CAFE Legislative Proposals — July 2007

Three legislative proposals for increasing automakers' corporate average fuel economy (CAFE) requirements are in play on Capitol Hill -- one passed by the Senate and two introduced in the House. All three proposals include elements that accommodate a shift to an attribute-based CAFE system, in which manufacturers' fleets have different fuel economy requirements based on the collection of vehicles they sell. Differences in the structures of the various proposals, however, greatly affect the oil savings reductions they offer. The oil savings potential of each proposal relative to a business-as-usual baseline is shown in Table 1, while projected U.S. oil consumption associated with each proposal is shown in Figure 1.

Table 1. Annual Oil Savings Potential of Proposed CAFE Legislation (million barrels per day)

Legislative Summaries

• In June 2007, the Senate passed H.R. 6, the Renewable Fuels, Consumer Protection, and Energy Efficiency Act of 2007. This bill calls for a target fuel economy standard of 35 miles per gallon (mpg) by 2020, with subsequent "maximum feasible" mpg targets set by the U.S. Department of Transportation for years 2021 through 2030. However, in this bill, the setting of actual standards is left to the discretion of the Department of Transportation for all years, and thus the actual oil savings achievable with this policy are uncertain.
  
  The Senate Energy Bill does not extend but leaves in place the dual fuel loophole (which has given automakers fuel economy credits for producing flex-fuel vehicles (FFVs) despite the vehicles' near-ubiquitous use of gasoline). The bill, however, does mandate aggressive production of "alternative fuel automobiles," calling for 50 percent of new automobiles produced in 2015 to be alternative fuel automobiles. By definition, this category of vehicle includes fuel cell vehicles, hybrids, plug-in hybrids, electric vehicles, dedicated alternative fuel vehicles, and FFVs. Since FFVs are by far the lowest-cost of these technology options to automakers, it is reasonable to expect that many automakers will pursue meeting the requirements with FFVs. However, there is no guarantee that FFVs will shift their fuel use away from fossil fuels. The bill also permits the Department of Transportation to establish a credit-trading program among manufacturers in which automakers who fail to meet the required standards can purchase credits from other automakers who exceed the required level.
  
  As shown in Table 1, the fuel economy provision of the Senate Energy Bill would save up to 1.1 Mbd in 2020 and up to 2.5 Mbd in 2030, assuming no further increases in fuel economy were implemented after 2020. Additional savings (to a total of 3.8 Mbd) could be achieved in 2030 if fuel economy were increased at a rate of 4 percent per year between 2020 and 2030.
  
  
• On the House side, Reps. Markey and Platts have introduced H.R. 1506 that calls for a combined car and truck fuel economy standard of 27.5 mpg by 2012 and 35 mpg by 2018. The bill sets a target of 4% annual increases in subsequent years, but once again the DOT has the discretion to set a lower standard. This bill also closes the dual fuel loophole described above. As shown in Table 1, resulting savings from this bill would be 1.3-1.4 Mbd in 2020 and 2.6-4.3 Mbd in 2030, depending on fuel economy increases after 2018.
  
  
• Representatives Hill and Terry have introduced a competing bill, H.R. 2927 -- supported by the auto industry -- that is weaker in terms of both fuel economy targets and the time frame of enactment. It calls for a target of 32 mpg by 2022, resulting in significantly lower oil savings than the other CAFE proposals. Assuming a linear ramp-up to the fuel economy target, this bill would achieve 0.4 Mbd of savings in 2020, and only 1.7 Mbd in 2030.
  
  Other negative aspects of the Hill-Terry bill include extension of the dual fuel loophole through 2020, and language that challenges states' abilities to limit vehicle-based global warming emissions.