Congress enacted the 1975 Energy Policy and Conservation Act (EPCA) 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. EPCA established the CAFE program, which requires that manufacturers meet fuel economy standards for passenger cars and light trucks. To reduce oil consumption, the program uses fuel economy standards—measured in mpg—that cars and light trucks must meet separately. In addition to decreasing oil consumption by increasing the mileage driven on a gallon of gasoline, an increase in the standards also decreases some greenhouse gas tailpipe emissions. EPCA established CAFE standards for passenger cars for model years 1978 through 1980 and 1985 and thereafter and gave NHTSA responsibility for administering the program and the authority to change the standards. However, the law prevents NHTSA from making structural reforms to the car CAFE program, such as basing the car CAFE standard on vehicle attributes such as size or weight. EPA also plays a role in the CAFE program. EPA implements testing procedures and tests vehicles to determine each model’s fuel economy and determines the procedures for calculating the fuel economy values for CAFE for each manufacturer and for displaying the fuel economy levels on a new vehicle’s window sticker. The procedures for calculating fuel economy values are specified by the statute and include a separate test for city and highway fuel economy. The standards called for manufacturers to produce passenger car fleets averaging 18 mpg in 1978, rising to 27.5 mpg by 1985. In the 1980s, NHTSA reduced the CAFE standard for cars from 27.5 mpg to 26.0 mpg for model years 1986 through 1988, and to 26.5 mpg for model year 1989, in response to petitions from automakers who noted that consumers were demanding larger cars and engines, largely due to a decline in gasoline prices. NHTSA issues new CAFE standards through a rule-making process. In the rule-making process, NHTSA issues a proposed rule and accepts comments from the public and stakeholders such as automakers, labor unions, and environmental advocacy groups. When determining what levels CAFE standards should be under an attribute-based system, as now exists for light trucks, NHTSA uses a cost-benefit model to determine the impact of various increases in CAFE standards on areas such as oil consumption and pollution. NHTSA must set standards at least 18 months before they take effect. To reduce oil consumption by light trucks and cars, NHTSA sets CAFE standards and levies penalties against manufacturers that do not meet the standards. In 2003, NHTSA raised light truck CAFE standards from 20.7 mpg in model year 2004 to 21.0 mpg in model year 2005, 21.6 mpg in model year 2006, and 22.2 mpg in model year 2007. Subsequently, NHTSA restructured the CAFE program for light trucks using a method that categorizes them based on their size and sets different targets for different sizes of light trucks to meet, beginning on an optional basis in model year 2008 and a mandatory basis in model year 2011. NHTSA has not raised the CAFE standard for cars above 27.5 mpg since 1990 because, among other reasons, NHTSA officials wish to first restructure the program to mitigate potential negative effects on safety of raising the standards. To that end, in 2007 the administration submitted a plan to restructure the program. Several members of the 110th Congress introduced legislation to raise CAFE standards for cars and light trucks, and the Senate passed a bill in June 2007 increasing standards for cars and light trucks. The House had not acted on this bill as of July 2007. NHTSA determines a manufacturer’s compliance with CAFE standards by comparing its fleet-wide fuel economy average against the appropriate CAFE standard. Manufacturers, for their passenger car and light truck fleets, must meet separate CAFE standards, measured in mpg, or pay a penalty. In addition, manufacturers must separately meet CAFE standards for their imported and domestic passenger car fleets. NHTSA defines light trucks as vehicles that are designed to perform functions such as carrying cargo, having an open-bed, carrying more than 10 passengers, or operating off-road. Sport utility vehicles (SUV), short-bed pickup trucks, and passenger vans with a gross vehicle weight rating (GVWR) between 8,500 and 10,000 pounds have been considered medium-duty vehicles, and NHTSA has excluded them from the CAFE program until model year 2011, when NHTSA will include them in the CAFE program as light trucks. Vehicles with a GVWR over 10,000 pounds are considered heavy-duty vehicles and are not subject to the CAFE requirements. EPA allows manufacturers to test their own vehicles to determine their fuel economy, but EPA tests a sample of new vehicles at its National Vehicle and Fuel Emissions Laboratory in Ann Arbor, Michigan, to confirm the manufacturers’ results. EPA reports the yearly CAFE results for each manufacturer to NHTSA for CAFE enforcement. NHTSA then determines if the manufacturers comply with the CAFE standards and assesses civil penalties against manufacturers who do not meet the standards. Compliance with the standards is measured by calculating a sales- weighted harmonic mean of the fuel economies of a given manufacturer’s product line, with domestically produced cars, imported cars, and all light trucks measured separately. A manufacturer whose CAFE level for its passenger car or light truck fleet does not meet the standard for a given model year is subject to a civil penalty of $5.50 per tenth of a mpg that the manufacturer’s CAFE level is below the required CAFE level multiplied by the number of vehicles in the affected fleet manufactured for a given model year. NHTSA collected more than $678 million in civil penalties from model years 1983 through 2005—mostly from European manufacturers producing high-performance, luxury vehicles. Asian and domestic manufacturers have historically not paid penalties because they have either met or exceeded passenger car and light truck fleet CAFE requirements. See table 1 for a list of CAFE penalties paid, by manufacturer, for 2001 through 2005. Another penalty that manufacturers might pay for producing car models that have low fuel economy levels is the so-called “Gas Guzzler Tax.” EPA reports the fuel economy test results for each manufacturer to the Internal Revenue Service (IRS), which imposes a tax on manufacturers of new model year cars that fail to meet a fuel economy level of 22.5 mpg. IRS collects the tax from the manufacturer after production has ended for the model year. The amount of the tax paid is displayed on a new vehicle’s fuel economy window sticker. Although related, the Gas Guzzler Tax is not part of the CAFE program. Gas Guzzler Tax revenues are deposited into the Treasury, like CAFE penalties. Light trucks are not subject to the Gas Guzzler Tax. Apart from paying penalties, manufacturers have another option if they do not comply with the CAFE standards in one model year—using so-called CAFE credits earned in other model years. For example, when the average fuel economy of either a manufacturer’s passenger car or light truck fleet for a particular model year “overcomplies,” or exceeds the established standard, the manufacturer earns credits it can use to make up a deficit in another model year. These surplus credits can be applied to a deficit in any of the 3 consecutive model years immediately prior to or subsequent to the model year in which the credits are earned. Manufacturers must use any credits within 3 years of earning them. If a manufacturers has a deficit, but no (or not enough) credits available, the manufacturer can either pay the penalty or submit a plan to NHTSA on how the manufacturer will make up the deficit by earning a sufficient amount of credits in the next 3 years. NHTSA officials stated there is no express authority for trading credits between manufacturers, or for a manufacturer to transfer credits among different classes of a manufacturer’s fleets (such as between cars and light trucks). In addition, the Alternative Motor Fuels Act of 1988 gave credits to manufacturers for producing vehicles that could run on alternative fuels in addition to gasoline. Under this so-called “Dual Fuel” program, manufacturers may increase their CAFE by up to 1.2 mpg for vehicles through model year 2010 that are capable of using both regular gasoline and an alternative fuel. NHTSA recently increased standards for and reformed the light truck CAFE program. The impact of the light truck market on overall oil consumption in the United States has grown since the beginning of the CAFE program as market share for these vehicles has increased. For example, 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). To help address the overall declining fuel economy of the U.S. passenger vehicle fleet, in April 2003, NHTSA promulgated a final rule increasing light truck CAFE standards from 20.7 mpg in model year 2004 to 21.0 mpg in model year 2005, 21.6 mpg in model year 2006, and 22.2 mpg in model year 2007. In addition, the agency began investigating the possibility of reforming the light truck CAFE program in part to address safety concerns.