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Date: July 31, 2001
Contacts: Jennifer Wenger, Media Relations Associate
Cory Arberg, Media Relations Assistant
(202) 334-2138; e-mail <news@nas.edu>

FOR IMMEDIATE RELEASE

Federal Fuel Economy Standards Program Should Be Retooled

WASHINGTON -- Although the federal program that sets fuel economy standards for cars and light-duty trucks has helped reduce U.S. dependence on imported oil and lower emissions of greenhouse gases, changes to the program could further cut the nation's petroleum dependence and provide more flexibility to carmakers, says a new report from the National Academies' National Research Council.

"There are pros and cons to tightening fuel economy standards, involving a range of trade-offs," said Paul Portney, chair of the committee that wrote the report and president of Resources for the Future, Washington, D.C. "Making these trade-offs is a task that rightfully resides with elected officials. However, no matter what Congress decides regarding specific fuel economy targets, our committee is adamant that changes should be made to shore up deficiencies in the program."

The committee recommended a slate of improvements, ranging from the adoption of tradable fuel economy credits, to the elimination of the "two-fleet" rule that currently sets standards separately for domestic fleets and imports.

Known as the Corporate Average Fuel Economy (CAFE) standards, the program dictates the average miles per gallon (mpg) that passenger cars and light-duty trucks sold in the United States must attain. Established by the Energy Policy and Conservation Act in 1975, the standards were designed largely to reduce U.S. dependence on foreign oil. Each year, automakers are required to achieve an average of 27.5 mpg for their fleet of new passenger cars, and 20.7 mpg for their fleet of new light-duty trucks. Light-duty trucks initially represented pickups and cargo vans, but now include minivans and sport utility vehicles (SUVs).

With the nation's overall fuel economy slipping for more than a decade, Congress asked the National Academies to study the effects that CAFE standards have had over the past 25 years, as well as effects that potential changes to the program might have.

The CAFE program has had some unintended consequences, the committee said. As consumers have begun buying more and more minivans, SUVs, and pickup trucks, the overall average fuel economy of new vehicles has dropped because the larger, heavier vehicles have less stringent standards to meet than passenger cars. In 2001, sales of minivans, SUVs, and pickups are expected to exceed sales of passenger cars for the first time ever.

Some technologies already in existence today could significantly reduce fuel consumption of new cars over the next 15 years, with light-duty trucks having the greatest potential reductions. These technologies, which would increase the purchase price of new cars and trucks, include engine advances that reduce friction, such as variable valve timing, and more efficient powertrains, such as five-speed automatic transmissions. Using a variety of economic assumptions, the committee also identified combinations of technologies that would produce gasoline savings sufficient to offset the increased cost of these technologies. However, it could take decades before new, more fuel-efficient vehicles have replaced the 200 million cars currently on the road.

To improve a car's fuel economy, one of two things must happen: The efficiency of the powertrain must be increased through new technologies, or the amount of work required by the engine to move the car must be lowered, usually by lessening wind resistance or by reducing the car's size and weight. But one risk of downsizing is that smaller cars involved in crashes with larger vehicles tend to have higher numbers of fatalities. The committee estimated that the downsizing of automobiles in the 1970s and 1980s – whether a result of CAFE standards or other market-driven needs -- may have contributed an additional 1,300 to 2,600 fatalities in 1993. However, this area is quite controversial among analysts and the report includes a dissenting opinion written by two committee members. They believe that the relationship between fuel economy and safety is not yet fully understood, and a reduction in vehicle weight need not adversely affect safety. The committee feels more analysis in this area is warranted and calls on the National Highway Traffic Safety Administration to conduct further research.

After exhaustive examination, the committee said that to correct structural flaws in the CAFE program, policy-makers should:

Adopt tradable fuel economy credits – Current CAFE guidelines allow an automaker to accumulate fuel economy credits if its fleet of cars or trucks exceeds the standard. These credits can be bankrolled and used to offset future CAFE deficits. This system should be expanded so that credits can be sold to other automakers or bought from the government to bring their fleets into compliance. Under this scheme, the ability for automakers to profit from each gain in efficiency would motivate them to continue making improvements even if their fleet's average fuel economy exceeded federal targets. It also would reveal information about the costs of fuel economy improvements and promote better informed policy decisions. This approach already has met with success in reducing sulfur emissions from coal-fired electrical power plants.

Consider switching to attribute-based standards – Instead of setting fuel economy standards on the basis of whether a vehicle is a car or a truck, standards could be matched with certain attributes, such as vehicle weight. A weight-based system that encourages car manufacturers to downsize their largest vehicles could ultimately reduce the enormous variance between large and small vehicles.

For example, vehicles under 4,000 pounds, which would include most cars and some light-duty trucks, could be required to meet fuel economy standards that depend on their weight. Vehicles exceeding 4,000 pounds could be required to meet one particular fuel economy standard regardless of weight to encourage downsizing and greater fuel efficiency. Some light-duty trucks weigh more than 8,500 pounds. If such an approach were adopted, manufacturers would be encouraged to decrease the weight of heavier vehicles and perhaps even increase the weight of their lightest vehicles. The size disparity among vehicles on the road would be diminished and safety enhanced.

Eliminate the two-fleet rule – CAFE standards require that the average fuel efficiency for domestic and imported fleets be calculated separately, with domestic fleets being defined as models that are made with at least 75 percent domestic parts. This two-fleet rule should be abandoned, the committee said. Not only has the global marketplace rendered these designations obsolete, but the committee found no evidence that U.S. autoworker jobs were affected positively or negatively by this system, which was the initial reason for the distinction.

Eliminate dual-fuel vehicle credits -- CAFE provides fuel economy credits to dual-fuel vehicles, which can burn ethanol as well as gasoline. However, ethanol is being used less than 1 percent of the time in these vehicles. Because automakers can use these credits to compensate for their less efficient vehicles, the committee determined that the credits have had a negative effect on overall fuel economy.

Pursue government-industry research and development -- The government should continue funding research and development of new fuel-efficiency technologies in cooperation with the automotive industry. Those that warrant further study include hybrid vehicles, advanced engines and emission-control systems, and fuel cells. Some technologies, such as diesel and "lean-burn" gasoline engines, contribute considerably to fuel economy in Europe and other countries, but their implementation faces challenges in the United States because of pending emissions regulations that are more stringent.

Despite its flaws, the CAFE program has significantly reduced U.S. gasoline consumption by first contributing to a rise in fuel economy and, in recent years, by maintaining fuel economy levels, even during periods when oil prices were dropping and demand for fuel-efficient cars and trucks was low, the committee said. Consequently, gasoline consumption is down roughly 2.8 million barrels of gasoline per day from where it would be in the absence of CAFE standards. This savings also has affected greenhouse gas emissions, translating to a 7 percent reduction in carbon dioxide release.

The committee also noted that there is a marked inconsistency between pressing automobile manufacturers for improved fuel economy from new vehicles on the one hand, and insisting on low gasoline prices on the other. Higher gas prices would create a demand for more fuel-efficient vehicles and an incentive for owners of existing vehicles to drive them less.

The study was sponsored by the U.S. Department of Transportation. The National Research Council is the principal operating agency of the National Academy of Sciences and the National Academy of Engineering. It is a private, nonprofit institution that provides science and technology advice under a congressional charter.

A committee roster follows.

Read the full text of Effectiveness and Impact of Corporate Average Fuel Economy Standards for free on the Web, as well as more than 1,800 other publications from the National Academies. Printed copies are available for purchase from the National Academy Press Web site or by calling (202) 334-3313 or 1-800-624-6242. Reporters may obtain a pre-publication copy from the Office of News and Public Information (contacts listed above).

NATIONAL RESEARCH COUNCIL

Division on Engineering and Physical Sciences
Board on Energy and Environmental Systems
and
Transportation Research Board

Committee on Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) Standards

Paul R. Portney (chair)
President
Resources for the Future
Washington, D.C.

David L. Morrison (vice chair)
Director
Office of Nuclear Regulatory Research
U.S. Nuclear Regulatory Commission (retired)
Cary, N.C.

Michael M. Finkelstein
Principal
Michael Finkelstein & Associates
Washington, D.C.

David L. Greene
Corporate Fellow
Oak Ridge National Laboratory
Knoxville, Tenn.

John H. Johnson
Presidential Professor
Department of Mechanical Engineering-Engineering Mechanics
Michigan Technological University
Houghton

Maryann N. Keller
Consultant
Priceline.com (retired)
Greenwich, Conn.

Charles A. Lave
Professor of Economics (emeritus), and
Associate Director
Institute of Transportation Studies
University of California
Irvine

Adrian K. Lund
Chief Operating Officer
Insurance Institute for Highway Safety
Arlington, Va.

Phillip S. Myers^*
Emeritus Distinguished Research Professor and former Chairman
Department of Mechanical Engineering
University of Wisconsin
Madison

Gary W. Rogers
President, Chief Executive Officer, and Director
FEV Engine Technology Inc., and
Vice President of North American Operations
FEV Motorentechnik GmbH & Co. KG
Auburn Hills, Mich.

Philip R. Sharp
Lecturer of Public Policy
John F. Kennedy School of Government
Harvard University
Cambridge, Mass.

James L. Sweeney
Professor of Management Science and Engineering
Stanford University, and
Senior Fellow
Stanford Institute for Economic Policy Research
Stanford, Calif.

John J. Wise*
Vice President of Research
Mobil Research and Development Corp. (retired)
Princeton, N.J.

RESEARCH COUNCIL STAFF

Alan Crane
Study Director

^*Member, National Academy of Engineering