EXECUTIVE SUMMARY

The U.S. Department of Transportation's National Highway Traffic Safety Administration (NHTSA) and Federal Highway Administration requested the National Research Council (NRC) to undertake a study of the potential and prospects for improving the fuel economy of new light-duty vehicles produced for the U.S. market. This report presents the results of the study conducted by the NRC's Committee on Fuel Economy of Automobiles and Light Trucks.

The charge to the committee was to estimate "practically achievable" fuel economy levels in various size classes of new passenger cars and light trucks using gasoline and diesel fuel. Any such determination of practically achievable fuel economy levels, however, necessarily involves balancing an array of societal benefits and costs, while keeping in mind where the costs and benefits fall. Such judgments must include a complex manifold of considerations, such as the financial costs to consumers and manufacturers, the impact on employment and competitiveness, the trade-offs of fuel economy with occupant safety and environmental goals, and the benefits to our national and economic security of reduced dependence on petroleum. In the committee's view, the determination of the practically achievable levels of fuel economy is appropriately the domain of the political process, not this committee.

TECHNICALLY ACHIEVABLE FUEL ECONOMY LEVELS

In order to illuminate the issues for decision makers, the committee has thus approached its charge by first seeking to estimate future "technically achievable" fuel economy levels by vehicle size class for automobiles and light trucks. As explained below, these estimates provide guidance, subject to certain assumptions, on the fuel economy that could be achieved using current technology. The committee also sets out its judgment of the range of retail price increases of new vehicles attributable strictly to such fuel economy improvements. (These estimates do not include the price increases to meet occupant safety and emissions control requirements.) The



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Automotive Fuel Economy: How Far Should We Go? EXECUTIVE SUMMARY The U.S. Department of Transportation's National Highway Traffic Safety Administration (NHTSA) and Federal Highway Administration requested the National Research Council (NRC) to undertake a study of the potential and prospects for improving the fuel economy of new light-duty vehicles produced for the U.S. market. This report presents the results of the study conducted by the NRC's Committee on Fuel Economy of Automobiles and Light Trucks. The charge to the committee was to estimate "practically achievable" fuel economy levels in various size classes of new passenger cars and light trucks using gasoline and diesel fuel. Any such determination of practically achievable fuel economy levels, however, necessarily involves balancing an array of societal benefits and costs, while keeping in mind where the costs and benefits fall. Such judgments must include a complex manifold of considerations, such as the financial costs to consumers and manufacturers, the impact on employment and competitiveness, the trade-offs of fuel economy with occupant safety and environmental goals, and the benefits to our national and economic security of reduced dependence on petroleum. In the committee's view, the determination of the practically achievable levels of fuel economy is appropriately the domain of the political process, not this committee. TECHNICALLY ACHIEVABLE FUEL ECONOMY LEVELS In order to illuminate the issues for decision makers, the committee has thus approached its charge by first seeking to estimate future "technically achievable" fuel economy levels by vehicle size class for automobiles and light trucks. As explained below, these estimates provide guidance, subject to certain assumptions, on the fuel economy that could be achieved using current technology. The committee also sets out its judgment of the range of retail price increases of new vehicles attributable strictly to such fuel economy improvements. (These estimates do not include the price increases to meet occupant safety and emissions control requirements.) The

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Automotive Fuel Economy: How Far Should We Go? committee's time horizon extended from model year (MY) 1996 to MY 2006, the end point of the decade considered in the study.1 The term "technically achievable" is circumscribed by three assumptions: (1) that all new vehicles in the future fleets will have to comply with Tier I emissions standards under the Clean Air Act amendments of 1990 and existing and pending standards for occupant safety, (2) that current vehicle characteristics (such as interior volume or acceleration performance) valued by consumers will remain essentially unchanged, and (3) technologies considered for improving fuel economy are those that are currently used in mass-produced vehicles somewhere in the world and that pay for themselves at gasoline prices of $5 to $10 per gallon or less. Aside from the limits imposed by these assumptions, no cost-benefit considerations involving new vehicle affordability, sales, employment in the automotive industry, competitiveness, or safety impacts entered into the determination of the "technically achievable" fuel economy levels. In the committee's view all such matters should be considered, however, as policymakers establish the practically achievable fuel economy levels. In light of the foregoing, the "technically achievable" fuel economy levels should not be taken as the technological limit of what is possible with the current state of the art; nor should the committee's estimates of what is technically achievable be taken as its recommendations on future fuel economy standards. Rather, they should be viewed by policymakers as one of the many inputs necessary for determining what would be practically achievable in the coming decade. The committee believes that the practically achievable levels—the levels of fuel economy for each size class that achieve an appropriate balance of a broad array of costs and benefits—are likely to be found in the regions between the levels that would be achieved without any governmental intervention and the "technically achievable" levels. It remains for policymakers to determine the form of any future regulations and the levels of fuel economy—the "practically achievable" levels—that in their judgment provide the appropriate balance of costs and benefits to consumers, manufacturers, and the nation as a whole. The committee analyzed, qualitatively and quantitatively, available technological and cost information in arriving at its estimates of the fuel economy improvements that it judged, on average, to be technically achievable in new vehicles. The estimates represent the collective professional judgment of the committee in light of available evidence, including presentations to the committee on market-penetration potential, costs, and effectiveness of technologies to improve fuel economy. They also reflect the committee's consideration of past trends in fuel economy improvements in the United States and fuel economy levels being achieved by today's "best-in-class" vehicles. Table 1   The committee considered that the decade of opportunity for increasing fuel economy begins with MY 1996. Given that the product plans of the automobile manufacturers through MY 1995 are already largely set, little can be done to improve automotive fuel economy beyond what is already planned—at reasonable cost—before MY 1996.

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Automotive Fuel Economy: How Far Should We Go? ES-1 summarizes, by size class, the committee's range of estimates for technically achievable fuel economy in MY 2006 and the costs, expressed in average incremental vehicle retail price equivalents (RPEs), for the fuel economy technologies associated with those estimates. The ranges embody measures of the committee's confidence of what might transpire in the marketplace, given the bounds of this study and its underlying assumptions. The committee also considered available information on occupant safety and emissions control. Compliance with safety regulations is expected to add about $300 to the average price of new passenger cars and about $500 to the price of light trucks, in 1990 dollars. Cost estimates for complying with Tier I emission controls vary widely-from a few hundred dollars to $1,600 per vehicle—a reflection of the considerable range of uncertainty about them. The potential costs of Tier II standards are even less well understood, but they are thought to be substantial. The retail price equivalents in Table ES-1 do not include the incremental costs of improved safety and emissions control. The realization of the technically achievable fuel economy levels shown in Table ES-1 will be affected by a number of factors. These include the rate and success of technology development, the competitive strategies of various manufacturers, fuel prices and availability, performance of the U.S. economy, trends in consumer tastes, and the form of future fuel economy standards themselves, as well as the effects of safety and emissions regulations. The sections that follow highlight the committee's conclusions with respect to factors that must be considered by policymakers in determining practically achievable fuel economy levels for light-duty vehicles. PROVEN AND EMERGING TECHNOLOGIES FOR IMPROVING FUEL ECONOMY Modern automobiles and light trucks are complex, multipurpose vehicles used to move passengers and goods comfortably and safety. They have been designed to meet a complex set of consumer and regulatory requirements, and they are technologically mature products. While super-efficient cars and concept vehicles have been demonstrated, they have not met many requirements of the market. Thus, such vehicles in and of themselves are unreliable guides for estimating future fuel economy potential. Many proven technologies are available to improve fuel economy, each of which can make small, but important, contributions. Improvements are most likely to occur as a result of many changes that affect all the principal determinants of fuel economy-namely, engine and drivetrain efficiency, vehicle weight, aerodynamic drag, rolling resistance of tires, and the efficiency of accessories. A number of emerging technologies hold the promise of better fuel economy—for example, lean-burn gasoline engines, two-cycle engines, and advanced, environmentally acceptable diesels. However, in part because of stringent new and

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Automotive Fuel Economy: How Far Should We Go? TABLE ES-1 "Technically Achievable" Fuel Economy for MY 2006 Vehicles   Ranges of "Technically Achievable" Fuel Economy in MY 2006a/ (mpg) Incremental Retail Price Equivalent for Improved Fuel Economy in MY 2006b/ (1990 Dollars) Vehicle Size Class Higher Confidence Lower Confidence At Higher Confidence Fuel Economy At Lower Confidence Fuel Economy Passenger Cars         Subcompact 39 44 500-1,250 1,000-2,500 Compact 34 38 500-1,250 1,000-2,500 Midsize 32 35 500-1,250 1,000-2,500 Large 30 33 500-1,250 1,000-2,500 Light Trucks       Small pickup 29 32 500-1,000 1,000-2,000 Small van 28 30 500-1,250 1,000-2,500 Small utility 26 29 500-1,250 1,250-2,500 Large pickup 23 25 750-1,750 1,500-2,750 a/ The term "technically achievable" is circumscribed by the following assumptions made by the committee. The estimates result from consideration of technologies currently used in vehicles mass produced somewhere in the world and that pay for themselves at gasoline prices of $5 to $10 per gallon or less (1990 dollars). The estimates assume compliance with applicable known safety standards and Tier I emissions requirements of the Clean Air Act amendments of 1990. Compliance with Tier II and California's emissions standards has not been taken into account. The estimates also assume that MY 2006 vehicles will have the acceleration performance of, and meet customer requirements for functionality equivalent to, 1990 models. The estimates take into account past trends in vehicle fuel economy improvements and evidence from "best-in-class" fuel economy experience. The term "technically achievable'' should not be taken to mean the technological limit of what is possible with the current state of the art; nor should the committee's estimates of what is technically achievable be taken as its recommendations as to what future fuel economy levels should be. Aside from the limits imposed by the foregoing assumptions, no cost-benefit considerations entered into the determination of the technically achievable fuel economy levels. Specifically, the estimates do not take into account other factors that should be considered by policymakers in determining any future fuel economy regulations, including impacts on the competitiveness of automotive and related industries, sales and employment effects, petroleum import dependence, effects on nonregulated emissions (e.g., the greenhouse gas, carbon dioxide), and the development and adoption of unanticipated technology. As a point of reference, the Environmental Protection Agency's (EPA's) composite average fuel economy for MY 1990 passenger cars and light trucks, by size class, was as follows: passenger cars—subcompact, 31.4 mpg; compact, 29.4; midsize, 26.1; large, 23.5; light trucks—small pickup, 25.7; small van, 22.8; small utility, 21.3; large pickup, 19.1 (Heavenrich et al., 1991). b/ The retail price equivalents are estimates only of the incremental first cost to consumers of improved fuel economy. They do not include incremental costs associated with mandated improvements to occupant safety, which, on average for new passenger cars and light trucks, are expected to be $300 and $500, respectively in 1990 dollars; nor do they include incremental costs of controls to comply with Tier I emissions requirements, which are expected to range from a few hundred dollars to $1,600 per vehicle.

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Automotive Fuel Economy: How Far Should We Go? proposed emissions standards (especially for oxides of nitrogen, NOx), it is impossible at this stage to estimate with any accuracy the probability of their success. Nonetheless, it seems reasonably certain that one or more emerging technologies (including some not foreseen in this study) will begin to make significant contributions to fuel economy by MY 2006.2 The committee had available several recent analyses of the potential for improving automotive fuel economy in the future. However, even estimates of the fuel economy contribution of technologies already in mass production vary substantially from source to source. Further, information on the costs of those technologies and their rate and scope of application is very limited; and, where such information is available, the estimates also vary widely. There is little data collection or sustained analysis by cognizant governmental agencies on the costs and performance of fuel economy technologies and on developments in the automotive industry in general. Most of the studies on the potential and prospects for improving fuel economy that were performed outside the industry and virtually all the debates in Congress on the subject have drawn on the work of one firm operating under contract to the Department of Energy. It is inescapable that Congress and the governmental agencies are attempting to regulate an industry of tremendous importance to the U.S. economy in the absence of sufficient information from neutral sources on which to base such regulation. The committee recommends that the Department of Transportation, the National Highway Traffic Safety Administration, and the Federal Highway Administration, in concert with other federal agencies, such as the Department of Energy and the Department of Commerce, reestablish a robust program of data collection and analysis to support the formulation of national policy. SAFETY IMPLICATIONS Safety, as measured by fatalities in the United States per hundred million vehicle miles driven, has been steadily improving for decades—falling from about 16 fatalities per hundred million miles in 1930 to about 2 in 1990. It is likely that this general trend will continue, independently of other measures. Nonetheless, safety and fuel economy are linked because one of the most direct methods manufacturers can use to improve fuel economy is to reduce vehicle size and weight. In certain crash types—for example, a collision with a nonrigid fixed object—vehicle weight is a major determinant of the forces experienced by vehicle occupants. Any major reduction in vehicle weight carries the potential for reduced safety in such collisions. Such changes stir controversy because of the differences in the occupant risk between driving in a smaller (higher fuel economy) car and driving in a larger (lower fuel economy) car. In addition, several studies of single-vehicle accidents show a higher risk of occupant injury and death in small vehicles. This is presumably due in part to their 2   The committee did not evaluate hybrid or electric vehicles, whose role as yet remains largely undefined.

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Automotive Fuel Economy: How Far Should We Go? greater propensity to roll over. It is the committee's understanding that this risk can be reduced through improved vehicle design and that NHTSA has promulgated an advance notice of proposed rulemaking on the matter. There could be a penalty for improved fuel economy in this regard, but it should be small. In two-car collisions the evidence shows that, from the standpoint of the individual, a large car affords greater protection (or lower risk of a fatal injury) to its occupants than a small car. However, it is still a matter of some debate as to whether the higher level of safety accorded by the large car comes predominantly from its greater weight, its larger size (external dimensions), or both attributes. The available data do not allow a definitive resolution of the issue because size and weight reductions are highly correlated.3 While it seems clear that the occupants of a large car are safer than those of a small car with equal safety provisions, it is not so clear whether and how much societal risks are materially changed by substituting small cars for large. The perspective of the society at large differs from that of the individual because a large car, while providing an increment of safety to its occupants, imposes an increment of risk (compared with a small car) on others. Little research has been done on such effects, but a hypothetical analysis of two-car collisions by the committee suggests that, in principle, downsizing could increase, decrease, or leave unchanged total deaths and injuries in two-car collisions, depending on the changed size distribution of cars in the fleet. This presents only a partial picture, however. Fatalities from two-car collisions represent only a portion (about 11 percent) of total fatalities; they do not include other types of crashes—single vehicle into roadside obstacles, passenger car-truck collisions, and collisions of cars and light trucks with pedestrians and cyclists. It is the committee's view that the net safety consequences of downsizing and downweighting merit comprehensive analysis by NHTSA. Such analysis should take into account the entire population of vehicles on the road, as well as the incidence of accidents and fatalities involving pedestrians and cyclists. Although the data and analyses are not definitive, the committee believes that there is likely to be a safety cost if downweighting is used to improve fuel economy (all else being equal). The committee believes, however, that the safety impacts of fuel economy improvements at the levels shown in Table ES-1 may be small, since they entail no more than a 10 percent reduction in weight, on average, in any size class and since improved design and safety technology present the opportunity to reduce the effects of weight reduction. As noted earlier, the available information was insufficient to make specific estimates of those impacts. Light trucks have special safety problems, and because they constitute almost one-third of the new vehicle fleet, they warrant careful scrutiny. Moreover, light trucks are particularly aggressive to passenger cars in car-light truck collisions. Some measures 3   The issue has significance because weight reduction is important for fuel economy improvement and could be achieved without size reduction through the use of lighter (and more expensive) materials.

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Automotive Fuel Economy: How Far Should We Go? to reduce such aggressivity—for example, lowering bumpers—should not affect fuel economy. Currently scheduled and anticipated modifications to improve vehicle safety include passenger-side airbags, improved side-impact protection, and antilock braking systems. Improved design and the incorporation of new technology can also enhance crash-avoidance potential, as well as provide occupant protection in a collision. Most such changes will increase vehicle weight and thereby decrease fuel economy. Safety is an important consideration in fuel economy deliberations, but it must be considered in relation to other important societal values that are affected by improved fuel economy levels. Trade-offs of safety with other societal objectives are not unusual. Recent examples include increasing the national maximum speed limit on rural interstate highways from 55 to 65 miles per hour and permitting right-turn-on-red. Both measures were predicted to increase traffic fatalities and injuries and subsequent studies confirmed those predictions. Thus, concern for safety should not be allowed to paralyze the debate on the desirability of enhancing the fuel economy of the light-duty fleet. ENVIRONMENTAL ISSUES Fuel economy improvements will not directly affect vehicle emissions of hydrocarbons, carbon monoxide, and NOx because the emissions standards (in grams per mile) are identical for every passenger car or light truck, as appropriate, regardless of fuel economy. Fuel economy improvements in new light-duty vehicles will reduce carbon dioxide emissions per mile because less fuel will be consumed per vehicle mile driven. In its fuel economy estimates presented in Table ES-1, the committee assumed that the Tier I emissions requirements imposed by the Clean Air Act amendments of 1990 will be met. (The committee took account of the penalty in fuel economy arising from increased weight of new or improved emissions controls on vehicles.) The committee made no allowance for on-board vapor recovery or meeting the stricter Tier II or new California standards. In the committee's view, standards more stringent than the Tier I requirements imposed in the Clean Air Act amendments of 1990 would have adverse implications for improvements in automotive fuel economy. Without a major technological breakthrough (e.g., a lean NOx catalyst), there will be tight constraints on the application, particularly to larger vehicles, of promising current and emerging technologies for improving fuel economy, such as lean-burn and advanced diesel engines. Improved emissions controls are needed for widespread use of two-stroke engines. It appears possible that a lean NOx catalytic system achieving roughly a 50 percent reduction in NOx emissions from the engine and with the required durability will be developed. Such a system might make it possible to meet Tier II and California's low-emission vehicle (LEV) standards for the smallest cars and trucks, but the system is unlikely to achieve the control needed in the heaviest light-duty vehicles without an additional, substantial breakthrough in catalyst technology.

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Automotive Fuel Economy: How Far Should We Go? Compliance with the Tier II and California standard of 0.2 grams per mile of NOx may not be feasible for the current mix of automobiles and light trucks and is likely to be most difficult to meet with larger vehicles. Diesel-powered vehicles are unlikely to meet the Tier II and certain California standards for NOx and particulates. While the Tier II standard is yet to be adopted nationally, the California standards are being implemented and are being seriously considered by other states that collectively account for about half of U.S. new-car sales. This constitutes a major uncertainty for the manufacturers. In view of the difficulty of meeting these standards, other approaches, such as increasing the level of control over NOx emissions from stationary sources, should be considered. In addition, the importance of controlling pollutant emissions from all sources suggests that (1) service station controls of refueling emissions of hydrocarbons should be given further consideration by the Environmental Protection Agency (EPA); (2) further reduction of sulfur in gasoline should be considered by EPA as part of its reformulated gasoline program; and (3) surveillance and enforcement of emissions standards in the existing fleet may be an attractive alternative to increasingly stringent controls on new vehicles. THE AUTOMOTIVE INDUSTRY The automotive industry is cyclical and has endured many upturns and downturns in its history. It is currently in an unprecedented downturn, suffering losses of billions of dollars. Competitive pressures on the domestic manufacturers, particularly from the Japanese manufacturers, are likely to intensify in the future. Moreover, productive capacity worldwide and particularly in the United States exceeds prospective demand for new vehicles, which is projected to grow only modestly over the period considered in this study. For these reasons alone, the U.S. companies are undertaking a major restructuring that will close some plants and call for significant capital investments to modernize others. As a result, employment in the sector will be reduced. Since the U.S. automotive industry directly and indirectly employs substantial numbers of American workers, such changes are expected to have major impacts on the U.S. economy. These impacts will occur whether or not the government decides to increase future fuel economy standards. They could be aggravated, however, if more stringent standards or standards of an inappropriate form lead to significant increases in vehicle purchase prices that lower sales, or if the standards contribute to a shift toward greater purchases of vehicles manufactured outside the United States. The interactions of higher fuel economy, improved occupant safety, and lower emissions illustrate dramatically the need for coordinated action by policymakers. There are limits to what can be achieved, and there are trade-offs that must be made. In setting fuel economy, safety, emissions, and other standards that add to the cost of the automobile, Congress and the administration should consider the cumulative impacts. Because the standards are currently set by different agencies under differing statutory commands, little coordination of policy is achieved and inconsistent pressures—such

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Automotive Fuel Economy: How Far Should We Go? as those arising from environmental and fuel economy considerations—are allowed to persist. This is indeed unfortunate because the automotive industry accounts for significant employment and is the focus of much of the national debate on improvements to the economy, the environment, and the international competitiveness of U.S. industry. The imposition of higher fuel economy standards that are extremely costly or that greatly distort normal product cycles would place an untenable financial burden on the industry. Within 10 to 15 years, all current models and most engines and drivetrains will undergo at least one major change, and the equipment used in their manufacture will be written off. If the timing of new fuel economy standards follows the industry's product-development schedule, some, but not all, of the financial risk of new standards would be reduced. New regulations on fuel economy should therefore not require premature retirement of plant and equipment such that the industry is unable to recover its sunk costs. The industry is in a poor position to confront significant new investment requirements. The committee recognizes the demands on industry and has taken some of them into account. Specifically, the committee supports levels of fuel economy improvement consistent with the manufacturers' product plans through MY 1995. Moreover, in considering a time horizon to MY 2006, the committee has implicitly factored in sufficient lead time to allow manufacturers to integrate changes into their normal product and plant replacements. THE CONSUMER Under the current regime of low fuel prices, consumers have relatively limited interest in purchasing, or manufacturers in producing, cars and light trucks with high fuel economy. Moreover, if gains in fuel economy are obtained in new vehicles at the expense of other attributes that consumers value (e.g., performance, size, safety, accessories, and cargo space), consumers may tend to retain their current vehicles longer or find themselves with little choice but to purchase vehicles that do not satisfy their requirements. Since the early 1980s, there has been a major shift in consumer demand toward light trucks, most of which are used in the same way as automobiles. Because light trucks have lower fuel economy, on average, than automobiles, the trend has adversely affected fuel economy goals. Moreover, there has been increasing consumer demand for options that negatively affect fuel economy. Consumer trends, including an aging population, increased demands for safety and for higher performance, and increased purchases of light trucks, are all in opposition to achieving higher fleet fuel economy. In the face of such trends, it is risky for manufacturers to invest in the design and production of vehicles with high fuel economy because they may not be able to sell them profitably. If higher fuel economy standards are to be imposed on manufacturers, it seems prudent that they be coupled

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Automotive Fuel Economy: How Far Should We Go? with incentives such as cash rebates, higher fuel prices, or both, for consumers to purchase more fuel-efficient vehicles. POLICIES FOR IMPROVING FUEL ECONOMY The existing system for setting fuel economy standards—the corporate average fuel economy (CAFE) system—has serious defects that warrant careful examination. Chief among these defects is the fact that the CAFE system is increasingly at odds with market signals, which serves to mute and diminish the system's effectiveness and to increase its costs. The existing CAFE standards, which require the domestically produced and imported vehicles sold by each manufacturer to achieve a specified average fuel economy rating, can also have perverse competitive effects. The standards have their most severe impact on the full-line manufacturers—the manufacturers that include large cars among their offerings. Because large cars generally have lower fuel economy than small cars, full-line manufacturers must invest resources to increase their sales of small cars and/or invest in technology to increase the fuel economy of their large cars. Manufacturers of small cars, on the other hand, can more readily meet the standards and indeed, may even produce fleets with fuel economy sufficiently above the CAFE standards as to enable them to expand initially into the large-car market without applying the expensive technology required of the full-line manufacturers. The existing system thus does not present equivalent technical or financial challenges to all manufacturers: Full-line manufacturers must strain to comply, whereas small-car manufacturers can comply with comparative ease. As it happens, this characteristic of the CAFE system has operated to the benefit of the Japanese manufacturers and to the detriment of the domestic (and some European) manufacturers. The CAFE system thus enhanced the competitive position of those foreign manufacturers that now pose the greatest challenge to the domestic industry. The percentage-improvement approach to CAFE regulation—an approach proposed in certain legislation pending in the Congress—has the perverse effect of requiring those manufacturers with the best fleet fuel economy in a base year to comply with CAFE requirements in the outlying years that are more stringent than those applied to manufacturers with either lesser base-year accomplishments or that specialize in larger cars. The selection of the base-year creates arbitrary advantages and disadvantages, depending on the happenstance of the product mix or technology that a manufacturer was using in the base year. The percentage-improvement approach could be unfair because the manufacturers facing the most stringent requirements may already have incorporated many of the available fuel efficiency technologies in the base year. Moreover, it would seem to limit competition in the large-car classes by impeding the ability of the Japanese manufacturers to increase their market share in those classes. Other alternatives to the existing CAFE system are worthy of consideration. A revised system might establish fuel economy requirements that are tailored to an attribute of the car, such as size class or usable passenger volume (or passenger-carrying capacity). Such an approach has an advantage over the existing system in that

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Automotive Fuel Economy: How Far Should We Go? could be applied so as to ensure that each manufacturer is confronted with a roughly equal challenge to improve fuel economy, regardless of the differences in the sizes of cars that the manufacturer produces. However, such a system may or may not serve to ensure that a given overall fleet fuel economy level is achieved, and the approach could be susceptible to "gaming" to exploit the system. A policy of increasing fuel prices warrants consideration as an alternative or as a supplement to vehicle-efficiency regulation. Increasing fuel prices would serve to internalize the costs associated with fuel usage and reduce vehicle miles traveled. It would also affect the use of all vehicles on the road immediately, not just the use and performance of new vehicles. And, it would provide a market signal to channel consumer behavior in a direction consistent with societal objectives. It is the committee's view that, properly considered, there are ways to increase fuel prices without necessarily increasing the total costs to consumers of owning and operating vehicles. However, the committee has had neither the time nor the capacity to evaluate fully the price increase for fuel that would induce fuel consumption that is equivalent to that associated with aggressive CAFE standards. It may well be the case that the necessary increases in fuel price are so great as to make sole reliance on a pricing strategy politically unacceptable because of the ripple effects on the economy of the adjustment to higher prices. Similarly, a system of fees and rebates that is related to the fuel economy of vehicles might also be considered. (Consumers who purchase a vehicle with below-average fuel economy could be charged a fee, and consumers who purchase a vehicle with above-average fuel economy could be given a rebate; the system could be revenue neutral in that the fees could cover the rebates.) Such "feebates" would establish incentives to encourage the acquisition of fuel-efficient vehicles, and the system would provide continuing pressure for change. If the basic CAFE system is retained, Congress should consider several modifications. In light of the increasing interest in and use of light trucks, the fuel economy requirements for such vehicles should be brought into conformance with those for automobiles. The domestic content and credit provisions should be reexamined. And, the law should be modified so that noncompliance with a CAFE limit is not unlawful conduct, and the penalty for noncompliance should be adjusted so that it better reflects the social cost of departure from the requirements. These changes would increase the flexibility for manufacturers to respond to the law in an economically efficient way. The objective of reducing petroleum consumption can be achieved by a variety of means. In addition to the CAFE system (and its variants) and increased fuel prices, the available policy instruments include improving the transportation infrastructure, developing intelligent vehicle-highway systems, improving public transit, reducing speed limits, encouraging car-pooling, and so forth. All such policy instruments should be considered in developing an appropriate strategy for reducing petroleum consumption.