United States Government Accountability Office

GAO Testimony 

Before the Committee on Commerce, 

Science, and Transportation, U.S. Senate

PASSENGER VEHICLE 

FUEL ECONOMY 

Preliminary Observations 

on Corporate Average Fuel 

Economy Standards 

Statement of Katherine Siggerud, Director 

Physical Infrastructure 

For Release on Delivery

Expected at 10:00 a.m. EST 

Tuesday, March 6, 2007 

 

GAO-07-551T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

March 6, 2007

PASSENGER VEHICLE FUEL ECONOMY

Preliminary Observations on Corporate 

Highlights of GAO-07-551T, a testimony Average Fuel Economy (CAFE) Standards 

before the Committee on Commerce, 

Science, and Transportation, U.S. Senate 

Concerns over national security, 

environmental stresses, and

economic pressures from increased 

fuel prices have led to the nation’s 

interest in reducing oil consumption. 

Efforts to reduce oil consumption 

will need to include the

transportation sector. For example,

several Members of Congress have 

introduced bills proposing changes 

to the corporate average fuel

economy (CAFE) program. This 

program includes mile per gallon 

standards for light trucks and cars 

that manufacturers must meet for

vehicles sold in this country. 

 

This testimony is based on ongoing 

work for this committee. This 

testimony describes (1) recent and 

proposed changes to CAFE

standards; (2) observations about 

the recent changes, the existing

CAFE program, and NHTSA’s 

(National Highway Traffic Safety

Administration) capabilities to 

further restructure CAFE standards; 

and (3) initial observations about 

how the CAFE program fits in the 

context of other approaches to

reduce oil consumption. To address 

these issues, we reviewed program 

legislation, rule makings, and 

operational documents. Also, we

interviewed officials from NHTSA, 

the Department of Energy, 

Environmental Protection Agency, 

the auto industry, labor unions, and 

the insurance industry. Finally, we 

contacted several recognized 

experts in fuel economy and safety. 

Our report will be issued in 

July 2007. 

The National Highway Traffic Safety Administration (NHTSA), the agency

responsible for setting CAFE standards for cars and light trucks—such as 

sport utility vehicles, minivans and pickup trucks—recently raised CAFE 

standards for light trucks to reduce oil use and restructured this part of the 

program to help address safety, among other issues. However, the CAFE 

standard for cars has changed little over the past 2 decades. In 1975,

Congress established CAFE standards for cars rising to 27.5 miles per gallon 

(mpg) by 1985 but did not allow NHTSA to restructure how car standards are 

applied. As part of the administration’s plan to meet the President’s recently 

stated goal to reduce oil use by 20 percent over the administration’s 

projected levels by 2017, the NHTSA Administrator submitted a plan to 

Congress that would allow NHTSA to reform the car CAFE program in a 

manner similar to NHTSA’s recent changes to the light truck program. 

The majority of experts with whom we spoke stated that CAFE standards 

are an important approach to reducing oil consumption and NHTSA’s recent 

reform of light truck standards addresses previous safety and competitive 

concerns, among others. However, they also identified some ways to further 

refine the CAFE program such as considering harmonizing light truck and 

car standards. Further, NHTSA officials identified ways to improve the 

agency’s capabilities to administer the program. For example, the agency 

would benefit from some additional expertise on automotive engineering. 

Finally, several experts observed that the model that NHTSA uses to help set 

CAFE standards does not fully account for the impact of greenhouse gas 

emissions. 

While the CAFE program is an important program in the nation’s efforts to 

reduce oil consumption, other policies and programs exist to help the nation 

reduce oil consumption in the transportation sector. We will report on how 

these programs align with the CAFE program in our report to be issued in 

July 2007. For example, according to experts with whom we spoke, CAFE’s 

effectiveness in reducing oil consumption is hampered by a provision 

granting manufacturers a 1.2 mpg CAFE credit toward meeting its fuel 

economy standard for selling flexible fuel vehicles, even though these 

vehicles are not often run on fuel other than gas. 

2005 U.S. Oil Consumption within the Transportation Sector (Numbers may not add 

to 100% due to rounding) 

www.gao.gov/cgi-bin/getrpt?GAO-07-551T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Katherine 

Siggerud on (202) 512-2834 or 

siggerudk@gao.gov. 
Mr. Chairman and Members of the Committee: 

We appreciate the opportunity to provide testimony on the nation’s 

approach to reducing oil consumption through fuel efficiency standards. 

Concerns over national security, environmental stresses, and economic 

pressures from increased fuel prices have led to the nation’s interest in 

reducing oil consumption. Several Members of Congress have introduced

bills proposing to mandate fuel economy increases, such as increasing car 

standards from the current 27.5 miles per gallon (mpg) to 40 mpg within 10 

years. In addition, the President recently announced a nationwide goal to

reduce oil consumption 20 percent from the levels that the administration 

projects would otherwise occur by 2017. 

Efforts to reduce oil consumption will need to include the transportation 

sector, because transportation in the United States currently accounts for 

68 percent of the nation’s oil consumption. And, within the transportation 

sector, 60 percent of the oil consumed is consumed by cars and light 

trucks. In the aftermath of the energy crisis of the early 1970s, Congress 

developed the Corporate Average Fuel Economy (CAFE) program to help

reduce the fuel used by light trucks and cars. Under the CAFE program, 

manufacturers must ensure that the vehicles in their fleets, on average, 

meet a specified mpg standard or pay a penalty. The National Highway 

Traffic Safety Administration (NHTSA) within the Department of 

Transportation (DOT) is primarily responsible for setting and enforcing 

CAFE standards. Many changes in automotive technologies and the auto 

industry have occurred since the program was designed in the 1970s. 

These developments, along with the concerns mentioned above, have led 

to some changes in the CAFE program, along with calls to further alter the 

program, including raising CAFE standards or revising how the program 

applies the standards. 

My testimony today will discuss (1) recent and proposed changes to the 

CAFE standards; (2) observations about the recent changes, the existing 

CAFE program, and NHTSA’s capabilities to further revise CAFE 

standards; and (3) observations about how the CAFE program aligns with 

other approaches and options for reducing oil consumption. My comments 

are based on ongoing work for this committee, and therefore my 

comments reflect our preliminary observations. We plan to issue our 

report in July 2007. To obtain information on the CAFE program and 

recent and proposed changes to the program, we reviewed relevant U.S. 

code and program guidance, including rule making documents, and 

interviewed a wide range of program stakeholders, including NHTSA, the 

Environmental Protection Agency (EPA), the Department of Energy 

Page 1 GAO-07-551T 
(DOE), the applicable automobile workers trade union (UAW), industry 

groups representing the automobile manufacturers, automotive safety 

experts, insurance industry representatives, and environmental advocates. 

To obtain information about recent program revisions and NHTSA’s plans 

and capabilities to further revise CAFE standards, we interviewed NHTSA 

officials, experts in fuel economy and safety as well as reviewed CAFE 

program budgets, key studies, and other documentation. To obtain 

information on how the CAFE program aligns with other approaches and 

options for reducing oil consumption by cars and trucks, we interviewed 

experts in fuel economy and other industry stakeholders. We selected 

these experts by contacting officials who worked on a 2002 National 

Academy of Sciences report on CAFE standards. During conversations 

with these experts, we asked them for additional experts we should 

contact. We also contacted officials in selected foreign countries with 

programs designed to reduce oil consumption for passenger vehicles. We 

conducted our work for this statement from September 2006 through 

February 2007 in accordance with generally accepted government auditing 

standards. 

In summary: 

• In 2003, NHTSA raised light truck CAFE standards from 20.7 mpg in 2004

to 22.2 mpg in 2007. Subsequently, NHTSA restructured the CAFE program 

for trucks using a method that categorizes light trucks based on their size. 

This new method is meant to help address potential safety consequences 

and other issues that had previously been cited as negative consequences

of raising CAFE standards. The nation’s CAFE standard for cars has 

changed little over the past 2 decades, for example CAFE standards for 

cars have not risen above 27.5 mpg since 1990. Furthermore, Congress 

included provisions in DOT’s appropriations acts from fiscal years 1996 

through 2001 preventing NHTSA from spending any funds to change CAFE 

standards. The Secretary of Transportation recently asked Congress for 

the ability to restructure CAFE standards for cars. More recently, as part 

of the Administration’s plan to meet the President’s oil reduction goal the 

Secretary of Transportation submitted a plan to Congress that would allow 

NHTSA to restructure the car CAFE program based on an attribute of the 

vehicle, such as size. This plan mirrors NHTSA’s recent changes to the 

light truck program. In addition, several Members of Congress have 

introduced legislation to raise CAFE standards. 

• The majority of experts with whom we spoke believe that CAFE standards 

are an important approach to reducing oil consumption; and NHTSA’s 

recent reform of the light truck standards addresses other concerns, 

Page 2 GAO-07-551T 
including safety and competition among individual car companies, among 

others. However, these experts also identified some further revisions to 

the CAFE program that could be considered in determining ways to 

further optimize the CAFE program, including: 

• evaluating a size-based approach for cars similar to the one 

implemented for light trucks to address safety and other concerns and 

encourage fleet-wide improvements in fuel efficiency; 

• considering harmonizing light truck and car standards to have an 

integrated program and reduce incentives to classify vehicles as light 

trucks; 

• reassessing the length of time for which standards are set to reduce 

costs for manufacturers; 

• allowing trading of CAFE credits between vehicle classes and among 

manufacturers to provide additional incentives and flexibility in

meeting CAFE standards; and, 

• evaluating the need for the distinction between domestic and foreign 

vehicles when calculating CAFE to simplify the program and recognize 

changes in where automobiles are manufactured. 

Further, experts and NHTSA officials also identified ways NHTSA could 

improve its capabilities to revise CAFE standards including: 

• obtaining additional expertise on automotive engineering to review 

product plans automakers submit in the CAFE rule-making process; 

• updating a 2002 National Academy of Sciences study that included 

information on the potential impact of technologies that could improve 

fuel economy; and 

• identifying a valuation of greenhouse gas emissions used in analysis to 

estimate the costs and benefits of changes to CAFE standards. 

• Finally, while the CAFE program is an important program in the nation’s 

efforts to reduce oil consumption, other policies and programs exist or 

have been proposed to help the nation reduce oil consumption by the 

transportation sector that could complement CAFE. We will be reporting 

in more detail on how these options align with the CAFE program in July 

2007. We will also identify policies that potentially decrease the 

effectiveness of the CAFE program in reducing oil consumption. For 

Page 3 GAO-07-551T 
example, experts with whom we spoke identified the program that grants 

manufacturers a 1.2 mpg CAFE credit toward meeting its fuel economy 

standard for selling flexible fuel vehicles, even though these vehicles are 

not often run on fuel other than gas.

Congress enacted the 1975 Energy Policy and Conservation Act (the 

Energy Act) during the aftermath of the energy crisis created by the Arab 

oil embargo of 1973 and 1974 to reduce oil consumption by the 

transportation sector in the United States.1

 The act established what is 

commonly known as the CAFE program, which requires that 

manufacturers meet separate fuel economy standards for passenger cars 

and light trucks.2 To reduce oil consumption, the program uses fuel 

consumption standards—measured in mpg—that cars and light trucks 

must meet. In addition to decreasing oil consumption by increasing the 

mileage driven on a gallon of gas, an increase in the standards also 

decreases tailpipe emissions, including greenhouse gases. 

A manufacturer’s compliance is based on a comparison of a 

manufacturer’s fleet-wide fuel economy average against the appropriate 

CAFE standard.3

 The Energy Act grants NHTSA the authority to calculate a 

car and light truck figure for each manufacturer, measuring compliance of

domestically produced and imported cars, separately. The law considers a 

vehicle domestic if at least 75 percent of the cost of the vehicle to the 

manufacturer is attributable to value added in the United States, Mexico, 

or Canada. 

Congress set a standard for passenger cars (currently 27.5 mpg) but did 

not establish specific CAFE standards for light trucks in the Energy Act. 

Background 

 1

Pub. L. 94-163. 

2

For CAFE purposes, NHTSA currently defines light truck as a four-wheel vehicle which is

designed for off-road operation or which is designed to perform certain functions such as 

transporting more than 10 people or transporting property in an open bed. This includes

most pickup trucks, minivans, and sport utility vehicles. The most recent standards NHTSA

set will apply to trucks up to 10,000 lbs. and pickup trucks up to 8,500 lbs. 

3

For example, manufacturers meet the standard if the average mpg of all the vehicles they 

manufacture in a year meet the CAFE standard for that year. Manufacturers have had to

meet mpg of 27.5 for cars since 1990. EPA performs the tests that determine what mpg each 

manufacturer’s model obtains. A model’s CAFE figure generally differs from the window

sticker a new vehicle displays showing its fuel economy. The window sticker mpg is

determined through a different methodology than the CAFE figure. 

Page 4 GAO-07-551T 
Instead, the Energy Act grants NHTSA authority to establish both the 

structure of the CAFE program and the fuel economy standards for 

different classes of light trucks. Rather than Congress specifying a mpg 

target for light trucks as it did for passenger cars, NHTSA is required to set

standards at the maximum feasible level using the same criteria and leadtime requirements used in setting standards for passenger cars. However, 

appropriations acts restricted NHTSA from increasing or otherwise 

changing CAFE standards from fiscal year 1996 through 2001. For fiscal 

year 2002, Congress did not renew the multiyear freeze on NHTSA’s CAFE 

rule-making responsibilities and the agency resumed efforts for future rule 

makings to raise CAFE standards for light trucks.

The CAFE program is generally considered to have contributed to 

increasing the nation’s fuel economy. For example, a 2002 NAS report 

found that the CAFE program has been particularly helpful in keeping fuel 

economy above levels to which it might have fallen due to the low and 

declining real price of gas. The NAS study estimated that if fuel economy 

had not improved, gas consumption and oil imports would have been 

about 14 percent higher than they were in 2002. 

To help meet CAFE standards, manufacturers may earn credits that can be

used to help them meet fuel economy standards. For instance, if a 

manufacturer exceeds the required fuel economy in a certain year, it earns 

credits that can be applied to past or future model-year fuel economy 

numbers. Credits, however, cannot be passed between manufacturers or 

among fleets. In addition, the Alternative Motor Fuels Act of 1988 

encourages the use of alternative fuels by giving credits to manufacturers 

toward meeting CAFE standards for producing cars that can run on 

alternative fuels4

 in addition to gas. Under the resulting “Dual Fuel” 

program, manufacturers may earn up to a 1.2 mpg credit for producing 

vehicles through model year 2010 that are capable of using both regular 

gasoline and an alternative fuel.5

 If a manufacturer does not meet the 

standards and has no credits to apply, it must pay a civil penalty. 

In addition to CAFE standards administered by NHTSA, Congress and 

other federal agencies have established programs to reduce oil 

consumption in the transportation sector. These programs include (1) 

 4

Alternative fuels are fuels other than conventional fossil fuels and include ethanol, 

hydrogen, and batteries. 

5

NHTSA has the authority to continue this credit through rule making. 

Page 5 GAO-07-551T 
vehicle acquisition requirements at federal agencies to purchase 

alternative fuel vehicles, (2) research and development of alternative fuels

and new vehicle technologies, and (3) tax incentives for consumers 

purchasing fuel efficient vehicles like hybrids. 

In addition to NHTSA, other federal entities contribute to the nation’s 

efforts to reduce oil consumption. For example, DOE coordinates federal 

research on strategies for reducing oil consumption; developing advanced

technologies such as fuel cells; producing and using alternative fuels and 

more fuel efficient vehicle technology, as well as providing grants for 

research into such areas as plug-in hybrid6

 technology and ways to expand

the production and use of ethanol. In addition, the National Economic 

Council assists the administration in developing its energy initiatives. 

NHTSA has recently raised the light truck CAFE standard and reformed 

the program using a method that categorizes light trucks based on their 

size, doing so in part to address potential safety concerns. CAFE standards 

for cars have not changed since 1990. This is due, in part, to past 

congressional prohibitions against NHTSA using any of its appropriation 

to raise fuel economy standards and, more recently, NHTSA’s preference 

to tie raising the car standard to restructuring the program. Recently, the 

administration has submitted a proposal to restructure and increase 

passenger car CAFE standards. Members of Congress also have submitted 

proposals to change the CAFE standards. 

In April 2003, NHTSA released a final rule increasing light truck CAFE 

standards from 20.7 mpg in 2004 to 22.2 mpg in 2007. As part of this rule 

making, NHTSA explained the importance of increasing the CAFE 

standards for light trucks because of the growing market share of these 

vehicles. The impact of the light truck market on overall oil consumption 

in the United States had grown since the beginning of the CAFE program 

NHTSA Recently 

Raised and 

Restructured Light 

Truck CAFE

Standards and Has 

Not Raised the Car 

CAFE Standard Since 

1990, but Has 

Requested Authority 

to Make Changes 

NHTSA Recently Increased 

Standards and Reformed 

the Light Truck CAFE 

Program 

 6

Hybrid technology refers to vehicles that run on both a gasoline-powered engine and an 

electric battery. Plug-in hybrids are vehicles that recharge their battery at battery charging

stations. 

Page 6 GAO-07-551T 
as market share for these vehicles has increased. Specifically, in 1980, 

shortly after the program began, light trucks composed about 20 percent 

of the new passenger vehicle market in the United States. By 2005, light 

trucks, including minivans, pickup trucks, and sport utility vehicles, 

accounted for about 50 percent of the new passenger vehicle market in the 

United States. The overall fuel economy of the U.S. vehicle fleet declined 

in the 1990s, in part due to the increased market share of light trucks. (See 

fig. 1 showing share of fleet composed by light trucks). 

Figure 1: Increased Share of Light Trucks in the U.S. Passenger Vehicle Market 

While NHTSA took these steps to raise CAFE standards for light trucks, 

the agency also began investigating reforming the light truck CAFE 

program in part to address safety concerns. A 2002 National Academy of 

Sciences (NAS) report7

 on the impact of CAFE standards8 stated that 

 7

“Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) Standards,” 

National Academy of Sciences (Washington, D.C.: 2002).

8

Congress requested that the National Academy of Science, in consultation with DOT, 

conduct a study to evaluate the effectiveness and impacts of CAFE Standards. 

Page 7 GAO-07-551T 
because the easiest way for an automobile manufacturer to increase 

vehicle fuel economy is to decrease vehicle weight, increases to CAFE 

standards were likely to have a negative impact on safety and result in 

more highway fatalities. The report recommended that NHTSA investigate 

implementing a CAFE system based on the attributes of a vehicle, such as 

size and/or weight, where there would be separate standards for vehicles 

with similar attributes. 

In response, NHTSA released a rule in April 2006 that reforms the 

structure of the CAFE program for light trucks and continues to increase 

light truck CAFE standards for model years 2008 to 2011. Under the new 

rule, fuel economy standards are established based upon truck size instead 

of having one average standard for all light trucks. Each truck is assigned 

a fuel economy “target” based on a measure of vehicle size called 

“footprint,” the product of multiplying a vehicle’s wheelbase (the distance 

from front to the rear axles) by its track width (the horizontal distance 

between the tires). (See fig. 2 for a display of how the standard applies to 

trucks of different sizes). 

Figure 2: Application of Reformed Light Truck CAFE Standards to Light Trucks of

Different Sizes for Model Year 2011 

Page 8 GAO-07-551T 
According to NHTSA officials, the reformed CAFE approach may enable 

the country to achieve larger reductions in oil consumption, while 

enhancing safety and preventing adverse economic consequences. Under 

the current standard, manufacturers of smaller light trucks may already 

exceed the fleet CAFE standard and, therefore, have little incentive to 

increase fuel economy. However, under the reformed standards, the 

required overall fuel economy of the light truck fleet will rise over time. In 

addition, the reformed standards include larger vehicles such as sport 

utility vehicles, but not pickup trucks, weighing between 8,500 and 10,000 

pounds that previously were exempt from the CAFE program. NHTSA 

estimates that including these vehicles in the CAFE program will save 7.8 

billion gallons of fuel over the life of the vehicles sold between 2008 and 

2011.

9

 In addition to these expected fuel savings, the reformed CAFE 

standards offer enhanced safety by discouraging downsizing of vehicles 

since, as vehicles become smaller, the applicable fuel economy target 

becomes more stringent. In addition, according to NHTSA, the reformed 

CAFE standards spread the regulatory cost burden for fuel economy 

improvements more broadly across the industry instead of concentrating it 

more exclusively on the manufacturers who may produce heavier, less fuel

efficient vehicles. 

The 1975 Energy Act established CAFE standards for passenger cars for 

model years 1978 to 1980 and 1985 and thereafter. The standards called for

manufacturers to produce vehicles averaging 18 mpg in 1978, rising to 27.5 

mpg by 1985.

10 In the 1980s, NHTSA reduced the CAFE standard for cars, 

and the agency did so for model years 1986 to 1989. NHTSA raised the car 

CAFE standard back to 27.5 mpg for the 1990 model year and has made no

changes to the standard since then. See table 1 showing CAFE standards 

over time. 

NHTSA Has Not Raised the 

Car CAFE Standard Since 

1990 but Has Requested 

Authority to Make Changes 

 9

71 Fed. Reg. 17566 (2006). 

10The Secretary of Transportation issued interim standards for 1981 to 1984. 

Page 9 GAO-07-551T 
Table 1: Fuel Economy Standards for Passenger Cars and Light Trucks, Model 

Years 1985 through 2007, in miles per gallon 

Model year Passenger cars Light trucks

1985 27.5 19.5

1986 26.0 20.0

1987 26.0 20.5

1988 26.0 20.5

1989 26.5 20.5

1990 27.5 20.0

1991 27.5 20.2

1992 27.5 20.2

1993 27.5 20.4

1994 27.5 20.5

1995 27.5 20.6

1996 27.5 20.7

1997 27.5 20.7

1998 27.5 20.7

1999 27.5 20.7

2000 27.5 20.7

2001 27.5 20.7

2002 27.5 20.7

2003 27.5 20.7

2004 27.5 20.7

2005 27.5 21.0

2006 27.5 21.6

2007 27.5 22.2

Source: NHTSA. 

NHTSA officials cited several reasons for not raising the CAFE standard 

over 27.5 mpg. First, for several years, Congress specifically prevented 

NHTSA from making any adjustments to CAFE. Beginning in fiscal year 

1996 and lasting through fiscal year 2001, Congress included language in 

DOT’s appropriations acts preventing NHTSA from expending any 

appropriated funds for rule makings to adjust CAFE standards, for either 

cars or trucks. Second, although NHTSA officials state that the agency has 

the legislative authority to raise CAFE standards for cars above 27.5 mpg,

Page 10 GAO-07-551T 
as specified by the Energy Act, these officials stated the Energy Act 

prevents NHTSA from restructuring the program, for example, by 

developing a size-based standard as it recently did for light trucks.11

NHTSA is reluctant to raise the car standards without restructuring the 

program as it is concerned about the effect on safety, competition between 

auto manufacturers, and other issues. 

However, in 2007 the NHTSA Administrator submitted proposed 

legislation to Congress that, if enacted, would give the Secretary of 

Transportation the authority to restructure and increase CAFE standards 

for cars. The proposal calls for the fuel economy standard to be the 

maximum level that NHTSA believes the manufacturers could achieve in a 

specific model year. The proposal would also give NHTSA the power to 

base the standard on one or more vehicle attributes similar to the light 

truck standard. In addition, the proposal calls for a credit trading system 

among manufacturers. If a manufacturer exceeds the mileage standard, it

can sell its credits to another manufacturer or a broker. The proposal does 

not provide a specific goal or mpg standard; but, like the light truck 

standard, it sets an average fuel economy standard that is the maximum 

feasible average fuel economy level that the Secretary of Transportation 

decides the manufacturers can achieve in a specific model year. NHTSA 

officials indicate that they may follow a process similar to the rule-making 

process they followed to recently reform and set new light truck 

standards. 

In addition to this proposed legislation, several Members of Congress have 

submitted bills that have some similarities to the Secretary’s proposal but, 

if enacted, would set a specific fuel economy mpg standard for 

manufacturers to meet, rather than allow NHTSA to determine the 

maximum feasible level. For example, one bill calls for cars and light 

trucks achieve a combined CAFE average of 35 mpg by 2019.

12 Another bill

would raise CAFE standards for passenger cars to 40 mpg by 2017.

13 These 

 11The Energy Act includes a so-called legislative veto provision allowing either the House of

Representatives or the U.S. Senate to disapprove any attempt to increase CAFE standards 

above the current 27.5 mpg level (or decrease them below 26.0 mpg). However, since the 

Energy Act was passed, the Supreme Court has held that such legislative vetoes are 

unconstitutional.

12S. 357, 110th Congress. 

13S. 183, 110th Congress. 

Page 11 GAO-07-551T 
are only selected examples of the many bills currently pending in Congress

on this topic. 

The majority of industry stakeholders and experts with whom we spoke 

supported NHTSA’s revisions to the light truck standards, and many of 

them specifically stated that NHTSA should consider further refinements 

to the CAFE program, such as restructuring the car CAFE standards based 

on the size of the vehicle. In addition to these refinements, stakeholders 

and experts identified issues about both the appropriate information for 

NHTSA’s rule making deliberations and NHTSA’s capabilities to most 

effectively revise car CAFE standards. For example the model that NHTSA 

uses to estimate the impact that changes in CAFE standards will have on

oil consumption does not currently place a dollar value on the reduction of 

carbon emissions. If NHTSA is able to revise car standards, it may be an 

opportunity to consider how to value greenhouse gas emissions. 

Furthermore, many experts indicated that the agency would benefit from 

some additional expertise, for example, on automotive engineering to, 

among other duties, review product plans automakers submit in the CAFE 

rule-making process. 

While it is impossible to determine the extent to which NHTSA’s recent 

restructuring of the light truck CAFE standards will reduce oil

consumption since the standards will not take full effect until vehicle 

model year 2011, experts and industry stakeholders whom we interviewed 

generally praised the restructuring. Many, including representatives from

the insurance industry, specifically praised the restructured CAFE 

program for removing most incentives manufacturers may have had to 

reduce vehicle weight in order to meet CAFE standards, and thereby make

vehicles less safe. A number of experts also noted that the restructured 

standards treated all manufacturers more equitably, in that each company 

would now have an incentive to use additional fuel efficient technologies 

across its light truck fleets, rather than only in selected vehicles needing a

boost to meet CAFE standards. 

Auto industry representatives with whom we spoke also supported the 

restructuring because it seemed to spread the burden of compliance 

evenly across the industry. Also, industry representatives stated that the 

reformed light truck standard did not favor big or small vehicles, so 

manufacturers could produce a range of vehicles that appeal to different 

segments of the market. 

A Majority of Industry 

Stakeholders and 

Experts Support 

NHTSA’s Recent 

CAFE Revisions, 

While Recommending 

Further Refinements 

to the CAFE Program 

and Ways for NHTSA 

to Improve Its 

Capability to Revise

Standards 

Stakeholders and Experts 

Support Recent 

Restructuring of Light 

Truck Standards 

Page 12 GAO-07-551T 
A few experts with whom we spoke expressed concern regarding the 

reformed standards, stating that NHTSA did not raise CAFE standards far 

enough or that the system could not guarantee oil savings because 

manufacturers could choose to build—and consumers might elect to 

buy—trucks with the largest footprints, which must meet lower fuel 

economy standards than smaller trucks. 

Many of the experts with whom we spoke identified several refinements to 

the CAFE program that could improve the program by improving safety, 

making the program more equitable for manufacturers, or reducing the 

costs that manufacturers incur to comply with the program. In addition to

increasing fuel efficiency standards to reduce oil consumption, further 

refinements may help address safety concerns and improve the efficiency 

of the CAFE program. Some of these potential changes include the 

following: 

Experts Have 

Recommended Further 

Refinements to the CAFE 

Program 

• Evaluating footprint approach for cars: Currently, the car standard uses a 

single, mpg standard as opposed to the recently reformed light truck 

standard, which uses a footprint-based standard. The majority of the 

experts with whom we spoke believed that changing the structure of the 

light truck program to a footprint-based standard was positive, and many 

of them specifically stated that NHTSA should be allowed to evaluate a 

similar structure for the car program. They believe that such a structure 

will provide similar safety benefits to those expected with the revised 

truck program and would also treat car companies more equitably. 

• Harmonizing light truck and passenger vehicle standards: Currently, 

light truck and car standards are separate. However, of those experts that

expressed an opinion, almost all thought the car and light truck CAFE 

programs should be harmonized if a footprint system was instituted for 

cars as it has been for light trucks. Experts noted several advantages of

harmonizing the programs, including reducing the current incentive for 

manufacturers to reclassify vehicles from cars to light trucks in order to be

able to comply with a lower CAFE standard. One expert also noted that 

harmonizing cars and light trucks was appropriate, given that light trucks 

are now primarily used as passenger vehicles rather than as cargo and

agricultural vehicles, as was the case when CAFE was instituted. 

• Reassessing the length of time for which CAFE standards are set: 

Currently, NHTSA sets new CAFE standards generally for 2 to 4 years at a 

time with the first new year of standards beginning 18 months after the 

completion of a rule-making process. Of those that expressed an opinion,

almost all the experts with whom we spoke stated that setting standards 

Page 13 GAO-07-551T 
for about 7 to 10 years out reduces costs for manufacturers by allowing 

the manufacturers to capitalize on normally scheduled plans to redesign 

models. 

• Allowing CAFE credit trading between vehicle classes and among 

manufacturers: Currently, if manufacturers exceed the required fuel 

economy in a certain year, they earn credits that can be applied to past or

future model-year fuel economy numbers. Such credits applied to previous 

model years are known as “carry-back” credits, while those applied to 

future model years are known as “carry-forward” credits. These credits 

cannot be traded among manufacturers or between fleets (that is, between 

cars and trucks). Of those who expressed an opinion, many of the experts 

with whom we spoke thought that the manufacturers should have greater 

flexibility in trading CAFE credits than is now afforded under the “carryforward carry-back” approach. Economists in particular noted that credit 

trading both between vehicle classes within a manufacturer’ own fleet and 

credit trading among manufacturers would reduce the compliance costs of 

CAFE for manufacturers, since manufactures for whom it would be very 

costly to achieve a CAFE standard for a particular line could trade with 

another line where exceeding the standard would be less costly. 

• Removing the distinction between domestic versus import vehicles to 

calculate CAFE standards: Currently, the CAFE program determines a 

manufacture’s compliance with CAFE car standards for its domestic- and 

foreign-made fleets, separately. According to a labor union official, this 

distinction was designed as a way to keep some small car production 

within the country and thus protect workers that produce small cars 

domestically. Of those who expressed an opinion, almost all the experts 

we spoke to believe that CAFE compliance should no longer be calculated 

separately for domestic and import fleets. Industry representatives noted 

that cars produced in Canada and Mexico count as domestic vehicles and

that many foreign manufacturers make vehicles in the United States, thus 

the distinction is not as meaningful as it once was. However, the union 

believes that if this incentive is removed, automakers will continue 

producing small cars in foreign markets, but close domestic plants 

producing small cars, thus adversely impacting U.S. jobs. 

As discussed above, the Secretary of Transportation has submitted 

legislation to Congress that, if enacted, would give the Secretary of 

Transportation the authority to revise CAFE standards for cars. Many of 

the experts with whom we spoke raised some concerns about NHTSA’s 

capabilities to revise CAFE standards. These experts identified several 

ways NHTSA could improve its capabilities to revise CAFE standards in 

NHTSA and Experts 

Identified Ways to Improve 

NHTSA Capabilities to 

Reform the CAFE Program 

Page 14 GAO-07-551T 
the future. In some instances, NHTSA officials acknowledged the benefit

of these potential improvements. 

• Expanding staff expertise and levels: Two experts with whom we spoke 

cited the congressional prohibition on any work at NHTSA to increase 

CAFE standards in the 1990s as a reason the agency lost qualified, 

experienced staff. An expert stated that in the past, NHTSA was more 

aggressive at critiquing cost estimates and product plans that automakers 

submitted when the agency was determining how much of an increase in 

CAFE standards the auto manufacturers could handle technologically. 

Several experts believed that NHTSA currently does not have the capacity

to do this sort of checking. NHTSA officials disagreed with this assessment 

but stated that additional staff with automotive engineering skills would 

help them in future CAFE rule makings and that they will hire an 

additional person with an automotive engineering background. NHTSA 

officials agreed that they are, to a degree, dependent on the information 

automakers provide them about product plans and future technological 

capabilities in enhancing fuel economy. 

• Updating the NAS report: NHTSA officials involved in setting the 

reformed light truck standard told us they relied extensively on the 2002 

NAS report that evaluated CAFE standards. Specifically, these officials 

cited the report’s assessment of the impact on fuel economy and cost of 

emerging automotive technologies as crucial to their decision making 

about how high to raise future CAFE standards and how quickly to require 

future increases. Also, NHTSA officials stated that because the report had 

been peer reviewed, it was even more useful and mitigated criticism 

regarding the agency’s assumptions. NHTSA officials and several experts 

whom we interviewed supported updating the study, as the original 

information is now 5 years old and rapidly becoming outdated, since 

technologies on automotive technologies change quickly, and cost 

information also varies over time. For example, NHTSA officials pointed 

out that the study did not include an assessment of alternative 

technologies, such as electric hybrids. These officials and experts stated 

that it would be ideal to complete such an update before NHTSA issues a 

new car or light truck fuel economy standard, and NHTSA has request 

funding for such a study in its 2008 budget proposal to Congress. 

• Identifying a valuation for greenhouse gas emissions: Several 

stakeholders and experts told us they were concerned about certain inputs 

that NHTSA officials used in the computer model maintained by DOT’s 

Volpe Research Center. NHTSA uses this model as a tool to help estimate 

the fuel savings that will result from CAFE increases and to estimate how 

likely it is that the manufacturers will comply with future CAFE 

Page 15 GAO-07-551T 
standards.14 Specifically, some experts were critical of the fact that NHTSA 

and Volpe staff assigned a “zero” dollar value to the benefit of reductions 

in greenhouse gas emission that would result from an increased standard.

NHTSA officials stated they did this because the scientific community had 

not reached a consensus on the value that should be assigned to carbon 

dioxide, though researchers have developed a range of values that could 

be considered in giving a dollar value to greenhouse gas reductions. 

Therefore, according to one expert, the results of the model may 

underestimate the total dollar benefits to society of raising CAFE 

standards, since the dollar value of reduced greenhouse gas emissions was 

not included in the model’s results. If the car CAFE program is revised, it 

may provide an opportunity to revisit how to value a decrease in 

greenhouse gas emissions through improved fuel efficiency. 

While the CAFE program is an important program in the nation’s efforts to 

reduce oil consumption, other policies and programs currently exist to 

help the nation reduce oil consumption in the transportation sector. The 

White House National Economic Council’s 2006 Advanced Energy 

Initiative and the Department of Energy’s Strategic Plan both highlight a 

number of ongoing programs and initiatives in the transportation sector, 

such as developing and deploying alternative fuels that can help reduce oil

consumption. Other existing programs include CAFE credits for 

manufacturers of “flex fuel” vehicles capable of running on gasoline or 

alternative fuels, a federal vehicle acquisition program requiring federal

agencies buy vehicles capable of running on alternative fuels,15 tax 

incentives for consumers purchasing fuel efficient vehicles like hybrids, 

and taxes to discourage the purchase of cars with low fuel efficiency, 

known as the “gas guzzler” tax. We will be reporting in July 2007 on the 

extent to which these programs complement or contradict the goals of the 

CAFE program. We will also report on other proposals to reduce oil 

consumption by cars and light trucks and their potential effects. 

Other Federal 

Programs Also Seek 

to Reduce Oil 

Consumption in the 

Transportation Sector 

 14NHTSA also uses the model to predict the effect of efficiency-increasing technologies on

specific vehicle models and to calculate the resultant CAFE levels among vehicle 

manufacturers resulting from changes in CAFE standards. The model also predicts impact 

on energy use, and other monetary and nonmonetary externalities. 

15We recently issued a report on the U.S. Postal Service’s attempts to comply with this

federal requirement. GAO, U.S. Postal Service: Vulnerability to Fluctuating Fuel Prices 

Requires Improved Tracking and Monitoring of Consumption Information, GAO-07-244 

(Washington, D.C.: Feb. 16, 2007). 

Page 16 GAO-07-551T 
However, many of the experts with whom we spoke have pointed out that 

the program granting manufacturers a maximum of 1.2 mpg CAFE credit 

toward meeting fuel economy standards for flex-fuel vehicles, currently 

may be actually increasing oil consumption among passenger vehicles. 

Specifically, the credit allows manufacturers to build these vehicles to 

meet a lower CAFE standard, and this credit is granted regardless of 

whether consumers are actually running the vehicles on gas or E85 (a 

blend of 85 percent ethanol).16 As a result, flex fuel vehicles fueled with 

gasoline are generally less efficient than non-flex fuel models because 

these vehicles have to meet a lower fuel efficiency standard than non-flex

fuel models. Also, manufacturers have generally put this flex-fuel capacity

in their larger, less efficient models. NHTSA officials pointed out, however, 

that they view this credit as providing an incentive to auto manufacturers 

to bring vehicles to the market that can run on E85 and other alternative

fuels, which would help expand the infrastructure to make these fuels 

available to consumers. 

Mr. Chairman, this concludes my statement. I would be pleased to answer 

any questions that you or other Members of the Committee may have at

this time. 

For further information on this statement, please contact Katherine 

Siggerud at (202) 512-2834 or siggerudk@gao.gov. Individuals making key 

contributions to this testimony statement include Farah B. Angersola, 

Catherine Colwell, Colin Fallon, Joah G. Iannotta, Elizabeth A. Marchak, 

and Raymond Sendejas. 

Contact Information 

 16In 2006, there were about 1,000 E85 stations across the country (mostly in the Midwest) 

compared with 176,000 stations selling gas. 

Page 17 GAO-07-551T (542111) 
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