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[Senate Hearing 107-645]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 107-645
 
  REPORT OF THE NATIONAL ACADEMY OF SCIENCES ON THE EFFECTIVENESS AND 
                          IMPACT OF CORPORATE 
                 AVERAGE FUEL ECONOMY (CAFE) STANDARDS
=======================================================================

                             JOINT HEARING

                               before the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION

                                and the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             AUGUST 2, 2001

                Printed for the use of the Committee on
             Commerce, Science, and Transportation and the
               Committee on Energy and Natural Resources

                       U. S. GOVERNMENT PRINTING OFFICE
81-588                          WASHINGTON : 2002
___________________________________________________________________________
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           COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

              ERNEST F. HOLLINGS, South Carolina, Chairman
DANIEL K. INOUYE, Hawaii             JOHN McCAIN, Arizona
JOHN D. ROCKEFELLER IV, West         TED STEVENS, Alaska
    Virginia                         CONRAD BURNS, Montana
JOHN F. KERRY, Massachusetts         TRENT LOTT, Mississippi
JOHN B. BREAUX, Louisiana            KAY BAILEY HUTCHISON, Texas
BYRON L. DORGAN, North Dakota        OLYMPIA J. SNOWE, Maine
RON WYDEN, Oregon                    SAM BROWNBACK, Kansas
MAX CLELAND, Georgia                 GORDON SMITH, Oregon
BARBARA BOXER, California            PETER G. FITZGERALD, Illinois
JOHN EDWARDS, North Carolina         JOHN ENSIGN, Nevada
JEAN CARNAHAN, Missouri              GEORGE ALLEN, Virginia
BILL NELSON, Florida
               Kevin D. Kayes, Democratic Staff Director
                  Moses Boyd, Democratic Chief Counsel
               Margaret Spring, Democratic Senior Counsel
                  Mark Buse, Republican Staff Director
               Jeanne Bumpus, Republican General Counsel
                    Ken Nahigian, Republican Counsel
                                 ------                                

               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                  JEFF BINGAMAN, New Mexico, Chairman
DANIEL K. AKAKA, Hawaii              FRANK H. MURKOWSKI, Alaska
BYRON L. DORGAN, North Dakota        PETE V. DOMENICI, New Mexico
BOB GRAHAM, Florida                  DON NICKLES, Oklahoma
RON WYDEN, Oregon                    LARRY E. CRAIG, Idaho
TIM JOHNSON, South Dakota            BEN NIGHTHORSE CAMPBELL, Colorado
MARY L. LANDRIEU, Louisiana          CRAIG THOMAS, Wyoming
EVAN BAYH, Indiana                   RICHARD C. SHELBY, Alabama
DIANNE FEINSTEIN, California         CONRAD BURNS, Montana
CHARLES E. SCHUMER, New York         JON KYL, Arizona
MARIA CANTWELL, Washington           CHUCK HAGEL, Nebraska
THOMAS R. CARPER, Delaware           GORDON SMITH, Oregon
                    Robert M. Simon, Staff Director
                      Sam E. Fowler, Chief Counsel
               Brian P. Malnak, Republican Staff Director
               James P. Beirne, Republican Chief Counsel
                     Shirely Neff, Staff Economist
                    Bryan Hannegan, Staff Scientist

                            C O N T E N T S

                              ----------                              

                               STATEMENTS

                                                                   Page

Allen, Hon. George, U.S. Senator from Virginia...................     9
Bingaman, Hon. Jeff, U.S. Senator from New Mexico................     1
Burns, Hon. Conrad, U.S. Senator from Montana....................     2
Feinstein, Hon. Dianne, U.S. Senator from California.............     8
Kerry, Hon. John F., U.S. Senator from Massachusetts.............     4
Murkowski, Hon. Frank H., U.S. Senator from Alaska...............     7
Portney, Dr. Paul R., Chair of the Committee on Effectiveness and 
  Impact of the Corporate Average Fuel Economy Standards, 
  National Research Council; accompanied by Drs. John J. Wise, 
  Philip R. Sharp, Adrian Lund, and David L. Greene (all Members of the NRC
CAFE Committee).....................................    10

Smith, Hon. Gordon, U.S. Senator from Oregon.....................     9

  REPORT OF THE NATIONAL ACADEMY OF SCIENCES ON THE EFFECTIVENESS AND 
       IMPACT OF CORPORATE AVERAGE FUEL ECONOMY (CAFE) STANDARDS

                              ----------                              

                        THURSDAY, AUGUST 2, 2001

        U.S. Senate, Committee on Commerce, Science, and 
            Transportation, and the Committee on Energy and 
            Natural Resources,
                                                    Washington, DC.
    The Committees met, pursuant to notice, at 2:40 p.m. in 
room SH-216, Hart Senate Office Building, Hon. John F. Kerry 
presiding.

           OPENING STATEMENT OF HON. JEFF BINGAMAN, 
                  U.S. SENATOR FROM NEW MEXICO

    Senator Bingaman [presiding]. Why don't we go ahead and 
start the hearing. This is a joint hearing of the Commerce and 
Energy Committees, both of which Senator Burns is on, and so 
both Committees are well represented here. We are going to go 
ahead and start.
    We just completed two days of mark-up in the Energy 
Committee on the Comprehensive Energy Policy Bill, on the first 
section. I see the focus of that bill as trying to build a 21st 
century energy infrastructure that contributes to our economic 
prosperity, gives consumers a wider range of affordable energy 
choices, while being responsible stewards of the environment.
    In the last 2 days, we found broad bipartisan agreement in 
the Energy Committee on a robust research and development 
program. That R&D program needs to cover all aspects of energy 
production and energy efficiency and basic research. That is 
clearly an important element in finding new energy technology 
so that we will overcome some of the traditional obstacles and 
conundrums that we have in establishing our energy policy.
    One of those conundrums is how to improve vehicle fuel 
efficiency while maintaining passenger safety. When we return 
in September, the Energy Committee and the Commerce Committee 
both will be discussing proposals for improved vehicle fuel 
efficiency and diversified fuel use in vehicles. The Committees 
have jurisdiction for separate parts of that question.
    In today's hearing, both Committees have an opportunity to 
discuss the National Academy of Sciences report on 
effectiveness and impact of the corporate average fuel economy 
or CAFE standards, and we have several members of the Committee 
that prepared this report for the National Research Council.
    This comprehensive analysis provides a framework for 
looking at a number of issues that the CAFE standards 
encompass; issues like the economy, emissions, automobile 
safety, oil imports, and the environment. These concerns, as I 
am sure the Committee members will note, are very much 
interdependent.
    I asked the staff to put up this one chart, which I have 
shown at several other Energy Committee hearings, because I 
think it points out the importance of the issue we are talking 
about and tries to portray both the history from 1970 until 
2000 and then the period from now until 2020. It looks at 
petroleum consumption by different sectors of our economy. The 
transportation sector, as the chart amply demonstrates, is the 
sector of the economy that has been increasing its use of 
petroleum relative to other sectors, and is projected to 
increase its share of petroleum usage in our economy even more 
over the years ahead. So I think the issue of vehicle fuel 
efficiency is extremely important and extremely relevant as we 
discuss our energy future.
    Let me stop with that very brief statement and call on 
Senator Burns for any statement he would have, and then we will 
hear from the panel.

            OPENING STATEMENT OF HON. CONRAD BURNS, 
                   U.S. SENATOR FROM MONTANA

    Senator Burns. Thank you very much, Mr. Chairman and you 
know, what a difference 30 days makes, right? 30 days ago when 
gasoline was $1.80 a gallon, this place you couldn't get 
another person in with a shoe horn, and today with gasoline at 
$1.30, and I gassed up the other day in Grand Island, Nebraska 
for $1.21, you know, all at once the urgency goes away for us 
to do something.
    I want to thank you and I want to thank the Chairman of the 
Commerce Committee for holding this hearing, because I think we 
have a lot of things in common to both Committees. I think both 
Committees have a responsibility to look at this thing called 
fuel efficiency and efficiency standards, that it becomes very 
very important.
    There's no doubt among us today that today's automobile is 
entirely different than the automobile even when I came to the 
Senate just 12 years ago, that the difference in our lifetime 
has been drastic. The cars, both automobiles and trucks, they 
run cleaner, they are safer, they are more efficient than they 
were, say 30 years ago.
    While some would like to give the credit to the U.S. 
Congress for all the rules and standards that it developed, I 
would rather give credit where credit is due and thank the 
automakers, because I would say technology and competition has 
brought us to where we are today, and someone around the world, 
and of course the automobile industry is around the world 
business.
    Coming from Montana, we look at a vehicle entirely 
different than say you would look at them out here on the 
beltway. Performance for Montana has a different meaning. We 
have longer distances and we have to cover those distances and 
we don't have a choice, because we are at the end of the 
freight line, so to speak. If you look at the distance in 
Montana from Eureka down to Alzada, as the crow flies, and that 
is from the northwest corner to the southeast corner, it is 
further than it is from Chicago to Washington D.C.
    And what we do out there with our automobiles is a little 
bit different than our trucks. We have to haul product to the 
farm and then we haul product from the farm. And of course, 
they would always say about agriculture, we operate under very 
different circumstances. We buy retail, sell wholesale, and we 
pay the freight both ways, and that sort of puts us in a pinch.
    But number one, we look at our vehicle and at our roads for 
one thing, and that is reliability and will they get the 
product from point A to point B? So for these kinds of jobs we 
need reliable trucks and automobiles to get our jobs done, and 
the confidence that it takes to move us from one point to 
another. It is not for fun in our country and it is not to look 
cool on the expressway, it is because it is a part of our life.
    Today's automakers have no choice but to build a better car 
and truck next year than they did this year, but I will say 
this. I am looking for a pickup now, prior to 1960, I think. I 
buy my automobiles in garage sales, I find that very economical 
at times, and other times it is not so economical. Nonetheless, 
we have to, we buy them for a different reason, but I will tell 
you this. The automakers keep making pickups for the urban 
crowd; it does not serve those of us who use pickups for the 
real thing, and that is to move product and then for them to 
stand up. I will tell you, the four-wheel drive pickups we get 
now do not last near as long as the old ones we had, say just 
25 years ago.
    I have no doubt that they will continue to do this with or 
without the change in CAFE standards. However, if we make 
changes in the standard without thinking about what our effects 
will be, that will be a big mistake. For example, by forcing 
manufacturers to pour all their resources into fuel efficiency, 
what do we trade for in safety and reliability that we may have 
achieved otherwise?
    And I think that is the question that we are looking for 
here today, and I look forward to listening to our panels, and 
our experts that have studied this for a long long time. So Mr. 
Chairman, I would ask unanimous consent that my full statement 
be made part of the record, as I am looking forward to hearing 
the testimony.
    Senator Bingaman. That will be the case. Since Senator 
Kerry is here, he will chair the rest of this hearing, and I 
will watch.
    [The prepared statement of Senator Burns follows:]
   Prepared Statement of Hon. Conrad Burns, U.S. Senator From Montana
    Thank you Mr. Chairman, and thank you to our witnesses for being 
here today to discuss the National Research Council's report on The 
Effectiveness and Impact of CAFE Standards, or Corporate Average Fuel 
Efficiency Standards. As a member of both the Energy and Commerce 
Committees, this is a subject which is important to me in many 
different aspects.
    There is no doubt among any of us that today's auto is cleaner, 
safer, and more efficient than those made 30 years ago. While some 
would like to give the credit for that to the U.S. Congress for all the 
rules and standards it has developed, I would rather give credit where 
credit is due and thank the automakers. I would say technology and 
competition have brought to where we are today much more than any rule 
has.
    Coming from Montana, I have a different way of looking at cars and 
trucks than many of my colleagues. Performance in Montana has a much 
different meaning than it does on the Beltway. Yes, we have a lot of 
big cars and trucks to haul equipment, but remember, people are hauling 
a lot more than boats and RV's in Montana. We are moving livestock 
around, or carrying ranch or farm equipment from one place to another. 
And it might be 80 or 100 miles from one town to the next. For that 
kind of a job you need a reliable truck, and you need to have the 
confidence that it will get you and your merchandise without any 
trouble. Not for fun, or because it looks cool, but because it's your 
life.
    Before we get too far into this, I ask my colleagues to take into 
consideration the different situations that drivers in different parts 
of the country face. Larger vehicles cannot and should not be 
classified into some sort of luxury status. Without the use of those 
vehicles at an affordable price, the American West would be a very 
different place than it is today. By asking that automakers place fuel 
efficiencies over any other goal, I fear that a big chunk of the burden 
will fall on the people who need these vehicles most to make a living. 
These are the farmers and ranchers who feed this country, but are being 
squeezed from every direction. They are facing higher prices for the 
goods they buy including fuel and fertilizer, and lower places for the 
goods they sell. Ranchers and farmers are interested in fuel 
efficiency, because that hits them in the pocketbook. But they are also 
dependent on a lot of other features that cars and trucks provide. By 
focusing purely on fuel efficiency, we are minimizing the importance of 
reliability, safety, and performance.
    Today's automakers have no choice but to build a better car or 
truck next year than they did this year just to stay ahead of the 
competition. I have no doubt they will continue to do this with or 
without a change in CAFE standards. However, if we make changes in the 
standard without thinking about what the other effects will be that is 
a big mistake. For example, by forcing manufacturers to pour all their 
resources into fuel efficiency, what do we trade for it in safety and 
reliability that may have been achieved otherwise?
    The report estimates that 1300 to 2600 highway fatalities in 1993 
alone may be attributable to smaller, lighter cars that resulted partly 
from strict CAFE standards. Fuel efficiency, or any other attribute 
come at a cost. We need to know what those costs are.
    I support the continued research and development of technologies 
that may not undertaken without federal support: The technology cycle 
can be drastically cut when we are willing to undertake this research 
for the public good before it is feasible in the marketplace. I would 
like to recommend that we focus on research before we focus on 
restrictions because this gives our American automakers a chance to 
compete in the global marketplace.
    A final point I would like to make regards an assumption that is 
made throughout the report that greenhouse gases are decreased when 
fuel efficiency increases. I would like to find out further about the 
link between these two. I would suggest that as our cars get better 
mileage and it becomes less expensive to travel per mile, then people 
make choices accordingly. All told, people could be driving more miles 
today because it is cheaper to do so than it would have been otherwise. 
That would mean more people on the road for longer periods of time, and 
quite possibly emitting more carbon dioxide. CAFE standards are not, 
and should not be used as a tool for decreasing greenhouse gases in the 
atmosphere because the net effect is unknown. Better mileage may very 
well have the effect of increasing total carbon dioxide emissions, and 
I'd like to discuss this possibility with the panel and with my 
colleagues.
    I am glad that the time and energy was put into producing this 
report because it answers some questions about what CAFE standards have 
and have not accomplished. It guides us in deciding how to make these 
standards more fair and effective. But it does not answer all my 
questions, and I am glad to have the witnesses here today to answer 
some of them.

               STATEMENT OF HON. JOHN F. KERRY, 
                U.S. SENATOR FROM MASSACHUSETTS

    Senator Kerry [presiding]. Mr. Chairman, thank you for your 
cooperation in this joint hearing, and thank you for your 
leadership of the Energy Committee. I thank those of you who 
are here from the Academy and other sectors to discuss this 
question of the National Academy of Sciences' National Research 
Council's special report on CAFE standards.
    As I listened to Senator Burns, I was thinking, and I say 
this very respectfully, how familiar the arguments I heard 
sound. They are almost a recap of the arguments we heard in the 
original discussions about CAFE standards.
    Back in 1967 and 1974, we had rising oil prices and we also 
had declining fuel economy in the new car fleet, so the public 
was looking for more efficient automobiles. And in 1975, we 
required automobile manufactures to increase the average fuel 
economy in cars and light trucks, which then didn't include 
minivans, pickups and sport utility vehicles (SUVs).
    Specifically, the Act applied a different standard to 
passenger cars and light trucks because of the rare use of 
light trucks, and limited information about light trucks. SUVs 
later came along and went through a definitional loophole, and 
qualified as trucks. Nobody anticipated the kind of widespread 
passenger use of SUVs the way we have it today. But we heard 
all the same arguments: increasing standards is going to kill 
the economy, if you do this it is going to hurt the country, 
the steel and auto industry, and so forth and so on.
    I remember hearing those arguments in the Clean Air Act 
debate in 1990 where the projection, by the industry, was that 
if we mandated sulphur reductions, it was going to cost the 
industry $10 billion. That was the figure floated around 
Congress, to which everybody said ``Oh, God, how are we going 
to afford this?''
    The Environmental Protection Agency said ``No, it is going 
to cost $4 billion.'' In fact, we put a cap and trade program 
for SO2 in place. We have now reduced significantly 
the level of SOX emissions and we did it for $2 
billion. Why? Because nobody factored in sufficiently, if at 
all, how technology itself can reduce costs and improve 
efficiency, and nobody could predict with certainty what would 
come down the road.
    What we have learned historically in this country is that 
when you liberate the entrepreneurial spirit of the United 
States of America, when you excite particular industries with a 
certainty of a marketplace, they fill the void. They come to it 
with solutions. There is, after all, no inherent public 
marketplace for Abrams tanks or for many of the planes we build 
or for missiles. There is a threat that we define, and we put a 
certain amount of money to the threat. Then, given that money, 
the private sector creates the response.
    It is absolutely the same thing in the field of clean 
technology and environmental technology. If there is a 
sufficient marketplace and a guarantee of it, countless 
companies will fill that market. I am chairman of the Small 
Business Committee, and we just had a hearing yesterday, at 
which we heard the countless stories of small entities with 
hydrogen fuel cells and other alternatives that need the 
capacity of market, venture capital and other things to bring 
them to the marketplace. But the possibilities of offering 
alternatives to our citizens are enormous if we will dare to 
imagine it and to incentivize it.
    That is what we are here to talk about today; the same 
thing happened with the CAFE standards. When they went into 
place, we doubled automotive fuel economy, and we significantly 
increased not just the capacity of our automobiles, but their 
safety as well. So I think there are many things to look at 
here if we keep open minds. I will put the text of my own 
statement in the record so it can be read in full, and I ask my 
other colleagues if they would have any opening statements at 
this time. Senator Murkowski.
    [The prepared statement of Senator Kerry follows:]
               Prepared Statement of Hon. John F. Kerry, 
                    U.S. Senator From Massachusetts
    To begin, I want to thank our panelists for being here today and 
for the time, energy and effort they expended in writing the National 
Research Council report on CAFE.
    In 1975 the nation set a goal of doubling the fuel economy of 
America's automobiles with the CAFE program--and in many respects we 
succeeded. Thanks to federal standards and innovation by the auto 
industry, the average passenger car on the road today is twice as 
efficient, safer, more reliable and a better overall product. We save 
roughly 3 million barrels of oil daily, save more than $20 billion in 
reduced fuel purchases, and we have significantly reduced pollution 
that degrades the environment and public health. In this regard, I 
believe that CAFE has been a success.
    However, in other areas, CAFE has not been as successful. The 
overall fleet of cars, SUVs, trucks and minivans is increasingly 
inefficient. In fact, the efficiency of the overall fleet has been 
declining since 1987 and is now at its lowest since 1980. The NRC 
report reveals that the regulatory framework of the CAFE program needs 
to be updated to reflect the modern auto industry. For example, the SUV 
loophole no longer makes sense as these vehicles have replaced cars in 
many households and now makeup more than half of the new vehicles sold. 
The NRC has also focused on the ``2-fleet'' rule that treats domestic 
and foreign built autos manufactured by the same company separately, 
the ``dual fuel'' rule that provides credits for vehicles that have the 
capability of running on ethanol but most often run on gasoline and 
other areas of concern. It seems that CAFE needs to be reformed.
    Most of the blame for the CAFE program's current problems rests 
with Congress, because, year after year, the Congress enacted riders 
that prevented the Department of Transportation from even studying how 
these problems could be avoided and remedied. And the predictable 
result has now come to fruition, as the program is failing to meet even 
its most basic objective of increasing auto efficiency. I hope the NRC 
report and the work of the Commerce Committee and the Energy Committee 
will move us beyond that gridlock.
    The NRC also concluded that CAFE has had a negative impact on 
safety in some instances. We must take that conclusion very seriously 
and think carefully about how a CAFE program can be structured to have 
no impact or a positive impact on safety, as the NRC says is possible. 
The most important factor seems to be providing the industry sufficient 
lead time to meet new standards. Doing so will allow industry to 
innovate with more efficient engines, new materials and safety design 
so that efficiency gains are not achieved through size reduction alone, 
which may harm safety.
    In closing, I want to say that the Commerce Committee plans 
additional hearings on this issue and, I hope, will produce legislation 
that can be brought before the full Senate. My view is that such a 
proposal must reform the CAFE program. That might mean closing the SUV 
loophole, setting new standards for all vehicles and including some 
other proposals from the NRC and others. I hope and expect that the 
Committee will be inclusive and deliberative in that process, taking 
testimony from the automakers, autoworkers, technical experts, 
environmentalists and others.
    My work will be guided by four principles:

   We must reverse the trend of decreasing efficiency as soon 
        as possible.
   We must make significant efficiency gains over the coming 
        decade.
   We must minimize any negative impact on our auto companies 
        and workers.
   We must ensure public safety.

    Hopefully we can find common ground and enact just such a proposal 
this Congress. I look forward to the panel, and I thank the Energy 
Committee for working with the Commerce Committee to organize this 
hearing.
    Thank you.

             STATEMENT OF HON. FRANK H. MURKOWSKI, 
                    U.S. SENATOR FROM ALASKA

    Senator Murkowski. Good morning, Senator Kerry. I 
appreciate the opportunity to participate as the ranking member 
of the Energy Committee in this joint hearing, to conduct 
oversight on the National Academy report on fuel economy, I 
want to welcome the distinguished panel today.
    Many of us are focusing on the report's suggestion that we 
can increase fuel economy standards to 30 miles per gallon by 
the year 2015 or thereabouts, but I think it is important to 
consider some of the small print associated with that general 
comment. And I quote: ``Raising CAFE standards would reduce 
future fuel consumption below what it would otherwise be. 
However, there are other policies that could accomplish the 
same end at a lower cost, providing more flexibility to 
manufacturers for addressing these standards than the current 
system.'' The NAS then points out several ``superior'' 
alternatives for fair consideration. I hope that you will 
explore these new recommendations here at this hearing.
    One of these alternatives, tax incentives for fuel 
efficient vehicles, is contained in the comprehensive energy 
bill that Senator Bingaman and I are working on in the 
Committee. No one disagrees that improved fuel economy provides 
benefit to consumers, the economy and environment, but Congress 
should focus on the proper policies, and I emphasize policy, to 
foster technology innovation. I do not think we should be 
spending our time arguing whether the number is 27.5, 30, 40, 
110, or whatever.
    We should instead ask why, why the 10 most efficient 
vehicles on the market today for sale to the American public 
only comprise a little less, a little less than 1.5 percent of 
the automobile sales. That is a fact. Why don't consumers buy 
these fuel efficient vehicles? Why is fuel economy ranked 25th 
on a list of attributes to consumers when they are looking for 
purchasing new cars? That is the Norris poll.
    Perhaps instead of pointing fingers at the automakers in 
Detroit, we should look at our own buying habits. Americans 
have consistently demanded vehicles with safety, improved 
performance, heavier weight, and more features, but consider 
this: if we had maintained the same weight and performance of 
our vehicles as in 1981, our fleet-wide fuel economy would 
average 36 miles per gallon. Today's cars are bigger, they are 
safer, with more features. Fuel economy gains have been offset 
by improved performance or electrical requirements. We clearly 
cannot legislate an arbitrary number and assume that the 
vehicles produced as a result will be necessarily as safe and 
as affordable as is desired by consumers.
    And NHTSA already has the authority to review CAFE 
standards based on this NAS report. Why don't we let the 
experts do the job and get out of the way? I think we are all 
aware that Senators don't make very good engineers, and 
Congress can take to heart the recommendation contained in the 
NAS report when considering changes. This is clearly a part of 
our national energy fate.
    Let me conclude with one final thought. We can mandate the 
manufacture of all of the fuel efficient cars and trucks in the 
world, but if nobody buys them, then what have we done? Does it 
not make sense to provide American consumers with safe, 
affordable, and desirable vehicles and fuel economy as well? 
There is a balance as far as what we are attempting to do in 
terms of energy policy. We can do this if we take the 
recommendations of the National Academy panel to heart.
    I look forward to your testimony, and I encourage you to 
remind us that we make decisions so often here on the rhetoric 
as opposed to the sound science, and you folks are here and I 
expect you to put your recommendations to us, and that is based 
on your expertise and commitment to science, because if we 
cannot look to you, who can we look at? We are but generalists. 
Thank you.
    Senator Kerry. Thank you very much, Senator Murkowski.
    Senator Feinstein.

              STATEMENT OF HON. DIANNE FEINSTEIN, 
                  U.S. SENATOR FROM CALIFORNIA

    Senator Feinstein. Thank you very much, Mr. Chairman. I 
want to thank you, Senator Hollings, Senator Bingaman as well 
as Senator Murkowski, for having this hearing, and I 
particularly want to thank the National Academy. I did have an 
opportunity to come and speak with you informally and I want 
you to know how much I appreciated that opportunity.
    I was actually heartened by your report. As you know, 
Senator Snowe and I have some legislation pending which would 
close the SUV light truck loophole and bring the SUV from 20 
miles a gallon in conformance with the sedan's 27.5 miles per 
gallon within the next 6 years. What I garnered from your 
report is that the technology is available to improve fuel 
efficiency, the only question is the length of time required to 
implement that technology, and I guess how you structure that 
as well. So I would like to ask you later some questions about 
that.
    The second point that you made to me was that you refuted 
the argument that increasing fuel efficiency will make U.S. 
workers less competitive, and I very much appreciated that.
    And the third point you made, which to me was important, is 
that you recognized the very critical role that transportation 
plays in reducing greenhouse gasses and foreign oil imports. 
Actually, I believe the transportation sector is some 30 
percent of the global warming issue, and one of the things in 
our bill, namely closing the SUV loophole, if we have to 
lengthen the time to accommodate that, that certainly is 
acceptable to me.
    I do think, though, that the savings that we get from it 
are important, the 240 million tons a year of carbon dioxide 
that we keep out of the atmosphere, the number one global 
warming gas, I think that is important. Reducing oil imports by 
10 percent, I think that is important. Saving the consumer at 
the pump $300 to $600 a year, I think that is important. Saving 
a million barrels of oil a day, by closing this loophole, I 
think that is important.
    I wrote to some of the companies asking them to do some of 
this voluntarily and I got a very interesting letter back from 
Honda, from the American Honda Company from their executive 
vice president, and you know, they point out to me that Honda 
has consistently maintained the leadership throughout the years 
because it's part of their corporate philosophy, and that the 
CAFE rating of their passenger cars and light trucks is the 
highest of any major manufacturer, 31.2 miles per gallon for 
passenger cars and 25.4 miles per gallon for light trucks.
    They also point out that the new Acura MDX sports utility 
vehicle achieves the best fuel economy in its class. I 
certainly think Honda is really to be commended on that basis. 
What Honda goes on to say is they don't want to continue to do 
things voluntarily unless everybody in the field is willing to 
respond in the same way.
    And I have kept hearing how, well, the three big American 
motor companies will lose their competitive edge if they 
improve fuel efficiency. I don't believe that is true, I don't 
think you believe that is true. I think the question is, how do 
we get from point A to point B, and I think your report frankly 
has shown a lot of light on that, and I am very grateful for 
it, and I am hopeful that we might be able to consider our 
closing the SUV loophole legislation very shortly. Thank you 
very much, Mr. Chairman.
    Senator Kerry. Thank you very much, Senator Feinstein. We 
have been joined by additional Senators. We didn't have this 
many Senators when we began the hearing, and I am not going to 
suggest that we do not hear them, because I think that would be 
unfair, but I do want to try to get to the panel. The first 
Senator in order will be Senator Allen.

                STATEMENT OF HON. GEORGE ALLEN, 
                   U.S. SENATOR FROM VIRGINIA

    Senator Allen. Thank you, Mr. Chairman. I will not make a 
long opening statement, I came here to learn and listen. I know 
that we ought to make decisions on sound science and whatever 
tax or regulatory policies we have in this Nation ought to be 
based on trusting our free enterprise and letting people--if 
Toyota has those vehicles, that is----
    Senator Feinstein. Honda.
    Senator Allen. Honda, excuse me. And with Ford or General 
Motors or whatever, consumers can make those decisions. I look 
forward to listening to the testimony here and I will forego 
fulminations.
    Senator Kerry. Thank you, Senator Allen.
    Senator Smith.

                STATEMENT OF HON. GORDON SMITH, 
                    U.S. SENATOR FROM OREGON

    Senator Smith. In that spirit, Mr. Chairman, I will keep my 
opening statement short.
    As Senator Allen just stated, a lot of us would like to be 
guided on science and not on politics on this. We would like to 
have for the American people cars that are safe but also I 
think the American people would appreciate a break when it 
comes to gas mileage and would like us to push as much as we 
can in public policy to get them something that is both 
friendly to the family budget and the environment, and I think 
you have done some work that helps guide us in that process, 
and I thank you.
    Senator Kerry. Thank you, Senator Smith.
    Gentlemen, thank you very much for your patience. Again, I 
apologize for personally being late but I was negotiating an 
amendment to the current bill on the floor.
    We are delighted to have the members of the Committee on 
the Effectiveness and Impact of Corporate Average Fuel Economy 
Standards with us today. I think what we will do, Dr. Greene, 
is begin with you and just go across, unless you all have a 
different order. You do. Dr. Portney, you can start please.

        STATEMENT OF DRS. PAUL R. PORTNEY, CHAIR OF THE 
         COMMITTEE ON EFFECTIVENESS AND IMPACT OF THE 
  CORPORATE AVERAGE FUEL ECONOMY STANDARDS, NATIONAL RESEARCH 
 COUNCIL; ACCOMPANIED BY JOHN J. WISE, PHILIP R. SHARP, ADRIAN 
                   LUND, AND DAVID L. GREENE

    Dr. Portney. Mr. Chairman, thank you very much. Other 
members of the Commerce and Energy Committees, thank you for 
being here and thank you for this opportunity.
    I am Paul Portney, I am president of Resources for the 
Future, a think tank here in Washington, but I am here in the 
capacity today as the chairman of the National Academy of 
Sciences Committee on Effectiveness and Impact of the Corporate 
Average Fuel Standards.
    If I could, let me begin by introducing my colleagues who 
are here today. I will then make a very brief statement and 
then invite you to ask all the questions that you want. As 
skillfully as I can, I will direct the hard ones to my 
colleagues here on my Committee.
    To my far right is David Greene. David is a senior research 
scientist at Oak Ridge National Labs. To my immediate right is 
Jack Wise. Jack is retired as vice president for research at 
Mobil. To my immediate left is Phil Sharp, professor at the 
Kennedy School at Harvard, probably better known to many of you 
as a former Member of the House of Representatives and the 
Energy and Commerce Committees at the time that the Energy 
Policy and Conservation Act was being debated in the late 
1970's. And to my far left is Adrian Lund. Adrian is president 
and chief operating officer of the Insurance Institute for 
Highway safety.
    The five of us, along with eight other Committee members 
who aren't here, have been laboring for the past 5 or 6 months 
to produce this report. I have noted in other forums that some 
people are upset with us for taking so long to do the work that 
we have done; there seems to be an equal number of people who 
were upset with us that it didn't take us 2 months longer. And 
so, I am sorry to everybody who is unhappy with the timing of 
this report. We're all very pleased to have it behind us.
    I think it was Senator Murkowski who said in his statement 
that Senators don't make very good engineers. I don't know 
whether that is true or not, but I think all of the members of 
the CAFE Committee feel that engineers and economists and 
policy analysts probably don't make very good Senators either, 
and for that reason, I have begun all of the presentations that 
I have made on this CAFE Committee report by pointing out that 
the Committee makes no recommendation whatsoever about specific 
fuel economy standards for passenger cars or light duty trucks.
    What we've tried to do over the past 5 or 6 months is to 
develop as carefully as we could, the very best information 
possible that will indicate to you the trade-offs, quite 
complicated trade-offs, that have to be made in balancing 
corporate average fuel economy standards against safety, 
emissions, the price of a vehicle, the performance 
characteristics to which Senator Burns alluded, et cetera. The 
hope is that in the 6 months that we pulled together this 
information that we've pulled together that as you begin to 
deliberate and debate on this, you will have the kind of sound 
science base that I think you all want when you are making 
important public policy decisions.
    Let me talk very briefly about what the Committee found 
during its deliberations and if I could, I'm going to reverse 
the order in which I discuss these just a little bit.
    Watching on C-SPAN and in other places the debates in the 
House over the last couple of days, we now have seen a number 
of people who have purported to speak for the Committee or at 
least say what they think that the Committee said. We're 
pleased to have this opportunity to say in our own words what 
the Committee said.
    So first let me summarize for you what our findings were 
about possible future improvements in fuel economy and the 
trade-offs that will necessitate. Then I will turn to what the 
Committee found about the past impacts of CAFE, both the pro 
and con. Then I will touch briefly on a series of 
recommendations we made about ways in which CAFE might be 
changed, having nothing to do with the specific numerical 
targets that are involved.
    Let me start first with our prospective findings, what we 
see in the future. The Committee was very clear in saying if 
one takes a 10- to 15-year perspective, one is able to identify 
a series of technology packages, some based on existing 
technology, some on technologies that we call emerging, which 
in combination would make it possible to significantly improve 
the fuel economy of the light duty fleet in the United States, 
both passenger cars and trucks.
    In my prepared testimony, which I hope will be entered into 
the record, I identified several of these technologies, and in 
our Committee report, we told you quite exhaustively on a drive 
train basis, on an aerodynamic basis, and on other 
technological bases the nature of these technologies, and try 
to indicate which vehicles they can be easily introduced into, 
and in some cases the pace at which these technologies can be 
introduced.
    Now, in addition to having identified these significant 
improvements in fuel economy and having identified how much 
they will cost, we also engaged in what we called a break-even 
analysis and that was an effort on our part to identify a 
series of technology packages which when added to vehicles 
today, over the next decade to decade and a half, and that's 
important, would produce gains in fuel economy that would save 
enough gasoline to pay for the addition to the up-front or 
purchase price of the vehicle that these technologies would 
necessitate.
    I emphasize again that there is nothing normative about the 
identification of these break-even technologies. We're not 
recommending that this is the appropriate goal, we are just 
identifying a package of technologies which will add enough to 
the purchase price of the car so that they would be offset at 
the margin by the last dollar of technology increase by the 
fuel economy savings that the motorist would get.
    Now I also want to hasten to point out that does not mean 
that if you were to look at the fuel levels, those percentage 
increases by vehicle type, and say well, we're going to strive 
to get that goal, it would necessarily be the case that you 
could accomplish all of those goals without some loss of 
safety. And I say this for the following reason: When we look 
at these technology packages, we are very careful to say that 
these are improvements in fuel economy that are consistent with 
holding constant the performance, the size and the weight of 
the vehicles.
    So that when we identify these break-even technologies, 
these are adding technologies that do not result in any 
downsizing or downweighting of the vehicle and for that reason, 
they should have no adverse side effects on safety.
    However, if one were to choose those fuel economy goals, 
ask the automakers to meet those goals, they might decide to 
try to meet those higher fuel economy standards not by 
introducing those technologies, but possibly by downweighting 
or downsizing the car. If that's the case, the Committee is not 
confident in saying that there would be no adverse safety 
effects; in fact, there could be some adverse safety effects if 
the fuel economy goals were met not by adopting the technology 
packages that we identified, but rather through some 
combination of that along with downsizing and downweighting.
    We are also very careful to identify the increases in the 
prices of cars, vehicle type by vehicle type, that would be 
necessitated by the additions of these technologies and in the 
case of what we call the 14-year horizon, where we assume the 
car owners are looking over the next 14 years of the life of 
their car when they buy it, those purchase price increases 
could be between $250 and $1,400 depending on the size of the 
vehicle we're talking about.
    So again to summarize, looking forward, technologies exist 
or are in development and could be applied which would produce 
significant improvements in fuel economy without adverse 
effects on size, performance or weight. However, there are 
significant costs associated with this, and to speak to a point 
that Senator Burns made, there is no question that by requiring 
these improvements in fuel economy, if automakers do install 
these technology packages, then that's money that could not go 
into the development of other alternative amenities in a car 
that people might want to have, towing capacity, carrying 
capacity, et cetera. To put it bluntly, there are trade-offs, 
there's no question about it.
    Very briefly looking backwards, we looked at the imposition 
of the CAFE program going back to 1978 and found that that 
program along with increases in gasoline prices, which also had 
a significant effect, because gas prices of course went up 
dramatically at that time, the CAFE program, increases in 
gasoline prices, and some downsizing and downweighting of 
vehicles that car makers engaged in anyway to try to take 
materials out of the car to reduce the purchase price of the 
car, played a significant role in the improvement of the fuel 
economy of the fleet in the United States during the period 
starting in 1978.
    Now, in terms of the cost of those improvements in gasoline 
consumption, we saw reductions in greenhouse gas emissions, 
less dependence on foreign oil. In terms of the cost of those 
changes, we found that vehicle performance declined during that 
period of time. And perhaps most importantly, we found that the 
very rapid downsizing of the vehicle fleet, particularly 
between 1978 and 1982, quite probably had an adverse effect on 
the safety of the vehicle fleet. A majority of the Committee 
was making the prediction, although acknowledging the 
uncertainties that are apparent in this, that the rapid 
downsizing that took place over a 4-year period probably added 
between 1,300 and 2,600 deaths to the annual fatality rate 
relative to what fatalities would have been absent that 
downweighting and downsizing.
    Now I want to mention, if one looks at the automobile 
fatality rate over time, it has continued to fall. What we're 
saying is that it would have fallen even more had it not been 
for that rapid downweighting and downsizing of the fleet that 
was partially due to the CAFE standards.
    Now, moving ahead, our congressional charge asked us to 
look into three things. What did CAFE do retrospectively, and 
I've spoken to that. Are there technologies available in the 
future to improve the fuel economy of the fleet and what are 
those costs, I've tried to briefly summarize those. We were 
also asked by Congress to take a look at recommendations we 
might have for improvements in the way the CAFE system 
functions quite apart from changes in the numerical standards, 
and here we had a number of specific recommendations.
    I will turn to them in just a second but I want to speak to 
one of the findings of the Committee, which is that there is 
really a profound inconsistency between on the one hand 
expressing the view that our car makers ought to make cars that 
are more fuel efficient and on the other hand, convening 
congressional investigations anytime the price of gasoline goes 
above $1.50 a gallon.
    One of the things that is the biggest spur to fuel economy 
in Europe and Japan is the fact that gasoline is $2 or $3 per 
gallon more expensive there. That means that you have consumers 
who have a strong financial incentive to seek out fuel 
efficient cars, and that makes it easier for the car makers to 
sell those cars. Here in the United States, we prefer cheap 
gasoline and there are a number of benefits that are 
appurtenant to that but one of the adverse consequences is that 
through the CAFE program--even the current program, much less 
tightening it--we're sending the automakers a signal that they 
should make more fuel efficient cars, while all the signals 
that they get from the marketplace, and one of you read some 
statements to this effect earlier, is that at $1.50 a gallon 
gasoline, fuel economy is not very high up the list of 
attributes that people look at when they purchase a new care.
    Having said that, let me mention the recommendations that 
we made. First of all, every member of the Committee feels that 
the CAFE program as presently constituted or as it might be 
changed in the future could be dramatically improved if the 
CAFE credits, the fuel economy credits that can now be 
accumulated and used against shortfalls in future years were 
made tradable or sellable between companies.
    And here there is a very good precedent. It was the same 
way in the 1990 amendments to the Clean Air Act. We both 
required coal powered powerplants to reduce their emissions, 
but at the same time we gave them the opportunity to buy and 
sell emission reductions between them. That both enabled us to 
meet the emission reductions at least cost to society, and it 
has done something else very valuable. It has allowed us to 
observe how expensive it is to reduce sulphur dioxide 
emissions, because there is a market price for these emission 
reductions.
    And if we make CAFE credits tradable, we could see if an 
automaker is buying CAFE credits at a certain price, we know 
that that company could have, but expensively, improved its 
fuel economy, because if it could, it would do that rather than 
buy these expensive credits. So making the credits tradable, we 
think would be a significant improvement in the CAFE program.
    The Committee also urges that Congress and NHTSA consider 
what we call a look at an attribute-based CAFE or fuel economy 
system in which the fuel economy target that vehicles were 
required to meet might vary in proportion say to their weight 
or some other attribute of the vehicle and we sketch out in our 
report one particularly appealing, at least to us, one 
particularly appealing possible approach at creating an 
attribute-based fuel economy standard.
    We also recommend the abolition of what's called the dual 
fleet requirement in CAFE. That is, that imported cars and 
domestic cars be averaged separately. We think that distinction 
has outlived its usefulness and we don't see any reason to 
continue it.
    And perhaps more controversial than we recognize, we 
recommend the abolition of the dual fuel provisions which give 
car makers extra credits for producing cars that run on both 
gasoline and ethanol.
    Two quick final recommendations. One has to do with 
research and development, which one of you mentioned earlier. 
We urge the Government to continue considering participation in 
joint industry government ventures like the Partnership for a 
New Generation of Vehicles. We think that partnership has 
turned up some interesting leads that shed light on fuel 
economy, and could do so in the future, and we hope that the 
government will remain open to that.
    And finally, because of the very important and 
controversial role that safety plays in the fuel economy 
debate, we have recommended that the National Highway Traffic 
Safety Administration undertake a new study like that completed 
in 1997, using much more recent data, on traffic fatalities, 
which would make possible, we think, a more careful and up-to-
date analysis of the links between improved fuel economy on the 
one hand and traffic accidents, injuries and fatalities on the 
other.
    That concludes my prepared remarks and thank you again very 
much for this opportunity, and we're prepared to answer any and 
all questions that you may ask.
    [The prepared statement of Dr. Portney follows:]
 Prepared Statement of Dr. Paul R. Portney, Chair of the Committee on 
    Effectiveness and Impact of the Corporate Average Fuel Economy 
                  Standards, National Research Council
    Good afternoon, Mr. Chairman and members of the Committee. I am 
Paul R. Portney, President of Resources for the Future and Chair of the 
Committee on Effectiveness and Impact of the Corporate Average Fuel 
Economy Standards of the National Research Council. 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.
    It is a pleasure to be here to introduce the report on CAFE 
standards. That is not a pro forma statement. The last 6 months have 
been extremely demanding for the entire Committee as well as the NRC 
staff, and it is a genuine pleasure to see it end. This study was 
requested by Congress last year to provide assistance in its decisions 
related to fuel economy standards. Since we started in February 2001, 
the full Committee has met on a total of 17 days, and there have been 
an additional 11 subgroup meetings. Quite an investment of time for a 
group of unpaid volunteers.
    I would like to provide a brief overview of the report. This is 
really a joint presentation. My colleagues from the Committee, John 
Wise, Philip Sharp, Adrian Lund, and David Greene may fill in the holes 
I leave in the presentation, but on almost all issues, the Committee 
reached unanimous conclusions. The report is complicated, and I cannot 
do it justice in a few minutes. Therefore I request that we include the 
Executive Summary as part of the record.
    The Committee had a 3-part mission:

          1. Determine the effect that CAFE standards have had on fuel 
        economy, and the 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 Current CAFE Program
    Our review of past and current impacts of CAFE standards convinced 
us that the program has 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 notes that CAFE was clearly important. In recent 
years, CAFE indisputably played an important role in maintaining higher 
fuel economy than would have resulted from the lower fuel prices that 
prevailed for most of this period.
    There have been adverse consequences as well. Safety is most 
important. The majority of the Committee concludes that the downsizing 
and downweighting that occurred in the 1970s and 80s (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 
dissent from this view. They believe that the data does not support 
this conclusion, and that the net effect on highway fatalities of the 
increases in fuel economy may have been zero. David Greene, one of the 
authors of the dissent in the report, may elaborate on that conclusion.
    An additional impact, although one we were unable to quantify, may 
have been 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 does not recommend whether or 
by how much the government should raise standards. We believe that 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 identifies these tradeoffs, but a full analysis 
was not possible within the short time allotted to this study.
    The Committee believes that it is incumbent on decisionmakers to 
understand why they want to increase fuel economy and to ensure that 
the costs of the increases are consistent with the motivation. The two 
main factors the Committee considered are oil imports and global 
climate change. Analysts assign a wide variety of costs to these 
externalities. The Committee considered this range, and ultimately 
chose values which, in total, are equivalent to about 30 cents/gallon 
of fuel. I mention this figure not because the Committee endorses 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 concludes 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. Variable 
valve lift and timing can reduce fuel consumption by 3-8%. Continuously 
variable transmissions can achieve another 4-8%. 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 also. For example, a midsize SUV might see a 34% 
increase (from 18 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 the 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 believes would 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 would 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.
    Again it should be noted that increased fuel economy is not a high 
priority for most consumers. If manufacturers have to meet higher 
standards, they will have to have to neglect other attributes that 
consumers might find preferable.
Recommendations on the Structure of the CAFE Program
    First, I would like to point out that there is a marked 
inconsistency between raising fuel economy standards while keeping fuel 
taxes low. The Committee certainly does not recommend raising taxes to 
the level of European countries (or to any specific level for that 
matter), but the members believe that efforts to raise fuel economy 
would work much better if consumers had more motivation from higher 
fuel prices.
    The Committee recommends that a tradable credit program be part of 
any regulatory program on fuel economy. Even if the current structure 
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 manufacture separately. Tradable credits have worked well 
in reducing the costs of sulfur dioxide emissions from coal-fired power 
plants, and the Committee believes that will work as well on fuel 
economy.
    An attribute-based system should be considered for the regulatory 
standard. The partially weight-based system we call ``Enhanced CAFE'' 
is particularly intriguing. Lighter vehicles (up to 3,500 or 4,000 
pounds) would be on a standard inversely proportional to their weight. 
Heavier vehicles would all have the same standard. This system would 
avoid any incentive for manufacturers to reduce the weight of light 
vehicles, but would encourage lightening the heavier vehicles, with 
advantages in safety as I noted earlier.
    The Committee recommends abolishing the foreign-domestic 
distinction. Given the global nature of the auto industry, this 
distinction makes no sense now.
    The Committee also recommends abolishing the credit for dual-fuel 
vehicles. There may be valid policy reasons for encouraging alcohol 
fuels, but CAFE is not a good way to do it. Owners of these vehicles 
essentially never buy alcohol fuel because it is expensive and 
difficult to find, but the credit lowers the fuel economy of the entire 
fleet.
    The government should continue cooperative programs with industry 
to improve fuel economy. The Partnership for a New Generation Vehicle 
(PNGV) is the most prominent of these programs.
    Finally, the National Highway Traffic Safety Administration should 
update its analysis of the relationship between safety and fuel economy 
improvements.
    Thank you Mr. Chairman, that concludes my comments. My colleagues 
and I would be happy to take any questions you may have.
                                 ______
                                 
   Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) 
                               Standards
                    (Prepublication-Unedited Proof)
                           executive summary
    In the wake of the 1973 oil crisis, the U.S. Congress passed the 
Energy Policy and Conservation Act of 1975 with the goal of reducing 
the country's dependence on foreign oil. Among other things, the act 
established the Corporate Average Fuel Economy (CAFE) program, which 
required automobile manufacturers to increase the salesweighted average 
fuel economy of the passenger car and light-duty truck fleets sold in 
the United States. Today, these include minivans, pickups, and sport 
utility vehicles. Congress itself set the standards for passenger cars, 
which rose from 18 miles per gallon (mpg) in automobile model year (MY) 
1978 to 27.5 mpg by MY 1985. As authorized by the Act, the Department 
of Transportation (DOT) set standards for light trucks for model years 
1979 through 2002. The standards are currently 27.5 mpg for passenger 
cars and 20.7 mpg for light trucks. Provisions in DOT's annual 
appropriations bills since fiscal year 1996 have prohibited the agency 
from changing or even studying CAFE standards.
    In legislation for fiscal year 2001, Congress requested that the 
National Academy of Sciences, in consultation with the Department of 
Transportation, conduct a study to evaluate the effectiveness and 
impacts of CAFE standards.\1\ In particular, it asked that the study 
examine, among other factors:
---------------------------------------------------------------------------
    \1\ Conference Report on H.R. 4475, Department of Transportation 
and Related Agencies Appropriations Act, 2001. Report 106-940, as 
published in the Congressional Record, October 5, 2000, pp. H8892-H-
9004.

          (1) the statutory criteria (economic practicability, 
        technological feasibility, need for the U.S. to conserve 
        energy, the classification definitions used to distinguish 
        passenger cars from light trucks, and the effect of other 
        regulations);
          (2) the impact of CAFE standards on motor vehicle safety;
          (3) disparate impacts on the U.S. automotive sector;
          (4) the effect on U.S. employment in the automotive sector;
          (5) the effect on the automotive consumer; and
          (6) the effect of requiring separate CAFE calculations for 
        domestic and non-domestic fleets.

    In consultation with the U.S. Department of Transportation, a 
statement of work for the Committee was developed (see Appendix C) [NRC 
Report]. The emphasis of the Committee's work was to be directed toward 
recent experience with CAFE standards, the impact of possible changes, 
as well as the stringency and/or structure of the CAFE program in 
future years. The National Research Council established the Committee 
on Impact and Effectiveness of Corporate Average Fuel Economy 
Standards, which had its first meeting in early February 2001. In 
effect, since the congressional appropriations language asked for the 
report by July 1, 2001, the Committee had less than 5 months (from 
February to late June) to complete its analysis and prepare a report 
for the National Research Council's external report review process. In 
its findings and recommendations, the Committee has noted where 
analysis is limited and further study is needed.
    The CAFE program has been controversial since its inception. Rather 
sharp disagreements exist regarding the effects of the program on: the 
fuel economy of the U.S. vehicle fleet; the current mix of vehicles in 
that fleet; the overall safety of passenger vehicles; the health of the 
domestic automobile industry; employment in that industry; and the 
well-being of consumers. It is this set of concerns that the Committee 
was asked to address.
    These concerns are also very much dependent on one another. For 
example, if fuel economy standards were raised, the manner in which 
automotive manufacturers would respond would affect the purchase price, 
attributes, and performance of their vehicles. For this reason, the mix 
of vehicles that a given manufacturer sold could change, perhaps 
resulting in a greater proportion of smaller and lighter vehicles; this 
in turn could have safety implications, depending on the eventual mix 
of vehicles that ended up on the road. If consumers were not satisfied 
with the more fuel-efficient vehicles, that would in turn affect 
vehicle sales, profits, and employment in the industry. Future effects 
would also depend greatly on the real price of gasoline; if it were 
low, consumers would have little interest in fuel-efficient vehicles. 
High fuel prices would have just the opposite effect. In addition, 
depending on the level at which fuel economy targets were set, and the 
time frame the companies would have to implement changes, differential 
impacts across manufacturers would likely occur depending on the types 
of vehicles that they sell and their competitive position in the 
marketplace. Thus, understanding the impact of potential changes to 
CAFE standards is, indeed, a difficult and complex task.
    In addition to the requirement that companies meet separate fleet 
averages for automobiles and light-duty trucks they sell, there are 
other provisions of the CAFE program that affect manufacturers' 
decisions. For example, a manufacturer must meet the automobile CAFE 
standard separately for both its import and its domestic fleet (``2-
fleet rule''), where a domestic vehicle is defined as one for which at 
least 75 percent of its parts are manufactured in the United States. 
Also, CAFE credits can be earned by manufacturers who produce 
``flexible-fuel'' vehicles that can run on both gasoline and 
alternative fuels, such as ethanol.
    Why care about fuel economy at all? It is tempting to say that 
improvements in vehicle fuel economy will save money for the vehicle 
owner in reduced expenditures for gasoline. The extent of the annual 
savings will depend on the improvements in the fuel economy (in miles 
per gallon of gasoline), the price of gasoline, and the miles traveled 
per year, as well as the higher cost of the vehicle resulting from the 
fuel economy improvement. While a strong argument can be made that such 
savings or costs are economically relevant, that is not by itself a 
strong basis for public policy intervention. Consumers have a wide 
variety of opportunities to exercise their preference for a fuel-
efficient vehicle if that is an important attribute to them. Thus, 
according to this logic, there is no good reason for the government to 
intervene in the market and require new light-duty vehicles to achieve 
higher miles per gallon, or to take other policy measures designed to 
improve the fuel economy of the fleet.
    There are, however, other reasons for the nation to consider policy 
interventions of some sort to increase fuel economy. The most important 
of these, the Committee believes, is concern about the accumulation in 
the atmosphere of so-called greenhouse gases, principally carbon 
dioxide. Continued increases in carbon dioxide emissions are likely to 
further global warming. Concerns like those about climate change are 
not ones normally reflected in the market for new vehicles. Few 
consumers take into account the environmental costs that the use of 
their vehicle may occasion; in the parlance of economics, this is a 
classic ``negative externality.''
    A second concern is that petroleum imports have been steadily 
rising because of the nation's increasing demand for petroleum without 
a corresponding increase in domestic supply. This has meant a steadily 
increasing reliance on imported oil. The demand for gasoline has been 
exacerbated by the increasing sales of light trucks, which have lower 
fuel economy levels than those of automobiles. High costs of imports 
can both put downward pressure on the strength of the dollar (which 
would drive up the costs of goods that Americans import) and, possibly, 
increase U.S. vulnerability to macroeconomic ``shocks'' that cost the 
economy considerable real output. Some experts argue that these 
vulnerabilities are another form of externality that vehicle purchasers 
do not factor into their decisions, but that can represent a true and 
significant cost to society. Other experts take a more skeptical view, 
arguing instead that the macroeconomic difficulties of the 1970s (high 
unemployment coupled with very high inflation and interest rates) were 
due more to unenlightened monetary policy than to the inherent 
difficulties associated with high oil prices. Either way, no one could 
deny that reducing our nation's oil import bill would have favorable 
effects on the terms of trade, and that these are valid considerations 
in deliberations about fuel economy.
    The Committee believes it is critically important to be clear about 
the reasons for considering improved fuel economy. Moreover, and to the 
extent possible, it is useful to try to think about how much it is 
worth to society in dollar terms to reduce emissions of greenhouse 
gases (by one ton, say) and reduce dependence on imported oil (say, by 
one barrel). If it is possible to assign dollar values to these 
favorable effects (no mean feat, the Committee acknowledges), it 
becomes possible to make at least crude comparisons between the 
beneficial effects of measures to improve fuel economy on the one hand, 
and the costs (both out-of-pocket and more subtle) on the other.
    In conducting its study, the Committee first assessed the impact of 
the current CAFE system on reductions in fuel consumption, on emissions 
of greenhouse gases, on safety and on impacts on the industry (see 
Chapters 1 and 2) [NRC Report]. To assess potential impacts of modified 
standards, the Committee examined opportunities through the application 
of existing (production intent) or emerging technologies, estimated the 
costs of such improvements, and examined the lead times that would 
typically be required to introduce such vehicle changes (see Chapter 3) 
[NRC Report]. The Committee reviewed many sources of information on 
technologies and costs for improvements in fuel economy, which included 
presentations at its meetings and information available from studies 
and reports. It also used consultants under its direction to facilitate 
its work under the tight time constraints of the study. Some of the 
consultants' work provided analyses and information that helped the 
Committee better understand the nature of previous fuel economy 
analyses. In the end, however, the Committee conducted its own 
analyses, informed by the work of consultants, the technical 
literature, and presentations at its meetings, as well as the expertise 
and judgment of the Committee members, to arrive at its own range of 
estimates of fuel economy improvements and associated costs. Based on 
these analyses, the implications of modified CAFE standards are 
presented in Chapter 4 [NRC Report], along with an analysis of what the 
Committee calls break-even fuel economy levels. The Committee also 
examined the stringency and structure of the current CAFE system, and 
it assessed possible modifications to it, as well as alternative 
approaches to achieving higher fuel economy for passenger vehicles, 
which resulted in recommendations for improved policy instruments (see 
Chapter 5) [NRC Report].
                                findings
Finding 1
    The CAFE program has clearly contributed to increased fuel economy 
of the nation's light-duty vehicle fleet during the past 22 years. 
During the 1970s, high fuel prices and a desire on the part of 
automakers to reduce costs by reducing the weight of vehicles 
contributed to improved fuel economy. CAFE standards reinforced this 
effect. Moreover, the CAFE program has been particularly effective in 
keeping fuel economy above the levels to which it might have fallen 
when real gasoline prices began their long decline in the early 1980s. 
Improved fuel economy has reduced dependence on imported oil, improved 
the nation's terms of trade, and reduced emissions of carbon dioxide, a 
principal greenhouse gas, relative to what they otherwise would have 
been. If fuel economy had not improved, gasoline consumption (and crude 
oil imports) would be about 2.8 million barrels per day higher than it 
is, or about 14 percent of today's consumption.
Finding 2
    Past improvements in the overall fuel economy of the nation's 
light-duty vehicle fleet have entailed very real, albeit indirect, 
costs. In particular, all but two members of the Committee concluded 
that the downweighting and downsizing that occurred in the late 1970s 
and early 1980s, some of which was due to CAFE standards, probably 
resulted in an additional 1,300 to 2,600 traffic fatalities in 1993.\2\ 
In addition, the diversion of carmakers' efforts to improve fuel 
economy deprived new-car buyers of some amenities they clearly value, 
such as faster acceleration, greater carrying or towing capacity, or 
reliability.
---------------------------------------------------------------------------
    \2\ A dissent by Committee members David Greene and Maryann Keller 
on the impact of downweighting and downsizing is contained in Appendix 
A [NRC Report]. They believe that the level of uncertainty is much 
higher than stated and that the change in the fatality rate due to 
efforts to improve fuel economy may have been zero. Their dissent is 
limited to the safety issue alone.
---------------------------------------------------------------------------
Finding 3
    Certain aspects of the CAFE program have not functioned as 
intended:

   The distinction between a car for personal use and a truck 
        for work use/cargo transport has broken down, initially with 
        minivans, and more recently with sport utility vehicles and 
        ``cross-over'' vehicles. The car/truck distinction has been 
        stretched well beyond the original purpose.
   The Committee could find no evidence that the ``2-fleet 
        rule'' distinguishing between domestic and foreign content has 
        had any perceptible effect on total employment in the U.S. 
        automotive industry.
   The provision creating extra credits for multi-fuel vehicles 
        has had, if any, a negative effect on fuel economy, petroleum 
        consumption, greenhouse gas emissions, and cost. These vehicles 
        seldom use any fuel other than gasoline, yet enable automakers 
        to increase their production of less fuel efficient vehicles.
Finding 4
    In the period since 1975, manufacturers have made considerable 
improvements in the basic efficiency of engines, drive trains, and 
vehicle aerodynamics. These improvements could have been used to 
improve fuel economy and/or performance. Looking at the entire light-
duty fleet, cars and trucks, between 1975 and 1984 the technology 
improvements were concentrated on fuel-economy; it improved by 62 
percent without any loss of performance as measured by 0-60 mph 
acceleration times. By 1985, light-duty vehicles had improved enough to 
meet CAFE standards. Thereafter, technology improvements were 
concentrated principally on performance and other vehicle attributes 
(including improved occupant protection). Fuel economy remained 
essentially unchanged while vehicles became 20 percent heavier and 0-60 
acceleration times became, on average, 25 percent faster.
Finding 5
    Technologies exist that, if applied to passenger cars and light-
duty trucks, would significantly reduce fuel consumption within 15 
years. Auto manufacturers are already offering or introducing many of 
these technologies in other markets (Europe and Japan, for example) 
where much higher fuel prices ($4-5/gal) have justified their 
development. However, economic, regulatory, safety and consumer 
preference-related issues will influence the extent to which these 
technologies will be applied in the United States.
    Several new technologies such as advanced lean exhaust gas after-
treatment systems for high-speed diesels and direct-injection gasoline 
engines, which are currently under development, are expected to offer 
even greater potential for reductions in fuel consumption. However, 
their development cycles as well as future regulatory requirements will 
influence if and when these technologies will penetrate deeply into the 
U.S. market.
    The Committee has conducted a detailed assessment of the 
technological potential for improving the fuel efficiency of 10 
different classes of vehicles, ranging from subcompact and compact cars 
to sport utility vehicles (SUVs), pickups and minivans. In addition, 
the Committee has estimated the range in incremental costs to the 
consumer that would be attributable to the application of these engine, 
transmission and vehicle-related technologies.
    Chapter 3 presents the results of these analyses as curves that 
represent the incremental benefit in fuel consumption versus the 
incremental cost increase over a defined baseline vehicle technology. 
Ranges in both fuel consumption benefits and incremental costs are 
estimated to reflect anticipated uncertainties. Three potential 
development paths are chosen as examples of possible product 
improvement approaches, which illustrate the trade-offs auto 
manufacturers may consider in future efforts to improve fuel 
efficiency.
    Assessment of currently offered product technologies suggests that 
light-duty trucks, including SUVs, pickups and minivans, offer the 
greatest potential to reduce fuel consumption, on a total-gallons-saved 
basis.
Finding 6
    In an attempt to evaluate the economic trade-offs associated with 
the introduction of existing and emerging technologies to improve fuel 
economy, the Committee conducted what it called ``break-even'' 
analysis. That is, the Committee identified packages of existing and 
emerging technologies that could be introduced over the next 10 to 15 
years that would result in fuel economy improvement up to the point 
where further increases in fuel economy would not be reimbursed by fuel 
savings. Size, weight and performance characteristics of the vehicles 
were held constant. The technologies, fuel consumption estimates, and 
cost projections described in Chapter 3 were used as inputs to this 
break-even analysis.
    These break-even calculations depend critically on the assumptions 
one makes about a variety of parameters. For the purpose of 
calculation, the Committee has assumed that: (1) gasoline is priced at 
$1.50/gal; (2) a car is driven 15,600 miles in its first year, after 
which miles driven decline at 4.5 percent annually; (3) on-the-road 
fuel economy is 15 percent less than the Environmental Protection 
Agency's test rating; and (4) the added weight of equipment required 
for future safety and emission regulations will exact a 3.5 percent 
fuel economy penalty.
    One other assumption is required to ascertain break-even technology 
packages--the horizon over which fuel economy gains ought to be 
counted. Under one view, car purchasers consider fuel economy over the 
entire life of a new vehicle; even if they intend to sell it after five 
years, say, they care about fuel economy because it will affect the 
price they will receive for their used car. Alternatively, consumers 
may take a shorter-term perspective, not looking beyond, say, three 
years. This latter view, of course, will affect the identification of 
break-even packages because there will be many fewer years of fuel 
economy savings to offset the initial purchase price.
    The full results of this analysis are presented in Chapter 4. To 
provide one illustration, however, consider a mid-size sport utility 
vehicle. The current sales-weighted fleet fuel economy average for this 
class of vehicle is 21 mpg. If consumers consider only a 3-year payback 
period, fuel economy of 24 mpg would represent the break-even level. 
If, on the other hand, consumers consider the full 14-year average life 
of a vehicle as their horizon, the break-even level increases to 28 mpg 
(with fuel savings discounted at 12 percent). The longer the consumer's 
planning horizon; in other words, the greater are the fuel economy 
savings against which to balance the higher initial costs of fuel 
saving technologies.
    The Committee cannot emphasize strongly enough that the break-even 
fuel economy levels identified in Tables 4-2 and 4-3 in Chapter 4 [NRC 
Report] are NOT recommended fuel economy goals. Rather, they are 
reflections of technological possibilities, economic realities and 
assumptions about parameter values and consumer behavior. Given the 
choice, consumers might well spend the money on other vehicle 
amenities, such as greater acceleration or towing capacity, rather than 
on the fuel economy break-even technology packages.
Finding 7
    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. Higher 
real prices for gasoline, for instance, through increased gasoline 
taxes-would create both a demand for fuel-efficient new vehicles and an 
incentive for owners of existing vehicles to drive them less.
Finding 8
    The Committee identified externalities of about $0.30 per gallon of 
gasoline, associated with the combined impacts of fuel consumption on 
greenhouse gas emissions and on world oil market conditions. These 
externalities are not necessarily taken into account when consumers 
purchase new vehicles. Other analysts might produce lower or higher 
estimates of externalities.
Finding 9
    There are significant uncertainties concerning the societal costs 
and benefits of raising fuel economy standards for the light-duty 
fleet. Uncertainties include the cost of implementing existing 
technologies or developing new ones; the future price of gasoline; the 
nature of consumer preferences for vehicle types, performance, and 
other features; and potential safety consequences of altered standards. 
The higher the target for average fuel economy, the greater the 
uncertainty about the cost of reaching that target.
Finding 10
    Raising CAFE standards would reduce future fuel consumption below 
what it otherwise would be; however, other policies could accomplish 
the same end at lower cost, provide more flexibility to manufacturers, 
or address inequities arising from the present system. Possible 
alternatives that appear to the Committee to be superior to the current 
CAFE structure include tradable credits for fuel economy improvements, 
feebates,\3\ higher fuel taxes, standards based on vehicle attributes 
(for example, vehicle weight, size, or payload), or some combination of 
these.
---------------------------------------------------------------------------
    \3\ Feebates are taxes on vehicles achieving less than the average 
fuel economy coupled with rebates to vehicles achieving better than 
average fuel economy.
---------------------------------------------------------------------------
Finding 11
    Changing the current CAFE system to one featuring tradable fuel 
economy credits and a ``cap'' on the price of these credits appears to 
be particularly attractive. It would provide incentives for all 
manufacturers, including those that exceed the fuel economy targets, to 
continually increase fuel economy, while allowing manufacturers 
flexibility to meet consumer preferences. Such a system would also 
limit costs imposed on manufacturers and consumers if standards turn 
out to be more difficult to meet than expected. It would also reveal 
information about the costs of fuel economy improvements and thus 
promote better-informed policy decisions.
Finding 12
    The CAFE program might be improved significantly by converting it 
to a system in which fuel economy targets depend on vehicle attributes. 
One such system would make the fuel economy target dependent on vehicle 
weight, with lower fuel consumption targets set for lighter vehicles 
and higher targets-for heavier vehicles, up to some maximum weight, 
above which the target would be weight-independent. Such a system would 
create incentives to reduce the variance in vehicle weights between 
large and small vehicles, thus providing for overall vehicle safety. It 
has the potential to increase fuel economy with fewer negative effects 
on both safety and consumer choice.
    Above the maximum weight, vehicles would need additional advanced 
fuel economy technology to meet the targets. The Committee believes 
that such a change is promising, but requires more investigation than 
was possible in this study.
Finding 13
    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. 
However, the actual effects would be uncertain and any adverse safety 
impact could be minimized, or even reversed, if weight and size 
reductions were limited to heavier vehicles (particularly those over 
4,000 lb). Larger vehicles would then be less damaging (aggressive) in 
crashes with all other vehicles and thus pose less risk to other 
drivers on the road.
Finding 14
    Advanced technologies--including direct-injection lean-burn 
gasoline engines, direct-injection compression-ignition (diesel) 
engines, and hybrid electric vehicles--have the potential to improve 
vehicle fuel economy by 20 to 40 percent or more, although at a 
significantly higher cost. However, lean-burn gasoline engines and 
diesel engines, the latter of which are already producing large fuel 
economy gains in Europe, face significant technical challenges to meet 
the Tier 2 emission standards established by the Environmental 
Protection Agency under the 1990 amendments to the Clean Air Act, and 
the California low emission vehicle (LEV II) standards. The major 
problems are the Tier 2 emissions standards for nitrogen oxides and 
particulates and the requirement that emission control systems be 
certified for a 120,000-mile lifetime. If direct-injection gasoline and 
diesel engines are to be used extensively to improve light-duty vehicle 
fuel economy, significant technical developments concerning emissions 
control will have to occur or some adjustments to the Tier 2 emissions 
standards will have to be made. Hybrid electric vehicles face 
significant cost hurdles, and fuel-cell vehicles face significant 
technological, economic, and fueling infrastructure barriers.
Finding 15
    Technology changes require very long lead times to be introduced 
into the manufacturers' product lines. Any policy that is implemented 
too aggressively (that is, in too short a period of time) has the 
potential to adversely affect manufacturers, their suppliers, their 
employees, and consumers. Little can be done to improve the fuel 
economy of the new vehicle fleet for several years because production 
plans already are in place. The widespread penetration of even existing 
technologies will likely require 4 to 8 years. For emerging 
technologies that require additional research and development, this 
time lag can be considerably longer. In addition, considerably more 
time is required to replace the existing vehicle fleet (on the order of 
200 million vehicles) with new, more efficient vehicles. Thus, while 
there would be incremental gains each year as improved vehicles enter 
the fleet, major changes in the transportation sector fuel consumption 
will require decades.
                            recommendations
Recommendation 1
    Because of concerns about greenhouse gas emissions and the level of 
oil imports, it is appropriate for the federal government to ensure 
fuel economy levels beyond those expected to result from market forces 
alone. Selection of fuel economy targets will require uncertain and 
difficult trade-offs among environmental benefits, vehicle safety, 
cost, oil import dependence, and consumer preferences-trade-offs the 
Committee believes rightfully reside with elected officials.
Recommendation 2
    The CAFE system, or any alternative regulatory system, should 
include broad trading of fuel economy ``credits.'' The committee 
believes a trading system would be less costly than the current CAFE 
system; provide more flexibility and options to the automotive 
companies; give better information on the cost of fuel economy changes 
to the private sector, public interest groups, and regulators; and 
provide incentives to all manufacturers to improve fuel economy. 
Importantly, trading of fuel economy credits would allow for more 
ambitious fuel economy goals than exist under the current CAFE system, 
while simultaneously reducing the economic cost of the program.
Recommendation 3
    Consideration should be given to designing and evaluating an 
approach with fuel economy targets that are dependent on vehicle 
attributes, such as vehicle weight, that inherently influence fuel use. 
Any such system should be designed to have minimal adverse safety 
consequences.
Recommendation 4
    Under any system of fuel economy targets, the 2-fleet rule for 
domestic and foreign content should be eliminated.
Recommendation 5
    CAFE credits for dual-fuel vehicles should be eliminated, with a 
long enough lead-time to limit adverse financial impacts on the 
automotive industry.
Recommendation 6
    To promote the development of longer-range, breakthrough 
technologies, the government should continue to fund, in cooperation 
with the automotive industry, pre-competitive research aimed at 
technologies to improve vehicle fuel economy, safety, and emissions. It 
is only through such breakthrough technologies that dramatic increases 
in fuel economy will become possible.
Recommendation 7
    Because of its importance in the fuel economy debate, it is 
desirable to clarify the relationship between fuel economy and safety. 
The Committee urges the National Highway Traffic Safety Administration 
to undertake additional research on this subject, including (but not 
limited to) a replication using current field data of its 1997 analysis 
of the relationship between vehicle size and fatality risk.

    Senator Kerry. Well, Chairman Portney, thank you very much 
for that statement, and I want to thank you particularly for 
the work of you and your committee in helping us to have a 
framework from which to begin to grapple with this issue.
    Without objection, your full comments will be placed in the 
record and I thank you for that, and any subsequent text or 
additions you would like to submit also will be included.
    I want to have adequate time, and I know 5 minutes is 
always a squeeze, but we will limit ourselves to 5 minutes each 
for the first round of questions.
    Chairman Portney, you talked a little bit about this, but I 
want to come back at it. The report cites a finding that the 
distinction between passenger cars and light trucks as defined 
in the current provisions has broken down, and I wonder, are 
you making a recommendation to us? Should we merge those 
categories?
    Dr. Portney. No. And again, when I conclude here, I would 
like to give my fellow members an opportunity to speak to this, 
but no, we are not necessarily urging that the distinction be 
abolished altogether. What we are saying, it was quite 
understandable back in the mid-1970's when this distinction was 
created, because I think people in Congress, you and your 
colleagues tended to think of a certain class of vehicles as 
being used as passenger vehicles and other vehicles, vans, 
being used by plumbers and electricians and workmen and women, 
and the same thing was true with pickup trucks.
    At that time, I don't think anybody envisioned that 
vehicles would begin to be built on truck frames that would 
essentially become passenger vehicles that would be used the 
same way cars were used in the past, not as work vehicle, just 
bigger lines of cars. And the fact that a separate standard was 
established at that time, I don't think the committee 
necessarily feels caused the shift to SUVs, but at that time 
there began to be a demand for large, more family friendly 
vehicles, and I think what happened was the SUV sort of arose 
as a natural consequence of that decision, and because they 
have become so overwhelmingly popular because of the 
multiplicity of uses that they make possible, what has happened 
obviously is now that they have become half of all vehicles 
sold in the United States as they will be this year for the 
first time, we have so many more vehicles that have to meet the 
lower standard.
    Senator Kerry. Would you agree that there is a loophole, 
and somehow we need to create a definition that works to either 
improve its coverage or put some sort of restraint in the 
definition with respect to passenger use? Do we need some 
equation here?
    Dr. Portney. Sure. Loophole sounds pejorative. There is a 
distinction and an attempt, at least one counterproductive 
objective, but let me let my fellow members comment.
    Senator Kerry. Dr. Wise, did you want to be heard?
    Dr. Wise. I would just like to mention the weight based 
standard that we talked about that we think might be desirable 
to look seriously at because that distinction goes over a range 
from cars to trucks, and we didn't have time to fully explore 
that, but I think the committee would not support the idea of 
making one number a standard for both cars and trucks.
    Senator Kerry. Understood. We were intrigued by the weight 
based concept. I think it has certain merit, and I am sure my 
colleagues may pursue that more. Dr. Greene, did you want to 
add something?
    Dr. Greene. I just wanted to add that we do say that the 
distinction is broken down, and if you look at the concept of 
fuel economy improvement estimates that we see based on 
technologies, there are far greater potentials for improving 
the fuel economy of light trucks than of cars, and in part this 
may be due to the different treatment they have received under 
the current law.
    Senator Kerry. Do you want to share with us some of the 
ways in which you think that could be most easily achieved?
    Dr. Greene. Improving the fuel economy of trucks?
    Senator Kerry. Yes.
    Dr. Greene. Well, we have tables in Chapter 3 which list a 
whole variety of technologies. Most of these have to do with 
improving the efficiency of engines and transmissions, going to 
six-speed transmissions, use of continuously variable 
transitions on smaller trucks, various kinds of valve train 
technology including automated valve timing technology. Also 
cylinder deactivation for larger engines, the kind of engines 
that are found in trucks can be very effective in fuel economy. 
Most of the time the vehicle does not require anywhere near all 
of the maximum horsepower that it has.
    Senator Kerry. Let me just ask quickly, while that's true 
of so many vehicles we make, and we have vehicles capable of 
going 120 miles an hour while the speed limit is half of that 
or somewhere close, but that again appears to be a consumer-
driven phenomenon or preference.
    You focused on improvements in fuel economy that can pay 
for themselves in fuel savings over the life of the vehicle. I 
thought it was interesting because, as in any model, that 
analysis depends on the assumptions. You considered only 
certain technologies, and there were some other limitations. I 
am particularly concerned about the time assumption that you 
put down. The report says that the results are very sensitive 
to what we assume the consumer's payback period is on a car.
    Can you say why the panel developed the break-even fuel 
economy model? It seemed a little strange that anyone should 
expect pay back in 3 years? Dr. Lund, do you want to start with 
that?
    Dr. Lund. Well, I can certainly start, I can give you my 
interpretation of that. The issue here has to do with how 
people will respond to the price of the new technology. If they 
really take a 14-year horizon, then you have 14 years to sort 
of amortize the initial investment they are making in the new 
technology. People don't think that far ahead, maybe they only 
think 2 or 3 years ahead, then they have much less time to 
amortize that cost and they say, oh, a thousand bucks, I need 
to recover that in three years.
    So we said, this has to do with the acceptability of this 
technology to the consumer and whether they will buy it if it's 
made available.
    Senator Kerry. Dr. Greene, and then my time is up.
    Dr. Greene. Thank you, Senator. I would like to say 
something about this because I think this is the single most 
misunderstood aspect of our study. I have read a lot of news 
reports on it and I have yet to read any newspaper that got 
this break-even analysis right, and that must be our fault 
because they couldn't possibly all get it wrong.
    Every news report interprets the break-even analysis as the 
point at which the fuel economy level produces savings over the 
life of the vehicle that exactly equals the price, additional 
price of the fuel economy technology, and that's not correct. 
For every fuel economy increase shown in our Table 4-2 and 4-3, 
the value of the fuel savings over the life of the vehicle far 
exceeds the increase in vehicle price, and often by twice as 
much. At the break-even point, it is the point where the price 
increase of the last increment of fuel economy equals the fuel 
savings produced by that last increment of fuel economy.
    Senator Kerry. In other words, it's a curve, and there is a 
specific point in the curve you are referring to, but the curve 
summarizes the entire gain. Is that what you are referring to?
    Dr. Greene. You are essentially accumulating a number of 
fuel economy technologies when you arrive at that point for 
which the value of the savings exceeds the price.
    Senator Kerry. Does it continue beyond that, in terms of 
savings?
    Dr. Greene. Well, no, you don't. You stop there in our 
break-even analysis. I brought versions of examples 4-3 and 4-2 
that show the value of fuel savings alongside the costs. For 
example, increasing the fuel economy of a mid-size SUV by 34 
percent costs a little over $1,000, but the estimated value of 
lifetime fuel savings is a little over $2,000.
    And additionally, while we identified in our report values 
for greenhouse gas emissions and values for release of local 
chemicals, we did not include those values in this table.
    Senator Kerry. Thank you.
    Dr. Wise.
    Dr. Wise. Can I explain it further?
    Senator Kerry. Take just a minute, because I am trying to 
stay on our limits here.
    Dr. Wise. The way you look at this is the very first 
increment of technology you add adds more value than the costs 
to put it in, and then it successfully gets proportionately 
less and less until you get to the break-even point where the 
cost exactly equals what you saved. So it sort of accumulated 
first increments of technology that were worth so much, that is 
the reason why total savings is greater than the cost.
    Senator Kerry. Thank you very much. We're going to go just 
in the order of Senator Bingaman, Senator Burns, Senator 
Murkowski, Senator Feinstein, and then Senators Allen, Smith 
and Craig.
    Senator Bingaman. Thank you all very much for all your work 
on this report. One of the suggestions I have heard by some is 
that the way to increase fuel efficiency standards is to take 
each manufacturer essentially and require a percentage 
improvement in their overall fleet. Any of you have a reaction 
to that, whether that would be a logical approach or illogical?
    Dr. Portney. I think the Committee was fairly unanimous and 
I hope the report is clear in saying that a so-called uniform 
percentage increase approach would be very unfair and much less 
good than other ways to do this and the reason is that it would 
require the biggest additional percentage increase on the 
companies that already have the best fuel economy, so in a 
sense it is sort of punishing the innocent and for that reason, 
we think that while it may have some logic in terms of 
simplicity, what's required for everybody to do the same 
percentage amount, I think we all think it would be quite 
inequitable and in a sense one of the least preferred 
approaches to improving the fuel economy of the fleet.
    Senator Bingaman. Let me follow up and ask about the 
tradable credit that you're proposing, and how that would work. 
Who would you start by giving credits to? On what basis? Do you 
give credits to companies? I guess where I'm headed in this 
question is, does this tradable credit program wind up doing 
exactly what you said you don't think would be fair? Do you 
wind up giving credits out on the basis of who has already made 
progress and who was has not?
    Dr. Portney. No. In fact, Senator Bingaman, I think we 
probably think it would have opposite effect for the following 
reason: If it turns out that those auto companies that produce 
cars currently that are well above their CAFE standard, either 
in the passenger car or the light duty truck segment, it's 
probably because they are very clever technologically.
    One problem with the current system is that you have no 
incentive to improve the fuel efficiency of your vehicles if 
you're already above the standard. However, under a credit 
system, if you were to improve your fuel economy still further, 
even though you were above the system, you now have something 
that you can sell to companies that may be struggling to bring 
their fleet up, if they are below the standard, that are 
struggling to bring their fleet up to that standard.
    So one of the real advantages is it would reward the 
technologically superior companies because they would have an 
incentive to continue to innovate.
    Senator Bingaman. Okay. Let me ask Dr. Green, you just said 
that in this first appendix on the report, you dissent from the 
view which was described. I gather the majority view on the 
Committee is that fatalities would have declined much more had 
the downweighting and downsizing not occurred.
    Dr. Greene. Correct.
    Senator Bingaman. Could you just describe your point of 
view on that?
    Dr. Greene. Actually, Maryann Keller and I found it 
necessary to write a dissent, because we think that the 
evidence of a link between improving overall fuel economy and 
traffic fatalities doesn't stand up to a robust analysis.
    First of all, there is no correlation between the overall 
fuel economy of passenger cars and light trucks, and highway 
fatalities. Considering the entire period of time from before 
the fuel economy standards were put in place, say in 1967, to 
1999, there is no statistically significant relationship 
between actual light duty fuel economy and annual traffic 
fatalities. I have been doing statistical analysis for 25 
years, and I can tell you that those two factors are about as 
uncorrelated as they could possibly be.
    However, several studies have found relationships between 
vehicle size and weight and traffic fatalities, including the 
one used by the majority to make its impact estimates. These 
studies suffer from two fundamental flaws that are explained in 
greater detail in the dissent than I can do here.
    First, none of the studies relates changes in weight and 
size that actually occurred as a result of fuel economy 
improvements to traffic fatalities. Instead, they rely on the 
assumption that the variation of the size and weight in an 
existing fleet of vehicles represents the changes that would 
occur over time if fuel economy were improved, but that's not 
correct.
    The assumption implies that as mass is reduced or capacity 
is reduced, a six-passenger car would become a five-passenger 
care, a subcompact would become a two-seater, a large van would 
become a minivan and so on, but that's not what happened. 
Instead, antiquated technologies like chassis on the frame was 
replaced by a unibody construction, rear-wheel drive was 
replaced by front-wheel drive, cast iron engines by aluminum 
blocks, low strength steel was replaced by high strength steel 
and so on. The vehicles didn't just shrink, their designs 
changed in important ways.
    Second, studies based on statistical analysis show that 
fatality data are highly susceptible to spurious correlations. 
One cannot be sure whether the fatalities associated with 
smaller lighter vehicles are truly the result of the size and 
weight of the vehicles or of the behavior of the people who 
drive them at the places and times they are driven. It is 
notoriously difficult to control for such factors in safety 
analyses and we think that most safety experts would agree that 
the exposure data you would need to do that are far from 
adequate.
    My final point. A 1996 National Academy Committee of safety 
and statistical experts convened to review the very methods 
that the majority used to predict the impacts of vehicle size 
and weight on traffic fatalities, and specifically warned 
against what the majority has done because of uncertainties and 
methodological flaws. The 1996 Committee also explicitly stated 
that they believed the defects in the methods and data were not 
correctable.
    There is no fundamental scientific reason why increasing 
fuel economy should be deadly compensated. We are saying, 
therefore, because increasing fuel economy does mean completely 
redefining vehicles in major increases, and whenever you do 
that, safety is always a concern, so vigilance and caution are 
required.
    I thank you for the opportunity to state that.
    Senator Bingaman. Thank you.
    Senator Kerry. Thank you.
    Senator Burns.
    Senator Burns. Thank you, Mr. Chairman. I just have a 
couple questions here and I want to get into the report a 
little deeper. One of the findings of the report is that 
raising CAFE standards would reduce fuel consumption. However, 
other policies could achieve the same end at a lower cost. 
Could you give me some examples of those alternative ways?
    Dr. Portney. Sure. I will give you an example of one that I 
am sure you all would be crazy about, higher gasoline taxes. 
And the reason I say that is that increases in gasoline prices 
not only create an inducement for new car buyers to buy more 
fuel efficient cars and an inducement for new car purchasers to 
buy more fuel efficient cars, we also create a strong incentive 
for people who have existing cars on the road. And remember, 
212 million vehicles on the road now, only 16 million new 
vehicles sold each year, so that's one of the effects of higher 
gasoline prices.
    Now look, some of my fellow Committee members were born at 
night, but not last night, and we understand full well what the 
downside is to higher gasoline prices. That's the reason that 
the CAFE program is really at best the second best program, but 
it's another effort to try to address this issue of fuel 
consumption without touching the price of gasoline, which 
obviously is politically quite controversial.
    Senator Burns. Anyone else want to comment on any other 
alternative ways other than just higher taxes or higher prices?
    Dr. Greene. There are several. The tradable credit system 
we recommend, in theory would be less costly. Also, we don't 
talk about the rebate systems, but those have been proposed 
where essentially inefficient vehicles are taxed and efficient 
vehicles are subsidized. Those are other possibilities.
    Senator Burns. You found that CAFE standards and fuel 
prices combined contributed to the increase in fuel efficiency 
of vehicles between 1970 and 1992. Can you tell me whether the 
efficiency is due to the fact that fuel prices went up or the 
CAFE standards, or at least which part can be attributed to 
which effect?
    Dr. Greene. Well, the Committee said that both were 
responsible, and we did not try to apportion exact amounts.
    Dr. Portney. And Senator Burns?
    Senator Burns. Yes?
    Dr. Portney. In the same way we felt both contributed to 
improvements in the fuel economy, both also contributed to a 
pretty rapid downsizing and downweighting, which the majority 
of the Committee felt pretty comfortable in saying had these 
adverse effects on safety too. We couldn't parcel out those 
effect on either the pro side or the con side.
    Senator Burns. Just a follow-up question. Does the National 
Highway Safety and Transportation Administration have the 
authority under existing law to set CAFE standards?
    Dr. Portney. My understanding is they have the authority to 
set CAFE standards for trucks. CAFE standards for cars were set 
by Congress in the Energy Policy and Conservation Act, and I 
think that authority still resides with Congress for passenger 
cars. NHTSA has the authority for light duty trucks.
    Senator Burns. Thank you very much.
    Senator Kerry. Thank you, Senator Burns.
    Senator Feinstein.
    Senator Feinstein. Thanks, Mr. Chairman. In reading your 
written text, you point out in the paragraph that begins with, 
``the Committee concludes that significant improvements in fuel 
economy are quite possible at reasonable costs,'' and then go 
on to detail the variable valve lift and timing, and actually 
get an 8 percent reduction with continuous variable 
transmissions, 4 to 8 percent, and mention that other 
technologies will be available for wide scale use within 15 
years.
    If you look at Senator Snowe's and my legislation to close 
the SUV light truck loophole, with the technology that is here 
in a reasonable and cost effective way, what is the length of 
time that you would advise that we provide in that legislation?
    Dr. Portney. That's a very good question and I'm not trying 
to hedge my answer, it's a little--if we had had more time and 
perhaps more resources, I think we might not only have been 
able to say here's the break-even fuel economy level and what 
it would cost, we might have been able to sort of show how much 
you could get at various stages along the way. But the problem 
was, you had us on a pretty short time leash to complete this 
report and in addition to looking at those technological issues 
we had safety issues to look at, a variety of concerns about 
employment impacts and other things and frankly, we just 
weren't able to say how much of it could you get at what stages 
along the way to this break-even level.
    Senator Feinstein. Would I be right in assuming that 15 
years is the out-year limit?
    Dr. Portney. Yes, I think we're within 15 years, and I 
think every member of the Committee would agree that it would 
be possible to get some improvements in fuel economy probably 
beginning 3 or 4 years from now. If I could, and I hope I'm 
speaking for my Committee members here, the really important 
thing, Senator Feinstein and to the rest of you as well is, if 
you look back at the original CAFE program, it calls for a 33 
percent improvement in a 4-year period of time, and that's 
simply woefully inadequate to bring on the kinds of technology 
that need to be brought on.
    And that's one reason why to meet those standards, 
downsizing and downweighting was really the only strategy in a 
short period of time, with the attendant safety effects that a 
majority of the Committee thought. The longer the car makers 
have to consider this, the more they can use technology rather 
than quick downweighting as the preferred way of improving fuel 
economy and the easier it becomes and the less expensive.
    Senator Feinstein. From reading your report and from 
reading the draft report, I really came to the conclusion that 
if 6 years is too little, it could well be done between 8 and 
10 years. Would you respond to that?
    Dr. Portney. That's, in my opinion, that's sort of, that's 
being pretty optimistic. You certainly could get something done 
in 8 to 10 years, I don't think there is any question about 
that. Whether you could get close to the break-even levels that 
we talk about here, I'm personally skeptical about but I guess 
my fellow panelists ought to speak to that as well.
    Senator Feinstein. Dr. Greene.
    Dr. Greene. Yes, Senator. You really can't expect the 
manufacturers to change the fundamental design plans of the 
vehicles until about 2004. In between, the designs are all 
locked in place; beginning in that year they could begin to 
implement new technologies.
    After that, it's a question of how rapidly they have to 
replace their production lines, the equipment they use to 
manufacture engines and so on.
    Senator Feinstein. Can I just inject in this, then why have 
they already pledged a 25 percent increase by 2005?
    Dr. Greene. Some manufacturers already have plans in place 
to improve their fuel economy and I think Ford announced 
voluntarily that they would improve the fuel economy of their 
sport utility vehicles by 25 percent. So you could expect that 
that company has taken a leadership position and they want to 
be out in front of anything that you do, but others perhaps are 
not in the same position.
    And so, if you're looking across the whole industry, 2004 
is really the first time you could expect someone to change 
their plans. Now they may already have plans to improve but if 
you want them to change direction and move towards fuel 
economy, they need to have about 3 years lead time, then after 
that, it's about 8 years per model design, let's say, and with 
engine lines, manufacturing equipment and so on, generally 
lasts for 8 to 12 years in a normal process of capital 
turnover.
    So this bounding range of 10 to 15 years is a fuzzy way of 
saying that they need enough time to change all their 
production plans, completely redesign all their vehicles and 
implement those changes in an orderly fashion so they don't 
have to scrap productive equipment before its useful life is 
up.
    Senator Feinstein. Could I conclude from those comments of 
Dr. Greene, to the other gentlemen then, that 10 to 15 years 
would be the prudent number?
    Dr. Wise. Yes. And the numbers that we quote for cost in 
here make that assumption, that costs would be much higher if 
you try to cram the capital stock into a much shorter time 
frame.
    Senator Feinstein. Could I ask a question on the tradable 
credits? I don't understand how they would work unless we close 
the loophole, because why should a company get a 2-mile credit 
for a 22.7 mile per gallon SUV, while another company is 
penalized 2 miles for a 25.5 mile per gallon car?
    Dr. Portney. I guess I would want to--I'm not sure that the 
credit system would work that way. It would work by either 
working off of the current base or possibly by raising the fuel 
economy goals for both cars and light duty trucks, in other 
words, tightening the standard, requiring greater fuel economy.
    Senator Feinstein. Then build in the tradable credits?
    Dr. Portney. Right, in the same way that the SO2 
trading program was driven by overall reductions in 
SO2 emissions. Then you said that while companies 
had to reduce their emissions, if they wanted to reduce less 
they could buy an even greater emission reduction from someone 
else. Here if somebody had to reduce their, or increase their 
mileage, they could pay somebody else to have an even bigger 
increase in mileage.
    Senator Feinstein. You also say--I'm sorry. I heard that, I 
will cease and desist.
    Senator Kerry. We will give you another round in a moment.
    Senator Feinstein. Thank you.
    Senator Kerry. Senator Allen.
    Senator Allen. Thank you, Mr. Chairman, and thanks to these 
gentlemen and all those who worked on this very important 
issue. There are a variety of issues and concerns and values 
involved.
    There are two areas I would like to talk to and try to get 
answers from you in 5 minutes. One, I would like to hear an 
elaboration generally on the improvements in technology; you 
are talking about engine design materials and so forth, which I 
think are important. I also would like to hear some views on 
say fuel cells or other energy sources, whether natural gas, 
electric vehicles, or fuel cells, looking beyond the way we 
look at automobiles right now and looking beyond making them 
plastic, or aluminum versus steel, and so forth. All that's 
fine. But rather than these absurd out-of-touch, harmful, 
punishing ideas such as raising gas taxes just for the heck of 
social engineering. You are all very astute individuals but in 
the real world that's just flat ignorant as far as I am 
concerned and a terrible idea.
    But rather than punish people, what if you provide 
incentives? Have you considered incentives for people who might 
have the more fuel efficient vehicles? I know you want to get 
rid of the distinction on the ethanol versus the gasoline, but 
what if you did have incentives that get to the values that we 
all have here: concern for air quality, less dependence on 
foreign oil while not harming safety, and the choice of an 
individual to be in a larger vehicle for capacity, for towing 
or for the safety of themselves and their children.
    Dr. Sharp. First of all, I don't know in terms of how much 
you're willing to deplete the Treasury of the U.S. Government, 
but you can certainly provide purchase incentives for all kinds 
of technologies that you might try to encourage people to buy, 
and that could be reinforced if you combined it with the CAFE 
standards, a sort of double punch in the economy.
    But basically, I think the Committee came to the conclusion 
that in terms of widespread use of these new technologies as an 
example, or even with the use of an engine that's being driven 
and proven in the European markets, that it was not going to be 
something that you could get in a cost effective way in the 
near term in the U.S. market, even though there is a lot of 
promising talk about it and a lot of promising action.
    And so, the Committee generally took the view that the 
longer-term things ought to keep the Government engaged in them 
through the PNGV or some similar program, a research program 
for those. What it focused on was what is the near term 
availability of real world technologies that might be 
encouraged in the marketplace. But certainly, we could have 
purchase incentives that will help advance this if you wish, 
but defining what those are, administrating that and making 
that effective without bankrupting the U.S. Government will 
take some skill.
    Senator Allen. Well, one would have to determine the value 
of that. If there is a value in cleaner air and greater fuel 
efficiency while not harming safety, there is a value. Yes, 
sir, Dr. Wise?
    Dr. Wise. Making cars more fuel efficient doesn't really 
change the emissions from the cars, because the emission 
standards are set on grams per mile driven, so changing fuel 
efficiency is only a secondary effect. What it does affect, 
however, are the greenhouse gas emissions, because that's 
directly related to the carbon burn.
    Senator Allen. Thank you for that distinction.
    Dr. Wise. You're welcome.
    Senator Allen. Now Dr. Greene had his dissenting exposition 
on safety, and I can understand what Dr. Greene is saying, 
because per 100,000 miles driven, people, there are fewer 
fatalities year after year after year. Some of it is for a 
variety of reasons, including--I remember hearing these 
arguments amid the speed limit increases and so forth. If speed 
limits go up, then the safety decreases.
    Dr. Lund, real quickly, since you are with the Insurance 
Institute of Highway Safety, rather than talking about theory, 
you all have actual experiences. You have to pay claims. You 
insure vehicles based, or insurance companies do it, based upon 
experiences that actually happen. Could you share with us from 
those who have to assess this risk that is actually based on 
actual data, the property damage, personal injury, death of 
occupants for example, in vehicles based on their size and 
weight, could you share with us your findings in those areas?
    Dr. Lund. Thank you, Senator, I would be happy to. I think, 
as you noted, Dr. Greene said that one cannot be sure of what 
the safety effects have been. One cannot be sure of a number of 
things in this world. You know, we're sitting here talking 
today about a five mile per gallon increase in fuel economy and 
the effect that it will have on the climate 50 to 100 years 
from now. There is certainly some uncertainty around this as 
well.
    The Committee has expressed its conclusions in that regard, 
we have also expressed our conclusions in regard to safety. The 
fact is that there is a lot of data, all of which points to the 
increasing risk of serious injury and fatality as vehicles get 
smaller. It is extraordinary to believe that you could take 
vehicles that, and take say 3 or 400 hundred pounds out of one, 
and that that would not affect your safety. It affects your 
interactions with larger trucks on the highway, it affects the 
likelihood that you suffer damage and in a single vehicle 
accident these are straightforward laws of physics.
    There are many studies which have looked at the 
relationship between car size, car weight and the risk of 
serious injury or fatality. Without exception, those studies 
find that as you decrease the size of a vehicle, you increase 
the risk of injury. This is one of the best known facts in 
highway safety.
    It is true that the fatality rate has come down year after 
year after year. Pardon the pun, that is no accident. We have 
taken, as a country, a lot of steps to assure that the safety 
of our cars, that the safety of our roadways is improving year 
after year. We are removing drunk drivers from the road, we are 
increasing seat belt use; all these things are improving 
safety.
    Now, repealing the speed limit goes the other way, as our 
data also show, but nevertheless, overall, the positive things 
that we've done for safety are outweighing the negatives.
    Senator Allen. Thank you, Dr. Lund, and thank you, Mr. 
Chairman.
    Senator Kerry. Thank you, Senator Allen.
    Senator Smith.
    Senator Smith. Picking up where Senator Allen left off, you 
stated in your report, I believe, that if fuel economy 
regulations were structured in such a way as to encourage the 
sale of smaller vehicles, that we can expect more fatalities. 
Is that accurate?
    Dr. Lund. That's correct.
    Senator Smith. And what motivated the change in this view 
from 1992 when the last report was put out, that said that the 
impacts on safety were ambiguous? Is it just we have more 
experience now? We have gathered more data?
    Dr. Lund. In actuality, the report in 1992 concluded that 
in all likelihood, all other things being equal, there would be 
an adverse safety effect if vehicles were downweighted. 
However, they noted that there were a number of uncertainties. 
In particular, they were concerned about the increasing 
population of light duty trucks on the road, they were 
concerned that the overall societal impacts of downsizing 
hadn't been fully accounted for.
    That is, if you downsize a very heavy truck, you increase 
the risk of that truck's occupants but on the other hand, you 
decrease the risk to occupants of other vehicles with whom that 
truck might interact. So they noted these uncertainties.
    In 1997, the National Highway Travel and Safety 
Administration released a new report which was designed to 
answer many of the very uncertainties that the 1992 report 
identified, and the majority of this Committee thinks that they 
did a pretty good job.
    There was a review by a TRB Committee of a draft report of 
the NHTSA study, which suggested that the study needed to do a 
better job of expressing the uncertainty around its estimates. 
And in fact, the author of that study, Chuck Gahain, went back 
and he did exactly what he had been asked. He looked at the 
sensitivity of the study, the various assumptions, and he 
specified the degree of the statistical uncertainty in his 
estimates, and I think that is a good job.
    Senator Smith. Do you believe that NHTSA has sufficient 
authority and expertise to weigh the impacts, for example, on 
safety of vehicle technology and consumer preferences, market 
economics, all of those things? Are they in a better position 
than we to make these judgments?
    Dr. Lund. Well, in this case speaking obviously personally, 
I think it would be good were the Agency to be given the 
authority to look very closely at the issues of improving fuel 
economy, how manufacturers are likely to respond to increased 
fuel economy, what kinds of strategies they will follow, and to 
look at how, to the extent that there is downsizing and 
downweighting, that would affect the final safety issues as 
well as fuel economy.
    Senator Smith. In your recommendations, did you weigh these 
factors in applying technologies, safety, consumer preferences? 
In making your recommendations, were those things that you 
accounted for?
    Dr. Lund. Well, I should let Dr. Portney probably speak 
again for the Committee, but in my view, we have made no 
recommendations for the level of fuel economy increases. We 
have tried to set some, put forward some information about what 
kind of fuel economy is available to be had without altering 
the basic structure and function of vehicles and their 
performance, and we captured that in the so-called break-even 
analysis.
    We have also tried to review what might be the attendant 
costs if fuel economy targets are raised and if they are raised 
too rapidly, which may increase downsizing and downweighting
    Senator Smith. I feel like we are being put in the position 
of Solomon. We are being asked to choose a requirement that 
bears on family economies and frankly, family safety, and 
consumer preference, and this is a hard baby to split. Well, 
baby, that is the wrong metaphor, but we are really making life 
and death kinds of decisions here in the name of the 
environment, but a lot of human lives could be affected.
    And that is, frankly, why I am asking the question. While 
we clearly have the authority to make law and set policy, I 
wonder if NHTSA is in a better position to be making these 
decisions administratively? And my question is: Do they have 
the authority currently to do this and to keep pushing the 
envelope on fuel economy without sacrificing human life?
    Dr. Portney. If I could respond, I think all the members of 
this Committee and all of the members of your respective 
Committees here would love to live in a world where we can get 
much better fuel economy, lower emissions, cheaper vehicles, 
bigger vehicles, et cetera, et cetera. That's not the world 
that the members of this Committee feel like we live in, 
though, and that's why we felt like the best service we could 
do for you is to give you some indication of what we thought 
the trade-offs were.
    And again, to go to something I said at the start, we have 
never been elected, with the exception of Phil Sharp, a former 
Congressman, the rest of the members of the Committee have 
never been elected to anything, and I really feel like that's 
why you fellows run for Congress and it's to make these 
difficult decisions. You are the representatives of the people 
and you are their voice when these kind of trade-offs have to 
be made.
    Senator Smith. I know my time is up, but did you find in 
your evaluations anything that could be done to the cars 
currently on the road that will probably be on the road for 
another 20 or 30 years? Anything that we can do to increase 
their mileage now? Are there any technological fixes out there 
that we could get to in the short run?
    Dr. Portney. Well, other than Senator Allen's favorite, the 
gasoline tax, no. I mean, less facetiously, the kind of 
inspections that they have to go through now that are part of 
the annual emissions tests. I mean, if a car is in better tune, 
which it sometimes has to be to pass the emissions tests, then 
it's going to get better fuel economy, there is no question 
about that.
    So more frequent tune-ups, again, and recognizing our 
naivete, I hope not ignorance, I hope our naivete, if gasoline 
prices are higher, then people have an incentive to keep their 
cars in better tune as well as to search for more fuel 
efficient cars. But I mean, that's not a recommendation on our 
part, it's just an observation.
    Senator Kerry. Thank you, Senator Smith. I can see the 
headlines tomorrow, ``Virginia Senator calls Europeans 
ignorant,'' or maybe worse than that.
    [Laughter.]
    I wonder if we are making too much of this. Let me phrase 
this very carefully. Safety is paramount. We are all concerned 
about safety, and we need to make some judgments about it. But 
we doubled the efficiency of our automobiles in going up to 27 
miles per gallon and no one has made a judgment, as a whole, 
that we are not safer. So I would say to my colleague that when 
you are talking about closing the light truck loophole, and the 
light trucks are already the heavier vehicles on the road which 
are causing problems for the others that are moving to the 
higher standard, it is hard to envision that you are going to 
make the light trucks less safe than the other folks on the 
road by asking them to meet the same standard. So a proposal 
that suggests closing the loophole, it seems to me, is not 
enough to bring you down in safety. Is that a fair judgment?
    Dr. Portney. Well, with all due respect, let me repeat the 
very first point I made about our Committee's recommendation, 
because some Senators have come in since then and I want to be 
very clear about this. These break-even fuel economy levels 
that we have identified would be significant increases in the 
fuel economies enjoyed now by the vehicles that we look at, and 
we make it very clear that these are improvements that are 
possible holding size, performance and weight constant. 
Actually we have seen a little bit of increase in weight. So 
that, it's technologically possible to get these significant 
improvements in fuel economy in both the passenger fleet and 
even more so in the light duty truck fleet, without downsizing 
and downweighting. So it's a technological possibility, no 
safety penalty.
    Senator Kerry. So we do not have to make the Solomon's 
choice the Senator referred to in achieving that? Are you 
saying yes, Dr. Sharp?
    Dr. Sharp. I think you are absolutely correct. If you were 
to go to the extreme and go through this aggressively fast, 
then you would increase the risk of downsizing.
    Senator Kerry. But if you do what we are currently talking 
about, Dr. Greene, you agree to that?
    Dr. Greene. Yes. I think there's nothing in our report that 
contradicts that.
    Senator Kerry. Let me come back. Even if you accepted the 
downsizing, I want you to do this not as a matter of what you 
said before, but just follow with me in a different line of 
thinking. It is the trucks and heavier vehicles that crash into 
a lighter vehicle that has become the new motivation for people 
to go out and buy larger vehicles. We have a counter-incentive 
in the marketplace today, folks. We are driving people towards 
buying heavier, more fuel-inefficient vehicles because they 
feel threatened by the big ones and the theory is, well, I have 
to have a big one too, so I feel safer.
    Dr. Portney. That's correct.
    Senator Kerry. Now if in fact we are requiring the light 
truck vehicles, the trucks that have become passenger cars, to 
act more like passenger cars, you are not going to be putting 
those light passenger cars at risk. You are equalizing what 
happens.
    Dr. Greene. The Committee agrees with that principle.
    Senator Kerry. I just want to establish this very clearly 
for the record so I am not confused when approaching this 
point. Let me go a step further.
    Is there an analysis with respect to the European 
experience and the Japanese experience, where they have both 
smaller trucks and smaller vehicles, as to what the relative 
safety is between them and us?
    Dr. Lund. We have done no analysis for this particular 
report.
    Senator Kerry. Don't you think it would be interesting to 
understand? I mean, they seem to be doing pretty well with 
smaller vehicles, lighter vehicles and with much greater fuel 
efficiency available to them.
    Dr. Lund. It is quite difficult to make comparisons across 
different cultures, because there are many differences between 
say the average German motorist and vehicle and the average 
American. The fact is that when you have similar types of 
roadways, say interstate and highways for comparison, we find 
that the fatality rates in the United States are in fact lower 
than they are in those countries.
    If you try to compare without having some fairly standard 
units, you run into problems with that group. Europeans don't 
license their youngsters until they are older, 17, even 18. It 
can be very expensive to get a license, which slows licensure 
down even further. They have 95 percent belt use; we are 
struggling to exceed 70 percent belt use.
    So there are a lot of problems in making these kinds of 
cross-cultural comparisons, but when we do look at them at 
things that we think are comparable, we find that the United 
States is doing a good job and our vehicles are safer.
    Senator Kerry. Well, I just thought it was important to try 
to understand where we are with respect to what information is 
available to us in terms of safety issues. So yes indeed, if we 
went too far too fast, I do not think we want to push that 
envelope. But I think what we are talking about now remains 
well within the realm of reasonableness.
    In the July 17 New York Times, it reported the findings of 
your draft report, and according to the Times, you then 
suggested that it would be possible to raise fuel economy by 8 
to 11 miles per gallon within 6 to 10 years, but the final 
report then moves it back to 15 years, which was about a 33 to 
50 percent longer time range. What was the basis for suddenly 
expanding the time frame between the draft report and your 
final report?
    Dr. Portney. Actually, I'm glad you asked, because that's a 
question that's come up a lot, as you know. The way I want to 
explain this is the following. Imagine that you were working 
with 12 other of your colleagues to draft something and it was 
very important, and you farmed it out so that each of you were 
going to do one-thirteenth of this report. And 2 weeks before 
the big report was due, everybody came together and for the 
first time had an opportunity to read what everybody else had 
written, and at the same time you had comments from nine of 
your other colleagues who wanted also to comment on this, and 
then you had 2 weeks to put the final report into place.
    Under those kind of circumstances, I'm sure you could 
understand that some mistakes would be made. People saw for the 
first time what other parts of the report looked like, and it 
was literally the day that that story leaked in the New York 
Times that we came together for the first time having all read 
what was in that report, and having had the benefit of nine 
outside anonymous reviewers' comments. And so under that set of 
circumstances, I think it's understandable that things were 
changed from the draft that got leaked in a number of respects, 
and that's the reason why.
    Frankly, there were mistakes in there because we were 
rushing to finish under a lot of pressure, hurry up and get 
this out.
    Senator Kerry. There were no telephone calls from any 
industry or their representatives specifically weighing in?
    Let me just say also, so I establish the rules here for 
myself and others, there is a vote that just started, they have 
two votes now, and I think we should try to get through the 
second round of questions, and then probably because of the 
interference of the voting, wrap it up. So if you can just 
quickly answer it and then I will close.
    Dr. Sharp. Senator, just to indicate, there was no dispute 
in the Committee about the change in the report on that. 
Several people in different groups met and agreed that it was a 
mistake the way it was originally made, and that is a summary 
statement that is not reflected in the final report.
    Senator Kerry. That is fine, I accept that. I was just 
curious and wanted to clear it up and I appreciate the answer. 
Senator Bingaman.
    Senator Bingaman. I just have one other question. There is 
a chart you have in here, Figure 2-4, on page 2-6 of your 
report. It is entitled Passenger and Light Truck Fuel Economy, 
1965 through 2000. Now as I read that, it has the two top lines 
there, one for new cars, one for new light trucks, and those 
lines go up substantially between the period 1978 through about 
1989 or '88, something like that and then they level off, the 
way I read this chart.
    I would conclude just from the little I know about this 
subject, that fuel economy in passenger and new cars and new 
light trucks during that period was improving, because we had 
mandated improvements, and that as soon as the mandates for 
improvements stopped and the Federal law on the issue froze, 
improvements quit. Is that a fair reading of that chart?
    Dr. Portney. With one amendment. During that same early 
period where you see the line going up from left to right most 
steeply, remember that not only did you have CAFE standards in 
place for the first time, but you had very very significant 
gasoline price increases, and that clearly was providing a 
market signal to get better fuel economy.
    But the Committee I think was pretty unanimous in saying 
that subsequent to that, when the real price of gasoline began 
its long dramatic slide, we think, although there is not proof 
for this, but we are pretty confident that fuel economy would 
have sunk below the level of the standards had the CAFE program 
not been put into place.
    Senator Bingaman. Thank you very much.
    Senator Kerry. Senator Feinstein.
    Senator Feinstein. Thanks very much. Gentlemen, you did not 
quite answer Senator Kerry's question. He asked if there had 
been any phone calls about the initial draft report.
    Dr. Portney. Sure, and again, I will let my fellow 
Committee members speak to that. I got phone calls from people 
in the auto industry, I got phone calls from the people in the 
environmental advocacy community, I got phone calls from 
academics who had studied this and written about it. And not 
one of those phone calls, Senator Feinstein, was of the nature: 
``you have to change this or you better do that.'' It was first 
of all: ``Paul, you told us that we wouldn't be reading about 
this in the paper until the Committee had concluded its 
report,'' and two, ``Did the report that Keith Brashear 
published in the New York Times accurately reflect the status 
of the executive summary at that time?'' It was purely 
informational.
    I think you will recall that that table was not exactly 
self explanatory. All the calls I got were: ``Help me 
understand this, what is this break-even analysis,'' or ``What 
does cost effectiveness analysis mean?''
    Senator Feinstein. Let me just ask about one sentence that 
was deleted that was in the draft report, again carried in the 
New York Times. And the quote is: ``Significant fuel economy 
gains in all vehicles can be achieved with minimal or no weight 
reduction and therefore minimal negative safety implications.'' 
Why was that sentence deleted?
    Dr. Portney. I can't for the life of me tell you. Jeff, do 
you recall?
    Dr. Wise. That was because we believed it could be done but 
we didn't know whether manufacturers would do it. In other 
words, if it was--we believed based on our data that it's 
possible technically to do it, and it would be the most cost 
effective way to do it. But we can't guarantee that if you 
raise the fuel economy standards that manufacturers will 
necessarily do it that way.
    Senator Feinstein. That is not what the draft report said. 
It said that the economy gains can be achieved, it does not say 
that the automobile companies will do that, it is just a 
scientific statement that based on the science these gains can 
be made.
    Dr. Sharp. I think whether the sentence is the same or not, 
the content is the same and the content is exactly as you 
stated, it is quite possible for them to do this with the 
technology without downsizing and downweighting. CAFE does not 
guarantee what strategy they might take, that was the concern 
of some members, that that would be confused, but the content 
was very very clear, significant gains could be made with 
current technologies without downweighting or downsizing, given 
enough time.
    Senator Kerry. How much is enough time?
    Dr. Portney. 10 to 15 years in the view of the Committee. 
Some things are achievable before then, but to implement the 
whole suite of technologies that would make possible the fuel 
economy gains at the cost we identified, within 15 years.
    Senator Feinstein. And if I may, that is what has changed. 
I mean, the original report said that this was all possible in 
6 or 10 years and then the final report deleted that fuel 
economy gains with minimal or no downweighting, and changed the 
length of time up to 10 to 15 years from 6 to 10 years. So, to 
me, in reading the report, what that said is oh, somebody got 
to them and said we cannot do it in this time, or we are not 
going to do it in this time, and you yielded to that. I am not 
saying you did, I am saying that was just the implication.
    Dr. Greene. I think there was a problem we discussed, and 
although I didn't agree personally with the other changes, I do 
agree with the 6 to 10-year change.
    Senator Kerry. We just have one minute for our vote. We 
have a little grace period, but as you know, it is not that 
long, if they will hold it.
    Senator Feinstein. Thank you very much. I will conclude and 
I just want to thank you very much.
    Senator Kerry. On the table currently are discussions about 
bringing light truck vehicles up to the 27.5 miles per gallon 
standard applicable to passenger cars. You have indicated you 
think that is achievable. There is also discussion of taking 
passenger vehicles up to anywhere from 30, 35 or 40 mpg--40 is 
I think the highest number. Is 40 mpg achievable reasonably? Is 
35 achievable? I know you have not recommended a level, but I 
am asking you if that is within the realm of possibility in the 
judgment of the Committee.
    Dr. Portney. Well, I would say anything is within the realm 
of the technical, or technologically achievable. 40 miles per 
gallon is 100 percent increase in fuel economy for SUVs and a 
45 percent for cars, and there is certainly nothing in our 
report that would suggest that that's possible even within a 
15-year period, and I think we would all agree that that's 
overly ambitious in the time frame that we looked at.
    Senator Kerry. Fair enough.
    Dr. Greene. We don't consider all the technologies, so 
there may be new technologies coming in to speed that up.
    Senator Kerry. Agreed. I opened the hearing up very clearly 
saying that until you push the curve, you may not know how fast 
you can achieve it. I would rather be in the position as a 
Senator--if I'm still here in 10 years--of making the judgment, 
recognizing if we are not able to make it, perhaps rolling it 
back. But we at least must set a target and try, rather than 
folding our hand early, and it seems to me that we must try to 
push the curve. We have seen what has happened in almost every 
other field when we have done that.
    I want to thank you. The last thing you need are some of 
these headaches. Your public service is much appreciated, and 
we are very grateful to you for this. We are going to digest 
it, work through it. Our Committee, the Commerce Committee 
hopes to proceed forward and mark something up in September 
when we get back, and so we may even get back to you 
individually.
    I intend to leave the record open for a week in order to 
allow colleagues to submit any questions they may have or for 
any further inquiries of staff.
    Thank you very much. We stand adjourned.
    [Whereupon, at 4:21 p.m., the hearing was adjourned.]

                                    

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