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111 6 Findings and Recommendations As noted in previous chapters, the committee gathered information through presentations at its open meetings (see Appendix C); invited analyses and statements; reports from its consultants, who conducted analyses at the direction of the committee; visits to manufacturers; review of the perti- nent literature; and the expertise of committee members. In- formed by this substantial collection of information, the com- mittee conducted its own analyses and made judgments about the impacts and effectiveness of CAFE standards (see Chapters 2 to 5). Since Congress asked for a report by July 1, 2001, and the committee had its first meeting in early Febru- ary 2001, the committee had less than 5 months (from early February to late June), to conduct its analyses and prepare a report for the National Research Councilâs report review pro- cess, an unusually short time for a study of such a complex issue. In its findings and recommendations, the committee has noted where analysis is limited and further study is needed. FINDINGS Finding 1. The CAFE program has clearly contributed to increased fuel economy of the nationâs light-duty vehicle fleet during the past 22 years. During the 1970s, high fuel prices and a desire on the part of automakers to reduce costs by reducing the weight of vehicles contributed to improved fuel economy. CAFE standards reinforced that effect. More- over, the CAFE program has been particularly effective in keeping fuel economy above the levels to which it might have fallen when real gasoline prices began their long de- cline in the early 1980s. Improved fuel economy has reduced dependence on imported oil, improved the nationâs terms of trade, and reduced emissions of carbon dioxide, a principal greenhouse gas, relative to what they otherwise would have been. If fuel economy had not improved, gasoline consump- tion (and crude oil imports) would be about 2.8 million bar- rels per day greater than it is, or about 14 percent of todayâs consumption. Finding 2. Past improvements in the overall fuel economy of the nationâs light-duty vehicle fleet have entailed very real, albeit indirect, costs. In particular, all but two members of the committee concluded that the downweighting and downsizing that occurred in the late 1970s and early 1980s, some of which was due to CAFE standards, probably re- sulted in an additional 1,300 to 2,600 traffic fatalities in 1993.1 In addition, the diversion of carmakersâ efforts to improve fuel economy deprived new-car buyers of some amenities they clearly value, such as faster acceleration, greater carrying or towing capacity, and reliability. Finding 3. Certain aspects of the CAFE program have not functioned as intended: â¢ The distinction between a car for personal use and a truck for work use/cargo transport has broken down, initially with minivans and more recently with sport utility vehicles (SUVs) and cross-over vehicles. The car/truck distinction has been stretched well beyond the original purpose. â¢ The committee could find no evidence that the two- fleet rule distinguishing between domestic and foreign content has had any perceptible effect on total employ- ment in the U.S. automotive industry. â¢ The provision creating extra credits for multifuel ve- hicles has had, if any, a negative effect on fuel econ- omy, petroleum consumption, greenhouse gas emis- sions, and cost. These vehicles seldom use any fuel other than gasoline yet enable automakers to increase their production of less fuel efficient vehicles. 1A dissent by committee members David Greene and Maryann Keller on the impact of downweighting and downsizing is contained in Appendix A. They believe that the level of uncertainty is much higher than stated and that the change in the fatality rate due to efforts to improve fuel economy may have been zero. Their dissent is limited to the safety issue alone.
112 EFFECTIVENESS AND IMPACT OF CORPORATE AVERAGE FUEL ECONOMY (CAFE) STANDARDS Finding 4. In the period since 1975, manufacturers have made considerable improvements in the basic efficiency of engines, drive trains, and vehicle aerodynamics. These im- provements could have been used to improve fuel economy and/or performance. Looking at the entire light-duty fleet, both cars and trucks, between 1975 and 1984, the technol- ogy improvements were concentrated on fuel economy: It improved by 62 percent without any loss of performance as measured by 0â60 mph acceleration times. By 1985, light- duty vehicles had improved enough to meet CAFE standards. Thereafter, technology improvements were concentrated principally on performance and other vehicle attributes (in- cluding improved occupant protection). Fuel economy re- mained essentially unchanged while vehicles became 20 per- cent heavier and 0â60 mph acceleration times became, on average, 25 percent faster. Finding 5. Technologies exist that, if applied to passenger cars and light-duty trucks, would significantly reduce fuel consumption within 15 years. Auto manufacturers are al- ready offering or introducing many of these technologies in other markets (Europe and Japan, for example), where much higher fuel prices ($4 to $5/gal) have justified their develop- ment. However, economic, regulatory, safety, and consumer- preference-related issues will influence the extent to which these technologies are applied in the United States. Several new technologies such as advanced lean exhaust gas after-treatment systems for high-speed diesels and direct- injection gasoline engines, which are currently under devel- opment, are expected to offer even greater potential for re- ductions in fuel consumption. However, their development cycles as well as future regulatory requirements will influ- ence if and when these technologies penetrate deeply into the U.S. market. The committee conducted a detailed assessment of the technological potential for improving the fuel efficiency of 10 different classes of vehicles, ranging from subcompact and compact cars to SUVs, pickups, and minivans. In addi- tion, it estimated the range in incremental costs to the con- sumer that would be attributable to the application of these engine, transmission, and vehicle-related technologies. Chapter 3 presents the results of these analyses as curves that represent the incremental benefit in fuel consumption versus the incremental cost increase over a defined baseline vehicle technology. Projections of both incremental costs and fuel consumption benefits are very uncertain, and the actual results obtained in practice may be significantly higher or lower than shown here. Three potential develop- ment paths are chosen as examples of possible product im- provement approaches, which illustrate the trade-offs auto manufacturers may consider in future efforts to improve fuel efficiency. Assessment of currently offered product technologies suggests that light-duty trucks, including SUVs, pickups, and minivans, offer the greatest potential to reduce fuel consump- tion on a total-gallons-saved basis. Finding 6. In an attempt to evaluate the economic trade-offs associated with the introduction of existing and emerging tech- nologies to improve fuel economy, the committee conducted what it called cost-efficient analysis. That is, the committee identified packages of existing and emerging technologies that could be introduced over the next 10 to 15 years that would improve fuel economy up to the point where further increases in fuel economy would not be reimbursed by fuel savings. The size, weight, and performance characteristics of the ve- hicles were held constant. The technologies, fuel consump- tion estimates, and cost projections described in Chapter 3 were used as inputs to this cost-efficient analysis. These cost-efficient calculations depend critically on the assumptions one makes about a variety of parameters. For the purpose of calculation, the committee assumed as fol- lows: (1) gasoline is priced at $1.50/gal, (2) a car is driven 15,600 miles in its first year, after which miles driven de- clines at 4.5 percent annually, (3) on-the-road fuel econ- omy is 15 percent less than the Environmental Protection Agencyâs test rating, and (4) the added weight of equipment required for future safety and emission regulations will ex- act a 3.5 percent fuel economy penalty. One other assumption is required to ascertain cost-effi- cient technology packagesâthe horizon over which fuel economy gains ought to be counted. Under one view, car purchasers consider fuel economy over the entire life of a new vehicle; even if they intend to sell it after 5 years, say, they care about fuel economy because it will affect the price they will receive for their used car. Alternatively, consumers may take a shorter-term perspective, not looking beyond, say, 3 years. This latter view, of course, will affect the iden- tification of cost-efficient packages because there will be many fewer years of fuel economy savings to offset the ini- tial purchase price. The full results of this analysis are presented in Chap- ter 4. To provide one illustration, however, consider a mid- size SUV. The current sales-weighted fleet fuel economy average for this class of vehicle is 21 mpg. If consumers consider only a 3-year payback period, fuel economy of 22.7 mpg would represent the cost-efficient level. If, on the other hand, consumers take the full 14-year average life of a ve- hicle as their horizon, the cost-efficient level increases to 28 mpg (with fuel savings discounted at 12 percent). The longer the consumerâs planning horizon, in other words, the greater are the fuel economy savings against which to balance the higher initial costs of fuel-saving technologies. The committee cannot emphasize strongly enough that the cost-efficient fuel economy levels identified in Tables 4-2 and 4-3 in Chapter 4 are not recommended fuel economy goals. Rather, they are reflections of technological possibili- ties, economic realities, and assumptions about parameter
FINDINGS AND RECOMMENDATIONS 113 values and consumer behavior. Given the choice, consumers might well spend their money on other vehicle amenities, such as greater acceleration or towing capacity, rather than on the fuel economy cost-efficient technology packages. Finding 7. There is a marked inconsistency between press- ing automotive manufacturers for improved fuel economy from new vehicles on the one hand and insisting on low real gasoline prices on the other. Higher real prices for gasolineâ for instance, through increased gasoline taxesâwould cre- ate both a demand for fuel-efficient new vehicles and an incentive for owners of existing vehicles to drive them less. Finding 8. The committee identified externalities of about $0.30/gal of gasoline associated with the combined impacts of fuel consumption on greenhouse gas emissions and on world oil market conditions. These externalities are not nec- essarily taken into account when consumers purchase new vehicles. Other analysts might produce lower or higher esti- mates of externalities. Finding 9. There are significant uncertainties surrounding the societal costs and benefits of raising fuel economy stan- dards for the light-duty fleet. These uncertainties include the cost of implementing existing technologies or developing new ones; the future price of gasoline; the nature of con- sumer preferences for vehicle type, performance, and other features; and the potential safety consequences of altered standards. The higher the target for average fuel economy, the greater the uncertainty about the cost of reaching that target. Finding 10. Raising CAFE standards would reduce future fuel consumption below what it otherwise would be; how- ever, other policies could accomplish the same end at lower cost, provide more flexibility to manufacturers, or address inequities arising from the present system. Possible alter- natives that appear to the committee to be superior to the current CAFE structure include tradable credits for fuel economy improvements, feebates,2 higher fuel taxes, stan- dards based on vehicle attributes (for example, vehicle weight, size, or payload), or some combination of these. Finding 11. Changing the current CAFE system to one fea- turing tradable fuel economy credits and a cap on the price of these credits appears to be particularly attractive. It would provide incentives for all manufacturers, including those that exceed the fuel economy targets, to continually increase fuel economy, while allowing manufacturers flexibility to meet consumer preferences. Such a system would also limit costs imposed on manufacturers and consumers if standards turn out to be more difficult to meet than expected. It would also reveal information about the costs of fuel economy improve- ments and thus promote better-informed policy decisions. Finding 12. The CAFE program might be improved sig- nificantly by converting it to a system in which fuel econ- omy targets depend on vehicle attributes. One such system would make the fuel economy target dependent on vehicle weight, with lower fuel consumption targets set for lighter vehicles and higher targets for heavier vehicles, up to some maximum weight, above which the target would be weight- independent. Such a system would create incentives to re- duce the variance in vehicle weights between large and small vehicles, thus providing for overall vehicle safety. It has the potential to increase fuel economy with fewer nega- tive effects on both safety and consumer choice. Above the maximum weight, vehicles would need additional advanced fuel economy technology to meet the targets. The commit- tee believes that although such a change is promising, it requires more investigation than was possible in this study. Finding 13. If an increase in fuel economy is effected by a system that encourages either downweighting or the produc- tion and sale of more small cars, some additional traffic fa- talities would be expected. However, the actual effects would be uncertain, and any adverse safety impact could be mini- mized, or even reversed, if weight and size reductions were limited to heavier vehicles (particularly those over 4,000 lb). Larger vehicles would then be less damaging (aggressive) in crashes with all other vehicles and thus pose less risk to other drivers on the road. Finding 14. Advanced technologiesâincluding direct- injection, lean-burn gasoline engines; direct-injection compression-ignition (diesel) engines; and hybrid electric vehiclesâhave the potential to improve vehicle fuel econ- omy by 20 to 40 percent or more, although at a significantly higher cost. However, lean-burn gasoline engines and diesel engines, the latter of which are already producing large fuel economy gains in Europe, face significant technical chal- lenges to meet the Tier 2 emission standards established by the Environmental Protection Agency under the 1990 amendments to the Clean Air Act and Californiaâs low-emis- sion-vehicle (LEV II) standards. The major problems are the Tier 2 emissions standards for nitrogen oxides and particu- lates and the requirement that emission control systems be certified for a 120,000-mile lifetime. If direct-injection gaso- line and diesel engines are to be used extensively to improve light-duty vehicle fuel economy, significant technical devel- opments concerning emissions control will have to occur or some adjustments to the Tier 2 emissions standards will have to be made. Hybrid electric vehicles face significant cost hurdles, and fuel-cell vehicles face significant technologi- cal, economic, and fueling infrastructure barriers. 2Feebates are taxes on vehicles achieving less than the average fuel economy coupled with rebates to vehicles achieving better than average fuel economy.
114 EFFECTIVENESS AND IMPACT OF CORPORATE AVERAGE FUEL ECONOMY (CAFE) STANDARDS Finding 15. Technology changes require very long lead times to be introduced into the manufacturersâ product lines. Any policy that is implemented too aggressively (that is, in too short a period of time) has the potential to adversely affect manufacturers, their suppliers, their employees, and consumers. Little can be done to improve the fuel economy of the new vehicle fleet for several years because production plans already are in place. The widespread penetration of even existing technologies will probably require 4 to 8 years. For emerging technologies that require additional research and development, this time lag can be considerably longer. In addition, considerably more time is required to replace the existing vehicle fleet (on the order of 200 million ve- hicles) with new, more efficient vehicles. Thus, while there would be incremental gains each year as improved vehicles enter the fleet, major changes in the transportation sectorâs fuel consumption will require decades. RECOMMENDATIONS Recommendation 1. Because of concerns about greenhouse gas emissions and the level of oil imports, it is appropriate for the federal government to ensure fuel economy levels beyond those expected to result from market forces alone. Selection of fuel economy targets will require uncertain and difficult trade-offs among environmental benefits, vehicle safety, cost, oil import dependence, and consumer prefer- ences. The committee believes that these trade-offs right- fully reside with elected officials. Recommendation 2. The CAFE system, or any alternative regulatory system, should include broad trading of fuel economy credits. The committee believes a trading system would be less costly than the current CAFE system; provide more flexibility and options to the automotive companies; give better information on the cost of fuel economy changes to the private sector, public interest groups, and regulators; and provide incentives to all manufacturers to improve fuel economy. Importantly, trading of fuel economy credits would allow for more ambitious fuel economy goals than exist under the current CAFE system, while simultaneously reducing the economic cost of the program. Recommendation 3. Consideration should be given to designing and evaluating an approach with fuel economy targets that are dependent on vehicle attributes, such as ve- hicle weight, that inherently influence fuel use. Any such system should be designed to have minimal adverse safety consequences. Recommendation 4. Under any system of fuel economy targets, the two-fleet rule for domestic and foreign content should be eliminated. Recommendation 5. CAFE credits for dual-fuel vehicles should be eliminated, with a long enough lead time to limit adverse financial impacts on the automotive industry. Recommendation 6. To promote the development of longer-range, breakthrough technologies, the government should continue to fund, in cooperation with the automotive industry, precompetitive research aimed at technologies to improve vehicle fuel economy, safety, and emissions. It is only through such breakthrough technologies that dramatic increases in fuel economy will become possible. Recommendation 7. Because of its importance to the fuel economy debate, the relationship between fuel economy and safety should be clarified. The committee urges the National Highway Traffic Safety Administration to undertake addi- tional research on this subject, including (but not limited to) a replication, using current field data, of its 1997 analysis of the relationship between vehicle size and fatality risk.