Passenger Vehicle Fuel Economy: Preliminary Observations on Corporate Average Fuel Economy Standards
Published: 2007-03-06T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Concerns over national security, environmental stresses, and economic pressures from increased fuel prices have led to the nation's interest in reducing oil consumption. Efforts to reduce oil consumption will need to include the transportation sector. For example, several Members of Congress have introduced bills proposing changes to the corporate average fuel economy (CAFE) program. This program includes mile per gallon standards for light trucks and cars that manufacturers must meet for vehicles sold in this country. This testimony is based on ongoing work for this committee. This testimony describes (1) recent and proposed changes to CAFE standards; (2) observations about the recent changes, the existing CAFE program, and NHTSA's (National Highway Traffic Safety Administration) capabilities to further restructure CAFE standards; and (3) initial observations about how the CAFE program fits in the context of other approaches to reduce oil consumption. To address these issues, we reviewed program legislation, rule makings, and operational documents. Also, we interviewed officials from NHTSA, the Department of Energy, Environmental Protection Agency, the auto industry, labor unions, and the insurance industry. Finally, we contacted several recognized experts in fuel economy and safety. Our report will be issued in July 2007.
section_title: What GAO Found
paragraphs: The National Highway Traffic Safety Administration (NHTSA), the agency responsible for setting CAFE standards for cars and light trucks--such as sport utility vehicles, minivans and pickup trucks--recently raised CAFE standards for light trucks to reduce oil use and restructured this part of the program to help address safety, among other issues. However, the CAFE standard for cars has changed little over the past 2 decades. In 1975, Congress established CAFE standards for cars rising to 27.5 miles per gallon (mpg) by 1985 but did not allow NHTSA to restructure how car standards are applied. As part of the administration's plan to meet the President's recently stated goal to reduce oil use by 20 percent over the administration's projected levels by 2017, the NHTSA Administrator submitted a plan to Congress that would allow NHTSA to reform the car CAFE program in a manner similar to NHTSA's recent changes to the light truck program. The majority of experts with whom we spoke stated that CAFE standards are an important approach to reducing oil consumption and NHTSA's recent reform of light truck standards addresses previous safety and competitive concerns, among others. However, they also identified some ways to further refine the CAFE program such as considering harmonizing light truck and car standards. Further, NHTSA officials identified ways to improve the agency's capabilities to administer the program. For example, the agency would benefit from some additional expertise on automotive engineering. Finally, several experts observed that the model that NHTSA uses to help set CAFE standards does not fully account for the impact of greenhouse gas emissions. While the CAFE program is an important program in the nation's efforts to reduce oil consumption, other policies and programs exist to help the nation reduce oil consumption in the transportation sector. We will report on how these programs align with the CAFE program in our report to be issued in July 2007. For example, according to experts with whom we spoke, CAFE's effectiveness in reducing oil consumption is hampered by a provision granting manufacturers a 1.2 mpg CAFE credit toward meeting its fuel economy standard for selling flexible fuel vehicles, even though these vehicles are not often run on fuel other than gas.

section_title: Letter
paragraphs: We appreciate the opportunity to provide testimony on the nation’s  approach to reducing oil consumption through fuel efficiency standards.  Concerns over national security, environmental stresses, and economic  pressures from increased fuel prices have led to the nation’s interest in  reducing oil consumption. Several Members of Congress have introduced  bills proposing to mandate fuel economy increases, such as increasing car  standards from the current 27.5 miles per gallon (mpg) to 40 mpg within 10  years. In addition, the President recently announced a nationwide goal to  reduce oil consumption 20 percent from the levels that the administration  projects would otherwise occur by 2017.
Efforts to reduce oil consumption will need to include the transportation  sector, because transportation in the United States currently accounts for  68 percent of the nation’s oil consumption. And, within the transportation  sector, 60 percent of the oil consumed is consumed by cars and light  trucks. In the aftermath of the energy crisis of the early 1970s, Congress  developed the Corporate Average Fuel Economy (CAFE) program to help  reduce the fuel used by light trucks and cars. Under the CAFE program,  manufacturers must ensure that the vehicles in their fleets, on average,  meet a specified mpg standard or pay a penalty. The National Highway  Traffic Safety Administration (NHTSA) within the Department of  Transportation (DOT) is primarily responsible for setting and enforcing  CAFE standards. Many changes in automotive technologies and the auto  industry have occurred since the program was designed in the 1970s.  These developments, along with the concerns mentioned above, have led  to some changes in the CAFE program, along with calls to further alter the  program, including raising CAFE standards or revising how the program  applies the standards.
My testimony today will discuss (1) recent and proposed changes to the  CAFE standards; (2) observations about the recent changes, the existing  CAFE program, and NHTSA’s capabilities to further revise CAFE  standards; and (3) observations about how the CAFE program aligns with  other approaches and options for reducing oil consumption. My comments  are based on ongoing work for this committee, and therefore my  comments reflect our preliminary observations. We plan to issue our  report in July 2007. To obtain information on the CAFE program and  recent and proposed changes to the program, we reviewed relevant U.S.  code and program guidance, including rule making documents, and  interviewed a wide range of program stakeholders, including NHTSA, the  Environmental Protection Agency (EPA), the Department of Energy  (DOE), the applicable automobile workers trade union (UAW), industry  groups representing the automobile manufacturers, automotive safety  experts, insurance industry representatives, and environmental advocates.  To obtain information about recent program revisions and NHTSA’s plans  and capabilities to further revise CAFE standards, we interviewed NHTSA  officials, experts in fuel economy and safety as well as reviewed CAFE  program budgets, key studies, and other documentation. To obtain  information on how the CAFE program aligns with other approaches and  options for reducing oil consumption by cars and trucks, we interviewed  experts in fuel economy and other industry stakeholders. We selected  these experts by contacting officials who worked on a 2002 National  Academy of Sciences report on CAFE standards. During conversations  with these experts, we asked them for additional experts we should  contact. We also contacted officials in selected foreign countries with  programs designed to reduce oil consumption for passenger vehicles. We  conducted our work for this statement from September 2006 through  February 2007 in accordance with generally accepted government auditing  standards.
In 2003, NHTSA raised light truck CAFE standards from 20.7 mpg in 2004  to 22.2 mpg in 2007. Subsequently, NHTSA restructured the CAFE program  for trucks using a method that categorizes light trucks based on their size.  This new method is meant to help address potential safety consequences  and other issues that had previously been cited as negative consequences  of raising CAFE standards. The nation’s CAFE standard for cars has  changed little over the past 2 decades, for example CAFE standards for  cars have not risen above 27.5 mpg since 1990. Furthermore, Congress  included provisions in DOT’s appropriations acts from fiscal years 1996  through 2001 preventing NHTSA from spending any funds to change CAFE  standards. The Secretary of Transportation recently asked Congress for  the ability to restructure CAFE standards for cars. More recently, as part  of the Administration’s plan to meet the President’s oil reduction goal the  Secretary of Transportation submitted a plan to Congress that would allow  NHTSA to restructure the car CAFE program based on an attribute of the  vehicle, such as size. This plan mirrors NHTSA’s recent changes to the  light truck program. In addition, several Members of Congress have  introduced legislation to raise CAFE standards.
The majority of experts with whom we spoke believe that CAFE standards  are an important approach to reducing oil consumption; and NHTSA’s  recent reform of the light truck standards addresses other concerns,  including safety and competition among individual car companies, among  others. However, these experts also identified some further revisions to  the CAFE program that could be considered in determining ways to  further optimize the CAFE program, including:   evaluating a size-based approach for cars similar to the one  implemented for light trucks to address safety and other concerns and  encourage fleet-wide improvements in fuel efficiency;    considering harmonizing light truck and car standards to have an  integrated program and reduce incentives to classify vehicles as light  trucks;  reassessing the length of time for which standards are set to reduce  costs for manufacturers;    allowing trading of CAFE credits between vehicle classes and among  manufacturers to provide additional incentives and flexibility in  meeting CAFE standards; and,    evaluating the need for the distinction between domestic and foreign  vehicles when calculating CAFE to simplify the program and recognize  changes in where automobiles are manufactured.
Further, experts and NHTSA officials also identified ways NHTSA could  improve its capabilities to revise CAFE standards including:    obtaining additional expertise on automotive engineering to review  product plans automakers submit in the CAFE rule-making process;    updating a 2002 National Academy of Sciences study that included  information on the potential impact of technologies that could improve  fuel economy; and  identifying a valuation of greenhouse gas emissions used in analysis to  estimate the costs and benefits of changes to CAFE standards.
Finally, while the CAFE program is an important program in the nation’s  efforts to reduce oil consumption, other policies and programs exist or  have been proposed to help the nation reduce oil consumption by the  transportation sector that could complement CAFE. We will be reporting  in more detail on how these options align with the CAFE program in July  2007. We will also identify policies that potentially decrease the  effectiveness of the CAFE program in reducing oil consumption. For  example, experts with whom we spoke identified the program that grants  manufacturers a 1.2 mpg CAFE credit toward meeting its fuel economy  standard for selling flexible fuel vehicles, even though these vehicles are  not often run on fuel other than gas.
subsections: section_title: Background
paragraphs: Congress enacted the 1975 Energy Policy and Conservation Act (the  Energy Act) during the aftermath of the energy crisis created by the Arab  oil embargo of 1973 and 1974 to reduce oil consumption by the  transportation sector in the United States. The act established what is  commonly known as the CAFE program, which requires that  manufacturers meet separate fuel economy standards for passenger cars  and light trucks. To reduce oil consumption, the program uses fuel  consumption standards—measured in mpg—that cars and light trucks  must meet. In addition to decreasing oil consumption by increasing the  mileage driven on a gallon of gas, an increase in the standards also  decreases tailpipe emissions, including greenhouse gases.
A manufacturer’s compliance is based on a comparison of a  manufacturer’s fleet-wide fuel economy average against the appropriate  CAFE standard. The Energy Act grants NHTSA the authority to calculate a  car and light truck figure for each manufacturer, measuring compliance of  domestically produced and imported cars, separately. The law considers a  vehicle domestic if at least 75 percent of the cost of the vehicle to the  manufacturer is attributable to value added in the United States, Mexico,  or Canada.
Congress set a standard for passenger cars (currently 27.5 mpg) but did  not establish specific CAFE standards for light trucks in the Energy Act.
Instead, the Energy Act grants NHTSA authority to establish both the  structure of the CAFE program and the fuel economy standards for  different classes of light trucks. Rather than Congress specifying a mpg  target for light trucks as it did for passenger cars, NHTSA is required to set  standards at the maximum feasible level using the same criteria and lead- time requirements used in setting standards for passenger cars. However,  appropriations acts restricted NHTSA from increasing or otherwise  changing CAFE standards from fiscal year 1996 through 2001. For fiscal  year 2002, Congress did not renew the multiyear freeze on NHTSA’s CAFE  rule-making responsibilities and the agency resumed efforts for future rule  makings to raise CAFE standards for light trucks.
The CAFE program is generally considered to have contributed to  increasing the nation’s fuel economy. For example, a 2002 NAS report  found that the CAFE program has been particularly helpful in keeping fuel  economy above levels to which it might have fallen due to the low and  declining real price of gas. The NAS study estimated that if fuel economy  had not improved, gas consumption and oil imports would have been  about 14 percent higher than they were in 2002.
To help meet CAFE standards, manufacturers may earn credits that can be  used to help them meet fuel economy standards. For instance, if a  manufacturer exceeds the required fuel economy in a certain year, it earns  credits that can be applied to past or future model-year fuel economy  numbers. Credits, however, cannot be passed between manufacturers or  among fleets. In addition, the Alternative Motor Fuels Act of 1988  encourages the use of alternative fuels by giving credits to manufacturers  toward meeting CAFE standards for producing cars that can run on  alternative fuels in addition to gas. Under the resulting “Dual Fuel”  program, manufacturers may earn up to a 1.2 mpg credit for producing  vehicles through model year 2010 that are capable of using both regular  gasoline and an alternative fuel. If a manufacturer does not meet the  standards and has no credits to apply, it must pay a civil penalty.
In addition to CAFE standards administered by NHTSA, Congress and  other federal agencies have established programs to reduce oil  consumption in the transportation sector. These programs include (1)  vehicle acquisition requirements at federal agencies to purchase  alternative fuel vehicles, (2) research and development of alternative fuels  and new vehicle technologies, and (3) tax incentives for consumers  purchasing fuel efficient vehicles like hybrids.
In addition to NHTSA, other federal entities contribute to the nation’s  efforts to reduce oil consumption. For example, DOE coordinates federal  research on strategies for reducing oil consumption; developing advanced  technologies such as fuel cells; producing and using alternative fuels and  more fuel efficient vehicle technology, as well as providing grants for  research into such areas as plug-in hybrid technology and ways to expand  the production and use of ethanol. In addition, the National Economic  Council assists the administration in developing its energy initiatives.
section_title: NHTSA Recently Raised and Restructured Light Truck CAFE Standards and Has Not Raised the Car CAFE Standard Since 1990, but Has Requested Authority to Make Changes
paragraphs: NHTSA has recently raised the light truck CAFE standard and reformed  the program using a method that categorizes light trucks based on their  size, doing so in part to address potential safety concerns. CAFE standards  for cars have not changed since 1990. This is due, in part, to past  congressional prohibitions against NHTSA using any of its appropriation  to raise fuel economy standards and, more recently, NHTSA’s preference  to tie raising the car standard to restructuring the program. Recently, the  administration has submitted a proposal to restructure and increase  passenger car CAFE standards. Members of Congress also have submitted  proposals to change the CAFE standards.
subsections: section_title: NHTSA Recently Increased Standards and Reformed the Light Truck CAFE Program
paragraphs: In April 2003, NHTSA released a final rule increasing light truck CAFE  standards from 20.7 mpg in 2004 to 22.2 mpg in 2007. As part of this rule  making, NHTSA explained the importance of increasing the CAFE  standards for light trucks because of the growing market share of these  vehicles. The impact of the light truck market on overall oil consumption  in the United States had grown since the beginning of the CAFE program  as market share for these vehicles has increased. Specifically, in 1980,  shortly after the program began, light trucks composed about 20 percent  of the new passenger vehicle market in the United States. By 2005, light  trucks, including minivans, pickup trucks, and sport utility vehicles,  accounted for about 50 percent of the new passenger vehicle market in the  United States.  The overall fuel economy of the U.S. vehicle fleet declined  in the 1990s, in part due to the increased market share of light trucks. (See  fig. 1 showing share of fleet composed by light trucks).
While NHTSA took these steps to raise CAFE standards for light trucks,  the agency also began investigating reforming the light truck CAFE  program in part to address safety concerns. A 2002 National Academy of  Sciences (NAS) report on the impact of CAFE standards stated that  because the easiest way for an automobile manufacturer to increase  vehicle fuel economy is to decrease vehicle weight, increases to CAFE  standards were likely to have a negative impact on safety and result in  more highway fatalities. The report recommended that NHTSA investigate  implementing a CAFE system based on the attributes of a vehicle, such as  size and/or weight, where there would be separate standards for vehicles  with similar attributes.
In response, NHTSA released a rule in April 2006 that reforms the  structure of the CAFE program for light trucks and continues to increase  light truck CAFE standards for model years 2008 to 2011. Under the new  rule, fuel economy standards are established based upon truck size instead  of having one average standard for all light trucks. Each truck is assigned  a fuel economy “target” based on a measure of vehicle size called  “footprint,” the product of multiplying a vehicle’s wheelbase (the distance  from front to the rear axles) by its track width (the horizontal distance  between the tires). (See fig. 2 for a display of how the standard applies to  trucks of different sizes).
According to NHTSA officials, the reformed CAFE approach may enable  the country to achieve larger reductions in oil consumption, while  enhancing safety and preventing adverse economic consequences. Under  the current standard, manufacturers of smaller light trucks may already  exceed the fleet CAFE standard and, therefore, have little incentive to  increase fuel economy. However, under the reformed standards, the  required overall fuel economy of the light truck fleet will rise over time. In  addition, the reformed standards include larger vehicles such as sport  utility vehicles, but not pickup trucks, weighing between 8,500 and 10,000  pounds that previously were exempt from the CAFE program. NHTSA  estimates that including these vehicles in the CAFE program will save 7.8  billion gallons of fuel over the life of the vehicles sold between 2008 and  2011. In addition to these expected fuel savings, the reformed CAFE  standards offer enhanced safety by discouraging downsizing of vehicles  since, as vehicles become smaller, the applicable fuel economy target  becomes more stringent. In addition, according to NHTSA, the reformed  CAFE standards spread the regulatory cost burden for fuel economy  improvements more broadly across the industry instead of concentrating it  more exclusively on the manufacturers who may produce heavier, less fuel  efficient vehicles.
section_title: NHTSA Has Not Raised the Car CAFE Standard Since 1990 but Has Requested Authority to Make Changes
paragraphs: The 1975 Energy Act established CAFE standards for passenger cars for  model years 1978 to 1980 and 1985 and thereafter. The standards called for  manufacturers to produce vehicles averaging 18 mpg in 1978, rising to 27.5  mpg by 1985. In the 1980s, NHTSA reduced the CAFE standard for cars,  and the agency did so for model years 1986 to 1989. NHTSA raised the car  CAFE standard back to 27.5 mpg for the 1990 model year and has made no  changes to the standard since then. See table 1 showing CAFE standards  over time.
NHTSA officials cited several reasons for not raising the CAFE standard  over 27.5 mpg. First, for several years, Congress specifically prevented  NHTSA from making any adjustments to CAFE. Beginning in fiscal year  1996 and lasting through fiscal year 2001, Congress included language in  DOT’s appropriations acts preventing NHTSA from expending any  appropriated funds for rule makings to adjust CAFE standards, for either  cars or trucks. Second, although NHTSA officials state that the agency has  the legislative authority to raise CAFE standards for cars above 27.5 mpg,  as specified by the Energy Act, these officials stated the Energy Act  prevents NHTSA from restructuring the program, for example, by  developing a size-based standard as it recently did for light trucks.  NHTSA is reluctant to raise the car standards without restructuring the  program as it is concerned about the effect on safety, competition between  auto manufacturers, and other issues.
However, in 2007 the NHTSA Administrator submitted proposed  legislation to Congress that, if enacted, would give the Secretary of  Transportation the authority to restructure and increase CAFE standards  for cars. The proposal calls for the fuel economy standard to be the  maximum level that NHTSA believes the manufacturers could achieve in a  specific model year. The proposal would also give NHTSA the power to  base the standard on one or more vehicle attributes similar to the light  truck standard. In addition, the proposal calls for a credit trading system  among manufacturers. If a manufacturer exceeds the mileage standard, it  can sell its credits to another manufacturer or a broker. The proposal does  not provide a specific goal or mpg standard; but, like the light truck  standard, it sets an average fuel economy standard that is the maximum  feasible average fuel economy level that the Secretary of Transportation  decides the manufacturers can achieve in a specific model year. NHTSA  officials indicate that they may follow a process similar to the rule-making  process they followed to recently reform and set new light truck  standards.
In addition to this proposed legislation, several Members of Congress have  submitted bills that have some similarities to the Secretary’s proposal but,  if enacted, would set a specific fuel economy mpg standard for  manufacturers to meet, rather than allow NHTSA to determine the  maximum feasible level. For example, one bill calls for cars and light  trucks achieve a combined CAFE average of 35 mpg by 2019. Another bill  would raise CAFE standards for passenger cars to 40 mpg by 2017. These  are only selected examples of the many bills currently pending in Congress  on this topic.
section_title: A Majority of Industry Stakeholders and Experts Support NHTSA’s Recent CAFE Revisions, While Recommending Further Refinements to the CAFE Program and Ways for NHTSA to Improve Its Capability to Revise Standards
paragraphs: The majority of industry stakeholders and experts with whom we spoke  supported NHTSA’s revisions to the light truck standards, and many of  them specifically stated that NHTSA should consider further refinements  to the CAFE program, such as restructuring the car CAFE standards based  on the size of the vehicle. In addition to these refinements, stakeholders  and experts identified issues about both the appropriate information for  NHTSA’s rule making deliberations and NHTSA’s capabilities to most  effectively revise car CAFE standards. For example the model that NHTSA  uses to estimate the impact that changes in CAFE standards will have on  oil consumption does not currently place a dollar value on the reduction of  carbon emissions. If NHTSA is able to revise car standards, it may be an  opportunity to consider how to value greenhouse gas emissions.  Furthermore, many experts indicated that the agency would benefit from  some additional expertise, for example, on automotive engineering to,  among other duties, review product plans automakers submit in the CAFE  rule-making process.
subsections: section_title: Stakeholders and Experts Support Recent Restructuring of Light Truck Standards
paragraphs: While it is impossible to determine the extent to which NHTSA’s recent  restructuring of the light truck CAFE standards will reduce oil  consumption since the standards will not take full effect until vehicle  model year 2011, experts and industry stakeholders whom we interviewed  generally praised the restructuring. Many, including representatives from  the insurance industry, specifically praised the restructured CAFE  program for removing most incentives manufacturers may have had to  reduce vehicle weight in order to meet CAFE standards, and thereby make  vehicles less safe. A number of experts also noted that the restructured  standards treated all manufacturers more equitably, in that each company  would now have an incentive to use additional fuel efficient technologies  across its light truck fleets, rather than only in selected vehicles needing a  boost to meet CAFE standards.
Auto industry representatives with whom we spoke also supported the  restructuring because it seemed to spread the burden of compliance  evenly across the industry. Also, industry representatives stated that the  reformed light truck standard did not favor big or small vehicles, so  manufacturers could produce a range of vehicles that appeal to different  segments of the market.
A few experts with whom we spoke expressed concern regarding the  reformed standards, stating that NHTSA did not raise CAFE standards far  enough or that the system could not guarantee oil savings because  manufacturers could choose to build—and consumers might elect to  buy—trucks with the largest footprints, which must meet lower fuel  economy standards than smaller trucks.
section_title: Experts Have Recommended Further Refinements to the CAFE Program
paragraphs: Many of the experts with whom we spoke identified several refinements to  the CAFE program that could improve the program by improving safety,  making the program more equitable for manufacturers, or reducing the  costs that manufacturers incur to comply with the program. In addition to  increasing fuel efficiency standards to reduce oil consumption, further  refinements may help address safety concerns and improve the efficiency  of the CAFE program. Some of these potential changes include the  following:    Evaluating footprint approach for cars: Currently, the car standard uses a  single, mpg standard as opposed to the recently reformed light truck  standard, which uses a footprint-based standard. The majority of the  experts with whom we spoke believed that changing the structure of the  light truck program to a footprint-based standard was positive, and many  of them specifically stated that NHTSA should be allowed to evaluate a  similar structure for the car program. They believe that such a structure  will provide similar safety benefits to those expected with the revised  truck program and would also treat car companies more equitably.
Harmonizing light truck and passenger vehicle standards: Currently,  light truck and car standards are separate. However, of those experts that  expressed an opinion, almost all thought the car and light truck CAFE  programs should be harmonized if a footprint system was instituted for  cars as it has been for light trucks. Experts noted several advantages of  harmonizing the programs, including reducing the current incentive for  manufacturers to reclassify vehicles from cars to light trucks in order to be  able to comply with a lower CAFE standard. One expert also noted that  harmonizing cars and light trucks was appropriate, given that light trucks  are now primarily used as passenger vehicles rather than as cargo and  agricultural vehicles, as was the case when CAFE was instituted.
Reassessing the length of time for which CAFE standards are set:  Currently, NHTSA sets new CAFE standards generally for 2 to 4 years at a  time with the first new year of standards beginning 18 months after the  completion of a rule-making process. Of those that expressed an opinion,  almost all the experts with whom we spoke stated that setting standards  for about 7 to 10 years out reduces costs for manufacturers by allowing  the manufacturers to capitalize on normally scheduled plans to redesign  models.
Allowing CAFE credit trading between vehicle classes and among  manufacturers: Currently, if manufacturers exceed the required fuel  economy in a certain year, they earn credits that can be applied to past or  future model-year fuel economy numbers. Such credits applied to previous  model years are known as “carry-back” credits, while those applied to  future model years are known as “carry-forward” credits. These credits  cannot be traded among manufacturers or between fleets (that is, between  cars and trucks). Of those who expressed an opinion, many of the experts  with whom we spoke thought that the manufacturers should have greater  flexibility in trading CAFE credits than is now afforded under the “carry- forward carry-back” approach. Economists in particular noted that credit  trading both between vehicle classes within a manufacturer’ own fleet and  credit trading among manufacturers would reduce the compliance costs of  CAFE for manufacturers, since manufactures for whom it would be very  costly to achieve a CAFE standard for a particular line could trade with  another line where exceeding the standard would be less costly.
Removing the distinction between domestic versus import vehicles to  calculate CAFE standards: Currently, the CAFE program determines a  manufacture’s compliance with CAFE car standards for its domestic- and  foreign-made fleets, separately. According to a labor union official, this  distinction was designed as a way to keep some small car production  within the country and thus protect workers that produce small cars  domestically. Of those who expressed an opinion, almost all the experts  we spoke to believe that CAFE compliance should no longer be calculated  separately for domestic and import fleets. Industry representatives noted  that cars produced in Canada and Mexico count as domestic vehicles and  that many foreign manufacturers make vehicles in the United States, thus  the distinction is not as meaningful as it once was. However, the union  believes that if this incentive is removed, automakers will continue  producing small cars in foreign markets, but close domestic plants  producing small cars, thus adversely impacting U.S. jobs.
section_title: NHTSA and Experts Identified Ways to Improve NHTSA Capabilities to Reform the CAFE Program
paragraphs: As discussed above, the Secretary of Transportation has submitted  legislation to Congress that, if enacted, would give the Secretary of  Transportation the authority to revise CAFE standards for cars. Many of  the experts with whom we spoke raised some concerns about NHTSA’s  capabilities to revise CAFE standards. These experts identified several  ways NHTSA could improve its capabilities to revise CAFE standards in  the future. In some instances, NHTSA officials acknowledged the benefit  of these potential improvements.
Expanding staff expertise and levels: Two experts with whom we spoke  cited the congressional prohibition on any work at NHTSA to increase  CAFE standards in the 1990s as a reason the agency lost qualified,  experienced staff. An expert stated that in the past, NHTSA was more  aggressive at critiquing cost estimates and product plans that automakers  submitted when the agency was determining how much of an increase in  CAFE standards the auto manufacturers could handle technologically.  Several experts believed that NHTSA currently does not have the capacity  to do this sort of checking. NHTSA officials disagreed with this assessment  but stated that additional staff with automotive engineering skills would  help them in future CAFE rule makings and that they will hire an  additional person with an automotive engineering background. NHTSA  officials agreed that they are, to a degree, dependent on the information  automakers provide them about product plans and future technological  capabilities in enhancing fuel economy.
Updating the NAS report: NHTSA officials involved in setting the  reformed light truck standard told us they relied extensively on the 2002  NAS report that evaluated CAFE standards. Specifically, these officials  cited the report’s assessment of the impact on fuel economy and cost of  emerging automotive technologies as crucial to their decision making  about how high to raise future CAFE standards and how quickly to require  future increases. Also, NHTSA officials stated that because the report had  been peer reviewed, it was even more useful and mitigated criticism  regarding the agency’s assumptions. NHTSA officials and several experts  whom we interviewed supported updating the study, as the original  information is now 5 years old and rapidly becoming outdated, since  technologies on automotive technologies change quickly, and cost  information also varies over time. For example, NHTSA officials pointed  out that the study did not include an assessment of alternative  technologies, such as electric hybrids. These officials and experts stated  that it would be ideal to complete such an update before NHTSA issues a  new car or light truck fuel economy standard, and NHTSA has request  funding for such a study in its 2008 budget proposal to Congress.
Identifying a valuation for greenhouse gas emissions: Several  stakeholders and experts told us they were concerned about certain inputs  that NHTSA officials used in the computer model maintained by DOT’s  Volpe Research Center. NHTSA uses this model as a tool to help estimate  the fuel savings that will result from CAFE increases and to estimate how  likely it is that the manufacturers will comply with future CAFE  standards. Specifically, some experts were critical of the fact that NHTSA  and Volpe staff assigned a “zero” dollar value to the benefit of reductions  in greenhouse gas emission that would result from an increased standard.  NHTSA officials stated they did this because the scientific community had  not reached a consensus on the value that should be assigned to carbon  dioxide, though researchers have developed a range of values that could  be considered in giving a dollar value to greenhouse gas reductions.  Therefore, according to one expert, the results of the model may  underestimate the total dollar benefits to society of raising CAFE  standards, since the dollar value of reduced greenhouse gas emissions was  not included in the model’s results. If the car CAFE program is revised, it  may provide an opportunity to revisit how to value a decrease in  greenhouse gas emissions through improved fuel efficiency.
section_title: Other Federal Programs Also Seek to Reduce Oil Consumption in the Transportation Sector
paragraphs: While the CAFE program is an important program in the nation’s efforts to  reduce oil consumption, other policies and programs currently exist to  help the nation reduce oil consumption in the transportation sector. The  White House National Economic Council’s 2006 Advanced Energy  Initiative and the Department of Energy’s Strategic Plan both highlight a  number of ongoing programs and initiatives in the transportation sector,  such as developing and deploying alternative fuels that can help reduce oil  consumption. Other existing programs include CAFE credits for  manufacturers of “flex fuel” vehicles capable of running on gasoline or  alternative fuels, a federal vehicle acquisition program requiring federal  agencies buy vehicles capable of running on alternative fuels, tax  incentives for consumers purchasing fuel efficient vehicles like hybrids,  and taxes to discourage the purchase of cars with low fuel efficiency,  known as the “gas guzzler” tax. We will be reporting in July 2007 on the  extent to which these programs complement or contradict the goals of the  CAFE program. We will also report on other proposals to reduce oil  consumption by cars and light trucks and their potential effects.
However, many of the experts with whom we spoke have pointed out that  the program granting manufacturers a maximum of 1.2 mpg CAFE credit  toward meeting fuel economy standards for flex-fuel vehicles, currently  may be actually increasing oil consumption among passenger vehicles.  Specifically, the credit allows manufacturers to build these vehicles to  meet a lower CAFE standard, and this credit is granted regardless of  whether consumers are actually running the vehicles on gas or E85 (a  blend of 85 percent ethanol). As a result, flex fuel vehicles fueled with  gasoline are generally less efficient than non-flex fuel models because  these vehicles have to meet a lower fuel efficiency standard than non-flex  fuel models. Also, manufacturers have generally put this flex-fuel capacity  in their larger, less efficient models. NHTSA officials pointed out, however,  that they view this credit as providing an incentive to auto manufacturers  to bring vehicles to the market that can run on E85 and other alternative  fuels, which would help expand the infrastructure to make these fuels  available to consumers.
Mr. Chairman, this concludes my statement. I would be pleased to answer  any questions that you or other Members of the Committee may have at  this time.
subsections: section_title: Contact Information
paragraphs: For further information on this statement, please contact Katherine  Siggerud at (202) 512-2834 or siggerudk@gao.gov. Individuals making key  contributions to this testimony statement include Farah B. Angersola,  Catherine Colwell, Colin Fallon, Joah G. Iannotta, Elizabeth A. Marchak,  and Raymond Sendejas.
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