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Administration's Proposed Plan Would Require Car Makers to Double Average Fuel Efficiency

Source: WSJ - Josh Mitchell & Sharon Terlep

Posted on 27 Jun 2011

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The Obama administration is looking at proposals that would require auto makers to roughly double the average fuel economy of their car and light truck fleets from current levels to 56.2 miles per gallon by 2025. This proposed plan was presented to auto industry officials last week, according to the Wall Street Journal, setting off a fight among auto makers, environmentalists and others.

Car makers say the proposal would effectively require most new vehicles sold in the U.S. to be battery-powered by 2025 and raise prices by thousands of dollars. Makers of electric vehicle technology say declining costs for lithium batteries will allow the auto industry to make big gains in fuel efficiency without stoking sticker shock.

Environmental groups, meanwhile, said they were generally pleased with the Obama proposal; they had sought a 62-miles-per-gallon standard.

The new plan, being drafted jointly by the Department of Transportation and the Environmental Protection Agency, would build on the administration's new rules put in place last year that requires new cars and light trucks sold in the U.S. to average 35.5 mpg by 2016, up from 27.3 mpg today.

Auto makers, particularly Detroit companies like General Motors Co. and Ford Motor Co. that build bigger cars and sport-utility vehicles, are fighting for a lower target, or provisions that would allow larger vehicles if gas prices moderate.

"The government's own reports indicate that this would be a steep climb with costs," said Gloria Bergquist, a spokeswoman for the Alliance of Automobile Manufacturers, the industry's main trade group. She said research shows such big gains in fuel economy could raise vehicle prices by $6,000 or more.

Government officials have estimated the costs of the new standards would add between $770 and $3,500 to a new car in 2025.

Ms. Bergquist called the 56.2 miles per gallon figure a starting point in talks toward a final number the industry believes will be much lower.

"Typically the government then factors in greater costs to consumers, loss of jobs, and negative effects on safety and vehicle utility and arrives at the maximum feasible fuel economy," she said. This is how fuel economy standards have traditionally been set, addressing the need for affordable work vehicles, as well as families seeking safety and passenger room, Ms. Bergquist said.

Unless fuel prices continue to climb, say auto makers, consumers may not be willing to pay more for cars powered by hybrid, advanced diesel or more efficient gas engines. Fewer sales means fewer jobs, they argue.

The White House proposal could be adjusted in coming weeks as regulators prepare a formal draft. But the talks indicate a new phase in the months-long debate over fuel-economy and emissions targets.

The plan comes amid worries about the U.S. economy's vulnerability to volatile oil prices. The Obama administration last week led an international move to release 60 million barrels of oil from emergency reserves, including 30 million barrels from U.S. stockpiles.

A White House spokesman declined to discuss the proposal Sunday. "We continue to work closely with a broad range of stakeholders to develop an important standard that will save families money and keep the jobs of the future here," said the spokesman, Clark Stevens. "A final decision has not been made, and as we have made clear we plan to propose a standard in September."

The administration has said it was looking to set 2025 fuel targets between 47 and 62 miles per gallon.

U.S auto makers have boosted the fuel efficiency of their fleets by more than 70% since 1975, when Congress first enacted CAFE standards, even as they increased average horsepower. But some car companies say planned improvements over the next five years are slated to meet fuel economy requirements already in place.

Auto makers have been pushing the administration to set long-range targets so they can better plan future models and technology investments. They also want the administration to preempt California and other states from setting their own fuel standards.

Negotiations between the industry and the White House will include the setting of annual targets leading to the 2025 standard. The industry is likely to argue for much lower targets in the early years, followed by a review of such factors as gas prices and the expense of new technology. Auto makers say that would give regulators the option of scaling back fuel efficiency standards if they prove unneeded.

A 56.2 miles per gallon requirement is feasible, say supporters, in part because auto makers have long been allowed to sell cars with a fuel efficiency lower than the government standards; credits, for example, are given for such features as air conditioning.

Also, cars on the road can be much less efficient than the computer simulations that determine the official fuel rating, environmental groups say.