SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Corporate Average Fuel Economy 
Reform Act of 2006''.

SEC. 2. CAFE STANDARDS FOR PASSENGER AUTOMOBILES.

    (a) Average Fuel Economy Standards for Automobiles.--Section 32902 
of title 49, United States Code, is amended--
            (1) by striking subsections (b) and (c) and inserting the 
        following:
    ``(b) Passenger Automobiles.--
            ``(1) In general.--At least 18 months before the beginning 
        of each model year, the Secretary of Transportation shall 
        prescribe by regulation average fuel economy standards for 
        passenger automobiles manufactured by a manufacturer in that 
        model year. Each standard shall be the maximum feasible average 
        fuel economy level that the Secretary decides the manufacturers 
        can achieve in that model year. The Secretary may prescribe 
        separate standards for different classes of passenger 
        automobiles.
            ``(2) Minimum standard.--In prescribing a standard under 
        paragraph (1), the Secretary shall ensure that no 
        manufacturer's standard for a particular model year is less 
        than the greater of--
                    ``(A) the standard in effect on the date of 
                enactment of the Corporate Average Fuel Economy Reform 
                Act of 2006; or
                    ``(B) a standard established in accordance with the 
                requirement of section 5(c)(2) of that Act.
    ``(c) Flexibility of Authority.--
            ``(1) In general.--The authority of the Secretary to 
        prescribe by regulation average fuel economy standards for 
        automobiles under this section includes the authority to 
        prescribe standards based on one or more vehicle attributes 
        that relate to fuel economy, and to express the standards in 
        the form of a mathematical function. The Secretary may issue a 
        regulation prescribing standards for one or more model years.
            ``(2) Required lead-time.--When the Secretary prescribes an 
        amendment to a standard under this section that makes an 
        average fuel economy standard more stringent, the Secretary 
        shall prescribe the amendment at least 18 months before the 
        beginning of the model year to which the amendment applies.
            ``(3) No across-the-board increases.--When the Secretary 
        prescribes a standard, or prescribes an amendment under this 
        section that changes a standard, the standard may not be 
        expressed as a uniform percentage increase from the fuel-
        economy performance of automobile classes or categories already 
        achieved in a model year by a manufacturer.'';
            (2) by inserting ``motor vehicle safety, emissions,'' in 
        subsection (f) after ``economy,'';
            (3) by striking ``energy.'' in subsection (f) and inserting 
        ``energy and reduce its dependence on oil for 
        transportation.'';
            (4) by striking subsection (j) and inserting the following:
    ``(j) Comments From DOE and EPA.--
            ``(1) Notice of proposed rulemaking.--Before issuing a 
        notice proposing to prescribe or amend an average fuel economy 
        standard under subsection (a), (b), or (g), the Secretary of 
        Transportation shall give the Secretary of Energy and the 
        Administrator of the Environmental Protection Agency at least 
        10 days to comment on the proposed standard or amendment. If 
        the Secretary of Energy or the Administrator concludes that the 
        proposed standard or amendment would adversely affect the 
        conservation goals of the Department of Energy or the 
        environmental protection goals of the Environmental Protection 
        Agency, respectively, the Secretary or the Administrator may 
        provide written comments to the Secretary of Transportation 
        about the impact of the proposed standard or amendment on those 
        goals. To the extent that the Secretary of Transportation does 
        not revise a proposed standard or amendment to take into 
        account the comments, if any, the Secretary shall include the 
        comments in the notice.
            ``(2) Notice of final rule.--Before taking final action on 
        a standard or an exemption from a standard under this section, 
        the Secretary of Transportation shall notify the Secretary of 
        Energy and the Administrator of the Environmental Protection 
        Agency and provide them a reasonable time to comment on the 
        standard or exemption.''; and
            (5) by adding at the end thereof the following:
    ``(k) Costs-Benefits.--The Secretary of Transportation may not 
prescribe an average fuel economy standard under this section that 
imposes marginal costs that exceed marginal benefits, as determined at 
the time any change in the standard is promulgated.''.
    (b) Exemption Criteria.--The first sentence of section 
32904(b)(6)(B) of title 49, United States Code, is amended--
            (1) by striking ``exemption would result in reduced'' and 
        inserting ``manufacturer requesting the exemption will 
        transfer'';
            (2) by striking ``in the United States'' and inserting 
        ``from the United States''; and
            (3) by inserting ``because of the grant of the exemption'' 
        after ``manufacturing''.
    (c) Conforming Amendments.--
            (1) Section 32902 of title 49, United States Code, is 
        amended--
                    (A) by striking ``or (c)'' in subsection (d)(1);
                    (B) by striking ``(c),'' in subsection (e)(2);
                    (C) by striking ``subsection (a) or (d)'' each 
                place it appears in subsection (g)(1) and inserting 
                ``subsection (a), (b), or (d)'';
                    (D) by striking ``(1) The'' in subsection (g)(1) 
                and inserting ``The'';
                    (E) by striking subsection (g)(2); and
                    (F) by striking ``(c),'' in subsection (h) and 
                inserting ``(b),''.
            (2) Section 32903 of such title is amended by striking 
        ``section 32902(b)-(d)'' each place it appears and inserting 
        ``subsection (b) or (d) of section 32902''.
            (3) Section 32904(a)(1)(B) of such title is amended by 
        striking ``section 32902(b)-(d)'' and inserting ``subsection 
        (b) or (d) of section 32902''.
            (4) The first sentence of section 32909(b) of such title is 
        amended to read ``The petition must be filed not later than 59 
        days after the regulation is prescribed.''.
            (5) Section 32917(b)(1)(B) of such title is amended by 
        striking ``or (c)''.

SEC. 3. USE OF EARNED CREDITS.

    Section 32903 of title 49, United States Code, is amended--
            (1) by striking ``3 consecutive model years'' in subsection 
        (a)(1) and subsection (a)(2) and inserting ``5 consecutive 
        model years'';
            (2) by striking ``3 model years'' in subsection (b)(2) and 
        inserting ``5 model years'';
            (3) by redesignating subsection (f) as subsection (g); and
            (4) by inserting after subsection (e) the following:
    ``(f) Credit Transfers.--The Secretary of Transportation may permit 
by regulation, on such terms and conditions as the Secretary may 
specify, a manufacturer of automobiles that earns credits to transfer 
such credits attributable to one of the following production segments 
in a model year to apply those credits in that model year to the other 
production segment:
            ``(1) Passenger-automobile production.
            ``(2) Non-passenger-automobile production.
In promulgating such a regulation, the Secretary shall take into 
consideration the potential effect of such transfers on creating 
incentives for manufacturers to produce more efficient vehicles and 
domestic automotive employment.''.

SEC. 4. USE OF CIVIL PENALTIES FOR RESEARCH AND DEVELOPMENT.

    Section 32912 of title 49, United States Code, is amended by adding 
at the end thereof the following:
    ``(e) Research and Development and Use of Civil Penalties.--
            ``(1) All civil penalties assessed by the Secretary or by a 
        Court shall be credited to an account at the Department of 
        Transportation and shall be available to the Secretary to carry 
        out the research program described in paragraph (2).
            ``(2) The Secretary shall carry out a program of research 
        and development into fuel saving automotive technologies and to 
        support rulemaking related to the corporate average fuel 
        economy program.''.

SEC. 5. EFFECTIVE DATE.

    (a) In General.--Except as provided in subsection (b), this Act, 
and the amendments made by this Act, take effect on the date of 
enactment of this Act.
    (b) Transition for Passenger Automobile Standard.--Notwithstanding 
subsection (a), and except as provided in subsection (c)(2), until the 
effective date of a standard for passenger automobiles that is issued 
under the authority of section 32902(b) of title 49, United States 
Code, as amended by this Act, the standard or standards in place for 
passenger automobiles under the authority of section 32902 of that 
title, as that section was in effect on the day before the date of 
enactment of this Act, shall remain in effect.
    (c) Rulemaking.--
            (1) Initiation of rulemaking under amended law.--Within 60 
        days after the date of enactment of this Act, the Secretary of 
        Transportation shall initiate a rulemaking for passenger 
        automobiles under section 32902(b) of title 49, United States 
        Code, as amended by this Act.
            (2) Amendment of existing standard.--Until the Secretary 
        issues a final rule pursuant to the rulemaking initiated in 
        accordance with paragraph (1), the Secretary shall amend the 
        average fuel economy standard prescribed pursuant to section 
        32092(b) of title 49, United States Code, with respect to 
        passenger automobiles in model years to which the standard 
        adopted by such final rule does not apply.D23/
Corporate Average Fuel Economy Reform Act of 2006 - Amends federal transportation law to direct the Secretary of Transportation to prescribe minimum corporate average fuel economy (CAFE) standards for passenger automobiles, including standards that are based on one or more vehicle attributes that relate to fuel economy. Requires the Secretary of Transportation, when deciding maximum feasible average fuel economy for passenger automobiles, to consider (in addition to current considerations) motor vehicle safety, emissions, and the need of the United States to reduce its dependence on oil for transportation.

Solicits comment from the Department of Energy (DOE) (currently) and the Environmental Protection Agency (EPA) before the Secretary issues a notice for a proposed or amended CAFE standard.

Allows manufacturers to earn credits which may be applied to any five (currently, three) consecutive model years after the year in which they were earned if the average fuel economy of passenger automobiles manufactured by a manufacturer in a particular model year exceeds an applicable established average fuel economy standard. Permits trading credits between passenger-automobile production and non-passenger-automobile production.

Requires civil penalties assessed by the Secretary or by a Court against a person who violates CAFE standards to be credited to a Department of Transportation (DOT) account and made available to carry out a program of research and development into fuel saving automotive technologies and to support the CAFE program.
A bill to amend the automobile fuel economy provisions of title 49, United States Code, to reform the setting and calculation of fuel economy standards for passenger automobiles, and for other purposes.