CAS Opposes Flexible Fuel Vehicle CAFE Credit

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Fuel Economy > Fuel Economy

1825 Connecticut Avenue, NW Suite 330 Washington, DC 20009-1160 (202) 328-7700

April 10, 2002

Docket Management
U.S. Department of Transportation
Room PL-401
400 Seventh Street SW
Washington DC 20590

Re: DOT Docket No. NHTSA 2001-10774; 67 FR 10873 (Mar. 11, 2002)

As a basis for this rulemaking, the National Highway Traffic Administration (NHTSA) relied on a Report to Congress that makes the case for terminating the CAFE credits for alternative fuel vehicles established by the Alternative Motor Fuels Act of 1988 (AMFA). According to this Report, AMFA credits have resulted in a increase in petroleum consumption of over 700 million gallons and about 2.4 MMTc (million metric tons carbon-equivalent) in greenhouse gas emissions through 2000. Extension of the program as proposed by NHTSA could cause a 20-fold increase in petroleum use and greenhouse gas emissions for 2001-08).

In a vain effort to diminish the adverse impact on national security and the environment and to defend continuation of AMFA credits, NHTSA states in the Report to Congress and the rulemaking notice, "It is also possible that manufacturers might have responded to strong consumer demand for performance and utility and produced the same vehicles without the provision as they did with it. In this case, manufacturers would have chosen to pay civil penalties rather than meet the CAFE standard." 

The problem with this bootstrap argument is that it ignores 25 years of domestic auto company executives telling Congress and NHTSA that it is unlawful for them to pay civil penalties under the CAFE law. Ford Vice President Helen Petrauskas testified before the Senate on relaxing the 1985 CAFE standards:

[P]aying fines is not an alternative for Ford Motor Co. . . . Failure to meet the standard is unlawful conduct. To us, that means in the absence of an adjustment to the standard we have to carry out a plan that meets the law, even it means curtailing availability of larger cars and engines, restricting the availability of these products to consumers, and even if it brings the jobs dislocation of closing down plants.

GM Vice President Marina Whitman testified:

Unless the standard is lowered, full line manufacturers face the prospect of restricting product availability, which translates to plant closings, job losses, and lower economic growth. . . . As the NHTSA has noted, under the law, failure to comply with the standards after applying credits constitutes unlawful conduct.  Accordingly, GM cannot and does not consider the payment of civil penalties to be a reasonable alternative for determining a long-term compliance strategy.

Although Chrysler, which at that time was in compliance with the CAFE standards because it had made the necessary investment in new technology to meet the standards, argued that GM and Ford could just pay the penalties, Ford Vice President Petrauskas sharply pointed out:

[T]he view that we need have - that the law requires one to take product restrictions and does not allow the payment of penalties is one that was expressed by Chrysler in 1982 at the time Chrysler petitioned, successfully I might add, for a relaxation of the truck standard.

Foreign manufacturers do not hold the same position and have routinely paid penalties as a price of making fuel inefficient vehicles. Whether the position of the domestic manufacturers is legally correct or not doesn't matter because they are like the little boy who holds his breath, they have successfully used the argument as a form of economic blackmail against the agency and Congress. In its 1992 report, the National Academy of Science observed that "violation of CAFE limits is not a socially or legally neutral act." The Academy recognized the distinction was subtle but recommended a legislative change to clarify that payment of penalties could be done by domestic manufacturers.

The Report to Congress and NHTSA's rulemaking notice erred in treating ethanol produced for E85 vehicles to be the same as ethanol produced for blending with straight gasoline to make blends of 10% ethanol or less with gasoline (with 10% blends sometimes referred to as gasohol and hereinafter as E10). A difference in tax treatment makes 10% ethanol far more preferred by the ethanol industry than E85 blends. E10 blends qualify for a 5.3¢ per gallon exemption from the motor fuel excise tax which is the equivalent value of 53¢ per gallon. The ethanol used in E85 blends qualify only for a 53¢ per gallon income tax credit which is much less preferable to the up-front tax exemption. NHTSA already recognizes that the demand for ethanol may soar when MTBE is phased out. Coupled with difference in tax treatment, which NHTSA failed to consider, production of ethanol for alternative fuel vehicles will go little, if any, beyond the token 4.6 million gallons of E85 sold in 2000.

The Report to Congress and NHTSA's rulemaking notice erred in not doing a cost estimate for alternative fuel vehicles and instead blandly relied on the manufacturers' position that they charged no more for an alternative fuel vehicle than a standard vehicle. First this ignores the fact the manufacturers can raise the price of all vehicles to recover the cost of the alternative fuel system components on the alternative fuel vehicles. Second, it ignores the cost to the consumer of having to replace alternative fuel system components after the warranty expires. CAS has received reports of optical sensor failures on Ford vehicles that cost $900 to repair. NHTSA should require detailed information from manufacturers on failure rates and repair costs as well as the installation costs for the original system.

The best way to improve energy security and conservation is to set more stringent CAFE standards. The next best way is to eliminate wasteful CAFE credits for alternative fuel vehicles.


Clarence M. Ditlow
Executive Director