US senators introduce bill aimed at lifting fuel economy rates

US senators introduce bill aimed at lifting fuel economy rates

Washington (Platts)--19Jul2006

A bipartisan group of US senators Wednesday introduced legislation to
reduce US gasoline consumption by over 1 million b/d in 10 years by boosting
fuel efficiency standards.

The senators, who include the chairman and ranking Democrat on the Senate
Foreign Relations Committee, said such policy is necessary to bolster national
security by lowering US dependence on foreign oil

The bill comes on the heels of a report released by the US Environmental
Protection Agency Monday that found model year 2006 cars and light trucks had
an average fuel economy rate of 21 miles/gal, flat with the fuel-economy level
for model year 2005 passenger vehicles. Since 1992, average real-world fuel
economy has been relatively constant, ranging from 20.6 to 21.4 mpg. The 21
mpg value for model year 2006 was 5% lower than the fleet-average fuel economy
peak value of 22.1 mpg achieved in 1987-1988, EPA said.

The senators' "Fuel Economy Reform Act of 2006" attempts to break the
logjam on establishing greater vehicle fuel economy by establishing a target,
rather than a mandate, of a 4% annualized increase in Corporate Average Fuel
Economy standards--a rate that the National Academy of Sciences has determined
is possible--unless the experts at the National Highway Traffic Safety
Administration justify a deviation in that rate by proving that the increase
is technologically unachievable, cannot maintain overall fleet safety, or is
not cost-effective when comparing with the economic and geopolitical value of
a gallon of gasoline saved.

If the 4%/year target is for 10 years. Once the continuous provision
improvements go into effect, the sponsors said in a statement the bill would
save 1.3 million b/d and about 20 billion gal/year of gasoline.

At an average price of $2.50/gal (well below current prices near $3/gal),
consumers would save $50 billion at the pump in 2018 alone. By 2028, Americans
will have saved a total of 549 billion gal of gasoline and cut global warming
pollution by 6,094 million mt of carbon dioxide equivalent gases, they said.

Unlike current CAFE standard, in which automakers are required to meet
broad standards over their whole car fleets, the bill calls for establishment
of different standards for different types of cars.

The senators said the change should help giant US automakers Ford and
General Motors, which both produce full lines of small and large vehicles.
Companies that just produce small cars have an advantage under the current
system, they said.

The bill also would give NHTSA authority to allow companies to earn
credit for improving fuel efficiency beyond CAFE standards in one type of car,
and using those credits to meet goals for other vehicle models.

Companies would be able to trade or sell excess credits, improving
overall fuel standards in the most efficient way. Because technological
advances may affect manufacturers over time, the bill instructs the Energy
Department, Environmental Protection Agency, and National Academy of Sciences,
to study ways to reform the regulatory structure of this approach in 2016.

The legislation also provides tax incentives for companies to retool
parts and assembly plants to produce more fuel efficient cars. It would also
lift the current 60,000-per-manufacturer cap on buyer tax credits to allow
more Americans to buy ultra-efficient vehicles, like hybrid gasoline-electric
cars.

The bill is sponsored by Foreign Relations Committee Chairman Richard
Lugar, Republican-Indiana, ranking Democrat Joseph Biden of Delaware,
Illinois' two senators, Dick Durbin and Barack Obama, both Democrats, Senate
Energy Committee ranking Democrat Jeff Bingaman of New Mexico, Tom Harkin, an
Iowa Democrat, Norm Coleman, a Minnesota Republican and Gordon Smith, an
Oregon Republican.

--Cathy Landry, cathy_landry@platts.com

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