Fuel Economy in the New Economy
By Matthew Best
I write this article during some tense times. It's two weeks before the election; the appropriations process in Congress is progressing slowly, even though the target adjournment date came and went fairly fast; and there is increased tension in the Middle East. To top it all off, energy and gas prices are at record highs.
Of course, by the time this is published, all that could change. The election will be over. We will know who will follow Mr. Clinton. We will also find out which party will control Congress. Speaking of Congress, the chambers will have (hopefully) adjourned with all the appropriations bills passed and signed into law. It's anyone's guess as to what will happen in the Middle East, and the same is true for energy and gas prices.
With so much going on, I'd like to examine one issue that will be affected by all the above: corporate average fuel economy (CAFE) standards. Depending on who wins the White House and Congress, and what plays out in the Middle East, different scenarios could occur in regard to CAFE standards.
History
Before we go into predictions, let's examine what has been going on with CAFE in the distant past and more recently.
Congress instituted CAFE standards in 1975, during the height of a major fuel crisis. Under the Clean Air Act, the standards dictate the average fuel efficiency auto manufacturers' fleets must achieve to avoid fines. The current standards require 27.5 miles per gallon (mpg) for cars and 20.7 mpg for light trucks, minivans and sport utility vehicles (SUVs). The current standards have been in effect for roughly a decade.
CAFE standards began to become an important issue again during debate on the Department of Transportation (DOT) appropriations spending bill for fiscal year 1996. Language supported by the auto industry was introduced that froze the standards. Each subsequent year, a similar rider has successfully been added to the DOT spending measure.
The Fight in Congress
This year was a bit different though. Supporters of a CAFE increase had some success. In fact, early on in the appropriations process it appeared as though there would be a mandatory CAFE increase, but sufficient protest arose to stop it. A compromise was worked out that both sides claimed as a victory, at least initially. Senators Slade Gorton, R-Wash.; Dianne Feinstein, D-Calif.; Richard Bryan, D-Nev.; and Jack Reed, D-R.I., included language in the DOT conference report that would allow the freeze on any CAFE increase to continue for a year, but would direct the National Academy of Sciences (NAS) to study whether increased CAFE standards would lead to improved fuel efficiency without compromising safety. The study would have also taken into account any potential negative impacts higher standards might have on the U.S. auto industry. Under the Gorton amendment, DOT would have to consider the NAS study before proposing new CAFE standards, and even then, Congress would have to agree to any increase.
Those in support of a CAFE were happy because they would finally have a chance to at least have a study done on CAFE. On the other side of the fence, those opposed to a CAFE increase would have successfully fended off an increase another year, and would require any study to look at possible negative impacts of a CAFE increase.
So, everybody's happy, right? Wrong. As it turned out there were enough objections on the House side for any consideration of a study or an actual increase in CAFE to kill the amendment. The final language of the Conference Report did not include Gorton's amendment, but did include the same freeze language as had appeared since 1996. The DOT appropriations bill overwhelmingly passed both chambers and has been sent to the president for his signature. As of the writing of this article, the president has yet to sign the bill, but has not threatened to veto the bill either.
Technology
Lately, CAFE has also been the focus of some big-name auto manufacturers such as Ford and GM, as well as others. In July Ford announced plans to make its entire line of SUVs 25 percent more fuel efficient by 2005, decreasing energy burned and therefore, emissions. Not to be outdone, GM unveiled plans in August to begin production of gas-electric hybrid pickup trucks by 2004 and to begin delivery of hybrid powertrains for transit buses this year. Rounding out the “Big Three,” DaimlerChrysler released a statement following the Ford announcement that its light duty truck fuel economy average of 21.2 mpg is the best among the manufacturers and that the company is a technology leader in the auto industry and supports fuel economy improvements across the board in light trucks, not just in the sport utility segment.
With all of the one-upmanship that the auto manufacturers are pursuing in an effort to portray themselves as more environmentally friendly, it leaves one scratching one's head as to why these same manufacturers object to a CAFE increase or even the study of CAFE. The answer is simple; it's a matter of approach. Manufacturers would rather increase CAFE on their own time frame, as opposed to being forced to increase it on a government time frame that would include further regulations.
According to a recent General Accounting Office (GAO) report, mandating a CAFE increase could have mixed results. According to the report, automobile manufacturers could make more fuel-efficient cars and light trucks without compromising safety, given enough lead time. Safer and cleaner vehicles would not necessarily have to be smaller vehicles either.
The GAO report said automakers have had little incentive to improve fuel economy because gas prices had remained low during the 1990s and consumers, with more money to spend because of an economic boom, have consistently bought larger, more powerful vehicles that emphasize performance, not fuel economy.
The report also said it is possible technology-driven fuel-efficiency gains could occur without increased CAFE standards. Furthermore, some analysts contend increasing CAFE standards is not as cost effective as other policy measures, such as increased gas taxes, because CAFE standards might actually encourage motorists to drive even more given fuel savings, canceling out any fuel-consumption and emission benefits.
Predictions
So what's next? We have to wait and see how the election turns out, if war breaks out in the Middle East, how that will affect oil prices, and eventually how the consumer's pocket will be affected. From the way I see it, it adds up to this: There will be an increase in CAFE. Whether the increase is industry-driven or government-mandated will depend on who is in the White House and who controls Congress. If the Republicans control both, the increase will be industry-driven. The conflict in the Middle East will drive up oil prices, just like it did in 1990 during the Gulf War. This of course gets translated into higher gas prices at the pump. People will be concerned about saving money due to the high gas prices, and industry will respond to consumers' demands for more fuel-efficient vehicles. The Republicans are not interested in increasing the regulatory burden on businesses, and will allow supply and demand to work its wonders. If the Democrats control both branches, look for a government-mandated increase in CAFE. The same scenario applies as above, but the Democrats will push for increased government involvement in an effort to solve the problem sooner. They would push for the increase, arguing that the market would respond too slowly to the oil crisis. If the two branches are divided, Republicans controlling either the White House or Congress, and the Democrats controlling the other branch of government, we will probably see language similar to the Gorton amendment attached to next year's appropriations bill.
Of course, all of that is speculation. We will have to wait and see how the election goes and what happens in the Middle East.
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AutoInc. Magazine ® Vol.XLVIII, December 2000 E-mail: asainfo@asashop.org, Web Site: http://www.asashop.org
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