Not much in the auto industry lasts a quarter-century. Yet, that’s about how long the Corporate Average Fuel Economy (CAFE) standard has been around–with little modification of its requirements in the last 15 years.
With the Bush Administration in office and automakers showing no active opposition to changes in CAFE standard, the table is set for major change. CAFE standards could be made more stringent, especially for light trucks, or might be abandoned in favor of another approach to reducing fuel usage.
All manufacturers selling light-duty vehicles must meet either of two CAFE standards: one for light trucks (pickups, minivans and sport-utility vehicles) and another for passenger cars. Sales-weighted averages are calculated for a manufacturer’s full product line. Domestically built and imported vehicles are figured separately.
Averaged together, the cars in an automaker’s fleet must deliver 27.5 miles per gallon. Light trucks are subject 20.7 miles per gallon.
In the wake of the Arab oil embargo of 1973-74, Congress enacted the CAFE requirement in 1975, when gas mileage in American cars had reached guzzler proportions. In 1967, the average car got 14.8 miles per gallon. By 1974, the figure dipped to 12.8 m.p.g. Because fuel prices were high, it was thought that the Energy Policy and Conservation Act would substantially reduce petroleum consumption.
Starting at 18 miles per gallon for the 1978 model year, the requirement for cars rose steadily to the 27.5-m.p.g. average in 1985. Light trucks began with a 17.2-m.p.g. standard in 1979, reaching 20.7 m.p.g. in 1996–after some dips in 1989-94.
In 1994, the Clinton Administration proposed an increase of up to 40 percent for light trucks. The National Highway Traffic Safety Administration, which oversees CAFE standards, then issued a notice to explore raising the truck requirement.
In response, Congress froze both standards, refusing to provide funds unless the Department of Transportation agreed to keep hands off the CAFE figures. Despite pressure from conservation groups, Congress has granted automakers a reprieve on increasing CAFE for the last six years.
This year, the automakers did not request another freeze. Some environmental groups foresee a potential path to tightened standards, and others argue that the Bush Administration won’t act. During his campaign for the presidency, George W. Bush said CAFE standards seemed appropriate.
As part of an appropriations bill in October 2000, Congress assigned the National Academy of Sciences to study the effectiveness and impact of CAFE on such issues as safety and employment. Members of the panel, headed by Paul Portney, president of Resources for the Future, a nonprofit Washington think tank that researches environmental and natural resource issues, have been visiting auto manufacturers, suppliers and other organizations to gather information. Board members are said to be “from across the political spectrum” and to have “experience in government, academia, environmental advocacy, business and the media.”
Neither auto-industry representatives nor environmental advocates are included.
NAS has held three public hearings, beginning in February, and its findings are due this month. They could recommend tightening CAFE standards, eliminating them or retaining the status quo.
Warming relations?
On March 22, the Alliance of Automobile Manufacturers issued a clarification statement to Capitol Hill. Some people believed that by asking for no freeze, the Alliance supported an increase in CAFE requirements.
Gloria Bergquist, vice president of the alliance, which represents 13 U.S. and foreign automakers, cites four reasons for not requesting a freeze:
– They prefer to wait and see what the NAS panel decides.
– The new administration has indicated that it favors a comprehensive national “energy policy” instead of CAFE.
– The alliance wants “to be part of this energy discussion,” working with the NAS panel and the Bush administration.
– The alliance supports tax incentives for consumers who purchase hybrid or other alternative-fuel vehicles.
Manufacturers allege that CAFE has not cut energy consumption and has distorted the market. Meaningful energy-consumption figures are elusive. But manufacturers see the market distortion with the government effectively insisting that low-consumption vehicles be built and sold, without regard to what customers want and will buy.
Of the major automakers, only Ford has indicated a willingness to discuss tightening CAFE, as part of its environmental stance, largely led by Chariman William Clay Ford Jr.
“We think that a careful examination of CAFE will show that it’s been a flawed policy,” said Greg Martin, manager of General Motors’ media relations public policy office. “We have to build what our customers want,” even if that means less-thrifty models.
“We’ve always exceeded CAFE,” said James Olson, senior vice president of external and regulatory affairs for Toyota Motor North America. “We’ve done it with massive injections of technology [that has] allowed us to stay above the curve” since the 1980s.
Even so, Olson continued, “the industry is at a turning point, where the cost curve of the technology” needs to be addressed. In addition, “safety requirements keep adding weight to the vehicle.” So do the luxuries and comforts that customers favor.
Anything that adds weight to the vehicle and draws electricity cuts into fuel consumption, from a more powerful stereo to many-position power heated seats to four-wheel-drive systems.
“All of this works counter to fuel efficiency.”
“CAFE has not driven our progress,” GM’s Martin said. “Fuel economy is not going to happen through mandates” but via advanced technology. Toyota’s Olson says there is “a regulatory policy in the U.S. that goes against” what’s asked of the manufacturers. He says the solution to increased economy might be a “size-based class or a weight-based class.”
He says there are “fairer ways to do it using a performance metric.” The solution to increased economy might be a “size-based class or a weight-based class.”
Though there are few specifics, each manufacturer, in effect, would set its own standards after placing its vehicle lineup into categories (by size or weight).
To start, a government agency would calculate fuel economies of existing vehicles in a given weight category. Then, the government would establish a target for percentage of fuel-economy improvement in each category. Each manufacturer would then set specific targets for each category, averaging the goals for each of their models in that category.
With CAFE, Olson said, the government tells automakers: “You make the market react.”
DaimlerChrysler hopes “the NAS panel will see the landscape like we do, in the end,” energy director Modlin said. CAFE “does not cause the nation to lose its energy appetite.” The most that could be accomplished by modifying the CAFE standard would be to “change the winners and losers in the fleet.”
Little demand
Consumers might say they want better gas mileage. But when placed on a priority list, said DaimlerChrysler’s Modlin, “things like safety, visibility–almost the color of the paint–come in consistently ahead of fuel economy.”
Research for Toyota has suggested that consumers won’t pay more than $250 to $300 to get a vehicle with better economy or emissions.
“The market doesn’t send the right signal either,” Toyota’s Olson said.
Low gasoline prices make it easier for consumers to purchase oversize SUVs and other fuel-inefficient vehicles. Despite the recent surge, fule prices are close to record low levels when adjusted for inflation. When compared to Europe, where $5 a gallon prices keep most consumers from buying fuel-inefficient vehicles, the $3 a gallon projected for the area this summer may not make a real difference in buying habits.
CAFE critics also point to safety, charging that smaller cars, which meet the fuel-economy requirements, are more dangerous, resulting in more deaths.
In 1998, according to Fatality Facts, issued by the Insurance Institute for Highway Safety, a research and lobbying group funded by major insurers, the death rate per million vehicles was as follows: 249 in mini-cars, 161 in small cars, 127 in midsize cars, 117 in large cars and 133 in very large cars.
Environmentally oriented supporters of CAFE, such as the Sierra Club, stress the impact of automobiles on global warming. They say CAFE can reduce urban smog, cut carbon-dioxide emissions and save millions of barrels of oil. Though hard figures are not available, it’s certain that without CAFE vehicles would not be as fuel-efficient as they are today. The Sierra Club would like to see a standard of 45 m.p.g. for cars and 34 m.p.g. for trucks.
Most automakers support the alliance’s view that tax credits for alternative-fuel vehicles are the answer to reducing fuel consumption.
A bill sponsored by former Republican Sen. John Ashcroft of Missouri and former Sen. Spencer Abraham of Michigan before their Cabinet appointments (Ashcroft as attoryney general, Abraham as energy secretary) in the Bush administration, would give tax credits of up to $3,000 for buyers of hybrid-powertrain (gasoline/electric) vehicles, and $4,000 for those with fuel-cell powertrains. No action has been taken on this bill, and none is expected until the NAS report is released later this month.
President Clinton also proposed an alternative-fuel tax credit. Only the Toyota Prius and Honda Insight of hybrids are now on sale, and hybrid versions of the Those new ones include hybrid Ford Escape and Dodge Durango sport-utilities are due in 2003. Fuel cells are still in the experimental stage. So, the impact from this policy would be felt further in the future.
Norman Mineta, U.S. Secretary of Transportation, is one member of the Bush Administration who has pushed for higher CAFE.
If Congress decides action on CAFE is needed after considering the NAS panel’s recommendations, the burden falls on the National Highway Traffic Safety Administration.
“Whatever Congress says to do, NHTSA does,” said Tim Hurd, public affairs spokesperson for the agency. Officially, the current CAFE standard expires Sept. 1, at the start of the 2002 model year.
