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CAFE Reforms Could Address Long-Term Oil Consumption

RFF Scholars Testify Before House, Senate

As oil prices climb and the public looks for relief at the pump, Resources for the Future President Phil Sharp and Senior Fellow Billy Pizer were called before the House Energy and Commerce Committee to testify on how Corporate Average Fuel Economy (CAFE) standards might affect the issue. The following week, Sharp appeared before the Senate Committee on Commerce, Science, and Transportation's Subcommittee on Surface Transportation and Merchant Marine to discuss the same subject. (Video of the full House hearing appears below; Phil Sharp and Billy Pizer's remarks appear in Panel Three.)

Sharp was careful to note that, while reforming CAFE standards could have many benefits, reducing gasoline prices is not among them.

"Action now by Congress on fuel economy standards obviously will have no immediate impact on gasoline prices. Indeed, it will take some years for changes in the policy to have any impact at all," he noted. "But action now on fuel economy standards can help the United States address important concerns over the longer term."

Pizer outlined for the Committee opportunities to reform CAFE standards for passenger cars in light of recent reforms to the light truck standards.

"The light-truck rule provides a model for two improvements: differentiating manufacturers' standards based on their mix of large and small vehicles, and setting the overall level of the standards based on an explicit and careful cost-benefit analysis," he said.

"Further reforms include trading between the passenger car and light-truck fleets, trading among manufacturers, unrestricted banking of CAFE credits earned by exceeding the standard, and a cost-limiting safety valve."

The hearings came as the National Highway Transportation and Safety Administration (NHTSA) called on Congress to grant it the authority to make changes to standards for passenger vehicles. Pizer and Sharp both remarked that delegating target setting and redesign to NHTSA made sense.

"I find the complexity of the standard-setting process, as well as the need to regularly revisit the level of the standard, to be more suitable for agency rulemaking than Congressional action," Pizer stated. "Congress can instead reform the structure of CAFE to increase efficiency, continue to give NHTSA clear guidance on the key costs and benefits it should consider, and perhaps require greater transparency with regard to the cost modeling."


Link to Congressional Testimony
Testimony on CAFE Program Reforms
Philip R Sharp
United States House of Representatives Committee on Energy and Commerce
May 3, 2006

Link to Congressional Testimony
Testimony on CAFE Program Reforms
William A. Pizer
United States House of Representatives Committee on Energy and Commerce
May 3, 2006

Sharp also noted that policymakers might want to look beyond CAFE for ways to reduce fuel consumption.

 "Many experts believe that a more effective approach to reducing fuel consumption -- and a more cost-effective approach for the U.S. economy -- would be a stronger gasoline or oil tax, either as an alternative to CAFE or in conjunction with it," he said. "The impact would not only encourage consumers to purchase more efficient vehicles, but it would also encourage them to be more economical in their driving, a critical component that CAFE does nothing to address. Indeed, such a tax would have a more rapid impact on consumption than is possible through CAFE alone."

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