Energy Policy:

UCS's Friedman, Resources for the Future's Portney talk fuel economy policy on Hill

David Friedman, research director for the Clean Vehicles Program at the Union of Concerned Scientists, and Paul Portney, president of Resources for the Future, talk fuel economy policy on Capitol Hill with E&E Daily senior reporter Brian Stempeck.

Transcript

Brian Stempeck: Good morning, I'm Brian Stempeck, and this is OnPoint. Today we'll be discussing fuel economy policy on Capitol Hill. We're joined by David Friedman, research director for the Clean Vehicles Program at the Union of Concerned Scientists, and Paul Portney, president of Resources for the Future. Gentlemen, thanks for joining us today. A lot of people would say right now that the debate over fuel economy on Capitol Hill is pretty much dead. Last couple of years we haven't seen much movement in the energy bill. Paul, what's your reaction to that sentiment?

Paul Portney: Well, first of all, I think it's unfortunate, because I would like to see something happen with respect to fuel economy, but as you know, it's one of the most politically contentious of all of the energy or environmental policy issues that the country faces. So, in some sense, I'm not surprised that we didn't hear much about it during a presidential campaign year. And my hope is that, now that we've got the election behind us, that this is something that Congress and the administration will begin to pay attention to.

Brian Stempeck: Do you think anything has changed? Will anything change in the debate that will get Congress talking about this again in maybe a more serious way that we will see concrete action in some sense?

Paul Portney: Well, I suppose to some extent. I mean this debate raged even before September 11, and in the aftermath of September 11 of 2001, people have begun to pay even more attention to the fact that we use a lot of oil in the United States, and that nearly 60 percent of it now is imported, and a fair share of the imported oil comes from countries that are politically unstable or, in some cases, appear to bear some malice toward the United States. So that's one of the factors I think that's changed over time that may get more attention focused on this issue.

Brian Stempeck: In fact, last week, we had James Woolsey, former director of the CIA, come out with some environmental group saying that we need to act on fuel economy now, and so you now have these former defense officials also kinda teaming up in the fuel economy issue. David, does that change -- how does that change things?

David Friedman: Well, I think that definitely helps. I mean the more voices who are out there pointing to the fact that we're sending over $200,000 every minute overseas just to buy oil. As Paul said, we're importing on the order of 60 percent of our oil. That's expected to climb to about three-quarters of our oil over the next 20 years. This isn't a sustainable pathway. It's not good for our economy. It's not good for jobs, and it's not good for the environment, so the more voices that are at play here, the more important that it is, and the more important maybe people will see it. The problem is right now we really do lack a leadership on this issue in Washington. It's clear that people know that this is a problem. In 2003, we had 99 senators vote to cut our oil dependence by a million barrels per day by 2013. We know it's a problem, but we're not -- it doesn't seem like people in Washington are really willing to step up and deal with the problem yet.

Brian Stempeck: It also seems like no one is able to even set a target for what they want to do. The National Commission on Energy Policy had a lot of things to say about fuel economy and made a pretty convincing case that we need to, in fact, strengthen efficiency of vehicles, but they couldn't even put a number on it. Do you guys have thoughts on why that is, and why can't we -- why can't anyone doing these reports, or Resources for the Future, for example, do the report saying we need to get 10 miles per gallon more? What's the holdup in trying to assess this kind of thing?

Paul Portney: Well, I'll take a first crack at it, and I think that, in a way, it's a simple-minded answer, but I think it's also true. One of the reasons that this issue was so difficult is that there are fuel economy gains that are possible, but politicians always want costless silver bullets that will solve problems without inflicting any pain on anyone, and we're not gonna get significant improvements in fuel economy without some costs associated with that. And in a world in which everybody wants a completely painless solution, confronting the fact that getting significant improvements in fuel economy will add to the cost of a car may have some adverse impacts on employment, at least in certain areas, and, conceivably, depending on the timeframe in which the fuel economy improvements have to occur, could conceivably even have some adverse affects on safety, has kinda thrown a monkey wrench into this issue so far.

Brian Stempeck: Paul, you've written before about this in the National Academy's panel that delved into this issue a few years back. What are some of the ways that you can avoid these problems in terms of some of the problems with safety in lighter vehicles, added to the cost. I know you've said before that it takes -- you have do things over a longer term, but how do you get that process started?

Paul Portney: Well, I think that's the most important point. I think anybody who pays attention to the fuel economy issue has to realize that it's taken us a while to get into this problem, so it will take us a while to get out of it. I think the, in my opinion, and I think in the opinion of the other members of that National Academy committee that reported in 2001, the best way to go about improving automotive fuel economy is to increase the federal excise tax on gasoline so that you align the interests of consumers and manufacturers. Some people think that that's politically impossible. I'm not necessarily one of those people, but some people do. If we do this regulatorily through mandating higher fuel economy standards, I think it's important that we do it over a sufficiently long period of time. But I don't mean forever, but in a 10- to 12- to 13-year period, rather than requiring big improvements in a very short period of time, so that the car makers can accommodate to this gradually. And the downside of that is that you're not gonna get a huge gain overnight, which is what, in a way, we all would like.

Brian Stempeck: Well, I would say I'm of the opinion that I think a gas tax does seem pretty unfeasible at this point. You have some Republicans in Congress trying to do that to raise money for the highway bill, and they can't even get a small increase in the gas tax through. David, do you think it makes more sense to do something? Senator Feinstein, just a few days ago, introduced a bill to boost the fuel economy of SUVs. Is this more of the same old that's not gonna go anywhere, or do you see this actually having legs this session?

David Friedman: Well, I think there's gonna be a real uphill battle for that bill and any of the other bills that may come out trying to raise fuel economy standards, and that's honestly a shame. I mean the fuel economy of today's cars and trucks is a disgrace. Right now, we're hovering at a 20-year low on fuel economy. As a rhetorical argument, today's SUV, the typical SUV today gets worse fuel economy than a Ford Model-T from a hundred years ago. Now, obviously, it doesn't deliver the same performance and the same capability, but you'd hope we could have come a lot further in a hundred years. For example, gas taxes are one of the ways to maybe help this out, but I think we actually do have to lead with fuel economy, and the reason for that is, right now, when you step into a showroom, you don't have any choice. We've been experiencing the effect of gas taxes effectively for a year or two now. Gasoline prices hovering at $1.80 to $2.00 per gallon, and what we've seen, actually, is instead of auto companies putting out more efficient vehicles, they're increasing incentives on the less efficient vehicles to counteract the higher gas prices.

Brian Stempeck: But at the same time, we are seeing sales of the largest SUVs are down from GM, from Ford, and the hybrids have been fairly popular. Yeah, they're a small segment of the market, but the Prius is selling. Lexus is coming out with an SUV. Couldn't you say that the market is responding to high gas prices, and that, you know, people are tired of paying $2.00 a gallon for gas and they are starting to look to smaller SUVs? Couldn't that argument be made as well?

David Friedman: You can make an argument that there is some response, but you can't make an argument that it is, I think, as large as people had expected. The reality is that first for the market to work, you've gotta get a lot of real choices in the marketplace. Right now, the auto makers often make the argument that there's over 30 models that get more than 30 miles per gallon. Well, that's true, but most of those are compact cars and family cars. If you want an SUV, basically the auto companies' message is go drive a compact instead. And that doesn't have to be the way it, and it shouldn't be the way it is. When you've got technology identified, both by our own analysis and by analysis that, you know, National Academy has done, you can dramatically improve the fuel economy of cars, trucks, SUVs, and still have the same performance, the same safety, the same characteristics people love today.

Brian Stempeck: Paul, do you think the auto makers are responding? We are seeing some hybrid SUVs come out. The Ford Escape, the Toyota Highlander has come out in a hybrid version. Is this enough to kinda counter the pretty much decline in fuel economy we've seen over the past 20 years?

Paul Portney: Well, that's an interesting question. That's the point I guess I would have made in response to what David said. And, while I don't -- I think we probably both have the same objective. I actually think that we have an interesting market experiment under way now. And if it turns out that the Ford Escape, the Toyota Highlander, the Lexus HX400, the hybrid SUVs, if these turn out to be very, very popular, and if people are willing to pay the respective premium associated with the hybrid model in these cars, then I think the car makers will respond, and it becomes a sort of virtuous cycle in a sense, because the greater the demand for these hybrids there is out there, that you can spread the technological and innovation costs associated with the hybrid over more and more units, so it becomes more and more affordable, and I think it's actually possible that the market signal that we see for the three SUV hybrids that are out there would actually have sent a signal to the car companies that we better get more of these cars out there, not just in the SUV market, but in other segments of the passenger car market, etc. So --

David Friedman: I think we do definitely need more hybrids out there. Obviously, we're really excited things like the Toyota Prius, the Ford Escape, vehicles that dramatically improve fuel economy without any compromises. But you've gotta look at the reality of what's been happening where the Big Three are several years late to the party. In fact, GM hasn't even arrived yet, and DaimlerChrysler certainly hasn't either. Part of the problem is the Big Three are too far behind on this, and it could put them at a competitive disadvantage, which could mean losses of jobs in the United States. And this is one of the reasons why, to back up this progress, one of the things we need are incentives to help move production of hybrid vehicles in the United States along. Whether it's a combination of manufacturing incentives, if you actually invest in the technology to make these cars and trucks, the government could help out, and consumer tax incentives to help get the ball rolling. Paul is absolutely right. if you get a lot of these vehicles out there, the benefits can accrue over time, and the costs can come down. But the problem is, as long as you leave fuel economy standards the way they are, for every 40 mile per gallon hybrid SUV you sell, you can sell another 15 mile per gallon gas guzzler, and you go nowhere. And that's really what's been happening for the last 20 years. Automakers have put technology out there, but it hasn't gone to improve the overall fleet.

Brian Stempeck: Let's talk about some of the tax incentives you just mentioned. It doesn't look like fuel economy is gonna be moving in the near future. It hasn't passed Congress for the past few years in debate during the energy bill. But one thing that did appear to have some movement last year was new tax credits for consumers who buy hybrid cars. Paul, give us a sense of what's the debate over these tax credits, and I know some of the auto makers want them for clean diesels. Others want them for hybrid cars. How does this break down? Will this help change the auto industry as we see it now?

Paul Portney: Well, look, I mean there's no question that if you give people a tax rebate if they buy a fuel efficient car, that people will buy more cars under that regime than they would otherwise. I think the challenge from a public policy standpoint is the fact that we have a $400 billion deficit. We don't need ways to give more federal government money away. We need to increase the revenues that are coming into the federal government and, where possible, reduce government expenditures, and that's why I'll come back. I don't want this to sound like a hobbyhorse, but I come back to this point about higher gasoline taxes or carbon taxes that would fall not only on petroleum, but on natural gas and coal, as well. Everybody says, "Well, those would be politically unpopular." But when you're trying to fill a $400 billion-a-year deficit hole that will be even bigger in out years as the baby boomers begin to retire, you're gonna have to increase income taxes or increase capital gains taxes or cut popular expenditure programs. I don't see why part of the way that we go about reducing the deficit shouldn't be through taxing either gasoline or all carbon-based fuels, because you'd be raising revenue and, at the same time, dealing with a national security, an oil import, an economic, and an environmental problem at the same time.

David Friedman: Paul's concern about, you know, the whole revenue neutrality or the revenue impacts of this. It's an important point, but it also has a positive aspect, which is you've gotta take a long-term view. If the hybrid market continues, or even if it doesn't continue, and certain manufacturers who are making car companies outside the United States continue to eat away at market share, we're gonna continue losing jobs in the U.S. auto industry. If instead we invest in the U.S. auto industry and invest in U.S. consumers, then what we can actually see, and we've done analysis looking at if we reached 40 miles per gallon over the next 10 to 15 years, we could see an increase in employment throughout the United States of over 100,000 new jobs. And in the auto industry of on the order of 40,000 new jobs. So this can actually be a revenue-creator. It's the same problem the auto industry is facing. They're focused on next week, next month. They're not focused on five years down the line, which is where they need to look. It's about making investments today to create jobs and to create money in the future.

Brian Stempeck: We've talked a little bit about what Congress is doing in terms of fuel economy and auto policy. But what about the White House? A couple years ago they proposed some changes to the Cathay Program in terms of how it's structured, maybe going to a weight-based system. What are the advantages and what can we expect to see along those lines, Paul?

Paul Portney: Well, I guess I would come back and say that one thing that the Bush administration has done, for which it deserves credit, is the increase in the fuel economy standards for SUVs. As you know, they've changed the standard to go by 2007 from 20.7 miles per gallon for the light-duty truck fleet to 22.5. Now people say, "Well, gee, that's 1.8 miles," but 1.8 miles on a 20.7-mile basis, I mean it's a step in the right direction. If that's the only thing that happens, and if we don't come back and revisit this issue of fuel economy, either through higher gasoline taxes or taking a look again at the fuel economy standards for both passenger cars and the light-duty truck fleet, then I think we won't have addressed a problem that we need to sort of find some kind of handle on. But the administration has done something to increase fuel economy in the segment of the market that's growing the fastest and where fuel economy is -- and I'll use David's words -- I mean it's a little bit of an embarrassment that we're not doing better in that segment of the market than we are now.

Brian Stempeck: David, is the White House doing enough? Is, you know, 1.5 miles per gallon in the next few years, is that enough for SUVs?

David Friedman: Well, of course it's not enough. It is a move in the right direction, but if you look at it through 2010, you're talking about saving about one day's worth of oil every year. It's really not much, and what's worse than that is, at the same time the administration raised the light-truck fuel economy by 1.5 miles per gallon, they extended a loophole that allows you to drive, that allows car companies to get credit for selling vehicles that could run on ethanol, but never do. And, in fact, if you look at it, that completely wipes out the benefit of the 1.5 miles per gallon increase. The administration has a real opportunity here, though, which is, I think, what Paul is highlighting. If they really take a leadership role and step up and make a real significant increase in fuel economy standards, they can make a real contribution. But they can't give on one hand and take away on the other. That just doesn't work.

Brian Stempeck: All right, we're out of time today. I want to thank you both for joining us. We are joined today by David Friedman with the Union of Concerned Scientists, and Paul Portney, president of Resources for the Future. I'm Brian Stempeck. This is OnPoint. Join us again tomorrow for another edition.

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