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OCR for page 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 Council's 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 nation's 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 nation's 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 today's
consumption.
111
Finding 2. Past improvements in the overall fuel economy
of the nation's 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.i In addition, the diversion of carmakers' 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:
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.
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.
· 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.
iA 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.
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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 0-60 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 0-60 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
Agency's 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 packages the 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 consumer's 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
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FINDINGS AND RECOMMENDATIONS
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 gasoline-
for instance, through increased gasoline taxes would 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
2Feebates are taxes on vehicles achieving less than the average fuel
economy coupled with rebates to vehicles achieving better than average
fuel economy.
113
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 technologies including direct-
injection, lean-burn gasoline engines; direct-injection
compression-ignition (diesel) engines; and hybrid electric
vehicles have 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 California's 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.
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EFFECTIVENESS AND IMPACT OF CORPORATE AVERAGE FUEL ECONOMY (CAFE) STANDARDS
Finding 15. Technology changes require very long lead
times to be introduced into the manufacturers' 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 sector's
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.
Representative terms from entire chapter:
improve fuel
