Excerpt from: U.S. House. February 9, 2005. Improving the nation’s energy security: can cars and trucks be made more fuel efficient? Committee on science, House of Representatives, Serial No. 109-3. 140 pages.

DAVID L. GREENE, OAK RIDGE NATIONAL LABORATORY, CENTER FOR TRANSPORTATION ANALYSIS, NATIONAL TRANSPORTATION RESEARCH CENTER

Following the oil crises of the 1970s, nearly every developed economy in the world adopted fuel economy standards in some form (IEA, 1984; 1991). All of these standards were effective in raising fuel economy levels,… curbing the growth of world oil demand in the 1980s and, in combination with the market response to higher oil prices led to the OPEC cartel’s loss of control over world oil markets in 1986. We do know how to reduce dependence on petroleum and we have done so effectively in the past. The combination of higher oil prices and policies aimed at increasing energy efficiency led to almost 15 years of low oil prices. Unfortunately, after these efforts were successful and oil prices crashed in 1986, we stopped trying. With OPEC nations holding more than two thirds of the world’s proven oil reserves and more than half of the world’s ultimate conventional oil resources, and with growing demand for oil for transportation in developed and developing economies, it was only a matter of time before they regained control of world oil markets.

Potentially effective fuel economy policies range from standards to market-based measures. Developed economies that have recently tightened their fuel economy or carbon emission standards for motor vehicles include Japan, the entire European Union (EU) and Australia. China has also recently adopted fuel economy standards with the aim of curbing their rapidly growing demand for oil. Each country has a different form of standard, and each one is different from our own Corporate Average Fuel Economy (CAFE) Standards. Japan and China have mandatory standards that vary (in different ways) across vehicle weight classes. The EU and Australia negotiated voluntary standards with automobile manufacturers collectively that are based on the sales-weighted average emissions of carbon dioxide per vehicle kilometer.

GASOLINE TAXES. If the market for automotive fuel economy operated efficiently, increasing the tax on gasoline would be the most economically efficient way to increase fuel economy. Over the years, higher gasoline taxes have proven to be unpopular, but that is not an argument against their desirability from an economic efficiency standpoint. There are, however, good reasons to believe that the market for fuel economy is not efficient and, therefore, that standards have an important role to play. First, even nations with gasoline prices 2 to 3 times higher than those in the US have felt it necessary to have fuel economy standards. This includes the entire EU and Japan. If the market for fuel economy were efficient, gasoline prices in the range of $3 to $5 per gallon should be sufficient to raise vehicle fuel economy. Still, the EU and Japan found it necessary to have fuel economy standards.

Recent evidence from surveys indicates that consumers are indeed undervaluing fuel economy. First, survey evidence, generally supported by automobile manufacturers, indicates that consumers expect an expenditure on fuel economy technology to be paid back in fuel savings within 2–4 years, far less than the full lifetime of a modern automobile. A recent study by the University of California at Davis (Turrentine and Kurani, 2005) conducted in-depth interviews with 60 households in California. Few even considered fuel economy in their purchase decisions. None explicitly calculated the potential value of fuel savings by any method. In short, there was no evidence whatsoever of textbook, economically rational behavior with respect to fuel economy.

Despite the apparent imperfection of the market for fuel economy, increasing the price of gasoline would be a sound and beneficial policy. It would signal consumers of the importance of reducing fuel use, making it easier for manufacturers to sell higher fuel economy vehicles.

It would mitigate and could eliminate the rebound effect, the tendency for motorists to drive a little more when higher fuel economy reduces the fuel cost per mile of travel.

Finally, a higher tax on gasoline would make up for revenues that would otherwise be lost to the highway trust fund in the future when higher levels of fuel economy reduce the demand for motor fuel.

CAN THE GOVERNMENT ENCOURAGE THE ADOPTION OF TECHNOLOGIES TO IMPROVE FUEL ECONOMY WITHOUT LEADING AUTOMAKERS TO MAKE VEHICLES LESS SAFE?

The government can encourage the adoption of technologies to improve fuel economy without leading automakers to make vehicles less safe. First, there are many technologies that can be used to improve fuel economy that should have no impact on vehicle safety. Technologies such as variable valve timing and lift control, displacement on demand, reduced aerodynamic drag, continuously variable transmissions, and engine friction reduction should be independent of vehicle safety. Several reports have developed lists of such technologies and estimate their likely impacts on vehicle costs and fuel economy. The 2002 NRC study of the CAFE standards provides an extensive analysis of how such technologies could be used to cost-effectively increase passenger car and light truck fuel economy.

Given the availability of such technologies, manufacturers should be able to respond to the demands of a higher fuel economy standard without compromising safety.

The argument that fuel economy improvement inevitably leads to weight reduction which inevitably leads to increased fatalities and injuries is not correct. The role of weight reduction versus technology in achieving the fuel economy improvements of the past 30 years has been greatly exaggerated. Weight reduction was indeed an early strategy for increasing fuel economy. Vehicle weight reduction began before the CAFE standards went into effect, probably a response to the fuel shortages and higher prices caused by the first oil crisis of 1973–74. It continued after fuel economy standards went into effect in 1978 but ended in 1981. Fuel economy continued to improve through 1987 while weight increased. Since then, weight has increased while the average fuel economy of new light-duty vehicles has gradually declined, in large part due to the increasing market share of light trucks. According to data published by the Environmental Protection Agency, the average 2004 model year light-duty vehicle actually weighed 6 pounds more than the average light-duty vehicle sold in 1975. The average fuel economy of a new light-duty vehicle sold in 2004 was 58% higher than in 1975. Clearly, none of this increase can be attributed to weight reduction since today’s new light-duty vehicles are actually slightly heavier than their 1975 counterparts.

It has been argued, however, that further increases in fuel economy standards would inevitably lead to downsized or down-weighted vehicles and that smaller, lighter vehicles are inherently less safe. By and large, this objection has focused on weight reduction as the principal threat to safety. Reducing vehicle mass is certainly one way, though by no means the only way or even the most effective way, to increase fuel economy.1 In a dissent to the 2002 NRC CAFE report, Marianne Keller and I pointed out that the evidence for a causal link from fuel economy to weight reduction to increase traffic fatalities and injuries was highly dubious. Since that report, our position has been strengthened by 4 scientific studies. With the support of Honda, Van Auken and Zellner (2002) attempted to replicate Kahane’s (1997) path-breaking analysis of the relationship between vehicle weight and crash fatalities using more recent data from a somewhat different subset of states. They found that a reduction in the weight of passenger cars and light trucks of 100 pounds would not increase net highway fatalities.

BIOGRAPHY FOR DAVID L. GREENE A Corporate Fellow of Oak Ridge National Laboratory (ORNL), David Greene has spent 25 years researching transportation energy and environmental policy issues. Dr. Greene received a B.A. degree from Columbia University in 1971, an M.A. from the University of Oregon in 1973, and a Ph.D. in Geography and Environmental Engineering from The Johns Hopkins University in 1978. After Joining ORNL in 1977, he founded the Transportation Energy Group in 1980 and later established the Transportation Research Section in 1987. Dr. Greene spent 1988–89 in Washington, DC, as a Senior Research Analyst in the Office of Domestic and International Energy Policy, U.S. Department of Energy (DOE). He has published more than one hundred seventy-five articles in professional journals, contributions to books and technical reports, and has authored or edited three books (Transportation and Energy, Transportation and Global Climate Change, and The Full Costs and Benefits of Transportation). Dr. Greene served as the first Editor-in-Chief of the Journal of Transportation and Statistics, and currently serves on the editorial boards of Transportation Research D, Energy Policy, Transportation Quarterly, and the Journal of Transportation and Statistics. Dr. Greene has been active in the Transportation Research Board (TRB) and National Research Council (NRC) for over 25 years, serving on several standing and ad hoc committees dealing with energy and environmental issues and research needs. He is past Chairman and member emeritus of the TRB’s Energy Committee, past Chair of the Section on Environmental and Energy Concerns and a recipient of the TRB’s Pyke Johnson Award. In recognition of his service to the National Academy of Science and National Research Council, Dr. Greene has been designated a lifetime National Associate of the National Academies.

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