New CAFE Standards Imminent, Insiders Say

After weeks of political wrangling, Washington lawmakers are expected to come to grips as early as tomorrow with new corporate average fuel economy (CAFE) standards.

A source close to the ongoing debate tells Ward’s that talks have heated up, mostly behind closed doors, saying “a strong and concerted push to put forth an energy bill” is under way.

The source also confirms discussions center around a compromise that preserves a 35 mpg (6.7 L/100 km) bogey, as well as a 2020 deadline. In addition, there is language that that holds cars and trucks to a separate standard.

The House debate over new fuel-economy rules deadlocked this summer after Reps. Baron Hill (D-IN) and Lee Terry (R-NE) authored a bill that would raise the CAFE standard to between 32 mpg (7.4L/100 km) and 35 mpg (6.7 L/100 km) by 2022. This target, which has gained the bipartisan support of more than 175 House lawmakers, came in response to a sweeping Senate energy bill that called for increasing CAFE to 35 mpg by 2020.

Most auto makers favor the Hill-Terry bill because it offers them more time to achieve the technical advances they consider necessary to meet the proposed target without pricing themselves out of consumers’ reach. And unlike the Senate standard and others proposed by House legislators, the Hill-Terry proposal keeps cars and trucks separate, another assertion coveted by auto makers.

That means Hill-Terry also retains the so-called “SUV loophole,” which keeps SUVs classified as trucks, although today their duty cycle more closely resembles passenger cars than special-purpose vehicles.

Reaching a compromise on CAFE standards is key to reaching a consensus energy bill in the House. Rep. John Dingell (D-MI), who chairs the committee responsible for drafting the energy legislation, pulled its CAFE language in June after it met opposition from House Democrats seeking stricter fuel-economy rules.

However, Dingell gave the CAFE debate new life with a Nov. 13 letter to House Speaker Nancy Pelosi (D-CA), who favored a defeated proposal that combined cars and trucks and called for a 35 mpg standard by 2018.

“Upon careful evaluation, and after many discussions, it is my view that a compromise can be reached using the language passed by the Senate,” Dingell writes.

Specifically, Dingell notes, the Senate bill already permits the U.S. Department of Transportation to set different standards for cars and trucks based on the different attributes of the vehicles.

“Requiring the department to establish these separate standards statutorily would not detract from its obligation to set those standards at levels that would achieve one fuel economy standard for the fleet of all vehicles,” Dingell says in the letter.

Environmentalists oppose the separate standard because it classifies SUVs as trucks.

“SUVs and light trucks, by and large, tend to be passenger cars,” a spokesman for the Sierra Club in Washington tells Ward’s. “We see no reason why they should not be regulated as passenger cars.”

The Sierra Club says a new CAFE standard could come as early as Nov. 28.

Dingell also wants the new fuel-economy rule to retain current distinctions between passenger cars produced domestically and those imported from overseas. The Detroit Three have argued that excluding that distinction, as the Senate bill does, would create a competitive disadvantage for auto makers producing small cars in the U.S.

“(This is) a matter of major concern to the United Auto Workers (union)” Dingell observes, saying an omission of the distinction could jeopardize 17,000 assembly plant jobs in the U.S.

A spokesman for Pelosi says discussions between her office and Dingell’s committee have been ongoing. “The speaker always wanted a bipartisan, consensus bill,” the spokesman says, adding that an energy bill agreement is expected “very soon, by next week or so.”

Although a compromise would put to rest at least for a few years a long-standing argument between the industry, politicians and special interest groups, few winners will emerge from the debate, says John Wolkonowicz, senior auto analyst-North America, at Global Insight.

“The winners are the government officials that have perpetuated the issue,” Wolkonowicz tells Ward’s. “The losers are the auto makers producing in the U.S. and consumers.”

Echoing a refrain heard throughout much of the auto industry, Wolkonowicz says CAFE has proven ineffective at reducing America’s consumption of oil and the percentage of oil it imports. The solution, he says, is to raise gasoline prices with a fuel tax, which could subsidize other needy government programs.

“But that would be political suicide,” he says, calling a fuel-economy standard a pulpit for politicians. “The sad thing is that we have global corporations and American jobs lying in the balance. Shouldn’t government be caring about that instead of CAFE?”

If the House reaches consensus on an energy bill, it must reconcile the proposed legislation with the Senate bill before sending a final version ahead to President Bush for approval.