars and light trucks and has several strengths, because of its
focus on cars and light trucks, the potential oil savings that can
be obtained from CAFE may not be enough to help the nation achieve
larger fuel-saving goals. Several alternatives to CAFE, including
a gasoline or carbon tax or a cap-and-trade program for carbon
dioxide, have the potential to produce further fuel savings at
less cost and could address a broader range of national goals,
including addressing climate change. However, overcoming consumer
resistance to a highly visible cost like a gasoline tax or
developing a design for a carbon cap-and-trade program that would
incorporate cars and light trucks in an equitable and
cost-effective manner would both likely require time and
consensus-building. In the interim, increases in CAFE standards
and revisions to the car CAFE program similar to recent changes to
the light truck CAFE program are likely to help the nation make
some progress toward reducing fuel consumption. In addition,
evaluating and updating existing consumer incentives, such as tax
credits for buying fuel-saving vehicles or taxes on purchases of
vehicles with low fuel economy ratings, could strengthen the CAFE
program's fuel-saving effects. Finally, other market incentives
that are designed for other purposes but nonetheless affect
passenger vehicle fuel consumption, such as depreciation
write-offs for small businesses purchasing large SUVs, also could
be evaluated to determine whether the value these programs
contribute toward their intended goals is sufficient to offset
potential increases in oil consumption.
Matters for Congressional Consideration
If Congress decides to increase CAFE standards, either through
setting new standards itself or directing NHTSA to determine the
standards, it should consider providing NHTSA with the flexibility
and information necessary to reform and revise CAFE standards
while mitigating any adverse impact on safety, consumer choice, or
competitive equity concerns. Thus, Congress should consider giving
NHTSA (1) the authority to reform the car CAFE program much as it
restructured the light truck CAFE program and evaluate additional
refinements to the program such as credit trading; (2) the
resources to update information on the capabilities of new
technologies to enhance passenger vehicle fuel economy--as was
done in the 2002 NAS study; and (3) the flexibility to adjust the
program in the future in response to changes in the passenger
vehicle market, such as improved automotive technology and changes
in the mix of passenger vehicle types.
So that the DOT is prepared to move quickly to revise the CAFE
program in the event Congress decides to set higher CAFE standards
or authorizes NHTSA to reform the existing program, we recommend
that as part of the process for determining future CAFE standards,
the Secretary of Transportation direct the Administrator of NHTSA
to consider in the agency's analysis whether the CAFE program
should be enhanced to include credit trading, eliminate incentives
to classify vehicles as light trucks, index CAFE penalties to keep
pace with inflation, or incorporate other reforms.
To help ensure the nation's fuel-saving goals are achieved in the
most efficient fashion, we further recommend that the Secretary of
Transportation, in coordination with all relevant agency
officials, including the Secretary of Energy, the Administrator of
the Environmental Protection Agency, and the Secretary of the
Treasury evaluate the impacts existing and potential policy
options are having or might have on fuel consumption by cars and
light trucks beyond what may be achieved through CAFE standards
alone and report on the result of this evaluation. Specifically,
such an analysis should evaluate (1) existing consumer incentives
that complement CAFE to determine whether changes to the
incentives could improve their effectiveness and reduce their
costs; (2) existing incentives that may affect fuel consumption by
cars and light trucks--whether these policies were designed to do
so or not--to ensure that policies meant to reduce fuel
consumption are not being counteracted inadvertently by policies
that increase fuel consumption; and (3) broader reaching
strategies such as a carbon tax, cap-and-trade program, and
others, as possible long-term alternatives to the CAFE program.
Agency Comments
We provided a copy of a draft of this report to the Department of
Transportation, the Environmental Protection Agency, and the
Department of Energy for their review. DOT and EPA provided
comments via e-mail, and DOE provided written comments (see app.
III). DOT generally concurred with the report's findings and will
consider the recommendations; EPA generally agreed with the report
and recommendations; and DOE did not comment on the
recommendations and did not agree with our finding that policy
options other than CAFE, such as taxes and cap-and-trade programs,
have the potential to produce fuel savings beyond what could be
achieved through CAFE in a more cost-effective manner. Specific
comments on the draft, as well as our responses, follow.
DOT officials, including the Senior Associate Administrator for
Vehicle Safety, stated that, while we recommended that as part of
any reform to the CAFE program, NHTSA should consider indexing
CAFE penalties to keep pace with inflation, NHTSA has the ability
to increase current civil penalties from $5.50 to $10.00 for every
0.1 mpg a manufacturers' fleet falls short of CAFE standards.
However, NHTSA officials believe that since the manufacturers that
generally pay these penalties are those that produce luxury or
specialty, high-performance vehicles whose sales they believe are
dependent on performance, doubling the penalties will likely not
induce these companies to produce more fuel-efficient vehicles.
Without more definitive research, we continue to recommend that
NHTSA consider studying the impact of systematically increasing
civil penalties if it revises the CAFE program to determine how
the penalties can best influence the intended outcomes of the CAFE
program.
Officials from EPA, including the Office of Air and Radiation and
Office of Policy, Economics, and Innovation acknowledged our
comprehensive discussion of the CAFE program as well as the issue
of climate change. However, EPA officials requested we include
more discussion of disagreements over the safety impacts and other
potential trade-offs involved in raising CAFE standards. In
response, we added material on the lack of consensus on the safety
issue. Also, our Matter for Consideration to Congress to provide
NHTSA the authority to modify the program as the industry and
technology changes, if implemented, would provide NHTSA an
opportunity to adjust the program to enhance safety if conditions
warrant. EPA agreed with our recommendations and suggested we
include a recommendation that NHTSA work with EPA and DOE to
establish a valuation for reducing carbon dioxide emissions in its
computer model that estimates the costs and benefits of increasing
CAFE standards. While we did not include such a recommendation, we
added information on this possibility in this report.
DOE officials, in a letter from the Assistant Secretary of the
Office of Policy and International Affairs, expressed four general
concerns with our draft report. (See app. III). First, DOE's
letter states that we do not provide sufficient analysis to
support the report's assertion that reforming CAFE standards alone
is not sufficient to realize reductions in oil consumption.
However, our report says that an increase in CAFE standards would
likely make an important contribution to reducing oil consumption.
Further, our discussions about the role of the CAFE program in
reducing gasoline and oil consumption were based, in part, on the
President's "Twenty In Ten" plan which proposes to reduce U.S.
gasoline consumption by 20 percent over current levels over the
next 10 years through a combination of initiatives--increasing
CAFE standards as well as increasing the use of renewable and
alternative fuels. It is also based on our analysis of academic
and government studies on additional policy options for reducing
oil consumption in the transportation sector. Finally, we would
expect NHTSA's analysis for any proposed increase in CAFE
standards, as it has in the past, to include estimates on how much
gasoline increased standards and reforms of CAFE would likely
save.
Second, DOE officials stated the report should include more
analysis comparing benefits and costs of different approaches to
reducing oil consumption by the transportation sector. It was not
the purpose of this report to analyze the costs and benefits of
these options as we see the discussion in this report as a first
step in describing a number of options policymakers could consider
in making decisions about how to reduce oil consumption. We
acknowledge that more analysis will help guide future policy
decisions and thus recommended that cognizant agencies including
DOE, EPA, and DOT evaluate existing and potential policy options
to further reduce fuel consumption of cars and light trucks beyond
what may be achieved through CAFE standards alone. In addition,
many of the options we discuss could be implemented in a variety
of ways. For example, in a cap-and-trade program policy makers
would need to determine which sectors of the economy to include in
the program. Thus, analysis on specific, proposed program designs
will be important to provide decision makers further information
on the benefits and costs of specific proposals.
Third, DOE officials stated the report should assess the
differential impacts that reforming CAFE standards would have on
automobile manufacturers and related firms. While we agree this is
an important analysis, it was not the focus of this report. If
NHTSA revises the CAFE standards, we expect that NHTSA will
continue to use its model to assist in determining the economic
feasibility of different mpg standards for automobile
manufacturers.
Fourth, DOE officials stated the report should address the impact
of consumer demand for horsepower in their personal vehicles and
the impact on potential fuel economy lost as a result. The report
acknowledges that potential fuel economy has been lost over the
last few decades while vehicle power has increased and fuel
economy standards stagnated; and this information informed our
analysis of potential reforms to the CAFE program. Furthermore,
NHTSA's reformed light truck standards and proposals in Congress
and from NHTSA to use a similar approach to revising the standards
for cars are responsive to this issue by helping balance oil
savings with consumer choice for a variety of vehicle sizes. The
reformed light truck CAFE program is designed so that
manufacturers need to improve the fuel economy of vehicles of all
sizes of vehicles over time.
DOE officials also stated they agree with our recommendation that
Congress not pursue gasoline taxes and that they do not agree with
the conclusion that other options are potentially more cost
effective to reduce petroleum consumption than a reformed CAFE
program. While we made no recommendation about gasoline taxes, as
described in our scope and methodology section, we relied on
recent, peer reviewed research that as a whole presents a strong
case that options other than CAFE standards can be less costly to
the economy as a whole to implement.
DOE also criticized our use of CBO's cost-benefit analysis to
illustrate that approaches such as a gas tax can be more cost
effective than a reformed CAFE program. As noted in our report,
CBO found that a gas tax would achieve the targeted reduction in
fuel consumption at 19 percent less cost per year, compared with
increased CAFE standards and 3 percent less cost per year than
increased CAFE standards with a credit trading program, after all
existing vehicles have been replaced by vehicles meeting the new
CAFE standards. We emphasized the greater cost savings for two
reasons: First, NHTSA does not have express authority to institute
a credit trading program, and it is unknown whether manufacturers
would take full advantage of such a program--a key assumption in
the CBO estimate. Second, CBO's analysis also found that an
increased gas tax had significant benefits in the short run,
compared with a CAFE program with credit trading--specifically, a
gasoline tax would save 42 percent more fuel while costing 27
percent less over the initial 14 years.
Finally, each organization provided technical comments. We
obtained conflicting information in one area--the amount of mpg
credits manufactures receive for producing vehicles that are
capable of using both regular gasoline and an alternative fuel.
DOE commented that from model years 2005 to 2008 the credit is
decreasing from 1.2 mpg to 0.9 mpg. However DOT states that the
credit is 1.2 mpg through model year 2010. We agree with DOT's
explanation based on our review of the Energy Policy Act of 2005.
The remaining technical corrections, we addressed throughout the
report as appropriate.
We are sending copies of this report to interested congressional
committees, the Secretary of Transportation, the Administrator of
EPA, and the Secretary of Energy. We will also make copies
available to others upon request. In addition, the report will be
available at no charge on the GAO Web site at
[34]http://www.gao.gov .
If you or your staff have any questions about this report, please
contact me at (202) 512-2834 or [35][email protected] . Contact
points for our Offices of Congressional Relations and Public
Affairs may be found on the last page of this report. GAO staff
who made major contributions to this report are listed in appendix
III.
Sincerely yours,
Katherine A. Siggerud
Director, Physical Infrastructure Issues
Appendix I: Scope and Methodology
To obtain information on how the Corporate Average Fuel Economy
(CAFE) program is designed to reduce oil consumption by cars and
light trucks and its status, we reviewed relevant law, including
the legislation that established the program and authorized the
National Highway Traffic Safety Administration (NHTSA) authority
to administer it as well as legislation creating the CAFE credit
program for manufacturers of flex-fuel vehicles. We reviewed
NHTSA's rule-making documents that reformed the light truck
standards, including the advanced notice of proposed rule making,
input provided by outside parties during the comment period, and
the final rule, paying particular attention to changes between the
initial and final rule. We also reviewed program guidance
describing the Volpe Center's role assisting NHTSA in setting new
CAFE standards as well as material describing Volpe's cost benefit
analysis, the variables used in the analysis, and documentation of
the rationale for decisions to assign certain values to certain
variables. To determine the scope of cars and light trucks that
were subject to CAFE, we examined data on new car sales since 1978
and tracked changes in the number of cars and light trucks sold.
To further our understanding of how NHTSA works with the
Environmental Protection Agency (EPA) to evaluate the fuel economy
of new vehicle models, we reviewed relevant legislation and EPA
program guidance about CAFE testing fuel economy labeling
procedures. We also examined EPA's recent rule to modify the
methodology for calculating fuel economy levels posted on new car
labels. We reviewed program guidance on NHTSA's process for
tracking vehicle model fuel economy and manufacturer credits
toward meeting CAFE standards, and we reviewed the process for
notifying noncompliant manufacturers in order to understand
NHTSA's enforcement procedures. We also examined NHTSA's data on
penalty collection since the program's inception. To complement
our review of key legislation and program documents, we
interviewed a wide range of officials at agencies, including
NHTSA, EPA, the Department of Energy (DOE), and the Volpe Center
to ensure that we had a clear understanding of the CAFE program's
design and implementation.
To obtain information about the strengths and weaknesses of the
CAFE program, we interviewed officials from NHTSA, EPA, and DOE,
as well as experts in fuel economy and safety who either
participated on the 2002 committee for the National Academy of
Sciences (NAS) report on CAFE standards or who were recommended by
members of the NAS committee or NHTSA. We also interviewed the
applicable automobile workers trade union (UAW) and industry
groups representing the automobile manufacturers, automotive
safety experts, and insurance industry representatives. In
addition, we reviewed several key studies, including the 2002
National Academy of Sciences analysis of CAFE and articles by the
Congressional Budget Office, our previous work on fuel economy,
and other recently published articles about CAFE and its effect on
reducing fuel consumption, carbon dioxide emissions, and other
benefits. To understand what influence CAFE standards have had on
fuel economy, we obtained data on changes in the average fuel
economy of cars and light trucks since the initiation of the
program. We also examined estimates developed by NHTSA and others
about how much additional fuel would have been consumed in the
absence of CAFE standards. To ensure that the studies we
considered were of sufficient scientific rigor, we limited our
review to articles published in well-respected peer reviewed
journals and those provided by experts or organizations that we
interviewed because of their level of expertise in this area.
These articles were reviewed for quality and reliability by our
methodologists. To identify potential refinements that could
address weaknesses in the CAFE program, we spoke with a wide range
of experts and reviewed relevant literature. The refinements
selected for discussion represent those supported by many of these
experts and in some cases were also supported by research. In
addition, we included refinements based on our work on 21st
Century Challenges, which concluded that a fundamental review of
major program and policy areas can serve the vital function of
updating these programs to meet current and future challenges.
To assess NHTSA's capabilities to further revise CAFE standards,
we reviewed budgets for the CAFE program and NHTSA's fiscal year
2007 budget. We also reviewed documentation about NHTSA's previous
and current staffing levels and plans to hire additional staff.
Further, we consulted with experts that were familiar with NHTSA's
operation of the CAFE program to discuss whether NHTSA had
sufficient staff, whether staff had appropriate technical
expertise such as in automotive engineering, and to what extent
NHTSA leveraged outside experts from universities, the National
Laboratories, and consulting firms. To determine whether NHTSA's
use of computer modeling to analyze the costs and benefits of
increasing CAFE standards was adequate, we reviewed documentation
of the models assumptions, comments submitted during the
rule-making process about these assumptions, and we met with NHTSA
and Volpe Center staff to discuss the processes and resources they
used to assign values to certain variables. We compared this
information to guidance published by the Office of Management and
Budget for federal agencies using cost benefit analyses to develop
policy.
To further our understanding of other market-based policies that
are available to replace or complement the CAFE program, we
conducted literature searches of recent scholarly publications
analyzing options to reduce fuel consumption. We also included in
our review any article recommended by the experts with whom we
spoke. Our literature review for this section included nearly 100
publications. Finally, to obtain information on other market-based
options for reducing oil consumption, we interviewed over 30
experts in fuel economy from universities and advocacy
organizations, the National Laboratories, automotive engineering
consulting firms, and other industry stakeholders. We selected
these experts by contacting officials who served on the 2002
committee for the National Academy of Sciences report on CAFE
standards as well as by asking government agencies such as NHTSA,
DOE, and EPA to recommend outside experts with whom we should
speak. During these conversations, we asked them for names of
additional experts we should contact. The experts we interviewed
had expertise in a wide range of disciplines, including economics,
consumer behavior, automotive engineering, public policy, and
environmental analysis. We developed a semi-structured interview
protocol with open-ended questions, asking participants to discuss
the strengths and weaknesses of CAFE and several other policy
options to reduce fuel consumption by cars and light trucks,
particularly market-based incentives that figured prominently in
recent legislation and published research. We also asked experts
to identify those options that they thought had the greatest
potential to reduce fuel consumption, and we discussed how these
options could complement or replace the CAFE program. The options
selected for discussion in the report represent those alternatives
that many of these experts viewed as most promising to reduce fuel
consumption by cars and light trucks. To obtain information on
policies currently being used to complement CAFE, such as the
hybrid tax credit, the Gas Guzzler Tax, and efforts to expand the
market for alternative fuels, we relied on our recently published
work, relevant legislation, and program information publicly
available on government agency Web sites. We conducted our work
from August 2006 through June 2007 in accordance with generally
accepted government auditing standards.
Appendix II: Selected Manufacturers' CAFE Performance, Selected Years from
1990 through 2005
Table 4: BMW CAFE Performance
BMW
light
Domestic Imported BMW imported Light truck
car CAFE BMW domestic car car CAFE car CAFE truck CAFE CAFE
Year standard CAFE rating standard rating standard rating
1990 27.5 n/a 27.5 22.2 20.5 n/a
1995 27.5 n/a 27.5 25.3 20.6 n/a
2000 27.5 n/a 27.5 24.8 20.7 17.5
2005 27.5 n/a 27.5 26.9 21.0 21.6
Source: NHTSA.
Table 5: Ford CAFE Performance
Ford
Ford light
Domestic Imported imported Light truck
car CAFE Ford domestic car CAFE car CAFE car CAFE truck CAFE CAFE
Year standard rating standard rating standard rating
1990 27.5 26.3 27.5 32.4 20.0 20.2
1995 27.5 27.7 27.5 34.0 20.6 20.8
2000 27.5 28.3 27.5 27.4 20.7 21.0
2005 27.5 28.2 27.5 28.4 21.0 21.5
Source: NHTSA.
Note: Prior to 1991, NHTSA issued separate CAFE standards for two- and
four-wheel drive light trucks. The higher figure is used here.
Table 6: General Motors (GM) CAFE Performance
GM light
Domestic Imported GM imported Light truck
car CAFE GM domestic car car CAFE car CAFE truck CAFE CAFE
Year standard CAFE rating standard rating standard rating
1990 27.5 27.1 27.5 32.3 20.0 19.6
1995 27.5 27.4 27.5 36.7 20.6 20.1
2000 27.5 27.9 27.5 25.4 20.7 21.0
2005 27.5 28.8 27.5 29.3 21.0 21.5
Source: NHTSA.
Note: Prior to 1991, NHTSA issued separate CAFE standards for two- and
four-wheel drive light trucks. The higher figure is used here.
Table 7: Honda CAFE Performance
Honda
Honda light
Domestic Imported imported Light truck
car CAFE Honda domestic car CAFE car CAFE car CAFE truck CAFE CAFE
Year standard rating standard rating standard rating
1990 27.5 n/a 27.5 30.8 20.0 n/a
1995 27.5 n/a 27.5 32.7 20.6 n/a
2000 27.5 31.4 27.5 29.3 20.7 25.4
2005 27.5 36.7 27.5 31.5 21.0 24.8
Source: NHTSA.
Note: Honda did not build domestic cars or any light trucks for the U.S.
market in 1990 or 1995.
Table 8: Toyota CAFE Performance
Toyota
Toyota light
Domestic Imported imported Light truck
car CAFE Toyota domestic car CAFE car CAFE car CAFE truck CAFE CAFE
Year standard rating standard rating standard rating
1990 27.5 n/a 27.5 30.8 20.5 24.1
1995 27.5 28.5 27.5 30.4 20.6 21.2
2000 27.5 33.3 27.5 28.9 20.7 21.8
2005 27.5 34.3 27.5 35.1 21.0 23.1
Source: NHTSA.
Note: Prior to 1992, NHTSA issued separate CAFE standards for two- and
four-wheel drive light trucks. The higher figure is used here. In 1990,
Toyota did not build any domestic cars.
Appendix III: Comments from the Department of Energy
Appendix IV: GAO Contact and Staff Acknowledgments
GAO Contact
Katherine A. Siggerud, (202) 512-2834 or [39][email protected]
Staff Acknowledgments
In addition to the contact named above, Farah B. Angersola, Chuck Bausell,
Catherine Colwell, Colin Fallon, Joah G. Iannotta, Bert Japikse, Terence
C. Lam, Elizabeth A. Marchak, Joshua Ormond, Franklin Rusco, Raymond
Sendejas, and Karla Springer made key contributions to this report.
(542100)
GAO's Mission
The Government Accountability Office, the audit, evaluation and
investigative arm of Congress, exists to support Congress in meeting its
constitutional responsibilities and to help improve the performance and
accountability of the federal government for the American people. GAO
examines the use of public funds; evaluates federal programs and policies;
and provides analyses, recommendations, and other assistance to help
Congress make informed oversight, policy, and funding decisions. GAO's
commitment to good government is reflected in its core values of
accountability, integrity, and reliability.
Obtaining Copies of GAO Reports and Testimony
The fastest and easiest way to obtain copies of GAO documents at no cost
is through GAO's Web site ( [40]www.gao.gov ). Each weekday, GAO posts
newly released reports, testimony, and correspondence on its Web site. To
have GAO e-mail you a list of newly posted products every afternoon, go to
[41]www.gao.gov and select "Subscribe to Updates."
Order by Mail or Phone
The first copy of each printed report is free. Additional copies are $2
each. A check or money order should be made out to the Superintendent of
Documents. GAO also accepts VISA and Mastercard. Orders for 100 or more
copies mailed to a single address are discounted 25 percent. Orders should
be sent to:
U.S. Government Accountability Office 441 G Street NW, Room LM Washington,
D.C. 20548
To order by Phone: Voice: (202) 512-6000
TDD: (202) 512-2537
Fax: (202) 512-6061
To Report Fraud, Waste, and Abuse in Federal Programs
Contact:
Web site: [42]www.gao.gov/fraudnet/fraudnet.htm
E-mail: [43][email protected]
Automated answering system: (800) 424-5454 or (202) 512-7470
Congressional Relations
Gloria Jarmon, Managing Director, [44][email protected] (202) 512-4400 U.S.
Government Accountability Office, 441 G Street NW, Room 7125 Washington,
D.C. 20548
Public Affairs
Paul Anderson, Managing Director, [45][email protected] (202) 512-4800
U.S. Government Accountability Office, 441 G Street NW, Room 7149
Washington, D.C. 20548
[46]www.gao.gov/cgi-bin/getrpt?GAO-07-921 .
To view the full product, including the scope
and methodology, click on the link above.
For more information, contact Katherine A. Siggerud at (202) 512-2834 or
[email protected].
Highlights of [47]GAO-07-921 , a report to the Chairman, Committee on
Commerce Science, and Transportation, U.S. Senate
August 2007
VEHICLE FUEL ECONOMY
Reforming Fuel Economy Standards Could Help Reduce Oil Consumption by Cars
and Light Trucks, and Other Options Could Complement These Standards
Concerns over national security, environmental stresses, and high fuel
prices have raised interest in reducing oil consumption. Through the
Corporate Average Fuel Economy (CAFE) program, the National Highway
Traffic Safety Administration (NHTSA) requires cars and light trucks to
meet certain fuel economy standards. As requested, GAO discusses (1) how
CAFE standards are designed to reduce fuel consumption, (2) strengths and
weaknesses of the CAFE program and NHTSA's capabilities, and (3)
market-based policies that could complement or replace CAFE. To do this
work, GAO reviewed recent studies and interviewed leading experts and
agency officials.
[48]What GAO Recommends
Congress should consider giving NHTSA the (1) authority to reform the car
CAFE program as it did the light truck program, (2) resources to update
information on new fuel-efficient technologies, and (3) flexibility to
adjust the program in the future.
GAO recommends NHTSA analyze the need for enhancements to the CAFE
program, and, in conjunction with the appropriate agencies, evaluate
policies meant to reduce fuel consumption to ensure they are achieving
stated goals. DOT agreed to consider the recommendations; EPA agreed with
the recommendations; and DOE did not comment on GAO's recommendations.
NHTSA, an administrationwithin the Department of Transportation(DOT), is
primarily responsible for setting and enforcing CAFE standards for cars
and light trucks, although the Environmental Protection Agency (EPA) and
the Department of Energy (DOE) are also involved. NHTSA raised the light
truck CAFE standards from 20.7 miles per gallon (mpg) in 2004 to 22.2 mpg
in 2007. Subsequently, NHTSA, which has authority to restructure the light
truck program, set different standards for light trucks of different
sizes. The new approach takes full effect in 2011. However, NHTSA has not
raised the CAFE standard for cars above 27.5 mpg since 1990 due, in part,
to provisions in DOT's annual appropriations acts for fiscal years 1996
through 2001 and, more recently, to NHTSA's desire to restructure the car
CAFE program before raising the standard to avoid potential negative
safety impacts.
Many experts believe CAFE has helped save oil--for example, a study by the
National Academy of Sciences estimated that in 2002 CAFE contributed to
saving 2.8 million barrels of fuel a day in passenger vehicles, or 14
percent of consumption in that year. CAFE would help the nation work
toward fuel-saving goals if standards are increased, and GAO's evaluation
of NHTSA's capabilities suggests the agency could act quickly to implement
new standards and restructure the program. However, GAO identified several
characteristics that limit CAFE's potential to save fuel. Several
refinements to the CAFE program could improve its effectiveness and reduce
costs, such as setting different standards for cars of different sizes as
the restructured light truck program does and instituting a broader CAFE
credit trading program. The Senate recently passed a bill modifying the
CAFE program that includes these refinements.
Meeting the nation's goals to reduce oil consumption over time will
require more than CAFE alone, and GAO identified several market-based
incentives involving passenger vehicles that could complement and
strengthen CAFE's fuel-saving effects or that potentially could serve as
alternatives to CAFE. Some market incentives, such as a tax credit for
hybrid vehicles and the Gas Guzzler Tax on fuel-inefficient cars,
currently exist to encourage consumers to buy fuel-efficient vehicles.
However, GAO identified other vehicle purchasing incentives that may work
at cross purposes to those intended to reduce fuel consumption. For
example, market incentives have been used to increase the availability and
use of alternative fuels; however, GAO's recent report on one of these
efforts identified several limitations. Several additional policy options,
including a tax on fuel or a carbon cap-and-trade program, would affect a
broader range of fuel-saving behaviors among consumers and would likely be
more cost-effective than CAFE. Such options could help the nation reach
larger, long-term fuel-saving goals at a lower cost than CAFE, but time
would be needed to design and garner support for each before it was
implemented. However, increasing the CAFE standards and considering
options to improve the program would contribute to fuel-saving goals in
the immediate future.
References
Visible links
27. http://www.gao.gov/cgi-bin/getrpt?GAO-07-713
28. http://www.gao.gov/cgi-bin/getrpt?GAO-05-325SP
29. http://www.gao.gov/cgi-bin/getrpt?GAO-03-409
30. http://www.gao.gov/cgi-bin/getrpt?GAO-07-713
31. http://www.ccap.org/guidebook
32. http://www.gao.gov/cgi-bin/getrpt?GAO-05-690
33. http://www.gao.gov/cgi-bin/getrpt?GAO-05-325SP
34. http://www.gao.gov/
35. mailto:[email protected]
36. http://www.gao.gov/cgi-bin/getrpt?GAO-07-713
37. http://www.gao.gov/cgi-bin/getrpt?GAO-07-713
38. http://www.gao.gov/cgi-bin/getrpt?GAO-07-244
39. mailto:[email protected]
40. http://www.gao.gov/
41. http://www.gao.gov/
42. http://www.gao.gov/fraudnet/fraudnet.htm
43. mailto:[email protected]
44. mailto:[email protected]
45. mailto:[email protected]
46. http://www.gao.gov/cgi-bin/getrpt?GAO-07-921
47. http://www.gao.gov/cgi-bin/getrpt?GAO-07-921
*** End of document. ***