White House weighs SUV rules
Tougher fuel-economy regulations mulled
By Stephen Power, Jeffrey Ball and Joseph B. White
THE WALL STREET JOURNAL Nov. 20 —

Amid simmering debate over U.S. dependence on Middle East oil, the Bush administration is considering a proposal to require sport-utility vehicles and other light trucks to achieve higher rates of fuel efficiency. The move would be the first increase in such government-mandated targets since 1996.

       TOP REGULATORY OFFICIALS are reviewing a proposal drafted by the National Highway Traffic Safety Administration to raise standards by roughly half a mile a gallon each year in the 2005-2007 model years — or a total of 1.5 miles a gallon by 2007. Although it remains in draft form and could be drastically rewritten, it is likely to encounter strong resistance from auto makers, officials familiar with the plans said. But the agency has based its plan on data submitted by Detroit’s Big Three auto makers themselves, one of the officials said.

       The agency is required by law to annually set federal fuel-economy standards for light trucks, and officials began looking anew at current rules when Congress began debating a comprehensive national energy policy earlier this year. Under the law, if NHTSA proposes an increase in fuel-economy standards, it must give auto makers at least 18 months to make design changes. For 2005-model year vehicles, that means the agency would have to issue its proposal by April 1.

       The proposal also comes amid a political debate over U.S. oil dependency and energy consumption, in part because of the possibility of war in Iraq. The U.S. has been Baghdad’s biggest customer for Iraqi oil. Detroit’s Big Three are facing pressure on SUV fuel efficiency on several fronts, including in states such as California, which passed a law this year effectively forcing the industry to make its vehicles more fuel-efficient. Meanwhile, advocacy groups are pushing to make fuel efficiency a higher consumer priority: Religious groups pushing to make fuel savings a moral issue are scheduled to meet Wednesday with executives at General Motors Corp. and Ford Motor Co. The groups contend that gas guzzlers are contrary to Christian and Jewish moral teachings about protecting people and the Earth.

       An administration official familiar with the NHTSA draft proposal said Tuesday night that the increases under consideration aren’t being influenced by the prospect of war with Iraq, although reducing U.S. dependence on foreign oil is a goal of the Bush administration. “Our policy is to improve fuel economy while improving passenger safety and protecting American jobs,” the official said. “The increase we will propose is large compared to the increase that occurred over the years preceding the freeze,” referring to what amounted to a ban on light-truck fuel-economy increases that Congress maintained through the late 1990s at the urging of auto makers.

       A half-mile-per-gallon-per-year increase in fuel economy may not sound like much, and it is likely to be criticized by environmental activists as insufficient. But the Big Three would face a challenge meeting the target without making meaningful changes in engine and transmission technology, vehicle design and, almost certainly, sales mix. The last time the government increased the so-called Corporate Average Fuel Economy target for trucks, it did so in a series of 1/10th of a mile per gallon increments rising to 20.7 miles per gallon in 1996 from 20.4 miles per gallon in 1993. Those increases didn’t stop Detroit’s Big Three from earning record profits in the late 1990s, mainly thanks to soaring SUV sales.

       The auto industry has strong ties to the Bush administration that could come in handy in a regulatory fight. Mr. Bush’s chief of staff, Andrew Card, is a former General Motors lobbyist. During the 2000 presidential campaign, the industry’s contributions went more than 10-1 to Mr. Bush, who received $1.2 million, compared with $114,540 for former Vice President Al Gore, according to the Center for Responsive Politics, a Washington watchdog group.

       Congress established the CAFE standards in 1975 in response to the Arab oil embargo. A company’s score in relation to the target is the result of a complex set of formulas that factor in a vehicle’s fuel economy and its sales. That means that even if a car company produced a single SUV model that averaged 40 miles a gallon, that wouldn’t necessarily mean a big improvement in the company’s overall average performance if the bulk of its sales came from big, low-mileage pickups.

       Auto makers have increasingly chafed against the CAFE system as Americans, encouraged by cheap fuel, have bought larger, more-powerful SUVs and pickups during the past decade. A big SUV can generate $8,000 or more in pretax profit, while small cars typically sell at a loss or a marginal profit in the U.S.

       The Big Three’s concern is that the CAFE system penalizes them — because they make high volumes of relatively low-mileage vehicles — more than it does their Japanese rivals, whose vehicles tend to have smaller engines and to be more fuel-efficient. That is because the system factors in not only the mileage of an individual model, but the volume at which it sells. U.S. auto makers fear that any significant increase in truck fuel economy will force them to curtail sales of high-profit SUVs and pickups — or dump money into discounting smaller, more-efficient trucks that would bring up their corporate averages.
  
       Detroit also has argued that smaller, more fuel-efficient vehicles will be less safe than large SUVs. But this argument has gotten trickier as advances in safety technology have produced more midsize and even small vehicles that do well in government crash tests.

       For the 2001 model year, the fuel economy of the light trucks sold by Ford and General Motors averaged 20.5 miles per gallon, short of the 20.7 mile per gallon standard and a half-mile per gallon worse than the year before. DaimlerChrysler AG’s light trucks averaged 20.7 miles per gallon for 2001.

       In one of the arcane technicalities of the fuel-economy law, auto makers can avoid paying a fine for falling short of the mileage standards in any given year, by applying credits earned by outperforming the target in prior or future years. Auto makers also can earn credits by producing vehicles that could run on an ethanol-based fuel in addition to gasoline, although most of those vehicles never end up burning ethanol.

       The government’s fuel-economy standards have been under review for months by officials at NHTSA, the Department of Transportation, the Environmental Protection Agency and the White House Council on Environmental Quality. DOT, which oversees NHTSA, forwarded the agency’s draft proposal to the head of the White House’s Office of Information and Regulatory Affairs, John Graham.

       A former Harvard think-tank director, Dr. Graham sharply criticized the federal fuel-economy program when he was in the private sector, arguing that it encouraged auto makers to produce smaller vehicles that can be more dangerous to occupants in a crash. It is this office, located at the Office of Management and Budget, that could play the most significant role in determining whether the administration actually proposes raising the standards. Each of the 600 or so major rules issued every year by executive agencies need clearance from Mr. Graham’s staff.

       Throughout the late 1990s, when the Clinton administration pushed for a sizable increase in CAFE, the auto industry successfully lobbied Congress to pass annual provisions barring NHTSA from considering any CAFE increase. Meanwhile, the industry made a series of public pledges to improve its vehicles’ fuel economy: Ford said in 2000 that it would improve the fuel economy of its SUV lineup by 25% by 2005. GM said a few days later that it would remain the leader in light-truck fuel economy, and DaimlerChrysler said its fleet would stay at least as fuel-efficient as others’ fleets.

       More than a year ago, faced with mounting calls for Congress to significantly toughen the fuel-economy rules, the auto industry got Congress to ask the National Academy of Sciences to study the issue. The industry then pulled back its lobbyists and allowed the freeze on tougher fuel-economy rules to expire. That pushed the issue into the hands of NHTSA officials, who by law had to decide whether to recommend an increase in the mileage target. Last summer, the NAS study concluded that auto makers could make “significant” improvements in the fuel economy of their vehicles.

       The NAS study said that the fuel economy of SUVs, pickup trucks and minivans could be raised to between 25 miles per gallon and 33 miles per gallon from between 17 miles per gallon and 25 miles per gallon today at a cost of between about $800 and about $1,500 per vehicle. The differences depend on the size of the vehicle. The bigger the vehicle, the more expensive the gain in fuel economy. But the NAS said the extra costs would be offset by money saved at the pump over 14 years, a period the NAS chose to represent a particularly long life of a vehicle.

       This fall, after months of debate, a House-Senate conference scuttled environmental activists’ calls for a big CAFE increase and recommended instead requiring auto makers to produce a light-truck fleet that saved five billion gallons of gasoline between 2006 and 2012. That measure would amount to less than a one mile-per-gallon increase in light-truck fuel economy over the next decade.

       But the terrorist attacks, and the resulting U.S. concern about dependence on Mideast oil, have increased pressure on the Bush administration to propose a more significant CAFE increase. Auto-industry officials have said in recent months that they expect some sort of increase.

       “We are committed to increasing the fuel economy of the truck fleet,” said DaimlerChrysler spokesman Stuart Schorr. But, “ultimately, [corporate average fuel economy] depends on consumer choices ... Anything that flies in the face of consumer preference is a challenge.”