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®: CRE Regulatory Action of the Week

CRE Urges Congress to Allow NHTSA to Address Corporate Average Fuel Economy (CAFE) Standards Through APA Rulemaking
Whether to increase the CAFE standards for passenger cars and light trucks is a key part of the current energy policy debate in Congress. Setting CAFE standards requires careful consideration of numerous complex issues, including statutory criteria that inherently involve policy, technical, and economic "trade-offs". CRE strongly believes that the best process for considering any change in the CAFE standards is by an APA rulemaking by the National Highway Traffic Safety Administration pursuant to the existing statute, not by Congressional legislative action. This CRE White Paper discusses the issues and the "pros" and "cons" of the process-related options.

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    CRE White Paper

    NHTSA Rulemaking Is The Preferred Process For Assessing Any Change In Corporate Average Fuel Economy Standards

    I. Introduction

    Whether to increase the Corporate Average Fuel Economy (CAFE) standards for passenger cars and light trucks is a key part of the current national energy policy debate.

    Setting CAFE standards requires careful consideration of numerous complex, often interrelated issues, including consideration of statutory criteria that inherently involve policy, technical, and economic "trade-offs".

    Therefore, CRE strongly believes that the process for considering any change in the CAFE standards must ensure that any resulting decision on CAFE is based on sound science and careful assessment of the best available information addressing the statutory criteria.

    CRE recommends that Congress:

    1. Not raise the CAFE standards by legislative action; and instead

    2. Allow the National Highway Traffic Safety Administration (NHTSA) to conduct a rulemaking (in accordance with the Administrative Procedure Act and allowing all interested parties to participate) to determine, in accordance with existing statutory criteria, whether -- and if yes, by how much and on what schedule -- to increase the CAFE standards.

    II. CAFE Standard-Setting Involves Complex, Interrelated Issues

    The current public debate over whether CAFE standards should be changed (meaning, raised) unfortunately tends to gloss over the complexity of the issues involved.

    The July 2001 report of the National Academy of Sciences’ National Research Council (NAS) concluded that automobile manufacturers could significantly improve the fuel economy of passenger cars and particularly light trucks -- over the next 10 to 15 years -- by phasing in certain technologies that are now coming into use.

    In the press release announcing the report, the NAS committee Chairman Paul Portney (President of Resources for the Future) made clear that: "There are pros and cons to tightening fuel economy standards, involving a range of trade-offs".

    The CAFE standards decisionmaker must understand both the "pros" and the "cons" of that "range of trade-offs". Key issues include:

  • Engineering feasibility;
  • Production phase-in;
  • Safety considerations;
  • Initial costs and downstream economic benefits (for example, whether the cost of new technologies raising the vehicle purchase price will be recouped through fuel savings under real-world driving conditions);
  • Consumer acceptance;
  • Actual nationwide fuel savings.
  • At least four interrelated issues deserve careful evaluation, and where possible quantification, to determine the extent to which such "trade-offs" could adversely affect national concerns such as occupant safety, impact on competitiveness of U.S. industry, and cost to consumers.

    1. Timeframe Needed to Introduce New Technologies to the Vehicle Fleet

    Different energy-saving technologies are in different stages of development and/or market penetration.

    All major automobile manufacturers are working hard to develop and introduce new technologies, such as:

  • Variable valve timing and other features to make engines more efficient;
  • Advanced diesel engines;
  • Integrated starter-generators
  • More efficient powertrains, including continuously variable or five-speed automatic transmissions; and
  • Hybrid gasoline-electric vehicles.
  • Manufacturers have publicly committed to introduce such new or improved technologies more widely in the next few model years, but there are technical and production-related limits to how quickly the technologies can be proven and produced in new vehicles -- at any reasonable price.

    The NAS report cautioned against simply raising CAFE standards without appropriate appreciation for the manufacturers’ need to develop and phase in more efficient technology over time. Potential adverse consequences include technical effectiveness of the technologies, reliability, safety (addressed in point 2 below), and cost or cost-effectiveness (addressed in point 3 below).

    Indeed, the cumulative effectiveness of certain technologies that would be introduced simultaneously in future vehicles became an issue in the context of the NAS report. The automobile industry submitted a technical critique of certain aspects of the July 2001 NAS report. The NAS issued a follow-up "letter report" on January 16, 2002 that made minor modifications to the report.

    CRE has no criticism of the NAS panel. In fact, CRE commends the NAS panel for its willingness to, in effect, re-open the report and to hold a pubic meeting to consider industry’s critique. This incident simply highlights the difficulty -- even for a panel of very knowledgeable people -- of determining which are the "true facts" to consider when determining whether to increase CAFE standards, with respect to both: (a) attainability of a specific increased CAFE standard; and (b) possible collateral consequences of an increased standard.

    As a practical matter, Congress has no process or forum to receive and evaluate information about such technical, research-and-development, and production-phase-in issues in a rational manner. CRE believes that a rulemaking to be conducted by NHTSA is a far better process/forum for addressing such difficult technical issues than is the legislative process in Congress.

    2. Adverse Safety Consequences Possible from Too-rapid Increase in CAFE

    The large majority of the NAS panel was specifically concerned that if CAFE standards are raised without allowing manufacturers sufficient time to phase in more energy efficient technology, then manufacturers may be forced to improve vehicle miles-per-gallon by simply reducing the weight of new vehicles ("downsizing").

    The NAS press release announcing the report says:

    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.

    Two members of the committee dissented from that conclusion, believing "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 NAS press release continues: "The committee feels more analysis in this area is warranted and calls on the National Highway Traffic Safety Administration to conduct further research."

    CRE agrees that NHTSA should do more research on the relationship between fuel economy and safety -- before any change is made in CAFE standards.

    In fact, NHTSA is already working on it. NHTSA Administrator Jeffrey W. Runge testified to the Senate Committee on Commerce, Science, and Transportation on December 6, 2001, that:

    The [NAS report’s finding that downweighting and downsizing probably resulted in additional traffic fatalities] was based primarily on research conducted by NHTSA in the mid-1990’s, which we are updating in a study that we expect to complete next spring. The National Academy of Sciences’ report went on to observe ‘that the likelihood of similar response to further increases in fuel economy must be taken seriously.’ I want to assure you that we will consider vehicle safety in any rulemaking that we undertake on CAFE, consistent with our obligations to meet the statutory criteria governing the CAFE program. As an agency whose primary mission is safety, NHTSA is completely committed to the safety of Americans on the nation’s highways.

    CRE believes that for Congress to statutorily specify increased CAFE standards and the timeframe for meeting the new standards, absent much better information about potential resultant occupant injuries and loss of life, would be both quite arbitrary and quite difficult to defend as a matter of national safety policy.

    3. Other Costs

    The NAS report concludes generally that the additional up-front costs of advanced fuel-saving technologies will be recovered by consumers over time via reduced expenses for fuel. However, it is not clear which technologies will result in energy efficiency and conservation measures that are attainable in a cost-effective manner within a reasonable pay-back timeframe.

    Hybrid gasoline-electric vehicles now being marketed are reportedly subsidized by the manufacturers (up to about $17,000 per vehicle), in order to keep the purchase price at approximately $20,000. Although the amount of the per-vehicle subsidy is expected to drop as production volumes rise and the companies refine the technology, these technological developments are not free.

    If manufacturers are not able indefinitely to absorb/subsidize the costs of new technology to meet increased CAFE standards, the consequences could include: (a) financial distress for manufacturers who try to absorb the subsidy or who must heavily discount end-of-model-year prices on unsold cars that were priced above what consumers would pay; and (b) downsized cars that meet CAFE but reduce safety relative to other possible vehicle designs.

    Cost-related issues need additional expert consideration, because they do or may implicate the technical feasibility and economic practicability of meeting increased CAFE standards, the rate of market penetration, and occupant safety.

    4. Consumer Acceptance

    In the real world, vehicle manufacturers must consider what "attributes" consumers want in the vehicles they purchase. In consumer surveys -- and in vehicle sales totals -- it is clear that consumers value attributes such as reliability, durability, safety, roominess and cargo capacity, and power and acceleration, much more highly than they value fuel economy (even with significantly higher gasoline prices as occurred in much of 2001).

    U.S. automobile fleet sales facts:

    1. Light trucks (mini-vans, pick-up trucks, and SUVs) comprise 50% of today’s U.S. automobile market.

    2. About 48 models of vehicles marketed in the U.S. get over 30 MPG; however, the top 10 models with the best fuel economy comprise only 2% of total sales.

    This is not because automobile manufacturers are giving SUVs and mini-vans away, but because these models have the attributes that a great many people in the U.S. want in their vehicles. Many consumers will buy a vehicle that meets their "highest use", even though that may be an infrequent use for the vehicle. That is, people want a vehicle that can haul half a soccer team to games or haul the whole family and belongings to the beach, even though those may account for relatively few vehicle trips. Many consumers also prefer a larger vehicle if they can afford it, due to the fact that, other factors being more or less equal, there is "safety in size".

    Manufacturers will need time and perhaps some engineering advances to make vehicles that have greater fuel economy yet do not sacrifice attributes that consumers value highly. Many people will keep their current vehicle longer rather than give it up for a vehicle that has better fuel economy but otherwise fails to meet the consumer’s needs.

    NHTSA Administrator Runge testified:

    To achieve a specified CAFE level, a manufacturer must produce fuel efficient vehicles that the public will buy. If cost-effective measures can be devised to increase consumer demand for fuel-efficient vehicles without compromising passenger safety, those measures should be examined.

    CRE agrees. CRE believes the best forum to evaluate whether such measures can be devised is in an APA rulemaking at NHTSA, not legislation.

    III. Alternative Decision Processes: Congressional Action vs. NHTSA Rulemaking

    1. Congress Could Change CAFE Via Legislative Action

    "Pro": Congress theoretically could act to change CAFE more quickly than could NHTSA via a rulemaking.

    However, consider two facts:

    1. The Boehlert amendment to raise the CAFE for light trucks from 20.7 mpg to 27.5 mpg (to make it the same as for passenger cars) failed on the House Floor in July 2001, by a vote of 269 - 160; and

    2. The Democratic leadership in the Senate has shown little or no interest in agreeing to the House’s decision in H.R. 4 to address CAFE by requiring manufacturers to save 5 billion gallons of fuel per year (which would be, in effect, a CAFE increase of about 1 MPG).

    CRE believes it is not at all clear whether Congress has the political will to increase CAFE. Any efforts to address CAFE could result in stalemate.

    "Con": As noted above, Congress has no good mechanism or forum for addressing complex technical and other issues that abound in the context of CAFE. Thus, if Congress raises CAFE standards legislatively, Congress would be making major policy decisions in the absence of important facts or analytical information with respect to technical, safety, cost, and consumer-acceptance issues.

    2. NHTSA Could Change CAFE Via APA Rulemaking

    "Pro": NHTSA Administrator Jeffrey W. Runge testified to the Senate Committee on Commerce, Science, and Transportation on December 6, 2001, that:

    The Department [of Transportation] welcomes lifting the restrictions on CAFE rulemaking Congress has imposed since FY 1996, to permit the Department to once again engage in rulemaking that will set fuel economy standards for the light truck fleet.

    It is clear that NHTSA is willing to undertake the challenge of addressing CAFE.

    In CRE’s view, a rulemaking process by NHTSA presents a clearly superior procedural alternative for addressing the complex issues described above than does any approach under which Congress would legislate a statutory change to the CAFE standards.

    A rulemaking pursuant to the Administrative Procedure Act provides opportunity for all interested parties to participate (most likely including one or more public hearings), submit data and information, and comment on or rebut information provided by other parties. NHTSA has a legal obligation pursuant to the APA to consider all available information and to base its decision on sound evidence in the administrative record.

    "Con": Administrator Runge stated in his testimony that NHTSA will need information and analysis to support the statutorily-required determination that a specific CAFE level is the "maximum feasible average fuel economy level", considering "technological feasibility, economic practicability, the effect of other motor vehicle standards of the Government on fuel economy, and the need of the United States to conserve energy." Mr. Runge noted that in recent years Congress significantly hampered NHTSA’s ability to conduct relevant analyses by imposing a legislative limitation in the Department of Transportation Appropriations Acts.

    However, it is clear that NHTSA is willing to get up to speed as promptly as possible. Mr. Runge said:

    We want to assure the Committee that the Department will carry out its responsibilities under the CAFE law to the best of its ability, with the goal of improving fleet fuel economy without sacrificing passenger safety, thereby producing benefits to the economy, our national energy security, and our nation’s traveling public.

    Mr. Runge also acknowledged the major contributions made by the NAS report in addressing the complex CAFE issues:

    [O]ur work will be aided by the July 2001 report on the CAFE program prepared by a committee of the National Academy of Sciences. The report contains a number of findings and recommendations that bear on the future of the CAFE program.

    While the report supports a Federal program to ensure fuel economy levels beyond those expected to result from market forces alone, it cautions that selecting fuel economy targets will require "uncertain and difficult trade-offs among environmental benefits, vehicle safety, cost, oil import dependence, and consumer preferences . . ."

    It is clear that NHTSA would utilize the July 2001 NAS report in many ways as a starting point for the agency’s analysis. With both the NAS report and active participation in a rulemaking by interested parties, NHTSA should be able to quickly overcome any lack of information or analysis caused by the legislative limitations in recent appropriations Acts.

    IV. CRE Recommendation

    Congress should not raise CAFE standards by legislative action, for the reasons set forth above.

    Congress should allow NHTSA to conduct a rulemaking (in accordance with the Administrative Procedure Act and allowing all interested parties to participate) to determine, in accordance with existing statutory criteria, whether -- and if yes, by how much and on what schedule -- to increase the CAFE standards.