Automobile Fuel Economy: Potential Effects of Increasing the Corporate
Average Fuel Economy Standards (Letter Report, 08/15/2000,
GAO/RCED-00-194).

Pursuant to a congressional request, GAO reviewed the Corporate Average
Fuel Economy (CAFE) program standards, focusing on: (1) the impact of
increasing CAFE standards on oil consumption, the environment, and
automobile safety in the United States; and (2) other issues that affect
the CAFE discussion.

GAO noted that: (1) according to the studies reviewed and the experts
interviewed, raising fuel economy standards would reduce future fuel
consumption and greenhouse gas emissions; (2) however, the impact of
raising standards on vehicle safety is less certain; (3) the effect of
increasing CAFE standards on vehicle safety is harder to quantify
because it depends on many variables, such as the amount of lead time
given to manufacturers, the size of the CAFE increase, and the
strategies manufacturers use to achieve fuel economy gains; (4) in
addition, there is little research linking CAFE increases and vehicle
safety; (5) the major concern about safety is that manufacturers might
produce smaller, lighter vehicles to meet more stringent CAFE standards
and thus sacrifice some level of protection for occupants; (6) GAO found
consensus among safety experts and auto manufacturers that as long as
there is sufficient lead time to meet higher CAFE levels, auto
manufacturers could use fuel-saving technologies instead of simply
building smaller, lighter cars, thereby minimizing any negative impact
on safety; (7) GAO also identified a number of other issues associated
with raising CAFE standards; (8) automobile manufacturers have had
little incentive to improve fuel economy because, over the past decade,
gas prices have been low and consumers have consistently purchased
larger, more powerful vehicles that emphasize performance over fuel
economy; (9) the Environmental Protection Agency's (EPA) new, more
stringent tailpipe emission standards may inhibit the use of certain
technologies that have great potential for improving fuel economy but
may not meet these standards; (10) EPA and the Department of
Transportation are concerned that vehicle classification regulations may
be outdated, reducing the incentive for manufacturers to increase the
fuel economy of their light trucks; (11) it is possible that
technology-driven economy increases could occur without increasing CAFE
standards; (12) although it is unlikely that such vehicles can be
cost-effectively produced and sold in the near future, it is possible
that some of the technologies being developed through the Partnership
for a New Generation of Vehicles could lead to improvements in fuel
economy without increases in CAFE standards; and (13) finally, some
analysts contend that increasing CAFE standards is not as cost-effective
as other policy measures for reducing fuel consumption and greenhouse
gas emissions, because CAFE standards do not affect older vehicles and
may not result in reduced driving.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  RCED-00-194
     TITLE:  Automobile Fuel Economy: Potential Effects of Increasing
	     the Corporate Average Fuel Economy Standards
      DATE:  08/15/2000
   SUBJECT:  Automobile industry
	     Motor vehicle standards
	     Motor vehicles
	     Motor vehicle pollution control
	     Fuel conservation
	     Transportation safety
	     Energy costs
IDENTIFIER:  Corporate Average Fuel Economy Standards
	     EPA Corporate Average Fuel Economy Program
	     Partnership for a New Generation of Vehicles

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GAO/RCED-00-194

Appendix I: Scope and Methodology

22

Appendix II: Summaries of Studies by DOE, ACEEE, AISI,
and NHTSA

24

Appendix III: Selected Bibliography

35

Table 1: Selected Studies' Estimates of Technologically
Feasible Fuel Economy Levels for Passenger Cars 14

Figure 1: MPG by Model Year 7

Figure 2: U.S. Petroleum Consumption by Sector, 1997 9

Figure 3: U.S. Greenhouse Gas Emissions by Sector, 1997 10

Figure 4: Average Horsepower and Weight in New Vehicles,
1975-99 15

Figure 5: Projected Reduction in Gasoline Consumption Under
DOE's Technology Scenarios Relative to the Baseline
Scenario 26

Figure 6: Projected Reduction in Greenhouse Gas Emissions
Under DOE's Technology Scenarios Relative to the Baseline Scenario 27

Figure 7: Projected Reduction in Gasoline Consumption Under
ACEEE's Scenarios Relative to the Baseline Scenario 29

Figure 8: Projected Reduction in Greenhouse Gas Emissions Under ACEEE's
Scenarios Relative to the Baseline Scenario 30

Figure 9: Projected Reduction in Gasoline Consumption Under
AISI's Study 32

Figure 10: Projected Reduction in Greenhouse Gas Emissions Under
AISI's Study 33

ACEEE American Council for an Energy-Efficient Economy

AISI American Iron and Steel Institute

CAFE Corporate Average Fuel Economy

DOE Department of Energy

DOT Department of Transportation

EEA Energy and Environmental Analysis

EIA Energy Information Administration

EPA Environmental Protection Agency

mmbd million barrels per day

mmtc million metric tons of carbon

mpg miles per gallon

NHTSA National Highway Traffic Safety Administration

NRC National Research Council

OTA Office of Technology Assessment

PNGV Partnership for a New Generation of Vehicles

SUV sport utility vehicle

TRB Transportation Research Board

Resources, Community, and
Economic Development Division

B-284406

August 15, 2000

The Honorable John McCain
Chairman, Committee on Commerce,
Science, and Transportation
United States Senate

Dear Mr. Chairman:

In the wake of the 1973 oil crisis, the Congress passed the Energy Policy
and Conservation Act in 1975 as a means of reducing the country's dependence
on foreign oil. The act established the Corporate Average Fuel Economy
(CAFE) program, which required automobile manufacturers to increase the
average fuel economy of passenger cars and light trucks--a category that now
includes minivans, pickups, and sport utility vehicles (SUV)--sold in the
United States. The act set standards for passenger cars, which rose from 18
miles per gallon (mpg) in automobile model year 1978 to 27.5 mpg by model
year 1985. As authorized by the act, the Department of Transportation (DOT)
set standards for light trucks for model years 1979 through 2002. The
standards are currently 27.5 mpg for passenger cars and 20.7 mpg for light
trucks. Provisions in DOT's annual appropriations since fiscal year 1996
have prohibited the agency from changing CAFE standards.

Between 1981 and 1999, the average price of gasoline, adjusted for
inflation, declined more than 60 percent. During the same period, the U.S.
transportation sector's consumption of oil rose from less than 10 million to
nearly 13 million barrels per day. However, recent gasoline price increases,
in some areas to more than $2.00 a gallon, have redirected attention to the
costs and benefits of improving passenger vehicle fuel economy. These price
increases have come at a time when light trucks have become much more
popular. As the proportion of light trucks has increased and other shifts
have occurred in the automotive fleet, the average fuel economy of new
passenger vehicles has fallen to 23.8 mpg--a weighted average of 28.1 mpg
for cars and 20.3 mpg for light trucks1--for model year 1999, the lowest
level since 1980 and 8 percent below the peak of 25.9 mpg for model year
1988.

These overall fuel economy trends have prompted some energy conservationists
and environmentalists to call for increasing CAFE standards. Those
supporting an increase in the standards often cite energy security and
environmental benefits that would result from improved fuel economy.2
However, others opposed to raising the standards often cite decreased
automobile safety, which they contend could result from producing smaller,
more fuel-efficient vehicles. As a result of these issues, you asked us to
review studies and interview experts to identify (1) the impact of
increasing CAFE standards on oil consumption, the environment, and
automobile safety in the United States and (2) other issues that affect the
CAFE discussion.

To respond to your request, we reviewed studies and interviewed experts from
federal agencies, automobile manufacturers, and energy conservation and
environmental interest groups. Appendix I provides the details of our scope
and methodology. This report does not address whether CAFE standards should
be increased or whether some other policy measures should be implemented to
achieve national energy and environmental goals. Ultimately, this is a
policy choice that the Congress must make after weighing the energy and
environmental benefits and economic and other costs, including the potential
safety consequences, of various policy alternatives.

According to the studies we reviewed and the experts we interviewed, raising
fuel economy standards would reduce future fuel consumption and greenhouse
gas emissions; however, the impact of raising standards on vehicle safety is
less certain. Three recent studies project that improving the fuel economy
of new vehicles would reduce the annual fuel consumption and greenhouse gas
emissions of cars and light trucks by between 6 and 37 percent over a 15- to
18-year period. The wide variation among these forecasts results from
different assumptions about items such as the costs and effectiveness of new
fuel-saving technologies and the rate at which new technologies penetrate
the marketplace. The effect of increasing CAFE standards on vehicle safety
is harder to quantify because it depends on many variables, such as the
amount of lead time given to manufacturers, the size of the CAFE increase,
and the strategies manufacturers use to achieve fuel economy gains. In
addition, there is little current research linking CAFE increases and
vehicle safety. The major concern about safety is that manufacturers might
produce smaller, lighter vehicles to meet more stringent CAFE standards and
thus sacrifice some level of protection for occupants. Ultimately, how auto
manufacturers improve fuel economy will depend on the relative costs and
benefits of the options and time available to them. We found consensus among
safety experts and auto manufacturers that as long as there is sufficient
lead time to meet higher CAFE levels, auto manufacturers could use
fuel-saving technologies (such as continuously variable transmissions or
lean-burn engines) instead of simply building smaller, lighter cars, thereby
minimizing any negative impact on safety.

We also identified a number of other issues associated with raising CAFE
standards. First, automobile manufacturers have had little incentive to
improve fuel economy because, over the past decade, gas prices have been low
and consumers have consistently purchased larger, more powerful vehicles
that emphasize performance over fuel economy. Second, the Environmental
Protection Agency's (EPA) new, more stringent tailpipe emission standards
may inhibit the use of certain technologies, such as diesel engines, that
have great potential for improving fuel economy but may not meet these
standards. Third, EPA and DOT are concerned that vehicle classification
regulations may be outdated, reducing the incentive for manufacturers to
increase the fuel economy of their light trucks. Fourth, it is possible that
technology-driven fuel economy increases could occur without increasing CAFE
standards. For example, the Partnership for a New Generation of Vehicles
(PNGV) program has a goal of producing a prototype family sedan that
achieves 80 mpg, and it is developing technologies to achieve this goal.
Although it is unlikely that such vehicles can be cost-effectively produced
and sold in the near future, it is possible that some of the technologies
being developed through PNGV could lead to improvements in fuel economy
without increases in CAFE standards. Finally, some analysts contend that
increasing CAFE standards is not as cost-effective as other policy measures,
such as increasing gasoline taxes, for reducing fuel consumption and
greenhouse gas emissions, because CAFE standards do not affect older
vehicles and may not result in reduced driving.

Between model years 1975 and 1988, the average weight of new cars and light
trucks fell by nearly 800 pounds--cars by over 1,000 pounds and light trucks
by approximately 230 pounds. At the same time, their combined average fuel
economy rose substantially, from 15 mpg to 26 mpg (see fig. 1). However,
since 1988, fuel economy gains have leveled off, and overall new passenger
vehicle fuel economy (combining cars and light trucks) has been declining as
the market share of light trucks has increased. Sales of light trucks now
constitute nearly 50 percent of total new vehicle sales, which is more than
double their proportion in 1975--19 percent.

Source: GAO's presentation of data from EPA.

In recent years, federal efforts to improve fuel economy have shifted away
from regulation and have instead moved toward funding research and
development on advanced vehicles. Each year, beginning in fiscal year 1996,
the Congress has included a rider to DOT's annual appropriations act that
prohibits the National Highway Traffic Safety Administration (NHTSA) from
expending any funds to change CAFE standards. This rider stems, in part,
from concerns that increasing CAFE standards could restrict the types of
vehicles that manufacturers would produce and negatively affect automobile
safety. However, during this period, various federal agencies and the U.S.
automobile industry have been engaged in a cooperative research program
known as the Partnership for a New Generation of Vehicles, which has a goal
to develop vehicles that can achieve up to three times the fuel efficiency
of comparable 1994 family sedans, or approximately 80 mpg by 2004.

Greenhouse Gas Emissions, but Its Impact on Safety Is Less Certain

On the basis of the studies we reviewed and the experts we interviewed, we
conclude that improving the fuel economy of passenger vehicles could help
the U.S. transportation sector reduce its reliance on petroleum products and
its emissions of greenhouse gases, such as carbon dioxide, which have been
linked to global warming. The studies estimated that increasing CAFE
standards could improve the average fuel economy of new passenger vehicles
and could thus reduce future fuel consumption and greenhouse gas emissions.3
The amount of these forecasted reductions varies widely among studies and
depends on key assumptions used to generate the forecasts. The effect of
increasing CAFE standards on vehicle safety is harder to quantify because
safety is affected by numerous variables, including whether manufacturers
downsize vehicles or use fuel-saving technologies to improve fuel economy.
In addition, there is little research linking CAFE increases and vehicle
safety. Ultimately, the strategies that manufacturers choose depend on their
relative costs and benefits. However, we found consensus among safety
experts and auto manufacturers that as long as there is sufficient lead time
to meet higher CAFE levels, auto manufacturers could use fuel-saving
technologies instead of building smaller cars and thus minimize any negative
impact on safety.

Substantial Amounts of Greenhouse Gases

The United States is the largest consumer of petroleum in the world, and the
transportation sector accounts for the greatest portion of total U.S.
consumption. According to the Department of Energy (DOE), the United States
accounted for 26 percent of total worldwide petroleum consumption in
1997--19 million of the 73 million barrels per day consumed. In addition, as
figure 2 shows, the transportation sector accounted for the largest portion
of total U.S. consumption.

Source: GAO's presentation of data from DOE.

Of the transportation sector's share, cars and light trucks accounted for 60
percent, or about 40 percent of total U.S. petroleum use. Furthermore, the
U.S. transportation sector relies on petroleum products for 97 percent of
its energy needs.

Similarly, the United States is the largest emitter of greenhouse gases in
the world and, according to EPA, the United States accounted for 25 percent
of worldwide greenhouse gas emissions in 1997.4 As figure 3 shows, the
transportation sector accounted for a substantial portion of total U.S.
greenhouse gas emissions, and cars and light trucks generated the largest
share of the transportation sector's greenhouse gas emissions.

Source: GAO's presentation of data from EPA.

Emissions from cars and light trucks in the United States accounted for 291
million metric tons of carbon (a measure of greenhouse gas emissions) in
1997. This amount exceeds the total greenhouse gas emissions of all but a
few countries. In addition, according to EPA, the transportation sector is
the fastest-growing U.S. sector in terms of greenhouse gas emissions.

Consumption and Greenhouse Gas Emissions, but Projections Vary Widely

When policymakers debate whether to strengthen CAFE standards, one critical
question is the extent to which increasing the standards would reduce fuel
consumption and greenhouse gas emissions. Interest in reducing greenhouse
gas emissions has grown because these gases have been linked to global
warming. Of the studies we reviewed, three recent ones provided quantitative
estimates of the extent to which increases in fuel economy would affect fuel
consumption and greenhouse gas emissions (see app. II for further details on
the studies). These studies all forecast future reductions in fuel
consumption and greenhouse gas emissions; however, their results vary widely
because they use different assumptions.

Two studies forecast substantial reductions in gasoline consumption and
greenhouse gas emissions resulting from the introduction of new fuel-saving
technologies (e.g., variable valve timing and continuously variable
transmissions).5 These studies were completed by DOE and the American
Council for an Energy-Efficient Economy (ACEEE)6 in 1997. They estimate
future gasoline consumption and greenhouse gas emissions under scenarios
ranging from no change in fuel economy to substantially higher levels of
fuel economy--up to 51 mpg for new cars and 38 mpg for new light trucks in
2015. Under the studies' scenarios, the United States could reduce gasoline
consumption and greenhouse gas emissions from cars and light trucks by
between 18 and 37 percent annually by 2015. A key assumption underlying both
of these studies is that fuel-saving technologies are cost-effective--the
value of fuel savings to the consumer exceeds the increase in the retail
price of the automobile through the use of the new technologies.

In contrast to DOE's and ACEEE's studies, a 1995 study done by Charles River
Associates, Inc.,7 for the American Iron and Steel Institute projects
smaller reductions in fuel consumption and greenhouse gas emissions. The
study estimates future gasoline consumption and greenhouse gas emissions
under scenarios ranging from a modest improvement in fuel economy occurring
with no regulatory intervention to substantially higher levels of fuel
economy imposed by CAFE --36 mpg for new cars and 27 mpg for new light
trucks in 2005. Under the study's scenarios, the United States could reduce
gasoline consumption and greenhouse gas emissions from cars and light trucks
by between 6 and 11 percent annually by 2010. These savings are
substantially lower than either DOE's or ACEEE's primarily because this
study assumes that much lower levels of fuel economy improvements are
feasible and that implementing fuel-saving technologies is not nearly as
cost-effective. As a result, the study concludes that the price of cars and
light trucks would increase so substantially that many consumers would
decide to hold onto their older, less fuel-efficient vehicles longer, thus
limiting the market penetration of more fuel-efficient vehicles and overall
improvements in the automotive fleet's fuel economy.

Depends on Many Factors

Determining the impact of increasing CAFE standards on automobile safety is
complicated by many factors, among them the size and weight of a vehicle,
the behavior of individual drivers, and the presence or absence of
car-specific safety features, such as airbags or side impact protection. In
addition, most of the research we reviewed focused primarily on how vehicle
weight reduction, rather than fuel economy increases, affects safety.
Experts we spoke with said that the safety impact of increasing CAFE
standards depends on the amount of lead time given to manufacturers, the
size of the CAFE increase, and the strategies manufacturers use to achieve
fuel economy gains. These experts also said that increasing CAFE standards
would have a negative effect on automobile safety to the extent that the
increase, in combination with other benefits and costs, encouraged
manufacturers to build smaller, lighter, less crashworthy vehicles.

During our review, we found that although some studies address the
relationship between automobile weight and safety, there is limited recent
research that directly assesses the safety effects of raising CAFE
standards. NHTSA recently conducted some research on how changes in vehicle
weight and size affect vehicle safety. A 1997 NHTSA study estimated that
reducing the weight of passenger cars by 100 pounds (while keeping the
weight of all other vehicles constant) would result in approximately 300
additional fatalities each year (see app. II for further details on the
study). The same study estimated that, conversely, reducing the weight of
light trucks by 100 pounds (and keeping the weight of passenger cars
constant) might have no effect or even result in a modest reduction in
fatalities. The reduction could occur because reducing the weight of heavier
vehicles on the road would cause those vehicles to do less damage to lighter
vehicles in collisions. However, the Transportation Research Board (TRB)
reviewed the study and expressed doubt about the precision of these numbers,
suggesting they could be "substantially less, or possibly greater." Both
NHTSA and TRB agree that drivers' behavior complicates this analysis.
Furthermore, it is unlikely that estimates from past studies are applicable
to today's vehicle fleet, since even the most recent studies include data
for automobiles no later than model-year 1993. The automotive fleet has
changed since that time with the introduction of additional safety
technologies and the dramatic increase in the proportion of light trucks on
the road.

While auto manufacturers have downsized vehicles to increase fuel economy in
the past, whether they would pursue this strategy in the future would depend
on the economic costs and benefits of doing so. Instead, they may choose to
use fuel-saving technologies as a means of increasing fuel economy. During
our review, safety experts and auto manufacturer representatives said that
giving auto manufacturers a longer lead time to meet new standards would
give them time to implement fuel-saving technologies and help minimize the
chance of a size and weight reduction.8 Lead time is important because auto
manufacturers set their product plans a number of years in advance, and
making technological changes on short notice is difficult and costly.
Automotive experts we spoke with said that providing auto manufacturers with
6 to 10 years' lead time should be sufficient to minimize negative safety
effects.

Although experts generally agree that providing sufficient lead time can
help manufacturers use fuel-saving technologies rather than downsize
vehicles, there is no consensus on the potential of fuel-saving technologies
to increase fuel economy over that period. Therefore, determining the level
of CAFE standards achievable without affecting safety is difficult. A number
of older studies indicate existing technologies are readily available that
could increase fuel economy without reducing vehicle size and weight. Some
of these technologies, such as variable valve timing, involve direct
improvements to vehicle engines, while others, such as continuously variable
transmissions, involve improvements to other vehicle features. As table 1
shows, these studies have estimated that the average fuel economy of
passenger cars could be increased by 5.4 mpg to 8 mpg in approximately 10
years, primarily by introducing these technologies.

                  1991 Office of     1992 National   1994 Energy and
 Category         Technology         Research        Environmental Analysis
                  Assessment (OTA)   Council (NRC)   (EEA)
 Lead time
 assumed          10 years           9 years         11 years
 Predicted mpg
 feasible         35.5 mpg           33.0 mpg        36.0 mpg
 Increase from
 actual mpg at    7.5 mpg            5.4 mpg         8.0 mpg
 date of study

Note: These estimates rely on a small amount of vehicle weight reduction.

Source: GAO's analysis of data from OTA, NRC, and EEA.

Many auto manufacturers contend that these studies overstate the potential
benefits of existing technologies and underestimate their costs. NHTSA
officials said that because the annual appropriations rider prohibits them
from studying the issue, they do not have current information on the
technological feasibility or cost-effectiveness of potential fuel-saving
technologies. The officials also said they would have to study the
effectiveness of these technologies and their potential impact on safety
before they could set any new CAFE standards.

During our review, we identified a number of other issues that should be
considered when deciding whether to increase CAFE standards.

ï¿½ Over the past 15 years, auto manufacturers have had little incentive to
improve the fuel economy of new vehicles because, in a period of
substantially declining real gasoline prices, U.S. consumers have preferred
larger, more powerful vehicles. While automakers have introduced more
efficient technologies that could have been used to improve fuel economy,
they have instead applied these technologies to increase new vehicles'
average weight and horsepower (attributes that consumers prefer). As figure
4 shows, the average weight and horsepower of new vehicles have increased in
the past decade. Automakers contend that increasing CAFE standards runs
counter to consumers' preferences and would require them to produce vehicles
with attributes that consumers may not desire. While gasoline prices have
recently risen substantially, it is too early to tell what effect these
increases will have on consumers' preferences for large, more powerful
vehicles.

Source: GAO's presentation of data from EPA.

ï¿½ EPA recently issued new, more stringent air quality standards for
controlling pollution from motor vehicle exhaust. For example, the standards
will require a 77- to 95-percent reduction in emissions of nitrogen oxides
by 2009. Some experts whom we contacted expressed concern that these
standards may inhibit the use of certain technologies with great potential
for improving fuel economy. This is because some of these technologies,
which include lean-burn and diesel engines, while increasing fuel economy by
as much as 30 percent over conventional gasoline engines, can result in
increased emissions of some pollutants, such as nitrogen oxides, to levels
higher than would be allowed under EPA's new standards. However, EPA
believes the combination of regulatory flexibility within the standards and
proposed lower sulfur diesel fuel requirements will permit auto
manufacturers to develop future diesel engines that are clean, efficient,
and in compliance with the new tailpipe emission standards.9

ï¿½ Because there are separate CAFE standards for cars and light trucks,
automakers must classify their vehicles as cars or trucks. To make these
classification decisions, automakers follow rules established by DOT in
1978. The rules allow vehicles to be classified as light trucks if they have
attributes such as back seats that can be easily removed to create a flat
cargo area, off-highway capabilities, or other trucklike features. Minivans,
SUVs, and pickup trucks are all classified as light trucks. However, auto
manufacturers are now producing "crossover vehicles," which handle like cars
but have expanded cargo capacity, and are classifying these vehicles as
light trucks. EPA and DOT officials have expressed concern that the
classification rules are outdated and allow manufacturers to meet the CAFE
standard for light trucks without improving the fuel economy of their new
SUVs, minivans, and pickup trucks. In addition, some environmental groups
are concerned that certain vehicles--those with a gross vehicle weight
rating (the maximum allowable weight of the fully loaded vehicle with
passengers and cargo) of more than 8,500 pounds--are not subject to CAFE
standards.

ï¿½ It is possible that technology-driven fuel economy increases could occur
without increasing CAFE standards. For example, as we reported in March
2000,10 the federal government and the automotive industry are jointly
funding an advanced vehicle program known as PNGV. A goal of the PNGV
program is to create an 80-mpg prototype family sedan by 2004, without
sacrificing emission or safety standards, performance, utility, or
affordability. Some believe that if 80-mpg vehicles are mass-produced and
popular, the United States can achieve fuel economy goals without increasing
CAFE standards. However, PNGV researchers must obtain significant cost
savings before 80-mpg vehicles can be mass-produced and successfully
marketed. To help offset the higher costs and launch the first generation of
PNGV vehicles, the administration has proposed federal income tax credits
for consumers who purchase advanced vehicles. Some automobile experts
believe that, even without higher CAFE standards, technologies developed
through PNGV will be incorporated gradually into existing product lines,
thus improving fuel economy. Those who support CAFE argue that higher CAFE
standards are needed to pull PNGV technologies into the marketplace and help
ensure that these technologies are used to increase fuel economy rather than
vehicle size and horsepower.

ï¿½ Some research indicates that increasing CAFE standards is not as
cost-effective as other policy measures for reducing fuel consumption and
greenhouse gas emissions. Some studies we reviewed indicated that increasing
gasoline taxes or further supporting the development of alternative fuels
might achieve similar energy conservation and environmental goals, but at a
lower cost.11 For example, studies contend that the impact of CAFE standards
is limited because they affect only new vehicles, do not reduce vehicle
miles traveled, and may even encourage increased travel by reducing the
marginal cost of driving. These studies also contend that because increasing
gasoline taxes could affect all vehicles on the road and could possibly
reduce the number of vehicle miles traveled, it would be a more effective
means of achieving energy conservation and environmental goals. Currently,
there appears to be little national support for increasing gasoline taxes to
meet energy conservation or environmental goals.

ï¿½ The 2001 DOT appropriations bill passed by the House continued the
prohibition against DOT's expending any funds to prepare new fuel economy
standards. However, the Senate passed a motion instructing its conferees to
DOT's appropriations conference to seek a final version of the bill that
would authorize DOT, pursuant to a National Academy of Sciences study on the
benefits and economic impact of CAFE standards, to recommend new standards
if appropriate, but not to promulgate them without congressional approval.

Increasing the fuel economy of passenger motor vehicles was a key component
of U.S energy policy during the 1970s and 1980s, and the average fuel
economy of new vehicles rose from 15 mpg to more than 25 mpg during the same
period. The CAFE standards program was seen as one of the key elements in
realizing this goal. Clearly, increasing CAFE standards could reduce the
forecasted growth in oil consumption and reduce greenhouse gas emissions;
however, there is little consensus about the level of these benefits and the
costs to achieve them. Despite potential safety concerns associated with a
rapid increase in CAFE standards, there is general agreement that any
negative safety effects of higher CAFE standards could be mitigated with
appropriate automotive design, adequate time, and technical changes. With
concerns growing about global warming and higher fuel prices, the Congress
is once again confronted with key policy questions: Should government take
additional steps to improve the fuel economy of passenger vehicles, and is
the CAFE program the best mechanism to achieve this goal? Answering these
questions involves difficult trade-offs and is further complicated by the
lack of definitive research that addresses the interaction among all of
these issues in the context of a 21st century automotive fleet.

We provided DOT, EPA, and DOE with a draft of this report for review and
comment. We met with officials from DOT and EPA, including the Chief,
Consumers Program Division, and Assistant Chief Counsel, NHTSA; and the
Leader, Climate Change Policy Team, National Vehicle and Fuel Emissions
Laboratory, EPA, to discuss their comments on the report. Overall, DOT
officials stated that the report accurately presented the results of NHTSA's
prior studies on vehicle weight and safety, and EPA officials stated that
the report was accurate and presented a balanced view of a complex and
controversial issue. DOT officials stated that the Department had tried in
1994 to pursue a long lead time approach to increasing CAFE standards, but
that the auto industry had opposed the increases regardless of lead time. We
indicated that our report did not attempt to address whether the auto
industry would accept such long-term increases in CAFE standards. Instead,
it was limited to a discussion of how providing sufficient lead time could
help mitigate any potential adverse effects on safety of future increases in
CAFE standards. We added language to the report to clarify this point.

EPA officials also provided some specific comments. First, they stated that,
in their opinion, the new tailpipe emission standards would not inhibit
automobile manufacturers' ability to use diesel engines in the future. They
stressed that the combination of regulatory flexibility designed into the
standards program and proposed lower sulfur diesel fuel requirements would
allow for future clean diesel engines. In response to this comment, we added
information to the report to clarify EPA's position. Second, they suggested
that we highlight an unintended consequence of the alternative fuels credit
program--that auto manufacturers use credits to offset other
low-fuel-economy vehicles and still maintain CAFE compliance. The result of
this practice, they stated, has been to lower fleetwide fuel economy and
increase fuel consumption and greenhouse gas emissions. We added information
in the report to reflect EPA's concerns. Finally, EPA suggested that we
include information about tax credits proposed by the administration to
encourage the development of advanced vehicles. We included this information
in the report.

Finally, officials from DOT, EPA, and DOE provided additional technical and
editorial comments that we incorporated throughout the report, where
appropriate.

As arranged with your office, unless you publicly release its contents
earlier, we plan no further distribution of this report until 10 days after
the date of this letter. At that time, we will send copies to the Senate and
House Committees with jurisdiction and oversight of energy, commerce, and
transportation issues; the Honorable Rodney Slater, Secretary of
Transportation; the Honorable Bill Richardson, Secretary of Energy; and the
Honorable Carol M. Browner, Administrator, Environmental Protection Agency.
We will also make copies available to others on request.

If you have any questions about this report, please call me at (202)
512-2834. Key contributors to this assignment were David Lichtenfeld, Gail
Marnik, Raymond Sendejas, and Robert White.

Sincerely yours,

John H. Anderson, Jr.
Director, Transportation Issues

Scope and Methodology

To determine the impact of changes in Corporate Average Fuel Economy (CAFE)
standards on oil consumption, the environment, and automobile safety, we
relied on two main sources of information. First, to gain a general
understanding about how improving fuel economy relates to these three areas,
we obtained and reviewed 68 studies. (See app. III for a list of these
studies.) We compiled the list of studies using recommendations from
transportation, environment, and energy experts, as well as the results of a
library literature search. Of these 68 studies, we identified 3 recent ones
that quantified the potential impact of improving fuel economy on oil
consumption and the environment, and we relied extensively on these studies.
These studies used computer models to project future fuel economy gains and
the subsequent impact on oil consumption and greenhouse gas emissions. We
did not attempt to verify the accuracy of the models' assumptions or
results.

During our review, we found that little recent research directly assesses
the safety effects of raising CAFE standards. However, we identified studies
that evaluated the impact of automobile weight reduction on highway safety
and focused on one study in particular that used a regression analysis to
quantify the safety effects of vehicle weight reduction. (See app. II for a
description of each study.) We did not attempt to verify the accuracy of
this analysis.

Second, we supplemented our literature review with interviews of
transportation experts who specialize in energy, environmental, and
automobile safety issues. These experts included officials from the
Department of Energy (DOE), the Department of Transportation (DOT), the
Energy Information Administration (EIA), the Environmental Protection Agency
(EPA), and Oak Ridge National Laboratory. These officials provided current
information about the possible effects of raising fuel economy standards. We
also spoke with automobile industry representatives at the Alliance of
Automobile Manufacturers, a trade group that represents the three major U.S.
automobile manufacturers and a number of foreign manufacturers, as well as
with regulatory managers from the American Honda Motor Company about
automakers' potential responses to CAFE increases. Furthermore, we
interviewed representatives from organizations concerned with the
environment and energy use, including the Sierra Club and the American
Council for an Energy-Efficient Economy (ACEEE), to discuss the relationship
among fuel economy, oil consumption, and greenhouse gas emissions. Finally,
we interviewed safety experts, including representatives from the Insurance
Institute for Highway Safety and the Center for Auto Safety, to discuss the
relationship between fuel economy and automobile safety.

To identify other issues that might affect the CAFE discussion, we also
solicited input from these experts. They raised a number of issues that they
indicated were relevant to the CAFE discussion, and we included those issues
that were within the scope of our review.

We conducted our review from December 1999 through August 2000 in accordance
with generally accepted government auditing standards.

Summaries of Studies by DOE, ACEEE, AISI, and NHTSA

This appendix summarizes studies by DOE; ACEEE; Charles River Associates,
Incorporated, for the American Iron and Steel Institute (AISI); and the
National Highway Traffic Safety Administration (NHTSA).

DOE's report Scenarios of U.S. Carbon Reductions (informally referred to as
the Five-Lab study) presents the results of a study conducted by five DOE
national laboratories that quantifies the potential for energy-efficient and
low-carbon technologies to reduce carbon emissions in the Unites States.12
The study documents in detail how four key sectors of the
economy--buildings, transportation, industry, and electric utilities--could
respond to directed programs and policies to expand the adoption of
energy-efficient and low-carbon technologies. Of particular interest to us
was the analysis of the transportation sector's response--for passenger
vehicles, in particular--to energy-efficient and low-carbon technologies.

In its analysis of the transportation sector, DOE forecasts gasoline savings
resulting from increases in fuel economy attributable to research and
development. The study assumes that significant increases in
government-sponsored research and development, coupled with government
policies such as higher CAFE standards, lead to the implementation of
advanced fuel economy technologies in new automobiles. The study also
assumes that the technologies are cost-effective--that the value of fuel
savings to the consumer exceeds the increase in the retail price of the
automobile. Furthermore, the study takes into account the fact that fuel
economy improvements can lead to increased driving, which offsets some of
the overall fuel savings. Known as the "rebound effect," this phenomenon
occurs because fuel economy improvements reduce the fuel cost per mile of
travel and thus lead to increases in the miles driven. The study contrasts a
"business-as-usual" scenario, which assumes a flat fuel economy, with more
optimistic scenarios that assume greater use of available advanced
fuel-saving technologies and the introduction of breakthrough technologies.
The study does point out, however, that the results of its most optimistic
scenario are less likely and require a certain degree of luck because it
relies on breakthrough technologies. As we reported in September 1998, many
questions surround the reasonableness of some key assumptions and the
accuracy of the study's results.13

Under what we have termed the "low technology" scenario, which assumes
greater use of readily available advanced fuel-saving technologies, the
study projects that the United States could reduce gasoline consumption by
1.8 million barrels per day (mmbd) and greenhouse gas emissions by 66
million metric tons of carbon (mmtc) in 2015. Under the even more optimistic
"high technology" scenario, in which technologies significantly improve fuel
economy, the study indicates that the United States could reduce gasoline
consumption by 2.6 mmbd and save 97 mmtc annually by 2015. These reductions
represent a 27-percent reduction over the estimates of car and light truck
gasoline consumption and greenhouse gas emissions in 2015 under the
business-as-usual scenario. In this scenario, fuel economy rises to 50 mpg
for new cars and to 38 mpg for new light trucks in 2015. See figures 5 and
6.

Source: GAO's presentation of data from DOE.

Source: GAO's presentation of data from DOE.

We reviewed a 1997 study completed by ACEEE that forecasted gasoline and
greenhouse gas emissions savings due to CAFE-driven increases in fuel
economy.14 The study contrasts a baseline scenario, which assumes a flat
fuel economy, with scenarios involving incremental improvements in fuel
economy from a base of 25 mpg. These improvements begin in 1998 and continue
linearly at various rates of up to 6 percent per year. Our review focused on
two of the study's scenarios--the 2-percent scenario, which assumes modest
fuel economy improvements of 0.5 mpg annually (2 percent of 25 mpg), and the
6-percent scenario, which assumes more optimistic fuel economy improvements
of 1.5 mpg annually (6 percent of 25 mpg). Like the DOE study, this study
assumes that fuel-saving technologies are available and cost-effective and
takes into account the reduction in fuel savings due to the rebound effect.

As indicated in figures 7 and 8, the study projects that, compared with a
base case scenario of no fuel economy changes, fuel economy improvements of
2 percent annually could reduce fuel consumption by nearly 2 mmbd and
greenhouse gas emissions by 72 mmtc annually in 2015.15 Fuel economy
improvements of 6 percent annually could save nearly 4 mmbd and 145 mmtc
annually in 2015. Reductions in gasoline consumption and greenhouse gas
emissions from cars and light trucks under the 6-percent scenario represent
a 37-percent reduction, as compared with the baseline, in 2015. Increasing
fuel economy 6 percent each year results in new cars reaching 51 mpg and new
light trucks achieving 38 mpg in 2015.

Source: GAO's presentation of data from ACEEE.

Source: GAO's presentation of data from ACEEE.

In 1995, Charles River Associates, Inc., completed a report evaluating the
impact of raising CAFE standards for AISI.16 The study assessed how the
automotive industry could respond to changes in CAFE standards and made
assumptions about how these reactions would affect the affordability of new
cars and light trucks and what impact they would have on fuel consumption
and emissions. The study presents a baseline scenario, in which fuel economy
increases slightly while CAFE standards remain constant through 2005, and
two scenarios in which CAFE standards increase by 20 and 30 percent,
respectively, by 2005. The study assumes much lower levels of feasible fuel
economy improvements as compared with either DOE's or ACEEE's study and
finds that although fuel-saving technologies are readily available, their
implementation may not be cost-effective. The study also takes into account
the reduction in fuel savings due to the rebound effect.

Under the 20-percent scenario, as indicated in figures 9 and 10, the study
projects fuel savings of roughly 0.5 mmbd and greenhouse gas emissions
savings of about 17 mmtc per year by 2010 as compared with the baseline
scenario. Under the 30-percent scenario, the study projects fuel savings of
roughly 0.8 mmbd and greenhouse gas emissions savings of roughly 31 mmtc per
year by 2010. These savings represent an 11-percent reduction, as compared
with the baseline, for cars and light trucks by 2010. Increasing fuel
economy 30 percent results in fuel economies of 36 mpg for new cars and of
27 mpg for new light trucks in 2005.

Source: GAO's presentation of data from AISI.

Source: GAO's presentation of data from AISI.

Finally, we reviewed a 1997 NHTSA study that estimated the change in highway
fatalities if vehicle weights were reduced by 100 pounds.17 The study uses
crash data compiled from 11 states and the national Fatality Analysis
Reporting System database to perform a regression analysis estimating the
relationship between vehicle weight and fatality risk. The study uses
vehicle and crash data from model years 1985 to 1993. The study attempts to
control for confounding factors such as drivers' age and gender.

The study estimated that reducing the weight of passenger cars by 100
pounds, in the absence of any improvements in safety technology, could lead
to approximately 300 additional fatalities per year. In performing this
analysis, NHTSA assumes that light truck weights are kept constant and
automakers maintain historical relationships between vehicle weight and
parameters such as track width, center of gravity, and structural strength.
Conversely, NHTSA modeled the effect of a 100-pound reduction in light truck
weight while holding passenger car weight constant. The study found that
although this scenario would result in approximately 80 fewer fatalities in
car/light truck collisions, its overall effect across collisions of all
types of vehicles was not statistically significant.

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(348203)

Table 1: Selected Studies' Estimates of Technologically
Feasible Fuel Economy Levels for Passenger Cars 14

Figure 1: MPG by Model Year 7

Figure 2: U.S. Petroleum Consumption by Sector, 1997 9

Figure 3: U.S. Greenhouse Gas Emissions by Sector, 1997 10

Figure 4: Average Horsepower and Weight in New Vehicles,
1975-99 15

Figure 5: Projected Reduction in Gasoline Consumption Under
DOE's Technology Scenarios Relative to the Baseline
Scenario 26

Figure 6: Projected Reduction in Greenhouse Gas Emissions
Under DOE's Technology Scenarios Relative to the Baseline Scenario 27

Figure 7: Projected Reduction in Gasoline Consumption Under
ACEEE's Scenarios Relative to the Baseline Scenario 29

Figure 8: Projected Reduction in Greenhouse Gas Emissions Under ACEEE's
Scenarios Relative to the Baseline Scenario 30

Figure 9: Projected Reduction in Gasoline Consumption Under
AISI's Study 32

Figure 10: Projected Reduction in Greenhouse Gas Emissions Under
AISI's Study 33
  

1. These fuel economy averages reflect the results of the Environmental
Protection Agency's tests. The averages undergo a number of adjustments that
can increase a manufacturer's effective fuel economy, which DOT uses to
assess CAFE compliance. The averages are adjusted to account for changes in
testing procedures since the beginning of the CAFE program. Other
adjustments can include credits earned by manufacturers through the
production of alternative- or dual-fuel vehicles, or by exceeding the
standards in prior years. In addition, the averages are significantly higher
than the values used on new car labels, which are adjusted downward to
estimate on-road fuel economy.

2. The environmental benefits cited relate mostly to reduced greenhouse gas
emissions. Improving fuel economy reduces greenhouse gas emissions because
they are directly related to the amount of fuel consumed--each gallon of
gasoline consumed directly produces about 20 pounds of carbon dioxide. In
contrast, fuel economy is not directly related to air pollutants from motor
vehicle exhaust, such as nitrogen oxides, to the extent that pollution
control equipment limits these emissions to specific amounts regardless of
the amount of fuel consumed.

3. Because CAFE standards apply only to new vehicles, their ability to
reduce fuel consumption and greenhouse gas emissions is dependent, in part,
on the rate new vehicles penetrate the overall automobile fleet.

4. According to many scientists, when added to the atmosphere, greenhouse
gases, which include carbon dioxide and methane, increase the effectiveness
of the earth's atmospheric blanket, warming the earth's surface and
potentially leading to changes in climate. This phenomenon is commonly known
as the "greenhouse effect."

5. Variable valve timing increases engine efficiency by reducing the amount
of air pressure lost while a vehicle engine is burning fuel. Continuously
variable transmissions increase vehicle efficiency by allowing a vehicle to
operate continuously at the most efficient gear and speed.

6. ACEEE is a nonprofit organization dedicated to advancing energy
efficiency as a means of promoting economic prosperity and environmental
protection. Based in Washington, D.C., ACEEE works closely with DOE, EPA,
and other federal agencies.

7. Charles River Associates, Inc., is an economics, finance, and business
consulting firm that has completed thousands of projects for law firms,
corporations, and government agencies worldwide.

8. While automobile manufacturers agreed that a long lead time would help
avert any negative safety effects from increased CAFE standards, they did
not indicate that they would favor increased CAFE standards if they were
imposed with a long lead time.

9. According to EPA, the new standards give auto manufacturers ample
time--up to 9 years--to develop better diesel emission control technologies.
The standards also allow for fleetwide averaging, which means that
manufacturers can produce some vehicles that emit higher levels of nitrogen
oxides and some vehicles that emit lower levels so long as they meet an
overall average.

10. Cooperative Research: Results of U.S.--Industry Partnership to Develop a
New Generation of Vehicles (GAO/RCED-00-81 , Mar. 2000).

11. The Alternative Motor Fuels Act of 1988 amended the CAFE program by
allowing auto manufacturers to increase their fleetwide fuel economy
averages by earning credits for producing vehicles that are capable of
operating on alternative fuels such as ethanol or natural gas. This credit
provision was seen as a way to encourage the development and use of
alternative transportation fuels and vehicles. Because these credits enable
manufacturers to produce other vehicles with lower fuel economy and still
meet CAFE standards, EPA believes that the alternative fuel credits have
resulted in a net reduction in fleetwide fuel economy and net increases in
fuel consumption and greenhouse gas emissions.

12. Scenarios of U.S. Carbon Reductions: Potential Impacts of Energy
Technologies by 2010 and Beyond, Interlaboratory Working Group (Lawrence
Berkeley and Oak Ridge National Laboratories, LBNL-40533 and ORNL-444, Sept.
1997).

13. Climate Change: Information on Limitations and Assumptions of DOE's
Five-Lab Study (GAO/RCED-98-239 , Sept. 8, 1998).

14. John DeCicco and Lee Lynd, "Combining Vehicle Efficiency and Renewable
Biofuels to Reduce Light-Vehicle Oil Use and CO2 Emissions," Transportation,
Energy, and Environment: How Far Can Technology Take Us? (ACEEE, 1997), pp.
75-108.

15. The ACEEE study included greenhouse gases emitted directly by vehicles
as well as those emitted during the production and distribution of motor
fuels--"upstream emissions." Accounting for upstream emissions adds about 25
percent to total car and light-truck emissions under baseline and fuel
economy improvement scenarios. To make the ACEEE study's results comparable
with those of the other two studies, which account only for direct
emissions, we adjusted the results to include only direct emissions.

16. The Impact of Raising Corporate Average Fuel Economy (CAFE) Standards,
final report, prepared for AISI by Charles River Associates, Inc. (July
1995).

17. Charles J. Kahane, Relationships Between Vehicle Size and Fatality Risk
in Model Year 1985-93: Passenger Cars and Light Trucks (Washington, D.C.:
National Highway Traffic Safety Administration, Jan. 1997).
*** End of document. ***