CAFE Standards Debated by Congress, Edmunds.com CEOBy Danny King October 12, 2011
Edmunds.com CEO Jeremy Anwyl, Competitive Enterprise Institute senior fellow Marlo Lewis and Natural Resources Defense Council transportation program director Roland Hwang were among those who spoke at a Congressional hearing Wednesday, debating the merits of the vehicle fuel economy standards federal regulators proposed for 2025 this past July. Members of the Environmental Protection Agency (EPA) and the National Highway Traffic Safety Administration (NHTSA) expressed support for the proposed Corporate Average Fuel Economy (CAFE) standards amid opposition from some Congress members in the Wednesday hearing.
Anwyl argued that proponents of the new CAFE standards mistakenly overestimate the importance of fuel economy to consumers by relying on customer surveys while vehicle sales figures show that utility and vehicle features supersede fuel economy for many customers. Anwyl added that automakers who had professed support for the CAFE standards in July were strong-armed into taking that stance because of the very expensive threat of California enacting a separate set of fuel-economy standards if such federal regulations aren't adopted. "Surveys are going to create some strange results. Consumers tend to respond to surveys in ways that they think are societally acceptable," said Anwyl. "What matters are the vehicles that they are buying, and their preference is overwhelmingly not for the types of vehicles that are being mandated by this proposed set of regulations."
Environmentalist Hwang, on the other hand, pushed for the new CAFE standards, arguing that the higher fuel economy regulations would create 500,000 jobs related to advanced powertrains over the next two decades, while fuel savings would be the equivalent to a $330 tax rebate to each U.S. household. "Consumers are demanding -- make no mistake about it -- more fuel-efficient cars," said Hwang. "Congress should be urging the agencies to implement this program sooner rather than later."
Anwyl, Lewis and Hwang were among those who spoke on panels in the hearing held by the Congress Subcommittee on Regulatory Affairs, Stimulus Oversight and Government Spending, which tabbed the hearing "Running on Empty: How the Obama Administration's Green Energy Gamble Will Impact Small Business & Consumers." Dennis Kucinich (D-Ohio) was among those in attendance who cited jobs creation and reduced dependency on foreign oil as reasons to support the new standards, while Darrell Issa (R-Calif.) spoke out against the proposed fuel economy standards, calling them "a war on the private automobile and light truck industry."
President Obama in late July reached a tentative agreement with the major automakers that would establish a 54.5 mile-per-gallon CAFE standard for passenger vehicles in 2025. That would be equal to an EPA "window sticker" fuel economy rating of about 40 mpg, or about an 80-percent jump from last year's EPA-rated fleetwide fuel economy. The agreement called for a 5-percent annual increase in passenger car fuel efficiency from the 2017 through 2025 model year, which would result in a nearly 60 mpg CAFE standard for cars. Light trucks, including pickups and SUVs, would be treated differently under the proposed standards, subject to a 3.5-percent fuel economy increase each year through 2021 and then a 5-percent hike in subsequent years.
The standards include numerous credits for new fuel efficiency technologies, which would give most car companies wiggle room to miss hitting the 54.5 mpg standard by several miles per gallon. Once the proposed rules are released, there will a public comment period and then the agencies will draft a set of final regulations. Those are due to be issued in July 2012 and to be phased in for 2025 model-year vehicles beginning in the 2017 model year.
Regardless, such standard would likely require heavy use of low-carbon and carbon-free alternative fuels and power sources is going to be required. Industry analysts peg the increased cost of adding appropriate technology to achieve a 55 to 60 mpg fuel efficiency at between $2,000 and $8,000 per car. Environmental groups and the Consumer Federation have issued reports that say fuel savings will let consumers earn back the increased costs in as little as two to three years for the most optimistic scenarios and certainly over the vehicle's lifetime, though they don't address the fact that few consumers now keep a car or truck for its entire lifespan.
New Rules Delayed
With such issues at hand, the EPA and NHTSA in late September delayed the proposed rules until mid-November. Citing difficulties coordinating all the players, the EPA and NHTSA said that additional time is needed. NHTSA and the EPA are drafting the rules, which entail a document of more than 700 pages. Additionally, the California Air Resources Board is deeply involved in the federal rulemaking process because the state is allowed under federal law to formulate separate air quality rules if it doesnt like what the EPA is doing. That includes greenhouse gas emissions standards. Because greenhouse gas emissions are directly related to the amount of carbon-based fuel burned per mile traveled, California regulators consider federal fuel efficiency standards to be a form of air quality regulation. In recent years, the state has approved a tough set of local rules that automakers said create a financial hardship by requiring them to build cars to meet two separate fuel efficiency standards. In subsequent negotiations with the industry and the White House, California regulators agreed to coordinate the states regulations with the federal CAFE rules.
The prospect of a separate California standard was key in getting automakers on board with the new CAFE standards, Anwyl said Wednesday. "The expression I hear repeatedly is that they felt like they had a gun to their head," said Anwyl. "The threat of a California opt-out is very real and very scary."
Additionally, independent trucker Scott Grenerth said on the panel that the CAFE standards would be especially onerous for truckers because high fuel-efficiency requirements increase the average price of a new truck and force manufacturers to use powertrain technologies that are newer, less proven and may cost truckers more in the long term because of additional repairs and time out of service. Grenerth, like Anwyl, questioned whether the EPA and NHTSA are factoring in consumer and transportation-industry input in their formulation of the new rules.
"Truckers are forced to purchase equipment they don't need or want," said Grenerth, who added that the money would be better spent training and encouraging truckers to drive in a more fuel-efficient manner. "Trucking will take every opportunity to improve efficiency without government mandates."
Still, NHTSA administrator David Strickland and Gina McCarthy, assistant administrator for the EPA's office of air and radiation, both argued on a separate panel Wednesday that the new CAFE rules would ultimately benefit the economy in the form of lower fuel costs, less oil purchases from overseas and more jobs. Strickland also argued that concerns that fuel efficiency mandates may compromise safety by encouraging automakers to use lighter materials was unfounded, while McCarthy called the CAFE regulations "a great success for this country."
None of the arguments allayed concerns from the Competitive Enterprise Institute's Lewis that the proposed mandates fail to factor in the true buying habits and concerns of U.S. consumers, and that the CAFE standards would cause more problems than they'll solve. "The EPA and NHTSA think that even truck drivers dont understand their true interests," said Lewis. "There is a nanny-state aspect to this."