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98–561PS 2005

IMPROVING THE NATION’S ENERGY

SECURITY: CAN CARS AND TRUCKS BE

MADE MORE FUEL EFFICIENT?

HEARING

BEFORE THE

COMMITTEE ON SCIENCE

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

FEBRUARY 9, 2005

Serial No. 109–3

Printed for the use of the Committee on Science

(

Available via the World Wide Web: http://www.house.gov/science

(II)

COMMITTEE ON SCIENCE

HON. SHERWOOD L. BOEHLERT, New York, Chairman

RALPH M. HALL, Texas

LAMAR S. SMITH, Texas

CURT WELDON, Pennsylvania

DANA ROHRABACHER, California

KEN CALVERT, California

ROSCOE G. BARTLETT, Maryland

VERNON J. EHLERS, Michigan

GIL GUTKNECHT, Minnesota

FRANK D. LUCAS, Oklahoma

JUDY BIGGERT, Illinois

WAYNE T. GILCHREST, Maryland

W. TODD AKIN, Missouri

TIMOTHY V. JOHNSON, Illinois

J. RANDY FORBES, Virginia

JO BONNER, Alabama

TOM FEENEY, Florida

BOB INGLIS, South Carolina

DAVE G. REICHERT, Washington

MICHAEL E. SODREL, Indiana

JOHN J.H. ‘‘JOE’’ SCHWARZ, Michigan

MICHAEL T. MCCAUL, Texas

VACANCY

VACANCY

BART GORDON, Tennessee

JERRY F. COSTELLO, Illinois

EDDIE BERNICE JOHNSON, Texas

LYNN C. WOOLSEY, California

DARLENE HOOLEY, Oregon

MARK UDALL, Colorado

DAVID WU, Oregon

MICHAEL M. HONDA, California

BRAD MILLER, North Carolina

LINCOLN DAVIS, Tennessee

RUSS CARNAHAN, Missouri

DANIEL LIPINSKI, Illinois

SHEILA JACKSON LEE, Texas

BRAD SHERMAN, California

BRIAN BAIRD, Washington

JIM MATHESON, Utah

JIM COSTA, California

AL GREEN, Texas

CHARLIE MELANCON, Louisiana

VACANCY

(III)

C O N T E N T S

February 9, 2005

Page

Witness List ............................................................................................................. 2

Hearing Charter ...................................................................................................... 3

Opening Statements

Statement by Representative Sherwood L. Boehlert, Chairman, Committee

on Science, U.S. House of Representatives ........................................................ 10

Written Statement ............................................................................................ 11

Statement by Representative Bart Gordon, Minority Ranking Member, Committee on Science, U.S. House of Representatives ............................................ 12

Written Statement ............................................................................................ 12

Prepared Statement by Representative Jerry F. Costello, Member, Committee

on Science, U.S. House of Representatives ........................................................ 13

Prepared Statement by Representative Eddie Bernice Johnson, Member, Committee on Science, U.S. House of Representatives ............................................ 13

Prepared Statement by Representative Michael M. Honda, Member, Committee on Science, U.S. House of Representatives ............................................ 14

Prepared Statement by Representative Russ Carnahan, Member, Committee

on Science, U.S. House of Representatives ........................................................ 14

Prepared Statement by Representative Sheila Jackson Lee, Member, Committee on Science, U.S. House of Representatives ............................................ 15

Witnesses:

Hon. William K. Reilly, Aqua International Partners

Oral Statement ................................................................................................. 17

Written Statement ............................................................................................ 19

Biography .......................................................................................................... 24

Financial Disclosure ......................................................................................... 26

Mr. Paul R. Portney, President, Resources for the Future

Oral Statement ................................................................................................. 27

Written Statement ............................................................................................ 29

Biography .......................................................................................................... 32

Mr. K.G. Duleep, Managing Director of Transportation, Energy and Environmental Analysis, Inc.

Oral Statement ................................................................................................. 33

Written Statement ............................................................................................ 36

Biography .......................................................................................................... 41

Mr. Michael J. Stanton, Vice President of Government Affairs, Alliance of

Automobile Manufacturers

Oral Statement ................................................................................................. 42

Written Statement ............................................................................................ 43

Biography .......................................................................................................... 46

Dr. David L. Greene, Oak Ridge National Laboratory, Center for Transportation Analysis, National Transportation Research Center

Oral Statement ................................................................................................. 47

Written Statement ............................................................................................ 50

Biography .......................................................................................................... 60

Financial Disclosure ......................................................................................... 61

Discussion ................................................................................................................. 61

Page

IV

Appendix 1: Answers to Post-Hearing Questions

Hon. William K. Reilly, Aqua International Partners .......................................... 84

Mr. Paul R. Portney, President, Resources for the Future .................................. 87

Mr. K.G. Duleep, Managing Director of Transportation, Energy and Environmental Analysis, Inc. ........................................................................................... 89

Mr. Michael J. Stanton, Vice President of Government Affairs, Alliance of

Automobile Manufacturers .................................................................................. 91

Dr. David L. Greene, Oak Ridge National Laboratory, Center for Transportation Analysis, National Transportation Research Center ............................. 93

Appendix 2: Additional Material for the Record

Statement of Dr. David L. Bodde, Professor and Director of Innovation and

Public Policy, International Center for Automotive Research, Clemson University ................................................................................................................... 98

Statement of Dr. Gal Luft, Executive Director, Institute for the Analysis

of Global Security (IAGS) .................................................................................... 101

Letter to The Honorable Sherwood Boehlert from Timothy C. MacCarthy,

President and CEO, Association of International Automobile Manufacturers, Inc., dated February 23, 2005 ...................................................................... 106

Ending the Energy Stalemate, A Bipartisan Strategy to Meet America’s Energy

Challenges, The National Commission on Energy Policy, December 2004 ..... 108

Executive Summary, National Academy of Sciences, 2003 .................................. 131

(1)

IMPROVING THE NATION’S ENERGY SECURITY: CAN CARS AND TRUCKS BE MADE

MORE FUEL EFFICIENT?

WEDNESDAY, FEBRUARY 9, 2005

HOUSE OF REPRESENTATIVES, COMMITTEE ON SCIENCE, Washington, DC.

The Committee met, pursuant to call, at 2:30 p.m., in Room 2318

of the Rayburn House Office Building, Hon. Sherwood L. Boehlert

[Chairman of the Committee] presiding.

2

3

HEARING CHARTER

COMMITTEE ON SCIENCE

U.S. HOUSE OF REPRESENTATIVES

Improving the Nation’s Energy

Security: Can Cars and Trucks Be

Made More Fuel Efficient?

WEDNESDAY, FEBRUARY 9, 2005

2:30 P.M.–4:30 P.M.

2318 RAYBURN HOUSE OFFICE BUILDING

Purpose

On February 9, the Committee on Science will hold a hearing on the availability

of technologies to improve fuel economy in cars and trucks and the potential for fuel

economy improvements to reduce the Nation’s dependence on foreign oil.

The U.S. depends on imports to meet nearly 60 percent of its oil needs, much of

it from troubled countries or regions of the world, including Nigeria, Venezuela,

Russia, and the Middle East. The gasoline burned by cars and trucks accounts for

about 45 percent of the Nation’s oil consumption. Total U.S. daily oil consumption

is expected to rise from 20 million barrels today to 29 million barrels by 2025, mostly as a result of increasing consumption for transportation.

The hearing will focus on the pros and cons of tightening federal fuel economy

standards for cars and light trucks (known as Corporate Average Fuel Economy, or

CAFE standards) and reforming the program as a way to reduce U.S. oil consumption and encourage the use of new technologies. But witnesses have also been asked

to discuss more generally how the Federal Government could promote the deployment of fuel-saving technologies. Other options include tax incentives, fuel taxes,

and research, development and demonstration programs.

More specifically, the hearing will review and update the findings of the National

Academy of Sciences on CAFE standards issued in 2002. The Academy report, which

was commissioned by the Congress, concluded that the technology exists to significantly improve the fuel economy of cars and light trucks without reducing safety.

In December, the National Commission on Energy Policy, a bipartisan group of

leaders from business, government, and academia that included experts in national

security, energy, and the environment released a set of recommendations for U.S.

energy policy. The recommendations included a call to raise CAFE standards to enhance the Nation’s energy security. The privately funded group was chaired by William Reilly, who was Administrator of the Environmental Protection Agency (EPA)

under President George H.W. Bush, and John Holdren, the Teresa and John Heinz

Professor of Environmental Policy at Harvard University.

The Committee plans to explore the following overarching questions at the hearing:

1. To what extent can improving fuel economy in cars and trucks improve the

economic and energy security of the Nation?

2. What technologies are available or will soon be available to improve fuel

economy in cars and trucks? How much could these technologies improve fuel

economy without compromising safety or the economy?

3. What policy options are available to Congress to encourage the adoption of

automobile efficiency technologies? What are the advantages and disadvantages of each?

Witnesses:

1. William Reilly co-chaired the National Commission on Energy Policy, which in

December released a report entitled Ending the Energy Stalemate: A Bipartisan

Strategy to Meet America’s Energy Challenges. Mr. Reilly is founding partner of

the investment firm Aqua International Partners and was the Administrator of

EPA under President George H.W. Bush.

4

2. Paul Portney was Chairman of the National Academy of Science’s Committee

on the Effectiveness and Impact of Corporate Fuel Economy (CAFE) Standards,

which authored the 2002 report. An economist, he is the President of Resources

for the Future, a D.C.-based energy and environmental policy research institute.

3. K.G. Duleep is Transportation Managing Director of the energy and environmental consulting firm Energy and Environmental Analysis, Inc. He is an internationally recognized expert on vehicular fuel economy and emissions issues. He

has been involved with automotive technology, fuel economy, and emissions

issues for over 20 years.

4. Michael Stanton is Vice President of Government Affairs at the Alliance of

Automobile Manufacturers, a trade association representing the BMW Group,

DaimlerChrysler, Ford Motor Company, General Motors, Mazda, Mitsubishi Motors, Porsche, Toyota, and Volkswagen.

5. David Greene is a Corporate Fellow at the National Transportation Research

Center, Oak Ridge National Laboratory. He has spent 25 years researching

transportation and energy policy issues.

Issues:

• Has the Corporate Average Fuel Economy (CAFE) law worked? Congress created the CAFE program in 1975 after the Arab oil embargo, which

resulted in a tripling of the price of oil in the early 1970s. Average new car

fuel economy rose from 12.9 miles per gallon (mpg) in 1974 to 27.6 mpg in

1985—slightly more than the 27.5 mpg required by the CAFE standards that

year. (The average for new light trucks, the category that now includes

pickups, SUVs and mini-vans, rose to 19.5 mpg over the same time period.)

Today, the standards stand at 27.5 mpg for cars and 21.0 mpg for light

trucks.

Experts argue over the extent to which the increase in fuel economy in the

1970s and 1980s can be attributed to CAFE or to high fuel prices. Some say

that the sudden hike in prices in the 1970s and the threat of competition

from Japanese automakers (who were entering the U.S. market with more

fuel efficient cars) were the predominant forces driving the increase in domestic fuel economy. But the National Academy of Sciences panel concluded that

CAFE standards have played a leading role in preventing fuel economy levels

from dropping as much as they otherwise would have as fuel prices declined

in the 1990s, and that fuel use by cars and trucks today is roughly one-third

lower than it would have been had fuel economy not improved since 1975.

Experts also argue whether, regardless of their effectiveness, CAFE standards are the most efficient and effective way to increase fuel economy.

• Why has the fuel economy of new vehicles been on a downward trend

since 1987? The average fuel economy of new vehicles sold in the U.S. has

declined since reaching a peak in 1987. The major reason is the explosive

growth in SUVs, mini-vans, and pickup trucks, which must meet a fuel economy standard that is lower than that for passenger cars. The number of light

trucks sold has more than tripled since 1980, while the number of passenger

cars has declined slightly over the same period. Today more than half the

new cars sold are light trucks. At the same time, CAFE standards have remained stagnant. The fuel economy standard for new cars has not changed

since 1990. And until this year, the standard for new light trucks had not

changed since 1996.

The fact that the average fuel economy has declined since 1987 does not

mean that no new cars or light trucks use newer, more fuel-efficient technologies. But any improvements in fuel economy in a particular model have

been offset by declines in fuel economy in other models (or by increased sales

of models with lower fuel economy), allowing the average—which is based on

sales of all makes and models—to drop. Proponents of CAFE standards argue

that government action is the only way to raise the average by pushing improvements across automakers’ fleets.

Automakers point out that they have made cars and trucks more efficient,

pound for pound, in recent years. They note that they have significantly increased the power and size of vehicles without much change in fuel economy.

And they argue that customers prefer power, size and luxury over fuel effiVerDate 11-MAY-2000 13:33 Sep 17, 2005 Jkt 098561 PO 00000 Frm 00008 Fmt 6633 Sfmt 6621 C:\WORKD\FULL05\020905\98561 SCIENCE1 PsN: SCIENCE1
5

ciency. As a result, average vehicle weight has increased by 24 percent since

1981 and average horsepower has increased by 93 percent.

• Does the technology exist to improve the fuel economy of cars and

trucks? The National Academy of Sciences report identified 14 technologies

that were readily available in 2002 to improve the efficiency of automotive engines, transmissions, and overall design (such as a vehicle’s aerodynamics and

rolling resistance). The Academy also identified nine emerging technologies,

some of which had already been introduced in European or Japanese markets,

but not in the U.S.

The Academy concluded that the technologies it identified, in combination,

would allow fuel economy increases of 12 to 27 percent for cars and 25 to 42

percent for light trucks without any reduction of safety. (The technologies

would also pay for themselves in fuel savings, the Academy found. See attachment.)

The Academy did not include hybrid vehicles among the technologies it identified because they had just been introduced into the American market when

the Academy conducted its study. Sales of hybrids have continued to grow

since the Academy issued its report. The National Commission on Energy

Policy report, released late last year, found that the ability of hybrid technologies to make substantial improvements in fuel economy has been clearly

demonstrated.

Automakers question whether consumers will be willing to pay for efficiency

technologies. Even if the technology pays for itself in gasoline savings over

the life of the vehicle, they say, many consumers do not consider those kinds

of long-term benefits when choosing a vehicle.

• Can fuel economy be improved without eroding passenger safety? The

relationship between fuel economy and safety is fiercely debated. Even the

National Academy of Sciences panel was split on this issue. A majority found

that when automakers in the 1970s and 1980s made vehicles more efficient

by making them smaller and lighter, they also likely increased the number

of crash fatalities by several percent. (Two members of the panel believed the

relationship between weight, size and safety to be too uncertain to determine

whether any additional casualties occurred due to fuel economy improvements

during that time.)

The Academy panel concluded unanimously, however, that fuel economy

could be increased in the future without any detriment to safety. The Academy said that the technologies it had identified for improving fuel economy

would not reduce safety and could even increase it. The panel also called for

a reduction in the weight of the heaviest vehicles in the light truck category

as a way to increase safety and fuel economy simultaneously. The Academy

found that if the weight and size of the heaviest vehicles, particularly those

over 4,000 pounds, were reduced, vehicle safety would improve by reducing

the damage caused by those vehicles in crashes.

• Would raising fuel economy standards disadvantage domestic manufacturers? The National Academy of Sciences report concluded that CAFE

regulations could have different effects on different manufacturers, but that

those effects could be minimized. The sales and especially the profits of General Motors, Ford, and the Chrysler division of DaimlerChrysler, are much

more dependent on light trucks than are their competitors. If fuel economy

standards were raised for light trucks, but not for cars, U.S.-based companies

would likely suffer. (This assumes that redesigning light trucks to improve

fuel economy would either raise the prices of the vehicles, driving customers

away, or require automakers to absorb some of the costs of redesign, eating

into profits.) Conversely, if standards were raised for cars only, U.S.-based

companies might be advantaged. But fuel economy increases in light trucks

would produce greater oil savings.

To minimize the costs of improving fuel economy, both the National Academy

of Sciences and the National Commission on Energy Policy recommended reforming CAFE regulations to allow manufacturers to trade fuel economy credits with one another in much the same way that electric utilities trade pollution allowances. Under such a system, an automaker that could not improve

its average fuel economy to the extent required by CAFE standards could

purchase credits from an automaker that had exceeded CAFE standards.

(The government could also sell credits.) Tradable CAFE credits would give

6

manufacturers an incentive to exceed the standards since they could then sell

the credits to others. And it could minimize the overall cost of the program

by ensuring that the auto industry as a whole made the most economical improvements in fuel economy.

Even under a CAFE program that allowed tradable credits, however, domestic automakers, which sell the largest and least fuel efficient vehicles, would

likely have to invest the most, either in purchasing credits from other manufacturers or in developing fuel efficient technologies.

That is one reason why the National Commission on Energy Policy further

recommended that an increase in CAFE standards be coupled with a tax incentive program to encourage the domestic production of vehicles with fuel

efficient technologies like hybrid and diesel technologies.

The Academy also recommended that Congress eliminate the separate categories for cars and light trucks. That would enable CAFE standards to allow

automakers more flexibility because they could meet a single CAFE standard

for their entire fleet in more ways. An automaker could choose to meet a

tighter CAFE standard either by improving the fuel mileage of cars or light

trucks or both. However, eliminating the current categories would likely severely disadvantage U.S.-based automakers because their fleets are so

weighted toward light trucks that the bulk of any fuel economy improvements

would still have to be made in that class of vehicles. However, new categories

based on weight, size or horsepower, might go a long way toward leveling the

playing field.

• How would higher fuel economy standards likely affect workers in

the automotive industry? The National Academy of Sciences panel believed

that fuel economy standards could be raised without negative consequences

on employment if the increase were implemented with enough lead-time.

Even existing technologies, the report said, could take four to eight years to

penetrate the market.

The Academy panel pointed out, however, that larger scale trends have a

much greater effect on employment than do CAFE standards. Employment in

the auto industry increased from little over 600 million in the early 1980s to

over one million in 1999, largely because of foreign-owned companies’ decisions to build manufacturing plants in the U.S. Over the same time period,

however, organized labor lost almost half of its members due to the domestic

manufacturers’ improvements in automobile production, shifts of parts production overseas, and loss of market share to foreign-owned manufacturers.

(Workers in their plants, even those in the U.S., generally are not unionized.)

The National Commission on Energy Policy argued that its recommendation

for tax incentives for the domestic production of hybrid and diesel vehicles

would help staunch this flow. The Commission argued that some jobs would

be lost in any event as foreign manufacturers expand their efforts to introduce hybrid and diesel vehicles in the U.S. market. But the Commission calculated that its tax incentives would result in about 25 percent fewer jobs

being lost.

• How much oil would an increase in fuel economy save? According to

the National Commission on Energy Policy, improving car and light truck fuel

economy by 10, 15, and 20 percent by 2015 would result, by 2025, in an estimated fuel savings of approximately two, three, and 3.5 million barrels of oil

a day respectively. Such savings represent a 25 to 40 percent reduction in the

additional amount of oil by which U.S. demand is currently projected to grow

by that time, absent other policy interventions.

Background:

Origins of the CAFE Program

The early 1970s saw the price of oil triple, an increase precipitated by an embargo

orchestrated by the oil cartel OPEC (Organization of Petroleum Exporting Countries). The crisis threw into stark relief the fuel inefficiency of U.S. manufactured

automobiles, and consumers began switching to relatively fuel efficient imported vehicles. Congress passed the Energy Policy and Conservation Act in 1975 with the

goal of reducing the Nation’s dependence on foreign oil, which established, among

other things, the Corporate Average Fuel Economy (CAFE) program to raise the fuel

economy of the U.S. fleet.

7

The CAFE program requires the fuel economy of an automaker’s entire product

line of cars and light trucks sold in the U.S., averaged across all models and weighted by sales, to meet a miles-per-gallon level set by the government. Under the 1975

law, Congress sets the target for passenger cars, which rose from 18 mpg in 1978

to 27.5 mpg in 1990, where it remains today. Congress delegated the authority to

set fuel economy standards for light trucks to the National Highway Transportation

Safety Administration (NHTSA). Light truck standards rose from 17.5 mpg in 1982

to 20.7 mpg in 1996. Beginning this year, the standard for light trucks is to rise

gradually to 22.2 mpg in 2007. The increase this year is the first since 1996, in part,

because language added to appropriations bills forbade NHTSA from raising the

standard between 1996 and 2000.

When Congress created the CAFE program, light trucks accounted for a small

portion of vehicle sales and generally included trucks used on farms or at construction sites. According to the Congressional Research Service, the number of new passenger cars sold each year in the U.S. has decreased somewhat since 1980, but the

number of light trucks sold has more than tripled, from 2.2 million in 1980 to 8.7

million in 2001.

Domestic manufacturers still dominate the light truck market, but their share has

declined from 86 percent in 1993 to less than 77 percent in 2002 as foreign automakers have aggressively targeted this popular sector of the U.S. market, focusing

on somewhat smaller, more fuel efficient models.

Recent Actions

In 2003 NHTSA issued a final rule to boost the CAFE standard for light trucks

by 1.5 miles per gallon by 2007. NHTSA estimates that the increase will save approximately 75,000 barrels of oil a day between 2006 and 2012, or less than 0.4 percent of current consumption.

In 2003 NHTSA also issued an Advance Notice of Proposed Rule-making inviting

comments on a wide variety of potential ways to change the CAFE program to address a number of criticisms that have been made, including those made by the National Academy of Sciences panel. For example, NHTSA has invited comments on

whether it ought to discard the distinction the program makes between cars and

light trucks (which would require a statutory change); establish separate fuel economy standards for various classes of light trucks based on weight, size, or some

other attribute; or extend fuel economy standards to light trucks weighing up to

10,000 pounds (since such vehicles are currently not subject to fuel economy standards). NHTSA has set no date for when it might propose actual reforms based on

these comments.

Questions Asked of the Witnesses:

The witnesses were asked to address the following questions in their testimony:

Mr. Reilly:

Please describe the Commission’s recommendation to improve fuel economy (particularly those related to Corporate Average Fuel Economy (CAFE) Standards), and

address the following questions:

1. What are the expected economic and energy security benefits from reducing

the Nation’s dependence on oil? If we are to reduce our dependence on oil,

how important is it to improve the fuel economy of cars and light trucks?

2. What effect would your recommendations have on the relative competitiveness of American and foreign-owned automobile manufacturers, on American

workers in the automotive industry and on automotive safety?

Mr. Portney:

Please describe the findings of the Academy report, with particular emphasis on

the following questions:

1. Have Corporate Average Fuel Economy (CAFE) standards been effective at

saving the country oil?

2. How much of an increase in fuel economy did your panel find was technologically possible? How much did you find could pay for itself in gasoline savings to the consumer?

3. To what extent could the technologies to improve fuel economy described in

the report be adopted without eroding safety?

4. What are the Academy report’s recommendation’s for improving the CAFE

law?

8

Mr. Duleep:

1. What technologies are available now or are emerging that provide the best

opportunities for automakers to boost fuel efficiency? How much could they

improve fuel economy?

2. What are the prospects that hybrid technologies and diesel vehicle technologies, in particular, will achieve a large degree of market penetration?

How much could they contribute to improving overall fuel economy?

3. To what extent can any of these technologies be used to improve fuel economy without eroding safety?

4. What steps could the government take to accelerate market penetration of

these technologies?

Alliance for Automobile Manufacturers Representative:

1. Do you agree with the findings of the National Academy of Sciences regarding the availability and performance of technologies to increase fuel economy?

2. What potential do hybrid technologies and new diesel technologies have to

reduce fuel consumption?

3. Do you believe that the U.S. should reduce its dependence on foreign oil? If

so, what steps should the government take to accomplish this?

4. What do you believe is the best way the government can encourage greater

adoption of technologies to improve fuel economy?

Dr. Greene:

1. What are the policy options for encouraging the adoption of fuel efficient

technologies in the marketplace and the advantages and disadvantages of

each?

2. Can the government encourage the adoption of technologies to improve fuel

economy without leading automakers to make vehicles less safe?

3. Can the government encourage the adoption of technologies to improve fuel

economy without giving any individual automaker a significant advantage?

9

Attachment

10

Chairman BOEHLERT. I want to welcome everyone here for this

important hearing on fuel economy.

This committee has a special responsibility to review this issue,

because part of our charge is to ensure that new energy technologies are developed and that they make their way into the marketplace.

And new fuel economy technologies are not making their way

into the market, at least not to an acceptable extent because of

market failures and, quite frankly, political failures.

Correcting those failures should be of surpassing interest to

every citizen of our country, because fuel economy is not just an energy issue, it is not just an environmental issue, it is, first and

foremost, a national security issue.

Our nation is ever more dependent, stunningly dependent on the

world’s most unstable region for the energy that is the lifeblood of

our economy. Could anything be more critical? We are like a patient in critical care who needs a daily transfusion and can only

hope to get it from an iffy, black market supplier.

And yet we act as if everything will be healthy forever. We are

doing next to nothing to reduce our reliance on foreign oil. About

60 percent of the oil we consume each day is used for transportation; 45 percent of it is just for cars and light trucks. We can not

reduce our oil consumption meaningfully unless we address transportation. That is a simple, unarguable fact.

And yet while many areas of the economy have been significantly

more energy efficient over the past three decades or so, our nation’s

fuel economy is worse than it was 15 years ago. That ought to be

unacceptable.

It ought to be especially unacceptable, intolerable, really, when

we have the technology to improve fuel economy without reducing

safety, without harming the economy, and without reducing the options people have in the automobile showroom.

I think we will learn today that there really is no debate about

whether we have the technology we need to improve fuel economy.

The only debate is whether we are willing to do something about

it, and that we will hear more of today.

But while we listen to the experts before us today, I want everyone to remember the costs of inaction: they can be measured in dollars, particularly in the funds we spend on the military and homeland security, and they can also be measured in lives, as we can

see in daily news reports. We need to consider the very real costs

of being utterly dependent on unstable regions to carry out our

most basic daily tasks.

I am not arguing, by the way, that we can become entirely energy independent or that fuel economy is the sole answer to our energy woes. That would be silly. We will markup a bill tomorrow

that reflects the full range of steps we need to take in energy research and development to improve our energy profile, and they involve work on energy efficiency and renewable energy, but also on

fossil fuels and nuclear energy; and they involve supply as well as

demand.

But we ought to do everything we can to reduce our demand.

That is in our national interest. It is an interest we share as a society, but one that is not reflected adequately in individual decisions

11

in the marketplace, a classic market failure that cries out for corrective government action. But the government has not risen to the

task, and we are all in greater danger as a result.

We have a very distinguished and balanced panel of experts before us. I am especially gratified that my old friend, former EPA

Administrator Bill Reilly is here to tell us the results of the bipartisan study he co-chaired. Mr. Administrator, welcome.

And I am also very pleased to have Paul Portney with us to review the National Academy of Sciences study that was requested

by Congress and that should be the foundation for any discussion

of CAFE standards. Unfortunately, the Academy study was released right as the Energy Bill debate was starting 4 years ago,

and it never received the full and fair airing it deserved. Today,

with a new Energy Bill debate pending, we have a chance to make

up for our previous missed opportunities.

In my view, we need more stringent CAFE standards, and we

need them now, for the reasons I have discussed. But the exact

level and timing of the standards and how the CAFE program

should be administered, that is all up for grabs, and I hope we can

have a full discussion of those issues today. I look forward to hearing from our panel. And I thank them all for being witnesses and

sharing their expertise with us.

Mr. Gordon.

[The prepared statement of Chairman Boehlert follows:]

PREPARED STATEMENT OF CHAIRMAN SHERWOOD L. BOEHLERT

I want to welcome everyone here for this important hearing on fuel economy. This

committee has a special responsibility to review this issue because part of our

charge is to ensure that new energy technologies are developed and that they make

their way into the marketplace.

And new fuel economy technologies are not making their way into the market, at

least not to an acceptable extent, because of market failures and political failures.

Correcting those failures should be of surpassing interest to every citizen of our

country because fuel economy is not just an energy issue, it’s not just an environmental issue, it is, first and foremost, a national security issue.

Our nation is ever more dependent—startlingly dependent—on the world’s most

unstable regions for the energy that is the lifeblood of our economy. Could anything

be more critical? We are like a patient in critical care who needs a daily transfusion

and can only hope to get it from an iffy, black-market supplier.

And yet we act as if we will be healthy forever. We are doing next to nothing to

reduce our reliance on foreign oil. About 60 percent of the oil we consume each day

is used for transportation; 45 percent of it just for cars and light trucks. We cannot

reduce our oil consumption meaningfully unless we address transportation. That is

a simple, inarguable fact.

And yet while many areas of the economy have become significantly more energy

efficient over the past three decades or so, our nation’s fuel economy is worse than

it was 15 years ago. That ought to be unacceptable.

It ought to be especially unacceptable—intolerable, really—when we have the

technology to improve fuel economy without reducing safety, without harming the

economy, and without reducing the options people have in the automobile showroom.

I think we’ll learn today that there really is no debate about whether we have

the technology we need to improve fuel economy. The only debate is whether we’re

willing to do something about it, and that we’ll hear more of today.

But while we listen to the experts before us today, I want everyone to remember

the costs of inaction—they can be measured in dollars, particularly in the funds we

spend on the military and homeland security, and they can also be measured in

lives, as we can see in daily news reports. We need to consider the very real costs

of being utterly dependent on unstable regions to carry out our most basic daily

tasks.

12

I am not arguing, by the way, that we can become entirely energy independent

or that fuel economy is the sole answer to our energy woes. That would be silly.

We will markup a bill tomorrow that reflects the full range of steps we need to take

in energy research and development (R&D) to improve our energy profile, and they

involve work on energy efficiency and renewable energy but also on fossil fuels and

nuclear energy; and they involve supply as well as demand.

But we ought to be doing everything we can to reduce our demand. That’s in our

national interest. It’s an interest we share as a society, but one that is not reflected

adequately in individual decisions in the marketplace—a classic market failure that

cries out for corrective government action. But the government has not risen to the

task, and we are all in greater danger as a result.

We have a very distinguished and balanced panel of experts before us. I’m especially gratified that my old friend, former EPA Administrator Bill Reilly is here to

tell us the results of the bipartisan study he co-chaired.

And I’m also very pleased to have Paul Portney with us to review the National

Academy of Sciences study that was requested by Congress and that should be the

foundation for any discussion of CAFE standards. Unfortunately, the Academy

study was released right as the Energy Bill debate was starting four years ago, and

it never received the full and fair airing it deserved. Today, with a new Energy Bill

debate pending, we have a chance to make up for our previous missed opportunities.

In my view, we need more stringent CAFE standards and we need them now, for

the reasons I’ve discussed. But the exact level and timing of the standards and how

the CAFE program should be administered, that’s all up for grabs, and I hope we

can have a full discussion of those issues today. I look very forward to hearing from

our panel.

Mr. Gordon.

Mr. GORDON. Thank you, Mr. Chairman. As you pointed out, the

topic that we are here to discuss today is very important on many

levels. Energy security is now synonymous with national security.

The U.S. uses a quarter of the world’s oil and over 60 percent of

that oil is imported, primarily from unreliable and politically unstable regions of the world. The slightest movement in the energy

markets can have substantial impacts on our economy. That is not

to mention the disastrous effect that it might have on the disruption of oil supply around the world.

While reserving judgment on any one solution, I am appreciative

of you for having this hearing and look forward to learning more.

[The prepared statement of Mr. Gordon follows:]

PREPARED STATEMENT OF REPRESENTATIVE BART GORDON

Thank you Mr. Chairman for holding this hearing today on an issue that is particularly important given the flurry of activity in Congress on energy legislation. It

appears that we will see a House energy bill on the Floor very soon and I look forward to tomorrow’s markup of the Science Committee’s contributions.

The topic we’re here to discuss today is important on many levels. Energy security

is now synonymous with national security. The U.S. uses a quarter of the world’s

oil and over 60 percent of that oil is imported, primarily from unreliable and politically unstable regions of the world.

The slightest movements in energy markets can have substantial impacts on the

economy. That’s not to mention the disastrous effect that a major disruption in oil

supply would have on the world, but most especially the U.S. While we do use oil

for a variety of industrial and heating purposes, about 80 percent goes into the

transportation sector, and almost half of the oil we consume goes into cars and light

trucks—moms taking kids to soccer practice and suburban commuters driving to

work.

This thirst for oil comes at a price. Not only is it a weak link in our national security chain, but the harmful health effects of air pollution from fossil fuel use are

yet to be fully understood. I don’t believe anyone would argue that we can continue

at our present rate of oil consumption, but the steps we take must be very calculated. CAFE standards were responsible for successfully doubling the fuel economy in the 1980’s, but those too can have unforeseen economic repercussions.

We should take care that, in our quest to lessen our dependence on oil, we do not

put excess burden on the industries that have made this economy what it is today.

13

While reserving judgment on any one solution, I welcome the discussion today of

mechanisms such as tax incentives, tradable CAFE credits, re-categorization of car

and light truck standards, and weight-based reclassifications schemes.

If increasing of CAFE standards is inevitable, as many believe it is and should

be, we should recognize both the limitations and the technological achievements of

individual automakers. In this regard, some companies perform better than others.

The Union of Concerned Scientists’ ranking of automakers by pollution impact

places Honda and Nissan at the top of the list.

Nissan, for example, produces the Pathfinder SUV in my district. Despite not having a hybrid gas-electric vehicle on the market, it has surpassed Toyota in the UCS

rankings I spoke of. Even while transforming itself into a full-line automaker, Nissan is incorporating a suite of existing cutting edge technologies, such as Continuously Variable Transmission, to increase their overall fleet fuel economy. This hints

at how complex the range of CAFE-related technology options can be for automakers.

And there is an army of scientists and researchers outside of the auto companies,

discovering ways to revolutionize the transportation sector with fuel efficient technologies. For example, Dr. Cliff Ricketts at Middle Tennessee State University has

transformed a standard Nissan pickup truck into an emissions free alternative fuel

electric-hybrid vehicle.

I would like to thank the witnesses for coming to Washington to testify on technologies supporting the Corporate Average Fuel Economy of cars and trucks. Thank

you again, Mr. Chairman for this important hearing.

Chairman BOEHLERT. Thank you very much, Mr. Gordon. And all

Members will have the opportunity to have their statements inserted in the record at this juncture.

[The prepared statement of Mr. Costello follows:]

PREPARED STATEMENT OF REPRESENTATIVE JERRY F. COSTELLO

Good afternoon. I want to thank the witnesses for appearing before our committee

to examine available technologies to improve the fuel economy in cars and trucks,

while also working towards reducing the Nation’s dependence on foreign oil.

Congress passed the Energy Policy and Conservation Act in 1975, with a goal to

reduce the Nation’s dependence on foreign oil. As a result, the Corporate Average

Fuel Economy (CAFE) program raised the fuel economy of the U.S. fleet, hoping

that Congress’s objective would be met. Thirty years later, we are still working towards achieving this goal. Today we depend on imports to meet nearly 60 percent

of our oil needs. Gasoline burned by cars alone, constitutes about 45 percent of the

Nation’s oil consumption. Looking towards the future, in 2025, it is projected that

the U.S. will consume 29 million barrels of oil a day, mostly on transportation. According to the National Commission on Energy Policy, improving car and light truck

fuel economy by 10, 15, and 20 percent by 2015 would result, by 2025, in an estimated fuel savings of approximately up to 3.5 million barrels of oil a day. At the

same time, there are good arguments as to why we need to approach any new CAFE

standards carefully. If we have the technology today to significantly improve the

fuel economy of cars and light trucks, without reducing safety, we must balance

these advancements in a way that does not place constrictive regulations on the

automotive industry, causing them to suffer economically. I am pleased to learn that

a National Commission on Energy Policy report from last year found that the ability

of hybrid technologies to make substantial improvements in fuel economy has been

clearly demonstrated.

As we look for ways to reduce our foreign dependence on foreign oil and rely more

on other domestic energy sources, such as coal, hydrogen, and ethanol it is critical

that we utilize the technological advancements we have today to improve fuel efficiency, without disregarding the legitimate concerns of the workers in the automotive industry.

I look forward to hearing from our panel of witnesses.

[The prepared statement of Ms. Johnson follows:]

PREPARED STATEMENT OF REPRESENTATIVE EDDIE BERNICE JOHNSON

Thank you, Mr. Chairman. I am very grateful you have decided to call a hearing

today on our nation’s energy security. I also wish to thank our distinguished witnesses who have submitted testimony and have agreed to answer our questions.

14

Corporate Average Fuel Economy [CAFE] standards were enacted into law by

Congress in 1975 as a part of the ‘‘Energy Policy Conservation Act,’’ [EPCA]. This

Act, passed in response to the 1973–74 Arab oil embargo, was established to double

new car fuel economy for passenger cars and light trucks by model year 1985.

It has been stated that raising CAFE stands could potentially save more oil than

our Persian Gulf imports, thereby reducing our dependency on Mid-Eastern imports

and also curb global warming.

Unfortunately, some theorize that making cars more fuel efficient will lead to

greater safety concerns, reduced American auto choices and a loss of American Auto

job to overseas plants.

Everyday we, as Members of Congress, must make tough choice as to how we deal

with the issues such as the protection of our environment (this is the only planet

we have) and the safety of our highways. The responsibility of weighing the pros

and cons of every can be a life or death matter.

Hopefully our witness here today can clear up these issues. We appreciate your

input.

[The prepared statement of Mr. Honda follows:]

PREPARED STATEMENT OF REPRESENTATIVE MICHAEL M. HONDA

I commend Chairman Boehlert and Ranking Member Gordon for convening this

hearing on fuel economy.

I continue to be amazed by the response of many people in this country to the

prospect of conserving energy. We know that fossil fuel supplies both here and

abroad are limited—they are fossil fuels, remnants from biological processes that

took place centuries ago but which are not occurring now. These fuels will run out

eventually. There may be legitimate debate about exactly when that will happen,

but the fact is that they will run out.

Since our nation is nearly completely dependent on a finite source of energy, it

seems to me that what we need to do in the short-term is reduce our levels of consumption of our finite energy supplies to make them last longer, and for the longterm, develop renewable sources of energy to meet our future needs.

But in complete opposition to common sense, Vice President Cheney has indicated

that conservation is a ‘‘personal virtue,’’ but not a sufficient basis for a sound energy

policy. I might almost be convinced to buy into this if reducing energy consumption

meant everyone had to stay at home, in the dark, either too cold or too hot depending on where they live. But that is not necessary. We have the technologies available to us to day to reduce energy consumption in our vehicles, in our homes, and

in our offices, but because there is an up-front cost associated with these new technologies, their adoption has been stalled. No one factors in the long-term costs to

public health and our environment of not being energy efficient, though. If they did,

economics could be the driver. But instead, we need something else to encourage efficiency.

CAFE standards are an excellent way of improving fuel economy in vehicles. By

requiring vehicles to be efficient, the government can stand up for the long-term

health of our nation and planet. Standards have not increased over the years, however, because of industry insistence that increased standards would make U.S. manufacturers less competitive and would make vehicles less safe.

I am glad that we are having this hearing today so we can learn about existing

technologies that can increase fuel economy, and strategies for implementing higher

standards that would not compromise the safety of our vehicles. I believe it is essential for our national security to take all steps we can to reduce our consumption of

fossil fuels.

[The prepared statement of Mr. Carnahan follows:]

PREPARED STATEMENT OF REPRESENTATIVE RUSS CARNAHAN

Mr. Chairman, thank you for taking the initiative to hold this important hearing

on improving automobile fuel efficiency technologies and considering raising CAFE

standards. We are lucky to have a leader that recognizes the role that new technologies play in securing our nation, bringing us closer to energy independence and

protecting our environment.

There is clearly a benefit to introducing new technologies to increase fuel efficiency. I am most curious in hearing today what policy options are available to us

to take these important steps forward.

I look forward, in particular, to Mr. Stanton’s testimony and hope to gain a better

understanding of how the auto industry feels about potential policy options. It is my

15

hope that Congress can not only work with the industry and energy providers, but

also incorporate the opinions of auto workers and citizens concerned about the environment who also have a strong interest in our policy decisions.

Chrysler is an important employer to our region. I am proud to have a strong

American auto manufacturer in the midst of my district and also to represent many

of the plant’s hardworking Americans.

I urge everyone to pay particular attention to balancing the increase of CAFE

standards while keeping our American auto companies strong and viable.

I look forward to hearing the testimony of the panelists. Thank you very much

for being here today.

[The prepared statement of Ms. Jackson Lee follows:]

PREPARED STATEMENT OF REPRESENTATIVE SHEILA JACKSON LEE

Chairman Boehlert, Ranking Member Gordon,

I want to thank you for organizing this important hearing on fuel efficiency standards for cars and light trucks. As we prepare to discuss the Energy Bill, we all appreciate the importance of energy efficiency as an essential component of the policies that affect our nation’s economy and security. The Department of Energy’s Energy Information Agency (EIA) reports that since 1985, the transportation sector’s

consumption of primary energy sources has been second only to the energy consumption used for electric generation. Between 2001 and 2004, light duty vehicles

consumed nearly 60 percent of the primary energy sources used for transportation.

Clearly, effective national policies to control the consumption of fuel used by light

duty vehicles would have a significant positive impact on the Nation. Over the past

three decades, national policies for vehicle fuel efficiency have included both regulatory and ‘‘technology-push’’ approaches.

In response to the then-restricted world supply of oil, the Congress enacted the

Energy Policy and Conservation Act of 1975, which was intended, among other

things, to induce automobile manufacturers to improve the fuel economy of their

cars. The Act set a Corporate Average Fuel Economy (CAFE) standard for passenger

cars that increased several times and then leveled off at 27.5 miles per gallon for

model years 1985 and beyond.

Congress authorized the National Highway Traffic Safety Administration

(NHTSA) to raise or lower the standard for a particular model year in order to

achieve the ‘‘maximum feasible average fuel economy,’’ taking into account technological feasibility, economic feasibility, the effect upon fuel economy of other federal

motor vehicle standards, and the need of the Nation to conserve energy.

CAFE standards are calculated separately for a manufacturer’s domestic and import car fleet. In 1988 the NHTSA was concerned that the 27.5 mpg standard might

lead American automobile manufacturers to shift some of their large-car manufacturing overseas in order to average the fuel economy of those cars with more of their

small cars, thereby raising the average fuel economy of their domestic fleets and

lowering the comfortably high average fuel economy of their non-domestic fleets.

The possible shift of large car manufacturing to off-shore plants raised concerns

of domestic job losses. Anticipating possible job losses and ‘‘potential economic

harm,’’ the NHTSA lowered the CAFE standard in 1988 for MY 1989 from 27.5 mpg

to 26.5 mpg. In 1989, however, the agency terminated the MY 1990 aspect of the

rule-making without changing the CAFE standard for that year based on the agency’s conclusion that retention of the 27.5 mpg standard for MY 1990 not have a significant adverse effect on U.S. employment or on the competitiveness of the U.S.

auto industry.

CAFE standards affect manufacturers differently. Those with full product lines

will be burdened more than manufacturers specializing in small to medium size vehicles. Policy analysts may argue that would force the marketing of smaller cars as

they believe CAFE intends. However, this ignores the engineering differences between some large and small cars. For example, Ford’s Crown Victoria is one of the

few cars now sold that built as a ‘‘body on frame’’ design—in contrast to the unibody

construction used on virtually all small to medium size cars. ‘‘Body on frame’’ designs are inherently heavier than unibody construction, but the durability this provides under harsh driving conditions makes ‘‘body on frame’’ the preferred vehicle

design for police cars and taxicabs.

In addition to the distinction that CAFE makes between domestic and imported

passenger cars, there is also separate classification for light duty trucks, whose

standards are set by the NHTSA rather than by statute. The present standard for

light duty trucks is 20.7 miles per gallon. The determination about what is considVerDate 11-MAY-2000 13:33 Sep 17, 2005 Jkt 098561 PO 00000 Frm 00019 Fmt 6633 Sfmt 6621 C:\WORKD\FULL05\020905\98561 SCIENCE1 PsN: SCIENCE1
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1 40 C.F.R. § 600.002–85; 40 C.F.R. § 600.002–93; 49 C.F.R. § 533.4.

ered a car or a truck can be confusing—some of the NHTSA and EPA regulations

define certain kinds of trucks as those vehicles that look similar to a 1977 Jeep or

a 1977 Land Cruiser,1 with ‘trucks’ generally defined as those vehicles having a flat

cargo floor. Thus, the regulatory scheme allows for the classification of the Dodge

Neon as a compact car and the Chrysler PT Cruiser as a truck for the purposes of

fuel economy standards even though both are built on the same vehicle platform.

In addition to mandatory vehicle fuel economy standards specified in federal laws

and regulations, Congress and the Executive Branch have supported research programs to develop new technologies intended to enable the development of vehicles

with increased fuel economy or reduced emissions.

Beginning in 1991, the Department of Energy partnered with the domestic car

companies and electric utilities to form the U.S. Advanced Battery Consortium

(USABC), a research and development initiative to develop batteries that would enable the deployment of practical electric cars. In 1993, a number of federal agencies

led by the Department of Commerce again joined Detroit’s Big-3 to form the Partnership for a New Generation of Vehicles (PNGV) to build prototype five-passenger

vehicles capable of 80 MPG fuel economy. In 2000, the Department of Energy led

‘‘21st Century Truck,’’ a government-industry partnership in the development of

technologies to enable more fuel efficient large trucks. In 2002, the Department of

Energy, DaimlerChrysler, Ford, and General Motors created ‘‘FreedomCAR,’’ a research initiative to develop technologies to enable petroleum-free cars and light

trucks. Federal funding for these initiatives range from hundreds of millions of dollars for USABC to several billions of dollars for PNGV and FreedomCAR.

Both of these approaches have had mixed results. Some will argue that CAFE has

shifted the market for family-sized vehicles away from station wagons to the somewhat heavier and less aerodynamic mini-vans, sport utility vehicles, and ‘‘king cab’’

pick-up trucks. U.S.-funded ‘‘technology push’’ initiatives need also to be evaluated

against privately-funded vehicle development programs in Japan that have deployed

the first three hybrid electric vehicle models commercially sold in the U.S., Asia,

and Europe.

The National Academy of Sciences studied the issue of increasing vehicle fuel

economy in considerable detail. While finding that the CAFE regulations were effective in maintaining fleet fuel economy above what it would have been with falling

gasoline prices in the early 1980s, the Academies noted that ‘‘there is a marked inconsistency between pressing automotive manufacturers for improved fuel economy

from new vehicles on the one hand and insisting on low real gasoline prices on the

other.’’ The Academies’ study included ‘‘cost efficient’’ analyses to illustrate how rational consumers will balance fuel cost savings with the added expenses associated

with fuel saving technologies in the selection of the vehicles they buy and how many

miles they drive—analyses that are not considered by either regulatory or technology-push approaches. The National Academies also addressed demand reduction

policies—including gasoline taxes, carbon taxes, and carbon cap-and-trade systems.

These approaches do address consumer demand for fuel, but many have criticized

these approaches for a variety of reasons, including they have the characteristics of

a regressive tax.

Successful policies may include an integrated combination of regulations, technology development, and energy demand reduction policies. Today’s hearing will

help to address these approaches.

Chairman BOEHLERT. Let me introduce our first and only panel

of the day, and it is a very distinguished panel: the Honorable William Reilly, Aqua International Partners; Mr. Paul Portney, President, Resources for the Future; Dr. David Greene, Oak Ridge National Laboratory, Center for Transportation Analysis, National

Transportation Research Center; Mr. K. G. Duleep, Managing Director of Transportation, Energy and Environmental Analysis, Incorporated; and Mr. Michael Stanton, Vice President of Government Affairs, Alliance of Automobile Manufacturers.

Gentlemen, the floor is yours, and we will go in the order introduced. We ask that you try to summarize in 5 minutes or so, but

those of you who have been here before, and Mr. Reilly, you have

been here many times, know that we are all offended by the propoVerDate 11-MAY-2000 13:33 Sep 17, 2005 Jkt 098561 PO 00000 Frm 00020 Fmt 6633 Sfmt 6601 C:\WORKD\FULL05\020905\98561 SCIENCE1 PsN: SCIENCE1
17

sition that you are going to take a very important subject like this

and condense it into 300 seconds. But—so don’t get nervous if that

green turns to caution and then red. If you have got a point to

make or you have got a thought to complete, please do it.

With that, I present Mr. Reilly.

STATEMENT OF THE HONORABLE WILLIAM K. REILLY, AQUA

INTERNATIONAL PARTNERS

Mr. REILLY. Thank you. Thank you very much.

And my congratulations and my compliments to you, sir, and to

this committee for scheduling this hearing on a matter that I fully

agree with you is vital to our national security, vital to our economy, and I think also vital to our environment.

I want to present my statement to you in summary, and I ask

that my written testimony be inserted in the record at this time,

if I might.

Chairman BOEHLERT. And without objection, so ordered. And I

want to advise all of our panelists that your complete record will

be part of the complete testimony and will be available to all of the

Members for their examination.

Mr. REILLY. Thank you.

As you mentioned, I have, over the past 2c years, served as cochairman of the National Commission on Energy Policy, which released this report, Ending the Energy Stalemate: A Bipartisan

Strategy to Meet America’s Energy Challenges, in early December.

This report, which was financed in large part by the Hewlett Foundation, involved some $10 million from them and also support from

the MacArthur Foundation, the Pew Charitable Trust, and the

Packard Foundation, was conceived to try to address some of the

most intractable problems confronting our energy situation in the

United States and in the world and to develop some consensus solutions, drawing on the experiences and insights of a very diverse

group of members.

I was the Co-chair of this Commission. My fellow co-chairs were

John Holdren, a Professor at the Kennedy School, and John Rowe,

the Chairman and CEO of Excelon Corporation, one of the Nation’s

largest electric power utilities based in Chicago. It included the

Chief Economist of Ford Motor Company, Group Vice President,

Marty Zimmerman. It included the Chairman of ConocoPhillips

Corporation, the country’s largest refiner of oil and gas. It included

the Chairman of the Board of Consumers Union and a representative from the United Steelworkers of America Union, and the head

of the energy program for the Natural Resources Defense Council.

It was, in all respects, I think, as balanced, as diverse, as representative of the different sectors of the economy, the non-governmental community, the scientific community—we had a Nobel prize

winning scientist as a member, Mario Molina—that you could find.

And I think the significance of much of what I will say is not so

much in the novelty of what we recommend as it is in the backgrounds of the people who supported it. And the recommendation

that I am going to discuss with you was the product of a consensus

in our Commission.

We placed, in this Commission, oil security at the top of our energy priorities. And I would say that one of the most interesting

18

charts in our report, and it is included in my submitted testimony,

is one that shows that over the next 20 years, the United States

and the world at large anticipate a 50 percent-plus increase in oil

demand. That is a very large number. If you look back at the 20

years from 1980 to the year 2000, it was a time of tremendous innovation in technology, new development capacity on the part of

the oil industry. It was the period when the oil industry learned

to reduce, or rather to increase the amount of hydrocarbons it got

from a field, from 20 percent to 50 percent. It was a period when

deep-water oil exploration and development became possible in the

Gulf and other places to go beyond 5,000 feet deep. It was a period

when there was a lot of new technology that allowed drilling from

one well to go out into several fields from that single point.

Nevertheless, with all of that innovation, with all of that new

technology, with all of that effort, the oil industry worldwide experienced a 20 percent increase in production over that 20-year period. As we look ahead to the next 20 years, seeing a 50 percent

expected demand increase, it just isn’t there. We are going to have

to find new efficiencies, new opportunities to be more productive in

our use of liquid fuels, alternative fuels, and try to put an economy

together, for transportation particularly, that respects a new energy environment.

There has been, over the last 30 years, significant improvements

in the efficiency of our economy with respect to oil. It takes significantly less oil to produce $1,000 of GDP. However, in recent years,

we have seen an important slowdown in those improvements. The

intensity improvements have waned.

We note, and you have noted in your opening remarks, the transportation sector has had the fastest growth in greenhouse gas emissions over the past two decades. Two key solutions we recommend:

increases in investment to spur global oil production, and reductions in demand domestically.

We reviewed at the Commission several options, a gas tax, CAFE

increases, alternative fuels. In our view, CAFE increases provided

the largest demand reduction by far. New technologies like hybrids

and diesels will enter the fleet slowly and be used, we believe, in

large part to increase power, weight, and other performance attributes instead of fuel economy absent increases in CAFE.

In summary, we recommended that Congress should instruct the

National Highway Traffic Safety Administration to significantly

strengthen automobile fuel requirements. New standards, we propose, should be phased in between 2010 and 2015. We did not,

frankly, reach agreement, but we discussed several possibilities.

We recommended a significant increase in mandatory automobile

fuel efficiency.

There is some direction given in the report on appropriate or

plausible CAFE levels to take full advantage of current and emerging technologies, including hybrids and passenger diesels.

Our proposal is specifically designed to address political and

technical objections to traditional CAFE increases which are: one,

impacts on competitiveness of domestic manufacturers; two, impacts on domestic jobs; and three, safety concerns. These are the

big three that are raised as objections to increases in CAFE.

19

To deal with some of these concerns, U.S. manufacturers and

jobs, we would propose reducing compliance costs by allowing trading of compliance credits across companies. This is not now permitted. According to the Office of Management and Budget, this

would net you a 17 percent reduction in the overall cost of compliance with this program.

We recommended that future costs of compliance with CAFE requirements be kept through the use of what we call a ‘‘safety valve’’

to ensure that industry is protected if technology costs exceed government projections.

And finally, we would propose to offer manufacturer incentives to

retool existing domestic auto plants to produce hybrids and advanced diesels, and we proposed that this be at the level of $1.5

billion over five years.

With respect to safety, hybrids can significantly boost mileage

per gallon with the same vehicle size and equal or better performance, in our judgment. And we have seen enough experience with

hybrids to know that the concerns about downsizing and

downweighting as the only option available to the auto manufacturers to meet higher standards are misplaced.

Finally, I would just say the stakes for our Nation, as you have

pointed out, are tremendous. Our security, economy, and environment will all benefit considerably if we seize the opportunity to significantly increase the fuel economy of our vehicle fleet.

Thank you, Mr. Chairman.

[The prepared statement of Mr. Reilly follows:]

PREPARED STATEMENT OF WILLIAM K. REILLY

Good afternoon Chairman Boehlert. My thanks to you and to the Members of the

Committee for organizing this hearing on a matter of great importance for our country.

I am one of three co-chairs of the National Commission on Energy Policy. My

other Co-chairs are John Rowe, CEO of Excelon, and John Holdren, a professor at

the Kennedy School at Harvard. We are an independent bipartisan group of 16 persons who came together in 2002 with support from the Hewlett Foundation and several other leading foundations: The MacArthur Foundation, Packard Foundation,

and the Pew Charitable Trusts. The Commission released a report at the end of last

year entitled Ending the Energy Stalemate: A Bipartisan Strategy to Meet America’s

Energy Challenges. The first chapter of this report is about enhancing oil security.

The placement of oil security first among all issues reflects the Commission’s view

that improving our nation’s oil security is the most significant near term energy

challenge we face. I’m pleased to have an opportunity to summarize the Commission’s recommendations on vehicle fuel economy.

Consistent with the focus of this hearing, I will direct the bulk of my remarks

to the Commission’s proposals to significantly increase vehicle fuel economy. However, I must note that try as we might, our Commission could not construct a plausible scenario in which U.S. and global oil demand does not increase over the next

twenty years. For this reason, we also propose a series of measures designed to increase the global production of oil during this same time period. I will submit our

entire report and ask that it be made part of the record.

Rationale for Action

From the Commission’s perspective, there are three considerations that reinforce

the need to strengthen passenger vehicle fuel economy:

FIRST, both domestic and global demand for oil is projected to grow by roughly

50 percent by 2025. This rate of growth is at more than double the historical rate

since 1980 (Figure 1–1). At the same time, spare capacity to compensate for supply

disruptions has fallen to a mere two percent of global demand. Left unchanged,

these factors suggest that the U.S. economy will continue to suffer from high and

volatile oil prices and is at risk of more frequent and serious supply disruptions.

20

The energy sector has for several years experienced a consistent and growing gap

between oil production and the discovery of replacement reserves.

SECOND, the rate of improvement in U.S. oil economic intensity has slowed in

recent years. Oil economic intensity is a measure of how much oil is required for

the U.S. economy to produce a dollar of economic output. This measure is important

because the ability of the U.S. economy to weather oil price shocks improves as oil’s

share of our economic output decreases. Since 1970, the U.S. oil economic intensity

has dropped by half—a tremendous achievement—largely due to CAFE standards

in the late 1970s and early 1980s, and to a shift in the electricity sector away from

the use of petroleum. Further improvements would further insulate the U.S. economy from oil price shocks (Figure 1–2).

THIRD, hybrid and passenger diesel vehicles hold the promise for dramatic improvements in vehicle fuel economy. But historical trends suggest that potential fuel

economy gains may be undermined unless government acts to reinforce the need for

improved vehicle fuel economy.

Although U.S. fuel economy has been stagnant sine 1987, the vehicle industry has

made considerable strides in efficiency. However, these efficiency improvements

have been used to increase vehicle horsepower and weight, while still complying

with Corporate Average Fuel Economy (CAFE) standards. This trend—favoring

horsepower, weight and other attributes over fuel economy improvements—is likely

to continue absent government action. If we as a nation are serious about addressing our dependence upon oil, we must seize the opportunity presented by hybrids

and passenger diesels (Figure 1–3) to improve the fuel economy of our vehicle fleet.

The Importance of Strengthening Fuel Economy Standards

During its deliberations, the Commission considered a variety of both major and

minor transportation policy measures. These included many of the usual suspects:

a gasoline tax, a CAFE increase, alternative fuels, as well as some new ideas:

heavy-duty tractor trailer fuel economy, efficiency standards for replacement tires,

congestion charges in urban areas. We examined these policy measures against four

criteria: (1) the ability to save one million barrels per day of oil by 2025, (2) the

cost per barrel of oil saved, (3) administrative complexity, (4) political feasibility. Of

all the policies reviewed by the Commission, passenger vehicle fuel economy improvements represented the largest opportunity for oil savings over the next 20

years.

Accordingly, the Commission recommended that Congress instruct the National

Highway Traffic Safety Administration (NHTSA) to significantly strengthen CAFE

standards, giving due consideration to vehicle performance, safety, job impacts, and

competitiveness concerns consistent with statutory requirements. We recommended

that new standards be phased in over a five-year period beginning no later than

2010. The Commission did not reach agreement on a specific increase in fuel economy.

Of course, it would be naı ̈ve to make recommendations about a CAFE increase

without considering how to break the current political stalemate on fuel economy

standards. The Commission identified three issues that have dominated past debates about raising CAFE standards and which we believe are largely responsible

for the current stalemate: (1) uncertainty over impacts on the competitiveness of domestic manufacturers; (2) fear that more stringent standards will lead to smaller,

lighter vehicles and increased traffic fatalities; and (3) concerns that higher standards will lead to losses in domestic jobs.

Competitiveness and U.S. Jobs

To address concerns about competitiveness impacts on U.S. domestic manufacturers and U.S. auto workers, the Commission recommends that a significant increase

in CAFE standards be accompanied by reforms to the current program that would

increase compliance flexibility and reduce compliance costs, together with manufacturer incentives designed to promote the domestic manufacture of hybrid-electric

and advanced diesel vehicles.

Specifically, the Commission recommends that the current program be altered to

allow manufacturers to trade compliance credits with one another and across their

car and light truck fleets. The Congressional Budget Office has estimated that this

reform alone would reduce the cost of the CAFE program by about 17 percent. An

additional reform that should be considered in concert with higher standards is a

cost-capping mechanism similar to the ‘‘safety valve’’ the Commission is recommending in connection with a tradable permits system for greenhouse gas emissions. In this case, the government could make additional CAFE compliance credits

available to manufacturers at a pre-determined price. Such a mechanism would

have the effect of protecting automakers and consumers if the regulatory estimates

21

used to set new standards understate true costs and thus holds promise for overcoming the inevitable and inherently irresolvable disagreements about future technology development that have stymied past CAFE debates.

With respect to manufacturer incentives, the Commission is specifically recommending a program of tax incentives for U.S. manufacturing facilities that are retooled to produce hybrid-electric and advanced diesel vehicle with superior fuel economy. Consistent with international trade agreements, the incentive would be available to both domestic and foreign companies, including both assembly plants and

parts supplies. The recommended subsidy level would total $1.5 billion over ten

years, with the amount of credit set to reflect up to two-thirds of the capital investment associated with producing vehicles or vehicle components. Commission analysis indicates that federal outlays under such a program would be more than offset

by increased tax receipts as a result of maintaining domestic manufacturing jobs.

Relationship between Safety and Fuel Economy

A paramount concern for us when seeking to improve vehicle fuel economy has

been to ensure that there is no reduction in overall vehicle safety. This is the concern so often expressed: That mandating higher fuel economy will require production of less safe, lighter vehicles and compromise vehicle performance. Our Commission considered this concern and tested it against currently marketed hybrid vehicles. Hybrids and passenger diesels offer the potential to boost fuel economy while

maintaining vehicle size and performance. The Ford Escape, Honda Civic hybrid,

the Honda Accord hybrid, and the forthcoming Toyota Highlander hybrid, all

achieve substantial fuel economy improvements while maintaining or increasing

horsepower (by as much as 17 percent) compared to their conventional counterparts,

and without reductions in weight or size. These vehicles clearly demonstrate that

substantial fuel economy improvements can be achieved using already-available

technologies and without compromising vehicle performance and safety.

Conclusion

Hybrids and advanced diesels potentially change the game. They offer the

uncompromised features of conventional vehicles while improving dramatically automobile fuel economy. It should be national policy to foster early introduction on a

significant scale of these technologies for they promise to make a major contribution

to U.S. energy security.

Figures from Ending the Energy Stalemate: A Bipartisan Strategy to Meet America’s Energy Challenges, National Commission on Energy Policy (2005).

22

23

24

BIOGRAPHY FOR WILLIAM K. REILLY

William Kane Reilly is President and Chief Executive Officer of Aqua International Partners, an investment group that finances the purification of water and

waste water in developing countries, and invests in projects and companies that

serve the water sector. Aqua International is sponsored by the U.S. Overseas Private Investment Corporation and is part of the Texas Pacific Group, an investment

partnership based in Fort Worth and San Francisco, which invests in environmental, airline, apparel, health, wine, technology and other companies in the United

States, Latin America and Asia. During the 1993–94 academic year, Mr. Reilly

served as the first Payne Visiting Professor at Stanford University’s Institute for

International Studies and delivered five public lectures on the challenges to the

global community.

From 1989 to 1993, he served as the seventh Administrator of the U.S. Environmental Protection Agency. With 18,000 employees and a $7 billion budget, EPA is

an independent federal regulatory agency charged with improving and protecting

public health and the environment.

Prior to becoming EPA Administrator, he held five environment-related positions

over two decades. He was President of World Wildlife Fund (1985–1989) and President of The Conservation Foundation (1973–1989). Those two organizations joined

formally in 1985 at which time Reilly became President of both. He was Executive

Director of the Rockefeller Task Force on Land Use and Urban Growth from 1972

to 1973. From 1970 to 1972, he served as a senior staff member of the President’s

Council on Environmental Quality and, from 1968 to 1970, as Associate Director of

the Urban Policy Center and the National Urban Coalition. He served as Chairman

of the Natural Resources Council of America, an association of all major conservation groups, from 1981 to 1983.

Reilly has written and lectured extensively on environmental issues. He has

served on the boards of numerous public and private sector organizations and received a number of awards and medals for his contributions to environmental

progress. He currently serves on the boards of Dupont, Eden Springs, Ltd.,

ConocoPhillips, Ionics, and Royal Caribbean International, and is a member of the

Advisory Board of ERM CVS. His service to non-profit organizations includes chairmanship of the Board of World Wildlife Fund and of the Board of Advisors of the

Goldman School of Public Policy at the University of California, Berkeley, and membership on the Boards of Trustees of the American Academy in Rome, National GeoVerDate 11-MAY-2000 13:33 Sep 17, 2005 Jkt 098561 PO 00000 Frm 00028 Fmt 6633 Sfmt 6621 C:\WORKD\FULL05\020905\98561 SCIENCE1 PsN: SCIENCE1
25

graphic Society and The Packard Foundation. By appointment of the President,

Reilly serves as one of the seven trustees of the Presidio Trust, with responsibility

for running the Presidio National Park of San Francisco.

An alumnus of Yale University, Reilly holds a law degree from Harvard University and a Master’s degree in urban planning from Columbia University. He was

born in Decatur, Illinois, on January 26, 1940, and attended high school in Fall

River, Massachusetts. He served in the U.S. Army to the rank of Captain in 1966

and 1967.

He is married to Elizabeth ‘‘Libbie’’ Bennett Buxton Reilly. They have two daughters, Katherine Buxton Reilly, an environmental lawyer with Beveridge and Diamond in San Francisco, and Margaret Mahalah Reilly, Megan, a student at Harvard

Business School. The family resides in San Francisco, California, and Alexandria,

Virginia.

26

27

Chairman BOEHLERT. Thank you very much, Mr. Reilly.

Dr. Portney.

STATEMENT OF MR. PAUL R. PORTNEY, PRESIDENT,

RESOURCES FOR THE FUTURE

Mr. PORTNEY. Chairman Boehlert, Members of the Committee,

thank you very much for having me here today, and thank you,

also, Mr. Chairman, for your kind words about the 2001 National

Research Council report on fuel economy standards. I appreciate

that. As you mentioned, it was somewhat overtaken by the debate

in the Energy Bill, but a month and a week later, overtaken by the

events of September 11, 2001, to which I will come back in my testimony here.

I will summarize, as you have indicated, my remarks here today.

Thank you for allowing me to put my complete remarks into the

record.

I am testifying before you today principally in my capacity as

having been chairman of the National Academy of Sciences 2001

report on the effectiveness and impact of Corporate Average Fuel

Economy standards. Let me also say that nothing I should say

today should be construed or attributed to Resources for the Future. I am appearing in my—as an individual and in my role as the

chairman of the National Academy of Sciences committee.

I thought what I would do for you is very briefly summarize for

you the findings of that National Academy report. Some time has

passed since that report. Because it has been 3c years, I would also

like to reflect back on what has changed during the past 3c years.

Those views will be my own. I can purport to speak for the whole

committee, because we haven’t met during that period of time, but

I thought it might be useful for me to reflect on the recommendations of the committee in light of the events over the last 3c years.

So let me start by giving you sort of very quickly the basic conclusions that that National Academy of Sciences committee reached

in 2001.

First of all, we found that CAFE has played an important role

in boosting the fuel economy of the new vehicle fleet in the United

States. That occurred principally between the period 1978 or so

until the early 1980s. And the committee was very careful to say

that while CAFE, in the view of the committee members, indisputably played a role in the improvements in fuel economy that

happened during that period of time. Of course, also during that

period of time, gasoline prices had increased dramatically so that

there became, on the part of the public, a demand for more fuelefficient vehicles to which car makers responded.

And because these two events happened more or less contemporaneously, both pushing in the direction of improved fuel economy, we couldn’t separate out how much of the improvement in

fuel economy was due to higher prices and how much was due to

the CAFE standards. We will note, however, that after about 1982,

when gasoline prices collapsed, fuel economy did not go back to its

old level, suggesting that the improvements that we got were permanent improvements that we might not have gotten had we not

instituted a CAFE program during that period of time.

28

The committee also found that CAFE had some adverse effects.

You were—we were requiring car makers to devote resources to improving fuel economy. These are resources that they could not devote to improving the performance characteristics of vehicles or to

doing other things with those resources during that period of time.

And, and I can’t emphasize how important this point is, because

car makers were required to boost fuel economy by almost 50 percent in a relatively short period of time, they didn’t have the option

of rolling in a lot of new fuel-saving technologies. Rather, the way

they chose to meet much tougher fuel economy standards in a short

period of time was by making cars smaller and lighter. And the

CAFE committee, with two exceptions, was of the mind that this

accelerated very quick reduction—or improvement in fuel economy

through downsizing had adverse effects on the safety of the vehicle

fleet. We predicted, or estimated, that an additional 1,300 to 2,600

fatalities by 2003 would have—or took place that wouldn’t have

taken place if car makers had not had to quickly downsize and

downweight vehicles to meet the fuel economy standards.

Again, this was not a unanimous view of the committee. David

Greene, one of the two committee members who dissented from

that particular conclusion of the panel, is here today, and he will

have an opportunity to speak for himself later.

Third, we found that technologies clearly exist or, at that time,

were in the process of being developed that would make it possible

to improve the fuel economy of the new vehicle fleet at a cost, certainly, but nevertheless a cost that would be more than offset by

the fuel economy savings that would result from these more fuelefficient vehicles over the next 14 years. The estimated improvements that would be possible by putting into widespread use in the

new vehicle fleet ranged from 12 to 25 percent for passenger cars

and from 25 to 42 percent for light-duty trucks. That comprises

minivans, pick-up trucks, and sport utility vehicles. And, importantly, if car makers were given enough time to meet these new

fuel economy goals, and by enough time, we were looking in the

range of 10 to 12 to 15 years, then these improvements would be

capable of being made without downsizing or without

downweighting, and therefore, without adverse effects on the safety

of the fleet.

I can’t emphasize how important it is, in the view of the committee, that in contemplating tightening fuel economy standards

that you do so over a long enough period of time that the car makers have an opportunity to take advantage of these technologies

that are out there and are currently being developed so that they

don’t have to engage in a, and I don’t intend to bad pun here, a

crash program to improve fuel economy that might compromise

safety.

Reinforcing one point that Bill Reilly has already made, the committee felt very, very strongly that the credits that can currently

be earned in a very limited way in the CAFE program ought to be

made fully tradable so that someone who beats their fuel economy

standards can not only use those credits themselves in a later year,

they can trade across passenger car and light-duty truck fleets, or

they could sell these credits to other car companies that are falling

short of hitting their targets.

29

Let me give you my brief update of things that have happened

in the 3c years since the committee report that I think are material

to your deliberations.

First of all, September 11 happened one month and one week

after the committee issued its final report. Since that time, quite

unsurprisingly, oil security is—looms much more importantly in

the national debate. And if the committee were doing its work

today, it is conceivable that we might give an even greater value

to reduced oil consumption on account of the potential for macroeconomic disruptions associated with fluctuations in oil import and

oil domestic produced—domestically produced oil prices.

Second, during the period of time since the issuance of the report, gasoline prices have gone up between 20 and 25 percent. This

pushes the car companies in the direction of making more fuel-efficient vehicles, because passengers have an incentive to demand

more fuel-efficient cars the more expensive the price of gasoline is.

I actually think we are seeing some evidence of this. But for this

price effect to continue, consumers have to believe that prices will

remain high, not slip down to the $1.60 a gallon that they were

when the National Academy committee was doing its work.

Third, in the 3c years since we have issued our report, hybrids

have penetrated much more significantly into the new vehicle market than we anticipated at the time. I think we were probably too

conservative in our report about the potential for hybrids. Recent

estimates suggest that by 2008/2009 there could be as many as

800,000 hybrids sold in the United States. Last year, I think the

total was between 45,000 and 50,000. And if that number of hybrids sold grows dramatically, the cost per hybrid sold comes down,

and that could make a big difference in the costs associated with

meeting tighter fuel economy standards.

I would also like to emphasize that in the 3c years since we completed our report, much progress has been made on a new generation of clean diesel engines. And I think this is very important for

the fuel economy debate, because diesel engines, all of the things

being constant, hold out the possibility of improvements of 25 to 40

percent in fuel economy. If we were writing that report today, I

think we would pay more attention to the potential for these clean

diesels to help in the fuel economy challenge.

And finally, research has been done since that time on the socalled rebound effect. I won’t go into great detail on this, but this

suggests that as people own cars that get better fuel economy, they

may drive those cars more. And some of the adverse effects associated with more vehicle miles traveled, depending on the way you

value those, actually have the potential to cancel out some or all

of the beneficial effects of improved fuel economy.

So that is my quick summary of what has happened in the time

we have done the report. Thank you, again, for having me here.

And I would be happy to take any questions later.

Thanks.

[The prepared statement of Mr. Portney follows:]

PREPARED STATEMENT OF PAUL R. PORTNEY

Good afternoon, Mr. Chairman and Members of the Committee. I am Paul R.

Portney, President of Resources for the Future. In 2001 I served as Chair of the

Committee on Effectiveness and Impact of the Corporate Average Fuel Economy

30

(CAFE) Standards of the National Research Council (NRC). The Research Council

is the operating arm of the National Academy of Sciences, the National Academy

of Engineering, and the Institute of Medicine, charted by Congress in 1863 to advise

the government on matters of science and technology. My comments today reflect

my own views and, to the best of my abilities, those of the NRC committee members. They do not reflect the views of Resources for the Future, an independent and

non-partisan research organization that takes no institutional positions on legislative matters.

It is a pleasure to be here to discuss with you the NRC’s 2001 report. This study

was requested by Congress to provide assistance in its decisions related to fuel economy standards. I would like to provide a brief overview of the report, while noting

that it was detailed and cannot be done justice to in a few minutes. Therefore I request that we include the Executive Summary of that report as part of the record.

(See Appendix 2: Additional Material for the Record.) Following my overview of the

2001 report, I will make a few remarks about developments in the three-and-a-half

years since the committee did its work. Let me say here, as I will again later, that

I will not be speaking for the committee in offering this update.

The NRC committee had a three-part mission in 2001 when it did its work:

1. Determine the effect that CAFE standards have had on fuel economy, and

their impact on the industry, consumers, safety, and other issues;

2. Estimate the impact that changes to CAFE standards might have in the future; and

3. Evaluate the structure of the CAFE program and recommend potential improvements.

Review of the Then-Current CAFE Program

Our review of the impacts of CAFE standards through mid-2001 convinced us that

the program had significantly reduced fuel consumption. Other factors also have

been important, especially the reaction of consumers and the automotive industry

to higher fuel prices in the 1970s and early 1980s. The committee could not apportion responsibility among these factors, but noted that CAFE was clearly important.

In the years since the early- to mid-1980s, CAFE indisputably played an important

role in maintaining higher fuel economy than otherwise would have resulted, especially during periods when gasoline prices were much lower than those prevailing

today.

There have been adverse consequences associated with the CAFE program as

well. Safety is most important. The majority of the committee concluded in 2001

that the downsizing and downweighting that occurred in the late 1970s and 1980s

(partially in response to CAFE) resulted in an additional 1,300 to 2,600 fatalities

in 1993. While fatalities were declining in this period, most committee members believe that they would have declined this much more had the downweighting and

downsizing not occurred. Two members of the committee dissented from this view.

They believed that the data did not support this conclusion, and that the net effect

on highway fatalities of the increases in fuel economy may have been zero.

An additional impact, although one we were unable to quantify, had to do with

restrictions on consumer choice. Requiring automotive manufacturers to focus on

fuel economy diverted their resources from improving other attributes valued by

consumers, such as acceleration and carrying capacity.

Impact of Higher Standards

First let me note that the committee did not recommend whether or by how much

the government should tighten the current fuel economy standards. We believed

that is a decision belonging to Congress, the President, and appointed officials because it involves tradeoffs among factors very important to the people of this country—the costs of driving, the environment, national security, consumer choice, safety, and others. In so far as possible, the committee identified these tradeoffs, but

a full analysis was not possible within the short time allotted to this study.

The committee believed that it is incumbent on decision-makers to understand the

benefits of fuel economy improvements and to ensure that the costs associated with

these improvements don’t outweigh the benefits. The two main benefits the committee considered were the macro-economic gains associated with reduced exposure

to fluctuating world oil markets and reduced emissions of the greenhouse gases that

may be linked to global climate change. Analysts have assigned a wide variety of

values to reducing these externalities. The committee considered this range and ultimately chose values which, in total, are equivalent to about 30 cents/gallon of fuel.

That is, each gallon of gasoline consumed has adverse economic and environmental

consequences that, when combined, amount to as much as $0.30. I mention this figVerDate 11-MAY-2000 13:33 Sep 17, 2005 Jkt 098561 PO 00000 Frm 00034 Fmt 6633 Sfmt 6621 C:\WORKD\FULL05\020905\98561 SCIENCE1 PsN: SCIENCE1
31

ure not because the committee endorsed it (indeed other analysts might chose values much higher or lower), but because it helps to understand how hard one can

push on fuel economy.

With that as context, the committee concluded that significant improvements in

fuel economy are quite possible at reasonable cost. A variety of technologies to improve fuel economy are available for cars and light trucks. Many have been developed and are being implemented in Europe and Japan where fuel prices are much

higher than here. Specifically, Variable Valve Lift and Timing can reduce fuel consumption by 3–8 percent. Continuously variable transmissions can achieve another

4–8 percent. Other technologies are under development and will be available for

wide scale use within 15 years. Fuel economy can be raised more for heavier vehicles than for light ones, and the resulting fuel savings will be much higher for the

heavier vehicles as well. For example, the fuel economy of a mid-size SUV could be

improved by 34 percent (from 21 to 28 miles per gallon). Over the lifetime of the

vehicle, these improvements would save nearly 2,000 gallons, which would more

than pay for their incremental cost.

As with the current CAFE program, raising standards will have other consequences as well, with safety again being the most contentious. Any increase in fatalities will depend on how manufacturers meet higher standards. While the technologies examined by the committee generally appear to be more cost-effective than

weight reduction, CAFE standards, as currently structured, do not preclude any

methods. Thus some manufacturers might include some weight reduction, which the

majority of the committee believed could involve some safety consequences. However, it is also possible that weight reductions could be concentrated in the heavier

vehicles. This would reduce the weight disparity in the fleet, which could have beneficial consequences for safety. This could occur because the greater risk for the occupants of the downsized vehicles would be more than balanced by the lessened risk

for other road users.

A key point to make here is that the committee felt strongly that automakers

must be given sufficient time to accommodate more stringent fuel economy standards. The less time they are given to meet new requirements, especially significantly

more stringent ones, the more likely it is that they will respond not through the

introduction of fuel-saving technologies but rather through down-weighting and/or

down-sizing. This could have adverse consequences for safety.

Recommendations on the Structure of the CAFE Program

First, it was the committee’s view that there is a marked inconsistency between

raising fuel economy standards while keeping fuel taxes low. The committee certainly did not recommend raising taxes to the level of European countries (or to any

specific level for that matter), but the members believed strongly that efforts to

raise fuel economy would work much better if consumers had more motivation from

higher fuel prices. Since the 2001 report was written, gasoline prices in the United

States have risen roughly 20 percent. If consumers perceive this increase to be permanent, it will begin to affect their new-vehicle purchases. In fact, there is some

anecdotal evidence to suggest that it already has.

The committee recommended that a tradable credit program be part of any regulatory program on fuel economy. Even if the current structure of CAFE is maintained and the standards not raised, the program can be made more efficient and

effective with tradable credits. All manufacturers would have incentive to raise the

economy of all their vehicles, and the results are likely to be less costly than the

current approach of treating each manufacturer and each vehicle segment separately. Tradable credits have worked well in reducing the costs of sulfur dioxide

emissions from coal-fired power plants, and the committee believes they will work

as well on fuel economy.

Finally, the committee recommended that consideration be given to modifying the

current structure of the CAFE program in such a way that the applicable fuel economy standards for varying types of vehicles depend at least in part on their attributes—that is, their weight, interior size, or some combination of characteristics.

I would note that the National Highway Traffic Safety Administration is giving

thought to this approach now. The committee also recommended the elimination of

both the two-fleet rule that distinguishes between the domestic and foreign ‘‘content’’ of vehicles and the granting of extra fuel economy credits for the production

of dual-fuel vehicles.

Update

Three and a half years have passed since the NRC committee on CAFE did its

work. I thought it might be useful for me to reflect on developments since August

32

of 2001 and what they might mean for the fuel economy debate. It should be clear

that I am speaking for myself here and not for the members of the NRC committee.

The CAFE committee issued its report about a month before the horrific events

of September 11, 2001. Those events and their ongoing aftermath have made us

think much more seriously than before about the consequences of U.S. oil consumption and our growing dependence for imported oil on nations that are unstable and/

or may bear us ill will. Were the 2001 NRC committee meeting today, its members

might assign an even larger value to reducing oil consumption so as to reduce our

economic vulnerability to oil price shocks, either accidental or deliberate.

Next, oil prices have risen considerably since the time of the 2001 report, principally a reflection of rapidly growing demand for oil in the developing world (especially China and India), coupled with slower growth in production. If sustained,

these higher prices will act as a stimulus to the production of more fuel-efficient vehicles, for the simple reason that people will demand better fuel economy. However,

the externalities associated with oil consumption and its effect on both the economy

and the environment would still justify government intervention to further improve

fuel economy.

Third, in its deliberations on new technologies that might be used to improve future fuel economy, the 2001 NRC committee gave little consideration to either gasoline-electric hybrids or diesel-powered passenger cars and light-duty trucks. The

former, the committee felt, were too expensive to make a significant difference in

fleet-wide fuel economy over the next ten to fifteen years, while the latter faced stiff

challenges related to vehicle emissions standards for both oxides of nitrogen and

also fine particulate matter.

We may have been too conservative in both these assessments. Hybrid vehicle

sales have grown faster than anyone expected—to 86,000 in the U.S. in 2004. According to industry experts, hybrid sales could amount to 400,000-500,000 by the

2008–09 model year, with significant penetration in both the passenger car and

light-duty truck segments of the market. Similarly, considerable progress is being

made in the development of much cleaner diesel engines; this is important because

diesel-powered vehicles get 30 percent better fuel economy than conventional internal combustion gasoline engines. If the cost penalty associated with hybrids falls

significantly because of larger-than-expected volumes, and if car makers find a way

to produce diesel engines that are capable of meeting tougher emissions standards

in California and the rest of the U.S. for the lifetime of vehicles, things could be

different. That is, it might be possible to meet more stringent fuel economy standards at lower costs for less than the committee foresaw in 2001. Once again, this

is speculation on my part alone; this view should not be attributed to the 2001 committee.

Finally, looking back on our 2001 report, I wish we had had the time to pay closer

attention to the so-called ‘‘rebound effect’’ (this refers to the additional miles motorists may drive in vehicles that get better fuel economy). Some recent research by

my colleagues at Resources for the Future suggests that the negative consequences

resulting from the added congestion, air pollution and accident risks could cancel

out the beneficial economic and environmental effects of improved fuel economy, depending on how all these effects are valued. I take responsibility for having given

this important issue less attention than I believe it deserves, and I urge the committee to consider it in future deliberations over the CAFE program.

Thank you, Mr. Chairman and Members of the House Science Committee. That

concludes my prepared remarks. I would be happy to answer any questions you

have.

BIOGRAPHY FOR PAUL R. PORTNEY

Paul R. Portney is President of Resources for the Future (RFF), an independent,

non-partisan research and educational organization specializing in natural resources

and the environment. Portney joined the staff of RFF in 1972; from 1986–1989 he

headed two of its research divisions; in 1989 he became its Vice President, and was

named President in 1995. In 1977, he took leave to become a Visiting Professor at

the Graduate School of Public Policy at the University of California at Berkeley. Between 1992–1996, he was a Visiting Lecturer at Princeton University’s Woodrow

Wilson School. In 1979–1980, Portney was Chief Economist at the Council on Environmental Quality in the Executive Office of the President.

Portney received his B.A. in economics in 1967 from Alma College (Michigan), and

his Ph.D. in economics from Northwestern University. He is currently a member of

the Sustainable Forestry Board and the Board of Directors of The Johnson Foundation, where he chairs the Finance and Investment Committee. He recently joined

the Advisory Council of the Comptroller General of the United States. In 2001, he

33

was chairman of a National Academy of Sciences’ Committee on the future of Corporate Average Fuel Economy standards. From 1994–97, he was a member of the

Executive Committee of EPA’s Science Advisory Board (SAB) and Chairman of the

SAB’s Environmental Economics Advisory Committee. He has published widely on

the costs and benefits of environmental regulation, including the 2nd edition of his

book, Public Policies far Environmental Protection, used in college and university

classrooms around the country. He also lectures frequently on developments in U.S.

and international environmental policy.

Education

Ph.D. in economics, Northwestern University, 1973.

B.A. in economics, Alma College, 1967.

Professional Experience

• President, Resources for the Future, 1995–present.

• Vice President, Resources for the Future, 1989–1995.

• Senior Fellow, Resources for the Future, 1980–present.

• Director, Resources for the Future, Center for Risk Management, 1987–1992.

• Director, Resources for the Future, Quality of the Environment Division,

1986–1987.

• Visiting Lecturer, Princeton University, 1992–1995.

• Senior Staff Economist, Executive Office of the President, Council on Environmental Quality.

• Visiting Professor, University of California at Berkeley, Graduate School of

Public Policy, 1977.

• Senior Research Associate, Resources for the Future, 1973–1977.

• Dissertation Fellow, The Brookings Institution, 1971–1972.

Journal Articles

On Valuing Nature, Raymond J. Kopp, N.E. Bockstael, A.M. Freeman III, Paul R.

Portney, and V.K. Smith, Environmental Science and Technology, 2000, Vol. 24,

No. 8, pp. 1384–1389.

Chairman BOEHLERT. Thank you very much, Mr. Portney. And I

want to thank both you and Administrator Reilly for focusing on

the fact that this is, first and foremost, a national security issue.

Then it is a consumer economy issue. It also happens to be an issue

of importance to those of us concerned about the environment. And

I would submit that most of us are concerned about the environment. I don’t want it to be portrayed as the greens against the rest

of the world. It is not the case at all.

So—and the other thing I am glad you made reference, as I did

in my opening statement, to the debate in ’01 just prior to 9/11, because it was just within hours of the issuance of your report that

Congress began the debate. And I would suggest in many respects,

it was not an informed debate, because the Congress did not have

the benefit of a thorough examination of your outstanding work.

So thank you for what you have done.

Am I indicating to some of my fellow colleagues my preference

in this issue?

Mr. Duleep.

STATEMENT OF MR. K.G. DULEEP, MANAGING DIRECTOR OF

TRANSPORTATION, ENERGY AND ENVIRONMENTAL ANALYSIS, INC.

Mr. DULEEP. Mr. Chairman, thank you for having me here.

The Committee’s staff has asked me to focus on technology

issues, and that will be the focus. They asked me four specific quesVerDate 11-MAY-2000 13:33 Sep 17, 2005 Jkt 098561 PO 00000 Frm 00037 Fmt 6633 Sfmt 6601 C:\WORKD\FULL05\020905\98561 SCIENCE1 PsN: SCIENCE1
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tions. I will try and summarize my comments and have the written

testimony submitted to the record.

The first question I will focus on is what technologies are available to improve fuel economy. I have a chart in there on what I

call conventional technologies that you can go out and actually buy

on some car made today. So you can actually just walk into a dealership and buy one of these. They haven’t yet penetrated the fleet.

They are in just a few cars now, and we estimate that if you take

all of those technologies, and I have a table in my written testimony, and you put them onto one car or one truck, you can get

something like 24 or 25 percent improvement from these technologies in the fuel economy. They would add about $800 to $1,000

on the price of a vehicle, the retail price.

If you look at how much fuel they save and what the value of

it, they pretty much pay for themselves over 50,000 miles of use,

so a consumer buying these technologies would get paid back in

three or four years. That is a typical measure used by auto companies to judge whether, in fact, they are to introduce these technologies.

One of the important points on this is that I believe that most

of these technologies will be adopted, or could be adopted, in most

cars by the manufacturers just on the free market, just on a competitive basis, largely because they make sense. If they pay for

themselves, why not? We have looked at many of the public announcements made by General Motors and Ford and so on, and we

can see all of these technologies coming in the next few years.

At the same time, I don’t want to imply that this means that fuel

economy will improve by 25 percent in the next 10 years, largely

because the consumers are buying more performance, larger vehicles, and so on. So I expect about half of the improvements will actually be lost to consumers buying more vehicles, four-wheel-drive,

and so on. And that is assuming that gas prices stay about where

they are today, about $2 a gallon.

Next, I will briefly discuss the issue that Dr. Portney raised,

which is the issue of diesel engines and hybrids. At the time the

National Academy met, there was a lot of debate about whether

the diesel could meet U.S. emissions standards. There is still some

debate today, but having spoken to a lot of the leading diesel engine manufacturers in the world, I am fairly confident that they

will meet these standards in the next three or four years.

The diesel engine can improve—just by itself, can improve vehicle fuel economy by something like 35 to 40 percent, and they are

widely used in Europe. If you add some of the other conventional

technology improvements, the vehicle fuel economy can go up by

more than 50 percent. So it is a huge fuel economy improvement

possibility, but the cost of the diesel engine is pretty high. A fourcylinder diesel engine with all of the advanced emission controls

will add something like $2,200 to the price of a car. If you use a

V6 or a larger engine, it will add something like $3,500 to the price

of a truck.

At those prices, you don’t get the payback. It won’t pay for itself,

but I think consumers will still value things like it has a lot of

torque so it can tow trailers and so on, and it has at least the

image of great durability so it can run maybe a half a million miles

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without a major overhaul. Consumers value that, and they appear

to certainly prefer diesel engines in the larger pick-up trucks even

today.

Going back to the hybrid, that has become very popular now, but

there are lots of different kinds of hybrids. At the one end, we have

the Toyota Prius, and I think Ford uses a very similar design, and

some people call that a full hybrid. Somewhere in between, we

have the Honda Accord and Honda Civic, which uses a much smaller motor and the battery than the Toyota Prius. Then we have

other designs by General Motors and DaimlerChrysler. And all of

these are different implications for fuel economy. So when people

use the word ‘‘hybrid,’’ they don’t use it in a very consistent way,

and there are lots of flavors of them.

But there is one common characteristic that hybrids have. Most

of their fuel economy improvement occurs in city driving. So it has

to be stop-and-go driving. On the highway, hybrids don’t give you

much, whereas with the diesel engine, the fuel economy gains are

more robust across all of the driving conditions.

One of the things I do want to point out is that there has been

a lot of attention paid to the Toyota Prius, and rightly so. It is a

wonderful car. But if you look at how much it costs to make, and

you assume that manufacturers take their standard profit margins

and pay back their cost of capital and so on, we estimate that, at

today’s prices, if you built a Toyota hybrid-like mid-sized car, the

retail price should go up about $6,000. It gives you about a 50 to

55 percent fuel economy improvement. And clearly, that—you are

not going to make that money back in fuel savings.

But the other thing that the press does not seem to notice is that

there are other very smart ways to do it. Honda, for example, as

I mentioned, uses a motor that is maybe half the size of the one

in the Prius, a battery that is less than half the size, and they get

fuel economy numbers that are almost as good as the Prius. So

there are very advanced ways to exploit synergies between the engine, the electric motor, and the transmission that may cut the

costs tremendously. So we see something like the cost coming down

below $2,000, at which point it starts to make sense to the consumer.

I would also mention that we know some companies are working

on diesel hybrid combinations in Europe, and we expect to see

them in something like 2008.

One of the continuing issues has been this issue of safety and

fuel economy. Others on this panel will comment on it. But a lot

of those issues that the panel—that people on this panel talk about

is what happens after the crash has occurred. I think this committee should be made aware that there are really amazing

changes in new technology in preventing crashes from occurring in

the first place. These are technologies like blind spot warning, precrash sensing, lane departure warning, night vision, and so on. In

fact, I think in—perhaps five or 10 years down the road, a vehicle

will be able to brake itself before it hits anything else, and so the

whole issue of safety and fuel economy links becomes almost moot.

Lastly, I was asked to address issues regarding government policy in fuel economy. Like Dr. Portney, I agree that the CAFE

standards did achieve some goals. But I think that it did disadvanVerDate 11-MAY-2000 13:33 Sep 17, 2005 Jkt 098561 PO 00000 Frm 00039 Fmt 6633 Sfmt 6601 C:\WORKD\FULL05\020905\98561 SCIENCE1 PsN: SCIENCE1
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tage the domestic manufacturers, because all manufacturers, regardless of what you produce, have to meet the same MPG number,

even if you build large cars or small cars, whatever your mix is.

Dr. Greene and I have done some studies looking at some other

forms of standards, and I expect Dr. Greene will address this more

fully, but the basic fact is there are different ways of doing this

that are, perhaps, more equitable in this treatment of manufacturers.

Second, I want to just briefly touch on the issue of consumer response. Here I would take some issue at the Honorable Reilly’s recommendations from the National Commission on Energy, which

were all focused on manufacturers. Here we have a situation, as

you know, even with record prices last year, light truck market

share reached a new record in 2004: 55 percent of all vehicles

bought in the U.S. were light trucks. Today, we see cars with 400,

500, and even 600 horsepower that are meant for street use. So

clearly consumers are going in the direction that needs some restraint, and I would suggest that an important part of energy policy has to be—has to include the consumer or has to be some form

of consumer education.

Another point that I would like to touch on is this issue that Dr.

Portney, again, briefly touched on, which is many economists continue to believe that if you raise fuel prices, that is going to solve

the problem. We have to remember that five years ago, gas was

$1.20 a gallon. Last year, it was almost $2.00 a gallon, and that

is a 50 percent price increase. Yet if I look at the numbers in terms

of fuel economy, what people are buying, the vehicle miles of travel,

it is hard to see that there has been a big effect. I personally feel

that the estimates that were put forward by the National Academies were, perhaps, an order of magnitude too large in this issue.

Lastly, I would touch on subsidies and fees for technology. Here

I think the experience has shown that it is probably not a good

idea to subsidize specific technologies. I would mention in this—example the issue between, say, the Toyota Prius and the Honda design, if you can figure out a smarter, cheaper way of doing something, it may not be covered by the specific definition used to subsidize a technology. I would certainly advocate that tax rebates or

subsidies for fuel-efficient vehicles be independent of the kind of

technology used to get there, whether it be diesel or some very advanced type of gasoline engine or some hybrid, because ultimately,

we want to reduce fuel use, and that should be the goal of the subsidy. These subsidies could be phased out over some period. The

principle idea behind the subsidy would be to reduce manufacturer

risk of investing in something that we have no idea whether the

consumers are going to buy.

Thank you for your attention. I will be pleased to answer your

questions.

[The prepared statement of Mr. Duleep follows:]

PREPARED STATEMENT OF K.G. DULEEP

Mr. Chairman and Members of the House Science Committee,

Thank you for inviting me to participate in this hearing on the topic of vehicle

fuel efficiency. I am the Managing Director at Energy & Environmental Analysis

(EEA), a consulting firm. EEA has been involved in analyzing this topic for the last

37

25 years and has provided the Department of Energy with many analyses of technologies over this period. EEA has also worked for a number of foreign governments, notably Canada and Australia, on this issue. The views expressed by me at

this hearing, however, are my own and do not reflect the views of the DOE or any

of my other clients. I was instructed by the Committee’s staff to respond to four

questions, and I will focus on these questions in my testimony. I have highlighted

the key points in my written testimony

CONVENTIONAL TECHNOLOGY IMPROVEMENTS

The first question posed was on the identification of technologies available to improve light-duty vehicle fuel economy and their potential benefit. This is a question

that has received much attention and most analyses separate ‘‘conventional’’ technologies that are evolutionary improvements to existing technology from ‘‘revolutionary’’ technologies that involve new types of engines and/or fuels. In this context,

hybrid and diesel vehicles could be described as revolutionary and their benefits are

described in the response to the second question. All of the fuel economy benefits

cited are on the EPA combined city-highway test unless an alternative is specifically

mentioned.

The available conventional technologies have been extensively researched and I

can state that there is a consensus among engineers regarding these technologies

and their costs and benefits. Table 1 (attached) provides such a listing and is restricted to conventional technologies that are sold in at least one mass-market

model in the U.S. as of 2005, to avoid any controversy about technology readiness

for the market place. In addition, I have ignored the potential for weight reduction

through the use of alternative materials because of the unfortunate controversy over

the link between weight and safety. The data in the table suggests that a total fuel

economy improvement of about 26 percent in small cars to 28 percent in larger cars

and light trucks is possible for much of the new car fleet with no weight reduction

whatsoever. At the same time it should be noted that all of the technologies are (by

definition) in some vehicles, so that the fleetwide benefit available relative to 2004

model year vehicles is about two percent lower than the estimate in the table. If

one were to choose only those technologies that pay for themselves in terms of fuel

savings over 50,000 miles ( a measure used by manufacturers to gauge consumer

acceptance), then the gasoline direct injection system would not be included in the

list. However, direct injection with lean combustion could be cost effective as it could

double the fuel economy benefit from this technology alone and eliminate the need

to employ cylinder de-activation or variable valve lift. Hence, the available improvement from cost effective conventional technology would be about 24 to 26 percent.

Half of the improvement is associated with engine technology. The technologies

would add about $800 to $1,000 to the retail price of a vehicle while the value of

fuel saved over 50,000 miles at $2/gallon would be in the same range.

These estimates are a little lower than the ones derived by the National Academy

of Sciences for two reasons. First, the choice of only those technologies already in

the market as of 2005 is more restrictive than the definition used by the NAS. Adding most of the excluded technologies like ‘‘camless valve actuation’’ or ‘‘ variable

compression ratio’’ will increase the total available benefit but will not change the

listing of cost-effective technology as these excluded technologies are typically quite

expensive for the benefit delivered. Second, the NAS study was completed four years

ago and some of the technologies on their list have already been widely adopted in

the interim period. However, it can be argued that the costs of these excluded technology improvements could come down in the future. A comparison of studies on

fuel economy completed since 1985 suggests that at any given point in time, there

always appears to be the potential to increase fuel economy by 25 to 30 percent in

a cost-effective way. As available technologies are adopted into most new cars, new

technologies are developed to lead to this conclusion.

More importantly, I also believe that all of the cost-effective technology in the table

could be adopted under free market conditions in most vehicles by 2015 if gasoline

prices do not decline significantly, simply due to the fact these technologies pay for

themselves. As examples, GM has publicly announced that most of the V–8 and V–

6 engines will have cylinder cutout in the future. GM and Ford are collaborating

on a six speed automatic transmission that will be used on most of their front wheel

drive cars by 2012. DaimlerChrysler’s new four-cylinder engine will be equipped

with variable valve timing. Most current Honda models offer variable valve lift systems. These examples confirm our computations of cost-effectiveness. At the same

time, this does not imply that 2015 fuel economy under free market conditions will

be 25 percent higher than it is today. We estimate that about half of the improvement will counterbalanced by consumers buying more luxurious and larger vehicles,

SUV models and four-wheel drive even if fuel prices remain at around $2 per gallon.

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If gasoline prices decline in the future to $1.25 per gallon, there may be no improvement in fleet fuel economy at all as some technologies become cost ineffective.

HYBRID AND DIESEL TECHNOLOGY

The second question asks about the prospects for diesel and hybrid technology,

and their expected contribution to fuel economy. Dr. Greene of Oak Ridge National

Laboratory and I completed a study of these technologies last year on this very

question, but because technological changes are happening quickly, I have modified

my answers to reflect new data. I will focus on technology issues and let Dr. Greene

respond to market penetration issues. Both technologies offer the prospect for fuel

economy improvements of 40 to 50 percent, more than double the total available

from all cost effective conventional technology.

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1 Europeans often quote a diesel fuel consumption (the inverse of fuel economy) benefit of 25

to 30 percent, and this is equal to a fuel economy benefit of 33.3 to 42.85 percent.

Diesel engines are not a new technology and half of all new cars sold in Europe

are diesel powered. They are revolutionary only in the U.S. context due to the difficulty in meeting emissions standards in force here. Although much has been made

of the diesel’s emissions, I am now reasonably confident that the diesel engine will

be able to meet the stringent new Tier 2 emission standards in most vehicles in the

near future. Existing diesel engines can definitely meet this standard with an ureaSCR system and particulate trap, but vehicles need periodic refueling with urea.

Distributing urea to refueling stations is not an insurmountable problem, but is of

some concern to the EPA. Other solutions that do not require urea like the NOΧ

adsorber are also close to meeting emission standards but extract a fuel economy

penalty of three to five percent. More exciting developments are in emission control

by modifying the combustion process itself. There are three approaches being pursued, and the U.S. EPA has developed one. Last week, Ford and EPA announced

an agreement to develop this technology for production, demonstrating its potential.

Modern diesel engines with direct injection and turbocharging can improve fuel

economy by 38 ± 5 percent relative to a gasoline engine of equal size.1 These engines

can provide 40 to 50 percent more mid-range torque than the gasoline engine and

near equal horsepower. In addition, there is evidence from Europe that diesel vehicles perform better on the road than gasoline vehicles and real-world (as opposed

to EPA test) fuel economy may be about 50 percent better than a gasoline vehicle.

However, the diesel engine (with advanced emission control) will have a price pre- mium of about $2200 for a four cylinder engine used in a compact car to about $3400

for a large V–6 used in a pickup truck. At these prices, the fuel savings over 50,000

miles will not pay for the full cost, but consumers value the torque and durability

of the engine. I should also note that the ‘‘conventional’’ technologies not related to

the gasoline engine in Table 1 are also applicable to diesel powered vehicles, so that

the vehicle fuel economy potential is about 50 ± 6 percent. Our study estimated the

ultimate market potential of the diesel in the 2015 time frame at about 30 percent

of the market if there is no hybrid competition.

The hybrid gasoline—electric vehicle has received much attention, but there are

many kinds of hybrids and the terminology to describe them is both confusing and

biased. The Toyota Prius is one reference sometimes referred to as a ‘‘full’’ hybrid,

and it uses two high powered electric motors, a gasoline engine and a high power

battery. (Ford’s Escape hybrid uses a similar system.) The Honda Civic and Accord

hybrids use a different and simpler system with one motor of relatively low power

and a smaller battery than the one used in the Toyota Prius. GM and

DaimlerChrysler currently offer a system in a hybrid pickup truck conceptually

similar to the Honda system but with a much lower power battery. GM also plans

to introduce a fourth type of system, called a Belt drive Alternator Starter (BAS)

system that is significantly cheaper than any of the other systems. All of these types

are hybrids but have quite different price and performance implications.

In general, all hybrids improve fuel economy in city (or stop-and-go) driving by significant amounts, but offer little or no improvement in fuel economy under highway

(steady high speed) conditions. In addition, the hybrid vehicle’s fuel economy benefits, even under city driving conditions, are a function of trip length and ambient

conditions. In contrast, the fuel economy benefit of the diesel is more robust across

all driving conditions.

It is difficult to provide a single fuel economy benefit number to hybrids even of

a particular type since it is a function of the performance trade-offs chosen by the

manufacturer. ‘‘Full’’ Hybrids using a two electric motor design similar to that used

by Toyota and Ford can provide a 50 to 55 percent improvement in composite fuel

economy if optimized for maximum fuel efficiency. This improvement includes the effect of the conventional technologies listed in Table 1 and the benefit of hybridization alone is about 25 to 30 percent. Such hybrids provide comparable low speed acceleration but reduced continuous power for hill climb or trailer towing. Vehicles

that offer no compromise in continuous power and significantly better low speed acceleration will offer a benefit of 30 to 35 percent (again including most conventional

technologies). In a mid-size car for example, we estimate that the additional hybrid

related components will add $5,600 to retail price currently if manufacturers utilize

standard retail markup and expect to earn an average profit margin on these vehicles. There are significant cost reductions likely to be realized over the next five

years and we estimate that by 2010 prices can be below $3,900. Since the fuel savings over 50,000 miles are only on the order of $1,300 to $1,500, many believe that

this technology will never succeed in the market even after cost reductions are realized.

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These issues regarding the ‘‘full’’ hybrid have been debated publicly, but the potential of other hybrid designs has received much less attention in the press. Honda

has introduced three hybrid vehicles in the U.S. that have a single electric motor

of less than half the power of the motors in the Toyota Prius, and an advanced battery that is half the size of the one in the Prius. Yet, the fuel economy gains in the

Honda hybrid vehicles are almost as good as the ones from the Toyota hybrids.

Honda has cleverly managed to exploit synergies between engine, transmission and

electric motor technology to maximize fuel economy. We estimate the cost of these

hybrids to be less than half the cost the ‘‘full’’ hybrid designs, so that future prices

will be relatively close to the value of fuel saved. Other innovative designs using

ultra-capacitors have been shown by Continental of Germany that could be a low

cost solution for some types of vehicles. These alternative types of hybrid designs in

synergy with engine technologies could provide fuel economy gains of 30 to 35 percent

with no loss in performance, and will be cost effective in terms of fuel savings over

the life of the vehicle. Dr. Greene’s analysis suggests that hybrids of different types

can capture 25 percent of the market by 2015, and this figure could be higher with

some of the more innovative designs under study now.

Some analysts have discounted the diesel engine and hybrid powertrain combination as too expensive, but I do not agree. Some alternative cheaper hybrid designs

could make sense with advanced diesel engines by eliminating the need for costly

emission control equipment like NOΧ adsorbers, partially offsetting hybrid costs. I

have heard that several European manufacturers are developing hybrid-diesel combinations and I anticipate that the first models will be available in the U.S. by 2008.

SAFETY RELATED EFFECTS

The data presented above for conventional and revolutionary technology do not include any weight or size reduction, so there are no reasons to be concerned for safety.

In addition, both the diesel and hybrid vehicle weigh three to five percent more than

conventional vehicles, so that there could be positive benefits if weight is indeed a

factor. I am not a safety expert, but recent analyses sponsored by Honda suggest

that size rather than weight is more important for safety.

In addition, the safety relationship to weight and size is debated in the context

of injury after a crash has occurred. This committee should be made aware of amazing new advances in active crash prevention technologies. Technologies being introduced into the marketplace in the near-term include:

— Blind Spot Warning through radar or infra-red detection

— Pre-Crash sensing using radar or vision based technology

— Lane Departure Warning using camera based technology

— Active Lane Keeping systems

— Stability control, soon to be standard on most vehicles

— Rollover prevention on trucks and SUV models

— Rear Vision and Night Vision systems

— Drowsy Driver Detection systems

Indeed, there are plans to incorporate systems to completely sense the vehicle

driving environment and warn the driver or prevent a crash. I believe that active

safety technology has the potential to completely change the safety debate and remove

any link between fuel economy and safety, and hope that this committee will examine these technologies more closely.

GOVERNMENT POLICIES

I was also asked to comment on government policies to accelerate technology introduction. I am aware of public initiatives to raise CAFE standards with the

premise that this policy has worked in the past. While the CAFE standards did

achieve the goals, there is no question that the current form of the standard requiring all manufacturers to meet the same MPG target disadvantaged domestic manufacturers. Dr Greene and I have investigated other forms of the standard such as

size or weight based standards and these seem to be more equitable in treatment of

different manufacturers. However, no form of standard is without some drawbacks,

and all are susceptible to ‘‘gaming.’’ I am also hesitant to suggest the European

method that set a ‘‘voluntary’’ fuel consumption improvement target for all manufacturers and let the manufacturers negotiate individual targets between themselves.

I understand some strains are being caused between European manufacturers by

this agreement, and intra-industry agreements could be construed as anti-competitive behavior under U.S. laws. I will let others on the panel comment on standards

and focus my attention on promoting technology for fuel economy.

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The consumer side of the equation should also not be neglected. Consumers appear to value other attributes, notably size, luxury features and performance over

fuel economy, and the appeal for SUV models has not diminished much even at the

current gasoline price of $2 per gallon. The market share for light trucks continues

to increase and reached a record of almost 55 percent of the total light vehicle market in 2004. Cars and light trucks with astounding horsepower ratings of 400, 500

and 600 HP are in demand in a country where the national speed limit rarely exceeds 70 mph. These trends will serve to eventually erase the benefits of any

amount of technology introduction. Hence, future fuel economy related efforts should

include efforts directed at consumer motivation to purchase more efficient rather

than more powerful or larger vehicles. This has always been a difficult area for Congress, as any restriction on consumer choice appears politically unacceptable.

Just a few years ago, many economists believed that raising fuel prices alone

would solve this problem of consumer motivation. Some computations purported to

show that gasoline savings equivalent to a 25 percent increase in CAFE standards

could be obtained by raising the fuel price to $1.75 (or by about 50 cents) at that

time. It can now be demonstrated from U.S. data from 2003–2004 that the assumed

elasticities of consumer response to gasoline prices for vehicle choice and vehicle use

were in error, by almost an order of magnitude. The Canadian experience with high

fuel prices for the last 20 years also proves the same point. Hence, increasing taxes

on gasoline as the primary conservation measure is not a particularly powerful strategy unless very large price increases ($2 to $3) are contemplated. At the same time,

higher gasoline prices do make some modest contribution to saving fuel and can set

the stage for making higher priced fuel efficient technology more palatable to the

consumer, i.e., it may be a necessary but not a sufficient condition.

Subsidies and fees for fuel efficiency or fuel-efficient technology to motivate consumer purchase are a common suggestion, and there are some subsidies now available for hybrid vehicles. I believe that the experience has shown technology specific

credit or subsidy programs to be quite unpredictable in supporting the best outcome.

For example, California’s current ZEV mandate provides credits to hybrid vehicles

as a function of electric motor power and battery voltage, independent of the actual

fuel economy or emissions results attained by a specific design. In future, this could

have the effect of promoting more expensive designs and disfavoring less expensive

but more innovative designs that provides a similar outcome. I also believe that diesel and hybrid technologies are not in direct competition, as the primary benefits of

hybrids accrue to passenger vehicles which operate mostly under city driving conditions. Diesel technology is most useful for vehicles that carry loads, tow trailers occasionally, and/or operate primarily on the highway. Hence, the availability of both

diesel and hybrid technologies in the marketplace would extend benefits to different

groups of consumers with different needs.

I would suggest tax rebates or subsidies for fuel efficient vehicles that are independent of technology, be it advanced diesel, gasoline direct injection, hybrid or some

combination. These subsidies could be phased out over a 10-year period, and the

main purpose would be to reduce manufacturer’s risk of investing in the production

of a high fuel economy technology that is rejected by the consumer.

Thank you for your attention. I will be pleased to answer any questions the committee may have for me.

BIOGRAPHY FOR K.G. DULEEP

As Managing Director at EEA, Mr. K.G. Duleep has been involved with automotive technology, fuel economy, and emissions issues for nearly 25 years. He has

directed a number of studies evaluating new technologies for vehicular engine and

fuel combinations (including methanol, natural gas, and other alternative fueled vehicles). These studies have compared the technical feasibility, economics, performance, maintenance, and air emissions impacts of alternative vehicle technologies.

Mr. Duleep has completed projects for the U.S. Federal and State governments, and

for several other countries (notably Canada and Australia) where his technology

evaluations and forecasts have formed the basis for fuel economy related initiatives

and regulations. Mr. Duleep has testified on transportation technology issues for the

U.S. Congress during debates on the Clean Air Act and CAFE (fuel economy) standards during the 1990s.

In 2000, Mr. Duleep supported the National Academy of Sciences’ Committee on

the Effectiveness and Impact of CAFE Standards by providing information to the

committee on the availability, cost and benefit of several automotive technologies.

Much of the data on the cost of fuel economy and alternative fuel technology available in the public domain can be traced to his work for the Department of Energy.

42

He also provides technology analysis support to auto-manufacturers and Tier 1 suppliers.

Mr. Duleep has a Masters’ degree in Engineering from the University of Michigan

and an MBA from Wharton.

Chairman BOEHLERT. Thank you very much.

Mr. Stanton.

STATEMENT OF MR. MICHAEL J. STANTON, VICE PRESIDENT

OF GOVERNMENT AFFAIRS, ALLIANCE OF AUTOMOBILE

MANUFACTURERS

Mr. STANTON. Thank you, Mr. Chairman.

I represent the Alliance of Automobile Manufacturers, which is

BMW, DaimlerChrysler, Ford, GM, Toyota, Mazda, Mitsubishi,

Porsche, and Volkswagen of America. So it is a broad group of

international manufacturers.

And the Alliance supports efforts to create an effective energy

policy based on broad market-oriented principles. Policies that promote research and development and accelerate the deployment of

advanced technologies by providing customer-based incentives

should be the foundation for these efforts. This focus leverages the

intense competition of automobile manufacturers worldwide. Competition drives automakers to develop and introduce technologies as

rapidly as possible to meet the demands and needs of customers.

The auto industry is committed to developing and utilizing

emerging technologies to produce cleaner, safer, and more fuel-efficient cars and light trucks. The NAS, in its 2001 report to Congress, cited a number of promising technologies that are being developed for use in vehicles. The report notes that they fall into a

variety of categories, from production intent to emerging. In many

cases, the production intent technologies are already in vehicles.

The emerging technologies are ones that may achieve significant

penetration in the market if economic and regulatory conditions

permit, and in some cases, if there are engineering breakthroughs.

All of this suggests that purchasing a course of—or pursuing a

course of incentivizing the introduction of technologies to accelerate

their implementation would be more effective than attempting to

effectively mandate their use.

Auto manufacturers are working on advanced longer-term technologies, such as hybrid, clean diesel, and internal combustion engines and fuel cells. These efforts may lead to substantial improvements in efficiency and emissions performance, all, we hope, without sacrificing safety, utility, comfort, or performance. Fuel cell

technology, or liquid hydrogen powered ICEs, also serve as a potential path to move away from a petroleum-dependent transportation

sector. Successful introduction of these new and emerging technologies all share the need for cooperative efforts that bring together all of the stakeholders, including auto makers, energy providers, government policymakers, and most important, consumers.

The Alliance supports enactment of consumer tax credits for the

purchase of these advanced technology vehicles. These credits will

help offset the initial higher cost until greater volumes make them

less expensive to produce and purchase. The Alliance believes that

the overall concepts and provisions for consumer tax incentives

found in last year’s conference report for the Energy Bill are the

43

right approach and would benefit consumers. And I am pleased to

say that yesterday Congressman Camp introduced similar legislation, and we hope that the Committee Members would be able to

support it.

CAFE levels are critical to auto makers for a variety of reasons.

First, if standards are too high, they will preclude vehicle attributes that can put the manufacturer at odds with their customers. Second, the level of CAFE standards can result in unintended consequences, such as the adverse safety consequences of

pushing manufacturers to making vehicles lighter and smaller.

Third, there are competitive implications for some manufacturers

relative to others due solely to the mix of vehicles that are offered

and sold. For instance, a manufacturer specializing in large, highperformance vehicles will have a more difficult challenge than a

full-line manufacturer, and that full-line manufacturer will have a

more difficult challenge than a limited-line manufacturer on compacts and sub-compact vehicles. And finally, for consumers sensitive to costs, fuel economy gains must be compared to the increased costs for their new vehicle purchase decisions.

To summarize, Mr. Chairman, the Alliance believes that we must

continue our efforts to reduce our dependence on foreign oil, which

is one of the reasons we support the President’s Hydrogen Fuel Initiative. In the near term, Alliance members will continue to compete with advanced technology vehicles, such as hybrids, clean diesel, and alternative fuel vehicles. Meanwhile, we will continue to

work with NHTSA as it fulfills its congressional mandate to set

new light truck vehicle CAFE standards at their maximum feasible

level.

Mr. Chairman, this concludes my statement. Thank you.

[The prepared statement of Mr. Stanton follows:]

PREPARED STATEMENT OF MICHAEL J. STANTON

Mr. Chairman,

Thank you for the opportunity to testify before the Committee on Science regarding fuel efficient technologies for motor vehicles. I represent the Alliance of Automobile Manufacturers, a trade association of nine car and light-truck manufacturers. Our member companies include BMW Group, DaimlerChrysler Corporation,

Ford Motor Company, General Motors Corporation, Mazda, Mitsubishi, Porsche,

Toyota Motor North America and Volkswagen of America.

Alliance member companies have more than 600,000 employees in the United

States, with more than 230 manufacturing facilities in 35 states. Overall, a University of Michigan study found that the entire automobile industry creates more than

6.6 million direct and spin-off jobs in all 50 states and produces almost $243 billion

in payroll compensation annually.

The Alliance supports efforts to create an effective energy policy based on broad,

market-oriented principles. Policies that promote research and development and accelerate the deployment of advanced technologies by providing customer-based incentives should set the foundation for these efforts. This focus on ‘‘accelerating the

implementation of advanced technologies’’ leverages the intense competition of the

automobile manufacturers worldwide. Competition drives automakers to develop

and introduce breakthrough technologies as rapidly as possible to meet the demands

and needs of consumers.

According to EPA data, the results of these efforts have been steady fuel efficiency

increases of nearly two percent per year on average from 1975 to 2003 for both cars

and light trucks. Fuel efficiency is a measure of the energy needed to move a given

mass a specified distance. Fuel efficiency has been increased through improvements

in aerodynamics, powertrains and reductions in accessory losses—in essence,

through the use of the technologies of concern to the Committee and mentioned in

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reports by the National Academy of Sciences (NAS). As a result, the average vehicle

each year, everything else being equal, consumes about two percent less fuel than

it did the year previously.

To accomplish these great results, the auto industry spending on R&D each year

is approximately $18.4 billion, with much of it in the high tech sector. In fact, the

University of Michigan study noted earlier stated the following: ‘‘The level of automotive R&D spending and the relatively high employment of research scientists and

engineers in the U.S. auto industry has traditionally earned a place in any U.S.

Government listing of high technology industries generally thought to be central to

the long-term performance of the U.S. economy.’’

The auto industry is committed to developing and utilizing ‘‘emerging’’ technologies to produce cleaner, safer, and more fuel efficient cars and light trucks. The

NAS, in its 2001 report to Congress, ‘‘Effectiveness and Impact of Corporate Average

Fuel Economy (CAFE) standards,’’ cited a number of promising technologies that are

being developed for use in vehicles. The report notes that they fall into a variety

of categories—from ‘‘production intent’’ to ‘‘emerging.’’ In many cases, the production

intent technologies have already begun to be introduced into vehicles. The ‘‘emerging’’ technologies are ones that may achieve significant penetration into the market

over 10 or more years, IF economic and regulatory conditions permit and at times

ONLY IF engineering ‘‘breakthroughs’’ are achieved. All of this suggests to us that

pursuing a course of incentivizing the introduction of technologies to accelerate their

implementation would be more effective than attempting to effectively mandate

their use.

Auto manufacturers are also working on advanced longer-term technologies such

as hybrid, clean diesel, and hydrogen powered vehicles, including fuel cells and internal combustion engines (ICE). These efforts may lead to substantial improvements in efficiency and emissions performance—all, we hope, without sacrificing

safety, utility, and performance. Fuel cell technology, or liquid hydrogen powered vehicles using an ICE, also serve as a potential to move away from a petroleum dependent transportation sector. Successful introduction of these new and emerging

technologies all share the need for cooperative efforts that bring all the key stakeholders together. . .including the automakers, energy providers, government policy

makers and most importantly, the consumers.

The NAS summarized the diversity of demand and priorities in the marketplace

when it stated that ‘‘automotive manufacturers must optimize the vehicle and its

powertrain to meet the sometimes-conflicting demands of customer-desired performance, fuel economy goals, emissions standards, safety requirements and vehicle cost

within the broad range of operating conditions under which the vehicle will be

used.’’

What this says is a fact that the auto industry must deal with every day in designing and producing vehicles—the customer is in the driver’s seat. This helps explain why, when fuel efficiency has been increasing by two percent per year, fuel

economy (the miles per gallon a vehicle obtains) has not kept pace. Consumers are

not placing as high a value on fuel economy as they are on other vehicle attributes

(e.g., price and safety). Thus, while vehicles continue to get more fuel efficient, the

miles per gallon obtained by a given vehicle or the vehicle fleet as a whole, has not

increased as much because consumers are either choosing larger and heavier vehicles or choosing vehicle attributes such as larger engines and advanced safety equipment, that dampens the increase in fuel economy.

Market-based incentives ultimately will help consumers deal with the initial higher cost barriers of advanced technologies during early market introduction. The important consideration here is to increase demand, bringing more energy efficient vehicles into the marketplace. This will help drive cost reduction as economies of scale

are achieved in a timelier fashion.

As a result, the Alliance supports enactment of consumer tax credits for the purchase of advanced technology vehicles. These credits will help offset the initial higher costs of advanced technology and alternative fuel vehicles until further technological advancements and greater volumes make them less expensive to produce and

purchase. The Alliance believes that the overall concepts and provisions for consumer tax incentives found in last year’s energy bill conference report are the right

approach and would benefit American consumers.

Unfortunately, there have also been Congressional efforts in the past to consider

amendments to the energy bill to increase CAFE standards. The Alliance has opposed these attempts to Congressionally set arbitrarily higher CAFE levels. The

original CAFE program was designed to allow the Department of Transportation to

set new standards by conducting rule-makings that consider the ‘‘maximum feasible

fuel economy level’’ that is achievable for a given model year.

45

Two years ago, the National Highway Traffic Safety Administration (NHTSA)

used this authority to set higher standards for the 2005–07 model year light trucks.

The NHTSA rule increased the standards by 1.5 mpg over that period—to 22.2 mpg

by 2007—the largest increase in 20 years. NHTSA set these standards after considering key elements such as technological feasibility, cost, safety, emissions controls,

consumer choice, the need of the Nation to conserve energy, and the effect on American jobs. While the standard for 2007 may not be viewed by some as sufficiently

‘‘aggressive,’’ NHTSA stated in the preamble to the final rule that it will pose a

‘‘substantial challenge’’ to at least one of our member companies.

In its rule-making, NHTSA noted that advanced fuel saving technologies, such as

hybrid electrics and advanced clean diesels, could substantially enhance the average

fuel economy of the American light vehicle fleet as even more advanced technologies,

such as fuel cells, are being developed.

Where CAFE levels are set is critical to automakers for a variety of reasons. First,

there are competitive implications for some manufacturers, relative to others, due

solely to the mix of vehicles that are offered and sold. The current system emphasizes these disparate impacts by more severely challenging manufacturers that already provide vehicles in the heavier and larger segments of the vehicle fleet, such

as full-size SUVs and pick-up trucks. While there are approaches to restructuring

the CAFE program that can help address these concerns, the details of implementing them are critical and must be fully explored to avoid creating a system

with new competitive consequences. The Administration is currently examining a

number of CAFE restructuring proposals through rule-making and the Alliance and

its Member companies are actively involved in the process.

Second, the level of CAFE standards can result in unintended consequences, such

as the adverse safety consequences of pushing manufacturers to make vehicles lighter and smaller. The NAS report noted the increased fatalities that are attributable

to the impacts of downweighting and downsizing due to past CAFE standards and

urged care in setting future levels to avoid aggravating this effect. The report said,

‘‘If an increase in fuel economy is effected by a system that encourages either

downweighting or the production and sale of more small cars, some additional traffic

fatalities would be expected. For fuel economy regulations not to have an adverse

impact on safety, they must be implemented using increased fuel efficiency technology.’’

Third, the emphasis of customers on improving the safety of the vehicles they purchase results in automakers adding more equipment to provide safety in collisions.

Safety improvements continuously add weight to vehicles, and the heavier the vehicle, the more energy it takes to move it down the road, resulting in a decrease in

fuel economy. This is a classic dilemma and reflects the tradeoffs that automakers

face constantly in designing vehicles to achieve improvements in safety, fuel efficiency and emission performance.

Finally, for consumers sensitive to cost, fuel economy gains must be compared to

the increased investment costs and risks in their new vehicle purchase decision. Assuming a fuel cost of $2 per gallon, a 20 percent increase in vehicle fuel efficiency

offers an annual fuel savings of under $150. This cost must be weighed against the

convenience, utility and performance of the alternative. As automakers, we are

keenly aware of the importance of consumer choices and the challenges we have to

deliver new technologies that meet their affordability, performance and utility

needs.

So where is the industry headed:

Fuel Cell Vehicles

A promising long-term technology offers breakthrough fuel economy improvements, zero emissions and a shift away from petroleum-based fuels. From a vehicle

perspective, hydrogen-fueled fuel cells offer the biggest improvement in efficiency

and emissions but at high cost and with major infrastructure challenges. On-board

hydrogen storage also presents some difficulty. The gasoline infrastructure is well

established, but gasoline reformers are the least developed and the most costly of

reformer technology.

A robust fuel cell commercialization plan incorporates breakthroughs and complementary research in stationary power units. A primary challenge in the introduction of fuel cells into America’s light vehicle passenger and truck fleets are the packaging restrictions of size and weight.

Hybrid-Electric Vehicles

Hybrid-electric vehicles offer significant improvements in fuel economy and in

tailpipe emissions. These products capture power through regenerative braking.

When decelerating an internal combustion vehicle, the brakes convert the vehicle’s

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kinetic energy into heat, which is lost to the air. By contrast, a decelerating hybrid

vehicle can convert kinetic energy into stored energy that can be reused during the

next acceleration. Hybrid vehicles do not require additional investment in fuel infrastructure which helps reflect their potential for near-term acceptance.

Advanced Lean Burn Technology Vehicles

Vehicles that are powered by advanced lean burn technology such as clean, direct

injection diesels offer greater fuel economy and better performance. The auto industry is working now to introduce technologies that will allow diesel automobiles to

meet the EPA’s Tier 2 emissions regulations. These types of vehicles, widespread

in Europe today, could provide fuel economy gains in excess of 25 percent above

comparable conventional vehicles.

Internal Combustion Engine powered by liquid hydrogen

Another promising and enabling technology towards a hydrogen economy are hydrogen-powered ICEs. The concept of using hydrogen in internal combustion engines

offers several advantages: near zero emissions, maintaining the utility, flexibility,

and driving dynamic of today’s automobile and helping to promote a hydrogen fueling infrastructure.

Battery Electric Vehicles

Vehicles that utilize stored energy from ‘‘plug-in’’ rechargeable batteries offer zero

emissions from the vehicle. However, battery electric vehicles continue to face

weight, energy density, and cost challenges that limit their customer range and affordability.

Beyond gasoline, the auto industry is working with a variety of suppliers of alternative fuels. In fact, the industry already offers more than 25 vehicles powered by

alternative fuels. Approximately three million of these vehicles are on the road

today and more are coming. Today, we find vehicles that use:

• Natural gas, which reduces carbon monoxide emissions;

• Ethanol, a renewable fuel domestically produced with the longer term potential to substantially reduce greenhouse gases;

• Liquefied petroleum gas (propane), the most prevalent of the alternative

fuels, which reduces VOC emissions; and

• For the future, liquid hydrogen, which has the potential to emit nearly zero

pollutants depending on feedstock.

One of the key hurdles to overcome in commercializing alternative fuel vehicles

is the lack of fueling infrastructure. For nearly a century, infrastructure has focused

primarily on gasoline and diesel products. Infrastructure and fuel incentives will

help the distributors overcome the costs to establish the alternative fuel outlets and

support distributors during initial lower sales volumes as the number of alternative

fuel vehicles increases.

As you can tell, the automobile companies are constantly competing for the next

breakthrough innovations. All manufacturers have advanced technology programs to

improve vehicle fuel efficiency, lower emissions and increase motor vehicle safety.

These are not ‘‘pie in the sky’’ concepts on a drawing board. In fact, many companies

have advanced technology vehicles in the marketplace right now or have announced

production plans for the near future. That is why now is the perfect time for the

enactment of consumer tax credits to help spur the purchase of these new vehicles

which years of research and development have made possible.

Thank you.

BIOGRAPHY FOR MICHAEL J. STANTON

Michael J. Stanton, Vice President, Government Affairs, is responsible for implementing and coordinating the Alliance of Automobile Manufacturers (Alliance) and

its members’ programs to assure that their views on federal issues are appropriately

communicated to Members of Congress and their staffs, executive departments and

federal agencies and other associations and organizations. He is also responsible for

international relations to ensure that U.S. automakers interests are represented

throughout the world.

Mr. Stanton was named to his present position in 1999 when the Alliance was

formed. Prior to the Alliance, he served as Director of Federal Relations for eight

years with the American Automobile Manufacturers Association (AAMA). Before

joining AAMA, Mr. Stanton was responsible for federal and State legislation for the

Motor Vehicle Manufacturers Association.

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Mr. Stanton has more than 25 years experience representing auto manufacturers

before federal and State legislatures.

Mr. Stanton spent two years as an officer in the Navy, serving aboard the U.S.S.

America during the Vietnam War. A native of Washington, D.C., Mr. Stanton holds

a Master’s Degree from George Washington University.

Chairman BOEHLERT. Thank you very much, Mr. Stanton.

Dr. Greene.

STATEMENT OF DR. DAVID L. GREENE, OAK RIDGE NATIONAL

LABORATORY, CENTER FOR TRANSPORTATION ANALYSIS,

NATIONAL TRANSPORTATION RESEARCH CENTER

Dr. GREENE. Thank you, Mr. Chairman. Good afternoon, and

good afternoon to Members and staff and guests here.

I am pleased to be here, and I hope I can help advance the discussion.

Could I have the first slide, please?

[Slide.]

I have been asked three questions that pertain to policy.

The first question, essentially, is what are the policy options and

what are their pluses and minuses. I have dealt with this, or tried

to, at some length in my testimony. I will just try to hit some high

points here.

The second question is directly aimed at whether or not the government can encourage adoption of fuel-efficient technologies without leading manufacturers to make vehicles less safe. My simple

answer to that is yes, but I will elaborate on that in a moment.

And can the government encourage the adoption of technologies

to improve fuel economy without significant negative impacts on

manufacturers? And this is more complicated, but I think things

can be done to improve the current system, let me say that.

Next, please.

[Slide.]

Well, there are lots of standards that can be used, and there are

lots of policies that can be used to encourage fuel economy improvement. And countries—almost every developed country around the

world has some form of fuel economy standards, and almost all of

them are different. We have the CAFE standards. Japan has

weight-based standards. China is adopting weight-based standards.

The European Union has comprehensive voluntary standards,

which has some advantages for them. My bottom line here is I

think there are many ways to do this and to do it effectively. There

are some pluses and minuses.

For example, I think the one criticism of the CAFE standards

that stands up to analysis is that they did have differential competitive impacts, which were more onerous for the Big Three U.S.

manufacturers to meet than for foreign manufacturers. On the

other hand, the situation in the auto market has changed considerably. The largest manufacturers now are much more supplying vehicles across the board, as compared with back in 1975 when the

foreign manufacturers were highly specialized in small vehicles. So

these differential impacts will be inherently smaller today than

they were back then, and there are further ways to mitigate them

by having class-based standards or attribute-based standards.

The chief problem I see with the CAFE standards is that once

you meet the standards, then you stop. There is not a continuing

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incentive to improve fuel economy to add technologies as they come

along. This kind of problem can be addressed by market-based incentives, such as feebate systems, which consist of a fee charged for

vehicles that are below a pivot point or a certain fuel economy level

and a rebate or incentive that are given to vehicles above that

level. Pivot points can be chosen, such there is one for the entire

marketplace, one for passenger cars, one for light trucks, or perhaps many classes of vehicles. This provides ongoing incentives to

continue to adopt fuel economy technology in order to avoid a fee

or gain a rebate.

Other market-based approaches include gasoline taxes, and I

would like to say that our National Research Council report, once

again, recommended higher fuel taxes. I think that is still a good

idea. It may be unpopular, but I think it is incumbent on people

like myself and like my colleague, Dr. Portney, to recommend such

things when we get the opportunity.

Next, please.

[Slide.]

I would like to spend a moment trying to elaborate on the point

that the Chairman made earlier that there is market failure in the

market for fuel economy and to see if I can help us understand

what the nature of that is.

What matters to the consumer of an automobile is not the total

value of fuel savings that fuel-efficient technology will provide, nor

is it solely the price increase that will come about when these technologies are added to the vehicle. Rather, it is the difference between the two, the net value: the fuel savings minus the price increase. I show here on the higher graph data from our own National Research Council study. The dotted red line is the cost of improving the fuel economy using the technologies we described in

the study of a typical 28-mile-per-gallon passenger car. The solid

black line is the discounted present value of fuel savings that

would be realized over the life of the car. I see some people are already eyes glazing over with that kind of terminology. But essentially, that is the value of these fuel savings to a perfectly rational

economic consumer who calculates out exactly what he is going to

do and how much he is going to save over the life of the car. By

the way, the evidence is there probably are no such consumers out

there.

But in any case, what is of interest to the consumer is the difference between the two, which is that lower curve, which doesn’t

vary by more than plus or minus $200 or $250 over approximately

50 percent increase in fuel economy. I think this explains, given

the uncertainty in the consumer’s mind about what those fuel economy numbers on the car really mean and what the future price of

gasoline is going to be. It is no surprise that this is not an important issue to the typical car buyer. This is way down the list of

things that are of importance.

On the other hand, to achieve this kind of dramatic improvement

in fuel economy, manufacturers have to completely redesign their

vehicles, invest billions of dollars in retooling, and it is a very

risky, expensive proposition for something that their customers are

barely interested in. This, I think, is the principle reason why fuel

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economy technologies today do not get incorporated into vehicles

for the purpose of improving fuel economy.

Now many in the industry believe that consumers only count the

first three years of fuel savings and not the fuel savings over the

life of the car. The lower graph shows that same net value curve

if you only count the first three years of fuel savings, and obviously

at that point, there is nothing worth doing. So that explains, if that

is your perspective, on why you would not improve the fuel economy of vehicles.

Next slide, please.

[Slide.]

Turning to this question of whether the government can encourage fuel-efficient technology without harming safety, first, let me

say the question of fuel economy and weight reduction is greatly

exaggerated. According to data published by the Environmental

Protection Agency, the average light-duty vehicle, combined passenger car and light truck fleet vehicles, sold in 2004 weighed six

pounds more than the average light-duty vehicles sold in 1975. Yet

it got 58 percent, almost 60 percent better fuel economy. So we

have improved the fuel economy of vehicles over 1975 levels by 60

percent. The vehicles weigh six pounds more than they did back

then. The issue that weight reduction is the chief method of improving fuel economy is, using Mark Twain’s phrase, greatly exaggerated.

Now there is still this issue of whether they are downsizing

weight reduction, which did occur in the early years following the

passage of the Fuel Economy Standards in 1975 and the price

shocks in ’73 and ’74, whether that was harmful to safety. At the

time the National Research Council report was written, there were

no scientific studies contradicting the prevailing view that increasing fuel economy led to smaller, lighter cars, which led to greater

fatalities. There are now four scientific studies that have been published, which do contradict that view, and these studies indicate

that, one, there is no link between fuel economy and traffic safety,

and two, that, in the case of the studies done by DRI and supported

by Honda of America, it indicates that increasing the weight of vehicles while maintaining size would be—actually be harmful to

safety. Decreasing the weight of vehicles somewhat while maintaining the size of vehicles would be beneficial to safety.

So now I think we have something we didn’t have at the time

of the NRC report, which is scientific evidence that this link is not

what we thought it was and that we can proceed to improve fuel

economy without harming safety.

Next slide, please.

[Slide.]

This is just a slide which illustrates the point. The upper line

shows total highway traffic fatalities, which, by and large, decreased over time, while fuel economy was improving. Your eyes

don’t deceive you: fuel economy increased, traffic fatalities went

down. And the issue is a lot more complicated than that, but I

think that does summarize, reasonably well, what was achieved.

Final slide, please.

[Slide.]

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With respect to differential impacts, there are many things that

can cause differential impacts on firms from a fuel economy standard or any kind of market-based fuel economy policy as well. The

one that I think is most salient is the product mix, which does differ, to some extent, across manufacturers and will be an issue.

There are ways to mitigate this with class-based standards, attribute-based standards, and adding flexibility features, like

tradable credits that we recommended in the National Research

Council report.

Final slide, please.

[Slide.]

I think all I wanted to say from this slide is to reiterate what

Dr. Portney said. That is that it is extremely important to allow

adequate lead time for design changes so that manufacturers have

time to do the proper engineering and the resources to do the proper engineering and to turn over their productive capital in an orderly fashion. It is also important to set the standards at levels

that are close to being cost-effective from the point of view of fuel

savings so that they do not create excessive market distortions.

[Slide.]

With that, let me go to the last slide and just say thank you very

much, and I will be happy to answer any questions.

[The prepared statement of Dr. Greene follows:]

PREPARED STATEMENT OF DAVID L. GREENE

1. WHAT ARE THE POLICY OPTIONS FOR ENCOURAGING THE ADOPTION OF FUEL EFFICIENT TECHNOLOGIES AND THEIR ADVANTAGES AND DISADVANTAGES?

There are many ways to structure policies to achieve significant increases in fuel

economy effectively and efficiently. I will focus on five below. It is possible to create

policies that are reasonably effective, efficient, and fair. Our own experience with

our CAFE standards and difficulties we have had updating the CAFE law indicates

that we should also prefer policies that provide a continuing incentive to improve

fuel economy.

Following the oil crises of the 1970s, nearly every developed economy in the world

adopted fuel economy standards in some form (IEA, 1984; 1991). Though the forms

and means of implementing standards varied, and although fuel economy standards

have been criticized on a variety of grounds, all these standards were effective in

raising fuel economy levels. Fuel economy standards contributed to curbing the

growth of world oil demand in the 1980s and, in combination with the market response to higher oil prices led to the OPEC cartel’s loss of control over world oil

markets in 1986. We do know how to reduce dependence on petroleum and we have

done so effectively in the past. The combination of higher oil prices and policies

aimed at increasing energy efficiency led to almost 15 years of low oil prices (Figure

1). Unfortunately, after these efforts were successful and oil prices crashed in 1986,

we stopped trying. With OPEC nations holding more than two thirds of the world’s

proven oil reserves and more than half of the world’s ultimate conventional oil resources, and with growing demand for oil for transportation in developed and developing economies, it was only a matter of time before they regained control of world

oil markets.

Potentially effective fuel economy policies range from standards to market-based

measures. Developed economies that have recently tightened their fuel economy or

carbon emission standards for motor vehicles include Japan, the entire European

Union (EU) and Australia. China has also recently adopted fuel economy standards

with the aim of curbing their rapidly growing demand for oil (An and Sauer, 2004).

Each country has a different form of standard, and each one is different from our

own Corporate Average Fuel Economy (CAFE) Standards. Japan and China have

mandatory standards that vary (in different ways) across vehicle weight classes. The

EU and Australia negotiated voluntary standards with automobile manufacturers

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collectively that are based on the sales-weighted average emissions of carbon dioxide

per vehicle kilometer.

CAFE OR UNIFORM PERCENTAGE INCREASES (UPI)

Our CAFE standards were effective in raising passenger car and light truck fuel

economy and curbing the growth of petroleum demand. They have been criticized

on many grounds, but the one criticism that stands up to analysis is that they created a more severe burden for the ‘‘big three’’ domestic manufacturers than for

much of their competition. Differential competitive impacts are inherent in the

CAFE system whenever manufacturers specialize in different market segments because it requires each manufacturer to meet the same MPG target, regardless of its

product mix. Manufacturers emphasizing larger light trucks and passenger cars will

clearly have a more difficult task than those concentrating in smaller vehicle market segments. This problem was ameliorated but not eliminated in the CAFE law

by defining separate targets for passenger cars and light trucks. Another provision

to increase flexibility allows manufacturers to average their fuel economy numbers

over a six year moving window (three years forward, three back). The economic efficiency of the CAFE law could be improved further by allowing manufacturers to

trade fuel economy credits as recommended by the National Research Council (NRC,

2002) CAFE report. Still, these trades will result in income transfers among firms

unless credits are initially allocated to firms in a way that compensates in advance

for such transfers. That might be difficult to do because it effectively amounts to

giving money to some firms and not others.

UPI have been proposed as an alternative to CAFE. This system requires each

manufacturer to achieve not the same MPG level, but the same percentage increase

in MPG. The UPI system essentially produces a mirror image of the differential

competitive impacts of CAFE (Greene and Hopson, 2004; Plotkin et al., 2002), putting smaller vehicle manufacturers and manufacturers that have already adopted

advanced fuel economy technologies at a disadvantage. A UPI system would also

discourage manufacturers from adopting more fuel economy technology than was absolutely required, since exceeding the standard might later lead to having to meet

a more difficult standard. In addition, while CAFE can discourage manufacturers

from abandoning smaller vehicle production, UPI can discourage small vehicle manufacturers from moving into larger vehicle markets.

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ATTRIBUTE-BASED STANDARDS

Attribute-based standards set fuel economy standards based on measurable vehicle attributes, such as weight or size. This can help reduce, but probably cannot

eliminate (see, e.g., Plotkin et al., 2002, Ch. 6), the competitive impacts of CAFE

or UPI style fuel economy standards. Japan has had successful weight-class fuel

economy standards for decades, and China has just adopted a weight-based system.

Weight-based standards take account of the product mix but do not recognize differences in manufacturers’ current use of fuel economy technology. They do not recognize the possibility that different manufacturers may be serving customers with

different preferences for fuel economy. For these reasons, some degree of differential

competitive impacts will occur even under a weight-based system. Finally, weightbased standards, depending on how there are designed, may or may not provide an

incentive for substituting advanced lightweight materials in vehicles as a way of increasing fuel economy.

Size-based standards are a promising but largely untested alternative to weightbased standards. Size-based standards could be based on dimensions such as wheelbase times track width, or interior volume. Such standards would have the advantage of preserving the option of reducing vehicle weight to increase fuel economy

without sacrificing vehicle size. There is some recent evidence to indicate that moderate reductions in vehicle weight while maintaining basic vehicle dimensions would

be beneficial to highway safety (Van Auken and Zellner, 2004). Because there is no

experience with size-based fuel economy standards, the engineering and design implications of such standards should be carefully studied before they are formulated

and implemented.

VOLUNTARY STANDARDS

Voluntary fuel economy standards were effective in Europe in the 1970s and

1980s, and the current EU–ACEA carbon dioxide emissions standard also appears

to be headed for success in meeting its 2008 target. Canada also adopted voluntary

standards, but they mirrored the U.S. CAFE standards which essentially guaranteed their success. According to economic theory, voluntary standards can be effective if there is a credible threat of mandatory standards. Voluntary standards can

take any of the forms of mandatory standards.

The EU–ACEA voluntary standards are worthy of note because they apply to the

entire industry, leaving the determination of individual firms’ responsibilities to negotiations among the firms. While this certainly has risks, it also creates the opportunity for firms to allocate responsibilities in an efficient and fair manner by setting

each firm’s target at the same level of marginal cost per gallon of fuel saved. Because compliance is achieved voluntarily, there is no need for transfers of income

among firms. Thus, economic efficiency, fairness and minimal competitive impacts

can all be achieved simultaneously. No other system can claim all three advantages.

FEEBATES

Feebates are an entirely market-based approach. Vehicles above a chosen ‘‘pivot’’

level of fuel consumption (best measured as the inverse of fuel economy, i.e., gallons

per mile or liters per 100 kilometers) pay a fee, while those below receive a rebate

(Davis et al., 1995). The most efficient approach is to set both fees and rebates at

a fixed rate in terms of dollars per 0.01 gallons per mile (or equivalent). This provides the same economic incentive to save a gallon of gasoline for all vehicles (assuming equal miles of use).

The economic response to feebates is solely a function of the rate and not the pivot

points because the rate determines the marginal value of increasing fuel efficiency.

The pivot points determine the transfer of revenues. This allows the creation of revenue-neutral feebate systems that pay out as much as they take in. Feebate systems

can be designed with one pivot point or with vehicle class-specific pivot points. Analysis of feebate systems has shown that the transfer of revenues among manufacturers can be reduced significantly by a two pivot point system that distinguishes between cars and light trucks (Greene et al., 2005). The benefits of greater numbers

of pivot points is unclear, and increasing the number of pivot points increases the

opportunity to ‘‘game’’ the system by moving vehicles from one class to another to

attain a more easily achieved pivot point.

A key advantage of feebate systems is that they provide a continuing incentive

to adopt fuel economy technologies as long as they remain in effect. Whereas once

a CAFE target is met there is no further incentive to increase fuel economy, the

feebate rate always offers an additional economic incentive to avoid a dollar of fee

or gain a dollar of rebate. In view of the difficulty of raising CAFE standards over

the past 20 years, this could be an extremely valuable feature in the U.S. political

context.

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The United States currently has in place half of a feebate system on half of the

vehicles, in the form of the gas guzzler tax. The rate of the gas guzzler tax is very

high, and as a result, it has nearly eliminated gas guzzling passenger cars. Guzzler

taxes or rebates alone cannot be as effective as a comprehensive feebate system

(Greene et al., 2005). A gas-guzzler tax on passenger cars and not light trucks undoubtedly decreases the numbers of larger heavier passenger cars without similarly

affecting light trucks. Given the current CAFE law, the gas-guzzler tax also produces no benefit in terms of raising passenger car fuel economy.

GASOLINE TAXES

If the market for automotive fuel economy operated efficiently, increasing the tax

on gasoline would be the most economically efficient way to increase fuel economy.

Over the years, higher gasoline taxes have proven to be unpopular, but that is not

an argument against their desirability from an economic efficiency standpoint.

There are, however, good reasons to believe that the market for fuel economy is not

efficient and, therefore, that standards have an important role to play.

First, even nations with gasoline prices two to three times higher than those in

the United States have felt it necessary to have fuel economy standards. This includes the entire EU and Japan. If the market for fuel economy were efficient, gasoline prices in the range of $3 to $5 per gallon should be sufficient to raise vehicle

fuel economy. Still, the EU and Japan found it necessary to have fuel economy

standards.

Second, the net value to consumers of technology-based fuel economy improvements appears to be small over a wide range of fuel economy levels. In general, advanced fuel economy technology costs more that conventional technology. The benefit to consumers is therefore the present value of fuel saved minus the initial higher cost of the technology. The two graphs below show the estimated price increase

and value of fuel savings for an average U.S. passenger car as fuel economy is increased from 28 to 45 miles per gallon. The data are taken from the 2002 NRC

CAFE study. In Figure 2, the customer is assumed to count fuel savings over the

full life of the vehicle, yet there is no more than a ± $250 difference in net value

(fuel savings minus price increase) over a range of zero percent to 50 percent increase in fuel economy. Considering the uncertainty in what the customers’ true fuel

economy number will be, what the future price of fuel will be, and what the consumer is likely to actually pay for higher fuel economy, it is no wonder that fuel

economy is not high on the consumers’ list of things to consider when buying a car.

From the manufacturers’ perspective, however, a large increase in fuel economy is

a long-term, high-cost, high-risk decision, requiring nearly complete vehicle redesign

and substantial retooling—all for something customers are essentially indifferent

about.

The second graph (Figure 3) displays the net value if consumers count only the

first three years of fuel savings. In this case, there is no economic incentive for consumers to demand higher fuel economy or for manufacturers to supply it.

Third, recent evidence from surveys indicates that consumers are indeed undervaluing fuel economy. First, survey evidence, generally supported by automobile

manufacturers, indicates that consumers expect an expenditure on fuel economy

technology to be paid back in fuel savings within 2–4 years, far less than the full

lifetime of a modern automobile. A recent study by the University of California at

Davis (Turrentine and Kurani, 2005) conducted in-depth interviews with 60 households in California. Few even considered fuel economy in their purchase decisions.

None explicitly calculated the potential value of fuel savings by any method. In

short, there was no evidence whatsoever of textbook, economically rational behavior

with respect to fuel economy.

Despite the apparent imperfection of the market for fuel economy, increasing the

price of gasoline would be a sound and beneficial policy. It would signal consumers

of the importance of reducing fuel use, making it somewhat easier for manufacturers to sell higher fuel economy vehicles. It would mitigate and could eliminate the

rebound effect, the tendency for motorists to drive a little more when higher fuel

economy reduces the fuel cost per mile of travel. Finally, a higher tax on gasoline

would make up for revenues that would otherwise be lost to the highway trust fund

in the future when higher levels of fuel economy reduce the demand for motor fuel.

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2. CAN THE GOVERNMENT ENCOURAGE THE ADOPTION OF TECHNOLOGIES TO IMPROVE FUEL ECONOMY WITHOUT LEADING AUTOMAKERS TO MAKE VEHICLES LESS SAFE?

The government can encourage the adoption of technologies to improve fuel economy without leading automakers to make vehicles less safe. First, there are many

55

1 In general, a one percent reduction in vehicle weight at constant performance can produce

a 0.6 percent to 0.7 percent increase in fuel economy on the U.S. test cycle.

technologies that can be used to improve fuel economy that should have no impact

on vehicle safety. Technologies such as variable valve timing and lift control, displacement on demand, reduced aerodynamic drag, continuously variable transmissions, and engine friction reduction should be independent of vehicle safety. Several reports have developed lists of such technologies and estimate their likely impacts on vehicle costs and fuel economy. The 2002 NRC study of the CAFE standards provides an extensive analysis of how such technologies could be used to costeffectively increase passenger car and light truck fuel economy. Given the availability of such technologies, manufacturers should be able to respond to the demands of a higher fuel economy standard without compromising safety.

The argument that fuel economy improvement inevitably leads to weight reduction which inevitably leads to increased fatalities and injuries is not correct. The

role of weight reduction versus technology in achieving the fuel economy improvements of the past thirty years has been greatly exaggerated. Weight reduction was

indeed an early strategy for increasing fuel economy. Vehicle weight reduction

began before the CAFE standards went into effect, probably a response to the fuel

shortages and higher prices caused by the first oil crisis of 1973–74. It continued

after fuel economy standards went into effect in 1978 but ended in 1981. Fuel economy continued to improve through 1987 while weight increased. Since then, weight

has increased while the average fuel economy of new light-duty vehicles has gradually declined, in large part due to the increasing market share of light trucks. According to data published by the Environmental Protection Agency, the average

2004 model year light-duty vehicle actually weighed six pounds more than the average light-duty vehicle sold in 1975. The average fuel economy of a new light-duty

vehicle sold in 2004 was 58 percent higher than in 1975 (Figure 4). Clearly, none

of this increase can be attributed to weight reduction since today’s new light-duty

vehicles are actually slightly heavier than their 1975 counterparts.

It has been argued, however, that further increases in fuel economy standards

would inevitably lead to downsized or down-weighted vehicles and that smaller,

lighter vehicles are inherently less safe. By and large, this objection has focused on

weight reduction as the principal threat to safety. Reducing vehicle mass is certainly one way, though by no means the only way or even the most effective way,

to increase fuel economy.1 In a dissent to the 2002 NRC CAFE report, Marianne

Keller and I pointed out that the evidence for a causal link from fuel economy to

weight reduction to increase traffic fatalities and injuries was highly dubious. Since

that report, our position has been strengthened by four scientific studies. With the

support of Honda, Van Auken and Zellner (2002) attempted to replicate Kahane’s

(1997) path-breaking analysis of the relationship between vehicle weight and crash

fatalities using more recent data from a somewhat different subset of states. They

found that a reduction in the weight of passenger cars and light trucks of 100

pounds would not increase net highway fatalities. In an extension of this study in

which they separately estimated the impacts of weight versus size (wheelbase and

track width), Van Auken and Zellner (2003) found that reducing weight while holding vehicle size constant would improve safety somewhat, while increasing weight

at constant size would be harmful to safety. Kahane (2003) has since published a

new study using a modified methodology that contradicts the findings of the first

Van Auken and Zellner study and concludes that weight reduction accompanied by

size reduction would be harmful to safety, but Kahane’s new study still does not distinguish between the effects of size and weight.

56

2These same simple laws of physics imply that a proportional down-weighting of both vehicles

would have no effect on the outcome of the crash. The predictions of Kahane’s 1997 analysis

were also consistent with these simple laws, as Keller and I demonstrated in our dissent to the

NRC 2002 report. 3The fact that heavier vehicles benefit their occupants in a collision at the expense of occupants of the vehicles with which they collide creates what economists call an externality. The

implication is that individuals will buy heavier vehicles than they would if they considered the

impacts on others.

In a paper forthcoming in Accident Analysis and Prevention, Wenzel and Ross

(2005) demonstrate two key points. First, they show that, in a crash between vehicles, heavier vehicles may provide additional protection to their own occupants but

this comes at the expense of the occupants of the vehicles with which they collide.

This is important because it is consistent with the simple physics of elastic collisions

which imply that increasing the weight of one vehicle in a crash is a zero sum game:

the heavier vehicle gains safety at the expense of the lighter vehicle.2 Wenzel and

Ross (2005) also show that light trucks with chassis-on-frame construction tend to

be exceedingly aggressive in collisions with other vehicles and that the harm they

do to other vehicles outweighs the benefit of their additional weight to their occupants. These vehicles and roll-over-prone SUVs turned out, on net, to be harmful

to overall traffic safety.3

Perhaps the seminal study linking fuel economy, weight and safety was that of

Crandall and Graham (1989). This study, however, was based on the very limited

experience with significant fuel economy changes that was available at the time the

analysis was carried out. It included data from 1947 to 1981, but the CAFE law was

not passed until 1975, took effect in the 1978 model year, and affected only new vehicles and not the entire fleet. More recently, Noland (2004) examined the relationship between fuel economy, fatalities and injuries using a time series of data for

states covering the period 1975 to 1998. Instead of regressing fatalities or injuries

against vehicle weight, he regressed directly against fuel economy. This is significant because, as pointed out above, weight reduction is far from the only means of

raising vehicle fuel economy. For example, reducing engine power is also beneficial

57

4 A one percent reduction in horsepower, all else equal, would produce a 0.2 percent to 0.3

percent increase in fuel economy.

to fuel economy.4 By using fuel economy instead of weight as an independent variable, Noland was able to reflect all the possible paths by which fuel economy improvements might have influenced vehicle design and thereby safety. What Noland

found was that the relationship between fuel economy and safety was not stable

over time. It appeared that in the 1970s fuel economy was positively related to (increased) traffic fatalities, but that in later years there was no statistically significant relationship. Indeed, Noland found that, unless the years 1975 to 1977 were

included in the analysis, no statistically significant relationship could be found.

At the 2005 Transportation Research Board Meetings, I presented the results of

a statistical analysis of the relationship between national average passenger car and

light truck fuel economy and total U.S. traffic fatalities for the period 1966 to 2002

(Ahmad and Greene, 2005) (see Figure 5). Testing a wide array of possible models

and other contributing factors, our analysis demonstrated that the only statistically

significant relationships between fuel economy and traffic fatalities indicated that

increasing fuel economy was associated with lower traffic fatalities, not higher. For

a number of reasons we cover in detail in the paper, we do not conclude that increasing fuel economy will reduce traffic fatalities. Rather we conclude that the aggregate national traffic fatality and fuel economy statistics provide no support for

the hypothesis that increasing fuel economy led to increased traffic fatalities over

the period 1966 to 2002. While these results contradict the earlier findings of

Crandall and Graham (1982), we believe this is because of the longer record of experience available to us today.

Major improvements in light-duty vehicle fuel economy will require major vehicle

design changes. Safety is always an issue when vehicle designs change. This strongly argues for insuring that manufacturers have sufficient time to carry out redesigns

with the usual level of care and attention to detail. There need be no compromise

in safety, provided that fuel economy targets are set at levels close to what can be

achieved with approximately cost-effective technologies.

3. CAN THE GOVERNMENT ENCOURAGE THE ADOPTION OF TECHNOLOGIES TO IMPROVE FUEL ECONOMY WITHOUT GIVING ANY INDIVIDUAL AUTOMAKER A SIGNIFICANT ADVANTAGE?

58

5 Assuming that every car travels the same number of miles, this would ensure that manufacturers and consumers were spending the same marginal cost for each gallon of gasoline saved. 6There is also good reason to doubt that the market in tradable credits would be an open

and competitive one. In all likelihood, there would be two to three large buyers facing two to

three large sellers, an oligopsony facing an oligopoly. Rubin et al., however, have shown that

even in this situation most of the potential efficiency benefits of credit trading would probably

be realized.

While it is possible for the government to encourage the adoption of technologies

to improve fuel economy without giving any individual automaker a significant advantage, most of the policies described above will be more easily complied with by

some manufacturers than others. However, there are ways to reduce competitive impacts and improve the fairness of fuel economy policies.

What makes a system fair from a competitive perspective? This question could be

answered in many ways. I suggest the following definition. A fair policy is one that

(1) requires each manufacturer to spend the same amount at the margin to reduce

the fuel consumption of each car by one gallon per mile and (2) does not otherwise

redistribute revenues among manufacturers.5 A CAFE system with tradable credits

could satisfy the first criterion, as would other market-based mechanisms such as

a feebate system or gasoline tax, but they could satisfy the second only with a complex and probably controversial redistribution of revenue.6

In my opinion, the EU–ACEA voluntary fuel economy agreement probably comes

closest to meeting both criteria. It appears to me that manufacturers have allocated

the responsibility for meeting the industry target to individual firms in such a way

as to equalize the marginal costs per liters/100 kilometers, and there appear to be

no inter-firm transfer payments. However, this is no more than my opinion since

the firms have not disclosed the details of their agreement.

Four main factors give different firms different capabilities to increase fleet average fuel economy:

1. The technological capability of the firm

2. The firm’s current adoption of fuel economy technology in its products

3. The preferences of the customers served by the firm

4. The firm’s product mix

There are differences in the ability of firms to use specific fuel economy technologies, but in general, technology is a fungible commodity in the automotive market place. Firms can buy technology from suppliers and from other firms, generally,

but not always at competitive prices. Since being technically capable is essential to

being able to compete in today’s marketplace, it is probably best not to attempt to

address this issue in creating a fair fuel economy policy.

Some firms make greater use of technologies to increase fuel economy than others.

This has special relevance if fuel economy metrics such as the uniform percentage

increase are being considered. A UPI system would make achieving fuel economy

goals more costly for those firms currently making the greatest use of technologies

to increase fuel economy. Their marginal costs per gallon saved would therefore be

higher than those of firms using less fuel economy technology. Firms may make

greater use of fuel economy technologies as a matter of corporate policy or because

they serve a segment of the market that places a higher value on fuel economy. In

the latter case, a CAFE system would disadvantage manufacturers who served consumers less interested in fuel economy. There appears to be little publicly available

research on this subject.

Finally, fuel economy policies can have different impacts on firms that specialize

in large or small, high or low power vehicles. Although there has been substantial

convergence over time in the product offerings of major manufacturers, differences

still remain. Systems like CAFE, UPI, and feebates will have differential impacts

on manufacturers. Setting individual targets for vehicle types (e.g., passenger cars

vs. trucks) and size classes can mitigate these differential impacts, but at the cost

of creating opportunities for ‘‘gaming’’ by shifting vehicles from one class to another

to acquire a less stringent standard. A reasonable but not perfect balance can be

achieved with these systems. Steps that can be taken to minimize differential competitive impacts are listed below.

1. Give adequate lead time

a. Time to first possible redesign

b. Time for orderly redesign and retooling

2. Allow for differences in the mix of vehicles sold

a. Vehicle classes

59

b. Attribute-based formulas

3. Build in flexibility

a. Carry-forward, carry-back windows

b. Credit trading with caps on credit prices

c. Administrative review

4. Insure that goals are feasible with approximately cost-effective, fungible

technologies

a. Technical analysis

b. Review other regulations for compatibility

As has been noted above, it is possible but not certain that a voluntary agreement

that allows manufacturers to allocate fuel economy improvement responsibilities can

achieve equal marginal costs of compliance and no revenue transfers among firms.

With a feebate system or tradable credit CAFE system, it is also possible to allocate

initial credits in such a way as to mitigate the differential financial impacts that

would otherwise occur. Such allocations are likely to be controversial, however, since

they will amount to substantial payments to some firms and not others.

REFERENCES

Ahmad, S. and D.L. Greene. 2005. ‘‘The Effect of Fuel Economy on Automobile Safety: A Re-examination.’’ TRB05–1336, presented at the 84th Annual Meetings of

the Transportation Research Board, Washington, DC, January.

An, F. and A. Sauer. 2004. Comparison of Passenger Vehicle Fuel Economy and

Greenhouse Gas Emission Standards Around the World, The Pew Center on

Global Climate Change, Arlington, Virginia. Available at http://

www.pewclimate.org/global-warming-in-depth/all—reports/fuel-economy/

index.cfjm

Crandall, R.W. and J.D. Graham. 1989. ‘‘The Effect of Fuel Economy Standards on

Automobile Safety,’’ Journal of Law and Economics, Vol. 32, pp. 97–118.

Davis, W.B., M.D. Levine, K. Train and K.G. Duleep. 1995. Effects of Feebates on

Vehicle Fuel Economy, Carbon Dioxide Emissions, and Consumer Surplus. DOE/

PO–0031, Office of Policy, U.S. Department of Energy, Washington, DC, February.

Greene, D.L. and J.L. Hopson. 2004. ‘‘Analysis of Alternative Forms of Fuel Economy Standards for the United States,’’ Transportation Research Record 1842,

Paper No. 03–3945, Transportation Research Board, Washington, DC.

Greene, D.L., P.D. Patterson, M. Singh and J. Li. 2005. ‘‘Feebates, Rebates and Gas

Guzzler Taxes: A Study of Incentives for Increased Fuel Economy,’’ Energy Policy, 33:757–775.

Hellman, K.H. and R.M. Heavenrich. 2004. Light-Duty Automotive Technology and

Fuel Economy Trends 1975 Through 2004. EPA420–R–04–001, Office of Transportation and Air Quality, U.S. Environmental Protection Agency, Ann Arbor,

Michigan.

(IEA) International Energy Agency. 1991. Fuel Efficiency of Passenger Cars.

Organisation for Economic Cooperation and Development (OECD), Paris.

(IEA) International Energy Agency. 1984. Fuel Efficiency of Passenger Cars.

Organisation for Economic Cooperation and Development (OECD), Paris.

Kahane, C. 1997. Relationships between Vehicle Size and Fatality Risk in Model

Year 1985–93 Passenger Cars and Light Trucks. DOT HS 808 570, National

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

Washington, DC.

Kahane, C.J. 2003. Vehicle Weight, Fatality Risk and Crash Compatibility of Model

Year 1991–99 Passenger Cars and Light Trucks. DOT HS 809 662, National

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

Washington, DC.

(NRC) National Research Council. 2002. Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) Standards. Committee on the Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) Standards, National Academy

Press, Washington, DC.

Noland, R. 2004. ‘‘Motor Vehicle Fuel Efficiency and Traffic Fatalities,’’ The Energy

Journal 25, No.4:1–22.

Plotkin, S., D. Greene, K.G. Duleep. 2002. Examining the Potential for Voluntary

Fuel Economy Standards in the United States and Canada. ANL/ESD/02–5, Argonne National Laboratory, Argonne, Illinois.

60

Rubin, J., P. Leiby, D. Greene. 2005. ‘‘Analysis of Tradable Corporate Average Fuel

Economy Credit Systems.’’ Presented at the 84th Annual Transportation Research Board Meeting, Washington, DC, January 9–13.

Turrentine, T.S. and K. Kurani. 2005. ‘‘Automotive Fuel Economy in the Purchase

and Use Decisions of Households,’’ Presented at the 84th Annual Meeting of the

Transportation Research Board, Washington, DC, January.

Van Auken, R.M. and J.W. Zellner. 2004. A Review of the Results in the 1997

Kahane, 2002 DRI, 2003 DRI, and 2003 Kahane Reports on the Effects of Passenger Car and Light Truck Weight and Size on Fatality Risk. DRI–TR–04–02,

Dynamic Research, Inc., Torrance, California, March.

Van Auken, R.M., J.W. Zellner. 2003. A Further Assessment of the Effects of Vehicle

Weight and Size Parameters on Fatality Risk in Model Year 1985–98 Passenger

Cars and 1985–97 Light Trucks. DRI–TR–03–01, Dynamic Research, Inc., Torrance, California, January.

Van Auken, R.M. and J.W. Zellner. 2002. An Assessment of the Effects of Vehicle

Weight on Fatality Risk in Model Year 1985–98 Passenger Cars and 1985–97

Light Trucks. DRI–TR–02–02, Dynamic Research, Inc., Torrance, California,

February.

Weiss, M.A., et al. 2000. On the Road in 2020. MIT Energy Laboratory Report MIT

EL 00–003, Massachusetts Institute of Technology, Cambridge, Massachusetts.

Wenzel, T.P. and M. Ross. 2005. ‘‘The Effects of Vehicle Model and Driver Behavior

on Risk,’’ accepted for publication and forthcoming, Accident Analysis and Prevention.

BIOGRAPHY FOR DAVID L. GREENE

A Corporate Fellow of Oak Ridge National Laboratory (ORNL), David Greene has

spent 25 years researching transportation energy and environmental policy issues.

Dr. Greene received a B.A. degree from Columbia University in 1971, an M.A. from

the University of Oregon in 1973, and a Ph.D. in Geography and Environmental Engineering from The Johns Hopkins University in 1978. After Joining ORNL in 1977,

he founded the Transportation Energy Group in 1980 and later established the

Transportation Research Section in 1987. Dr. Greene spent 1988–89 in Washington,

DC, as a Senior Research Analyst in the Office of Domestic and International Energy Policy, U.S. Department of Energy (DOE). He has published more than one

hundred seventy-five articles in professional journals, contributions to books and

technical reports, and has authored or edited three books (Transportation and Energy, Transportation and Global Climate Change, and The Full Costs and Benefits

of Transportation). Dr. Greene served as the first Editor-in-Chief of the Journal of

Transportation and Statistics, and currently serves on the editorial boards of Transportation Research D, Energy Policy, Transportation Quarterly, and the Journal of

Transportation and Statistics. Dr. Greene has been active in the Transportation Research Board (TRB) and National Research Council (NRC) for over 25 years, serving

on several standing and ad hoc committees dealing with energy and environmental

issues and research needs. He is past Chairman and member emeritus of the TRB’s

Energy Committee, past Chair of the Section on Environmental and Energy Concerns and a recipient of the TRB’s Pyke Johnson Award. In recognition of his service

to the National Academy of Science and National Research Council, Dr. Greene has

been designated a lifetime National Associate of the National Academies.

61

DISCUSSION

Chairman BOEHLERT. Thank you very much. And thank all of

you for your outstanding testimony.

Let us address something right off the bat that I think is very

important. We have all been through this drill before. We know the

arguments pro and con. I am going to make a statement and ask

each of the witnesses if they agree or disagree with this statement.

And the statement is this: the only way to increase CAFE standards is to make vehicles lighter and therefore less safe. Do you

agree or disagree with that statement?

Mr. Reilly.

Mr. REILLY. You mean the only way to improve fuel economy,

right?

Chairman BOEHLERT. Exactly.

Mr. REILLY. Right. No, I disagree with that.

Chairman BOEHLERT. Dr. Duleep.

Mr. DULEEP. I disagree.

Chairman BOEHLERT. Mr. Stanton.

Mr. STANTON. I am confused. Could you tell me one more time?

Chairman BOEHLERT. All right. The only way to increase fuel efficiency, using increased CAFE standards, is to make vehicles

lighter and therefore less safe.

62

Mr. STANTON. Disagree.

Chairman BOEHLERT. Thank you.

Dr. Greene.

Dr. GREENE. Disagree.

Chairman BOEHLERT. Thank you very much.

All right. Mr. Portney and—Dr. Portney and Mr. Duleep, you

both state the percentages by which fuel economy could safely be

improved by deploying a number of technologies ranging from more

efficient transmissions to diesel and hybrid engines, and incidentally, try to buy a hybrid today, and they will tell you to stand in

line. But presumably, those are percentages by which an individual

model, or even a class of vehicles, could be improved. Tell me how

those figures would translate into fleet-wide averages. By how

much would it be possible for Congress, should it choose to do so,

raise the CAFE standards, and in what time frame?

Dr. Portney.

Mr. PORTNEY. I will let Mr. Duleep go first.

Mr. DULEEP. Mr. Chairman, the key assumption would be what

happens with the consumer demand. In other words, are consumers buying the same kinds of cars today and in 2015 and how—

what would you assume on that? And if you make the assumption

that people buy the same mix of vehicles and the same kind of

horsepower and the same features, then I believe that, just with

conventional technology on cars, you can get up to about 32 or 33

miles per gallon with just conventional, no hybrids or diesels, and

for the light trucks, you would get up in the neighborhood of 23c

or 24 miles per gallon.

Unfortunately, as I mentioned, that is—people are buying more

and more attributes. That is they want four-wheel-drive, and they

want cars that ride high and more cup holders and a bigger stereo

and so on. And so that is going to take away from these numbers.

And clearly, I would expect that about half of the improvement

would go away, and perhaps even more. It might go away and consumers are just buying more vehicle. If you add in, say, the diesel

and hybrid, with reasonable market penetrations, like the kinds

that Dr. Greene computed, which is about 20 percent of the market, then they can do another two or three miles per gallon.

So some number in the neighborhood of 35 or 36 miles per gallon

for cars and some number like 26 or 27 miles per gallon may be

possible. But again, the backsliding issue is, like, a major one.

Chairman BOEHLERT. In using existing technology?

Mr. DULEEP. No, sir; the—this would use hybrid and diesel, perhaps diesels for the trucks and——

Chairman BOEHLERT. That is existing technology, right?

Mr. DULEEP. That is all—yeah.

Chairman BOEHLERT. Dr. Portney.

Mr. PORTNEY. Well, I am going to espouse an unpopular view. I

think several of my colleagues on the panel have disagreed with it,

and I realize it is a particularly difficult view for those of you in

Congress. But I want to say that there is a problem with using

CAFE standards as a way to improve fuel economy in contrast to

increasing, say, the federal excise tax on gasoline. And it is important for everybody to understand this distinction. If I have a car

that gets 50 miles per gallon, but I drive that car 50,000 miles per

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year, I use more gasoline than if I have a car that gets 10,000—

or 10 miles per gallon that I only drive 5,000 miles per year.

So it is not just the fuel economy of the car, it is also the number

of vehicle miles traveled that the—that determine how much gasoline we use, and therefore how much we are contributing to the

greenhouse gas burden in the atmosphere or how insecure our energy supply is becoming. And so, while no one likes to vote for tax

increases, I mean, you need to keep in mind that just requiring

that cars be more fuel-efficient only gets at part of this. And when

cars become more fuel efficient, it becomes cheaper to drive each

mile, so you lose a little bit, because people cheat and drive more

miles, because they have more fuel-efficient cars.

Now I notice you shaking your head——

Chairman BOEHLERT. Well, no, that would be the subject of considerable debate, and I—you know, a good, healthy, honest

debate——

Mr. PORTNEY. Well, and——

Chairman BOEHLERT.—because, you know, I think most people

just don’t go out, like we used to when I was a kid, for a Sunday

drive. People drive from their home to their place of work, or if

they have a limited time off home to recreate someplace, I don’t

think people just go out and drive a lot depending upon the price

of gasoline.

So we—I mean, the desire is to make the automobiles more fuelefficient. That is to the advantage of consumers. That is in our national security interests.

And let me go to Mr. Stanton. You know, I watched the Super

Bowl, and I must confess, a lot of people did. I will tell you, when

you talk about consumer demand, I would say I have to commend

your industry, one member of it, that ad that Ford put on for the

new Mustang was one of the stars of the whole commercials. And

I think a lot of people watch the Super Bowl just to watch the commercials, and they don’t give a darn about the Patriots or the Eagles. But it seems to me that the industry, if—you can help drive

consumer demand by your marketing and advertising approach.

And I don’t know if there are any examples of members of your Alliance selling safety or selling fuel efficiency. But I will tell you

this, I have been around this town long enough to remember when

a hot shot young vice president from Ford came to town and told

the Congress, and I was on the staff at that time, ‘‘If you mandate

seat belts, that will have a devastating negative impact on the industry I represent.’’ Fast forward several years, that guy then was

chairman of the board of another automobile company and was on

saying, you know, ‘‘Buy our product. We have got airbags to protect

you, and no one requires it, but we are concerned for your safety.’’

So I would suggest that a lot of this has to do with your marketing

approach.

And we all have to be sensitive to your industry. It is a very vital

part of our overall economy. And for us to put undue burdens on

the auto industry is counterproductive. But I think to impose some

reasonable burdens and work cooperatively with you, not say we

need something by 8:30 tonight, but you know, with a lead time

frame, as Mr. Reilly has testified, as Dr. Portney has emphasized

64

in the report, I think is a reasonable approach. I could—I am on

my high horse, and I have got the advantage of the microphone——

Mr. STANTON. Could I have it for a minute?

Chairman BOEHLERT. Sure, by all means, Mr. Stanton. Yeah.

Mr. STANTON. For someone who spent 5c lobbying the States for

mandatory safety belt use laws, our industry has changed a lot.

There is just absolutely no question about it. I can’t tell you how

proud I am to say that we have got national safety belt usage up

to 85 percent. We have got a long ways to go still, but at least we

are making progress.

I was also very pleased to watch the Super Bowl, and I noticed

that three of our members had three drastically different commercials. One of the members had, in addition to Ford, a commercial

on power and acceleration. And then another, which you probably

really recognize, had a commercial about the Prius. So we had

three very different target audiences, and that is I think the—what

I heard in all of the testimony today is how complex an issue it is

to get what we all want, and I really want to emphasize this. We

all want to reduce our dependence on foreign oil. The only difference of opinion, I think, is how to go about doing it.

Chairman BOEHLERT. Thank you very much.

With that, Mr. Gordon.

Mr. GORDON. Mr. Reilly, you said that your Commission recommended that there be significantly higher CAFE standards, but

you also said that you I guess intentionally did not try to say what

those standards would be. You know, having worked with this

group and what you know, what would you say would be the minimum of a higher standard?

You need to—you——

Mr. REILLY. I don’t want to go beyond where the Commission

itself has come out. This was one of the——

Mr. GORDON. Well, that is why I was asking you, as an individual who has assimilated all of this information. What would be

the minimum?

Mr. REILLY. Well, let me just say that this was a particularly

contentious and concerning issue that our Commission addressed.

We looked at a lot of options. We looked at their advantages, their

costs. We did propose these consumer incentives as well as manufacturer incentives to encourage more fuel efficient, advanced diesel

and hybrids. The consultant studies on which we relied strongly

suggested that a 10- to 20-mile-per-gallon increase in CAFE would

be cost effective and a desirable policy. When I say ‘‘significant,’’

when the Commission said a ‘‘significant increase,’’ I think it is

reasonable to infer from those studies and from the language of our

report that that is the range that most of us were contemplating.

Mr. GORDON. So when you say ‘‘range,’’ would 10 be a minimum

then?

Mr. REILLY. Ten would be a number that I believe most——

Mr. GORDON. That most folks would——

Mr. REILLY.—members of the Commission would endorse.

Mr. GORDON. Okay. And Mr. Stanton, what is your opinion as to

how long it would take the automobile industry and how feasible

is it to obtain a 10 percent—or a 10-mile CAFE increase?

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Mr. STANTON. A lot of it would depend upon market forces, obviously. I think that we have just seen the biggest increase in light

truck fuel efficiency standards, which was between 2005 and 2007.

And that was a 7c percent increase. That was supposedly determined by NHTSA with the congressional criteria of looking at all

of the factors that are important, including employment and production cycles, et cetera.

One of the problems that we have with looking forward to whatever the time frame is that a substantial time frame builds uncertainty into the standard—into the process for us. We don’t know

where consumers are going to be. We don’t know where the demands are going to be. We are—we do not, and would not, recommend that we set standards separate from where—or different

from where our customer base is. And this goes back to the comments that were made here, too. We need to get the consumer

somehow in the equation, because right now, just as we were talking about with the Super Bowl ads, we have got customers out

there that want power. And if we want to sell vehicles, we will sell

power. And that—you see that in the marketplace. But we are also

doing an awful lot on the advanced technology side of it in an effort

to maintain those attributes that our customers want and, at the

same time, get a major increase in fuel efficiency.

Mr. GORDON. But I am talking more of the technology. You know,

I mean—you know, in terms of you have to have a reasonable time

to come out with new models and so to get a 10-mile increase, what

kind of lead time—again, is that possible, and if so, what kind of

lead time is necessary to keep it in that—and I guess the question

is what is a reasonable, you know, increase. So what kind of—are

we talking five years, 20 years?

Mr. STANTON. The dilemma that I face is I just really don’t know

the answer if that is the right number in a given period of time.

If we could make some certain assumptions that, you know, 50 percent of the vehicles would be hybrids or gas prices would be some

place else, then we could chart a path that would make sense to

get there. But I don’t know how to answer those questions.

Mr. GORDON. Well, let me ask you this. Is the Alliance—have you

taken a position on tradable CAFE compliance credit programs?

Mr. STANTON. Actually, we like the idea of increased flexibility

in the program. And in preparation for the hearing, we tried to figure out what exactly was meant by the tradable credits program

that had been espoused by a number of my colleagues here. And

we found out that we didn’t fully understand all of the ramifications of it, but it is something we certainly would be willing to do.

Mr. GORDON. What do you think it will take to help you to understand that better?

Mr. STANTON. Some pretty healthy discussions, I think.

Mr. GORDON. Is there a forum for that?

Mr. STANTON. No, sir.

Mr. GORDON. And does anyone here have a suggestion on what

would be a necessary forum? And also, I think in that discussion,

the statistic that you pointed out that was a 17 percent reduction

in the costs by having this, what would be an appropriate forum

for that discussion? Anyone? Go right ahead.

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Mr. PORTNEY. I would be happy to convene a group of auto makers and analysts who have floated this idea of tradable credits at

Resources for the Future any time to have a talk about this and

try to explain the idea in more detail so that even the analysts

could better understand what the pros and cons are. I would be

happy to do that.

Mr. GORDON. I think that would be helpful for us if there could

be some groundwork laid on something like that. I mean, hopefully—that might be very well an area of consensus within the—

between the industry and those folks that are, you know, want an

increase in the fuel efficiency.

Thank you, Mr. Chairman.

Chairman BOEHLERT. Thank you very much.

Ms. Biggert.

Ms. BIGGERT. Thank you, Mr. Chairman.

The National Highway and Traffic Safety Administration is considering ways to reform the CAFE system, and one of the—one

method is the weight-based standard. In my District, we have a

company that is just newly developing a process—a reactor in process to produce titanium. It is called International Titanium Powder, in a very useful forum, and they are actually working with the

military now and looking at the weight of tanks and the weight of

Humvees. Is NHTSA considering advances in materials, like I have

just described with respect to titanium as it contemplates reform

to the CAFE program? Mr. Stanton? Or is this something that you

would see in—rather than just looking at the CAFE standards and

the weight to look at advanced materials in deciding how to raise

those standards? Dr. Greene.

Dr. GREENE. One thing about weight-based standard can be formulated in any number of ways. It can be formulated to encourage

weight increasing in cars. It can be formulated to discourage it.

And so if it were formulated to discourage increasing the weight of

cars, that would encourage material substitution of the kind you

are describing. I think this gets at the real issue in auto safety and

weight, which is the energy that has to be absorbed in a crash in

order to minimize the maximum deceleration that is experienced by

the people in the car, and the ability of the materials to handle

that. The heavier the car, the more energy has to be absorbed, and

so there is a trade-off there. But advanced materials ought to be

able to play a role in making safer and lighter cars.

Ms. BIGGERT. Because if this material is lighter and yet it is just

as strong, it is—it would reduce the fuel consumption. And you

talked about the cars’ size versus weight and said that there can

be lighter cars, which are just as safe, depending on the size.

Dr. GREENE. Yeah, on—the study done by—sponsored by Honda

essentially took the same approach as the National Highway Traffic Safety Administration and Dr. Kahain did in his study, but

tried to separate the effect of size from the effect of weight, which

Dr. Kahain did not try to do, and came to the conclusion that making cars the same size but a bit lighter would be beneficial to safety.

Ms. BIGGERT. Thank you.

Mr. Stanton.

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Mr. STANTON. Yeah. Just to follow up on one—well, two points,

actually. One is that, by all means, we are always into advanced

technologies, and if you have someone in your District, then we

would love to talk to them if they have got a promising technology,

and by all means, we can make that happen.

The second point is on the size and mass. We are still learning

an awful lot on safety. But basically, it is our opinion anyway, that

at the present time that it is a function of both mass and volume

or size. We have got to remember that we are talking about a

whole fleet out there. And the question—the public policy question

we are trying to struggle with is how do we increase the safety for

all of the driving public? We can’t sacrifice some safety for someone

to improve safety for someone else. We can do that, but we don’t

think that is the right public policy.

Ms. BIGGERT. With regard to NHTSA, the regulatory process,

and they have had the process for raising CAFE standards for light

trucks, and it seems to have been working. It was going up. It went

unimpeded by Congress. Is—do you agree that—well, particularly

Mr. Stanton, do you agree that this would continue if we hadn’t put

a hold on the raising of those standards?

Mr. STANTON. Not only would I agree, it would have to, under

the law that Congress has passed, that NHTSA has to set the maximum feasible standard for light trucks for each and every year. I

think you are absolutely correct. And we anticipate that it will continue.

Ms. BIGGERT. Thank you. Thank you, Mr. Chairman.

Chairman BOEHLERT. Mr. Lipinski.

Mr. LIPINSKI. Thank you.

A number of you had touched upon this, but I don’t know if you

really wanted—it is a little bit off of the question exactly of technology, but I want to see if anyone wanted to just take a stab at

this. What do we really know about consumers’ habits in regard to

purchasing vehicles, their driving habits? I have heard, you know,

different things, suggestions about what may—what changes may

occur in the vehicles purchased or, you know, how they drive. They

get better mileage, are they going to drive differently? Or perhaps

even, you know, if they got feedback on what their mileage is that

they are getting, do people actually respond to that. And so what

do we know? You know, if we are working at this, you know,

through a free market, what can we do in that regard? Go ahead.

Dr. GREENE. Given the importance of this subject of fuel economy

and car purchases, there has been remarkably little research on

this subject. There has been, however, recently completed by the

University of California Davis, in-depth interviews of households,

their complete history of automobile purchase decisions, and getting at where fuel economy came into those decisions, and when

they did consider it, how did they go about doing it. And what

those researchers found is that a small minority of the people considered fuel economy at all in making their car-buying decisions.

And of those who did, none of them made any explicit calculations

about what the value the fuel saving would be worth and what the

car would cost. And nobody thought in terms of paying more to get

a more fuel-efficient car. They thought in terms of paying less to

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nology to improve efficiency is not in the consumer’s mind when he

goes to buy the car. That is something that happens on the manufacturer’s side in designing the vehicle.

Now a great deal is known about travel behavior, and we have

entire Transportation Research Board meetings every January in

which there are thousands of papers presented, half of them or so

on subjects related to that. But is it well understood? Well, I think

most of them would say no, it is not. There are still, sort of, some

mysteries there.

But one of the things that has been studied fairly carefully is

this rebound effect. And we know that if you look back historically,

the rebound effect is probably somewhere in the range of 10 to 20

percent, meaning if you improve the fuel economy of the vehicle by

50 percent, then people will drive, maybe, five to 10 percent more

in the long run. And we—I suspect that the rebound effect decreases over time, as the cost of fuel becomes less and less and less

important in the monetary costs of operating a vehicle and including, also, the value of a person’s time.

So I think the rebound effect is a small effect, but it is real, and

it is probably decreasing over time, as people’s time becomes more

valuable. This was confirmed by a recent study from the University

of California, again out of Irvine, Professor Kent Small.

Mr. STANTON. Briefly that—and I was looking in my briefcase to

see if we—if I had brought it with me, but there are a number of

polls that are out there on what consumers value when they search

for a new vehicle. Usually the first item is reliability and then it

goes down to cost and other attributes. I think verifying what the

panel is saying here is in the past, fuel efficiency wasn’t even on

the list, and it is there now as number 13 on the 2004 poll that

I had seen.

Mr. LIPINSKI. And does this mean that, in essence, have to forget

about the consumer side when we are, you know, trying to, you

know, save fuel? Does it all have to then come from, you know, the

manufacturer side and, you know, are they going to the people? If

consumers don’t care about it, then, you know, what incentive do

they have to be—you know, make more fuel-efficient vehicles, and

does that come down to incentives that the government may have

to give them to be more fuel efficient, such as the CAFE standards

and that is the only thing that is going to move them?

Mr. REILLY. Well, sir, the National Commission on Energy Policy

considered that incentives are necessary, incentives both to the

manufacturers and the parts suppliers to them and also incentives

to the consumers themselves. There is currently a tax deduction of

up to $2,000. It is worth between $400 and $600 to the average

taxpayer, and that is provided to consumers who purchase new hybrid electric vehicles. That starts phasing out—expires after 2006.

The Commission supports extending that tax incentive for five

years, 2007 to 2011, but altering the mechanism from a simple deduction to a variable credit of up to $3,000 based on vehicle fuel

economy, and also expanding the scope of the allowance of the program to include advanced diesel vehicles, from which we expect

quite a lot of fuel efficiency in the years to come.

Chairman BOEHLERT. Thank you. The gentleman’s time is expired.

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Mr. Sodrel.

Mr. SODREL. I think you have answered a lot of my questions as

I sit here. I am a free market person. I mean, I believe in the marketplace. I believe it produces products that consumers want. And

my question really went to what marketing—and maybe it is best

for Mr. Stanton. What marketing—we talked a little bit about the

Super Bowl and the convertible with the frozen guy sitting at the

wheel. What kind of marketing programs have the automobile

manufacturers undertaken to try to sell fuel economy to their customers and to the marketplace?

Mr. STANTON. Well, I think that the best, and probably the most

efficient program, as you look at the most fuel-efficient vehicles,

and they are also the least expensive, so I mean, it is—other than

pricing, and I think it is pretty well known that on a lot of the

smaller vehicles, the manufacturers are pretty much giving them

away. It is very difficult to make—to compete successfully in that

marketplace.

Mr. SODREL. Yes, sir.

Mr. PORTNEY. If I can weigh in on this, first of all, I am glad we

are staying away from BigDaddy.com commercials here. I—on

this—the issue of the free market in all of this, I absolutely agree

with you: we all benefit from a free market that produces shoes

and pencils and everything else, and I think it is for—goods and

services for which all of the costs are borne by the producers and

the consumers, it is, by far, the best way to organize an economic

system. The one justification you can make for having the government involved in this particular case, either through higher taxes

or through mandated fuel economy standards, is that when I go

buy a car, typically I count in the cost of that thing how much the

purchase price of the car is and what it will cost me over my lifetime. Typically, people don’t take into account the fact that the gasoline that they use is contributing to the atmospheric burden of

carbon dioxide. They don’t take into account, in their own purchase

decisions, this dependence on imported oil, and that is why, in a

case where you wouldn’t get involved if there weren’t these external costs, that there is a good reason for economic efficiency that

you can justify some form of government involvement in the fuel

economy—in the case of fuel economy. We can certainly argue

about what is the best way to do it, but I think there is a case

there that, because there is a form of market failure, that you need

some kind of government intervention.

Chairman BOEHLERT. Mr. Miller.

Mr. MILLER. Thank you, Mr. Chairman.

Just a couple questions. Mr. Stanton, you mentioned that your

association supports the President’s hydrogen fuel cell proposal.

This committee had hearings in the last Congress on that proposal,

and there seemed to be a great deal of skepticism that there is not

an ample supply of hydrogen out there, we just need to find a way

to use it, that, in fact, the hydrogen has to come from other fossil

fuels, has to be stripped out, that it is not a particularly clean process to do that. It doesn’t really free us from our dependency on foreign—on fossil fuels. We seem to be pursuing that to the exclusion

of other alternative fuels, and we have some massive amount of

money tied up in a liquid fuel in transporting liquid fuels and havVerDate 11-MAY-2000 13:33 Sep 17, 2005 Jkt 098561 PO 00000 Frm 00073 Fmt 6633 Sfmt 6601 C:\WORKD\FULL05\020905\98561 SCIENCE1 PsN: SCIENCE1
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ing it available. My question to you is have things changed in the

last couple of years on that proposal? Do we—where would the hydrogen come from if we really dramatically changed from a fossil

to a hydrogen economy?

Mr. STANTON. Well, I think we all believe that somewhere down

the line it has got to come from renewables if we are going to work

our way out of this. It is really the goal, I think, that we would

like to see, and we recognize that. And I hope everybody understands that. As the industry, we agree that dependence on foreign

oil is a national issue. And the question is what is the best path

out of that. And we are struggling with exactly what is the best

path. Certainly research—additional research and development,

the things that this committee has done in the past or things that

we have supported, part of our members are involved in FutureCar

and FreedomCAR. I personally was involved in the PNGV program.

Those kinds of programs are the kind of research and development

that we are going to need to solve this conundrum that we find ourselves in.

Mr. MILLER. Mr. Portney, you seemed to be nodding your head

to that question, so did you have anything you wanted to add

or——

Mr. PORTNEY. Just that, you know, I think everyone is optimistic

about anything that has the potential technological promise of hydrogen of being a completely clean energy source, but I think we

need to do something sooner than the time frame in which hydrogen will become the major propulsion for motor vehicles. I mean,

I think that is really 15 or 20 years off. I would love to be more

optimistic than that. I think we can’t wait 15 or 20 years before

we try to do something, regardless of what it might be, to try to

improve the fuel economy of the overall fleet, whether it is through

higher taxes or technological fuel economy requirements or whatever. I would hate to just put all of our eggs in the hydrogen basket

and not do anything for 20 years in the hopes that that will be

available and to solve the problem.

Mr. MILLER. Mr. Stanton, you seemed to describe a two-step

process: figure out, one, how to make hydrogen work, then, two, figure out where we are going to get the hydrogen. How long—Mr.

Portney—Dr. Portney suggested that that would be a 15- or 20-

year proposal. Do you see it as being substantially more than that

or less than that?

Mr. STANTON. Yeah, actually, we have some members that are

very high on bringing fuel cell vehicles to the fleet now, but the

question is what are the numbers and what is the impact going to

be. And we certainly agree with Paul that we need something in

between, and that is why we are supporting and working hard on

the hybrid vehicles and the clean diesel, because that is the interim

path that we see to getting us to the hydrogen——

Mr. MILLER. One of the criticisms in the hearings that we held

in the last Congress was that the proposal—President’s proposal,

I believe it was $3 billion, was to the exclusion of other alliterative

fuels. But from what you have just described, we obviously need to

be doing both. Do you think we are doing enough to develop other

alternative fuels from which we would get hydrogen, as well as

having those alternative fuels to use in the meantime?

71

Mr. STANTON. Mr. Miller, you are beyond my expertise on all——

Mr. MILLER. Okay.

Mr. STANTON. I think we, generally, as an industry, are looking

at all of the paths, and we are just trying to find what is the right

one and work with the right people to get there.

Mr. MILLER. Okay. Dr. Portney, I think I saw you nodding again.

Did you have anything to——

Mr. PORTNEY. I am going to hold my head——

Mr. MILLER. You may just have a tick, I don’t know.

Mr. PORTNEY.—very still in the future here. I—let me just say,

I am always worried when the government or the private sector or

anybody puts all of its eggs in one basket. And I think what we

ought to do is have a goal for a fuel economy for the fleet without

specifying the technology, whether it is diesel or hybrid or hydrogen or improved internal combustion engines. I always worry

where we sort of anoint a winner and put all of our R&D dollars

and other efforts into that.

Mr. MILLER. So Mr. Reilly, you did more than nod.

Mr. REILLY. If I might add to that, thank you.

Our Commission, in that opening statement I gave about the

crunch that is coming in liquid fuels need versus production capacity over the coming years and the current shortfall, a very limited

capacity that exists of less than two percent of excess capacity, we

looked at the need for a whole range of new interventions and of

new efficiencies, fuel sources, and the rest, but strongly supported

ethanol as a fuel derived primarily from cellulosic material, corn

stover, switch grass, forest cuttings, and things of that sort as an

important solution to part of our problem. The oil industry has

tended to regard ethanol as an additive over the years past. It is

only two percent of our gas supply now. And I think that is 2.8 billion gallons a year. We see the need to boost that considerably and

offer a number of incentives to do that, but that has got to be part

of our future, I think, and particularly, with the phase-out, the

banning of MTBE as an oxygenate in many of our states, including

my own State of California.

Chairman BOEHLERT. The gentleman’s time has expired.

Mr. Gilchrest.

Mr. GILCHREST. Thank you, Mr. Chairman.

First, I want to welcome the person who, on the Eastern Shore,

is affectionately known as Bill ‘‘Wetlands’’ Reilly. Back in the late

’80s, early ’90s, we had a full range of issues dealing with wetlands, and as EPA Administrator, Mr. Reilly was a friend of the

State of Maryland, especially the Eastern Shore, and I just wanted

to make those comments, Bill.

It is—Mr. Chairman, it seems to me that we have an issue that

we have been dealing with for a number of decades that is environmental, it deals with energy security, it deals with safety, and it

deals with economics. And when we look at that, and we hear the

information that has been given to us, both from your testimony,

from the NRC report, Bill, from what you have done with your research. I am looking at this either from a global marketplace or an

international marketplace issue. If we look at it from a global marketplace issue, this is free market, do what you want, the bottom

line, the top line is the profit margin. But I think this has to be

72

an international. This has to be an issue with the marketplace,

which gives us most of our ingenuity and our initiative, on new

technologies, and the government’s understanding, and you might

want to comment on this, that there is a factor with CO2 and global warming. There is a factor with our security and energy dependence, especially with countries like China moving to create a huge

demand on energy. And can we resolve the issue of safety? And can

we do it economically feasibly so we have a dynamic economy that

continues to be prosperous?

So I sort of frame that issue to ask just four quick questions. One

is, Bill, and a number of you, mentioned increase production as

part of a whole package. Is that looking both foreign and domestic

or just domestic? Number two, Mr. Stanton, you said something interesting about petroleum-dependent transportation sector, or I

think I heard you say you are moving away from the petroleumdependent transportation sector. And that sounds like it is pretty

good news. How long do you think that will take, and what can we

do to speed that up? And then, Mr. Greene—Dr. Greene and a

number of people have mentioned the idea of CAFE standards

versus a number of new technologies, weight-based standard versus

CAFE standard. So where are we on that, and is that a recommendation specific to us? The last one is, Bill, you mentioned,

you know, burning corn and those kinds of things, ethanol. Where

are we, and can we move in certain sectors of our country, especially in the rural areas, to add more soy oil to diesel fuel?

Those are my questions, Mr. Chairman.

Chairman BOEHLERT. Who are you directing your question to, or

do you want to provide the answer, also?

Mr. GILCHREST. I don’t have my—I don’t have the answers. I am

just—if anybody would like to comment on that, or any of those——

Mr. REILLY. I would just comment quickly, first of all to say I

know nothing about the capacity of soy oil to be a fuel, but I have

been impressed in the course of our research over the past 2c years

that even turkey parts are being used in Carthage, Missouri to create liquid fuels. I think you can make alcohol out of virtually anything, and we are beginning to find more imaginative ways and

cheaper ways and more—ways that are more efficient in the use

of energy and manufacturing, and that is what some of these ethanol possibilities are, I think.

You mentioned China. That first question you had, is it a U.S.

or is it a worldwide number? The number that I began with is an

excess—in excess of 50 percent of new production will be required

over the next 20 years. It is, I think, 43 percent for the United

States in liquid fuels, in oil and in gas, basically, gasoline. That

compares with a 20 percent increase in production worldwide over

the period 1980 to 2000. Those contrasting numbers, a very significant difference, suggests to me that we are not going to make it.

We really do need virtually all of the possibilities that we can explore and bring on with some degree of cost effectiveness.

Mr. DULEEP. On the issue of soy-based diesel, I—there has been

a lot of research on that, and it does look like a relatively expensive

option, so it is a tough sell at $1.50 or $2.00 a gallon for diesel fuel,

but it——

Mr. GILCHREST. It is a tough sell because of——

73

Mr. DULEEP. The cost of production.

Mr. GILCHREST.—the cost of production, even though you might

be in an area where soybean production is large? It would still—

the cost of production to turn soybeans into soy oil is still not competitive with traditional fossil fuels?

Mr. DULEEP. Relative to what you can sell the soybeans in the

market for, it would be a difficult—it is just a hard thing to do. But

I understand there are other types of agricultural products they are

looking at to make diesel fuel from. Now ethanol is a completely

different animal.

Chairman BOEHLERT. The gentleman’s time has expired.

Ms. Lofgren.

Ms. WOOLSEY. Woolsey is my name.

Chairman BOEHLERT. Lofgren. Woolsey. I am looking here, and

then I am looking there, and I am seeing two different things.

Ms. Woolsey.

Ms. WOOLSEY. Well, first of all, I would like to welcome Mr.

Gilchrest to this committee. I am glad you are here, except for now

you have made my questions seem simplistic.

I want to talk about consumers and getting consumers into the

equation. And I will start with Mr. Stanton. I mean, we talked

about a target audience on the Super Bowl ads, but there is something about supply and demand, so we know that consumers are

actually waiting for hybrid cars. So if we don’t—and we also know

that Americans don’t like to wait for anything, but they are actually waiting for these cars, and more would buy them, I believe, if

there—it was more convenient for them to just get one off the lot,

like other automobiles. So why do you think when these cars are

popular that there aren’t enough of them yet?

Mr. STANTON. Well, I think there are a couple of reasons, and I

want to give credit to one of my members, particularly Toyota, because they are just going gangbusters on this, and they have just

announced that they are going to double production again. And I

think that is wonderful. We are finding out that things like single

occupant HOV use in Virginia or California seems to be a great incentive for these things, and we are generally for incentives to encourage the production and then, of course, the purchase of these

advanced-technology vehicles.

If I look at our membership in the Alliance, we have some members who, right now, are going very strong on hybrids, and other

members are going very hard on clean diesel. And I think it was

Mr. Portney who said it earlier, I mean, we don’t think Congress

ought to try to pick winners and losers in technologies, but the race

is there. That is the point.

Who is going to win the race? I—we don’t know. I mean, hybrids

are inherently more expensive, because they have got two power

plants. You have got the internal combustion engine, and then you

have got the battery. So clean diesel has some emission challenges.

Thanks to Congress, we are going to have 15 parts per million sulfur-fueled beginning in 2006. We hope that is an enabler that will

allow us to put the after-treatment on the diesel—on the clean diesels so that we will be able to certify those vehicles and they will

meet the stringent tier two emission standards to—that come into

effect or being phased in now.

74

So who wins? The consumer wins eventually. What we have proposed, and what we would like to see, is very complex. I mean, as

we talk about how to do this, Mr. Camp’s bill or the consumer credits that were in the Energy Bill last year, I mean, it was an attempt to balance the degree of technology, the fuel economy increase, and the gallons saved for hybrids versus diesel and come

up with a package where everyone thought that that was relatively

neutral in supporting both technologies. And that is what we would

like to see happen. And then the consumer becomes the big winner.

Ms. WOOLSEY. Well, and the industry becomes a winner.

Mr. STANTON. Absolutely.

Ms. WOOLSEY. It doesn’t cost—I mean, the automobile industry

doesn’t lose money on hybrid cars, do they?

Mr. STANTON. They sure do in the beginning.

Ms. WOOLSEY. Well——

Mr. STANTON. There is no question that—you know, our industry is spending $18 billion on research a year. I don’t want to say long

lead time, but lead time extremely important. There are major investments in new technology. And you tend to, you know, want to

go a little slower than faster unless you know that you have a winner. And I think you are seeing in the marketplace now that the

hybrid turns out to be a winner. I have got an article on my desk

that shows that we are going to have 50 hybrid models by 2010.

This is phenomenal.

Ms. WOOLSEY. So how does—how do R&D credits work into that?

I mean——

Mr. STANTON. Well, the tax credits work in, because the incremental cost increase is going to be less than the tax credit, but we

need a way to get the new technology into the marketplace. And

if we want to accelerate the introduction—and we all recognize that

there is going to be a cost differential. If we can get the cost differential down to where it is—the purchase price is roughly similar

to a comparable internal combustion engine, then we will get the

volumes up, and with the volumes up, the price comes down.

Ms. WOOLSEY. Well, thank you.

And you did say that consumers don’t really care that much. I

represent Marin and Sonoma Counties, just north of the Golden

Gate Bridge, if it matters.

Mr. STANTON. Not all consumers, how about—we will put the

qualification there.

Ms. WOOLSEY. Thank you very much.

Chairman BOEHLERT. Thank you very much.

Mr. Schwarz. Dr. Ehlers.

Mr. EHLERS. Thank you, Mr. Chairman.

Several comments before I get to questions. First of all, on the

issue of hydrogen, everyone assumes when you are talking hydrogen that it has to be fuel cell, and I agree with Mr. Portney: they

will leave the options open. Those are two separate issues, and

there are other ways of using hydrogen besides fuel cell. The—but

the main factor there with hydrogen is simply don’t get it from fossil fuels. There are abundant sources. H2O happens to be fairly

abundant. Unfortunately, it is a very tight chemical bond, but

again, that may be an appropriate place for high-temperature nuclear reactors and getting away from fossil fuels.

75

I would also like to comment about the statement about market

forces. A number of people have talked about this as if somehow

these are some magic, independent things that automatically lead

to good results. And that assumes—that kind of model assumes

that people genuinely react to these market forces. But that ignores

certain things, and I have always had a—I have had a bone to pick

with the auto industry for a long time. In fact, I am the only Member of Congress from Michigan who has consistently voted against

the freezing CAFE standards, not that I am that enamored of higher CAFE standards, but we have to face this issue. And the auto

companies simply refuse to face it. And my bone with them was

they kept talking about market forces. ‘‘We are just making what

the people want.’’ And I simply remind them of their advertising

budget. How much do you spend advertising SUVs compared to

how much do you spend advertising low-cost, high fuel economy vehicles? It is very disproportionate. And we are not talking peanuts

here. If I buy a new car, I am paying about $400 for the advertising

that they bought to persuade me to buy the car.

And so market forces don’t operate in a vacuum. I think the auto

industry has taken a pass on that. They can greatly influence the

choices consumers make through education, through advertising. A

part of the problem, and part of the reason market forces don’t

work very well is the public simply does not understand energy.

They can’t see it, they can’t touch it, they can’t taste it, they can’t

feel it, and it is frustrating to me, as a physicist, because that is

one thing I do understand. But I have often said I wish energy

were purple. If energy were purple and people could see it and they

are driving down the highway and a Toyota Prius comes by with

just a little purple around it, and it is followed by an SUV with

a big purple cloud, people are going to say, ‘‘Hey, you know, I am

going to get one of those Prius,’’ because they could see it. They

could see the impact. As it is, their only tie to reality, in terms of

the energy, is the price at the gas pump. And that is a little too

ephemeral to directly affect their purchases.

I—now enough ranting for a while, except that I wish the automobile companies would try to influence purchases.

I—Mr. Stanton, in your testimony, you state their approaches to

restructuring the CAFE program, that would—can help address

competitiveness concerns. And as I told you, I am not enamorant

of the CAFE program, but I would be interested in what you meant

by that. What ideas do you have? What mechanisms are available

to more—to affect consumer choices so that they are more likely to

choose energy-efficient vehicles? I would appreciate your comments

on that, and then I am going to ask the rest of the panel, too.

Mr. STANTON. Mr. Ehlers, thank you.

Yeah, I think that there are ways to improve the program. I

think that it was referenced earlier that, certainly, we have had 30

years of experience, and we all recognize that it is less than perfect. NHTSA is currently looking at an attribute-based system. The

NAS is looking at an attribute-based system. There are certain

pluses and certain minuses. Those are ways to do it. The complexity of the program, and from Michigan, you understand, certainly, that issues like two fleet credit and credit trading and some

people like that very much and other people don’t like that very

76

much, depending upon which side of the fence you sit. But we are

looking for ways to further the fuel efficiency, and I hear you on

the advertising—the advertisement, as you and I have discussed

before.

Mr. EHLERS. I would like other comments. What alternatives are

there to CAFE standards that you really think would be workable

in today’s marketplace that would really affect consumer choices?

Dr. Greene.

Dr. GREENE. I think that a leading contender to fuel economy

standards are these feebate systems in which we have, at present,

a gas-guzzler tax, which is kind of a half of a feebate system. It

is just a tax. And that gas-guzzler tax is quite steep. It is so expensive that there virtually aren’t any gas-guzzler passenger cars sold.

There is no comparable tax on light trucks, so we have a strange

asymmetrical situation there. But it is very, very likely that a

feebate system would work well, encouraging both consumers to

buy more efficient cars and light trucks, and encouraging manufacturers to adopt the technology to avoid fees and gain rebates. And

so I think as a market-based incentive, that deserves a careful look

as an alternative to CAFE standards.

Mr. EHLERS. Would you—are you saying you should—that we

should try to apply something like that across the whole market

spectrum?

Dr. GREENE. Well, there are two components of a feebate system.

One is the pivot point. That is, what MPG level defines whether

you get charged a fee or you get a rebate? You can have a pivot

point for cars and a different one for trucks. You could have one

for smaller cars or larger cars, smaller trucks. You can have as

many as you like. What provides the incentive to the manufacturers, especially, to adopt technology is the rate. That is usually specified in terms of dollars per 0.01 gallons per mile so that every gallon of gasoline gets the same rate—weight in this incentive. And

a feebate system of $500 to $1,000 per 0.01 gallons per mile, that

is about the difference between a 20- and a 25-mile-per-gallon vehicle. It would provide a very strong incentive, both to the manufacturers and to the consumers to get a more efficient vehicle. These

systems can be designed so the pivot points make the system revenue neutral, that is you take in as much as you pay out.

Chairman BOEHLERT. Thank you very much.

The gentleman’s time has expired.

Mr. Schwarz.

Mr. SCHWARZ. We have talked about—first, let me say that my

District is right next to Congressman Ehlers’ District. And my District—in my District, General Motors is building the largest plant

that they have built in the last 20 years, and I am delighted to

have them there. It is the Delta Township plant, the Delta plant

just outside of Lansing, Michigan. You have talked about

methyltertiary butylether gone away. You can’t use that anymore.

Ethanol is expensive stuff, not generally accepted by the population, by the motoring population yet. Biodiesel is a great idea.

There are some places—where I live in Michigan, they are actually

using it and selling it, the B20 with biodiesel from soy and some

of it from restaurant grease and other things of that nature. At

77

some point, the industry has got to get from petrofuels to the hydrogen society, the hydrogen environment.

So my question is briefly this, as someone who has thousands of

people in his District working in the automotive industry, and

someone from the State of Michigan, what is the best policy that

the Federal Government should develop or maintain toward the industry that gets you from petrofuels to hydrogen the most quickly

that it possibly can? Less regulation? More regulation? Change the

rules? Leave CAFE standards the way—what gets us there

quickest?

Mr. STANTON. Well, I will take the first stab at that. Certainly

the research and development that this committee has been supportive of in the past, and we need to continue that and increase

that. We think that the tax credits for advanced-technology vehicles is certainly a good way to go, too. We are not saying no increases in CAFE. We are just saying make sure we do the CAFE

increases right so we don’t divert resources from our main goal to

having to meet incremental increases, which is not going to be the

big bang for the buck at the end of the day.

Mr. PORTNEY. If I could, Mr. Schwarz, thank you.

I agree with Mike that there are two pieces to this puzzle to hasten the onset of the hydrogen economy, if it turns out that that

really is the energy wave of the future. The first is more investment in research and development, because individual companies

don’t have a sufficient incentive to invest in new technologies, because other people can then ape the technologies that they invent,

and they don’t get all of the benefits. So there is underinvestment.

But I think there also needs to be some incentive that—something

that motivates the consumer to demand more fuel-efficient cars,

and that can either take the form of higher gasoline prices or tighter fuel economy standards that the car companies have to meet.

If I could add one more thing, I actually think 2005 will be the

most important year for people who pay attention to fuel economy

that we have seen, and the reason I say that is that if one looks

at the hybrid vehicles that we have had in the past, the Honda Insight, the original version of the Prius, tend to be cars that give

you great fuel economy and this hybrid technology but not a lot of

other amenities. So you have kind of sacrificed on the amenity side

to get improved fuel economy. This year, we will see the Ford Escape SUV. We will see the Toyota or the Lexus HX–400, a very elegant SUV hybrid. We see the Honda Accord now hybridized, and

we will see the—both Volkswagen and DaimlerChrysler with advanced diesel engines in much more upscale cars. And if we see

this year great consumer acceptance of those vehicles, then I think

it will be an unmistakable signal to car makers across the line,

both in the passenger car and the light-duty truck segment of the

fleet, that this is something that the public is willing to pay for and

fuel economy really does have a strong consumer demand. And I

think that is going to go a long way toward creating a great incentive for improved fuel economy, even without government intervention, which, I would argue, probably still needs to take place.

Dr. GREENE. Let me endorse both of those recommendations that

have been made, and also add that if we want a—if we want hydrogen from renewable sources, then we probably need to have a polVerDate 11-MAY-2000 13:33 Sep 17, 2005 Jkt 098561 PO 00000 Frm 00081 Fmt 6633 Sfmt 6601 C:\WORKD\FULL05\020905\98561 SCIENCE1 PsN: SCIENCE1
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icy for controlling carbon emissions, cap and trade system, some

kind of way of penalizing vehicles that emit greenhouse gases.

Chairman BOEHLERT. Thank you very much. You are right on

time. The gentleman’s time has expired.

Excuse me. I think we have pretty well established that we have

the technology right now to make cars and trucks get significantly

better fuel economy without any detriment to safety. I think that

is agreed by all.

The question is still on the table, it seems to me, and there are

two of them. First, what are the pros and cons of using CAFE

standards to get that technology into the hands of consumers rather than just depending on the markets? And the second one, how

can we put CAFE standards into place without disproportionately

burdening U.S. manufacturers? A tall order. Who wants to take the

first crack at it?

Mr. DULEEP. Let me——

Chairman BOEHLERT. The centrist in the panel.

Mr. DULEEP. Let me just answer the first part of it, which is how

can we get these technologies. I think, as I pointed out in my opening statement, and as Mr. Stanton pointed out, a lot of these are

going to come in, regardless of any actions by the Congress or not.

That—I think that many of these technologies pay for themselves

and make sense in the marketplace. I think where there is a market failure in this constantly increasing consumer demand for attributes that are rapidly eroding some of these benefits of the technologies, and there has been reference made to it. And I think that

is where there is perhaps more disagreement on how one might

capture the technology benefits in terms of fuel economy benefits

rather than benefits in acceleration performance or other attributes.

And the second part of it, on the CAFE issue, I am fairly certain,

and I think Dr. Greene will back me up on this, is that if the—

meeting a single-number target for all companies is definitely—creates distortions in terms of competitive impacts between manufacturers. And any attribute-based standard, we have found in our research, is somewhat better than the current CAFE standard. But

we also came to the conclusion that there is no real perfect way to

do it, and that almost anything you do involves some degree of

compromise. And so I think it is just a matter of defining those

compromises and—rather than the fact we are ready to accept

them.

Chairman BOEHLERT. Mr. Reilly.

Mr. REILLY. The question of whether or not the onset of hybrids

does disadvantage American auto manufacturers is one that we

took very seriously. And I must say, coming into that conversation,

I was skeptical that it would. We concluded—our consultants concluded that there is a risk of loss of U.S. jobs to American manufacturers and that the reason for that is—in a word is because the

technologies that we are talking about here, advanced diesel and

hybrids, are German, primarily, and Japanese, primarily. They

are—when they are brought to this united—these United States,

they are, very often, under contract or franchised with some of

those who have developed those technologies.

79

Chairman BOEHLERT. Is that because they have regulations that

require that in Japan and Germany?

Mr. REILLY. It is possible that that has played a role. It certainly

has stimulated much more attention to some of these issues on a

more urgent basis, I think, particularly in Japan. But for that reason, we did propose significant manufacturer incentives of a billion

and a half dollars over 10 years to manufacturers for producing

these vehicles in the United States, for all manufacturers, Toyota

included to the extent that they manufacture in the U.S. We had

those proposals vetted by trade lawyers to determine whether or

not these were consistent with international trade agreements,

with the World Trade Organization. They concluded that they

were, that they are, and that this is an important way to get the

introduction of the technologies. And I think they are game changing technologies. I have been involved with this issue for a long

time. What is truly new now is we have technologies available to

us that can get significant improvements in automobile fuel efficiency that we didn’t have 10 years ago. So I think finding a way

to get them introduced with the least disadvantage to American

manufacturers and workers is the way to go, and that is the reason

for the incentives that we proposed. We also had consumer incentives that I mentioned.

Chairman BOEHLERT. What—you know, let me just ask. It is—

I think it is a national security imperative to reduce oil demand,

and I think we all—can all accept that. Can we just rely on market

forces to do that, or is there something more than market forces

that we have to engage in? And you are recommending—obviously,

you are recommending something more than market forces, and I

think Dr. Portney is, too.

Mr. REILLY. Well, I strongly prefer the use of market forces, because that aligns the interests of consumers with the interests of

manufacturers.

Chairman BOEHLERT. Well, I understand that, and we all do.

Mr. REILLY. Right.

Chairman BOEHLERT. I mean, I don’t think you will get any disagreement there. Everybody raise their hand. We prefer market

forces, but if market forces aren’t doing what needs to be done, and

we have a national security imperative to reduce demand for oil

and look at the emerging giants in India and China, the demand,

you know—there is not an unlimited supply of oil around the

world. And you—well——

Mr. REILLY. Well, if the question is if you could not use higher

prices as a way to create demand for more fuel efficient vehicles,

do I think that there is an appropriate role for the government,

through tightening CAFE standards. I do, but there I would come

back to the point that I made before, that I would only do that if

I gave up on the use of market forces, which I am not prepared to

do, and it is so important that car makers be given sufficient time

to do this, rather than be required to get unrealistically high improvements in unrealistically short periods of time, because then

we are back to downsizing and downweighting, which was a counterproductive way to go about this, I think, in the first place.

80

Chairman BOEHLERT. And we established the fact that it is not

necessary to downsize and downweight to get the increased fuel efficiency that we are looking for. We have established that fact.

Mr. REILLY. Well, we have established that——

Chairman BOEHLERT. You know, I can remember well.

Mr. REILLY. Yeah, we have established that if the car makers are

given a sufficient period of time. If you said we are going to——

Chairman BOEHLERT. And we all agree that they—what they

should be given, so, you know——

Mr. REILLY. But in that case, fine——

Chairman BOEHLERT.—a period of time. We can’t say, ‘‘Do it tomorrow.’’

Mr. REILLY.—I absolutely—right. Right.

Chairman BOEHLERT. I mean, what—you know, I applauded the

President last January 14 when he announced his space exploration initiative, and you know, he took an agency where they are

still wearing black arm bands in the aftermath of the demise of the

Columbia, and they were in a collective funk, and he said, you

know—he inspired them, you know, for future space exploration.

But to his credit, he said, ‘‘We are not going to do it tomorrow, and

don’t write me a blank check.’’ And I am very mindful of the people

that Mr. Stanton represents. I don’t want to just shove something

down the throat of the industry and say, ‘‘We have got to do it right

away.’’ We have got to be sensitive to their very legitimate concerns. But what comforts me today is the positive approach saying

that we have got to work together to accomplish something that we

agree is a legitimate national security objective. Now we might

have some differences on timetable, but we are not focusing from

one side of the argument all our energy on fighting something that

we all agree is necessary. Now we may have some differences on

timetable.

And finally, I would say on customer demand, and everybody

keeps talking about customer demand, and I agree, but I will tell

you, I think, I feel strongly that customer demand is ignited, in

large measure, by what all of us are exposed to in advertising. And

I would—and I go back to, once again, the auto industry came forward with airbags before they were mandated by the government.

And a lot of the captains of industry were on television selling safety. And you know what, in my house, like a lot of houses across

the country, my wife said, ‘‘Boy, that is something I want for me

and for our kids and grandkids.’’

So I think we are all in this together. I hope that—Dr. Portney,

I am going to take you up on your offer. We will follow it up in

writing. You said you would be glad to convene something and

maybe we can get, you know—from people in the auto industry and

the Alliance to sit down and sort of talk together to try to sort this

thing out. It is very, very important. And I know one of the things

you are including in your market forces is increasing taxes, and I

will tell you this, we are very skittish about that, and with legitimate reason, because there are ways to accomplish the same objective without increasing taxes. So—but I understand that is one of

the market forces that is an option that you would suggest we take

a look at. And let me say we should look at all options.

81

But with that, let me say thank you very much. You know, we

will follow up, probably, with a few questions for each of you, and

we would appreciate a timely response. But this has been a very

good panel. Not everyone has been in agreement. We have had

some good back and forth—good participation from up here. I really

appreciate it. We did something worthy of note here today.

The hearing is adjourned.

[Whereupon, at 4:30 p.m., the Committee was adjourned.]

(83)

Appendix 1:

ANSWERS TO POST-HEARING QUESTIONS

84

ANSWERS TO POST-HEARING QUESTIONS

Responses by Hon. William K. Reilly, Aqua International Partners

Questions submitted by Representative W. Todd Akin

Q1. If the CAFE program has been successful, could you please explain why we are

more dependent on foreign oil today and consuming more gasoline in our vehicles than we were when the program was originally put into place? And if that

is the case, how will increasing the CAFE requirements to higher levels reverse

this trend and accomplish the original goals of CAFE?

A1. Was CAFE successful? In a study published in 2002 entitled ‘‘Effectiveness and

Impact of Corporate Average Fuel Economy (CAFE) Standards,’’ the National Academy of Sciences found that fuel use by passenger vehicles is roughly one-third lower

today than it would have been had fuel economy not improved since 1975. CAFE

was identified as a ‘‘major reason’’ for the fuel economy improvement. The NAS estimated a 2.8 million barrel per day savings between 1975 and 2000, or 14 percent

of current U.S. consumption (?20 million barrels per day).

If CAFE was successful, why are we consuming more oil? We are consuming more

oil because vehicle miles traveled (a function of increasing numbers of vehicles on

U.S. roadways and the trend towards driving greater distances each year) have outstripped the oil savings achieved by improved fuel economy in the late 1970s and

1980s. The figure to the right from the NAS report shows vehicle miles traveled

(VMT) increasing steadily since 1966. Fuel use declined between 1978 and 1983 due

to improved vehicle fuel economy and a decline in the use of oil by electric utilities,

but has risen steadily since then as passenger vehicle fuel economy levels have stagnated. Source of Figure: NAS CAFE report at page 19.

If CAFE was successful, why are oil imports increasing? Oil imports are increasing

because domestic production has declined steadily since 1970, and domestic consumption has continued to grow, although at slower rate than what might have

been given CAFE and other factors. The figure to the right is from EIA’s Annual

Energy Review (2003) which provides statistics on petroleum production, consumption by sector, trade, storage, prices, refinery activities and the Strategic Petroleum

Reserve. Since the peak of U.S. crude oil production in 1970 of 9.6 MBD, domestic

production has declined 40 percent and now rests at 5.7 MBD. Over the next twenty

years, the Energy Information Administration in its Annual Energy Outlook 2005

forecasts a slight increase in U.S. oil production over the next five years, followed

by a slow but steady decline until 2025.

85

How will increasing CAFE reverse the trend of increasing consumption and rising

oil imports and thus accomplish its original goals? The fact that the U.S. economy

has not gone into a recession despite $50 for a barrel of crude oil is in part because

efforts over the last thirty years to begin to wean our economy off oil have been successful. The figure to the left excerpted from the Commission’s report shows that

the oil economic intensity of the U.S. economy (that is, the amount of oil needed

to produce a dollar of GDP) was halved over the last 30 years. Increasing CAFE

can reverse the trends of increasing consumption and rising imports, but the increase would have to be larger than two percent per year to offset the annual rise

in VMT. But the point here is that even a more modest increase in CAFE can help

insulate the economy from future oil price shocks and generally high oil prices.

86

87

ANSWERS TO POST-HEARING QUESTIONS

Responses by Paul R. Portney, President, Resources for the Future

Questions submitted by Chairman Sherwood L. Boehlert

Q1. In your testimony you said that recent research by your colleagues suggests that

the ‘‘rebound’’ effect—people driving more because improvements in fuel economy

make it cheaper to do so—might cancel out the economic and environmental benefits of improving fuel economy. To what extent were the energy security benefits

of improving fuel economy taken into account?

A1. The rebound effect has only to do with how much gasoline will be saved by

tighter standards—it does not bear on the question of the good that is done by reducing consumption. If people drive a little more because their cars get better fuel

economy (and hence the cost of driving an additional mile are reduced), that just

means that we’ll save less gasoline through tighter CAFE standards than appears

at first blush.

The NAS committee indeed took into account energy security benefits—assigning

them a ‘‘shadow value’’ of $5/barrel of oil consumed, which at the time was about

20 percent of the price of a barrel of oil (more like 10 percent now). This is a very

important question, of course, but it is unrelated to the debate over the rebound effect.

Q2. In discussing the potential of technology to reduce fuel consumption, you emphasized the importance of the ability of the individual consumer to recoup the additional costs of fuel efficient technology through gasoline savings. But if reducing the Nation’s dependence on oil is a public good, why not emphasize the level

of fuel savings that maximizes the benefit to the public as a whole? Why not

think of fuel economy standards as similar to pollution emissions requirements,

in which individual consumer repayment is not as important a consideration?

A2. In fact, the right way to think about the benefits of improved fuel economy is

to combine the benefits to the consumer from reduced gasoline consumption with

the social benefits from internalizing the climate change and oil import dependence

externalities. The NAS Committee thought it was worthwhile, though, to analyze

the effects of tighter standards purely from the standpoint of the car buyer. Depending upon the period over which gasoline savings are calculated, and upon the discount rate used to compare future savings with present outlays, tighter standards

look attractive purely on economic grounds alone.

This is somewhat deceiving, however, because a rational car buyer might think

to herself, ‘‘Fine, I’ll save more gasoline over the life of this car than I’ll have to

shell out in a higher purchase price. But what if the car companies could use the

money they are required to spend on tighter fuel economy instead on developing

other conveniences for me? It’s at least possible that I’d like those new features even

more than the fuel economy savings I’ll be getting now.’’

This isn’t an unrealistic scenario, though it gets more and more unrealistic as gasoline gets more and more expensive. In other words, the higher the cost of gasoline,

the less likely it is that car buyers will prefer heated cup-holders or whatever other

options might be invented to improved fuel economy.

Questions submitted by Representative W. Todd Akin

Q1. You served as Chair of the NAS panel that reviewed the CAFE program in 2001.

Did your panel recommend any specific CAFE standards? Could you explain

some of the complexities and policy tradeoffs that must be considered in taking

information on future technologies and assessing the increases in vehicle and

fleet fuel economy that may be possible from implementing those technologies?

A1. The NAS Committee did not recommend any specific CAFE standards. Determining those standards involves a set of complicated tradeoffs that can only be

made by elected or appointed officials of the Federal Government.

The complicated tradeoffs include such things as the safety of vehicle occupants,

the cost and reliability of new vehicles, the fuel savings that would result from

tighter standards, the reduced emissions of greenhouse gases associated with improved fuel economy and many other factors that are spelled out clearly in the report.

Q2. If the CAFE program has been successful, could you please explain why we are

more dependent on foreign oil today and consuming more gasoline in our vehiVerDate 11-MAY-2000 13:33 Sep 17, 2005 Jkt 098561 PO 00000 Frm 00091 Fmt 6601 Sfmt 6621 C:\WORKD\FULL05\020905\98561 SCIENCE1 PsN: SCIENCE1
88

cles than we were when the program was originally put into place? And if that

is the case, how will increasing the CAFE requirements to higher levels reverse

this trend and accomplish the original goals of CAFE?

A2. This is an easy one. The fact that we consume more gas today than we did before the CAFE standards were put in place does NOT necessarily indicate that the

program was unsuccessful. That depends on how much gasoline we consume today

compared to the level that would exist had we not implemented CAFE standards

in the late 1970s. It was very clear to the NAS panel that while fuel consumption

has gone up significantly since then, it would have gone up by much more had the

CAFE program not been put in place—particularly after the fall in gas prices during

the 1980s.

While there are clearly pros and cons to even tighter standards—again, all spelled

out in some detail in the NAS report, no one doubts that they would reduce the

amount of gasoline used. Some believe that the savings wouldn’t be worth the costs,

while others have a different view. But NO ONE argues that tighter CAFE standards in the future will fail to reduce gasoline consumption relative to the current

baseline.

89

ANSWERS TO POST-HEARING QUESTIONS

Responses by K.G. Duleep, Managing Director of Transportation, Energy and Environmental Analysis, Inc.

Questions submitted by Chairman Sherwood L. Boehlert

Q1. In your testimony you called the demand for 400, 500 and 600 horsepower engines ‘‘astounding’’ since the speed limit in this country rarely exceeds 70 miles

per hour. What effect do you believe this increase in horsepower will have on fuel

economy? On safety?

A1. Large increases in horsepower do affect fuel economy and safety if vehicles.

Typically a 10 percent increase in horsepower decreases fuel economy by 2.5 percent

if the vehicle technology level is unchanged and the horsepower gain is achieved by

engine upsizing. Larger increases in horsepower of 20 percent or more also require

improvements to the brakes, tires and the drive line, thereby increasing vehicle

weight and causing additional losses in fuel economy over and above the effect of

engine upsizing. The doubling of horsepower that has occurred over the last 20

years has led to an implied loss in fuel economy of about 30 to 35 percent.

It is more difficult to provide a quantitative estimate on safety effects, since the

vehicle safety statistics are profoundly influenced by driver behavior. In the past,

high horsepower engines were typically associated with sports cars, which have a

poor safety record. Now, very powerful engines are being offered in many conventional cars but it is not clear if their accident and fatality rates will be similar to

those of sports cars with similar engines, due to differences in the types of consumers who drive these vehicles. I would still expect some increase in accident and

injury rates since it is much easier to drive these powerful vehicles aggressively.

Q2. You have emphasized the importance of the ability of the individual consumer

to recoup the additional costs of fuel efficient technology through gasoline savings. But if the government chose to improve fuel economy to benefit the Nation

by reducing our dependence on oil, why shouldn’t it approach the issue more like

it does the setting of requirements to control pollution emissions, in which consumer repayment is not a consideration?

A2. My testimony did emphasize the ability of consumers to recoup the costs of

technology through savings from reduced fuel consumption, and I do not believe the

situation is the same as setting emission standards for criteria pollutants. The committee appeared most interested in achieving increased fuel economy by setting fuel

economy standards that auto manufacturers must comply with, but have no direct

effect on consumer demand. Moreover, there appears to be little appetite in Congress for restricting consumer choice of vehicle size and power. Hence, manufacturers faced with consumer demand for larger, more powerful cars and lack of consumer interest in fuel economy will have considerable

difficulty in selling technology that is perceived by the consumer to cost-ineffective. In contrast, emissions of criteria pollutants are not a function of vehicle size

and power (due to the catalyst cleaning up 99 percent of engine-out emissions) and

meeting emission standards is effectively de-coupled from the issue of consumer

choice of vehicle attributes. The California zero-emissions vehicle mandate departs

from historical emission standards by requiring a certain percentage of vehicles sold

by each manufacturer to be a hybrid or electric vehicle. This regulation presents

problems similar to those posed by fuel economy regulations, especially if hybrids

are perceived as cost-ineffective by a majority of consumers.

Questions submitted by Representative W. Todd Akin

Q1. Since all of the automakers are in different places in terms of the current use,

potential use and even applicability of the various technologies you have identified to their products, can you explain how you are able to evaluate the potential

for increasing the fleet fuel economy levels? Aren’t there going to be ‘‘winners’’

and ‘‘losers’’ in the process of dramatically increasing CAFE standards as some

have suggested?

A1. We recognize that different manufacturers are in different positions with regard

to technology deployment and vehicle sales mix, but we do track technology and fuel

economy at the vehicle make and model level and can derive fuel economy potential

for each manufacturer. The fleet fuel economy improvements cited in my testimony

are simply a sales-weighted average of individual manufacturer capability but my

testimony also makes the point that a single fuel economy standard for all manufacVerDate 11-MAY-2000 13:33 Sep 17, 2005 Jkt 098561 PO 00000 Frm 00093 Fmt 6601 Sfmt 6621 C:\WORKD\FULL05\020905\98561 SCIENCE1 PsN: SCIENCE1
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turers could disadvantage many manufacturers. The current CAFE standard imposes a single standard for cars and another for all light trucks, regardless of the

mix of cars or trucks sold by any specific manufacturer. Historically, this single

standard approach has created problems for GM, Ford, Chrysler and European luxury car manufacturers. This could continue to be true in the future, but the magnitude of the effect is declining due to mergers and acquisitions in the industry. In

addition, the Japanese and Korean manufacturers are gradually entering all market

segments including low fuel economy segments like fullsize pickup trucks and SUV,

where no imports were offered in the past. Dr. Greene of Oak Ridge National Laboratory and I have explored other types of standards such as size class or weight

specific fuel economy standards, and these appear to be better than the single

standard approach used in the historical period.

Q2. If the CAFE program has been successful, could you please explain why we are

more dependent on foreign oil today and consuming more gasoline in our vehicles than we were when the program was originally put into place? And if that

is the case, how will increasing the CAFE requirements to higher levels reverse

this trend and accomplish the original goals of CAFE?

A2. Many detailed analyses of the CAFE standard conducted by the government

conclude that it was effective in reducing gasoline consumption during the 1980–

1990 period. Of course, the CAFE standards for cars set in 1975 by Congress are

still in force today at the same level of 27.5 mpg while light-truck CAFE standards

have also continued for the last 20 years with almost no change. Hence, the benefits

of these standards have long since been swamped by population growth, increases

in car ownership, and increased driving per car. Future increases in CAFE standards will also have only a short-term effect if the standards are left unchanged for

decades. It is also possible that historical increases in car ownership will not occur

as we approach saturation, and future increases in travel per vehicle may be much

lower due to increasing congestion and traffic. If historical growth rates of these parameters are reduced in the future, then the benefits of CAFE standards may be

more durable.

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ANSWERS TO POST-HEARING QUESTIONS

Responses by Michael J. Stanton, Vice President of Government Affairs, Alliance of

Automobile Manufacturers

Questions submitted by Chairman Sherwood L. Boehlert

Q1. You suggest in your testimony that to advance the adoption of new technologies

to improve fuel economy, the government should enact tax credits for the purchase of advanced technology vehicles. However, if CAFE standards were to remain constant, since they are based on a fleet-wide average, the purchase of advanced high efficiency vehicles could be off-set by the sale of more fuel inefficient

vehicles or the deployment of these technologies for greater power or size, resulting in little or no change in the overall consumption of fuel by the fleet. How

do we avoid this outcome when supporting incentives for the purchase of advanced vehicles?

A1. Your question gets to the heart of one of the problems of the CAFE program.

There is nothing that says the consumer must purchase ‘‘fuel economy.’’ The CAFE

program only says that vehicle manufacturers must produce a fleet that averages

a certain fuel economy level regardless of what consumers want or choose to purchase. The auto industry today makes over 100 models that achieve 30 or better

miles per gallon on the highway, yet the sales of these vehicles are very low.

The purpose of the incentives is to make it economical for the manufacturer to

offer these advanced technology vehicles, since there is a premium to produce these

vehicles. The proposed consumer tax incentives are for a very limited time. They

will help increase production volumes and consequently reduce costs, enabling manufacturers to provide highly fuel-efficient vehicles with the attributes consumer’s

value.

We can’t change consumer-purchasing habits, but we can make some of these advanced technology vehicles in the most popular vehicle lines. There are already two

hybrid-electric SUVs available and more are planned for production. There is also

a diesel-powered SUV available. It is the manufacturers task to introduce advanced

technologies in vehicles that consumers want to purchase.

Q2. You have emphasized the importance of the ability of the individual consumer

to recoup the additional costs of fuel-efficient technology through gasoline savings. But, if the government chose to improve fuel economy to benefit the Nation

by reducing our dependence on oil, why shouldn’t it approach the issue more like

it does the setting of requirements to control pollutant emissions, in which consumer repayment is not a consideration?

A2. There are two important distinctions between the national program to control

tailpipe emissions and the CAFE program. Over the past four decades, manufacturers developed and implemented very effective emission control technology. In fact,

today’s vehicles have 99 percent fewer smog-forming pollutants than vehicles of the

1970s.

These emission reductions were achieved in a way that was invisible to the consumer.

Unlike smog-forming pollutants, there are no ‘‘catalysts’’ that can be put on a vehicle to improve its fuel economy. Although several technologies to improve fuel efficiency have been introduced in the fleet, it can take 20 years to develop and implement a single new technology.

The other main way to improve fuel economy is to make vehicles lighter. This involves either making vehicles smaller or using advanced materials for constructing

the vehicle, which may not be cost-effective. Unfortunately, history shows that consumers do not value or purchase in large numbers small cars with good fuel economy.

Once consumers purchase these vehicles and get some experience, Consumer incentives to purchase advanced technology vehicles will spur the sale of these vehicles resulting in greater consumer acceptance and greater consumer willingness to

invest in these technologies.

Questions submitted by Representative W. Todd Akin

Q1. The House has considered amendments to legislatively increase the CAFE standards during consideration of each of the past two energy bills. Does the Auto Alliance support such legislative attempts to increase CAFE standards? Are legislative changes necessary? What would you recommend instead?

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A1. No, the Alliance does not support legislative increases to CAFE standards. Congress clearly assigned the task of setting CAFE standards to NHTSA. NHTSA has

the expertise and a great deal of experience in carrying out its statutory obligation

to set maximum feasible standards considering technological feasibility, economic

practicability, the effect of other motor vehicle standards, and the need of the U.S.

to conserve energy. NHTSA enacted the largest increase ever for light trucks when

it set standards for the 2005–2007 model years. Now, NHTSA is working on a proposal that will set standards and revamp the CAFE program for 2008 and later

models years.

Q2. If the CAFE program has been successful, could you please explain why we are

more dependent on foreign oil today and consuming more gasoline in our vehicles than we were when the program was originally put into place? And if that

is the case, how will increasing the CAFE requirements to higher levels reverse

this trend and accomplish the original goals of CAFE?

A2. The CAFE program has been successful—the average fuel economy of the passenger car fleet doubled from around 13 mpg in the mid 1970s to 27.5 mpg in 1985.

However, programs that succeed in reducing oil demand have always increased, in

percentage terms, the world’s dependence on the most insecure sources of supply.

As demand falls, the market share of high-cost non-OPEC producers falls, and the

market share of low-cost Middle Eastern OPEC producers rises.

In terms of overall fuel consumption, there are many unintended consequences of

the CAFE program. When consumers are able to buy cars that get better mileage,

in a low fuel price environment, consumers will drive more miles. Vehicle miles

traveled have been increasing exponentially over the last decade or more. Since the

enactment of the original CAFE standards, consumers have purchased more light

trucks, which are now over 50 percent of the market. These vehicles are generally

less efficient than passenger cars, but they provide greater carrying capacity and

the ability to tow heavy loads, which most passenger cars today can’t.

Increasing the CAFE standards as they are currently structured will not reverse

this trend, because the same unintended consequences will occur. The CAFE standards are a requirement for manufacturers to make more fuel-efficient cars and light

trucks, but there is nothing that says consumers have to buy more fuel-efficient vehicles. The auto industry today makes over 100 models that achieve 30 mpg or more

on the highway, but sales of these vehicles are relatively low compared to the overall fleet. NHTSA should be left with the job of weighing all of the competing demands placed on the industry and setting a standard that takes all of that into account.

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ANSWERS TO POST-HEARING QUESTIONS

Responses by David L. Greene, Oak Ridge National Laboratory, Center for Transportation Analysis, National Transportation Research Center

Questions submitted by Chairman Sherwood L. Boehlert

Q1. In his testimony, Dr. Portney said that recent research by his colleagues suggests

that the ‘‘rebound’’ effect—people driving more because improvements in fuel

economy make it cheaper to do so—might cancel out the economic and environmental benefits of improving fuel economy. Do you agree? Would consideration

of the energy security benefits of improving fuel economy affect your answer?

A1. I do not agree that the rebound effect would cancel the benefits of fuel economy

improvements brought about by higher fuel economy standards set at an appropriate level.

In general, a reduction in the cost of operating a car brought about by improving

fuel economy will be partially to entirely offset by an increase in the price of the

vehicle. This is an extremely important point that is generally overlooked in analyses

of the rebound effect. The premise of the rebound effect is that increasing fuel economy reduces the cost of operating a vehicle by reducing the amount of fuel required

per mile of travel. Estimates of the rebound effect published in the economics literature measure the effect of reduced fuel cost per mile of travel (price per gallon

divided by miles per gallon) on the amount of travel, other things equal. However,

when manufacturers raise fuel economy in response to higher standards they do so

primarily by adding more expensive fuel economy technology, thereby increasing the

cost of the vehicle. Whether the increased cost of this technology will be less than

or greater than the value of fuel saved is usually a subject of heated debate, and

in any case will depend on how high the standards are set. Regardless, in the long

run the cost of operating a vehicle depends on the cost of the vehicle as well as the

cost of fuel (plus other costs such as insurance, maintenance, etc., some of which

may increase with vehicle price). Thus, in the long run, the rebound effect due to

lower fuel costs will be at least partially and possibly entirely offset by the increased

cost of fuel economy technology. I will provide a simple illustration below to show

how important this effect can be.

Second, when fuel economy increases significantly, motor fuel tax revenues drop

dramatically. Since motor fuel taxes are overwhelmingly user fees that finance the

construction and maintenance of highways, Federal and State governments must

find some way to replace the lost revenue. Historically, they have done this by raising motor fuel tax rates. Current federal and State motor fuel taxes average $0.38

per gallon (excl. sales taxes). If fuel economy standards were raised by 50 percent,

for example, the increase in fuel economy would eventually cause tax revenues to

drop by B. To restore the lost revenue the total tax would have to increase to $0.57,

an increase of $0.19 or about 10 percent of the price of gasoline (at $2/gallon). Such

a tax increase would further erode the rebound effect, as I will illustrate below.

Finally, while historical estimates of the rebound effect (the elasticity of travel

with respect to fuel cost per mile) are in the vicinity of ¥0.2, the rebound effect

has been decreasing over time, (1) as fuel costs have decreased as a share of total

vehicle operating costs, and (2) as consumers’ incomes rise. In 1985, fuel costs comprised 20 percent of total vehicle operating costs; in 2003, fuel accounted for only

12 percent of operating costs. As fuel becomes a smaller share of the cost of driving,

motorists become less sensitive to both fuel prices and fuel economy. In addition,

as consumers’ incomes rise, they become less sensitive to fuel costs. The most recent

analysis of the rebound effect by Professors Kenneth Small and Kurt Van Derider

of the University of California at Irvine found a long-run rebound elasticity for the

U.S. of ¥0.24 for the period 1966–2001. This is quite similar to my 1999 study of

this subject which found a long-run elasticity of ¥0.23. However, for the most recent five-year period using values of income for the State of California Small and

Van Dender found the long-run rebound effect had fallen to ¥0.09. Projecting future

income growth in California, they calculated expected rebound values of ¥0.08 for

2005 and ¥0.04 for 2020. The current value of the long-run rebound elasticity is

therefore probably close to ¥0.1, with smaller values appropriate for evaluating future fuel economy impacts.

It is instructive to combine these elements in a sample calculation. Suppose fuel

economy regulations require a 50 percent increase in light-duty vehicle fuel economy. This will produce a 33 percent decrease (1/1.5 = 0.67) in fuel cost per mile.

Evaluated using alternative rebound elasticity values of ¥0.2 and ¥0.1, this would

imply a 6.7 percent or a 3.3 percent increase in vehicle travel, respectively. If we

94

assume that the increase in vehicle price for technologies to achieve these fuel economy gains will be two thirds of the value of fuel saved, then the net decrease in

long-run vehicle operating costs would be only 11 percent. This would produce an

increase in vehicle travel between 1.1 percent and 2.2 percent. If we add to this the

assumption that motor fuel taxes will increase by $0.19 per gallon, and that this

amounts to 9.5 percent of the cost of gasoline at $2.00/gallon, then the total longrun decrease in the operating cost of a vehicle is 1.5 percent, for which we would

estimate a rebound effect of between 0.3 percent and 0.15 percent. Obviously, the

numbers used in this example are approximations. Nevertheless, taking into account the fact that increased fuel economy will increase the price of vehicles together with the likelihood that governments will respond to losses in highway revenues by raising motor fuel taxes can reduce the rebound effect to a truly negligible

factor.

From the above example it is clear that the smaller the price increase caused by

higher fuel economy standards is relative to the fuel savings they produce, the larger the rebound effect will be. If the price increase is larger than the value of fuel

savings, the rebound effect could be negative (i.e., an increase in vehicle operating

costs and a decrease in miles traveled). My point is that one cannot have it both

ways. Either fuel economy standards cause a net decrease in vehicle operating costs,

in which case there is a rebound effect but also a substantial economic benefit to

car buyers, or there is a net increase in operating costs, in which case there should

be no rebound effect. If the fuel economy standards are set near the point at which

the value of fuel savings equals the price increase, the rebound effect should be negligible.

Finally, I believe that Dr. Portney was referring to not just the environmental impacts of the rebound effect, but to the full range of potential external costs of vehicle

travel, which in previous studies by RFF have included congestion and safety

externalities, among others. According to Harrington and McConnell (2003) non-environmental external costs may be several times the environmental external costs.

In my view, we should not let the existence of safety, congestion and air pollution

problems prevent us from addressing our oil dependence problem. Instead, we

should address all these problems with appropriate and well targeted solutions.

Q2. In discussing the potential of technology to reduce fuel consumption, you emphasized the importance of the ability of the individual consumer to recoup the additional costs of fuel efficient technology through gasoline savings. But if reducing the Nation’s dependence on oil is a public good, why not emphasize the level

of fuel savings that maximizes the benefit to the public as a whole? Why not

think of fuel economy standards as similar to pollution emissions requirements,

in which individual consumer repayment is not as important a consideration?

A2. Thank you for the opportunity to clarify my view on this subject. I entirely

agree that reducing oil dependence is a public good and that the value to the Nation

of reducing oil dependence should be a key factor in determining the appropriate

level of vehicle fuel economy. However, in studying the costs of improving light-duty

vehicle fuel economy I have observed two relevant phenomena. First, it appears that

technology costs increase rapidly beyond the point at which the total cost of an increase in fuel economy exceeds the total present value of fuel savings. This is usually significantly above the fuel economy level at which the marginal value of fuel

savings equals the marginal cost. Second, trying to increase fuel economy by using

pricing to shift vehicle sales in favor of higher mpg configurations (rather than

using fuel economy technology) appears to be a very expensive strategy. My intent

in making the observation that the level of fuel economy standards should be set

close to the level at which the total value of fuel saved equals the total cost of technology used to achieve those savings was to suggest a reasonable range in which

the socially optimal level of fuel economy is likely to be found. In my opinion, this

will be above the point at which the marginal cost of improving fuel economy equals

the marginal value of fuel saved but below the point at which the total value of fuel

saved equals the total cost of improving fuel economy. Of course, technology is constantly changing and therefore the most beneficial level of fuel economy from a societal perspective will change, as well.

Questions submitted by Representative W. Todd Akin

Q1. If the CAFE program has been successful, could you please explain why we are

more dependent on foreign oil today and consuming more gasoline in our vehicles than we were when the program was originally put into place? And if that

is the case, how will increasing the CAFE requirements to higher levels reverse

this trend and accomplish the original goals of CAFE?

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1 U.S. Department of Energy, Energy Information Administration, ‘‘Annual Energy Review

2003,’’ DOE/EIA–0384 (2003), Table 5.1, September 2004, Washington, DC. 2 U.S. Department of Transportation, Federal Highway Administration, ‘‘Highway Statistics

2002,’’ Table VM–1, Washington, DC.

A1. Establishing fuel economy standards was effective in raising fleet average fuel

economy, reducing U.S. petroleum consumption, and reducing our oil dependence.

During the years in which we required continuous increases in light-duty vehicle

fuel economy (from 1978 to 1985) our oil dependence steadily decreased. When oil

prices (not coincidentally) collapsed in 1986, we abandoned that successful strategy.

By leaving the fuel economy standards essentially constant for the past 20 years we

have allowed growing travel demand to overtake the new vehicle fuel economy gains

achieved by 1985. The principal factors driving the growth of travel demand have

been increasing population, increasing levels of income and economic activity, and

the continuing geographical dispersion of both people and the built environment.

Our oil dependence problem has worsened considerably since 1985 because we

stopped requiring fuel economy to increase while at the same time our ability to

produce petroleum domestically continued to decline. The amount of oil we import

equals the amount we consume minus what we produce. U.S. production has been

falling since 1970 due to depletion of our oil resources. In 1970, the U.S. produced

11.3 million barrels per day of petroleum (crude oil plus natural gas liquids); in

2003 we produced only 7.5 million barrels per day.1 U.S. petroleum consumption in

1970 was 14.7 million barrels per day. Petroleum use increased to 18.8 million barrels per day in 1978, the first year in which the CAFE standards were in force.

From that level, U.S. petroleum consumption decreased to 15.7 million barrels per

day in 1985, for practical purposes the last year in which the CAFE standards increased. The reduction in petroleum consumption from 1978 to 1985 was achieved

despite a 15 percent increase in miles traveled by light-duty vehicles over the same

period (from 1,426 billion vehicle miles in 1978 to 1,637 billion in 1985).2 Because

it takes more than 10 years to turn over most of the stock of light-duty vehicles,

the benefits of higher new vehicle fuel economy persisted beyond 1985 even though

the rate of growth in vehicle travel exceeded the rate of increase in fuel economy.

By 1992, the turnover of the stock of vehicles was nearly complete and on-road

light-duty vehicle fuel economy reached a plateau of approximately 19.5 miles per

gallon. Had light-duty vehicle fuel economy remained at the 1978 level of 13.6 mpg,

the 2,078 billion miles traveled by passenger cars and light trucks in 1992 would

have required 46 billion gallons (three million barrels per day) more petroleum than

it did.

Depending on the fuel economy standards chosen, raising fuel economy standards

alone may or may not be sufficient to reverse the trend of increasing oil dependence.

In general, increasing energy efficiency alone is not a complete strategy for addressing oil dependence. Increasing domestic petroleum and alternative fuel supplies is

equally important, and harnessing market forces to promote both efficiency of energy use and increased energy supply is key. Equally important to these strategies

is continuously expanding the technological potential to increase energy efficiency

and substitute alternative energy sources for petroleum through research. In my

opinion, raising the fuel economy standards is an essential part of an effective energy security strategy but not a sufficient strategy by itself.

References

1. Small, K.A. and K. Van Dender. 2004. ‘‘A Study to Evaluate the Effect of Reduced Greenhouse Gas Emissions on Vehicle Miles Traveled,’’ Department of Economics, University of California, Irvine, December 6.

2. Greene, D.L., J. Kahn and R. Gibson. 1999. ‘‘Fuel Economy Rebound Effect for

U.S. Household Vehicles,’’ The Energy Journal, Vol. 20, No. 3, pp. 1–31.

3. Harrington, W. and V. McConnell. 2003. ‘‘Motor Vehicles and the Environment,’’

RFF Report, Resources for the Future, Washington, DC, April.

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Appendix 2:

ADDITIONAL MATERIAL FOR THE RECORD

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1 U.S. National Research Council, Committee on the Effectiveness and Impact of Corporate

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

Economy (CAFE) Standards, National Academies Press, 2002. 2For example, Duleep, K.G. Testimony of Mr. K.G. Duleep at the Hearing on Improving the

Nation’s Energy Security: Can Cars and Trucks Be Made More Efficient? Committee on Science,

U.S. House of Representatives, 9 February, 2005.

PREPARED STATEMENT OF DR. DAVID L. BODDE

Professor and Director of Innovation and Public Policy, International Center for

Automotive Research, Clemson University

Thank you, Mr. Chairman, for the opportunity to comment on Corporate Average

Fuel Economy (CAFE) standards and their capacity to encourage fuel-saving innovation in automobiles and light trucks. The thoughts that follow are my own and not

necessarily the views of Clemson University or its International Center for Automotive Research.

In summary, my thesis rests on three points:

• Near-term improvements in fuel economy can most likely be achieved through

more stringent CAFE standards. But these gains will soon dissipate unless

efficiency-enhancing innovation becomes an ongoing process.

• CAFE standards, by themselves, cannot move light vehicles from mere compliance to continuous improvement. This is true for two reasons:

Æ CAFE standards operate on the supply side of the market. They do nothing to promote consumer demand for more fuel-efficient vehicles.

Æ CAFE standards take no cognizance of the entrepreneurial sector of the

economy. Therefore they are irrelevant to the most dynamic force for

change in a free society, the wellspring of ‘‘creative destruction’’ that has

led technological revolutions in fields as diverse as telecommunications,

computing, and medicine.

• If more aggressive CAFE standards are authorized, then I would suggest consideration be given to policies that could supplement regulation with incentives for continuous innovation.

In what follows, I will set out the evidence that supports this thesis.

The Limits of Standards in Promoting Ongoing Fuel Efficiency Innovation

The balance of evidence supports two premises as true. The first is that the original CAFE standards contributed to the sharp increase in vehicle fuel efficiency that

occurred in the decade from 1975 to 1985. To be sure, analysis cannot clearly distinguish the effects of the regulation from the effects of the fuel price increase over

that same period. But at the very least, the CAFE standards contributed to the improvement—and they surely prevented a decline in efficiency as fuel prices fell in

the late 1980s.

Second, the evidence strongly supports a conclusion that the technology required

for meaningful improvement is readily at hand. For example, the 2002 report of the

National Research Council1 found that technologies capable of meaningful improvements in fuel efficiency now exist but are not applied to passenger cars and light

duty vehicles. Other statements presented to this Committee corroborate this view.2

And yet, if this Committee were to hold these hearings 10 years from now, the same

would be said—the ongoing advance of science in many fields will ensure that the

frontier of the possible remains well ahead of what is actually achieved. The key

issue then concerns how to achieve rapid and continuous application of these results.

These premises hold important implications. The current situation does not differ

markedly from that of 1975, when the Energy Policy and Conservation Act first put

fuel efficiency standards in place. Then, as now, the public need for fuel efficiency

was far stronger than could be expressed by price in the marketplace. Then, as now,

technologies offering potential improvement were available, but not in use. Then as

now, the evidence suggested some differential impact on auto manufacturers. Thus,

we can reasonably expect that a new, more aggressive set of standards would

achieve similar results: a onetime, marked improvement in vehicle fuel performance,

followed by a period of much diminished gains.

If that outcome is satisfactory, then CAFE alone would be satisfactory. But if the

aim of energy policy is to achieve something more, then consideration should also

be given to ways of nurturing fuel-saving innovation as an ongoing process. And to

that subject that we now must turn.

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3 Consider, for example, Zap!, a company founded 10 years ago in response to the zero-emissions vehicle market emerging in California. A description can be found at: http://

www.zapworld.com/index.asp

The Process of Innovation: Implications for Fuel Efficiency

At the beginning, it might be helpful to review some general principles regarding

technological innovation and how it advances performance throughout the economy.

We should begin by understanding technology from the customer perspective—not

as a ‘‘thing,’’ but as a service.

Technology Viewed as a Service: Fuels and vehicles have little value in themselves, but enormous utility as providers of mobility services. For road transportation, these valued services include performance vectors like:

• time saving: will the vehicle travel far enough that the driver does not waste

time with frequent refueling?

• safety: how well does the vehicle protect its occupants, both by its ability to

avoid accidents and by its ability to survive them?

• comfort: can the vehicle mitigate the stress and hassles of road travel for the

driver and passengers?

• image: what does driving this particular vehicle say about its occupants?

• ancillary services: does the vehicle have enough generating capacity to meet

the growing demand for on-board, electricity-based services?

At any time, consumers emphasize some of these performance dimensions while

sacrificing along others. Consider the consumer preferences revealed by an EPA

analysis of automobile performance from 1981 to 2003. Over this period, average

horsepower nearly doubled (from 102 to 197 horsepower), weight increased markedly (from 3201 to 3974 lbs.), and the time required to accelerate from zero to 60

mph dropped by nearly 30 percent. One task of policy should be the addition of fuel

efficiency to the competitive performance dimensions for road transportation.

Technology-based Innovation: Accumulating Technological innovations can be

grouped into two general classes: those that advance performance by accumulating

incremental improvements, and those that offer discontinuous leaps in performance.

The term accumulating applies to technologies that advance performance along dimensions already recognized and accepted by customers. Each improvement might

be incremental, but the cumulative effect compounds to yield markedly improved

performance—consider the improvements in processor speed for computers, for example. Auto manufacturers are accustomed to competing along these dimensions,

and the cumulative effect can lead to important advances—but only if the technology competition continues long enough for the gains to accumulate. Most of the

fuel saving technologies discussed at this hearing are incremental in nature, and so

nurturing this kind of innovation could become an important policy goal.

Technology-based Innovation: Discontinuous: In contrast, discontinuous technologies introduce performance dimensions quite distinct from what the mainstream

customers have come to value, sometimes offering inferior performance along the accustomed dimensions. Because of their inferior mainstream performance, these technologies initially gain traction only in niche markets. With continued use and improvement, however, discontinuous technologies gain adequacy along the original dimensions and then enter the mainstream markets.

Consider the electric car, for example. Many analysts have written off electric vehicles because of their inferior performance in mainstream auto markets—acceleration, range, and recharge time. Yet electric vehicle technologies are emerging in an

important niche: the market for personal transportation. This includes golf carts,

all-terrain vehicles, touring vehicles for resorts, transportation within gated communities, and so forth. In that market, the chief performance dimensions are convenient access, economy, and ease of use—and style. The current state of electric vehicle technology is adequate for the limited range and acceleration requirements of

this niche. But, could electric vehicle technology advance to the point of entry into

mainstream markets? Or, could it compete effectively in personal transportation

markets in developing countries—say Thailand or China? That is, of course, unknowable. But, please recall that the personal computer was once considered a

hobbyists toy, inherently without enough power to enter mainstream applications.

Discontinuous innovation tends to be the province of the entrepreneur, and the

companies that such persons found become platforms for the innovations that radically change all markets. Yet entrepreneurs often have low visibility relative to the

market incumbents in policy discussions, and their companies are far from household words.3 This is because the entrepreneurs’ story is about the future, not the

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4Greene, Dr. David L. Hearing on Improving the Nation’s Energy Security: Can Cars and

Trucks Be Made More Efficient? Committee on Science, U.S. House of Representatives, 9 February, 2005.

present; about what could be and not about what is. For that reason, policies that

encourage entrepreneurship in technologies relevant to reducing fuel use should become part of the energy policy conversation.

Policy Options to Promote Fuel Saving Innovations

Two general strategies could be considered to supplement the CAFE approach by

encouraging ongoing innovation in fuel-efficient technologies: building market demand for these innovations, and nurturing the entrepreneurial sector to supply

them.

Building Market Demand: The price of the fuel offers most obvious way to encourage fuel saving innovations, and motor fuel taxes provide the most direct leverage

if this component of policy is to be considered. We must, however, distinguish among

short-term and long-term effects, and include consideration of consumer expectations.

For the short-term, consumers can respond to increased motor fuel prices in only

two ways: by changing their driving patterns, or by paying more for fuel and reducing their consumption in other areas. The evidence suggests some mix of these responses. For the longer-term, consumers can exchange their capital stock—the vehicles they drive—for more fuel efficient models. In both cases, this adaptive behavior

will depend upon consumer expectations for the magnitude and duration of the fuel

price increase. Adaptive behavior diminishes to the extent that consumers believe

the price increase will prove impermanent. We should observe also that every country relying on fuel economy standards also matches them with meaningful motor

fuel taxes.

The so-called ‘‘freebates’’ program offers an alternative to taxes. This has been capably discussed elsewhere,4 and needs no further comment here. The effectiveness

of income tax deductions for the purchase of fuel-efficient vehicles will depend upon

the tax status of the individual purchaser. The incentive is further blunted by the

complexities of the tax code and by the delay in receipt of the benefit.

In general, any policy that increases consumer incentives to purchase fuel efficient

vehicles will provide an incentive for ongoing innovation—provided that the policy

is perceived as permanent. Entrepreneurs and innovators respond primarily to opportunity; but that opportunity must be durable for the 10-year cycle required to

establish a new high-growth company.

Nurturing an Entrepreneurial Culture in Fuel Saving: Policies to build the market

for fuel saving technologies operate on the ‘‘demand’’ side of entrepreneurship and

innovation. In addition, several policies could be considered to build an entrepreneurial climate on the ‘‘supply’’ side. These include:

• Special tax consideration for investors in new ventures offering products relevant to fuel savings. The intent would be to increase the amount of venture

capital available to startup companies.

• Commercialization programs might enable more entrepreneurs to bring their

nascent technologies up to investment grade. For example, an enhanced and

focused Small Business Innovation Research (SBIR) program might increase

the number of participating entrepreneurs participating in fuel-relevant markets. A portion of the Advanced Technology Program (ATP) could be focused

in like manner.

• Outreach from the National Laboratories to entrepreneurs might be improved. Some laboratories, the National Renewable Energy Laboratory

(NREL) for example, offer small, but effective programs. But more systematic

outreach, not to business in general, but to entrepreneurial business, would

also increase the supply of market-ready innovations.

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PREPARED STATEMENT OF DR. GAL LUFT

Executive Director, Institute for the Analysis of Global Security (IAGS)

Mr. Chairman, Members of the Committee:

It is an honor to be invited to submit this testimony to this distinguished Committee on the important issue of improving the fuel efficiency of America’s vehicle

fleet. I currently serve as executive director of the Institute for the Analysis of Global Security (IAGS), an energy security research institution. I’m also representing the

Set America Free coalition, a coalition of national security, foreign policy and environmental groups dedicated to promote a blueprint for energy security which focuses

on reduction of U.S. oil demand in the transportation sector. Among the groups involved in the coalition are IAGS, the National Defense Council Foundation, the

Hudson Institute, the Foundation for the Defense of Democracies, the Center for Security Policy, and the Natural Resources Defense Council.

I would like to address the strategic context of our current dependence on imported oil and its implications on national security and offer new approaches to the

fuel efficiency debate.

The Strategic Impact of Our Oil Dependence

In 2004 oil prices have grown by close to 40 percent. As a result, the United States spent more than $18 million per hour on foreign oil. In the same period of

time, OPEC’s oil export revenues grew by 42 percent to $338 billion. According to

the U.S. Energy Information Administration (EIA) throughout 2005 oil prices will

continue to stay high and OPEC will rake $345 billion in revenue. This transfer of

wealth of historical proportions is not only exacting a hidden tax on the American

economy but is also undermining our national security and the security of the world

at large. It is unfortunate that most major oil producing countries are either politically unstable and/or at odds with the U.S. Some of the world’s largest oil producing

nations are sponsors of or allied with radical Islamists who foment hatred against

the U.S. The petrodollars we provide such nations contribute materially to the terrorist threats we face. In time of war, it is imperative that our national expenditures on energy be redirected away from those who use them against us.

Beyond the underwriting of terror, our present dependency creates unacceptable

vulnerabilities. As we have learned from Osama bin Ladin’s messages, al Qaeda terrorists know that oil is the Achilles heel of the world economy and disrupting the

world’s oil supply is central to their efforts to defeat the U.S. and its democratic allies. In Iraq and Saudi Arabia, America’s enemies have demonstrated that they can

advance their strategic objective by attacking critical oil infrastructure and personnel. In Iraq alone there have been more than 200 attacks against pipelines and

oil installations in the past 20 months. These targets are readily found not only in

the Mid East but also in other regions to which Islamists have ready access such

as the Caspian Basin and Africa. Over time, these attacks are sure to become more

sophisticated and their destructive effects could be difficult, costly and time-consuming to undo.

In the longer run America’s national security can be adversely influenced by China’s growing demand for oil. Chinese oil consumption is increasing seven times faster than that of the U.S. and its imports have grown by over 35 percent per year

for two consecutive years. All signs indicate that China’s appetite for oil will continue to grow in the years to come. According to the International Energy Agency,

by 2030 China will import more oil than the U.S. does today. There is no doubt that

China’s robust economic growth has already been felt on the global energy scene

and has been a major contributor to last year’s spike in prices. More importantly,

China’s demand for energy and other raw materials and its hunt for steady oil supplies in areas where the U.S. has strategic interests could undermine Sino-American

relations. The U.S.–China Economic and Security Review Commission, a group created by Congress to examine the national security implications of the bilateral trade

and economic relationship between the two countries, warned in its 2004 report that

China’s growing dependence on imported oil is a key driver of its relations with terrorist-sponsoring governments. The report said: ‘‘China’s approach to securing its

imported petroleum supplies through bilateral arrangements is an impetus for nonmarket reciprocity deals with Iran, Sudan, and other states of concern, including

arms sales and WMD-related technology transfers that pose security challenges to

the United States.’’ There is growing recognition within the oil industry that the rise

of China will bring about a bidding war for Middle East supply between East and

West. Dave O’Reilly, chief executive of ChevronTexaco warned recently against alliances formed between Asian countries and Middle East entities, calling for the U.S.

Government to recognize and understand the implications of such a geopolitical

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shift. Without a comprehensive strategy designed to prevent China from becoming

an oil consumer on par with the U.S., the U.S. might find itself in the future facing

aggressive competition from China over access to Middle East oil with grave implications for global security.

U.S. Approach to Oil Dependence

In light of intensifying military involvement in the Middle East, terrorist attacks

on oil infrastructure, persistently high global oil prices, and the rise of China, oil

dependence has become an incipient national security emergency. To address the

problem of our dependence on volatile suppliers, the U.S. has pursued a three-part

strategy:

• Diversifying sources;

• Managing inventory in a strategic reserve;

• Increasing the transportation sector’s energy-consumption efficiency

The first pillar of our strategy is no more than a stopgap solution. In May 2001,

when the Bush administration released its National Energy Policy, it proposed to

reduce dependence on Middle East oil dependence by targeting alternative oil-supplying nations for government investment and closer alliances, including Angola,

Azerbaijan, Colombia, Kazakhstan, Nigeria, Russia, and Venezuela. All of these nations are undemocratic, vulnerable to global terrorism and face significant political

and social instability. Increasing U.S. reliance on these states would do little to address U.S. security and economic threats stemming from oil dependency. Given the

integrated nature of the world economy we accomplish nothing if we merely shift

our own purchases of oil from one of the world’s regions to another. An oil crisis

will affect all our economies, regardless of the source of our own imports. Furthermore, non-OPEC reserves are being depleted almost twice as fast as OPEC’s. This

will ensure that our dependence on OPEC will only grow as time goes by. With

OPEC countries sitting in the driver’s seat with respect to the world’s oil supply and

oil prices, the world’s economic and political future will be compromised.

Inventories are a critical element of energy security. But they are limited in scale

and only useful to address a short term supply disruption. However, at this moment

most major oil consuming nations do not have significant strategic petroleum reserves. This means that a supply disruption will still send international oil prices

to the roof regardless of how much stock is kept in the U.S. Though over time it

would be advisable to see more countries developing robust strategic petroleum reserves, such action at the point of high oil prices would only create additional demand and hence drive prices up even further.

Since the Arab oil embargo in 1973 several sectors of the economy significantly

reduced their dependence on oil. The power sector is a particular example: today,

only two percent of U.S. electricity is generated from oil. The transportation sector

accounts for o of U.S. oil consumption, about o of that being gasoline and most of

the rest diesel. Improving fuel efficiency in U.S. vehicles is the only course of action

which carries no negative consequences. On the contrary, studies show that by reducing demand for oil in the transportation sector and transitioning the economy

into an economy based on next generation fuels and automobiles, the U.S. could

generate millions of new jobs and billions of dollars worth of investment opportunities.

New Approach to Fuel Efficiency

In the past three decades the debate on improving fuel efficiency has focused

mainly on the tension between auto manufacturers, consumers and the government.

Though everybody agrees that the U.S. should reduce its oil bill neither Detroit nor

the American consumer is willing to do so for the greater good. The U.S. auto industry shies away from embarking on revolutionary changes in its designs and production lines and by and large resists significant rise in CAFE standards. The American consumer is growingly minded to the need to reduce oil dependence but is still

unwilling to accept compromise on cost, comfort, power or performance. To end the

stalemate in the fuel efficiency issue we need to change the terms of the debate.

Today when it comes to CAFE the auto industry shoulders the entire burden. But

long-term security and economic prosperity depends on technological transformation

not only at the vehicle level but also in the fuel that powers it. In other words, to

get people to travel more miles per gallon of gas one need not focus only on redesigning the car, making it lighter or improving its engine. We should think in terms

of gallon stretchers—making our fuel more efficient. For example, a number of commercially available fuel additives can enhance combustion efficiency by up to 20 percent. Most of these additives are made from organic materials and are environmentally friendly. By reducing the size of the oil droplets they bring to more effiVerDate 11-MAY-2000 13:33 Sep 17, 2005 Jkt 098561 PO 00000 Frm 00106 Fmt 6601 Sfmt 6621 C:\WORKD\FULL05\020905\98561 SCIENCE1 PsN: SCIENCE1
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cient combustion. Such additives can be blended into gasoline, diesel and bunker

fuel.

An even better way of reducing the content of gasoline in the fuel tank can be

done by mixing gasoline with alternative fuels and using the blend in flexible fuel

vehicles (FFVs) that can be readily available at low marginal cost and that require

no change in auto design. FFVs are designed to burn on alcohol, gasoline, or any

mixture of the two. About four million FFVs have been manufactured since 1996.

The only difference between a conventional car and a flexible fuel vehicle is that

the latter is equipped with a different control chip and some different fittings in the

fuel line to accommodate the characteristics of alcohol. The marginal additional cost

associated with such FFV-associated changes is currently under $150 per vehicle.

That cost would be reduced further as volume of FFVs increases, particularly if

flexible fuel designs were to become the industry standard.

Alcohol fuels that can be used in FFVs:

• Ethanol is currently produced in the U.S. from corn. In 2004, the U.S. produced over 3.2 billion gallons of ethanol, and the market has increased on the

average of 25 percent per year over the past three years. Almost all our ethanol comes from corn and is being used either as an additive to gasoline or

as E–85. Upping production of ethanol would be achieved by continuing to advance the corn-based ethanol industry but, more importantly, by commercializing the production of ethanol from agricultural and municipal waste and

dedicated energy crops. Progress has been made on a process that produces

ethanol from biomass using genetically modified biocatalysts and a Canadian

company, Iogen, has just entered commercial production.

• P–Series fuel (approved by the Department of Energy in 1999) is an energyefficient blend of ethanol, natural gas liquids and ether made from biomass

waste. About 20 percent of the blend is MeTHF, an ether derived from

lignocelullosic biomass—paper sludge, wastepaper, food waste, yard and wood

waste, agricultural waste, and so on. P–Series fuels can help solve a problem

all municipalities are facing today: waste disposal. Using feedstock with a

negative cost—that means waste that municipalities would otherwise pay to

have hauled away—allows the fuel’s selling price to be about the same as

mid-grade gasoline.

• Methanol (also known as wood alcohol) is today for the most part produced

from natural gas. Expanding domestic production can be achieved by producing methanol from coal, a resource with which the U.S. is abundantly endowed. The commercial feasibility of coal-to-methanol technology was demonstrated as part of the DOE’s ‘‘clean coal’’ technology effort. For almost a

decade, a commercial scale demonstration plant in Kingsport, Tennessee has

been producing methanol from coal at under $0.50 a gallon. Methanol can

also be produced from biomass using gasification technology.

Alcohol fuels are relatively easy to introduce to the market because of the low infrastructure costs involved. It only costs about $20,000 to enable an existing gasoline or diesel tank at a gas station to accommodate one of the above fuels and about

$60,000 to add a new fuel pump to an existing refueling station. By introducing a

fleet of FFVs and actually fueling them with blends of say 20 percent alcohol and

80 percent gasoline we can save more oil than through the entire CAFE program.

For example, a hybrid car like the Toyota Prius that is also an FFV running on a

blend of 85 percent ethanol and 15 percent gasoline can get nearly 300 miles per

gallon of gasoline.

Electricity as a Fuel

Electricity is seldom referred to as a transportation fuel, but it is. Less than two

percent of U.S. electricity is generated from oil, so using electricity as a transportation fuel would greatly reduce dependence on imported petroleum. Tens of thousands of hybrid electric vehicles are already on America’s roads combining hybrid

engines powered in an integrated fashion by liquid fuel-powered motors and batterypowered ones. Such vehicles increase gas-consumption efficiency by 30–40 percent.

While hybrids gather charge to their batteries by capturing breaking energy, their

only external source of energy is liquid fuel. ‘‘Plug-in’’ hybrid electric vehicles take

the concept one step further, by allowing us to draw charge not only from the engine

and captured braking energy, but also directly from the electrical grid by being

plugged into standard electric outlets when not in use. They have liquid fuel tanks

and internal combustion engines, so they do not face the range limitation posed by

electric-only cars. Since fifty percent of cars on the road in the United States are

driven 20 miles a day or less, a plug-in with a 20-mile range battery would reduce

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fuel consumption by, on average, 85 percent. Plug-in hybrid electric vehicles can

reach fuel economy levels of 100 miles per gallon of gasoline consumed. Overall,

plug-ins can reduce gasoline use by 85 percent. This is so dramatic a reduction that

a plug-in SUV actually would consume less gasoline than a standard compact car.

Plug-in hybrid vehicles would be charged at night in home garages—a time-interval

during which electric utilities have significant excess capacity. The Electric Power

Research Institute estimates that up to 30 percent of market penetration for plugin hybrid electric vehicles with 20-mile electric range can be achieved without a

need to install additional electricity-generating capacity. Plug-ins will soon make

their debut. DaimlerChrysler is currently introducing a plug in version of its Sprinter van. Though a plug-in would be initially more expensive up front than an ordinary car, the total cost over the life of the vehicle would be less due to lower operating costs and gasoline saving. As battery technologies improve the cost of plugins will drop further.

If a vehicle combines hybrid technology with a flexible fuel internal combustion

engine, the effect of next generation fuels can be multiplied with substantial fuel

efficiency gains. A plug-in hybrid vehicle that is also a flexible fuel vehicle can be

powered by blends of alcohol fuels, gasoline, and electricity. If fueled by a blend of

80 percent alcohol, 20 percent gasoline, and electricity, fuel economy could reach 500

miles per gallon of gasoline.

According to the Set America Free Coalition if by 2025, all cars on the road are

hybrids and half are plug-in hybrid vehicles, U.S. oil imports would drop by eight

million barrels per day (mbd). Today, the United States imports 10 mbd and it is

projected to import almost 20 mbd by 2025. If all of these cars were also flexible

fuel vehicles, U.S. oil imports would drop by as much as 12 mbd.

Recommendations for Congress:

Provide incentives to auto manufacturers to produce and consumers to purchase, hybrid vehicles, plug-in hybrid electric vehicles and FFVs across all vehicle models.

Producing fuel-efficient, advanced technology vehicles will requires automakers

and their suppliers to retool their factories. Hybrid vehicles rely on advanced

equipment such as battery packs, electric motors and generators, and electronic

power controllers. Advanced diesel drivetrains require sophisticated fuel injection

systems, turbochargers and after treatment systems.

Provide incentives for auto manufacturers to increase fuel efficiency of existing, nonFFV auto models. Many off-the-shelf technologies exist to improve today’s cars, including variable valve engine timing, continuously variable transmissions, and

lightweight, high strength materials.

Call for substantial incorporation of plug-ins hybrids, standard hybrids, and FFVs

into federal, State, municipal and covered fleets, and ensure that these FFVs are

actually fueled with alcohol blends.

Provide investment tax incentives for corporate fleets and taxi fleets to switch to

plug-ins, hybrids and FFVs.

Encourage gasoline distributors to blend combustion enhancers into the fuel.

Provide incentives for existing fueling stations to install alternative fuel pumps and

mandate that all new gas stations be so equipped with such pumps.

Encourage new players, such as utilities, to enter the transportation fuel market.

Utility companies have traditionally viewed themselves as providers of ‘‘power’’ for

lighting homes or powering computers. Using electricity as a fuel can allow them

to become key players in the transportation energy sector and introduce much

needed competition in the fuel market.

Provide incentives for the construction of commercial scale demonstration plants to

produce non-petroleum based liquid fuels from domestic energy resources, particularly from waste. Two billion dollars in federal funding utilizing public-private cost

sharing partnerships could build roughly 25 demonstration plants. Such program

would spur innovation, development, and demonstration projects aimed at making

non-petroleum fuels cost-effective for consumers while weeding out unfeasible technologies.

Apply efficiency standards for heavy-duty trucks. Most of our effort to improve fuel

efficiency is focused on light-duty vehicles. But improving the fuel economy of

heavy-duty trucks offers no smaller opportunity for oil savings. The heavy-duty

trucks sector is responsible for the consumption of close to three million barrels

per day of oil. Over two-thirds of this energy is consumed by the heaviest trucks,

such as tractor-trailers weighing over 33,000 lbs. Technology assessments by the

American Council for an Energy-Efficient Economy (ACEEE) found that conventional technology improvements including enhancements to aerodynamics, weight

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reduction, improved engine fuel injection and the introduction of hybrid gasolineelectric or diesel-electric drive trains can achieve truck fuel-efficiency advances of

26 to 70 percent at cost-effectiveness. Congress should therefore begin to apply

some of the standards for the small cars to the larger vehicle classes especially

heavy trucks from 8,500 to 10,000 lbs. Tremendous amounts of fuel are used by

truck drivers during idling. Drivers idle their trucks for days in a row to heat or

cool their sleeping cabin and run electrical appliances. This practice is extremely

wasteful since large diesel engines are designed to move heavy loads, not run auxiliary systems. Idling can be reduced by installing auxiliary power units and providing electricity in rest areas.

Invest in Public Education. Consumers still rank fuel efficiency way below power,

performance, cost and safety in their car buying considerations. As a result the Nation’s fuel efficiency standards have remained stagnant while our oil dependence

continues to grow. Barring a catastrophic oil disruption this could only change if

the public is to become more aware of the huge impact oil dependence has on our

national security. Reduction of our oil bill should be viewed by consumers as a patriotic duty, not pure economic calculation. There is clear need for public education

program to connect the dots between our behavior on the road and our national

security, between the number of Hummers on the road and the number of

Humvees in the Persian Gulf. Another issue on which public education is desirable

is the true cost of oil. The most recent estimates suggest that in a non-war year

the United States spends $20 to $40 billion in military costs to secure access to

Middle East oil supplies, which means that the American taxpayer is paying at

least an additional $4 to $5 a barrel for crude oil above market price. These extra

dollars are being paid by consumers through their income tax but are not reflected

at the price at the gas station. If Americans were more aware of what they pay

outside the gas station it would be politically easier to introduce legislative efforts

to transfer that tax burden from an indirect mechanism such as income tax to a

direct pay-as-you-go tax at the pump.

In sum

America takes pride in offering choice in every aspect of our lives. Yet, when it

comes to transportation fuels we are offered nothing but petroleum products. We

must embark on an effort to diversify our fuel market by introducing domestically

produced fuels that are made from waste products or other resources the U.S. is rich

in, and that are clean and affordable. The U.S. is no longer rich in oil or natural

gas. It has, however, a wealth of other energy sources from which transportation

fuel can be safely, affordably and cleanly generated. Among them: hundreds of years

worth of coal reserves, 25 percent of the world’s total (especially promising with Integrated Gasification and Combined Cycle technologies); billions of tons a year of

biomass, and further billions of tons of agricultural and municipal waste. Vehicles

that meet consumer needs like ‘‘plug-in’’ hybrids can tap America’s electrical grid

to supply energy for transportation, making more efficient use of such clean sources

of electricity as solar, wind, geothermal, hydroelectric and nuclear power.

Because of the national security imperative we have no time to wait for commercialization of immature technologies such as fuel cells. I believe that automotive fuel

cells hold great potential and should definitely be pursued. But far too much focus

is being placed on them at the expense of more quickly available solutions. We

should focus on real world solutions and implement technologies that exist today

and are ready for widespread use. We also don’t have the time and money to embark on massive infrastructure changes. The focus should be on utilizing competitive technologies that do not require prohibitive or, if possible, even significant investment in changing our transportation sector’s infrastructure. Instead, we should

permit the maximum possible use of the existing refueling and automotive infrastructure. Finally, we need to remember that oil dependence is a global issue which

should be addressed internationally. Even if the U.S. was no longer dependent on

foreign oil, if the rest of the world still remains beholden to the small club of oil

producers the national security problems discussed before will not go away. Only a

global effort led by the U.S. to reduce demand for petroleum by distributing the

above-mentioned technologies will bring about prosperity and strengthen global security.

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