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1
Introduction
Fuel economy is attracting public and official attention in
a way not seen for almost two decades. Gasoline prices have
risen sharply over the past 2 years and fluctuated unpredict-
ably. Moreover, concerns have developed over the reliabil-
ity of the gasoline supply, particularly during peak driving
seasons. Evidence also continues to accumulate that global
climate change must be taken seriously. U.S. cars and trucks
are responsible for a nonnegligible fraction of the world's
annual emissions of carbon dioxide, the most important
greenhouse gas.
Is it time to require cars and trucks to achieve a higher
level of fuel economy? Or do such regulations do more harm
than good? These questions led Congress to request a study
from the National Academy of Sciences.
This report is the result of a very short, very intense study
by a committee assembled to answer these questions (see
Appendix B for biographies of committee members). It is
intended to help policy makers in Congress and the execu-
tive branch and those outside the government determine
whether and how fuel economy standards should be changed.
Insofar as possible, it assesses the impact of fuel economy
regulation on vehicles, energy use, greenhouse gas emis-
sions, automotive safety, the automotive industry, and the
public.
This report is the successor to another National Research
Council (NRC) report on the subject and owes a great debt to
the committee that prepared that report. The earlier commit-
tee began its work in May of 1991 as the Committee on Fuel
Economy of Automobiles and Light Trucks, following a re-
quest from the Federal Highway Administration and the
National Highway Traffic Safety Administration. It was the
charge of that committee (the fuel economy committee) to
study both the feasibility and the desirability of a variety of
efforts to improve the fuel economy of the light-duty vehicle
fleet in the United States. More than a year later, the com-
mittee issued its report, Automotive Fuel Economy: How Far
Should We Go ? (NRC, 19921.
7
It is difficult to summarize neatly the conclusions of that
report. Briefly, though, the fuel economy committee found
in 1992 as follows:
"Practically achievable" improvements in vehicle fuel
economy were possible, and these improvements
would lie between, on the one hand, what would hap-
pen with no government intervention and, on the other,
the results of implementing all technologically pos-
sible efficiency-enhancing measures without regard to
cost, safety, or other important factors.
Despite considerable uncertainty on this issue, if
downweighting was used to improve fuel economy,
there would probably be an adverse effect on passen-
ger safety, all else being equal.
While emissions standards for new cars had obvious
advantages, they could make it more difficult to im-
prove automobile fuel economy.
The automobile manufacturing industry, which was in
a sharp downturn in 1992, could be harmed by fuel
economy standards "of an inappropriate form" that
increased new car prices and hurt sales, or that shifted
purchases to imported vehicles.
When gasoline prices were low, consumers had lim-
ited interest in purchasing vehicles with high fuel
economy, unless those same vehicles also delivered
the performance characteristics horsepower, accel-
eration, options that consumers appeared to desire.
· Finally, a variety of alternatives to the then-current cor-
porate average fuel economy standards should be con-
sidered, including changing the form of the program,
increasing the price of gasoline, and adopting a system
of taxes and rebates to discourage the production of
"gas guzzlers" and reward "gas sippers."
Now, nearly a decade after the 1992 study began, another
NRC committee has completed its work (see Appendix C for
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Representative terms from entire chapter:
average fuel
8
EFFECTIVENESS AND IMPACT OF CORPORATE AVERAGE FUEL ECONOMY (CAFE) STANDARDS
a list of the committee's meetings and site visits). While cre-
ated to look at some of the same issues as the earlier group,
the Committee on the Effectiveness and Impact of Corporate
Average Fuel Economy (CAFE) Standards was born of a
different time and directed to address a somewhat different
set of concerns. For instance, the impetus for the earlier com-
mittee was a sharp, though temporary, increase in oil and
gasoline prices in the wake of the Gulf War. Despite a recent
increase in oil and gasoline prices related to two factors-
the renewed pricing power of the Organization of Petroleum
Exporting Countries (OPEC) and capacity constraints in the
domestic refining industry no serious sunclv interruptions
motivated this report.
Similarly, and as was reflected in its findings, the earlier
committee was charged with examining a wide variety of
approaches that could improve the fuel economy of the pas-
senger vehicle fleet, including changes in required fuel
economy standards, increases in gasoline taxes, subsidies for
the production of fuel-efficient vehicles, and enhanced re-
search and development programs. The present committee
had a much narrower charge. It was directed by Congress,
acting through the Department of Transportation (DOT), to
concentrate on the impact and effectiveness of Corporate
Average Fuel Economy (CAFE) standards originally man-
dated in the Energy Policy and Conservation Act of 1975.
These standards (which have been set at various times both
by Congress and by the National Highway Traffic Safety
Administration [NHTSA]) establish mandatory fuel efficien-
cies in the form of required miles-per-gallon (mpg) goals-
for fleets of passenger cars and light-duty trucks, which in-
cluded the popular sport utility vehicles (SUVs) beginning
with the model year (MY) 1978.i
It is fair to say that the CAFE program has been contro-
versial since its inception. There are sharp disagreements
about the effects of the program on the fuel efficiency of the
U.S. vehicle fleet, the current mix of vehicles in that fleet,
the overall safety of passenger vehicles, the health of the
domestic automobile industry, employment in the industry,
iThe Corporate Average Fuel Economy program is designed to improve
the efficiency of the light-duty vehicle fleet, both automobiles and trucks. It
requires vehicle manufacturers to meet a standard in miles per gallon (mpg)
for the fleet they produce each year. The standard for automobiles is 27.5
mpg, and for light trucks it is 20.7 mpg. Companies are fined if their fleet
average is below the CAFE standard, but various provisions allow flexibil-
ity, such as averaging with past and expected fleet averages. Imported and
domestic automobile fleets must meet the same standards but are counted
separately (trucks are not). The program is administered by the National
Highway Traffic Safety Administration (NHTSA) of the Department of
Transportation.
Testing is done by manufacturers and spot checked by the Environmen-
tal Protection Agency. Vehicles are tested on a dynamometer in a labora-
tory (to eliminate weather and road variables). Both city and highway driv-
ing are simulated and the results combined to compare with the standard.
Further information can be found at
INTRODUCTION
United States account for slightly less than 20 percent of
annual U.S. emissions of CO2; since the United States ac-
counts for about 25 percent of annual global emissions, these
vehicles are responsible for about 5 percent of worldwide
annual emissions. Thus, improving the fuel economy of the
passenger-car and light-duty-truck fleet would have a non-
trivial impact on global CO2 emissions.3
These concerns have been heightened by a series of re-
ports from the Intergovernmental Panel on Climate Change
(IPCC), a collection of the world's leading climate scien-
tists. The most recent report suggests that (1) atmospheric
concentrations of CO2 and other greenhouse gases are con-
tinuing to increase, (2) the average surface temperature
of Earth has increased significantly in the last 100 years, (3)
a causal relationship probably exists between 1 and 2, and
(4) continued increases in CO2 emissions could lead to glo-
bal warming, which would have serious adverse conse-
quences for both plant and animal life on Earth. While also
emphasizing the great uncertainties pertaining to climate
change, a recent report by the NRC confirmed that "the con-
clusion of the IPCC that the global warming that has oc-
curred in the last 50 years is likely the result of increases in
greenhouse gases accurately reflects the current thinking of
the scientific community" (NRC, 2001~.
Concerns about climate change are not normally reflected
in the market for new vehicles. In this market, the costs that
consumers can be expected to take into account are those
they will bear directly, including the purchase price of the
car and its likely repair costs and resale value over time,
expected fuel costs, insurance, taxes, registration, and other
costs. Few consumers take into account the environmental
costs that the use of their vehicles may occasion. In the par-
lance of economics, this is a classic negative externality, and
it is to be expected that too little fuel economy would be
purchased in this case. For that reason, it is appropriate for
the government to consider measures that would better align
the signals that consumers face with the true costs to society
of their use of vehicles. These measures could be of many
types from simple taxes on gasoline designed to internal-
ize the externality to regulatory requirements designed to
improve the fuel economy of the vehicles people buy.
There is another reason for concern about automotive fuel
economy. In the wake of the oil supply interruptions of the
middle and late 1970s, petroleum imports fell as a share of
3At first blush, it might also appear to be the case that fuel economy is
important because of the more common air pollutants for which vehicles
are responsible for instance, the precursors to smog (hydrocarbons and
oxides of nitrogen), particulate matter, and carbon monoxide. However,
automakers are required to meet emissions standards for these pollutants
that are denominated in terms of grams per mile traveled. Thus, it should
make no difference for emissions of these pollutants whether a car has
burned 1 gallon to go 20 miles or 10 gallons the emissions must be the
same. The committee notes, however, that a number of the vehicles achiev-
ing high fuel economy also have emission rates that are well below the
statutory limits.
9
petroleum use. During the 1990s, however, this trend began
to reverse. By 2000, imports hit an all-time high of 56 per-
cent of petroleum use and continue to rise. If the petroleum
exporters reinvested in the United States all the dollars paid
to them, it would not ipso facto be a bad thing. In fact, sig-
nificant reinvestment has occurred. But such reinvestment
may not always be the case, and excessively high levels of
imports can put downward pressure on the strength of the
dollar (which would drive up the cost of goods that Ameri-
cans import) and, possibly, increase U.S. vulnerability to
macroeconomic instability that can cost the economy con-
siderable real output.
Some experts argue that these vulnerabilities are another
form of externality that is, they are an effect that car buy-
ers do not factor into their decisions but that can represent a
true and significant cost to society (see Greene and Tish-
chishyna, 2000~. These experts believe that this justifies
government intervention of some sort. Others take a more
skeptical view, arguing instead that the macroeconomic dif-
ficulties of the 1970s (high unemployment coupled with very
high inflation and interest rates) were due more to unenlight-
ened monetary policy than to the inherent difficulties associ-
ated with high oil prices (Bohi, 1989~. Either way, no one
can deny that reducing our nation's oil import bill would
have favorable effects on the terms of trade, and that this is a
valid consideration in deliberations about fuel economy.
This committee believes it is critically important to be
clear about the reasons for considering improved fuel
economy. Moreover, and to the greatest extent possible, it is
useful to try to think about how much it is worth to society in
dollar terms to reduce emissions of greenhouse gases (by
1 ton, say) and reduce dependence on imported oil (by
1 barrel, say). If it is possible to assign dollar values to these
favorable effects (no mean feat, the committee acknowl-
edges), it becomes possible to make at least crude compari-
sons between the beneficial effects of measures to improve
fuel economy on the one hand, and the costs (both out-of-
pocket and more subtle) on the other.
Having explained why fuel economy matters, why did
Congress request a study and why did the NRC create a new
committee to examine the issue of CAFE standards? After
all, not 10 years have passed since the issuance of the 1992
NRC report, and the current committee believes strongly that
the 1992 NRC report is still an excellent place to begin for
anyone interested in the fuel economy issue.
In fact, a number of things have changed since the 1992
NRC report that make a reexamination both timely and valu-
able. Although each of these changes is examined in some-
what more detail in subsequent chapters, it is worth touching
on the most important ones here.
First, there have been significant changes in the automo-
bile industry in the last decade. The committee believes it is
now virtually meaningless to speak of a U.S. auto company
or a Japanese auto company. Today there is a handful of
very large companies that both manufacture and sell vehicles
10
EFFECTIVENESS AND IMPACT OF CORPORATE AVERAGE FUEL ECONOMY (CAFE) STANDARDS
around the world. For instance, the General Motors Corpo-
ration (GM) has acquired all of Saab and Hummer, half of
Isuzu, and a minority share of Suzuki and Fuji Heavy Indus-
tries (the makers of Subaru). GM has acquired 20 percent of
Fiat Auto S.p.A. (which includes Alfa Romeo), with a full
takeover possible, and GM is also in negotiations to acquire
Daewoo Motors. For its part, the Ford Motor Company
(Ford) has acquired all of Volvo, Jaguar, Aston Martin, and
Land Rover, along with a 35 percent stake in Mazda.
DaimlerChrysler (itself the product of the largest merger in
the history of the auto industry and one of the largest corpo-
rate mergers of any type ever) now owns 30 percent of
Mitsubishi and 10 percent of Hyundai (Kia). Volkswagen
owns all of Rolls-Royce, Bugatti, and Skoda, while Renault
has a controlling interest in Nissan as well as Nissan Diesel,
and Renault/Nissan has taken over Samsung. Ford and GM
have equity stakes in Russian and eastern European assem-
blers as well. In other words, the auto industry is much, much
more concentrated and more global in 2001 than it was in
1991, when the previous committee began its work.
Perhaps equally important, Toyota, Honda, and Nissan-
"foreign car makers" whose imports to the United States
were a great source of concern a decade ago all have estab-
lished significant manufacturing facilities in the United
States. This has blurred the distinction between domestic and
imported cars, a distinction that was important at the time
the original CAFE standards were put in place, and is rel-
evant to current deliberations about the future of the CAFE
program. Further blurring any distinctions that used to make
sense about imports vs. domestic cars is the North American
Free Trade Agreement (NAFTA).
Related to these changes in market structure has been a
rather significant change in the financial well-being of the
U.S. auto industry and the employment prospects of those
who work in it. The United States has always been the larg-
est and most consistently profitable vehicle market in the
world, attracting most vehicle producers to sell vehicles to
it. In recent years, the U.S. market has been strengthened by,
among other things, the scale economies resulting from the
mergers discussed above; the remarkable performance of the
U.S. economy during the l990s; and the exploding popular-
ity of minivans, pickup trucks, and sport utility vehicles
(SUVs). Automakers headquartered in the United States re-
gained their financial health and, with the exception of the
Chrysler component of DaimlerChrysler, the balance sheets
of the carmakers were in good shape.4 During the l990s,
Ford, GM, and Chrysler bought back billions of dollars of
their own shares with the excess cash they generated and
invested heavily in other businesses, ranging from financial
services to car repair and salvage. At the same time, employ-
ment in the U.S. auto industry reached a new peak as foreign
and domestic manufacturers expanded capacity at existing
4This will not be the case if the U.S. economy enters a protracted down-
turn and/or if profits on light-duty trucks narrow significantly.
plants, and foreign manufacturers invested in new auto as-
sembly and parts plants.
Another significant change over the last decade has to do
with the trend in automobile fuel economy. At the time of
the 1992 report, the average fuel economy of the entire U.S.
light-vehicle fleet had just begun to decrease after nearly 15
years of improvements totaling more than 66 percent (see
Chapter 2~. By 2000, however, overall light-vehicle fuel
economy had not only failed to reverse the trend seen be-
tween 1988 and 1991 but had fallen still farther it is now
about 7 percent lower than at its peak in 1987-1988 (EPA,
2000~.
This change, in turn, is almost a direct consequence of
another dramatic change in the automobile market, one fa-
miliar to each and every driver and passenger the shift
in the mix of vehicles on the road away from traditional
passenger cars and toward SUVs, pickup trucks, and vans
(which, collectively, are referred to as light-duty trucks). As
recently as 1975 (the year the CAFE program was legislated
into existence), traditional passenger cars accounted for fully
80 percent of the light vehicle market. By 2000, the light-
duty truck component of the light vehicle market had grown
to 46 percent, and its share is expected to exceed that of
passenger cars for the first time in 2001. Because new light-
duty trucks sold are required to meet a fleet average fuel
economy standard of 20.7 mpg compared with the 27.5 mpg
standard that currently applies to the passenger car fleet, this
shift has been pulling down the overall fuel economy of the
light vehicle fleet.
Moreover, a new type of vehicle has appeared on the
market and is growing in popularity. This is the crossover
vehicle (a light truck), which has the appearance of an SUV
and many of its characteristics but which is built on a pas-
senger car platform rather than a light truck platform (ex-
amples are the Lexus RX-300 and the Toyota RAVEN. It is
too soon to predict whether these vehicles will penetrate
deeply into the light-duty vehicle market and what their
effect would be if they do (for instance, will they replace
station wagons and large cars, worsening overall fuel
economy, or will they become smaller and more fuel-
efficient substitutes for larger SUVs?~. It is a change that
bears close watching.
Another development since 1992 has to do with new tech-
nologies for vehicular propulsion. For instance, both Toyota
(the Prius) and Honda (the Insight) have already introduced
into the vehicle market the first hybrid-electric passenger
cars vehicles that combine a traditional internal combus-
tion engine powered by gasoline with an electric motor that
assists the engine during acceleration. These cars recapture
some of the energy lost during braking and can shut off their
engines instead of idling, with almost instant restart, both of
which are important energy-saving features. The Insight,
which seats two passengers and weighs about 2,000 lb, has
an EPA rating of 61 mpg in city driving and 70 mpg in high-
way driving. The Prius gets 52 mpg in the city and 45 mpg
INTRODUCTION
on the highway. Ford has announced it will begin selling a
hybrid SUV, the Escape, in 2004 and has pledged to boost
the fuel economy of its SUVs by 25 percent by 2004. GM
and DaimlerChrysler have pledged to outdo any improve-
ments Ford makes on SUV fuel economy.
At the same time, there is great excitement and a steady
stream of progress reports about the fuel cell. Fuel cells hold
promise for alleviating the problems associated with fossil
fuel combustion in both stationary (e.g., electric power plant)
and mobile (e.g., vehicle power plant) sources. This is be-
cause they produce power without the combustion processes
that generate conventional air pollutants such as particulate
matter, CO2, and other undesirable by-products (see Chapter
4, Attachment 4A, for a discussion of full fuel-cycle im-
pacts). Moreover, the fuel cell and other alternative tech-
nologies have been given a boost by the government/indus-
try cooperative venture Partnership for a New Generation of
Vehicles (PNGV), aimed at the development of a midsize
automobile that is safe, affordable, and capable of getting
dramatically better fuel economy (up to 80 mpg) (NRC,
2000~.
Technologies have changed in other respects as well since
the earlier 1992 NRC report. During the 1990s, automakers
improved the performance characteristics of their light-duty
vehicles considerably. For instance, the horsepower-to-
weight ratio for passenger cars and light trucks is up about
50 percent since 1981. Similarly, the time it takes for a ve-
hicle to accelerate from 0 to 60 miles per hour has fallen 26
percent since 1981 and 2 percent in the last year alone.
Another way of saying this is that automakers have indeed
made considerable technological advances in the cars and
light trucks they made and sold during the last decade. But
these advances have almost all been aimed at making cars
faster and more powerful, at selling more and heavier light
trucks, and at equipping vehicles with other extras (heated
seats, power windows, and cruise control, for example)
rather than at making them more fuel efficient. This is per-
fectly understandable, incidentally, given the apparent lack
of interest in fuel economy on the part of the car-buying
public at mid-2001 gasoline prices.
Since the 1992 NRC report, moreover, EPA has issued
new Tier 2 emissions standards under the 1990 amendments
to the Clean Air Act. These standards affect not only emis-
sions but also certain technologies such as the advanced
diesel engine that could be used to improve overall fuel
economy.
A final factor suggests a fresh look at fuel economy and
the way in which it has been and could be affected by the
CAFE program. Specifically, over the last 20 years and
perhaps particularly over the last decade there has been a
steady increase in the attention that car buyers pay to safety
concerns. This is one of the causes of the steady, long-term
decline in the fatality rate per vehicle mile traveled. What-
ever the reason, safety "sells" in a way that was almost in-
conceivable two decades ago. This is germane to the
11
committee's work because the possible effects on safety of
the original CAFE program, as well as the effects on safety
that a renewed effort to improve fuel economy would have,
have been perhaps the most controversial aspect of the pro-
gram. Because we now have another decade's worth of re-
search on the determinants of vehicle safety, a fresh look at
automotive fuel economy is warranted.
SCOPE AND CONDUCT OF THE STUDY
In legislation for fiscal year 2001, Congress requested that
the National Academy of Sciences, in consultation with
DOT, conduct a study to evaluate the effectiveness and im-
pacts of CAFE standards.5 In particular, it asked that the
study examine the following, among other factors:
The statutory criteria (economic practicability, tech-
nological feasibility, need for the United States to con-
serve energy, the classification definitions used to dis-
tinguish passenger cars from light trucks, and the effect
of other regulations);
2. The impact of CAFE standards on motor vehicle
safety;
3. Disparate impacts on the U.S. automotive sector;
4. The effect on U.S. employment in the automotive
sector;
5. The effect on the automotive consumer; and
6. The effect of requiring separate CAFE calculations for
domestic and nondomestic fleets.
In consultation with DOT, a statement of work for the
committee was developed (see Appendix D). The com-
mittee's work was to emphasize recent experience with
CAFE standards, the impact of possible changes, and the
stringency and/or structure of the CAFE program in future
years.
The committee conducted numerous meetings and made
several site visits during the short time frame of this study. It
held open sessions during several of its meetings to receive
presentations from a wide variety of individual experts and
representatives of the private sector, nongovernmental orga-
nizations, environmental groups, and government and to col-
lect information and data on the various issues related to
CAFE standards. Also, many reports, statements, and analy-
ses were submitted to the committee for its review. The com-
mittee also used consultants under its direction to facilitate
its work under the tight time constraints of the study. For
example, Energy and Environmental Analysis, Inc. (EEA)
conducted analyses of potential improvements in fuel
economy and related costs for a number of different vehicle
classes. Sierra Research provided insight to the committee
5Conference Report on H.R. 4475, Department of Transportation and
Related Agencies Appropriations Act, 2001. Report 106-940, as published
in the Congressional Record, October 5, 2000, pp. H8892-H9004.
12
EFFECTIVENESS AND IMPACT OF CORPORATE AVERAGE FUEL ECONOMY (CAFE) STANDARDS
on fuel economy improvements and costs, based on work it
had done for the automotive companies. In the end, how-
ever, the committee conducted its own analyses, informed
by the work of the consultants, the technical literature, pre-
sentations at its meetings, material submitted to it, and the
expertise and judgment of the committee members, to arrive
at its own range of estimates for fuel economy improvements
and associated costs.
In conducting its study, the committee first assessed the
impact of the current CAFE system on reductions in fuel
consumption, on greenhouse gases, on safety, and on im-
pacts on the industry (see Chapter 2~. To assess what the
impacts of changed fuel economy standards might be, it ex-
amined opportunities for fuel efficiency improvements for
vehicles with the use of existing or emerging technologies,
estimated the costs of such improvements, and examined the
lead times that would be required to introduce the vehicle
changes (see Chapter 3~. Based on these examinations, the
implications for changed CAFE standards are presented in
Chapter 4. The committee also examined the stringency and
structure of the CAFE system and assessed possible modifi-
cations of the system, as well as alternative approaches to
achieving greater fuel economy for vehicles, which resulted
in suggestions for improved policy instruments (see Chapter
5~. Chapter 6 contains the committee's findings and recom-
mendations. Appendix E is a list of acronyms and abbrevia-
tions.
Following the release of the prepublication copy of the
report in July 2001, the committee reexamined its technical
and economic analysis, as discussed in Appendix F. Minor
changes have been made to some of the material in Chapters
3 and 4 as a result of this reexamination, but the findings and
conclusions are substantively unchanged.
REFERENCES
Bohi, D. 1989. Energy Price Shocks and Macroeconomic Performance.
Washington, D.C.: Resources for the Future.
Environmental Protection Agency (EPA). 2000. Light-Duty Automotive
Technology and Fuel Economy Trends 1975 Through 2000. EPA420-
R00-008 (December). Office of Air and Radiation. Washington, D.C.:
Environmental Protection Agency.
Greene, D., and N.I. Tishchishyna.2000. Costs of Oil Dependence: A 2000
Update (May). ORNL/TM-2000/152. Oak Ridge, Tenn.: Oak Ridge
National Laboratory.
Intergovernmental Panel on Climate Change (IPCC).2001. Climate Change
2001: The Scientific Basis. Cambridge, U.K.: Cambridge University
Press.
National Research Council (NRC). 1992. Automotive Fuel Economy: How
Far Should We Go? Washington, D.C.: National Academy Press.
NRC. 2000. Review of the Research Program of the Partnership for a New
Generation of Vehicles, Sixth Report. Washington, D.C.: National
Academy Press.
NRC.2001. Climate Change Science: An Analysis of Some Key Questions.
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