Automobile and Light Truck Fuel Economy: The CAFE Standards

Order Code IB90122

CRS Issue Brief for Congress

Received through the CRS Web

Automobile and Light Truck Fuel Economy:

The CAFE Standards

Updated January 20, 2006

Robert Bamberger

Resources, Science, and Industry Division

Congressional Research Service ˜ The Library of Congress

CONTENTS

SUMMARY

MOST RECENT DEVELOPMENTS

BACKGROUND AND ANALYSIS

CAFE: Revisitation After Hurricane Katrina

Origins of CAFE

Past Role of CAFE Standards

NHTSA Rulemaking for MY2005-MY2007: Light Truck Fuel Economy

Advance Notice of Proposed Rulemaking: December 2003

CAFE in the 109th Congress: Omnibus Energy Legislation (P.L. 109-58)

Improving Fuel Economy: Other Policy Approaches

The Hydrogen Fuel Initiative, FreedomCAR and the Partnership for a New

Generation of Vehicles (PNGV) (1993-2003)

Price of Gasoline

CAFE and Reduction of Carbon Dioxide Emissions

LEGISLATION

FOR ADDITIONAL READING

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Automobile and Light Truck Fuel Economy: The CAFE Standards

SUMMARY

The Energy Policy and Conservation Act

of 1975 (P.L. 94-163, EPCA) established new

car fuel economy standards for passenger

automobiles and light-duty trucks. The current

corporate average fuel economy standard

(CAFE) is 27.5 miles per gallon (mpg) for

passenger automobiles. Light truck standards,

set for many years at 20.7 mpg, are required to

reach 22.2 for model year (MY) 2007. It was

the first increase in CAFE since MY1996. The

light-duty truck category includes sport utility

vehicles (SUV). The standards are determined

by the National Highway Traffic Safety Administration (NHTSA) within the Department

of Transportation.

fuel economy in return for the federal government’s absorbing a portion of the industry’s

retiree health costs during 2006-2010. The

industry would agree, in turn, to invest 50% of

the subsidy in support of increased hybrid

production. The program, which would raise

passenger car CAFE to 40.4 mpg and light

trucks to 32.6 mpg by the end of 2020, would

cost an estimated $670 million.

A bill introduced in the House (H.R.

3762) would establish a CAFE requirement on

passenger automobiles of 33 mpg by

MY2015. It would also establish a fuel economy credit trading program. Co-sponsors of

the bill come from both parties. However,

action on CAFE legislation before the close of

the first session appears unlikely.

On August 23, 2005, NHTSA released a

notice of proposed rulemaking for light duty

trucks beginning with MY2008. The agency

proposes a restructuring of the CAFE program

for SUVs that would establish higher standards based upon vehicle size. The agency

proposes two different tracks that manufacturers can follow for model years 2008-2010 —

meeting an “Unreformed” or “Reformed”

CAFE standard. In MY2011, all manufacturers will be required to meet the reformed

standard. The unreformed light-duty truck

standards for Model years2008-2010 would be

a fleetwide average of 22.5, 23.1, and 23.5

mpg for model years 2008, 2009, and 2010,

respectively. Manufacturers opting for the

reformed standard would be required to meet

a range of standards depending upon vehicle

size — ranging from 20.4 to 26.8 mpg for

MY2008, 20.8 to 27.8 for MY2009, and 21.3

to 28.4 in MY2010. The reformed CAFE

standards would apply to all manufacturers in

MY2011.

The Energy Policy Act of 2005 (P.L.

109-58), enacted on August 8, 2005, (1)

authorizes $3.5 million annually during

FY2006-FY2010 for the NHTSA to carry out

fuel economy rulemakings; (2) requires a

study to explore the feasibility and effects of

a significant reduction in fuel consumption by

2014; and (3) requires that the adjustment

factor applied to estimate consumer in-use

fuel economy be revised. On January 10,

2006, NHTSA issued a proposed rulemaking

to measure the effect of factors such as higher

speed limits, faster acceleration, differences in

the ratio between city and highway driving,

and use of air conditioning on in-use fuel

economy. The in-use fuel economy stickers

posted to the windows of new cars would

reflect the results of these tests beginning in

FY2008. This would affect only the estimation

of in-use fuel economy. It would not affect

the CAFE calculation for purposes of determining manufacturers’ compliance with the

CAFE standard.

Among new approaches to boost CAFE,

Senator Obama, in a speech on September 15,

2005, proposed that automakers agree to boost

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MOST RECENT DEVELOPMENTS

The Energy Policy Act of 2005 (EPACT, P.L. 109-58), enacted on August 8, 2005, (1)

authorizes $3.5 million annually during FY2006-FY2010 for the National Highway Traffic

Safety Administration (NHTSA) to carry out fuel economy rulemakings; (2) requires a study

to explore the feasibility and effects of a significant reduction in fuel consumption by 2014;

and (3) requires that the adjustment factor used to estimate in-use fuel economy be revised

to better reflect current vehicle attributes and driver habits. On January 10, 2006, NHTSA

issued a proposed rulemaking to measure the effect of factors such as higher speed limits,

faster acceleration, differences in the ratio between city and highway driving, and use of air

conditioning on in-use fuel economy. The in-use fuel economy stickers posted to the

windows of new cars would reflect the results of these tests beginning in FY2008. This

would affect only the estimation of in-use fuel economy. It would not affect the CAFÉ

calculation for purposes of determining manufacturers’ compliance with the CAFÉ standard.

On August 23, 2005, NHTSA released a notice of proposed rulemaking for light duty

trucks beginning with MY2008. The agency proposes a restructuring of the CAFE program

for sport utility vehicles that would establish higher standards based upon vehicle size. The

agency proposes two different tracks that manufacturers can follow for model years 20082010 — meeting an “Unreformed” or “Reformed” CAFE standard. In MY2011, all

manufacturers would be required to meet the reformed standard.

Gasoline prices hovered around $2.30/gallon in mid-January 2006, significantly lower

than the $3/gallon prices observed after Hurricane Rita, but still roughly $.50/gallon higher

than at the beginning of 2005. Some policymakers believe there is more to be done on this

issue, the passage of EPACT notwithstanding. Senator Obama, in a speech on September

15, 2005, proposed that automakers agree to boost fuel economy in return for the federal

government’s absorbing a portion of the industry’s retiree health costs during 2006-2010.

The industry would agree, in turn, to invest 50% of the subsidy in support of increased hybrid

vehicle production. The program, which would raise passenger car CAFE to 40.4 mpg and

light trucks to 32.6 mpg by the end of 2020, would cost an estimated $760 million. In the

House, Representative Sherwood Boehlert has introduced legislation (H.R. 3762) that would

establish a CAFE requirement on passenger automobiles of 33 mpg by MY2015. It would

also establish a fuel economy credit trading program. Cosponsors of the bill come from both

parties. Prospects for additional legislation bearing on CAFE during the Second Session of

the 109th Congress are unclear.

BACKGROUND AND ANALYSIS

CAFE: Revisitation After Hurricane Katrina

The Energy Policy Act of 2005 (P.L. 109-58), enacted on August 8, 2005, (1) authorizes

$3.5 million annually during FY2006-FY2010 for NHTSA to carry out fuel economy

rulemakings, (2) requires a study to explore the feasibility and effects of a significant

reduction in fuel consumption by 2014, and (3) requires that the adjustment factor applied

to estimate consumer in-use fuel economy be revised. On January 10, 2006, NHTSA issued

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a proposed rulemaking to measure the effect of factors such as higher speed limits, faster

acceleration, differences in the ratio between city and highway driving, and use of air

conditioning on in-use fuel economy. The in-use fuel economy stickers posted to the

windows of new cars would reflect the results of these tests beginning in FY2008. This

would affect only the estimation of in-use fuel economy. It would not affect the CAFE

calculation for purposes of determining manufacturers’ compliance with the CAFE standard.

However, some policymakers believe that the provisions of EPACT fell far short of

aggressively affecting vehicle fuel economy and consumption in the United States, and that

any continuing debate on energy policy should not overlook CAFE. A bipartisan bill

introduced in the House (H.R. 3762) would establish a CAFE requirement on passenger

automobiles of 33 mpg by MY2015. It would also establish a fuel economy credit trading

program. Another proposal that received attention was advanced by Senator Obama in a

speech on September 15, 2005. This proposal would secure agreement from automakers that

they would boost fuel economy in return for the federal government’s absorbing a portion

of the industry’s retiree health costs during 2006-2010. The industry would also agree, in

turn, to invest 50% of the subsidy in support of increased hybrid vehicle production. The

program, which would raise passenger car CAFE to 40.4 mpg and light trucks to 32.6 mpg

by the end of 2020, would cost an estimated $760 million.

Another recent development was the release on August 23, 2005, of a notice of

proposed rulemaking (NPRM) by the National Highway Traffic Safety Administration

(NHTSA) affecting light duty truck fuel economy beginning with MY2008. The agency

proposes a restructuring of the CAFE program for SUVs that would establish higher

standards based upon vehicle size. The agency proposes two different tracks that

manufacturers could follow for Model years2008-2010 — meeting an “Unreformed” or

“Reformed” CAFE standard. In MY2011, all manufacturers would be required to meet the

reformed standard. The unreformed light-duty truck standards for Model years2008-2010

would be a fleetwide average of 22.5, 23.1, and 23.5 mpg for Model years 2008, 2009, and

2010, respectively. Manufacturers opting for the reformed standard would be required to

meet a range of standards depending upon vehicle size — ranging from 20.4 to 26.8 mpg

for MY2008, 20.8 to 27.8 for MY2009, and 21.3 to 28.4 in MY2010.

Origins of CAFE

The Arab oil embargo of 1973-1974 and the tripling in the price of crude oil brought

into sharp focus the fuel inefficiency of U.S. automobiles. New car fleet fuel economy had

declined from 14.8 miles per gallon (mpg) in model year (MY)1967 to 12.9 mpg in 1974.

In the search for ways to reduce dependence on imported oil, automobiles were an obvious

target. The Energy Policy and Conservation Act (P.L. 94-163) established corporate average

fuel economy (CAFE) standards for passenger cars for MY1978-MY1980 and 1985 and

thereafter. The CAFE standards called for a doubling in new car fleet fuel economy,

establishing a standard of 18 mpg in MY1978 and rising to 27.5 by MY1985. (Interim

standards for model years 1981-1984 were announced by the Secretary of Transportation in

June of 1977.) EPCA also established fuel economy standards for light duty trucks,

beginning at 17.2 mpg in MY1979 and currently 20.7 mpg. However, on April 1, 2003,

NHTSA issued a final rule that will boost light truck fuel economy to 22.2 mpg in MY2007

— an increase of 1.5 mpg. (The CAFE standards to FY2003 are summarized in Table 1.)

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Under EPCA, the Secretary of Transportation has the discretion to adjust the passenger

car standard within a range of 26.0 to 27.5 mpg. Any increase above 27.5 mpg or below 26.0

mpg requires the Secretary to issue an amendment subject to the approval of both Houses of

Congress to take effect. The Secretary has much broader discretion with respect to setting

light-truck (referred to in the regulations as “non-passenger automobiles”) fuel economy

standards, including the authority to establish different standards for different classifications

of these vehicles.

Compliance with the standards is measured by calculating a sales-weighted mean of the

fuel economies of a given manufacturer’s product line, with domestically produced and

imported vehicles measured separately. The penalty for non-compliance is $5.50 for every

0.1 mpg below the standard, multiplied by the number of cars in the manufacturer’s new car

fleet for that year. Civil penalties collected from 1983 to 2002 totaled slightly more than

$600 million. However, these penalties have been paid by small and speciality

manufacturers, not by the major U.S. automotive manufacturers.

When oil prices rose sharply in the early 1980s, smaller cars were selling well, and it

was expected that manufacturers would have no difficulty complying with the standards.

However, oil prices had declined by 1985. Sales of smaller cars tapered off as consumers

began to place less value on fuel economy and gasoline cost as an input in the overall costs

of vehicle ownership. In response to petitions from manufacturers facing stiff civil penalties

for noncompliance, the National Highway Traffic Safety Administration (NHTSA) relaxed

the standard for model years 1986-1989, but it was restored to 27.5 in MY1990. The Persian

Gulf War in 1990 caused a brief spike in oil prices, but it also demonstrated that it was

unlikely that the United States or many of the producing nations would tolerate a prolonged

disruption in international petroleum commerce. As a consequence, U.S. dependence upon

imported petroleum, from a policy perspective, was considered less of a vulnerability.

It was also becoming apparent that reducing U.S. dependence on imported oil would be

extremely difficult without imposing a large price increase on gasoline, or restricting

consumer choice in passenger vehicles. Many argued that the impacts of such actions upon

the economy or the automotive industry would be unacceptable. Meanwhile, gasoline

consumption, which fell to 6.5 million barrels per day (mbd) in 1982, averaged nearly 8.4

mbd in 1999, and has averaged roughly 9.1 million barrels in 2005 into mid-October.

Past Role of CAFE Standards. The effectiveness of the CAFE standards

themselves has been controversial. Since 1974, domestic new car fuel economy has roughly

doubled; the fuel economy of imports has increased by roughly one-third. Some argue that

these improvements would have happened as a consequence of rising oil prices during the

1970s and 1980s. Some studies suggest that the majority of the gains in passenger car fuel

economy during the 1970s and 1980s were technical achievements, rather than the

consequence of consumers’ favoring smaller cars. Between 1976 and 1989, roughly 70% of

the improvement in fuel economy was the result of weight reduction, improvements in

transmissions and aerodynamics, wider use of front-wheel drive, and use of fuel-injection.

The fact that overall passenger car fleet fuel economy remained comparatively flat during a

period of declining real prices for gasoline also suggested that the CAFE regulations have

contributed to placing some sort of floor under new-car fuel economy.

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General criticisms of raising the CAFE standards have been that, owing to the

significant lead times manufacturers need to change model lines and because of the time

needed for the vehicle fleet to turn over, increasing CAFE is a slow and inefficient means of

achieving reductions in fuel consumption. Further, it is argued that the standards risk

interfering with consumer choice and jeopardize the economic well-being of the automotive

industry. Opponents of raising CAFE usually cite fears that higher efficiency will likely be

obtained by downsizing vehicle size and weight, raising concerns about safety.

Proponents of CAFE increases have argued that boosting the standards might bring

about the introduction of technological improvements that do not compromise features that

consumers value, but which would otherwise not be added because these improvements do

add to the cost of a new vehicle.

Table 1. Fuel Economy Standards for Passenger Cars and Light

Trucks: Model Years 1978 Through 2007

(miles per gallon)

Model year

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Passenger

cars

d

18.0

19.0

d

20.0

22.0

24.0

26.0

27.0

d

27.5

h

26.0

i

26.0

26.0

j

26.5

d

27.5

d

27.5

d

27.5

d

27.5

d

27.5

d

27.5

d

27.5

d

27.5

d

27.5

d

27.5

d

27.5

d

27.5

d

27.5

d

27.5

d

27.5

d

27.5

d

27.5

d

27.5

d

Two-wheel

drive

—

17.2

16.0

f

16.7

18.0

19.5

20.3

g

19.7

20.5

21.5

21.0

21.5

20.5

20.7

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

Light trucksa

Four-wheel

Combinedb,c

drive

—

—

15.8

—

14.0

(e)

15.0

(e)

16.0

17.5

17.5

19.0

18.5

20.0

g

g

18.9

19.5

19.5

20.0

19.5

20.5

19.5

20.5

19.0

20.0

19.0

20.2

19.1

20.2

—

20.2

—

20.4

—

20.5

—

20.6

—

20.7

—

20.7

—

20.7

—

20.7

—

20.7

—

20.7

—

20.7

—

20.7

—

20.7

—

21.0

—

21.6

—

22.2

Source: Automotive Fuel Economy Program, Annual Update, Calendar Year 2001, appearing in full at

[http://www.nhtsa.dot.gov/cars/problems/studies/fuelecon/index.html#TOC]; and U.S. Department of Transportation.

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National Highway Traffic Safety Administration. Light Truck Average Fuel Economy Standard, Model Year 2004. Final

Rule. [http://www.nhtsa.dot.gov/cars/rules/rulings/Cafe/LightTruck/NPRM-final.htm].

a. Standards for MY1979 light trucks were established for vehicles with a gross vehicle weight rating (GVWR) of 6,000

pounds or less. Standards for MY1980 and beyond are for light trucks with a GVWR of 8,500 pounds or less.

b. For MY1979, light truck manufacturers could comply separately with standards for four-wheel drive, general utility

vehicles and all other light trucks, or combine their trucks into a single fleet and comply with the standard of 17.2

mpg.

c. For Model years 1982-1991, manufacturers could comply with the two-wheel and four-wheel drive standards or could

combine all light trucks and comply with the combined standard.

d. Established by Congress in Title V of the act.

e. A manufacturer whose light truck fleet was powered exclusively by basic engines which were not also used in passenger

cars could meet standards of 14 mpg and 14.5 mpg in Model years 1980 and 1981, respectively.

f. Revised in June 1979 from 18.0 mpg.

g. Revised in October 1984 from 21.6 mpg for two-wheel drive, 19.0 mpg for four-wheel drive, and 21.0 mpg for

combined.

h. Revised in October 1985 from 27.5 mpg.

i. Revised in October 1986 from 27.5 mpg.

j. Revised in September 1988 from 27.5 mpg.

There were highly controversial attempts to significantly raise the CAFE standards on

passenger cars in the early 1990s. One proposal included in omnibus energy legislation was

so controversial that it contributed to the Senate’s inability in 1991 to bring the bill up for

debate on the floor.

Current fleet fuel economy averages are shown in the following table.

Table 2. Domestic and Import Passenger Car and Light Truck Fuel

Economy Averages for Model Years 1978-2003

(in MPG)

Domestic

Model

Year

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

Import

Car

Light

Truck

Combined

18.7

19.3

22.6

24.2

25.0

24.4

25.5

26.3

26.9

27.0

27.4

27.2

26.9

27.3

27.0

27.8

27.5

27.7

28.1

27.8

28.6

—

17.7

16.8

18.3

19.2

19.6

19.3

19.6

20.0

20.5

20.6

20.4

20.3

20.9

20.5

20.7

20.5

20.3

20.5

20.2

20.5

—

19.1

21.4

22.9

23.5

23.0

23.6

24.0

24.4

24.6

24.5

24.2

23.9

24.4

23.8

24.2

23.5

23.8

24.1

23.3

23.3

Car

Lighta

truck

Combined

27.3

26.1

29.6

31.5

31.1

32.4

32.0

31.5

31.6

31.2

31.5

30.8

29.9

30.1

29.2

29.6

29.6

30.3

29.6

30.1

29.2

—

20.8

24.3

27.4

27.0

27.1

26.7

26.5

25.9

25.2

24.6

23.5

23.0

23.0

22.7

22.8

22.0

21.5

22.2

22.1

22.9

—

25.5

28.6

30.7

30.4

31.5

30.6

30.3

29.8

29.6

30.0

29.2

28.5

28.4

27.9

28.1

27.8

27.9

27.7

27.5

27.6

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All

cars

All light

trucks

Total

fleet

19.9

20.3

24.3

25.9

26.6

26.4

26.9

27.6

28.2

28.5

28.8

28.4

28.0

28.4

27.9

28.4

28.3

28.6

28.5

28.7

28.8

—

18.2

18.5

20.1

20.5

20.7

20.6

20.7

21.5

21.7

21.3

20.9

20.8

21.3

20.8

21.0

20.7

20.5

20.8

20.6

21.1

—

20.1

23.1

24.6

25.1

24.8

25.0

25.4

25.9

26.2

26.0

25.6

25.4

25.6

25.1

25.2

24.7

24.9

24.9

24.6

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Domestic

Model

Year

Car

1999

2000

2001

2002

2003

28.0

28.7

28.7

29.0

29.1

Import

Light

Truck

Combined

—

—

—

—

—

—

—

—

Car

29.0

28.3

29.0

28.7

28.8

Lighta

truck

Combined

—

—

—

—

—

—

—

—

All

cars

All light

trucks

Total

fleet

28.3

28.5

28.8

28.9

29.0

20.9

21.2

20.9

21.3

21.4

24.5

24.8

24.6

24.6

25.0

Note: Beginning with MY1999, the agency ceased categorizing the total light truck fleet by either domestic or import fleets.

a. Light trucks from foreign-based manufacturers.

NHTSA typically established truck CAFE standards 18 months prior to the beginning

of each model year, as EPCA allows. However, such a narrow window permitted NHTSA

to do little more than ratify manufacturers’ projections for the model year in question. In

April 1994, the agency proposed to abandon this practice and issued an Advance Notice of

Proposed Rulemaking inviting comment on what level that standards might be established

for trucks for MY1998-MY2006. The following year, however, after a change in

congressional leadership, Congress included language in the FY1996 Department of

Transportation (DOT) Appropriations to prohibit expenditures for any rulemaking that would

make any adjustment to the CAFE standards. Identical language was included in the

appropriations and spending bills for FY1997-FY2000. An effort to pass a sense of the

Senate amendment that conferees on the FY2000 DOT Appropriations should not agree to

the House-passed rider for FY2000 was defeated in the Senate on September 15, 1999 (5540). The rider also appeared in the FY2001 DOT Appropriations (H.R. 4475) approved by

the House Committee on Appropriations May 16, 2000, and approved by the House May 19,

2000. However, the Senate insisted that the language be dropped in conference, opening the

way for NHTSA to initiate rulemakings once again.

The conferees also agreed to authorize a study of CAFE by the National Academy of

Sciences (NAS) in conjunction with DOT. That study, Ending the Energy Stalemate: A

Bipartisan Strategy to Meet America’s Energy Challenges, released on July 30, 2001,

concluded that it was possible to achieve more than a 40% improvement in light truck and

SUV fuel economy over a 10-15 year period at costs that would be recoverable over the

lifetime of ownership. A study released in December 2004 by a National Commission on

Energy Policy established by foundation money recommended that Congress instruct

NHTSA to raise CAFE standards over a five-year period beginning not later than 2010. The

commission recommended that manufacturers be able to trade the fuel economy credits

earned by exceeding the standards. Additionally, should technologies not advance as quickly

as anticipated, the government should also sell credits at some pre-specified price for the

purpose of placing a cap on compliance costs. Lastly, the commission suggested an

aggressive tax incentive program to encourage production and purchase of hybrid and

advanced diesel vehicles.

NHTSA Rulemaking for MY2005-MY2007:

Light Truck Fuel Economy

Today, light trucks are a larger portion of the total vehicle population, and travel more

annual vehicle miles, than in the past. For example, in 1980, light trucks composed 19.9%

of the U.S. new automobile market. By 2003, this figure had increased to 52.8%; SUVs alone

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accounted for 27% of the new vehicle market in 2003, while mini-vans accounted for 6.5%.

However, a comparison of market share underestimates this growth and its consequences.

While the number of passenger cars sold each year in the United States has decreased

somewhat since 1980, the number of light trucks sold has more than tripled, from 2.2 million

in 1980 to 8.6 million in 2003. In 2003, SUV sales alone (4.4 million) doubled total light

truck sales for 1980. As a result, the total fuel usage attributable to these vehicles has

increased.

On December 16, 2002, NHTSA issued a proposed rule calling for an increase in lightduty truck CAFE to 21.0 mpg in MY2005, 21.6 mpg in MY2006, and 22.2 mpg in MY2007.

NHTSA indicated that the proposed increases for MY2006-MY2007 would save more than

3 billion gallons and, if the standard remained at 22.2 mpg through MY2012, approximately

8 billion gallons of gasoline would be saved during the period of MY2006-MY2012. On

April 1, 2003, NHTSA announced its adoption of the proposed rule.

In the December 2002 proposal, NHTSA expressed its belief that “some manufacturers

may be able to achieve CAFE performance better than they currently project.” The agency’s

analysis assumed that compliance would be achieved by improvements in technology, and

not by lightening vehicles and jeopardizing vehicle safety. NHTSA also indicates that it has

“tentatively concluded that it is unnecessary for any manufacturer to restrict the utility of

their products to meet our proposed CAFE standards.”

NHTSA’s calculation of the net benefits of the proposed boost to SUV CAFE is shown

below. The estimate of the net benefits is significantly higher in the second and third years

because the first increment of improvement is only 0.3 mpg, while it is 0.6 mpg in the second

and third years. The “societal benefits” are calculated on an assumption of $0.083 per gallon

over the lifetime of the vehicle. This assumes a benefit of $0.048 for the effect on the world

market price for gasoline owing to lower U.S. demand, and $0.035 for the reduction in threat

from oil supply disruption.

Total Costs

(million)

Total Societal

Benefits (million)

Net Benefits

(million)

MY2005

$108

$219

$111

MY2006

221

513

292

MY2007

373

794

421

Advance Notice of Proposed Rulemaking:

December 2003

On December 22, 2003, NHTSA issued an Advance Notice of Proposed Rulemaking

inviting comments not on the appropriate stringency of CAFE standards but on the structure

of the program. The agency noted four broad criticisms of the program, and areas in which

it invited comment:

!

Vehicle classifications. Some argue that the considerable difference in

passenger car and light truck fuel economy standards presents an incentive

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for manufacturers to produce vehicles that can be classified in the light truck

category. Similarly, the applicability of CAFE standards to vehicles less than

8,500 pounds Gross Vehicle Weight (GVW) encourages manufacturers to

offer vehicles that exceed this weight. Among many issues, the agency

invited comment on whether or not the CAFE program should be extended

to encompass vehicles of less than 10,000 pounds GVW. Legislation to

make vehicles rated at this weight subject to CAFE standards has been

introduced in the 109th Congress (H.R. 705).

!

Safety. The trade-off between vehicle weight and safety continues to be

controversial. Some argue that the increase in light truck fleet fuel economy

to 22.2 mpg by 2007 will be achieved, in part, by reducing the weight of

vehicles and possibly raising the risk to passengers and drivers. However,

it is also noted that weight reduction of the heaviest vehicles in this category

might achieve some savings without penalty to safety. Complicating any

analysis is the fact that reductions in vehicle weight raise the odds of

survival for occupants of other vehicles involved in an accident. There are

a number of other factors governing safety; it is a complex issue.

!

Economic impacts. Increases in mandated fuel economy have economic

consequences. Analysis by the Energy Information Administration suggests

that a “sustained gradual increase” in light truck fuel economy of 0.6 mpg

from 2007 to 2025 would incur a loss of $84 billion in real GDP over the

period. Additionally, the structure of the light truck standards favors

manufacturers who produce a line of models that includes some of the

smaller vehicles in the light truck class. For example, two manufacturers

could produce a vehicle of similar weight. However, the manufacturer of

the less efficient of these two vehicles could still have a lower overall truck

fleet fuel economy average if its product mix includes more smaller trucks

than the other manufacturer.

!

Vehicle attributes. The agency invited comment on whether or not the

definitions and classifications of light trucks need to be amended in light of

the considerable change in the vehicle feet and consumer demand since the

CAFE program went into effect in 1977. Options that have been proposed

include keying vehicle CAFE to vehicle “attributes,” which could include

vehicle weight or vehicle size, and the establishment of multiple

classifications. Some argue that this will still encourage “upsizing,” or

“vehicle creep,” to place a vehicle in a less stringent CAFE category.

Classification of vehicles with “flat floors” as light trucks — that is, the

capability of removing seats to create a flat load floor — has enabled

manufacturers to incorporate flat floor design into vehicles, including minivans, that might have otherwise been classified as passenger automobiles.

Inclusion of cargo beds of any size may also allow classification of a vehicle

as a light truck.

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CAFE in the 109th Congress:

Omnibus Energy Legislation (P.L. 109-58)

The Energy Policy Act of 2005 (P.L. 109-58) (1) authorizes $3.5 million annually

during FY2006-FY2010 for the National Highway Traffic Safety Administration (NHTSA)

to carry out fuel economy rulemakings, (2) requires a study to explore the feasibility and

effects of a significant reduction in fuel consumption by 2014, and (3) requires that the

estimated in-use fuel economy posted to the window of new vehicles more closely

approximate owners’ experience.

The fuel economy of individual vehicles is calculated by running vehicles through a test

on a dynamometer intended to simulate a driving cycle that assumes 11 miles driven in an

urban setting and 10 miles on open highway. To bring this calculation more into line with

in-use fuel economy experienced by drivers, the EPA makes a downward adjustment of 10%

for the city portion of the cycle and 22% for the highway portion. However, many argued in

the past that this adjustment was no longer sufficient, and that the gap between estimated inuse fuel economy and actual in-use fuel economy had widened significantly.

EPACT requires that the adjustment factor applied against tested vehicle fuel economy

to estimate consumer in-use fuel economy be revised. On January 10, 2006, NHTSA issued

a proposed rulemaking to measure the effect of factors such higher speed limits, faster

acceleration, differences in the ratio between city and highway driving, and use of air

conditioning on in-use fuel economy. The in-use fuel economy stickers posted to the

windows of new cars would reflect the results of these tests beginning in FY2008. This

would affect only the estimation of in-use fuel economy. It would not affect the CAFÉ

calculation for purposes of determining manufacturers’ compliance with the CAFÉ standard.

The final bill did not include some of the provisions that were in the Senate- and Housepassed bills. The House bill would have authorized $2 million annually during FY2006FY2010 for NHTSA to carry out fuel economy rulemakings. It would have expanded the

criteria that the agency would take into account in setting maximum feasible fuel economy

for cars and light trucks, including the effects on automotive industry employment. An

amendment to raise the CAFE standard to 33 miles per gallon by MY2015 was rejected (177254).

The Senate bill also included additional provisions to NHTSA would have been

required to weigh when setting maximum feasible fuel economy standards. These would

have included the extent to which meeting higher CAFE standards might divert resources

from developing advanced technologies. The Senate bill would have provided NHTSA with

$5 million annually to conduct CAFE activities for each fiscal year, FY2006-FY2010, and

would have required NHTSA to promulgate new car and light truck standards within a few

years. If NHTSA did not, the bill provided expedited procedures for consideration in

Congress of legislation to raise the standards. An amendment to raise the CAFE standards

to 40 mpg for passenger cars by MY2016, and 27.5 for light-duty trucks, was rejected (2867).

On June 16, during Senate debate on the bill, an amendment offered by Senator

Cantwell that would have further required a 40% reduction in oil imports (7.6 mbd) by 2025

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was rejected (47-53). One concern about the amendment was that meeting the goal would

be highly likely to require a stiff increase in CAFÉ.

Improving Fuel Economy: Other Policy Approaches

Two possible approaches to reduce gasoline consumption involve (1) raising the price

of gasoline through taxation, or other means, to a level that induces some conservation; and

(2) increasing the efficiency of the automobile fleet in use. Of course, a combination of these

two broad approaches can be used as well.

The Hydrogen Fuel Initiative, FreedomCAR and the Partnership for a New

Generation of Vehicles (PNGV) (1993-2003). Over five years, the Administration is

seeking a total funding increase of $720 million. These initiatives would fund research on

hydrogen fuel and fuel cells for transportation and stationary applications. The 108th

Congress for FY2004 appropriated approximately $50 million for the initiatives ($20 million

less than the Administration request) above the FY2003 level, and for FY2005 an additional

$25 million above the FY2004 level. The Energy Policy Act of 2005 (H.R. 6) would

authorize $4 billion during the period FY2006-FY2010. The comprehensive legislation in

the 108th Congress would have set goals for the production of hydrogen-fueled passenger

vehicles. No goals are included in H.R. 6.

Critics of the Administration initiative have suggested that the hydrogen program was

intended to forestall attempts to significantly raise vehicle CAFE standards, and that it

relieves the automotive industry of assuming more initiative in pursuing technological

innovations. In addition, critics argue that hydrogen-fueled vehicles may ultimately be

infeasible, and that attention and funding should be focused on other research areas. On the

other hand, supporters argue that it is appropriate for government to become involved in the

development of technologies that are too costly to draw private sector investment. At issue

for these policymakers will be whether the federal initiative and level of funding is

aggressive enough. (For additional information, see CRS Report RS21442, Hydrogen and

Fuel Cell R&D: FreedomCAR and the President’s Hydrogen Fuel Initiative, by Brent D.

Yacobucci.)

Price of Gasoline. Owing to higher taxation of gasoline in other nations, Americans

have enjoyed some of the lowest prices for gasoline. The price of gasoline has increased

significantly, and in the wake of Hurricane Katrina, briefly approached in real terms the

historic highs of the early 1980s. Past proposals to raise the price of gasoline to leverage

consumers into more efficient vehicles have garnered little support. Owing to the relative

price inelasticity of gasoline demand, many believe that the size of the price increase it would

take to curb gasoline consumption to any degree would have a damaging effect on the

economy of several times greater magnitude. Indeed, analysis of the research (Plotkin,

Greene, 1997, cited in References) suggested that an increase in gasoline taxes would be onethird as effective in achieving a reduction in demand as studies of the 1980s once projected.

This is a significant reflection of the place that personal transportation and inexpensive

gasoline has assumed in our economy and value system.

Some have argued during past episodes of high prices that, when prices softened again,

the federal government should step in and capture the difference as a tax, and possibly devote

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the proceeds to developing public transportation infrastructure and incentives. This tax could

be adjusted periodically to see that gasoline would not become less expensive than a certain

level in real (inflation adjusted) dollars.

Owing to the unpopularity of raising gasoline prices, raising the CAFE standard is more

comfortable for some; however, it is a long-term response. Depending upon the magnitude

of an increase in gasoline prices, no matter what the cause, a price-induced conservation

response could be nearly immediate, and may grow as consumers initially drive less and

eventually seek out more efficient vehicles. However, U.S. gasoline consumption held

relatively steady through the summer of 2005. Data will soon be available to indicate what

has happened to gasoline consumption in the wake of Hurricane Katrina.

CAFE and Reduction of Carbon Dioxide Emissions. Vehicles account for onefifth of U.S. production of CO2 emissions. There is some debate over whether raising the

CAFE standards would be an ineffective or marginal way to reduce emissions of carbon

dioxide. On one hand, improvements in fuel economy should enable the same vehicle to

burn less fuel to travel a given distance. However, to the extent that technologies to improve

fuel economy add cost to new vehicles, it has been argued that consumers will tend to retain

older, less efficient cars longer. It has also been suggested that there is a correlation between

improved fuel economy and an increase in miles driven and vehicle emissions. Vehicle

miles traveled have continued to increase in recent years when fuel economy improved only

slightly.

Perhaps the most significant current issue regarding automotive fuel economy is the

decision by the state of California to require carbon dioxide emissions standards for

passenger cars and light trucks. Enacted in 2002, A.B. 1498 requires the state to promulgate

regulations to achieve the maximum feasible and cost-effective reduction of greenhouse

gases from cars and trucks. The regulations, adopted by the California Air Resources Board

on September 24, 2004, require a reduction of greenhouse gas emissions of 30% by 2016.

The regulation covers passenger vehicles, but would not affect heavier vehicles such as

commercial trucks or buses.

Under the Clean Air Act, California is permitted to establish its own emissions

standards for automobiles, as long as those standards are at least as stringent as the federal

standard. However, there is no current federal standard for greenhouse gas emissions; federal

standards focus on pollutants with direct effects on air quality and health, including groundlevel ozone (smog) and carbon monoxide. Critics challenge that greenhouse gases are not

pollutants, and that the greenhouse gas standard is a de facto fuel economy standard, since

reducing emissions of carbon dioxide — the key greenhouse gas — requires reductions in

fuel consumption. Under CAFE, states do not have the authority to set their own standards;

authority remains solely with the federal government.

Several auto manufacturers and dealers have challenged the California auto greenhouse

gas standard in court. The plaintiffs argue that California lacks the authority to set a fuel

economy standard under CAFE, and that greenhouse gases are not a pollutant under the

Clean Air Act. California officials maintain that they have the authority under the Clean Air

Act to regulate vehicle greenhouse gas emissions.

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The outcome of this case will likely have major effects on the U.S. auto industry. If

the standards are upheld, New York (and other states) will adopt California’s standards, and

other states are likely to follow suit. The state of California estimates that complying with

the standard could cost $1,000 per vehicle by 2016, while opponents argue that costs could

be as much as $3,000 per vehicle. While reducing greenhouse gas emissions and fuel

consumption, the new standards would likely increase purchase costs and potentially

diminish the new car market. Further, it is likely that the standards would have varying

effects on automakers who sell more or less efficient products. (For additional background,

see CRS Report RS20298, Sport Utility Vehicles, Mini-Vans, and Light Trucks: An Overview

of Fuel Economy and Emissions Standards, by Brent D. Yacobucci, and CRS Report

RL32764, Global Warming: The Litigation Heats Up, by Robert Meltz.)

LEGISLATION

P.L. 109-58 (H.R. 6, Barton)

Energy Policy Act of 2005. Introduced April 18, 2005. Among other provisions, would

authorize $2 million annually during FY2006-FY2010 for the National Highway Traffic

Safety Administration (NHTSA) to carry out fuel economy rulemakings. It also would

expand the criteria that the agency takes into account in setting maximum feasible fuel

economy for cars and light trucks, and require that EPA make further adjustments in deriving

in-use fuel economy predictions that are posted on the windows of new cars. Passed by the

House on April 21, 2005 (249-183). Passed by the Senate on June 28, 2005 (85-12).

Reported from conference, July 26, 2005. Conference report agreed to in House July 28,

2005 (275-156). Conference report agreed to in Senate on July 29, 2005 (74-26). Signed by

the President on August 8, 2005.

H.R. 705 (Gilchrist)

Automobile Fuel Economy Act of 2005. To amend Title 49, United States Code, to

require phased increases in the fuel efficiency standards applicable to light trucks; to require

fuel economy standards for automobiles of up to 10,000 pounds gross vehicle weight; to

increase the fuel economy of the federal fleet of vehicles, and for other purposes. Introduced

February 9, 2005, and referred to House Subcommittee on Energy and Air Quality.

H.R. 3762 (Boehlert)

A bill to require higher standards of automobile fuel efficiency in order to reduce the

amount of oil used to fuel automobiles by 10% by the end of 2015. Introduced September

14, 2005, and referred to the Committee on Energy and Natural Resources.

FOR ADDITIONAL READING

National Research Council. Committee on the Effectiveness and Impact of Corporate

Average Fuel Economy Standards. Effectiveness and Impact of Corporate Average

Fuel Economy (CAFE) Standards. Washington, D.C., National Academy Press, 2001.

166 pp.

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Greene, D.L., P.D. Patterson, M. Sing and J. Li. (2004). “Feebates, Rebates and Gas-Guzzler

Taxes: A Study of Incentives for Increased Fuel Economy,” Energy Policy, vol. 33, no.

6, pp. 721-827, June 2004.

Plotkin, Steve. Greene, David. “Prospects for Improving the Fuel Economy of Light Duty

Vehicles.” Energy Policy, vol. 25, no. 14-15. December 1997. Pp. 1179-1188.

U.S. Congressional Budget Office. Reducing Gasoline Consumption: Three Policy Options.

November 2002. 36 p.

U.S. Congressional Budget Office. The Economic Costs of Fuel Economy Standards Versus

A Gasoline Tax. December 2003. 37 p.

U.S. Department of Transportation. National Highway Traffic Safety Administration.

Reforming the Fuel Economy Standards Program. [http://www.nhtsa.dot.gov/cars/rules/

CAFE/Rulemaking/CAFEReformdata.pdf].

U.S. Department of Transportation. National Highway Traffic Safety Administration. Light

Truck Average Fuel Economy Standards, Model Years 2005-2007. 68 FR 16867; April

7, 2003.

U.S. Department of Transportation. National Highway Traffic Safety Administration.

Automotive Fuel Economy Program. Annual Update, Calendar Year 2002, appearing

in full at [http://www.nhtsa.dot.gov/cars/rules/CAFE/updates.htm].

U.S. Federal Register. Department of Transportation. National Highway Traffic Safety

Administration. Light Truck Fuel Economy Standards, Model Years 1998-2006.

Advance Notice of Proposed Rulemaking (ANPRM). Vol. 59, No. 66. Wednesday,

April 6, 1994, p. 16324-16332.

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