Hill talks yield compromise on fuel economy with real mandate for increased standards

Posted:  12/1/2007

Check back with Public Citizen next week for analysis and commentary when the actual legislative language is released!

Hill negotiators have crafted a compromise on the energy bill to improve upon a weak bill passed this summer by the Senate and ensure a mandatory increase in fuel economy standards.

The deal comes after intense negotiations with Chairman Dingell nearly broke down over Dingell’s push to eliminate or reduce the authority of the Environmental Protection Agency and the states to limit vehicle greenhouse gas emissions.

About the Deal

According to talking points circulating on the Hill, the CAFE deal has taken the following form:

  • Demands annual increases in fuel economy standards to reach 35 mpg for cars and trucks combined by 2020.  Although the Senate touted the bill it passed this summer as demanding an increase to 35 mpg by 2020, the Senate’s bill actually set only a toothless target, with a Hummer-sized loophole: the administration would be given the power to set lower targets, or no targets at all, provided only that it justify doing so by producing a cost-benefit analysis. Cost-benefit analysis is a rigged game that pits wildly inflated cost estimates against significantly understated benefits numbers, with the result that the administration would have faced no real mandate of any sort under this summer’s Senate bill.  The new deal eliminates this cost-benefit “off-ramp,” so that the 35 mpg goal will now be a true mandate and not an empty promise.
  • Calls for continued increases at the maximum feasible rate from 2021-2030.  The goal of 35 mpg by 2020 is not the end of the story; NHTSA must continue to consider raising fuel economy, if it is feasible to do so, at least until 2030.  It remains to be seen if the final legislative language will affect in any way the demanding interpretation of the law recently announced by the 9th Circuit.
  • Bridges the regulatory gaps for trucks.  The talking points about the deal tout provisions for fuel economy standards for medium- and heavy-duty trucks and for work trucks.
  • Provides more information for consumers.  Window stickers will inform consumers about the fuel economy performance and greenhouse gas emissions of vehicles.  Additional provisions will improve consumer information about tires.  Underinflated tires decrease vehicle fuel economy performance and are also significant safety hazards.
  • Preserves EPA and state authority under the Clean Air Act to reduce vehicle emissions of greenhouse gases.  Although a savings clause clarifying that Clean Air Act authority is not in any way altered was removed from the CAFE title of the energy bill, a savings clause for the entire bill (covering the CAFE title as well as other titles of the bill) was left in.
  • Eliminates the Porsche loophole.  The compromise eliminates the low volume manufacturer exception, which would have allowed any company that sells less than approximately 64,000 cars and trucks a year in the United States — in other words, Porsche —   to be exempt from the 35 mpg fuel economy mandate.
  • Grants some concessions to Detroit and the UAW.  Chairman Dingell emerges from the compromise with some concessions:
    • Protects U.S. auto workers.  According to the talking points, the deal “inserts domestic car production rules that the United Auto Workers believes will keep workers employed in U.S. manufacturing facilities.”
    • Extends the dual fuel loophole.  The compromise extends a loophole that allows automakers to count their flex fuel vehicles (designed to run on either gasoline or E-85, a high ethanol blend of 85% ethanol and 15% gasoline) as though they are run only 50% of the time on gasoline.  The FFV credit will now extend not just to E-85 capable vehicles but also to vehicles capable of operating on B20 biodiesel.  The FFV credit will allow up to 1.2 mpg reduction in CAFE targets for 2011 to 2014, tapering down the credit by 0.2 mpg per year until 2020, when it would be zeroed out.  NHTSA will have to enforce this loophole more carefully than it has in the past:  in October 2006, Public Citizen exposed the failure of 2003-2005 Ford Taurus and Mercury Sable FFVs to actually work when E-85 is pumped into them, with the result that Ford has avoided as much as $135 million in fines, but NHTSA has thus far failed to even acknowledge Public Citizen’s findings.
    • Keeps the Cheney sliding scale for fuel economy.  The sliding scale approach that NHTSA implemented for light trucks will now become part of the law.  Public Citizen recently exposed the backroom meetings and the heavy hand of Vice President Dick Cheney in the creation of the sliding scale approach.  Unlike the corporate average approach to fuel economy, which gives automakers enormous flexibility while also incentivizing adjustments in the fleet mix to eliminate unsafe gas guzzlers, the Cheney scale allows automakers to continue business as usual, rewarding the large gas-guzzling trucks and SUVs with lower fuel economy targets.
    • Creates new potential for car/truck fleet games.  The compromise deal calls for the annual fuel economy standards to be set using two separate sliding scales for cars and light trucks and also allows credit trading between the car fleet and the light truck fleet whenever one fleet exceeds its fuel economy target while the other fleet falls short.
    • Extends carry-forward credits and retains excessive carry-back credits.  “Carry-forward” credits allow automakers who exceed their fuel economy targets in one year to apply the excess credits to future years; current law allows carry-forward credits for up to three years, but the compromise extends carry-forward credits to five years.  “Carry-back” credits allow automakers who have failed in a given year to meet their targets to avoid fines by promising that they will exceed their targets in the future, then carry back those future excesses to cover up the deficiency in the past.  The compromise allows manufacturers to continue using carry-back credits for up to three years, as in the current law, and does not shut down this loophole.

Other details are emerging from other sources.  For example, the Detroit News is reporting that “any fines paid by companies that don't meet fuel economy standards will go into a fund to be used by domestic automakers for retooling U.S. plants -- a measure that could represent more than $100 million annually.”

What It Means for Consumers

The full scope of the deal — and the full measure of benefit to consumers — won’t be clear until actual legislative language is revealed.  Some of the details of the compromise, at least according to the Hill talking points, do appear promising.

A Real Increase in Fuel Economy

The single greatest improvement would be the elimination of the cost-benefit “off-ramp” that the Senate’s original bill would have added into the law.  Although much of the news coverage since the Senate passed its bill this summer has misleadingly reported that it would have raised fuel economy for the combined car and truck fleets to 35 mpg by 2020, the truth was that the cost-benefit “off-ramp” meant than no such increase was ever guaranteed. 

Public Citizen stood alone in telling the truth to the American public about this outrageous loophole, and thousands of activists have taken that message back to Congress to insist that these cost-benefit games must be stricken from the legislation.  The announced compromise will be the first time that Congress has done what it has been claiming it did since this summer:  set a firm mandate that fuel economy standards for cars and trucks combined must reach 35 mpg by 2020.

Saving Consumers at the Pump

As oil prices climb to $100 a barrel and gasoline prices soar to $3.00 per gallon, consumers are being bled dry.  Although the 35 mpg target is less than the automakers can and should be expected to deliver to the American people —already, the current best-in-class fuel economy performers for the combined car and light truck fleets are achieving an average 29 mpg, and every Democratic candidate in the presidential race with an energy plan has recognized the weakness of the 35 mpg target and is proposing much higher goals — the estimates are that consumers will nonetheless enjoy real savings, with some estimates projecting savings of over $20 billion by 2020.

The Devil Is in the Details

Because of the continued insistence on adopting the Cheney sliding scale for fuel economy, the other consequences of the compromise will remain murky until the final legislative language is unveiled.  For example, Public Citizen was originally concerned that mandating the Cheney scale with no provision in place to prevent backsliding of fuel economy performance and no firm mandate of any specific fuel economy target by any date certain would result in perverse incentives to produce larger gas-guzzling vehicles that would increase safety hazards on the nation’s roads.  Until the final legislative language is unveiled, it is not yet clear to what extent these concerns have been addressed.

Although the full effects of the different pieces of the compromise legislation won’t be clear until the bill is unveiled, the removal of the cost-benefit off-ramp is a significant improvement that consumers should cheer.  After 20 years of stagnation, fuel economy is about to rise.