Congressional Democrats' Christmas gift for U.S. automakers.
In the new era, it is American car consumers who will suffer collateral damage--while victory over climate change will remain elusive.
The cornerstone of the energy bill signed Wednesday by President Bush is the raising of so-called Corporate Average Fuel Economy (CAFE) standards to mandate a 40 percent increase in auto fuel efficiency by 2020. First conceived in the wake of the 1970s oil embargo (at a time when global cooling hype was at its peak), CAFE sought to reduce America's "dependence" on foreign oil. But since passage in 1975 the policy has had the opposite effect as better fuel economy made it cheaper for Americans to drive more, increasing U.S. auto fuel consumption 20 percent and imported oil's share of the U.S. market from 35 percent to 59 percent.
Despite CAFE's failure, Washington has opted for the program's biggest expansion in 30 years. Global-warming fever, rising gas prices, and Detroit's declining economic importance conspired to make this CAFE's moment. Though Republican presidents have historically stood against tougher regulations, in this case the Bush administration actually initiated the increase. Desperate to prove his Iraq adventure was not motivated by a lust for oil, President Bush has made curing America's "oil addiction" a domestic policy priority.
But the biggest push for CAFE came from within the Democratic party. Democratic circles once regarded foreign cars as a treasonous assault on American workers. Now, however, Detroit's once iconic carmakers have become environmentally incorrect. Indeed, congressmen Ed Markey (D-Mass.) and Greg Walden (R-Ore.) publicly bragged about owning Toyota hybrids during a recent hearing of the House Select Committee for Energy Independence and Global Warming.
Given this backdrop, Detroit's goal this time was not to dodge stricter CAFE standards--but to minimize their damage. In this the automakers succeeded rather well, thanks to octogenarian John Dingell's unflinching advocacy.
For starters, Dingell not only reinstated the ethanol loophole the Senate bill had scrapped--but he actually expanded it to include other alternative fuels such as biodiesels. The loophole gives automakers fuel economy credits for building vehicles that can run on alternative fuels--whether consumers fill them with these fuels or not. Dingell also bought the industry new efficiency credits. For example, if a company achieved more than the mandated 40 percent increase in fuel economy for its smaller-vehicle fleet, it could apply the balance to its SUVs. And the industry kept differential fuel economy standards for cars and light trucks--instead of requiring that trucks meet the same stringent standards as cars, as the Senate bill, under pressure from environmental groups, had mandated.
But Dingell's special gift to Detroit was his success in forcing a radical overhaul of CAFE standards that is far more favorable to them than their Asian competitors. The original CAFE standards set a fixed standard of 27.5 mpg for cars and 20 mpg for trucks. This amounted to a doubling of fuel economy and disproportionately affected Detroit, which manufactured a fuller range of vehicles than Japanese auto companies, with their specialization in fuel-efficient compact cars.
The new CAFE standards do not set absolute gas-mileage requirements for vehicles. Rather, they require every company to increase its fuel efficiency by 40 percent. This will effectively hold Japanese carmakers to a higher fuel economy standard given that their vehicles get better gas mileage to begin with. Thus, a spokesman for the Alliance of Automobile Manufacturers, Charles Territo, notes that the 40 percent increase will likely translate into an overall 32 mpg for Chrysler vehicles but 38 mpg for Honda.
The Bush administration estimates the new standards will cost the industry $85 billion. Though they may cost Japanese carmakers more, American carmakers will still have a harder time complying given their worse financial situation. But both will have to divert research dollars from cars that consumers prefer.
A recent Consumer Reports survey found that 70 percent of buyers want more fuel-efficient vehicles--but only 50 percent are willing to sacrifice size and performance in that quest. This market reality is why, even as engine efficiency improved 1.5 percent annually for the last 20 years, automakers have channeled those gains not toward better gas mileage but toward greater horsepower.