Fresh Thinking on Fuel Economy
July 19, 2006
05:51 PM
Gasoline prices north of $3 and war where much of the world’s oil comes from are two potent alarms that are sounding about our national thirst for oil. The U.S. consumes nearly 21 million barrels of oil a day, about 60 percent of which is imported. Most of this oil use is in transportation, including about 8 million barrels per day in passenger vehicles. The U.S. passenger fleet alone accounts for about 1/10th of worldwide consumption. This situation will likely not improve, as nearly 90 percent of future growth in demand for oil will be in the transportation sector.
With those realities, it’s easy to conclude that oil use within our transportation sector is a significant challenge we must face. It’s also easy to see why Sen. Jeff Bingaman (D-NM) is co-sponsoring the bipartisan Fuel Economy Reform Act of 2006, introduced today. “It’s hard to imagine a genuine discussion of our country’s energy future without a significant effort to improve vehicle fuel efficiency. This moderate proposal to begin raising the standards for fuel economy deserves a serious look from the Senate. There are many good ideas out there and a healthy debate to be had about the best ways to do this. I hope the introduction of this bipartisan bill can spur the Senate to have this long-overdue discussion.” Here are details:
The Fuel Economy Reform Act
A New Approach to Increasing CAFE Standards
On Wednesday, Senators Barack Obama (D-IL), Richard Lugar (R-IN), Joseph Biden (D-DE), Gordon Smith (R-OR), Jeff Bingaman (D-NM), Tom Harkin (D-IA), Norm Coleman (R-MN) and Dick Durbin (D-IL) introduced the Fuel Economy Reform Act to break the legislative and administrative logjam that has prevented fuel economy standards from being raised for more than 20 years.
A New Approach
The Fuel Economy Reform Act of 2006 seeks to break the logjam on establishing greater vehicle fuel economy by establishing a target, rather than a mandate, of a 4 percent annualized increase in Corporate Average Fuel Economy (CAFE) standards -- a rate that the National Academy of Sciences has determined is possible -- unless the experts at the National Highway Traffic Safety Administration (NHTSA) justify a deviation in that rate by proving that the increase is technologically unachievable, cannot maintain overall fleet safety, or is not cost-effective when comparing with the economic and geopolitical value of a gallon of gasoline saved.
Higher Fuel Economy Standards
If the 4 percent per year target is met for 10 years after the continuous provision improvements go into effect, this bill will save 1.3 million barrels of oil per day and 20 billion gallons of gasoline per year. If gasoline is just $2.50 per gallon, consumers will save $50 billion at the pump in 2018 alone. By 2028, Americans will have saved a total of 549 billion gallons of gasoline and cut global warming pollution by 6,094 million metric tons of carbon dioxide equivalent gases.
Flexibility for Manufacturers
The Fuel Economy Reform Act also provides fairness and flexibility to domestic automakers by establishing different standards for different types of cars. Currently manufacturers have to meet broad standards over their whole fleet of cars. This disadvantages companies like Ford and GM that produce full lines of small and large vehicles rather than manufacturers that only sell small cars. The bill creates further flexibility by giving NHTSA the authority to allow companies to earn credit for improving fuel efficiency beyond the CAFE standard in one type of car, and using those credits to meet goals for other vehicle models. Companies would be able to trade or sell excess credits, improving overall fuel standards in the most efficient way. Because technological advances may affect manufacturers over time, the bill instructs the Energy Department, Environmental Protection Agency, and National Academy of Sciences, to study ways to reform the regulatory structure of this approach in 2016.
Incentives for Fuel Efficiency
In order to enable domestic manufacturers to develop advanced-technology vehicles, this legislation provides generous tax incentives for companies to retool parts and assembly plants. This will strengthen the U.S. auto industry by allowing them to compete with foreign hybrid, E-85 and other fuel-efficient vehicles. The bill would lift the current 60,000-per-manufacturer cap on buyer tax credits to allow more Americans to buy ultra-efficient vehicles.
The Problem: America is Addicted to Foreign Oil
America’s 20-million-barrel-a-day habit costs our economy $800 million a day, or $300 billion annually. We use 8 million barrels of oil each day on passenger vehicles. Because we import 60 percent of our oil, much of it from the Middle-East, our dependence on oil is also a national security issue. While oil currently hovers near $75 a barrel and $3.00 a gallon at the pump, over the next 20 years total US petroleum demand will increase 23 percent.
CAFE -- Initial Success Followed by 20 Years of Little Progress
In response to the OPEC oil embargo in the 1970s, Congress enacted CAFE standards, the first-ever requirements for gas mileage. Under Congress’ direction, the NHTSA raised the average gas mileage of cars and trucks from just over 14 miles per gallon (mpg) in 1976 to 27.5 mpg for cars and 20.7 mpg for trucks by 1985. By enacting these standards, the country saves approximately 3 million barrels of oil per day, making it the most successful energy-saving measure ever adopted. Unfortunately, since 1985 the NHTSA has been largely unable to increase standards. The CAFE standard for cars has remained frozen at 27.5 mpg for 20 years. The standard for trucks only increased by 2 mpg to 22.2 mpg for 2007. Over those 20 years, the auto industry has developed numerous innovations, which allowed fuel efficiency standards to rise to 45 miles per gallon in Japan.
Congressional Deadlock
Since 1985, Congress has considered numerous bills to increase fuel efficiency, without significant gains in CAFE standards. Recently, there has been a logjam between those who want Congress to mandate specific increases in CAFE standards, and those who want to cede the policy choice to NHTSA, even though the agency has been unable to inability to overcome institutional and political obstacles to increasing CAFE standards.
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