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REVIEW OF THE ADMINISTRATION’S ENERGY PROPOSALS FOR

THE TRANSPORTATION SECTOR

HEARING

BEFORE THE

SUBCOMMITTEE ON ENERGY AND AIR QUALITY

OF THE

COMMITTEE ON ENERGY AND

COMMERCE

HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

FEBRUARY 28, 2007

Serial No. 110–9

(

Printed for the use of the Committee on Energy and Commerce

energycommerce.house.gov

COMMITTEE ON ENERGY AND COMMERCE

JOHN D. DINGELL, Michigan, Chairman

HENRY A. WAXMAN, California

EDWARD J. MARKEY, Massachusetts

RICK BOUCHER, Virginia

EDOLPHUS TOWNS, New York

FRANK PALLONE, JR., New Jersey

BART GORDON, Tennessee

BOBBY L. RUSH, Illinois

ANNA A. ESHOO, California

BART STUPAK, Michigan

ELIOT L. ENGEL, New York

ALBERT R. WYNN, Maryland

GENE GREEN, Texas

DIANA DEGETTE, Colorado

Vice Chairman

LOIS CAPPS, California

MIKE DOYLE, Pennsylvania

JANE HARMAN, California

TOM H. ALLEN, Maine

JAN SCHAKOWSKY, Illinois

HILDA L. SOLIS, California

CHARLES A. GONZALEZ, Texas

JAY INSLEE, Washington

TAMMY BALDWIN, Wisconsin

MIKE ROSS, Arkansas

DARLENE HOOLEY, Oregon

ANTHONY D. WEINER, New York

JIM MATHESON, Utah

G.K. BUTTERFIELD, North Carolina

CHARLIE MELANCON, Louisiana

JOHN BARROW, Georgia

BARON P. HILL, Indiana

JOE BARTON, Texas

Ranking Member

RALPH M. HALL, Texas

J. DENNIS HASTERT, Illinois

FRED UPTON, Michigan

CLIFF STEARNS, Florida

NATHAN DEAL, Georgia

ED WHITFIELD, Kentucky

BARBARA CUBIN, Wyoming

JOHN SHIMKUS, Illinois

HEATHER WILSON, New Mexico

JOHN SHADEGG, Arizona

CHARLES W. ‘‘CHIP’’ PICKERING,

Mississippi

VITO FOSSELLA, New York

STEVE BUYER, Indiana

GEORGE RADANOVICH, California

JOSEPH R. PITTS, Pennsylvania

MARY BONO, California

GREG WALDEN, Oregon

LEE TERRY, Nebraska

MIKE FERGUSON, New Jersey

MIKE ROGERS, Michigan

SUE WILKINS MYRICK, North Carolina

JOHN SULLIVAN, Oklahoma

TIM MURPHY, Pennsylvania

MICHAEL C. BURGESS, Texas

MARSHA BLACKBURN, Tennessee

PROFESSIONAL STAFF

DENNIS B. FITZGIBBONS, Chief of Staff

GREGG A. ROTHSCHILD, Chief Counsel

SHARON E. DAVIS, Chief Clerk

BUD ALBRIGHT, Minority Staff Director

SUBCOMMITTEE ON ENERGY AND AIR QUALITY

RICK BOUCHER, Virginia, Chairman

CHARLIE MELANCON, Louisiana

JOHN BARROW, Georgia

HENRY A. WAXMAN, California

EDWARD J. MARKEY, Massachusetts

ALBERT R. WYNN, Maryland

MIKE DOYLE, Pennsylvania

JANE HARMAN, California

TOM ALLEN, Maine

CHARLES A. GONZALEZ, Texas

JAY INSLEE, Washington

TAMMY BALDWIN, Wisconsin

MIKE ROSS, Arkansas

DARLENE HOOLEY, Oregon

ANTHONY D. WEINER, New York

JIM MATHESON, Utah

J. DENNIS HASTERT, Illinois,

Ranking Member

RALPH M. HALL, Texas

FRED UPTON, Michigan

ED WHITFIELD, Kentucky

JOHN SHIMKUS, Illinois

JOHN B. SHADEGG, Arizona

CHARLES W. ‘‘CHIP’’ PICKERING,

Mississippi

STEVE BUYER, Indiana

MARY BONO, California

GREG WALDEN, Oregon

MIKE ROGERS, Michigan

SUE MYRICK, North Carolina

JOHN SULLIVAN, Oklahoma

MICHAEL C. BURGESS, Texas

(II)

(III)

C O N T E N T S

Page

Baldwin, Hon. Tammy, a Representative in Congress from the State of Wisconsin, opening statement ................................................................................... 10

Barton, Hon. Joe, a Representative in Congress from the State of Texas,

opening statement ................................................................................................ 5

Boucher, Hon. Rick, a Representative in Congress from the Commonwealth

of Virginia, opening statement ............................................................................ 1

Burgess, Hon. Michael C., a Representative in Congress from the State of

Texas, opening statement .................................................................................... 9

Butterfield, Hon. G. K., a Representative in Congress from the State of

North Carolina, opening statement .................................................................... 12

Dingell, Hon. John D., a Representative in Congress from the State of Michigan, opening statement ....................................................................................... 3

Doyle, Hon. Michael F., a Representative in Congress from the Commonwealth of Pennsylvania, opening statement ...................................................... 9

Harman, Hon. Jane, a Representative in Congress from the State of California, opening statement ........................................................................................ 6

Hastert, Hon. J. Dennis, a Representative in Congress from the State of

Illinois, opening statement .................................................................................. 3

Inslee, Hon. Jay, a Representative in Congress from the State of Washington,

opening statement ................................................................................................ 14

Shadegg, Hon. John B., a Representative in Congress from the State of

Arizona, opening statement ................................................................................. 12

Shimkus, Hon. John, a Representative in Congress from the State of Illinois,

opening statement ................................................................................................ 8

Sullivan, Hon. John, a Representative in Congress from the State of Oklahoma, opening statement .................................................................................... 14

Upton, Hon. Fred, a Representative in Congress from the State of Michigan,

opening statement ................................................................................................ 7

Walden, Hon. Greg, a Representative in Congress from the State of Oregon,

opening statement ................................................................................................ 11

WITNESSES

Lazear, Edward P., Chairman, Council of Economic Advisers ............................ 17

Prepared statement .......................................................................................... 51

Nason, Nicole, Administrator, National Highway TrafficSaety Administration 15

Prepared statement .......................................................................................... 50

(1)

REVIEW OF THE ADMINISTRATION’S ENERGY

PROPOSALS FOR THE TRANSPORTATION

SECTOR

WEDNESDAY, FEBRUARY 28, 2007

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON ENERGY AND AIR QUALITY,

COMMITTEE ON ENERGY AND COMMERCE,

Washington, DC.

The subcommittee met, pursuant to call, at 10:05 a.m., in room

2123 of the Rayburn House Office Building, Hon. Rick Boucher

(chairman of the subcommittee) presiding.

Present: Representatives Butterfield, Markey, Wynn, Doyle, Harman, Gonzalez, Inslee, Baldwin, Matheson, Dingell (ex officio),

Engel, Hastert, Upton, Shimkus, Shadegg, Pickering, Walden, Sullivan, Burgess, and Barton (ex officio).

OPENING STATEMENT OF HON. RICK BOUCHER, A REPRESENTATIVE IN CONGRESS FROM THE COMMONWEALTH

OF VIRGINIA

Mr. BOUCHER. This morning, we will be continuing our focus on

the appropriate congressional response to climate change, with the

first in what will be a series of hearings on the transportation sector.

Our subject today is the proposal by the administration for statutory authority to raise the Corporate Average Fuel Economy standard for passenger cars above the current standard of 27.5 miles per

gallon.

The administration’s proposal would also, for the first time, empower NHTSA to establish different fuel economy standards for different classes of passenger cars, and for the first time, establish

fuel economy credit trading among auto manufacturers.

In the administration’s view, as expressed by the President in his

State of the Union Address, these far reaching CAFE changes

would serve to reduce fuel consumption by the motoring public, and

also address the challenge of climate change.

The administration’s proposal has now been submitted to the

committee as draft legislation. It raises fundamental questions

which we will explore with our witnesses this morning. One obvious question is whether different fuel economy standards for different classes of passenger cars might create a perverse incentive

for manufacturers to build more of the larger, less fuel-efficient vehicles, and correspondingly, fewer of the smaller, more efficient

cars.

2

The draft asks for authority to distinguish categories of passenger cars for fuel economy purposes, based on attributes, but the

term attributes is not defined. Characteristics of cars that affect

fuel economy can vary widely, and so we are asking today what the

word attribute means. Can the administration create greater definition of what it intends through the use of the word attributes.

The draft bill proposes a trading system for fuel economy credits,

presumably akin to the trading system that is now in place for sulfur dioxide emissions, but there are major differences between electric utilities, that largely do not compete with each other, and the

very highly competitive automobile industry, where depending on

the circumstances, manufacturers might prefer to pay penalties for

CAFE noncompliance rather than to purchase credits for fuel economy from a competitor that would involve giving revenue to that

competitor. And we must ask whether there is any analysis showing that tradable fuel economy credits would actually save fuel.

I am also interested in the administration’s view of how its

CAFE proposal for passenger cars would fit within a framework of

greenhouse gas control. Later this year, our subcommittee will

process control program legislation to address the climate change

challenge. I am interested in the views of the witnesses about

whether the CAFE changes that are now before us would complement that effort, whether other kinds of CAFE changes would

better achieve greenhouse gas reductions, or whether an entirely

different approach would be preferable for the transportation sector

component of greenhouse gas program controls.

I really don’t anticipate that the witnesses will have complete answers to these climate change questions today, but I am outlining

these questions in order to demonstrate our concern that we must

view the CAFE proposal within that larger context.

So, I want to say welcome to the witnesses this morning. We appreciate your being with us and sharing your views, and before we

turn to your statements, we will welcome opening statements by

other members of the subcommittee.

Pursuant to the rules of the committee, any member who waives

an opening statement will then have 3 minutes added to the time

allotted to that member in order to ask questions.

This morning, I want to say a word of welcome to the ranking

member of our subcommittee, and we are honored in this subcommittee to have as our ranking member Denny Hastert from Illinois, the former Speaker of the House of Representatives. Denny

performed, I think tremendously well in his role as Speaker, and

I believe, has the distinction of being the longest standing Republican Speaker of the House of Representatives in American history,

and that is an enormous accomplishment, which demonstrates the

merit with which he carried forward that work. Denny was not

present for our first hearing. He is present today, and I want to

welcome him to the subcommittee, and say how honored we are to

have him serving in this position, and how much I personally look

forward to working with him as we embark on the work of the

110th Congress.

And so, Denny, with those words of welcome, we would be glad

to have your opening statement.

3

OPENING STATEMENT OF HON. J. DENNIS HASTERT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF STATEOF

ILLINOIS

Mr. HASTERT. Well, thank you, Mr. Chairman, and thank you for

your kindness.

Mr. Chairman, I appreciate you holding this important hearing.

CAFE is back before this committee, this time as an administration

proposal, part of the President’s Twenty in Ten Initiative, with a

goal of reducing U.S. gasoline usage by 20 percent in the next 10

years. While the goals of this proposal are laudable, we need more

information as to how the details would work. The hearing will provide that.

Reducing gasoline consumption, in part by strengthening CAFE

standards, addresses America’s need for energy security, and must

be part of our deliberations on energy and environmental policy.

The CAFE bill that passed this committee last year, like today’s

administration bill, would have given the Department of Transportation authority to establish fuel economy standards for passenger

cars on a model size by model size basis.

This approach to greater fuel efficiency is certainly as timely as

ever. The administration’s suggested 4 percent increase in fuel efficiency is controversial. Costs to automakers, the technologies involved, the questions regarding the market and consumer choice all

require careful examination. The examination that this committee

gave the question last year yielded a bill with excellent balance, in

my view. Had we enacted it, the CAFE reform process would already be well underway, and we would have begun enjoying the

fuel savings much sooner.

So now, we have some catching up to do. In the process, we will

make certain that whatever we do, safety is not compromised.

Sound science and economics would guide fuel economy standards,

and the regulatory process will be open and fair. We cannot honor

these values if we merely ratchet up the current passenger car fleet

standards set in a law that—27.5 miles to the gallon. Arbitrary

statutory increases do not take careful account of economic impact,

job loss, technological advance, or consumer choice.

The key is the size-based standard embodies by both the administration bill before us and our bill last year. Automakers now face

a fleet average standard, a standard based on vehicle dimensions

will improve safety by eliminating the incentive for manufacturers

to downsize vehicles, and by increasing incentives for technological

improvements that will lower miles per gallon, and will make passenger cars safer.

I welcome our witnesses today and look forward to their testimony. Thank you, Mr. Chairman.

Mr. BOUCHER. I thank the gentleman, and now recognize the

chairman of the full committee, the gentleman from Michigan, Mr.

Dingell, for 5 minutes.

OPENING STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN

The CHAIRMAN. Mr. Chairman, good morning, and good morning

to everybody.

4

I want to thank you for holding today’s hearing as a part of this

committee’s broad examination into climate change. I want to commend you for the very vigorous and energetic and thoughtful way

in which you are conducting the business of this subcommittee.

I also want to welcome back our good friend, Mr. Hastert, and

hope that his health is good, and say I look forward to working

with him in the future, as we have in the past.

The Corporate Average Fuel Economy program originated in this

committee. It was a response to the first oil crisis in the 1970’s. Its

primary objective was to reduce the Nation’s consumption of imported oil by improving the fuel economy of light duty cars and

trucks. The program has been remarkably successful, but there

have been some shortcomings. Fuel economy today is double that

of 30 years ago, in part, but only in part, because of CAFE.

The program’s flaw is that it regulates what automakers are able

to sell, not what they are technologically capable of producing. The

consumer ultimately determines the average fuel economy of an

automaker’s fleet with what he or she actually buys, and that, of

course, is in good part bottomed on individual choice.

The program is also designed to address challenges very different

from those we face today, in a world that has changed dramatically. The issues have evolved, markets have evolved, technology

has evolved, and almost always in ways not envisioned when we

first wrote CAFE. I believe that, as you do, Mr. Chairman, it is

time for a fresh look at the issue, and to seek answers to some of

the questions now before us.

First is the existing system of regulating fuel economy in the

most effective way to address the Nation’s reliance on petroleum.

Second, faced with conclusive evidence that the globe is warming,

is the CAFE the best way to constrain greenhouse gas emissions

from trucks and cars? Third, what if any alternatives merit our

support?

I note that when Congress first required the Department of

Transportation to set fuel economy standards, the science of global

warming was in its infancy. We now know that greenhouse gas

emissions are warming the Earth, with the potentially significant

consequence to the environment. As motor vehicle use increases

around the world, so does the need to address the corresponding increase of greenhouse gas emissions.

Fortunately, many vehicle and fuel technologies not envisioned

30 years ago are now available, and now viable in the marketplace.

Consumers all across the country can purchase hybrid electric cars,

or one that runs on biofuels. We are close, also, to developing the

next generation of batteries, to making plug-in hybrid and electric

vehicles available for purchase in the next few years. More efficient

methods of production are making ethanol and other biofuels legitimate alternatives to petroleum and will also reduce and lower

emissions of carbon dioxide.

A system to regulate fuel economy without considering the nature of fuel or the level of greenhouse gas emitted may not be adequate. Such a program may discourage the use of fuels that displace petroleum and emit fewer greenhouse gases, but which happen to contain less energy than petroleum. Energy security and

global warming are real problems confronting the Nation and the

5

world. Solutions must account for technological advancements and

their place in the global market.

Finally, we must note the competitive realities of what is a brutal global automobile market, and the disparate impact on American jobs that proposals might have. These are difficult questions,

but they are questions that we will strive to answer. Although I am

concerned with some aspects of the administration’s CAFE proposal, I welcome its ideas, and look forward to working cooperatively with you and the other members of this subcommittee on

these important matters.

The old debate is no longer sufficient. We should clearly identify

the programs and the problems that we seek to bring forward, and

to solve and consider comprehensive legislation that accounts for

the new economic, political, and scientific realities of our time.

I thank you, Mr. Chairman, for recognizing me.

Mr. BOUCHER. Thank you, Chairman Dingell.

Now recognized is the ranking member of the full committee, the

gentleman from Texas, Mr. Barton.

OPENING STATEMENT OF HON. JOE BARTON, A

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS.

Mr. BARTON. Thank you, Mr. Chairman. I, too, want to welcome

our former Speaker and now member of this committee, and ranking member of this subcommittee, Denny Hastert, back to this important subcommittee. He couldn’t have come back on the committee at a better time, given the sensitivity and the importance of

some of the issues that this subcommittee and full committee are

going to be addressing this year.

Last year, the full committee reported a CAFE bill, on a party

line vote, 28 to 26. All the Republicans voted for it, all the Democrats voted against it. It is not the identical bill that the administration has put forward this year. This year’s administration bill

has a cap-and-trade system that is problematic, to say the least,

but the majority in the last Congress did support giving the Secretary of Transportation the authority to explicitly set CAFE standards for cars, which would have given it the identical authority

that the Secretary of Transportation has for light trucks.

Building on the successful reform of the light truck rule, I think

it is important in this Congress that we do give such authority to

the Secretary of Transportation, or consider statutory changes. As

Chairman Dingell just said, the old debate won’t suffice. What is

in vogue this year, as we consider climate change issues, are various cap-and-trade proposals to control CO2 and other greenhouse

gases.

Now, one of the largest emitters, if not the largest emitter of

greenhouse gas in the United States, are not smokestack emissions. It is tailpipe emissions. So, if we are going to have a debate

about cap-and-trade, we are going to have to put tailpipe emissions

on the table.

Now, I am, as the chairman and the subcommittee chairman well

know, I am by no means an advocate of the cap-and-trade system,

but if we are so enamored of cap-and-trade, everybody’s trades and

everybody’s emissions should be included in the policy debate, so

that we can get the most cost-effective and the most commonsense

6

type of proposal, if we are going to go down that road, and again,

I am not saying that we should go down that road.

So, I am very excited to have this hearing today. I have a GM

assembly plant in my district, in Arlington, Texas. That plant assembles the Chevrolet Tahoe, Cadillac Escalade, which are two of

the larger SUVs in the GM product line. So, this is an issue that

is not just generically interesting to me. It is an issue that is district-specific to me, and I am going to follow it very well.

And again, I supported the bill in the last Congress that passed

this committee, but it didn’t go to the floor, to give the Secretary

explicit authority to set standards for cars like it has for trucks. So

I am not opposed to some change in CAFE, but as we move down

that road, it should be done very carefully, and hopefully, with bipartisan support.

With that, I yield back, Mr. Chairman.

Mr. BOUCHER. The Chair thanks the gentleman.

The gentleman from Massachusetts, Mr. Markey, for 3 minutes.

Mr. MARKEY. Mr. Chairman, if I pass now, the 3 minutes is

added to the question period?

Mr. BOUCHER. That is correct.

Mr. MARKEY. Then I would like to pass.

Mr. BOUCHER. OK. The gentleman from Maryland.

Mr. BUTTERFIELD. I think that is a first, Mr. Chairman.

Mr. BOUCHER. Continuing on the Democratic side, the gentleman——

Mr. MARKEY. I didn’t give them up, unfortunately for the witnesses.

Mr. BOUCHER. The gentleman from Maryland, Mr. Wynn.

Mr. WYNN. Thank you, Mr. Chairman. I will pass.

Mr. BOUCHER. The gentle lady from California, Ms. Harman.

OPENING STATEMENT OF HON. JANE HARMAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

Ms. HARMAN. Thank you, Mr. Chairman. As you know, it is a

pleasure to be back on this committee, and I am very proud to be

a member of the subcommittee.

When the CAFE program was started over 30 years ago, the

challenge was to insulate ourselves from Middle East oil shocks.

Who would have guessed that a new generation of lawmakers, and

some oldies, would confront the same challenge today?

The security of our Nation’s energy supply is fragile to the extreme. One need only watch the nightly news to witness the peril

of oil dependent economy. Our transportation sector is a liability

for our planet, too. The Pew Center on Global Climate Change recently reported that the U.S. transportation sector alone emits

more CO2 than the entire economy of any other country besides

China, and China has four times as many people as we do.

In the 21st century, new technologies will revolutionize the way

our economy runs, but not overnight. In the short term, energy efficiency is a must. Transportation accounts for nearly a third of our

Nation’s energy consumption, and that is why CAFE is so important. We need a long-term plan. Decades from now, cars and trucks

on the road, assuming we have roads, must be far more efficient

than they are today. But the technologies will not invent themVerDate 11-SEP-98 10:53 Jun 04, 2007 Jkt 000000 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 Q:\DOCS\110-9 SCOM1 PsN: SCOM1
7

selves. With coherent and consistent Federal policy and initiatives,

which are strictly and fairly enforced, we can drive new technology

to independence on foreign and to slow climate change. That is a

win-win.

And it doesn’t have to cost us jobs. Done right, savings from fuel

costs and investment in technology will pay dividends in jobs and

in economic growth, and the value to our national security will be

priceless.

I look forward to the witnesses, and to asking some questions in

my more limited time than Mr. Markey’s. I yield back.

Mr. BOUCHER. Thank you, Ms. Harman. Mr. Upton for 3 minutes.

OPENING STATEMENT OF HON. FRED UPTON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN

Mr. UPTON. Well, thank you, Mr. Chairman.

I, too, want to welcome Speaker Hastert back to the subcommittee. I am sure that it comes as no surprise to anyone here that I

am intensely interested in the automobile industry, because of its

base in the State of Michigan and Midwest. In fact, I co-chair the

Congressional Auto Caucus with my good friend Dale Kildee.

One of the concerns I have, though, is that when we talk about

transportation and the use of fuel and production of emissions, we

immediately focus on cars and light trucks, ignoring the fact that

approximately 40 percent of the fuel consumption and emissions

come from other transportation, such as heavy trucks, rail, air,

even ships. If we are going to talk about global climate change, it

doesn’t make sense to not talk about the entire transportation industry.

In addition, I think we need to seriously look at the impact of

this particular proposal to the automotive economy. And while I

think that reform of the CAFE system could be productive, to make

sure that we are using the right numbers and criteria for the program, I also believe that the proposed 4 percent rate of increase in

the standard is not reasonable without huge costs on such a short

timeline.

I have seen some estimated numbers on how much the President’s proposal could cost both the auto industry, as well as the

consumers, and I think those numbers are staggering. We are talking about an estimated $100 billion in costs for manufacturers,

$100 billion, and for the consumer, possible price increases of up

to $2,000 per vehicle. It is imperative that, as this committee addresses climate change, that we do so not at the expense of the

auto industry. We must take a reasoned, practical approach, examining all facets of our economy, including the transportation sector.

The U.S. auto industry is a loyal partner that can play truly a

valuable role in pursuing a viable solution, but if we are reckless

in our efforts, the consequences will be grave for auto manufacturing and manufacturing in general across the country.

And I yield back my time.

Mr. BOUCHER. The Chair thanks the gentleman. The gentleman

from Illinois, Mr. Shimkus.

8

OPENING STATEMENT OF HON. JOHN SHIMKUS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS

Mr. SHIMKUS. Thank you, Mr. Chairman. I appreciate you holding this hearing.

This administration’s bill is similar to the bill we passed last

year, as has been stated, and the intent last year was to replace

an out of date approach for the passenger car standards with a

modern, flexible approach already adapted for non-passenger automobile standards.

And Chairman Dingell is right, and the old debate on CAFE

standards is no longer sufficient, based upon a lot of things that

were brought up in the current discussions. We ought to agree that

there are variables that are important to us: safety, sound science,

and economics that will guide fuel economy standards, and a regulatory process that is open and fair.

I think many of us would agree that the market demand ultimately could drive the need for higher CAFE standards, and I have

said this numerous times in the committee process. What moves

the consumer faster than the high cost of gasoline? And we have

just seen over the past 6 months. Where gas prices were high, everybody was rushing to hybrids. Gas prices dropped off, hybrid

sales declined. Gas prices are going back up, guess what? Hybrids

are going to be back in again. And that is a lot faster than whatever we could do here in the public policy arena. Increasing fuel

economy standards in passenger cars would be an added incentive

for consumers in a world of high gases and foreign dependency, and

potentially, even a reduction in greenhouse gases.

I hate this discussion about how much we drive in this country.

When I was stationed in West Germany, I could drive across the

entire country of West Germany in 21⁄2 hours. I can’t get to parts

of my district in 21⁄2 hours. To make a comparison about how much

we drive, compared to how much Europeans drive, is a red herring.

It is a terrible comparison, based upon the size of a country. And

again, my colleague, Mr. Boucher, is bringing up the whole greenhouse gas debate. The election wasn’t decided on global warming,

but it is now the cause du jour of the new majority. And so, it is

a cause du jour, it has to be part of this debate. And it has to be

part of this debate, and as Mr. Upton said, in all the transportation

arena. Let us reclaim some of our jurisdiction on the railroad issue

by talking about miles per gallon used by the railroad industry and

fuel usage. We are good at giving away jurisdiction. We are not

very good at reclaiming jurisdiction, and I think this debate could

be the arena by which we start doing that.

The other thing that is critical is looking at the hydrogen economy and new technology. Renewable fuels, coal to liquid, and the

like, and science has to be a determinant factor on the next generation of fuels, which is the hydrogen economy.

Thank you, Mr. Chairman. My time has expired.

Mr. BOUCHER. The Chair thanks the gentleman. The gentleman

from Pennsylvania, Mr. Doyle, for 3 minutes.

9

OPENING STATEMENT OF HON. MIKE DOYLE, A REPRESENTATIVE IN CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA

Mr. DOYLE. Thank you, Mr. Chairman.

Mr. Chairman, there are two things that I believe are

uncontested facts when it comes to the question of breaking our reliance on foreign oil. The first is that American innovation is the

only way to break the stranglehold, and the second is that American innovation needs a strong Federal funding commitment if it is

going to achieve the lofty goals the President has declared.

Unfortunately, the President’s budget continues his trend of

identifying a problem, but not funding the solution. His Twenty in

Ten proposal declares that new technology, coupled with higher

production of alternative fuels, will reduce our gasoline consumption by 15 percent, while more flexibility under the current law will

give him the final 5 percent. Yet he brings no new funding to the

table to achieve this.

At a time when we spend more money in Iraq in 3 months than

we spend on the entire Department of Energy for the year, I find

it insulting to every member of this committee that he just continues to shift funds, instead of providing the seed money that American innovators need. It is time to call a spade a spade, so we can

move past these shell game proposals, and move to create the

framework under which American innovation can flourish.

Mr. Chairman, this policy is like we have seen year after year,

all flash, no cash, it is time for this House to put our money where

his mouth is.

And I yield back.

Mr. BOUCHER. The Chair thanks the gentleman, and recognizes

the gentleman from Texas, Mr. Burgess, for 3 minutes.

OPENING STATEMENT OF HON. MICHAEL C. BURGESS, A

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS

Mr. BURGESS. Thank you, Mr. Chairman, and thank you for holding this hearing.

I haven’t been shy in the past about making my position known

that I believe our best bet to decrease the consumption of gasoline,

at least over the short term, is to increase the number of hybrid

cars on the road. I have owned a hybrid for now nearly 3 years,

and I have logged a lot of miles across north Texas during that

time, and although I bought the car because of concerns about air

quality in our nonattainment area, when the gas prices got so high,

I looked positively brilliant for making that purchase.

But we are here today to talk about CAFE standards. Hard to

think about CAFE standards without visualizing a Yugo. I have got

some serious reservation about the whole CAFE system. It forces

manufacturers to make cars that no one wants. That is not good

for the long-term viability of our auto manufacturers, and it does

nothing to reduce energy consumption, and it certainly cripples innovation.

It is consumer demand and consumer choice that will ultimately

determine the fuel economy of the vehicles that are actually on

America’s highways. Until consumers realize that there is a direct

correlation between energy prices, dependence on foreign oil, and

10

their SUVs or other big gas consumers, we will simply not see a

change in consumer habits.

Today, there are many more hybrids on the road than there were

a year ago, which is more than there were on the road 5 years ago.

The market has recognized this increase in demand, and now,

there are even more models available to choose from, including for

us down in Texas, our official car of Texas, the hybrid SUV.

The tax incentives for the purchase of hybrid and alternative fuel

vehicles in the energy bill helped to encourage the purchase of

more of these fuel-efficient cars, but the primary driver behind this

trend is consumer demand. I would like to see this committee examine market-based alternatives to the CAFE system, but as long

as we are functioning within that system, I believe that the Bush

administration’s vehicle class approach makes some sense, although I do have reservations about the workability of the credit

trading proposal.

I would like to note that this proposal is very similar to legislation we considered in this committee during the 109th Congress

under the leadership of then-chairman and now ranking member

Joe Barton, and I look forward to hearing from our witnesses today

on the proposal.

I yield back.

Mr. BOUCHER. The Chair thanks the gentleman, and recognizes,

for 3 minutes, the gentlewoman from Wisconsin, Ms. Baldwin.

OPENING STATEMENT OF HON. TAMMY BALDWIN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WISCONSIN

Ms. BALDWIN. Thank you, Mr. Chairman.

The tide has clearly begun to turn in our country, and we are

thinking about how we, as Americans, can be more energy independent. We are becoming more conscious of the energy impact

that each one of us makes, and we are just beginning to think

about and discuss questions like what our Nation would look like

in a post-petroleum era and economy. These conversations about

our immediate and more distant future are important to have.

What role will hydrogen, cellulosic ethanol, and carbon sequestration play in reducing our greenhouse gas emissions, and in helping

us to meet our future energy needs? What investments in research

need to be made so that the technology is available to make our

country more energy independent?

The discussions about our future energy supply are important

and necessary at this time, but we can also not lose sight of the

steps that we can take in the here and now to lessen our energy

use.

We can ensure that our appliances are the most energy-efficient

possible, that products operating in standby mode are not wasting

enormous amounts of energy, and that our cars and trucks operate

with the best miles per gallon ratio possible. Unfortunately, this is

where I believe we have failed the American consumers. We have

not required that manufacturers take the most energy-efficient and

technologically advanced products available. We have set standards

that fall far below the levels that we are capable of achieving.

Quite frankly, I think we have taken the easy way out.

11

Last year, the Department of Transportation did just this, in my

opinion. We reformed the light truck CAFE program with rules

that fall short if we are going to meet our most pressing energy

needs. This rule completely excluded pickup trucks from increased

fuel economy standards, and it only increased the fuel economy of

SUVs and vans by a mere 1.8 miles per gallon over a 4-year period.

They are minimal changes to say the least, and the technology exists for us to do far better.

Now, the Department of Transportation wants the authority to

set fuel economy standards for passenger cars. The proposal will

grant NHTSA authority similar to what it has for light trucks, but

there is nothing in this proposal that requires NHTSA to make significant, meaningful steps that will truly make a difference in our

fuel economy standards. In fact, there is nothing here before us to

require NHTSA to act at all.

So, I am skeptical of the administration’s motives in seeking the

authority, of their desire to act, and of their interest in making real

change, change that can be made now, rather than waiting for

years to see where the research or technology will put us.

I hope that our witnesses will address some of my concerns

today, and I am very much looking forward to hearing your testimony.

Thank you.

Mr. BOUCHER. Thank you. The gentleman from Oregon, Mr. Walden, for 3 minutes.

OPENING STATEMENT OF HON. GREG WALDEN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OREGON

Mr. WALDEN. Thank you, Mr. Chairman.

I will keep my remarks short, but I am really looking forward to

this hearing. As somebody who represents a district that covers

nearly 70,000 square miles, you can imagine my constituents spend

a lot of time on the road, and they want to be able to drive vehicles

that get the best mileage possible, while ensuring their safety and

their ability to haul things that weigh a lot, like horses and cattle.

And so, somewhere in this process, I hope we can continue to move

forward on fuel efficiency in America’s fleet, but do so in a way that

provides them the horsepower they need and the safety they require.

I have been pleased with some of the initiatives from the administration, and a lot of the work out of this committee, where we

have invested in new technologies that we know are going to be out

there for us in the long term that can’t be achieved immediately,

like hydrogen fuel cell vehicles. There is a company in my district

that has been on the forefront of hydrogen fuel cell technology development. I have met with them several times, and in fact, Jim

Connaughton, and I toured him around that facility at one point.

It is very impressive what America’s professional engineers and scientists are doing to move us forward in new energy-efficient ways.

We need a long-term look.

I think what this committee did and what this administration

proposed, to put incentives in place, to encourage people to buy hybrid vehicles makes a lot of sense, and is having a dramatic effect

in the marketplace. But even with those incentives, we don’t see

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an overwhelming consumer movement to them, even though the

percentages are coming up.

So, I look forward to the discussion on CAFE standards. I look

forward to the discussion on both short-term and long-term efforts

we can continue to undertake to improve efficiency, to make America more energy independent, to develop new resources that reduce

pollutants, and make America a better place. So I appreciate your

initiatives, and I think you will see a lot out of this committee, as

we have in the past.

So, thank you, Mr. Chairman. I appreciate the time.

Mr. BOUCHER. The Chair thanks the gentleman, and recognizes

the vice chairman of this subcommittee, the gentleman from North

Carolina, Mr. Butterfield.

OPENING STATEMENT OF HON. G. K. BUTTERFIELD, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NORTH

CAROLINA

Mr. BUTTERFIELD. Mr. Chairman, I too thank you for convening

this important hearing today, and you told us at the beginning of

the 110th Congress that you were serious about creating good energy policy in this country, and I thank you very much for this

hearing today.

There is no question, Mr. Chairman, that I am a supporter of increasing overall fuel economy of passenger vehicles and light

trucks, as part of a larger solution to our Nation’s growing emissions problems. I talk with members of this committee from time

to time, and other Members of the House, and persons from the industry as well, and I believe that there is an intelligent, bipartisan

way that we can resolve this issue.

I do not believe that the bill we will discuss here today is the

best way, or the smartest way, to go forward. I have been surprised

by the administration’s approach to crafting this proposal, quite

frankly. This is a serious matter that requires bipartisan serious

thought and planning, but by all estimates that I have heard from

the industry and from colleagues and agencies in our Government,

there has been no recent analysis of whether the systems in this

legislation will work, or if industry will have any impetus to abide

by them. Frankly, I have seen no recent analysis that indicates

that this approach will have any significant impact whatsoever.

So, I thank you, Mr. Chairman, for this hearing. I am going to

do very little talking. I will let Mr. Markey and others do that, but

I am going to do a lot of listening today.

I yield back.

Mr. BOUCHER. The Chair thanks the gentleman, and recognizes

the gentleman from Arizona, Mr. Shadegg, for 3 minutes.

OPENING STATEMENT OF HON. JOHN B. SHADEGG, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ARIZONA

Mr. SHADEGG. Thank you, Mr. Chairman, and I appreciate your

holding this hearing. I will keep my remarks brief.

Let me simply say that I believe it is important to learn lessons

from what we have done in the past, and I think those lessons indicate that whenever Congress gets down in the detail of setting specific standards, we discover that we make a mistake. When we set

13

broad, general standards, or when we give experts the discretion to

set standards, such as the CAFE standards, it seems to me we enable the system to be flexible enough to work.

If you look at our experience in the past, when we have said specifically you must use certain specific oxygenates, we have created

problems. On the other hand, if we say here is what you must do

to clean the air, we succeed. So, I believe it is a mistake for the

United States Congress to set the specific CAFE standard. I believe

that is better delegated to expertise at the Government agencies involved, and not to have the Congress prescribe it.

And so, I hope that is the direction in which we move. They can

evaluate all the different factors, then they can move, quite frankly, more quickly than we can. I believe that typically, when a Congress tries to set the standard, it cannot move quickly enough to

match the science. So, I would urge us not to have the United

States Congress specify a specific mileage standard under CAFE,

but rather, to leave that authority where it can be adjusted most

rapidly.

The second point I want to make is that I believe it is a grave

error for us, and I disagree with the Bush administration on this

issue, to quintuple or otherwise dramatically increase the ethanol

mandate. I think we can already see a serious problem with the

ethanol mandate that has been put in place. I met yesterday, I am

sorry, day before yesterday, in Arizona, with executives in the food

industry in Arizona, and they are telling me that because of the existing ethanol mandate, the price of corn has almost doubled across

the country, driving up food prices in a variety of areas, and that

unless we change agriculture policy, which might be a good idea,

to allow more corn and other crops to go into production, the ethanol mandate is going to drive up the cost of food in this country

quite dramatically, and that will have the greatest impact upon the

poorest Americans. I think you can already see that in the crisis

in Mexico, where the Government of Mexico has faced a revolt by

the people, because of the increase in the cost of corn, and its ripple

effect through the Mexican economy, and quite frankly, in the food

supply in Mexico.

So, I would prefer to see us let the market decide what is the

proper mix for alternative fuels. If, in fact, ethanol is the best alternative fuel at this point, so be it, but let the market dictate that.

Earlier last year, I tried to suspend the excessive tariff on imported

ethanol, because I believe that simply drove up the cost of gasoline

at a time when gasoline in America was well over $3 a gallon. I

believe that we need to pursue alternative forms of energy, but

having the Congress artificially decide which is the correct policy

to do that, and that it is, in fact, corn, or ethanol based on corn,

as opposed to, perhaps, ethanol based on other cellulose products,

or alternatives to ethanol, again gets the Congress in the wrong position, and has ripple effects, including increasing the cost, for example, of food to America’s poorest, and I don’t think that is good

public policy.

So, I look forward to hearing the witnesses’ testimony, and appreciate your holding the hearing.

Mr. BOUCHER. The Chair thanks the gentleman and recognizes

the gentleman from Washington State, Mr. Inslee, for 3 minutes.

14

OPENING STATEMENT OF HON. JAY INSLEE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WASHINGTON

Mr. INSLEE. I just want to dedicate my comments to my mom,

who spent summers re-vegetating the Alpine Meadows up on the

beautiful flanks of Mount Rainier, and she loved those meadows,

and those meadows are going to disappear by the time her greatgreat-grandchildren are around, if we don’t do something about

global warming, because the tree line is rising, which squeezes out

the meadows, and they are drying up, because of concerns about

water in the summer, in Washington State.

And I think, in her memory, we need to do something to dramatically reduce the carbon emissions from our transportation fleet,

and I think we need to start talking about a post-petroleum future

for a significant part of our fleet, and unfortunately, I don’t believe

the existing CAFE system does that.

I would submit that if we are going to succeed in taming the

beast of global warming, which I believe we will succeed in doing,

we are going to have to structure incentives to the industry in policies that are fit for the post-petroleum age, and that means that

we have to find a way to move to a system that is carbon emissions

per mile, not just miles per gallon. In the world of cellulosic ethanol, and in the world of plug-in vehicles, and in the world of fuel

cell vehicles, mileage, or miles per gallon is an artifact of the previous century.

And I do believe we should raise CAFE standards, to find a way

to do that with our existing fleet, but we have to leapfrog this discussion. We have to leapfrog our transportation future into a postpetroleum situation. There is no way on this green Earth to cut our

emissions 80 percent, which we and our kids are going to have to

do to tame this beast, if we are driving cars based on petroleum.

So, we are going to have to find a way and an incentive package

to incentivize actions in the industry to move off of petroleum to

other fuel sources.

Now, the good news is these are very close to commercialization.

We had the GM Voltair, a pre-production car. Everything is stock

on it, except the batteries, and A123 Battery Company has got lithium ion batteries that are powering our power tools today, and

they are going to be ready in a few years with a commercial package where you can drive your car 20 to 40 miles, plug it in at night,

and then run it on cellulosic ethanol, and get 100 miles a gallon

on that.

So, I just think we need to think a lot bigger than we are thinking here on getting into these leapfrog technologies, and really revamping the system.

Thank you.

Mr. BOUCHER. The Chair thanks the gentleman, and recognizes

the gentleman from Oklahoma, Mr. Sullivan.

OPENING STATEMENT OF HON. JOHN SULLIVAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF

OKALHOMA

Mr. SULLIVAN. Thank you, Mr. Chairman.

It is great to be here. I think that as we go forward in this debate, we need to make sure that we look at everything, not just cerVerDate 11-SEP-98 10:53 Jun 04, 2007 Jkt 000000 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 Q:\DOCS\110-9 SCOM1 PsN: SCOM1
15

tain Band-Aid approaches to our energy policy in this country. And

I think we need to look at each thing collectively, have a global approach to energy policy that we can make sure we do the right

things, and make sure that jobs are still there, that we don’t hurt

certain people, certain sectors of the economy, and I think that is

imperative as we go forward. We can’t just have one thing. Like

CAFE standards isn’t going to do it all. We need to do a lot of

things, and it seems to be a tendency in Washington to do like

Band-Aid approaches to problems, and that will fix it.

I think this is a problem that requires a lot of debate, a lot of

discussion, and we make sure that we make, we protect the economy as well, and we put ourselves at a disadvantage in the global

economy.

Thank you.

Mr. BOUCHER. The Chair thanks the gentleman. That completes

the opening statements, and the Chair now is pleased to welcome

our two witnesses this morning, and I first would like to express

appreciation for your patience, while we express our views on this

very timely subject.

Today, we are joined by the Honorable Nicole Nason, the Administrator of the National Highway Traffic Safety Administration, an

agency within the U.S. Department of Transportation. NHTSA regulates the safety and fuel economy of motor vehicles, and I am

pleased the Administrator is here to assist the committee in its review of both CAFE standards and also climate change.

The Honorable Edward Lazear was sworn in as Chairman of the

Council of Economic Advisers on February 27, 2006, so yesterday

marks his 1-year anniversary as chairman, and we extend congratulations to him for completing his first year of service. He is

on leave of absence from Stanford University, and has written or

edited nine books, and published more than 100 papers. The committee welcomes his expertise in economics and policy, as it reviews the administration’s transportation proposals.

Both of your prepared statements will be made a part of the

record, and we would welcome your oral summaries of approximately 5 minutes, and Ms. Nason, we will be pleased to begin with

you.

STATEMENT OF NICOLE NASON, ADMINISTRATOR, NATIONAL

HIGHWAY TRAFFIC SAFETY ADMINISTRATION

Ms. NASON. Good morning. Thank you, Mr. Chairman.

I am going to try to summarize my statement, to preserve my

voice for questions and answers.

Let me thank you, Mr. Chairman, and the members of the committee for inviting us here today to discuss the Corporate Average

Fuel Economy standard for passenger cars. I know that Chairman

Lazear is going to speak more broadly about the President’s Twenty in Ten proposal, so I will keep my remarks to the draft legislation that we provided to this committee a few weeks ago.

The Bush administration already has a history of reforming and

improving fuel economy standards. Consider our record on light

trucks, which comprise half of the vehicles sold today, as this committee knows. Members may recall that this administration has

16

raised the CAFE standards for light trucks for 7 consecutive years,

from 2005 to 2011.

Our 2006 light truck rule will not only save a record amount of

fuel, it regulated, for the first time, some of the heaviest light

trucks. However, we believe the method by which these accomplishments were achieved is probably the most important. In its 2002

study on CAFE, the National Academy of Sciences found that while

the CAFE program did fulfill its original goals, it contained flaws

that were preventing the program from living up to its full potential.

For example, one of the NAS criticisms was that the program

concentrated most of the regulatory requirements on a few full line

manufacturers. This resulted in some manufacturers already above

the standard not being required to make any further improvements

in fuel efficiency. This means we are continuing to lose potential

fuel efficiency in the fleet.

Next, the NAS estimated that CAFE had probably cost between

1,300 and 2,600 lives in one year alone, 1993, because the standards were structured in a way that enabled automakers to meet

much of their compliance obligations by downsizing their vehicles.

NHTSA carefully considered the NAS study, and methodically developed a new structure for light truck CAFE standards that addressed these criticisms.

This new system, which we call Reformed CAFE, is based on requiring automakers to improve fuel economy not by downsizing,

but by adding fuel saving technologies. Basing CAFE on adding

fuel saving technologies has a number of benefits.

First, by setting fuel economy targets for every size vehicle, instead of having one flat standard, every model of vehicle will potentially have to improve fuel economy. Reformed CAFE ensures that

all vehicles, small, medium, or large, may become more fuel-efficient.

Second, under Reformed CAFE, there is no longer an incentive

for automakers to improve their fleet by downsizing. By removing

this incentive, we can raise the CAFE standard without decreasing

safety.

Third, since Reformed CAFE demands greater fuel efficiency

from every model of vehicle affected, every automaker will share

the regulatory burden for improving fuel economy, not just a few.

And finally, the administration’s bill, draft bill contains a voluntary

CAFE credit, a trading provision which could help alleviate regulatory costs for manufacturers.

Mr. Chairman, the President has stated his desire to raise the

fuel economy standard. We are pleased to have a part in his Twenty in Ten proposal. We believe that having experts develop this

standard, using sound science and data, in an open and reviewable

rulemaking process, is the most responsible way to determine a

new CAFE standard.

If Congress authorizes the Secretary to reform CAFE for passenger cars, we will immediately begin working on a rulemaking to

boost passenger car fuel economy. And if the administration’s draft

legislation is enacted soon, cars rolling off the assembly line for the

2010 model year will have to meet a higher CAFE standard.

17

Mr. Chairman, given NHTSA’s successful experience with setting

the fuel economy standard for light trucks, we believe we have

demonstrated our capability to set balanced standards for passenger vehicles, given the authority to do the reform.

Thank you, and I would be pleased to answer the committee’s

questions.

[The prepared statement of Ms. Nason appears at the conclusion

of the hearing.]

Mr. BOUCHER. Thank you, Ms. Nason.

Mr. Lazear.

STATEMENT OF EDWARD P. LAZEAR, CHAIRMAN, COUNCIL OF

ECONOMIC ADVISERS

Mr. LAZEAR. Thank you. Good morning, Mr. Chairman, and

members of the committee. Thank you for giving me the opportunity to be here to discuss the President’s plan to enhance energy

security.

The President’s plan has four pillars. The first two pillars focus

directly on the President’s goal of reducing the use of gasoline in

the United States by 20 percent in 10 years. First, the President

has called for an increase in the supply of renewable and alternative fuels by setting a mandatory alternative fuels standard, to

require 35 billion gallons of renewable and alternative fuels in

2017, which is nearly five times the current requirement for 2012.

Approximately three-quarters of the targeted reduction in gasoline

would come through the use of the alternative fuel standard.

Second, the President believes that we should reduce our demand

for fuel by reforming and modernizing the Corporate Average Fuel

Economy standards for cars. Changes to CAFE standards account

for the remaining quarter of the saving necessary to meet the

President’s goal, potentially saving another 8.5 billion gallons by

2017.

Third, the President has proposed additional funding for energy

innovation and technology, including bioenergy research and loan

guarantees for cellulosic ethanol plants. Fourth, the President proposed doubling the capacity of the Strategic Petroleum Reserve to

enhance our ability to deal with severe supply disruptions caused

by natural disasters or a terrorist attack to the supply chain.

The President believes that bold steps are warranted. Improving

our energy security is a goal on which we can all agree. To do this,

he has outlined a variety of measures that will diversify our energy

supply and increase energy efficiency. The Twenty in Ten plan was

designed with these goals in mind.

Additionally, the plan undertakes to accomplish these goals in an

environmentally sensible way. Most important, the President has

made clear that we must accomplish these goals without damaging

the American economy. This is foremost in his mind, especially because the market, unfettered by government, is the most effective

driver of innovation, that strengthens energy security.

Changes in prices create the incentives necessary for scientists,

farmers, industry leaders, and entrepreneurs to find the means to

diversify our fuel supply and increase efficiency. As such, the President’s policies, that he has proposed, while bold, are not Draconian.

The proposals build on existing programs, and the reforms allow

18

for American companies to comply with the targets in ways that

will not compromise their ability to compete internationally.

Two principles are important in evaluating these proposals: technology neutrality and flexibility. The President’s alternative fuel

proposal builds on existing renewable fuel standards to include virtually all alternative gasoline, alternatives to gasoline, rather than

just renewable fuels. Additionally, there is flexibility embedded in

both the alternative fuels standard and the CAFE proposal, so that

significant distortions to the economy can be avoided.

The proposed alternative fuels standard includes two safety

valves, one through administrative discretion, one automatic, that

would limit the economic costs. Furthermore, there is discretion

given to the Secretary of Transportation, who can alter CAFE targets in ways that are compatible with preserving safety, technological developments, and cost-benefit analysis. These provisions

prevent a system on automatic pilot from taking us down unanticipated paths that are inconsistent with the goals we set. It means

we can have an approach that is responsive, but one that is also

consistent with economic realities. CAFE provisions also extend the

existing credit framework, by allowing credits to be traded, granting manufacturers additional flexibility, and lowering their costs.

Finally, as my colleague, Nicole Nason, explained in her testimony, the President’s call for an attribute-based CAFE system for

cars would help address both safety and distributional concerns. By

remaining open to new technologies and ensuring flexibility, the

policies proposed by the President have the virtue that they cause

minimal economic disruption, yet yield the promise of moving us

toward a worthy goal.

I welcome your questions.

[The prepared statement of Mr. Lazear appears at the conclusion

of the hearing.]

Mr. BOUCHER. Well, I want to say thank you to both of our witnesses for joining us this morning and sharing that information.

The proposal that has been sent to the committee now in draft

legislative form breaks new ground in a couple of important ways.

First of all, it for the first time would authorize the establishment

of fuel economy standards for different classes passenger vehicles,

rather than passenger vehicles as a single category. And secondly,

it would for the first time establish a tradable fuel economy credit,

and I have several questions I would like to propound about both

of those proposed changes.

With regard to different fuel economy standards for different

classes of passenger cars, some have suggested that if such a program were put into place, the incentive for manufacturers might be

to create larger, less fuel-efficient vehicles, and perhaps fewer of

the smaller, more efficient vehicles, with the result that you really

wouldn’t be achieving overall fuel savings.

Ms. Nason, would you care to respond to that?

Ms. NASON. Yes, thank you, Mr. Chairman.

We have heard the concern regarding upsizing, and when you set

a class by class, an attribute-based system, you have targets for vehicles of a particular class. Size or weight is generally the attribute

that most closely correlates with fuel efficiency. And that there

could be an incentive, some believe, for manufacturers to look at

19

the targets for the higher, larger vehicles, and just decide that that

is all they are going to make.

And I think I would respond to that in two ways. First, there is

no incentive under Reformed CAFE to make large or medium or

small. We deliberately preserve consumer choice by requiring technology improvements in all vehicle sizes, so that manufacturers can

decide to make the products that they believe people want to buy. If you are going to be required to have, say, a $200 change in an engine, a technology improvement, it is going to be $200 for that

engine, notwithstanding what vehicle you might put that engine in,

so there is no incentive that we see to upsize the vehicles.

And I guess the other point I would just make is one of practical

market. We saw what happened last summer. Gas prices went up

after Hurricane Katrina. The market for large vehicles plummeted

almost overnight. There was a near 30 percent drop, and so, I don’t

think that it is in any manufacturer’s best interest to decide that

they are only going to make vehicles based on a particular CAFE

standard. We have never seen that historically. That is not why

people buy their vehicles, so we don’t anticipate that as a real problem.

Mr. BOUCHER. You also have in your legislation this phrase attributes, and apparently attributes would be related to various

characteristics of the automobile that would relate to fuel economy.

Give me some indication of what you mean by attributes. That

phrase is not defined, and it could be virtually anything.

Ms. NASON. Right.

Mr. BOUCHER. You know, how large the luggage rack is, or how

heavy the mirror is. I mean, I think some added definition would

be extremely important, if, in fact, this proposal were to move forward.

Ms. NASON. We did hear that complaint before, Mr. Chairman,

and we agree. When we say attribute, we are using the National

Academy of Sciences study, and an attribute-based system is one

that most correlates with fuel efficiency, so size or weight. We

would be pleased to work with you and this committee, if you think

it would help us, to provide some clarity in that definition, as we

move forward.

Mr. BOUCHER. Thank you for that.

Mr. Lazear, let me ask you about the trading program, which I

believe you have some ownership of, actually, and perhaps patronage of.

Presumably, this is based on what has been a very successful experience in this country with SO2 trading, which this committee

originated as a part of the 1990 Clean Air Amendments. That program really has worked very well. But that is within the electric

utility industry. These utilities, as a matter, a general matter, do

not compete with each other. They are serving a certificated area,

and each has his own, and so, there is probably not a lot of reluctance for competitive reasons for them to trade credits. That may

account for the success of the program. But the automotive industry is highly competitive, and some have suggested that tradable

credits would not work as well within a competitive industry,

where those doing the trading are competitors each with the other.

What is your response to that?

20

Mr. LAZEAR. Thank you, Mr. Chairman.

I would say that the motivation behind this is based more on

what I would think of as basic economic rationale than it is on

comparison with any particular program per se. What we know is

that giving people options is a good thing. It tends to increase flexibility, and reduce the cost of compliance with any particular program.

I think what the President is most concerned about is that he

would like to move the energy agenda forward. He thinks energy

security is important, but at the same time, is cognizant of the fact

that we don’t want to punish our automobile industry, and wants

to do that in a way most compatible with minimizing economic

costs.

We believe that giving companies the option to trade credits is

one that is a good thing. It is good for the companies, and it is also

good for the workers within those companies. Now, obviously, they

don’t have to exercise that option. They have the alternative option,

under this plan, to simply pay a fee, exercise their right to go to

the safety valve, and do that instead of trading, and in fact, if

tradable credits were to rise in price up to that point, in fact, many

would exercise that alternative.

So, we believe that this is just an additional alternative to reduce

the cost of compliance.

Mr. BOUCHER. OK. Thank you. I have some additional questions,

and we will have a second round of questions for our witnesses. I

will defer those until later.

And I am pleased to recognize the gentleman from Illinois for his

questions.

Mr. HASTERT. Thank you, Mr. Chairman.

Ms. Nason, let me ask you a question. When you get into fuel

economy, you had $11 billion over, in fuel savings, estimated in

your light truck rulemaking. When you get into the situation of flex

fuel automobiles, a lot of them are using 85 percent ethanol, for instance, and the ethanol mileage per gallon is not always as good

as just pure gasoline, do you take into account the drop in miles

per gallon, but yet, the emissions are low? How do you balance that

out?

Ms. NASON. Thank you, Congressman Hastert, as you have

noted, the use of E–85 is growing, and we have certainly seen some

manufacturers make pledges that they will be doubling the amount

of E–85 vehicles on the road.

When we calculate a CAFE standard, we take the tests that are

done by EPA, EPA takes the vehicles, and they run the tests, and

that is where a credit is applied for a flex fuel vehicle. Under current law, it is 0.9, it used to be 1.2, was the most you could get

for a credit for flex fuel vehicles. So, EPA does take that into account when they do the test. And then, when the numbers are applied to NHTSA, and we make the determinations about whether

you were over or under the standard, and whether or not you have

met it, or there was a fee to be applied, that has already been

taken into account by the EPA.

Mr. HASTERT. When you talk about the increase in manufacturers increasing the number of flex fuel automobiles, are you aware

that Underwriters Laboratories, who have to test the pumps for liVerDate 11-SEP-98 10:53 Jun 04, 2007 Jkt 000000 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 Q:\DOCS\110-9 SCOM1 PsN: SCOM1
21

ability reasons, for people who distribute that fuel, are dragging

their feet and not getting those tests done, so even though you

have maybe twice as many flex fuel vehicles out there, the ability

for independents, for instance, groceries stores, others, to buy the

pumps to disperse the fuels, they can’t do it. And so, you have, literally, a glitch in the system. Armed Services use E–85, a lot of

other entities use E–85, but yet, when you have to sell it commercially, they can’t do it. And this might be something that you want

to look into, to urge the expedition of that.

When you were talking, as we said before, the new light truck

rulemaking, it will result in a fuel savings of nearly 11 billion gallons over the life of the light trucks manufactured between 2008

and 2011, what kind of fuel savings do you look at, or guess that

you might have, in the increase in passenger car fuel economy

standards, according to this proposal?

Ms. NASON. We are basing our standard on the President’s goal

that he has set: 8.5 billion gallons of fuel saved in 2017, and the

way that we get to that number is a goal of a 4 percent annual increase. I only stress that it is a goal, because we did not include

it in the draft legislation, as you are aware, because we haven’t

done a full cost-benefit analysis with the best available data.

Mr. HASTERT. Mr. Lazear, the NAS has recommended the dual

fleet rule be eliminated. Why doesn’t your proposal contain such a

provision?

Mr. LAZEAR. We believe that the way that we have set up the

proposal right now guarantees the most flexibility and is consistent

with neutrality, and what we mean by neutrality is that we make

sure that we don’t favor any one particular kind of technology over

another.

Now, the one thing that we are doing, as my colleague has pointed out, is we do believe that attribute-based systems are important,

in terms of guaranteeing safety, but we also want to ensure that

consumer choice is protected, and that would be the main motivation, I would say.

Mr. HASTERT. Thank you.

And Ms. Nason, I do again repeat, we might want to look at

what are the things holding up the ability of distribution of E–85.

To double the number of vehicles won’t do you any good, unless you

can buy fuel.

Ms. NASON. Right. Yes, sir. Thank you.

Mr. HASTERT. Thank you. I yield back.

Mr. BOUCHER. Thank you, Mr. Hastert.

The gentleman from Michigan, Mr. Dingell, for 5 minutes.

The CHAIRMAN. Mr. Chairman, thank you.

Administrator Nason, I want to ask these questions to save the

utmost amount of time, and if you can answer them with a yes or

no, it would be very much appreciated.

Ms. NASON. Yes, sir.

The CHAIRMAN. The reformed light truck rule is not available for

manufacturers until the bottom of the year 2008. Do we have any

appreciation of how the CAFE system, the new one, will work on

light trucks, and how it will perform?

Ms. NASON. Yes.

The CHAIRMAN. We do?

22

Ms. NASON. Yes.

The CHAIRMAN. We do have an idea? Have any studies been performed on this?

Ms. NASON. We have done our own analyses. I don’t know that

there is a study other than the National Academy of Sciences.

The CHAIRMAN. Would you submit to us, then, the work that has

been done, so that we may know what you know about this particular matter, please?

Ms. NASON. Yes, sir.

The CHAIRMAN. Now, has NHTSA studied how a similar system

might work on passenger cars?

Ms. NASON. We have, but I acknowledge it is based on old data.

The CHAIRMAN. It is based on old data?

Ms. NASON. Yes, sir. The best that we had, but several years old.

The CHAIRMAN. Now, has NHTSA studied how a similar system

would affect passenger car safety?

Ms. NASON. No, sir. We have used the National Academy of

Sciences report.

The CHAIRMAN. Now, has NHTSA studied what effect a similar

system, if applied to passenger cars, would have on overall fuel

consumption in the United States?

Ms. NASON. I don’t know if studied would be the right word.

Again, we have rough analyses, but they are based on——

The CHAIRMAN. Well, would you submit to us, first of all, the

studies, and second of all, what information you have with regard

to how this would affect fuel consumption in the United States,

please?

Ms. NASON. Yes, sir.

The CHAIRMAN. Now, has NHTSA studied how the new structure

would work with the existing requirement that manufacturers satisfy CAFE for both foreign and domestic fleets?

Ms. NASON. The National Academy of Sciences did look at that,

sir.

The CHAIRMAN. You have studied that?

Ms. NASON. No, we are using NAS’ work, Mr. Chairman.

The CHAIRMAN. I understand, then, you are telling me that you

have not studied that.

Ms. NASON. No, sir. We are relying on the NAS study.

The CHAIRMAN. I am having trouble hearing, please.

Ms. NASON. I am sorry. We are relying on the NAS study. They

did look at that, and so, we reviewed their work.

The CHAIRMAN. So, you have not studied this yourself.

Would you submit to us the basis upon which you have made any

judgments on this matter, and any information that you have with

regard to this matter, please?

Ms. NASON. Yes, Mr. Chairman.

The CHAIRMAN. Now, has NHTSA studied, and/or considered how

it would preserve domestic production of small automobiles if it is

granted this new authority?

Ms. NASON. We didn’t propose any changes to the two fleet rule,

Mr. Chairman.

The CHAIRMAN. I am sorry.

Ms. NASON. We have not proposed any changes to the two fleet

rule, sir.

23

The CHAIRMAN. All right. Now, Dr. Lazear, has the administration conducted any independent analysis on CAFE trading, credit

trading proposals?

Mr. LAZEAR. No independent analysis of it.

The CHAIRMAN. No independent analysis.

If manufacturers did trade credit, has the administration conducted an independent analysis that demonstrates how it would reduce overall fuel consumption in the United States?

Mr. LAZEAR. Not specifically.

The CHAIRMAN. So, then, we don’t really know what it would do

to reduce fuel consumption. Is that right?

Mr. LAZEAR. We don’t know. We have a target, and our target

would be implemented by the Department of Transportation.

The CHAIRMAN. So, we have a target, but we don’t know how we

are going to get there.

Mr. LAZEAR. Well, we know the method that we would use. The

issue is we don’t know the cost of technological change over time.

The CHAIRMAN. Well, for a hardheaded economist, Doctor, I must

confess I am being driven to the conclusion that you probably are

more suited to the clergy, because your faith and your hope appear

to be more outstanding than the quality of your scientific work

here.

Mr. LAZEAR. Well, I will let my colleagues comment on that.

The CHAIRMAN. The NAS study examined cap-and-trade system

for carbon dioxide emissions. Does the administration support this

kind of credit trading?

Mr. LAZEAR. Cap-and-trade. Right now, this is obviously being

discussed in Congress. This is something that we are going to be

seeing over the next year or so, and we are certainly going to be

considering it.

The CHAIRMAN. Now, your very able predecessor, Mr. Mankiw,

endorsed both a carbon and a gas tax in the Wall Street Journal

on October 20, 2006. Has the administration considered supporting

a tax on carbon or gasoline?

Mr. LAZEAR. We don’t believe that a direct gasoline tax is the

way to go. We believe that this particular proposal accomplishes

the goals with less distortion, and keeps the money in the economy.

The CHAIRMAN. Thank you. Mr. Chairman, thank you for your

kindness.

Mr. BOUCHER. Thank you, Chairman Dingell. The gentleman

from Michigan, Mr. Upton, is recognized for 5 minutes.

Mr. UPTON. Well, thank you. I was wondering if my colleague

from the great State of Michigan was going to change the old saying a wing and a prayer to a wheel and a prayer, based on his

questions.

Ms. Nason, I had a question as it relates to your testimony. You

said, on page third, since Reformed CAFE demands create fuel efficiency from every model of vehicle affected, every automaker will

share the regulatory burden for improving fuel economy, not just

a few.

And what brings that to my attention is the fact that, as we have

heard from our manufacturers, particularly as it related to GM,

they estimated that from the time period 2010 to 2017, the cost for

them would be about $40 billion, and at the same time, the estiVerDate 11-SEP-98 10:53 Jun 04, 2007 Jkt 000000 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 Q:\DOCS\110-9 SCOM1 PsN: SCOM1
24

mated impact on two of their key competitors, Toyota and Honda,

is estimated to be $8.4 billion and $4 billion respectively, and I just

want to know how that fits with your statement that they would

all be affected. Surely, that would be the case, but at least on the

surface, it doesn’t seem like it would be anywhere close to equal.

Would you concur?

Ms. NASON. Yes. I think our only point in suggesting a Reformed

CAFE program, Congressman Upton, is that whether Congress

chooses a number, an arbitrary increase, or the administration

raises it, under a reform, everyone will be required to make some

improvements. There may be some that have to make more than

others.

Mr. UPTON. Well, in this case, it looks like it is to the neighborhood of perhaps as much as ten times as much.

Ms. NASON. Well, the estimates, again, were based on almost 5

year old data. We can’t speak to GM’s analysis, but——

Mr. UPTON. In the last truck CAFE rules issued by the administration, you found that the maximum feasible increase in the light

truck CAFE standards for 2008 to 2011 model years would be an

average of about 2 percent a year, and I think at the time, the administration further noted that increasing the rate any further

than the 2 percent would impose costs that exceed benefits. I am

just wondering if that was true about a year ago, why have you

doubled the 2 percent to 4 percent?

Ms. NASON. Thank you, Congressman.

Mr. UPTON. And might know who suggested that you do that.

Ms. NASON. Well, again, 4 percent is a goal. It is a target. I don’t

know that we will get there, but we will certainly try. The President has made clear that this is a priority for him, and you are correct. We did get to 2 percent under light trucks. We are looking at

passenger cars now, in the hope that we can have an even greater

increase in passenger cars.

Mr. UPTON. Four percent for both, is it not? Did you not do 4 percent for both?

Ms. NASON. Four percent for both, but we would be starting light

trucks several years, 2 years further out.

Mr. UPTON. Well. The other question that I had for you is, as I

understand it, you all last week issued a request for product plan

information from the automakers from 2010 to 2017, and my question is, if you didn’t have such information on hand when you made

this proposal, how is it that you ended up coming up with the numbers that you did?

Ms. NASON. Two points. The other point I was going to make,

Congressman, is that we are proposing a rulemaking on the 4 percent issue, from 2010 to 2017. It would be a longer rulemaking, and

it would be further out, a decade out, which is part of the reason

why we thought we could still have net benefits at 4 percent.

We did ask for product plans, because of course, without the best

available data, we are making rough estimates. We absolutely acknowledge that.

Mr. UPTON. Mr. Lazear, would you want to comment on any of

those questions?

25

Mr. LAZEAR. I think my colleague handled it well, unless you

want to follow up with anything specific. I am happy to answer

your questions, but I thought she handled it.

Mr. UPTON. Well, thank you. Again, we all do care about fuel

economy. I am in the market for a new vehicle, and one of the

questions that I did ask was the fuel economy, it does have an impact on every purchaser, I think, that is out there. And I guess one

of the things that I would like to see, as we see these improvements come, we do need some reforms, there is no question about

that. They need to be appropriate ones. I don’t just want to necessarily see all of the costs, total, be borne, perhaps, by the manufacturers, at a disparity of perhaps as much as tenfold between

some of them.

And look forward to working with the chairman and others on

the committee to, in fact, watch us move forward, and I yield back

my time.

Mr. WYNN [presiding]. I thank the gentleman. It appears that I

have taken the chair at an opportune time, because it is my turn

for asking questions.

I am concerned about the notion of cost-benefit analysis, and exactly how it would work. And forgive me if you have covered this

earlier, but I would like you to explain to me exactly how you are

going to analyze cost, and I know there are some kind of traditional

indicators you use, that the industry provides, lost jobs, and this

sort of thing, but there are also is an element of benefit that I

think is somewhat difficult to define, but very important, which is

the quality of our air, the impact of reducing global warming, and

if we don’t have a real way to incorporate these hard to define values and benefits into this cost-benefit analysis, it seems to me that

we are basically going to be operating off of kind of the old school

model, and not adapting to the realities that have caused us concern.

So, could you talk a bit about how this cost-benefit analysis is

going to be conducted, in the first instance, and secondarily, how

you will include the broad societal benefits into the benefit side of

the equation?

Ms. NASON. Yes, thank you, Congressman.

We are not proposing to jettison any of the restrictions that we

have in current statute. We are asking for similar authority, which

does require a cost-benefit analysis. Under the cost-benefit analysis, for example, for the light truck rule, we look at the costs of the

technologies that we are applying. It is a cost to the manufacturers

for the technologies that they have to put on their vehicles to improve the fuel efficiency.

The benefit side, as you said, gets more tricky. The vast majority

of the benefits, in our analysis, is the benefits from gallons of gasoline saved. We can quantify that. There are other externalities. We

look at benefits from a reduction of pollutants, NOx and Sox and

VOC and lead, but the majority of the benefits does come from the

gallons of gasoline that we are saving.

There are other benefits to increasing the CAFE standard, reduction of CO2 emissions, for example, is one. We have heard from

some that we should have quantified that. We can quantify it. We

just can’t monetize it, which has been the challenge, so that we can

26

say a reduction of 73 million metric tons of CO2, the question is

how do you apply a value to that, and so, in the end, applying a

value to some of these more challenging concepts, as you said, hard

to define, clean air, better environment, energy independence, it

would be, I don’t think it would be something that we would be

able to value specifically in this rule. They are benefits.

Mr. WYNN. Well, thank you. That, I must acknowledge that is

kind of troubling, because that is the whole point of why we are

here, and without those kinds of values being taken into consideration and identified, we might end up, as I called old school, but

it may be somewhat status quo.

The other question I wanted to ask you is whether, speaking of

status quo, whether we might find ourselves in a situation in which

we got no appreciably increase in fuel efficiency based on this costbenefit analysis, which is to say, if you conclude that the new technologies would be too costly to implement on a particular model, or

group of models, or group of classes, or whatever, that you would

then take no action, or recommend only the slightest change.

I believe that is possible, perhaps even likely. Would you agree

or disagree with that?

Ms. NASON. Well, I would disagree, Congressman, that we will

see nothing. I think we feel fairly confident, even looking at some

of the older data, that we can see an increase in fuel efficiency for

manufacturers. The reason we asked for the flexibility, and the reason we didn’t write 4 percent into our draft legislation, was so that

we could do a full cost-benefit analysis, so we could look at what

is technologically feasible and economically practicable, considering

the need for the Nation to conserve energy.

We can look at the effect of other Federal motor vehicle standards on our rulemaking, all things we are required to do under the

statute, and to make a determination about the best increase we

could get. We do believe we will get an increase. I can commit to

you we will raise the standard.

Mr. WYNN. By how much?

Ms. NASON. That is why we need to do the analysis.

Mr. WYNN. Right. I understand.

Let me turn to the cap-and-trade. There is some concern about

how that would work and, again, if you covered it, I apologize, but

this would seem to, well, perhaps it would be better, explain to me

how this is going to work, because there are several different versions of it. I want to make sure that the penalties are sufficiently

stiff to incentivize, if you will, fuel efficiency by the industry, and

that the trading is actually practicable.

Ms. NASON. Yes, thank you, Congressman.

I wouldn’t call it cap-and-trade. Someone said earlier, it was akin

to cap-and-trade. It is a trading program. There wouldn’t be a cap,

though, in the same sense that you would see with a sulfur trading

program, for example. We would actually encourage manufacturers

who were at or a little above the fuel efficiency levels to do even

more, because we believe it would provide an incentive in the marketplace for them to do better. They would have credits that they

might be able to sell to other manufacturers.

Mr. WYNN. They are selling the credits for cash, is that what is

going to happen?

27

Ms. NASON. Right. We would not be, we did not propose to set

the price for a credit. We proposed to allow financial investors to

be included in the market, as we noted earlier. It is a very small

market. The manufacturers all know each other, and the reason

that we included financial investors was so that we could hope to

spur trade, maybe.

Mr. WYNN. So, they would have to basically give cash to a competitor?

Ms. NASON. Well, the idea would be they could sell credits to

Merrill Lynch, just to pick——

Mr. WYNN. Well, the seller, I understand, but the buyer.

Ms. NASON. The buyer would presumably, let us just say Merrill

Lynch, would go to a buyer, and say, hey, if you are interested, we

have collected credits from, could be a variety of people, could be

over a period of years, would you be interested?

Now, it is completely voluntary. We put it out there as an option

for flexibility for the manufacturers. They have the option of meeting the CAFE standard.

Mr. WYNN. If they fail to meet the CAFE standard, and decline

to, and are not able to purchase credits to offset their failure, what

is the penalty?

Ms. NASON. There is fee, sir.

Mr. WYNN. What is the fee?

Ms. NASON. It is $5.50 for every tenth of a mile times the number of vehicles produced by that manufacturer. It would be in the

millions.

Mr. WYNN. Is that the same structure you have now for light

trucks and SUVs?

Ms. NASON. Yes, sir. This is statutory.

Mr. WYNN. Have you given any consideration to increasing the

fees as an incentive?

Ms. NASON. We have statutory authority to go up to $10. We

didn’t propose that in our draft legislation. We would be open to

discuss it.

Mr. WYNN. You didn’t propose any increase, actually, in the draft

legislation.

Ms. NASON. No. That is correct. Yes, sir.

Mr. WYNN. Does that reflect the decision that no increase ought

to be made, or is it just kind of not an issue that was taken up?

Ms. NASON. It wasn’t an issue that we addressed. We were looking at fuel savings issue. The fine or the fee is something we would

be happy to discuss.

Mr. WYNN. I think the fee structure definitely needs to be considered, because that is integral to making this process work.

I see my time is up, and the next, I would like to recognize Mr.

Shimkus for 5 minutes.

Mr. SHIMKUS. Thank you, Mr. Chairman, and it is a pleasure

having you all here.

This is an important debate. This country still is probably predominantly a fossil fuel generated economy. And as much as we

may not like it, that is a reality. So our effects on the use of fossil

fuels will have a dramatic effect in the economy. The question is

what we do now, and how do we bridge to the next generation,

which a lot of us believe will be a hydrogen economy, and how do

28

we do that in a way in which we are not so disruptive of the economy that we never can afford the capital expenditures to get to the

hydrogen economy?

So, having said that, Ms. Nason, this 2010, and it is 35 billion

gallons, if I understand, in the testimony and questions, 8.5 by a

modernized CAFE, and then 16.5 by a RFS alternative fuel definition. Is that correct?

Ms. LAZEAR. No, I am sorry. It is 8.5, the 8.5 is one quarter of

the total of 35 billion, it comes from the AFS. That may be what

you said.

Mr. SHIMKUS. Yes. What I am trying to do is, I have been following the fossil fuel debate here in this Congress so far, and I, one,

we increased taxes on fossil fuels. We did not put the tax revenue

generated to coal to liquid technologies. That wasn’t allowed as an

amendment on the floor.

We just had a science bill on the floor, a motion to recommit said

let us have some of this technology go to coal to liquid technologies.

That was defeated on the floor. I have a real skepticism that this

new Democratic majority really is understanding the importance of

fossil fuels in this country.

So, in this provision, and getting to meet the goals which we

have laid out, or you have laid out, we have this 35 billion gallons,

and we use the terminology alternative fuels. Could you give me

the definition of that, alternative fuels?

Mr. LAZEAR. I can do it. We wanted to make that as broad as

possible, and again, I think the reason for that is basic economic

principles, which is that we don’t want to pick the winners. We

want the market to pick the winners. So, we want to allow for alternative fuels, hydrogen would be one, coal to liquid, as you mentioned, biodiesel, there are a number of alternatives, and frankly,

we simply don’t know where the technology is going to take us over

the next few years, and we don’t want to try to steer in a particular

direction.

Mr. SHIMKUS. And I applaud that, because I, too, agree that is

kind of where we have to go. In the energy bill that we passed, we

had 7.5 billion gallon renewable fuel standard. It was not definitive. It has primarily been met by ethanol production, but of

course, also being soybean area in the country, biodiesel has made

great progress, especially the B20 mixture in diesel fuel has been

very, very beneficial and supportive, and that is part of this whole

RFS.

So, for my friends who are afraid that this is just a big ethanol

push, that is not correct, especially if my friends on the other side

would start opening up the public policy debate on coal to liquid

applications, and coal to liquid debate, and it is my understanding

that the alternative language here would include not only coal to

liquid, but again, would help us bridge to the hydrogen economy.

And that is really part of the debate on having a modernized CAFE

system.

My good friend Denny Hastert talked about flex fuel vehicles.

They are different. I have 22 fuel and filling stations in my district.

You can go from Chicago to Kansas City now on all E–85. It is

moving in the right direction. The automobile industry will eventually work on an engine that will have the same compression ratio,

29

so you will get the same, but when you are averaging 20 cents less

a gallon, the miles per gallon drop-off is almost a wash.

So, I will end with, again, people have been trying to pin you

down on this 4 percent, and if there is a numeric number assigned

to this standard. Is there?

Ms. NASON. No, sir. The number we are using is 8.5 billion. That

is the President’s goal.

Mr. SHIMKUS. Thank you, and that is my time. I yield back.

Mr. HASTERT. Would the gentleman yield, if he still has some

time?

Mr. SHIMKUS. I am out of time, Mr. Chairman.

Mr. BOUCHER. At this time, the Chair recognizes the gentlewoman from California, Ms. Harman, for 5 minutes.

Ms. HARMAN. Thank you, Mr. Chairman. My district is home to

the North American Headquarters of Toyota and Honda, which

build a few cars in this country, I think everyone has noticed, and

have robust R&D facilities, and have, I think, of course, I am totally unbiased, been pushing technology because they have produced vehicles that have hybrid and various forms of clean engines,

even without being required to do so.

And I just want to commend them for their forward leaning approach, and to say that I think we all can benefit from things that

they have done, but also, things that we can do to set higher standards, so that everybody knows that in the future, the way we have

produced cars engines, and the fuel efficiency of cars, has to

change.

I would observe that this has been a kind of soft and fuzzy hearing, but I think there are tough questions that need to be asked,

and so, in that spirit, let me just sort of waddle in.

As a friend of mine in this audience pointed out to me before the

hearing started, NHTSA has authority right now to set higher

CAFE standards. Is that true?

Ms. NASON. Yes.

Ms. HARMAN. So, I am not recommending this, but if you wanted

to, you could, say, by X date, instead of the current CAFE standard

we have, which was set in 1975, and I think everyone gets that,

that was quite a long while ago, before half in this audience were

born, instead of that standard, we could double that standard by

a date certain. Is that right?

Ms. NASON. Yes. The Agency believes we have the authority to

raise it. We just don’t have the authority to reform the program.

Ms. HARMAN. You have the authority to raise the standard, but

not reform the program.

Ms. NASON. Raise, absolutely.

Ms. HARMAN. Well, that strikes me as not an optimum situation.

Obviously, I would suggest we have to reform the program as well.

Would you agree with that?

Ms. NASON. Yes.

Ms. HARMAN. OK.

Ms. NASON. Completely.

Ms. HARMAN. And we have to take a look at all the loopholes,

and the way we have treated different categories of vehicles differently, do we not?

Ms. NASON. Yes. That is an important issue.

30

Ms. HARMAN. OK. All right. But while I think these goals and

attributes, and a bunch of kind of soft words are useful, when will

NHTSA, or will NHTSA set a higher CAFE standard?

Ms. NASON. If we can have reform authority, we can have a rulemaking out by, we would have to have it out for model year 2010

by next April 1. So, the end of next March. It would be very challenging, but we could do it, if we get the authority.

Ms. HARMAN. Well, I think the times we live in are very challenging, and I don’t think we are the best body to set an arbitrary

standard. I have held that view for many years. I think you are

much better equipped, but I think the time for boldness is here,

and we have heard discussion on both sides about new forms of engines and all kinds of things that are out there. I surely agree with

statements that have been made that we shouldn’t pick winners

and loser, but if we don’t have bold, tough standards out there, we

are not going to drive change. Is that right?

Ms. NASON. We agree, Congresswoman. That is why we are proposing the authority, the reform authority. We agree.

Ms. HARMAN. Would you have any comment on this?

Mr. LAZEAR. No, I agree completely. I think the President’s goal

is to propose bold standards, and to do it in the way that is economically responsible. So, I think we agree completely with you.

Ms. HARMAN. Oh. Well, and let me second the point about economic responsibility. I think this can be a win-win, would you

agree with that? If we do this right, but we have to do it, in my

view, boldly, couldn’t this be a win-win, because it creates huge opportunities for innovation, and they require human beings, welltrained human beings, to execute?

Mr. LAZEAR. Absolutely. We are betting on that.

Ms. HARMAN. OK. Well, that is very exciting. Let me just ask you

about, let us see here. Governor Schwarzenegger, who was here

yesterday, and who recently signed an executive order mandating

a low carbon fuel standard, oh, I am almost out of time, and he,

his point is that rather than setting fuel economy standards for

automakers, this approach requires a maximum, a minimum 10

percent reduction in the carbon footprint of transportation fuels by

2020, and shifts some of the burden from automakers to fuel producers.

My time is up, but do you see this as a good complementary approach to reforming and increasing CAFE standards?

Ms. NASON. Yes. I believe even the manufacturers have said that

they are pleased with the low carbon proposal by Governor

Schwarzenegger.

Ms. HARMAN. Any comments?

Mr. LAZEAR. We believe that the President’s proposal is a step

in that direction. In fact, we believe that if these proposals are implemented, we will be successful in slowing and, perhaps, stopping

the growth in carbon emissions, in that way.

Ms. HARMAN. Thank you. And thank you, Mr. Chairman, for indulging me.

Mr. BOUCHER. Thank you, Ms. Harman. Mr. Walden for 5 minutes.

Mr. WALDEN. Thank you, Mr. Chairman.

31

Before I get into CAFE standards, Mr. Lazear, you are Chairman

of the Council, White House Council of Economic Advisers, right?

Mr. LAZEAR. Yes, sir.

Mr. WALDEN. Can you tell me what happened in the markets

yesterday and why?

Mr. LAZEAR. There are a number of different factors. The story

started with China, of course.

Mr. WALDEN. Right.

Mr. LAZEAR. But the phenomenon in China that triggered that

event, at least to most analysts’ view, was something having to do

with their tax policy, taxes on profits, which was a rumor not substantiated.

The problem with that explanation is there is no obvious reason

why that would then trigger the events in other countries, in fact,

could even go the other way. So, we don’t really know what happened.

I guess, let me just say one thing, first of all, that the Chinese

market responded today by making up about half the gains, and

our market is now up by about 99 points, so it looks like whatever

happened yesterday was anomalous. These kinds of things are not

unusual, and we just kind of write it off to one day’s activity. We

don’t think of it as reflecting anything about the fundamentals in

the economy, which I believe are quite strong.

Mr. WALDEN. So, you still believe the fundamentals are strong?

Mr. LAZEAR. Absolutely.

Mr. WALDEN. All right.

Mr. LAZEAR. The best evidence of that is the labor market.

Mr. WALDEN. That is the old journalist in me. I got the head of

the White House Council of Economic Advisers here, and the biggest story in the world is the economy, and we are dancing around

it. OK, thank you.

Ms. Nason, if Congress were to pass this bill today, does the

technology exist to increase the fuel economy to a level greater

than it is now, and if so, how much greater? I mean, this is the

debate I get in in this building and back home, is how far can you

go without reducing the safety standards, what is technologically

possible, and what is the cost of that to consumers?

Ms. NASON. Right. Well, as the President has said, Congressman,

this is a heavy technology bet. We do believe the technology exists,

and I would note that the automotive manufacturing industry

spends billions on R&D. When we say apply technologies, we do

think there are fuel efficiencies to be gained still from the good old

internal combustion engine, and improvements to the transmission,

and aerodynamic drag and those things, but we would, to reach a

goal of 4 percent, we certainly would be expecting a far greater

market penetration of diesels, dieselization, hybridization.

Mr. WALDEN. All right. But dieselization, I remember reading

something a year or two ago, about if we start to switch over to

diesel, we are going to have a diesel supply issue in this country.

If we try to mimic Europe, because we don’t necessarily have access

to that diesel right now. Is that accurate? What kind of supply

issues will we face?

Ms. NASON. Well, we have, the situation compared to Europe. In

Europe, nearly of the vehicles are diesel.

32

Mr. WALDEN. Right.

Ms. NASON. In the United States, it is a much smaller percentage, maybe 3 to 4 percent. The situation is the EPA’s requirements,

we have low sulfur, much cleaner diesel requirements, but we do

think that we are in a position to, the manufacturers are in a position to make diesels that meet our requirements, and that we can

get the fuel out there.

Mr. WALDEN. Is there refinery capacity, though, for that much

diesel, if we make the kind of shift you are talking about?

Ms. NASON. Yes. Well, I shouldn’t definitively answer that. We

would certainly have to look at it. We are not talking about a market penetration of 50 percent.

Mr. WALDEN. Right.

Ms. NASON. The way you would see in Europe. It would still be

10 or 12, 15, we do think we have——

Mr. WALDEN. What is the market penetration right now of these

flex fuel vehicles, and what we have done in terms of ethanol

usage, do you know?

Ms. NASON. I don’t know off the top of my head what percentage.

Mr. WALDEN. It is not huge, though.

Ms. NASON. No. It is small, and part of the problem, as Congressman Hastert noted, is E–85 available stations.

Mr. WALDEN. Right. There is probably single digits. Would that

be——

Ms. NASON. Oh, yes.

Mr. WALDEN. OK. I look at that, and say, and I voted for some

of that, and the subsidy we have is something like how much a gallon, 50 cents a gallon, that we are putting into ethanol?

Ms. NASON. Well, for the credit, they get a 0.9 miles per gallon

credit. It does take more ethanol to fill——

Mr. WALDEN. Right, but we are subsidizing the ethanol industry

through a direct tax provision, as I recall, or a direct subsidy.

Ms. NASON. Fifty-one cents.

Mr. WALDEN. I thought that was the number, and I guess I am

looking, then, at the market disruption that is occurring if you are

raising hogs or if you are raising beef cattle, trying to finish them

off, and Mr. Lazear, can you talk to that at all? I mean, I want to

be careful what we are doing, because we, I don’t think most of us

understood the unintended consequence that we are now finding

ourselves in in the agriculture sector.

Mr. LAZEAR. There is no doubt that when we increase the demand for a particular factor for other uses, that is going to put

pressure on prices. It does put upward pressure on prices.

That stimulates other actions, of course, as well, so we find different ways of producing corn, more efficient corn.

Mr. WALDEN. Sure.

Mr. LAZEAR. That has come about. We do believe that the technology will help us on that front. That said, that was one of the

reasons that we think it is extremely important to have safety

valves built into this program. One of the things that the safety

valve does, particularly the alternative fuels mandate safety valve,

what that would do is that would limit the amount by which corn

prices could go up, because if ethanol prices get very, very high,

you have an alternative. You can go use the safety valve, and that

33

limits the damage. And that is an important component of this

plan, because again, we focused very heavily on thinking about the

economic consequences of this, as we went through the strategy.

Mr. WALDEN. Very good. Thank you. Thank you, Mr. Chairman.

Mr. BOUCHER. And the Chair will recognize, I am sorry, Mr.

Markey, for 8 minutes.

Mr. MARKEY. Thank you, Mr. Chairman, very much.

The United States went from importing 45 percent of our oil in

1995 to importing 60 percent of our oil in 2006. During that period,

we had a Republican-controlled Congress, from 1995 to 2000, that

actually put a law on the books which prohibited your agency, Ms.

Nason, from even considering increasing the fuel economy standards in our country. And from 2001 through 2007, now, the Bush

administration has not improved the fuel economy standards for

automobiles in our country, 12 years, and we have gone from 45

percent of our oil imported to 60 percent of our oil imported.

Now, this is as we have 130,000 young men and women in Iraq,

with a surge of an additional 20,000 men and women that is imminent. We have seen a corresponding surge in oil importation from

overseas at the same time, $300 billion worth of oil a year, we import into our country, much of it going into the hands of those who

are actually funding al-Qaeda, funding terrorists. Plus an additional $100 billion for our military to fight a war in Iraq.

So, for 12 years, the Republicans have stopped any improvement

in fuel economy standards, and it is a national security disgrace.

It has made our country so much more vulnerable than we should

have been, that it is, in my opinion, the overarching issue of our

time.

And it is also an environmental scandal, because of the dramatically increased greenhouse gases that we are sending out into the

atmosphere, that is causing tremendous additional environmental

and health problems for our planet. So, we are looking to you, Ms.

Nason, and we are looking to you, Mr. Lazear, to help us to do

something about this problem.

Ms. Nason, the President has called for a 4 percent increase in

CAFE standards, but there is nothing in the Bush bill that I can

find that actually mandates a 4 percent increase. Where is the 4

percent increase in the legislation which President Bush and Vice

President Cheney have sent to this committee? Where is it?

Ms. NASON. That is correct, Congressman Markey.

The President has said 4 percent is a goal, but we have asked

for flexibility in the legislation to do the cost-benefit——

Mr. MARKEY. So, there is no 4 percent, Ms. Nason. The President

and Vice President are deliberately, once again, misleading the

American people about his goals, in this critical national security

area.

There is nothing in President Bush’s bill that gives us any guarantee that there is going to be a 4 percent increase. It is a national

security scandal. We cannot ask 150,000 young men and women to

take on all of the terrorists and al-Qaeda in the world, and then

back here—and a mandate, by the way, a mandate that the President continues to insist upon, that these soldiers and Marines have

to keep going back over and over and over again, a mandate upon

them. Well, where is the mandate in his legislation on the autoVerDate 11-SEP-98 10:53 Jun 04, 2007 Jkt 000000 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 Q:\DOCS\110-9 SCOM1 PsN: SCOM1
34

motive manufacturing industry, on the appliances industry, that

will meet minimum security, national security standards?

There is no mandate on us, on us here at home. He is saying it

is just going to be discretionary. That is a scandal, Ms. Nason. It

is a scandal.

Let me ask you one quick question. Do you believe that the Ford

Escape hybrid, which gets 32 miles per gallon in the city, and 29

on the highway, is less safe than a Ford Escape which gets 21

miles per gallon in the city, and 24 miles per gallon on the highway? Is it less safe?

Ms. NASON. No, sir.

Mr. MARKEY. It is not less safe, is it?

Ms. NASON. No.

Mr. MARKEY. No. So you can have a hybrid that improves the

fuel economy by 40 percent without compromising safety at all. Is

that not true?

Ms. NASON. Absolutely. It would still have to meet all of our safety standards.

Mr. MARKEY. But it does meet all of your safety standards. Is

that correct?

Ms. NASON. Yes, sir.

Mr. MARKEY. OK. So, if we are, then, looking at these issues,

where, why should we have any confidence in you? The National

Academy of Sciences has already said in 2002 you could improve

it 4 percent a year. It is 5 years later. And they said using existing

technologies in 2002, and that did not include hybrids.

Why can’t the President just say the words? We said it in 1975.

President Ford signed a bill which doubled it from 13 miles per gallon to 27 miles per gallon. Do you know we went from 36 percent

dependence to 26 percent dependence upon imported oil in that 10-

year period? Do you know that, Ms. Nason?

Ms. NASON. I trust you, Congressman.

Mr. MARKEY. OK. Thank you.

Why won’t the President make the same kind of statement, the

same kind of mandate, given the national security crisis that our

country is in on this oil dependency? Can you tell me that, Ms.

Nason?

Ms. NASON. Yes, Congressman Markey. Last year, when we discussed this issue, there was a great reluctance in the, for lack of

a better way to term it, the trust us message that NHTSA was putting forward. People were looking for numbers or percentage increases, and so, I don’t think we could make a bigger commitment

on behalf of the administration than having——

Mr. MARKEY. No, you are looking. Ms. Nason, you are looking——

Ms. NASON. The President speak—in the State of the Union——

Mr. MARKEY. Ms. Nason, you are looking for flexibility to do less

than 4 percent. That is what you are asking the Congress to give

you. You are asking for flexibility to do less. Less. Not more.

You are not saying you might do 5 percent or 6 percent, you are

saying we might do 3 percent. We might do 2 percent. That is what

I am hearing you and the President’s Chief Economic Adviser saying. I am hearing economics. I am not hearing national security.

I am not hearing national crisis. I am hearing we might do less.

35

It is not in the bill. It is just rhetoric, and it has been rhetoric

for 12 years of Republicans, 12 years, and we are hearing just the

same thing.

Finally. OK. Let me go to you, Mr. Lazear.

There is a law that was passed in 1978. That law imposed a gas

guzzler tax on big automobiles in the United States. It is about

$1,000 a car. So, if you buy a big Chrysler that gets 20 miles a gallon, you pay an extra $1,000. But that is not the majority of cars

at all.

But if you bought an SUV that got 14 miles a gallon, you don’t

pay a gas guzzler tax at all. There is a loophole, and the loophole

actually drives consumers to less efficient vehicles. That is the tax

policy.

Don’t you think that tax policy makes no sense, given the national security crisis facing our country?

Mr. LAZEAR. There are a number of ways to motivate consumers

to choose more efficient cars. One is taxes, as you mentioned. The

other is market prices. To my mind, most of the action that we see

in the market is primarily driven by gasoline prices. So, if we look

over time at the pattern of consumption, that seems to follow gasoline prices probably more closely than anything else.

Mr. MARKEY. So, you don’t think this gas guzzler tax works at

all.

Mr. LAZEAR. Oh, no, no. I didn’t say that at all. No, no. Taxes

surely work. All I said is——

Mr. MARKEY. But does is it a factor in driving people to less efficient SUVs, because the automobile has an extra tax on it?

Mr. LAZEAR. When there is a tax on it, that discourages use of

that car. When there is no tax on it, it doesn’t discourage use.

Mr. MARKEY. Should there be a tax——

Mr. BOUCHER. Mr. Markey, your time has expired, and with that

particular answer——

Mr. MARKEY. He is not answering my question. I want to know

if there should be a tax exemption for SUVs. Would you answer

that, sir?

Mr. BOUCHER. Time is expired. I think he attempted to answer.

We have to live with his response.

Mr. MARKEY. He did not answer yes or no. He gave me an economist’s answer, not a yes or no. Should there be an exemption, sir,

for the SUV?

Mr. BOUCHER. Mr. Markey, your time is up, and I am going to

be recognizing the ranking member of the full committee, Mr. Barton.

Mr. BARTON. OK. Thank you. Thank you.

It is a terrible thing when you don’t answer a question like a

Congressman wants it answered. I mean, it just, we ought to make

that unconstitutional. Give him the answer he wants, not the answer you think is correct, and that way, we can all go have lunch,

and not have indigestion, and life will go on.

Now, Mr. Markey just, in his usual entertaining style, has given

both his monologue and asked his questions. I used to enjoy them

when I knew I had the votes. They are not quite as enjoyable now

that he may have the votes. We will see.

36

But I think, to be fair, we need to point out that he has never

voted for ANWR, he has never voted for extended drilling in the

OCS. He didn’t vote yes on the CAFE bill that passed this committee. His amendment to increase CAFE has failed every time in this

committee that it has come up for a vote, and every time on the

House floor. It is a little bit disingenuous for my good friend to be

sitting here, tongue-lashing these two distinguished witnesses,

when he has certainly not been a part of any solution efforts that

have become law.

Now, we can disagree, but I have had extended private discussions with my good friend about trying to get a CAFE increase in

exchange for ANWR, so you get a production and a conservation.

So far, he has said no on that, so I think it is a little unfair to insinuate that it is all the fault of these two witnesses, or the Bush

administration, that we haven’t done anything.

His conclusion is correct. CAFE has not gone up. That is a correct conclusion. But it is not because good people on both sides of

the issue haven’t tried in some way to find a consensus solution.

So, I just want to put that on the record.

My first question, I guess it would be to the economic advisor,

do you know what percent of the greenhouse gas is emitted by humans in the United States is because of tailpipe emissions, as opposed to stationary source emissions?

Ms. LAZEAR. Thirty percent is the number.

Mr. BARTON. Thirty percent?

Mr. LAZEAR. Thirty percent, sir.

Mr. BARTON. OK.

Mr. LAZEAR. Yes.

Mr. BARTON. So, on the larger question that Chairman Boucher

was asking, if we consider a cap-and-trade system for stationary

sources, should we consider a cap-and-trade system for mobile

sources of greenhouse gas emissions in the United States?

Mr. LAZEAR. Go ahead.

Ms. NASON. I guess there are two ways to answer that. First, we

have proposed a tradable credit system. We have not proposed a

cap-and-trade for CAFE legislation, just on CO2 emissions, as I

noted earlier. We have had difficulty with even monetizing CO2

emissions. We can tell you the reduction, but to monetize that

value is very challenging, and we haven’t seen any consensus in

the scientific data.

Mr. BARTON. Well, I am not an advocate of a cap-and-trade system, so I am just saying that those that are, if 30 percent of our

human emissions in the United States are tailpipe, our mobile

source emissions, and we are going to do cap-and-trade, I would

think that 30 percent of the problem ought to be 30 percent of the

solution, and my hunch is that the proponents of cap-and-trade

don’t want to look at mobile sources with the same scrutiny that

they want to look at stationary sources.

In the Energy Policy Act of 2005, Section 773 has a study of the

feasibility and effects of reducing the use of fuel in automobiles, basically to see if there is not some alternative to the current CAFE

system. Can you tell me, Ms. Nason, if that study was conducted,

and if it was, what the results are of it? And if you need to get back

to me, I am fine.

37

Ms. NASON. They have to get to Congressman Harman’s point.

I was alive in 1975.

Mr. BARTON. No, no. This is 2005.

Ms. NASON. But I was alive.

Mr. BARTON. This is 2005.

Ms. NASON. Oh, yes.

Mr. BARTON. This is 2 years ago, OK?

Ms. NASON. I am sorry. I thought you meant in the original statutes.

Mr. BARTON. No.

Ms. NASON. Yes, actually. We have, and we can provide you with

that information.

Mr. BARTON. So, you have done the study?

Ms. NASON. Yes.

Mr. BARTON. OK. And you can give us the result. Do you happen

to know off the top of your staff’s head what the results of that

study are?

Ms. NASON. Our conclusions were, not surprisingly, Congressman, that we would like to increase and reform the passenger car

CAFE.

Mr. BARTON. My time has expired, Mr. Chairman.

Mr. BOUCHER. Thank you very much, and the Chair will recognize the gentleman from Utah, Mr. Matheson, for 8 minutes.

Mr. MATHESON. Thank you, Mr. Chairman.

Ms. Nason, in your testimony, you did make reference to the National Academy of Sciences study.

Ms. NASON. Yes.

Mr. MATHESON. And I was wondering if you could expand on

what you, how you used that study to come up with your proposal

for the Reformed CAFE.

Ms. NASON. Thank you, Congressman. The National Academy of

Sciences looked at a variety of options for reforming the CAFE program, and one of their findings was that an attribute-based system,

and when we say attribute, we mean size or weight, was a way to

reform the program, to still gain fuel efficiency, in making improvements and raising the CAFE standard, without sacrificing safety.

One of the concerns the National Academy of Sciences raised is

that the least expensive way for a manufacturer to meet a higher

CAFE standard would be to simply downsize to make smaller,

many more smaller vehicles, which exacerbate the problem we

have right now between compatibility of large and small.

So, when we looked at that study, we wanted to make sure that

as we reform the proposal, we don’t sacrifice safety, which is something NAS was very strong on, but we still gain the fuel efficiencies

from all of the manufacturers, whether they are above or below an

arbitrary number. So, we think reform, with an increased stringency, is the most responsible way to go.

Mr. MATHESON. It is also my understanding that in that study,

it was determined that existing technologies, and it assumed a gas

price of around $1.50, that there was opportunity for substantial

savings over a 10-year timeframe.

Did you incorporate that into your proposals? I have heard this

4 percent number bandied about, that that was 4 percent total. I

think the National Academy had a far more aggressive projected

38

capability for fuel savings. How did you respond to what the National Academy said there? And that was technology of 5 years ago.

Ms. NASON. Right. The 4 percent that we are proposing as a goal

is a 4 percent year over year increase, so it is, we believe, extremely aggressive.

Mr. MATHESON. So, that is an annual increase.

Ms. NASON. Oh, yes.

Mr. MATHESON. I am not sure that was clear, as the committee

was discussing that. OK.

Ms. NASON. Oh, I apologize. It is a very aggressive goal.

Mr. MATHESON. Let me ask you. In your testimony, you talked

about your Reformed CAFE proposal, and you want to do it by, you

said in the previous CAFE effort, a lot of it was accomplished by

downsizing the vehicles, or vehicle weight, and now, the Reformed

CAFE will look at adding fuel saving technology as a way to

achieve savings.

When you are going to do your rulemaking, and when you anticipate setting your rules, how are you going to determine what is

possible? How are you going to decide what fuel saving technologies

are out there?

Ms. NASON. Thank you, Congressman.

We used the list that the National Academy of Sciences looked

at, and we add technologies until costs and benefits are level.

Mr. MATHESON. How are you going to do that going forward?

How are you going to do this if you set these rules for 2010 or

whatever?

Ms. NASON. Right, for up 2017.

Mr. MATHESON. Yes.

Ms. NASON. You mean, is it possible that the technologies will

outpace——

Mr. MATHESON. Yes, I want to know how you are going to assemble what the world of possible technologies are, and how you are

going to come up with setting these standards accordingly.

Ms. NASON. Right.

Mr. MATHESON. And the follow-up question, which I will just

throw in right now, is let us say you do it now, the rulemaking.

Ms. NASON. Yes.

Mr. MATHESON. And then, 3 years later, new technologies come

out. Are you going to reopen the rule, or how are you going to accommodate technological change over time?

Ms. NASON. Right. Those are excellent questions, and we are

struggling with some of those. The National Academy of Sciences

actually proposes a list, from very small changes, low friction, high

viscosity oils, for example, to direct injection engines. And so, we

would start with changes to the internal combustion engine, based

on the manufacturer’s product plans.

What we would be required to do, under reform, is to find a technologically feasible way for a manufacturer to get to, let us say we

can reach 4 percent, a 4 percent annual increase. Now, a manufacturer may look at our list and say we don’t want to go with a five

speed or six speed transmission. We don’t want to use the technologies that you are applying. We want to go straight to hybrids

or diesels. That would be their alternative.

39

One of our basic tenets is that we are technology neutral. We

allow the manufacturers, we create a path to show that it is feasible, but we allow them to decide whether or not they want to take

their own path.

The point of your second question is you are correct. When NAS

was first looking at this list, the far end of technologies, hybridization and dieselization, and we obviously, I think there were one or

two vehicles on the market at the time that were hybrids, and so,

we have seen an increase, obviously, in those technologies. One of

the things we are doing right now is working with the National

Academy of Sciences to update the list, because we do need to go

beyond hybrids and diesels, and to consider some of the research

that manufacturers are doing. They are going to be getting ahead

of us, so we do need to update the list. We agree with you.

Mr. MATHESON. See, I think you are in a bind when you say you

want to be technologically neutral. We all think that letting the

marketplace decide is a good bias to have, and yet, you are going

to be making decisions based on your understanding of what technologies are when you go out and set these standards, so by definition, you are picking available technologies, at least from your perspective, at least through your rulemaking.

Ms. NASON. Well, again, we choose, we have to demonstrate, by

statute, that it is technologically feasible, but a manufacturer does

not, in any way, have to use any of our technologies. They can determine that they can get to 4 percent through a different path,

and there is nothing in our rulemaking that would prohibit them

from using their own technologies, and looking at their own product plans, and deciding we want to make a heavy investment into

diesels, for example, even if we don’t propose a greater penetration

in the fleet of dieselization, they could, an individual manufacturer

could.

We could get to a point in 2017, or maybe beyond, where we will

need to update the technology list, which is why we are starting

that work right now with NAS, but we do think there are significant gains that we can make, both with improvements to engines

and transmissions right now, and adding, acknowledging that we

would be adding higher end, better fuel efficiency, but more costly

technologies like dieselization and hybridization.

Mr. MATHESON. And you have the flexibility, just to repeat, let

us say, 5 years from now, some new technology comes up you didn’t

know about, you have the flexibility to go in and change it, then.

Ms. NASON. Yes, again. We don’t dictate in any way the technology. We demonstrate that it is possible.

Mr. MATHESON. No, but to change your potential standards,

though. Let us say a new technology comes up, and you can say

wait a minute, whatever rulemaking we did when we set this as

our fuel economy standard, attribute-based or however it would be

set up, what if something happens where you say wait a minute,

we can suddenly do a lot better? Do you have the flexibility to go

in and change it then?

Ms. NASON. Well, it would depend on Congress giving us the

flexibility to do the reform program the way we would like to reform CAFE, but yes, with our light trucks, for example, we believe

that we can continually allow for different technologies to be used

40

in the marketplace, and that is a very important basic tenet of our

proposal.

Mr. MATHESON. One last question, and it is going to move just

a little bit off of CAFE, because CAFE talks about new vehicles

coming out on the market, but I read last week the same thing I

read probably 10 or 15 years ago, which said it is the 10/50 rule,

that 10 percent of the vehicles on the road account for 50 percent

of the emissions that exist in our country from vehicles, and I

heard that 15 years ago about, and I heard it last week again.

Is that true, and if we want to talk about carbon emissions and

whatnot, should we be looking, and I know this is getting off of

your topic, what with the CAFE, but should we, have you been

looking at that issue? Is that still true, where a certain small percentage of older vehicles on the road create a disproportionate impact, in terms of carbon emissions in our atmosphere?

Ms. NASON. Thank you, Congressman. One of the things that we

received some criticism for, for example, in our light truck rule, is

that we made estimates about percentage of vehicles that were still

on the road 30 or 35 years later, and people were critical that we

were allowing vehicles to stay on the road for 30 years. We have

to make those estimates. It is maybe 2 percent would be our number of vehicles on the road, but there are people who keep their

cars and trucks for a long, long time, and we do have to account

for that in our rulemaking.

So, that is something that we are aware of, and we do try to take

into account, even as we are asking for an increase, and higher fuel

efficiency, we do have to take into account that there are people

who keep their vehicles for decades.

Mr. BOUCHER. Thank you, Mr. Matheson.

Mr. MATHESON. Thank you.

Mr. BOUCHER. And the Chair now recognizes the gentleman from

Oklahoma, Mr. Sullivan, for 5 minutes.

Mr. SULLIVAN. Thank you, Mr. Chairman. I have learned a lot

today. It is a good meeting, but one thing I, you are talking about

technologies, and I think the technology, he was talking about that,

would change, I am sure you would adjust if they came up with a

carburetor, for example, that would save a lot of mileage, you

would probably look at that.

But one thing—I have four kids, and one thing I am concerned

about is safety. And I think you can achieve some of these efficiencies through technology that wouldn’t change the weight or

structure of the car, but I think there does come a point where you

do have to change, manufacturers would, the structure of the car,

or the weight, and do you know, have you done an analysis on how

many lives would be lost achieving these fuel efficiency standards?

Ms. NASON. Yes, thank you, Congressman. We have, actually, a

very clear analysis through the National Academy of Sciences, that

under CAFE, current CAFE structure, the unreformed structure,

as I noted in my opening testimony, up to 2,300 lives could be lost,

this was their estimate, between 1,600 and 2,300 in 1993, they

looked at that one year alone, because the least expensive way to

meet CAFE standards is to downsize the vehicles. Now, that

doesn’t necessarily mean that small vehicles aren’t safe and large

41

vehicles are safe. It just exacerbates the problem that we currently

have between compatibility of large and small.

That is something that we are very concerned about, and we

looked very carefully at those provisions in the National Academy

of Sciences study, when we proposed our Reformed CAFE structure, because we do not want to have any negative impact on safety, and the safety penalty, that is the NAS term, not mine, the

safety penalty is something that we want to look at, and we have

looked at very carefully, which is why when we talk about reforming CAFE, we talk about it in two separate pieces, changing the

program, and increasing the stringency. We want to make sure

that we look at both carefully, so that we do not have any negative

impact on safety.

Mr. SULLIVAN. Do you analyze any type of crash tests, or anything like that? Do you do those?

Ms. NASON. Yes.

Mr. SULLIVAN. OK.

Ms. NASON. Every day.

Mr. SULLIVAN. And let us say they are achieving a certain level,

you take that car, and you would have the crash test, and you

would see exactly the impact data and all of that, that would potentially kill people?

Ms. NASON. Yes. We would not permit a manufacturer to make

a change to a vehicle that makes it much more fuel-efficient, but

then, it doesn’t pass all of the Federal motor vehicle safety standards. Any vehicle that is being sold on the road needs to pass all

of our safety requirements in addition to being more fuel-efficient.

That is why we have noted that a 4 percent annual increase would

be very challenging for the manufacturers, because they still have

all of the other standards that they are required to meet. But that

is our goal.

Mr. SULLIVAN. What percentage do you think they could achieve

in the short term without jeopardizing any safety?

Ms. NASON. Well, we think, for example, when we looked at the

product plans from several years ago for the light truck rule, we

had it 2 percent, end over end, annual increase. We actually think

that can be higher, but as was noted earlier, we have requested the

product plans from the manufacturers. We look at their confidential product plans—we don’t share this with other manufacturers

and we don’t share it with the public—to determine where they are

making their investments, and to make sure that there is no potential impact on safety.

Mr. SULLIVAN. Thank you.

Ms. NASON. Thank you.

Mr. BOUCHER. The Chair now recognizes the gentleman from

Texas, Mr. Gonzalez, for 8 minutes.

Mr. GONZALEZ. Thank you very much, Mr. Chairman. Welcome

back, Administrator Nason. It is good to see you.

Ms. NASON. Thank you.

Mr. GONZALEZ. I think we can have disagreements once in a

while, but I think everyone admires the enthusiasm and the knowledge that you bring to your job.

I want to touch on, I guess, some fundamentals that I think I

have an understanding of them, and maybe, they pretty well estabVerDate 11-SEP-98 10:53 Jun 04, 2007 Jkt 000000 PO 00000 Frm 00044 Fmt 6633 Sfmt 6633 Q:\DOCS\110-9 SCOM1 PsN: SCOM1
42

lish where we go in the future. Because you are building on these

particular fundamentals.

And the first one is the classification of vehicles. What we are

discussing today are passenger vehicles, but the very definition of

them may not, may be more of a fiction than anything else. My understanding that under light trucks come SUVs, crossovers, and

minivans. Do you know what percentage of Americans today actually use what type of vehicle to carry passengers?

Ms. NASON. Yes. Good morning, Congressman. Thank you.

It is nearly half. It is almost an even split for the way we classify

between light trucks and passenger cars, and back when CAFE

was first created, it was 20 percent less, and 20 percent were in

light trucks, nearly all Americans were in passenger cars.

Mr. GONZALEZ. Well, policy may have driven manufacturers a

certain way, and I mean, I think that is really the obvious thing,

because if you don’t have stringent CAFE standards, and also, let

me ask you, do you have different emission standards depending on

the classification of the vehicle? Let us say everything that comes

under a light truck as opposed to a passenger vehicle? Are they the

same?

Ms. NASON. We don’t set emissions standards at NHTSA, Congressman. That’s the EPA’s role.

Mr. GONZALEZ. No, but I understand that. But I am saying that

there are certain advantages to maybe promote, build, manufacture, and so on, vehicles that are not subject to as stringent standards, whether it be CAFE standards or emissions. Would you

agree?

Ms. NASON. Oh. Well, you mean, incentives for manufacturers to

build them? Incentives for manufacturers to build them?

Mr. GONZALEZ. Wouldn’t you say that is more of an incentive?

And this is all history.

Ms. NASON. Right.

Mr. GONZALEZ. You weren’t around, as I heard a minute ago,

back then. Unfortunately, I was not just around, I had been around

for a while. But what I am saying is, right now, as you speak, what

you are addressing here are passenger vehicles, which is really half

of the equation maybe.

Ms. NASON. Right.

Mr. GONZALEZ. And increasing numbers are on that other part

of the equation, light trucks. You have the authority, we don’t have

any question about whether the Supreme Court is right or wrong,

da da da, you are moving forward on that.

Ms. NASON. Right. We are moving forward on the trucks.

Mr. GONZALEZ. Where do you make the most difference in the

shortest period of time, when you look at what the President is attempting to achieve on alternatives, gas mileage, savings, all of it,

do you do it with the subject we discussed today, passenger vehicles, or more accurately, do you do it under the category of what

we refer to as light trucks?

Ms. NASON. Oh, absolutely, Congressman. We still think there

are gains, tremendous gains to be made in the light truck category

as well. It is part of our proposal.

Mr. GONZALEZ. And we are not going to change the classification,

are we? So, what I am saying is, and when we talk about cost-beneVerDate 11-SEP-98 10:53 Jun 04, 2007 Jkt 000000 PO 00000 Frm 00045 Fmt 6633 Sfmt 6633 Q:\DOCS\110-9 SCOM1 PsN: SCOM1
43

fit, I really see this debate, and we need to be very cognizant of

it, and I know that I have some dear friends that would say we

need to leapfrog, and there may be a real danger in leapfrogging,

because when I look at what might be at stake, it may well be the

future of the domestic automaker. And that has serious consequences.

It doesn’t mean that we don’t strive to improve and have realistic

target dates, but the question before us is if we don’t move prudently, do you believe that it is possible, if we fast forward without

considering the impact and consequences of policy, that a major

manufacturing base for the United States could well be jeopardized?

Ms. NASON. That absolutely is something we would want to

avoid, Congressman, which is why we have put the draft legislation, and we are engaging in this conversation with you about the

best way to do it.

Mr. GONZALEZ. The other thing, and we have had this discussion

before, because I know you are depending on studies by other agencies and entities, such as the National Academy of Sciences and

such, but you also depend on the EPA, right?

Ms. NASON. Yes.

Mr. GONZALEZ. And you depend on the EPA to establish the

manner and method of the testing to establish CAFE standards,

and to arrive at these numbers. Now, last time we had this discussion, you told me, and you can’t speak for EPA, that EPA was in

the process of retooling that test and making it more realistic.

Now, I am going to tell you this is all hearsay, I have no idea

how they conduct it, but someone told me that the way they conduct this test to arrive at your 26, 27, or whatever the representation is on the sticker there, is that they drive the vehicle for 2

miles at 48 miles an hour, something to that effect.

Are you familiar with the present test? What is the status of any

revision?

Ms. NASON. Yes, Congressman, and the last time we talked, EPA

had not completed their revision of the test. It is something that

I know they had not just groups like the National Academy of

Sciences, but consumers were writing in to say they were not getting the numbers, as you say, the fuel efficiency, that they had

seen on the sticker, during actual driving conditions.

EPA has completed that rulemaking, I believe, December, and

they did make several important changes, which we have supported, that will help consumers get accurate information

about——

Mr. GONZALEZ. It is amazing. I mean, we are looking at from the

viewpoint of the consumer, but you as the Administrator, depending on these particular numbers, and the administration basing all

sorts of assumptions on gas mileage that is being established by a

test that does not accurately reflect what a vehicle gets in gas mileage.

I mean, that is my whole point, is we may have set a foundation

by having the two categories, that has always been a fiction and

not realistic, but we have to live with it, but surely, we can have

a test that accurately gives you numbers on what you will predicate policy targets and goals, that are supposed to be attainable,

44

but they are not going to be attainable if realistically, we are not

getting that kind of gas mileage out there.

And you might say, that is important for the consumer, but I

would say that we are predicating policy on fiction again, and unless you and I, Congress, right, go to EPA and say how realistic are

these numbers, should we be basing any policy assumptions on it,

and someone just handed you something, and I take it that they

might have something of interest there, and if not, I guess it must

say when are we going to lunch, and I think it is going to be in

a few minutes.

Doctor Lazear I really don’t have any questions for you because

I am afraid you will give me one of those answers that you gave

Mr. Markey, which I more or less understood, but was not sufficient. But again, I want to thank both of you for your testimony

today.

Mr. LAZEAR. Thanks a lot.

Mr. GONZALEZ. And I yield back.

Mr. BOUCHER. Thank you, Mr. Gonzalez. The Chair is pleased to

recognize the gentleman from Mississippi, Mr. Pickering, for 5 minutes.

Mr. PICKERING. Thank you, Mr. Chairman.

Chairman Lazear, have you all looked, I know the administration

has looked at different ways to encourage higher standards, and

your proposal has that, but did you also look at ways that you

could encourage individual consumers to get their older and less efficient cars off the road? For example, a resale tax credit that

would encourage car owners with a older car, less efficient car, to

be able to trade that in, get a resale tax credit, and then purchase

a more efficient vehicle? Did you all look at that individual-based

approach?

Mr. LAZEAR. I would say we looked at individual-based approaches, but not the specific one that you are talking about. In

some sense, trading old cars for new cars comes about, in large

part, as a reflection of the price mechanism. If things become expensive, if gasoline becomes expensive, and you have an old car

that is a real gas guzzler, you might move in a direction of a new

car, simply to save money. That would come about indirectly, but

the kind of direct approach that you are talking about is not something that I looked at personally.

Mr. PICKERING. Then, and current standards are based on a split

fleet analysis and assessments. Did you look at how you could do

that on a unified basis?

Mr. LAZEAR. Again, we thought about the different attributes, I

mean, you can think of the split fleet, in some sense, as being like

a big attribute on which we base this. We believe that the Department of Transportation is better able to handle this in a much

more sensible and gradual way, by using the standards that we

have right now, and that was primarily the logic behind the proposal.

Mr. PICKERING. Would it make sense to move to a unified fleet?

Mr. LAZEAR. Go ahead.

Ms. NASON. Congressman, we have looked at that issue. One of

the distinctions we have now is the light truck fleet is operating

under a reformed, a changed CAFE structure, and the passenger

45

car is not. We don’t have the authority to do that, so we left that

issue. It would be something, I think, we might be interested in

discussing at some point, but we thought it was important to give

the manufacturers the opportunity to adjust to new CAFE under

light truck, and hopefully, new CAFE under passenger car for some

period of years, and then, we could have further conversations.

Mr. PICKERING. As far as domestic production and jobs, would

there be any advantage to moving to a unified fleet versus a split

fleet, or would it disadvantage domestic production and foreign investment, and other initiatives that we see now developing in the

automotive sector?

Mr. LAZEAR. We don’t see any direct relationship there. The

issue, again, is how is this implemented, how are the attributes

used, and how do they cut across different companies and different

kinds of vehicles, and obviously, it will affect them in different

ways depending on how it actually is implemented.

But there is no obvious kind of if we go this way, you are going

to get more jobs than if you go that way. I don’t think there is an

automatic connection there.

Mr. PICKERING. And the last question is just one of overall context. As we look at different initiatives that would look at both our

fuel efficiency and fuel security, for the energy security over the

long term, and the climate change issues, the CO2 emissions from

the automotive, the automobiles nationally, how does that compare

in its contribution to say housing or manufacturing? Do you all

have data that gives you a breakdown of which each sector contributes, and how much?

Mr. LAZEAR. Yes. We certainly have a breakdown. The number

that came up earlier was if we are just looking at automobiles. It

is about 30 percent of the emissions. I am sorry. Go ahead.

Mr. PICKERING. And what would the housing be?

Mr. LAZEAR. I don’t want to do this off of the top of my head.

I just talked to one of my colleagues about this recently, Jim

Connaughton, who is our, the administration’s expert on that, and

I just don’t recall the exact number, but it is very significant.

Mr. PICKERING. Would it be a greater amount than the automobile contribution?

Mr. LAZEAR. I think it is about the same. Ann, do you have the

numbers? Just bear with me here. OK. Here, we got it. OK, 40 percent in energy, 30 percent transportation, 20 percent industry, and

10 percent is households.

Mr. PICKERING. Repeat that one more time.

Mr. LAZEAR. Forty percent is from energy production, 30 percent

is from transportation, 20 percent is from industry, and 10 percent

is from the households. And obviously, those are approximate numbers, since we are giving you rounded to tens.

Mr. PICKERING. Yes. And this is my last question, Mr. Chairman,

and do you have the breakdown between manmade greenhouse

emissions, CO2 emissions, versus naturally occurring?

Mr. LAZEAR. I don’t have that with me. Again, I would have to

check those numbers. That is sort of outside my lane, to be honest

with you, and I could get that for you, but I don’t have that on the

top of my head.

Mr. PICKERING. Thank you, Mr. Chairman.

46

Ms. NASON. And just to clarify, Congressman, that 30 percent is

all transportation, so it is about 60 percent, I believe, of the 30 percent would be cars and light trucks.

Mr. PICKERING. Thank you very much.

Mr. BOUCHER. Thank you, Mr. Pickering. The gentleman from

Texas, Mr. Burgess, for 5 minutes.

Mr. BURGESS. Thank you, Mr. Chairman, and I apologize for

being in and out. Wednesdays is always a busy day, even when you

work five days a week.

Let me ask a question, and I apologize if it has already been covered, but on the Twenty in Ten paper that I have, it talks a little

bit about the renewable fuel standard, expanding it to an alternative fuel standard, and includes within that ethanol, cellulosic

ethanol, biodiesel methanol. Under the biodiesel part of that, can

you expound upon that just a little bit for me? Either one of you.

Mr. LAZEAR. What specifically would you have in mind there?

Mr. BURGESS. Well, how large a role do you see for biodiesel in

the future, going forward? What sort of support do you see from the

administration? What do you anticipate from Congress? What

things would you like to have, as far as promoting biofuels as a

source for American energy?

Mr. LAZEAR. We believe that biofuels are certainly one of the

areas in which we are going to see a lot of development, particularly biodiesel in the future. The President has put a significant

amount of money into research on that, and we expect to see more

of that coming over the next couple of years, and we hope you will

support that. We think it is a promising area. As you know, the

President believes that cellulosic ethanol and biodiesel are probably

going to be the things that we see in the most, in the nearest future.

But again, the policy does not want to select one over another.

The basic approach behind the policy is to allow the market to decide what is the most efficient way, what is the most efficient direction in which to go, and we are happy to see anything develop, as

long as it is consistent with the President’s policies of making us

more secure, in terms of our energy.

So, if you had suggestions, specifics on that, we would welcome

them. I think we have been thinking about them. We put out some

proposals ourselves, but we don’t have a monopoly on this, and if

you had specific ideas, we would welcome hearing them.

Mr. BURGESS. When we passed our energy bill a couple of years

ago, the tax credit or tax relief of $1 a gallon on biofuels made from

virgin stock, if you will, but fuel that was recycled, Colonel Sanders

was only credited at 50 cents a gallon. Just seems to me to make

sense to include that, those biofuels that are developed from what

otherwise would be something that would go and clog our sewers

and our landfills, and our water treatment plants, and I just know

they have done a little bit of that, or maybe a great deal of that

in my district, and it has been pretty well received by the restaurants and companies that would have grease to recycle, or fry

oil to recycle, and again, I just think that is an opportunity that

we might be missing, that perhaps we should embellish.

Now, I am a fan of the hybrid vehicle. I believe they are safe.

I haven’t had to replace a battery yet, so I might feel differently

47

then. I got it, again, to deal with issues of air quality, but then

when gas prices went up so high, it gave me a feeling of moral superiority to be driving a hybrid, and I like that. Do you think the

standards that we are talking about, that the administration is

talking about, would increase the number of hybrids that are currently offered by American manufacturers? Because that has been

one of the problems is the technology has largely come to us from

overseas, and it would, I think it would benefit the country, that

these were hybrids offered by American manufacturers. So, do you

have any evidence of recent trends, and how we might anticipate

this impacting the American market?

Ms. NASON. Thank you, Congressman.

We have seen, obviously, an increase, a growing penetration of

the fleet overall, not just from overseas manufacturers, but from

U.S.-based manufacturers and others, an increase in hybridization,

offering alternative not just cards, but light truck hybrid vehicles.

And I guess the best way to answer is we could see an increase.

One of the basic tenets of our proposal is to try to remain technology neutral, so that if there is a manufacturer who believes that

dieselization, for example, clean diesel, is a better way to go, they

can choose that path, and we are not limiting them. So, we

wouldn’t be requiring hybridization under the rulemaking, but we

certainly acknowledge that at 4 percent, year over year, we would

expect to see greater penetration in the fleet of hybrids and diesels.

As the President noted, it is a heavy technology bet, but we think

the technology is there.

Mr. BURGESS. Just one last question, then, on the trading of the

credits.

Ms. NASON. Yes, sir.

Mr. BURGESS. I mean, do you really believe that Ford Motor

Company is going to go to Honda, and say we want to buy some

of your credits, and you really Honda is going to sell them to Ford?

I mean, is this, has anybody explored this as a market-based strategy?

Mr. LAZEAR. Yes, we have explored that. We do believe that the

most effective way to do this is to run it through a third party, so

you wouldn’t necessarily see Ford going to Honda to buy credits.

What they would do is they would go to a market, and credits

would trade, not only in the spot market, but also in futures. You

could buy and sell and bank credits, and we believe that is probably the best way to implement the policy.

We also believe that, to the extent that the credit price goes up,

firms will also occasionally opt to use the safety valve, and we

think that is a very important feature of the program. It is essential that you have a safety valve, where firms can simply pay a fee,

and pay it directly to the Government, to avoid having to bring in

technologies that would be too costly and too disruptive. And that

is part of the program. We think that is an important part of the

program.

Mr. BURGESS. I would agree with that. I think I referenced the

Yugo in my opening statement, and I have never driven a Yugo,

but I have driven a Geo Metro on Texas freeways, and that does

not fall into the category of highway safety.

Thank you.

48

Mr. BOUCHER. The time of the gentleman has expired. I am going

to ask unanimous consent that we insert in the record the copy of

the Wall Street Journal article that was referenced by Chairman

Dingell in the course of his questions, and without objection, that

is so ordered.

Mr. Markey, do you want to do a second round of questions?

Mr. MARKEY. Yes. Very much so. Very much so.

Mr. BOUCHER. We are expecting recorded votes very shortly on

the floor, and it is about an hour’s worth of votes.

I want to be agreeable. Our witnesses have been here for a long

time. Can we do 3 minutes of questions?

Mr. MARKEY. Excellent. Whatever.

Mr. BOUCHER. We will recognize the gentleman from Massachusetts for 3 minutes, and then, if Mr. Burgess wants to be recognized, we will recognize him for 3 minutes. So now, you can see the

light at the end of the tunnel here.

Mr. Markey.

Mr. MARKEY. Thank you, Mr. Chairman.

I wanted to refer back to what Mr. Barton said earlier about my

comments being disingenuous, and because I think, again, he continually misses the point, that the United States only has 3 percent

of the oil reserves in the world. We cannot drill our way out of this

problem. Two-thirds of the oil reserves are in the Middle East.

That is our biggest national security problem, and his whole idea

that we are drilling our way out of it just defies geology.

We are a technological giant. We can take our automobiles, our

SUVs, our planes, our utilities, our appliances, and revolutionize

technologically our relationship with imported oil and other energy

sources, and I think every time he says that, he clearly is demonstrating that he is missing the point about how much oil we have

as reserves.

Mr. Lazear, I would like to move back to you quickly if I can, on

this gas guzzler tax. Again, we don’t have a tax imposed on a person who buys a gas guzzling SUV, but we have a gas guzzler tax

that we impose on an automobile. If we are going to get this tax

code correctly, don’t you think that we should have the same tax

on the same type of vehicle, if it is going to be something that is

economically coherent, in terms of achieving a national public policy goal?

Mr. LAZEAR. I don’t believe that bringing in additional taxes is

the best way to go right now. I think the most efficient way for us

to achieve our goals——

Mr. MARKEY. So, would you repeal the gas guzzler tax?

Mr. LAZEAR. Again, what I would say is that the policy that we

have put forward——

Mr. MARKEY. No. As I say, it is an inconsistent policy. Should we

impose a tax on, should we close the loophole so that a Hummer

is covered, or should we just exempt Hummers and big gas guzzling vehicles? Which way would you go?

Mr. LAZEAR. The way I would go is the way that the President

proposed right now, which is to take the current proposal, which

built into it standards for CAFE.

Mr. MARKEY. OK, not to do anything. OK. I get it. The President

won’t do anything.

49

Let me ask you another question. If we pass legislation that has

a 4 percent standard over the next 10 years, but it is mandatory,

would you recommend a veto to the President, if it was mandatory?

Mr. LAZEAR. The President makes his own decisions about vetoes.

Mr. MARKEY. Yes. Ms. Nason, would you recommend a veto to

the President?

Ms. NASON. I am not prepared today to issue a veto threat on

behalf of the administration. That is the President’s decision alone.

Mr. MARKEY. I would advise both of you that you should tell the

President that from 1975 to 1986, we actually doubled the fuel

economy standard from 13 to 27, and we actually backed out 2 million barrels of oil a day, and we went down to only 26 percent oil

dependence, and if the President thinks that it is a national security issue, I would urge him not to veto a bill that did something

that was actually more modest technologically than what we did as

a country in 1975 and to 1986, when we responded to the last crisis. Thank you, Mr. Chairman.

Mr. BOUCHER. The time of the gentleman has expired.

Mr. MARKEY. Thank you, Mr. Chairman.

Mr. BOUCHER. Mr. Burgess.

Mr. BURGESS. Thank you, Mr. Chairman.

I, having purchased a vehicle that was subject to the gas guzzler

tax, I have never been a big fan of that. On this credit that we are

talking about, or the proposal that we are talking about from the

administration, and the new attribute-based standards, the currently mandated average of 27.5 miles per gallon, would that be

preserved?

Ms. NASON. We did not propose that as a backstop, Congressman. We have heard from some who have concern that we need to

have some sort of a backstop in legislation, and to be frank, we

couldn’t find a way to write it without undoing some of the reform.

The issue with 27.5 is some manufacturers are below it, and some

are above it, so we didn’t want to make the assumption that everyone was above the current 27.5. But having said that, we understand that there is a concern among many that we need to have

some marker somewhere, and we would be happy to work with you

on trying to write changes, if you have a proposal.

Mr. BURGESS. Is there, let me just ask you, is it more than just

a theoretic concern that some fleets could end up with an average

mile per gallon rating of less than 27.5?

Ms. NASON. If we are able to meet a 4 percent annual increase,

then we could go well past 27.5.

Mr. BURGESS. So that, as a floor, really there is no danger of

piercing that or penetrating that?

Ms. NASON. The danger, the concern that we have with doing it

is it makes the assumption right now that all manufacturers are

above—CAFE challenges are different for different manufacturers.

For example, a small two-seater sports car has a much greater

challenge, so specialty manufacturers may have greater CAFE

challenges than others, which is why we want to be careful about

where we would put a backstop. But we would be open to ideas.

Mr. BURGESS. Thank you, Mr. Chairman. With that, I will yield

back.

50

Mr. BOUCHER. Thank you very much, Mr. Burgess.

And on behalf of the subcommittee, let me thank both witnesses

for joining us here today. And Ms. Nason, I want to thank you in

particular, because I understand you have laryngitis, and this has

been something of a struggle for you today, but you have performed

very well, and we appreciate your answer to all of your questions.

We will be having additional hearings on our climate change inquiry. In fact, additional hearings next week and throughout the

month of March, and so, since there is no further business to come

before this subcommittee today, this hearing stands adjourned.

Ms. NASON. Thank you very much.

[Whereupon, at 12:42 p.m., the subcommittee was adjourned.]

[Material submitted for inclusion in the record follows:]

STATEMENT NICOLE R. NASON

Mr. Chairman, thank you for inviting me to discuss Corporate Average Fuel Economy standards (CAFE) for passenger cars.

Last month, the President announced in the State of the Union address his ‘‘20

in 10’’ proposal that would reduce domestic gasoline consumption by 20 percent in

2017. A key component of the President’s ‘‘20 in 10’’ plan is to significantly boost

fuel economy standards for cars. Towards that end, earlier this month, at your request and that of Chairman Dingell, the administration forwarded draft legislation

that would give the Secretary of Transportation the statutory authority to reform

and raise fuel economy standards for passenger cars.

The Bush administration already has a history of reforming and raising fuel economy for light trucks. Consider our record: this administration has raised the CAFE

standard for light trucks for seven consecutive years, from 2005 to 2011.

Our recent light truck rule not only will save a record amount of fuel, it also regulates for the first time fuel economy for some of the heaviest light trucks, such as

the Hummer H2. This rule also boosted the CAFE target for some light trucks to

a level that exceeds the congressionally-mandated passenger car standard of 27.5

miles per gallon.

While these are notable accomplishments, the method by which they were

achieved is probably the most important. In its landmark 2002 study on CAFE by

the National Academy of Sciences, the NAS found that while the CAFE program

did fulfill its original goals, it contained flaws that were preventing the program

from living up to its potential.

For example, one of the NAS criticisms was that the program concentrated most

of the regulatory requirements on a few full line manufacturers. This resulted in

some manufacturers who produced primarily smaller vehicles not being required to

make any further improvements in fuel efficiency. Additionally, the study found that

having a ‘‘one-size-fits-all’’ standard allowed some automakers to produce fleets that

met the standard even though many of the cars in the fleets were relatively fuel

inefficient. This meant that we were, and still are, losing fuel savings from a significant part of the fleet. Finally, and most disturbingly, the study estimated that

CAFE probably had cost between 1,300 and 2,600 lives in one year alone, 1993, because the standards were structured in a way that enabled automakers to meet

much of their compliance obligations by downsizing cars.

NHTSA carefully considered the NAS study, and methodically developed a new

structure for light truck CAFE standards that addressed each of these criticisms.

This new system, called ‘‘Reformed CAFE,’’ is based on requiring automakers to

achieve improved fuel economy not by downsizing, but by adding fuel-saving technologies. Basing CAFE standards on adding fuel-saving technology instead of

downsizing vehicles has a number of benefits. First, by setting fuel economy targets

for every size of vehicle, this ensures that vehicles small, medium and large have

to improve fuel economy.

Second, under Reformed CAFE there is no longer an incentive for automakers to

improve their fleet average by downsizing. Accordingly, no longer will raising the

CAFE standard mean a decrease in safety.

Third, since Reformed CAFE demands greater fuel efficiency from every model of

vehicle affected, every automaker will share the regulatory burden for improving

fuel economy, not just a few.

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Finally, the administration’s draft bill contains a CAFE credit trading provision.

The NAS study pointed out how the current CAFE system makes it more expensive

than necessary to achieve a given level of fuel economy in the vehicle fleet. Because

one company may find it less expensive than another company to increase the fuel

economy of its fleet, there are further cost-savings to be gained from allowing credit

trading across companies.

CAFE already allows a manufacturer to accumulate credits if its fleet mix exceeds

the standard. These credits may be carried forward or ‘‘banked’ and used to offset

future CAFE deficits by the same manufacturer. Credit trading is a natural extension of this framework. Credit trading would be purely voluntary, and we believe

it will help lower the industry’s cost of complying with CAFE.

In 1975 when Congress wrote the original CAFE standard, it did so by taking the

average fuel economy number for the fleet and doubling it over a 10-year period.

Today, NHTSA can perform a much more sophisticated analysis on how to determine the CAFE standard. We can do this because we have the benefit of individualized data on the fuel-saving capabilities of each car.

Accordingly, there is no need to set an arbitrary fuel economy standard, there is

no need to sacrifice safety for better fuel economy, and there is no reason why some

auto companies have to shoulder nearly all the regulatory burden. Our light truck

rule demonstrated that all of these problems can be overcome.

Mr. Chairman, the President indicated in his State of the Union address his desire to raise the fuel economy standard. We believe that having experts develop the

standard, using sound science and hard data, in an open and reviewable rulemaking

process, is the most responsible way to determine a new CAFE standard.

If Congress authorizes the Secretary to reform CAFE for passenger cars, we will

immediately begin a rulemaking to boost passenger car fuel economy. If the administration’s draft legislation is enacted soon, cars rolling off the assembly line for the

2010 model year will have to meet a higher CAFE standard.

Mr. Chairman, given NHTSA’s successful experience with setting the fuel economy standard for light trucks, which comprise half the vehicle sold today, we believe

we have demonstrated our capability to set balanced standards for passenger vehicles, given the authority for reform.

I would be pleased to answer any questions.

TESTIMONY OF EDWARD P. LAZEAR

Good morning Mr. Chairman and members of the committee. Thank you for giving me the opportunity to be here to discuss the President’s plan to enhance energy

security.

The President’s plan has four pillars. The first two pillars focus directly on the

President’s goal of reducing the use of gasoline in the United States by 20 percent

in ten years. First, the President has called for an increase in the supply of renewable and other alternative fuels by setting a mandatory alternative fuel standard

to require 35 billion gallons of renewable and other alternative fuels in 2017, which

is nearly five times the current requirement for 2012. Approximately three-quarters

of the targeted reduction in gasoline would come through the alternative fuel standard. Second, the President believes that we should reduce our demand for fuel by

reforming and modernizing the Corporate Average Fuel Economy (CAFE) standards

for cars. Changes to CAFE standards account for the remaining quarter of saving

necessary to meet the President’s goal, potentially saving another 8.5 billion gallons

per year by 2017. Third, the President has proposed additional funding for energy

innovation and technology, including bio-energy research, and loan guarantees for

cellulosic ethanol plants. Fourth, the President proposed doubling the capacity of

the Strategic Petroleum Reserve to enhance our ability to deal with severe supply

disruptions caused by natural disasters or a terrorist attack to the supply chain.

The President believes that bold steps are warranted. Improving our energy security is a goal on which we can all agree. To do this, he has outlined a variety of

measures that will diversify our energy supply and increase energy efficiency. The

20-in-10 plan was designed with these goals in mind. Additionally, the plan undertakes to accomplish these goals in an environmentally sensitive way.

Most important, the President has made clear that we must accomplish these

goals without damaging the American economy. This is foremost in his mind, especially because the market, unfettered by government, is the most effective driver of

innovations that strengthen energy security. Changes in prices create the incentives

necessary for scientists, farmers, industry leaders and entrepreneurs to find the

means to diversify our fuel supply and increase efficiency. As such, the policies the

President has proposed—while bold—are not Draconian. The proposals build on exVerDate 11-SEP-98 10:53 Jun 04, 2007 Jkt 000000 PO 00000 Frm 00054 Fmt 6633 Sfmt 6633 Q:\DOCS\110-9 SCOM1 PsN: SCOM1
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isting programs and the reforms allow for American companies to comply with the

targets in ways that will not compromise their ability to compete internationally.

Two principles are important when evaluating these proposals: technology neutrality and flexibility. The President’s alternative fuel proposal builds on the existing renewable fuel standard to include virtually all alternatives to gasoline rather

than just renewable fuels. This design feature helps to ensure the Government is

not picking winners and losers in the marketplace, a task for which it is ill-suited.

Additionally, there is flexibility embedded in both the alternative fuel standard and

the CAFE proposals so that significant distortions to the economy can be avoided.

The proposed alternative fuel standard includes two ‘‘safety valves’’ one through administrative discretion, one automatic—that would limit the economic costs. Furthermore, discretion is given to the Secretary of Transportation who can alter CAFE

targets in ways that are compatible with preserving safety, technological developments, and cost-benefit analysis. These provisions prevent a system on automaticpilot from taking us down unanticipated paths that are inconsistent with the goals

we set. It means that we can be responsive to uncertain technology developments

and adjust our standards as the market determines.

The CAFE provision also extends the existing credit framework by allowing credits to be traded, granting manufacturers additional flexibility and lowering their

costs. Finally, as my colleague Nicole Nason explains in her testimony, the President’s call for an attribute-based CAFE system for cars would help address both

safety and distributional concerns.

By remaining open to new technologies and ensuring flexibility, the policies proposed by the President have the virtue that they cause minimal economic disruption, yet yield the promise of moving us toward a worthy goal. I welcome your questions.

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