Energy Policy:

RFF's Phil Sharp weighs potential changes to federal fuel economy rules

With high gasoline prices a top-tier issue, members of Congress are pushing for legislation that would give the Transportation Department new authority to change the corporate average fuel economy program. Will this bill actually result in cars and trucks that get more miles to the gallon? What flaws and loopholes in the current program need be addressed? And how will struggling domestic automakers be affected? During today's OnPoint, Resources for the Future President Phil Sharp answers these questions and also explains the political difficulties involved in the fuel economy debate.

Transcript

Brian Stempeck: Hello and welcome to OnPoint. I'm Brian Stempeck. Joining me today is Phil Sharp, president of Resources for the Future, former congressman of Indiana and chairman of the House Energy and Power Subcommittee. Phil thanks a lot for being here today.

Phil Sharp: Happy to be here Brian.

Brian Stempeck: Now you testified last week before both the House and the Senate, talking about fuel economy standards. Right now both chambers are moving forward with a bill that would give a lot more power to the Transportation Department in terms of setting these standards. What are your thoughts on this bill and how should this debate be moving forward right now?

Phil Sharp: Well, my first thought is fantastic, because we've had a stalemate for nearly 20 years on what to do about this. It was broken when finally Congress took off the rider that prevented any action by NHTSA. And the Bush administration did act, in a modest way, on the light duty trucks. But Congress has been unable to maneuver on this issue at all. So I take this as a big opportunity and a big plus because we must directionally, in this country, continue to accelerate the development of the technology that is both more efficient and alternative fuels. And we must get it into the marketplace. So stepping back, this is a step forward, whatever the argument about how we get there.

Brian Stempeck: We've seen the Transportation Department, as you've mentioned, basically redesign the fuel economy standards for light trucks and SUVs. We saw that about a year ago. What would you like to see in terms of, there's a lot of ideas floating out there in terms of how a passenger car program might be revised. You're a member of the National Academy's panel looking at this issue. What would you like to see as NHTSA, as DOT move forward on this issue?

Phil Sharp: Well, I don't have an absolute firm view of my own, but let me tell you what the National Academy panel looked at and it recommended to be thoroughly studied more than this. It didn't say this is the final way, but it did a lot of analysis on a similar kind of design for the entire CAFE fleet that NHTSA did adopt for the light duty trucks. However there's one design feature that is not in the light duty truck that is in the panel's study and, in fact, the Senate committee seems to be quite interested in that. And it has to do with a way to make sure that there's a cap on the overall system so that you don't allow excessive growth on the high end or the heavy of the system. It's a little hard to explain, but there are a variety of design features. I think the most significant thing is that both that panel and the National Commission on Energy Policy recommended was to provide more trading flexibility of credits among companies as a way to let them adjust in their marketing, in their development plans and things like that to an ever-changing market. And that kind of flexibility, as long as it's pushed and pushed and pushed to continue to improve, is probably wiser from an economic point of view.

Brian Stempeck: Critics of these bills right now, mostly Democrats, are basically pointing to the fact that there's no hard target here. There's no 35 miles per gallon, increasing it from 27.5 miles per gallon. This is such a contentious issue. I mean you were on the National Academy's panel, you were on the National Commission of Energy Policy and neither of those panels could come up with a number either. Why is it so hard to come up with just a set recommendation of, all right, we're going to boost fuel economy by 5 miles per gallon?

Phil Sharp: Well, partly because we are dealing with a lot of uncertainties and unknowns. We know technology is there to push things forward. What we don't know is whether consumers are going to really continue to buy the hybrid. At the moment there's enormous enthusiasm for the hybrid, but it does marginally cost more money. And we haven't gotten to the issue of what happens when my battery runs out and I have to do that? Am I going to find that to be such a costly or painful thing that I'm going to go back? So one has to be a little careful about what you think about how consumers are going to behave, how the economy is going to behave. Plus it is clear there are some trade-offs, trade-offs in how much additional cost versus how much fuel economy you get. This is not to say that's an adequate reason for not setting the target. It is simply to say that's why it's complicated. It's why both of these outside organizations trade up. Indeed, the panel from the National Academy of Sciences was very direct about this is a fundamental political judgment about what you value; how much additional risk you take on safety, if you're willing to take a risk or you think it's risky. And by the way, it's not on a lot of the things you can do for fuel economy. So these are trade-offs.

Brian Stempeck: You've studied this issue for about 30 years now. You're involved in the original organization.

Phil Sharp: Well, I've been in and out of the original ...

Brian Stempeck: In and out, OK. I mean what's your personal opinion? What do you think? Beyond the politics of counting the votes on this in Michigan, you know congressmen and that sort of thing. What do you think can actually be achieved? Is there a number that you believe is out there?

Phil Sharp: Oh I believe there are some significant achievements that can be made. I think we are wise to give time for the companies to adjust to that so that we don't throw away capital and we don't add, unnecessarily, cost to the consumer. So as long as you give plenty of things, there's no question we get into the 30 mile above range very easily. We may be able to do significantly better than that. But one of the practical problems of setting a number is if you're debating this on Capitol Hill the advocates, of course, are pushing for a high number, but after the compromise is made you may set a target that is unnecessarily low. If Congress could take the time and have the deliberation and could really figure this out I wouldn't mind them setting the target whatsoever. But to be frank about it, I don't want to lose this moment because I think politically, my judgment is, is while you mention that Democrats are calling for setting a target that is not a universal position among Democrats. They have been divided on this issue, as have been Republicans divided on this issue. And as a result we have had inaction. So just believing and hoping that somehow by politically delaying you'll have a better system, I'm deeply suspicious of that.

Brian Stempeck: Ford and GM we've seen are having a lot of economic troubles right now in terms of their overall business model, how do you structure this program so that it not necessarily favors them, but gives them the potential that they'll come back against Honda and Toyota, who are really considered leaders in the hybrid cars and the fuel efficiency?

Phil Sharp: Well, first of all I don't think that's the essential goal, to structure this to have competitive advantage or disadvantage for people. I think many of us would like to, of course, make sure that domestic production, I have lots of it in my own congressional district, has more than a fair opportunity to play in this. Now frankly some people have identified, we have some researchers at RFF who have focused on the light duty truck standard as it was developed, and the analysis shows that it probably does help for GM and Ford and the domestic production on the light duty truck side. And at the moment it's speculative as to whether a switch in design on the passenger side would actually do that or not. It's worthy of consideration, proposition. I think the larger question that I addressed before this if you try, in three years, to say, boy, you've got to significantly adopt these new technologies across the board. Then you probably do disadvantage the companies that are in financial difficulty, at least they're in financial difficulty, by the way, here at home, not in some of their operations abroad. So that again argues, in my judgment from a political perspective, for a longer lead time.

Brian Stempeck: What do you make of people who say this is just providing political cover in an election year? You have very high gas prices, consumers concerned about this. This way it looks like the White House is doing something on CAFE, but, as you're saying, this is pretty long term. We might not see action on miles per gallon until, what, 2010?

Phil Sharp: Remember you're going to see action in between there and you don't want to let anything slide back. I mean that's another issue that they must address in the legislation if it comes out of Capitol Hill. Let me suggest to you, long ago I learned there'll be multiple motivations for why people do things. My concern is do we get action? My real concern is not the immediacy. My real concern, I think our concern as a country, is we have got to reduce carbon dioxide, the growth in carbon dioxide emissions. Fuel efficiency, or alternative fuels, is the only way, in this sector of transportation, to do that, in addition to public transit by the way. But the fact is, and we don't know what's ahead for the oil market, but we are very wise to be worried about whether we're getting into a severe international oil crunch in the years ahead. So I say do it. I don't care that your motivation may be cover and political cover. By the way, that's not such a bad thing. It may actually be interpreted, oh, you're trying to be responsive to people back home that have finally put a blow torch on your rear end and said do it.

Brian Stempeck: What do you make of some of the auto industry claims? They're basically mounting a major PR campaign right now saying that we've come up with these cars powered by ethanol that are already on the road. We've got these hybrid cars. Pointing to a lot of the technology they've invested in. How far do you think the automakers have gone? Have they done enough?

Phil Sharp: Well first of all, they do deserve, I mean whether you're giving them credit or not, we just have to recognize they do invest a lot of money and have for decades in this. Part of the reason they have invested in this is because we have had a federal research program designed to entice them into that. The Clinton administration had a major program. It was slightly changed and downsized in the Bush administration, but we've had a research program because this has been long recognized and they do a lot of technological research. So the issue is, will that technology show up in the marketplace and show up, or even if it only shows up in one line of cars or two lines of cars, and yet over here we're just going, wasteful, I mean just growing by the leaps and bounds in our failures. Then the overall result is not good. This is the problem, in the 1990s we had a study from, in 1990 or '91, by the National Academy of Sciences, did the similar thing we did in 2001, laid out a whole bunch of technologies, starting to come in the marketplace. If they came in the marketplace we would see fuel economy go up. Guess what? Most of those, during that era, went into simply getting more power so you can tow a bigger boat or whatever it was, and we didn't get the fuel economy gains. Why? Because there was no policy constraint that said you've got to meet a higher target. And the consumer, because of low oil prices and gasoline prices, didn't care about it. You couldn't get them to talk about it in the showrooms.

Brian Stempeck: One last question for you Phil because we're running out of time, but I read one of your lectures basically at Harvard when you said a lot of the rhetoric about U.S. energy policy, talking about becoming totally independent from foreign sources of oil, foreign sources of energy, is wildly unrealistic. I just wanted to see if you could talk about it for a minute, about why you think that is. Obviously ties have been very closely to the whole CAFE debate.

Phil Sharp: I'm thrilled that anybody actually ...

Brian Stempeck: Someone's listening.

Phil Sharp: Somebody was listening. Actually, very simply, no question that the rhetoric is so out of line even around CAFE here. CAFE is an important step in trying to reduce the pressures on the world oil market. It is an important step. I think even more reason to do it is for carbon dioxide emission control, a reduction. And the goal of independence is wildly, wildly out of line for the next 10 or 15 years. I'm on an oil task force for the Council on Foreign Relations right now and that's one of their standard inclusions. That does not mean you do nothing. It does not mean you don't try to mitigate against the growing pressures on that world oil market, including the speculation that maybe we're reaching what we call peak production in the world oil. That's not running out, but it means it's not coming on as fast as you're growing in your demand.

Brian Stempeck: Phil, thanks so much for being here today. We really appreciate having you on.

Phil Sharp: Absolutely, thank you Brian.

Brian Stempeck: I'm Brian Stempeck. This is OnPoint. Thanks for watching.

[End of Audio]

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