into vehicles to deliver increased miles per gallon for consumers at a reasonable price.

With regard to alternative fuels as a pathway to reduce petroleum use in light duty vehicles, the challenge seems to be even greater. We have worked hard for more than a decade since the passage of the Alternative Motor Fuels Act in 1988, followed by the Energy Policy Act as was mentioned in 1992, to implement a variety of programs to increase the use of alternative fuels in highway vehicles. We have done this with both energy and clean air goals in mind.

While a large number of alternative fuel capable vehicles are being produced, little real progress has been made in developing a commercially viable alternative fuels market. There are a lot of reasons for this, but the fundamental reality is that the conventional petroleum fuel system enjoys enormous powers of incumbency, has great and increasing investments in infrastructure, and is making impressive advances in producing cleaner petroleumbased fuels.

If we want the next decade to end differently than the past visà-vis a competitive alternative fuels market, significant technology and policy changes would be required.

The expanded use of non-petroleum components in gasoline and potentially diesel fuel is one area where notable progress has been made in the past decade. Oxygenates in gasoline like ethanol and MTBE now represent about 5 percent of the volume of the gasoline pool. While their use is not without controversy, and I am painfully familiar with that controversy, these replacement fuels, as they are characterized in the Energy Policy Act, bring added volume and improved air quality characteristics to the gasoline pool.

Similar replacement fuels such as gas-derived liquids or biofuels for blending with diesel fuel may become available and may become economically competitive. Together all these actions can help reduce the growth in petroleum product demand from light duty vehicle. Nevertheless we are for the foreseeable future likely to see growing gasoline and diesel fuel demand. Addressing this reality requires we focus on increasing our capability to produce cleaner conventional petroleum-based fuels at the same time we work to increase fuel efficiency and increase the use of alternative and renewable fuels.

That is the end of my prepared remarks and I will be glad to address any questions the committee may have. Thank you. [The prepared statement of Mr. McNutt follows:]

PREPARED STATEMENT OF BARRY D. MCNUTT, SENIOR POLICY ANALYST, OFFICE OF DOMESTIC POLICY AND INTERNATIONAL AFFAIRS, DEPARTMENT OF ENERGY

Mr. Chairman and Members of the Committee, I welcome the opportunity to testify before you today on various legislative proposals currently pending before the Committee: S. 388, S. 597, S. 883, S. 1006, and S. 1053 as they relate to reducing petroleum use in light duty vehicles.

First, I would like to thank the Chairman and Members of the Committee for your leadership and commitment in addressing the nation's energy issues. The Department applauds the Committee's efforts in moving ahead to shape comprehensive long-term energy legislation and look forward to working with you to find areas of common ground between the Congress and President Bush's policy proposals outlined in the National Energy Policy (NEP). Mr. Chairman, we are confident that our best efforts will move us toward a consensus and commitment to action.

Today, the U.S. transportation sector consumes over 13 million barrels a day of petroleum products and almost 60 percent of that is in our light duty vehicles-the passenger cars, light trucks and sport utility vehicles we all drive. Almost all of the fuel used by these vehicles is gasoline and we produce less, even with domestic refineries operating at maximum capacity, than we consume. The imbalance between our gasoline demand and domestic production is made up with imports, which this summer have averaged almost three quarters of a million barrels a day. Light duty vehicle fuel use estimated to increase over one third by the year 2020, despite an assumed 15 percent increase in new vehicle efficiency. Almost all of this fuel will be gasoline and over two million barrels a day of imported gasoline is estimated to be needed in 2020.

We recognize that we need to do more to decrease petroleum product demand in the transportation sector and to increase U.S. refining capacity to make the clean gasoline and diesel fuel that our light duty vehicles will need. However, people who say that the President's energy policy does not focus sufficient attention on conservation simply haven't reviewed the basics of the Policy. It is important to note that more than 50 percent of the National Energy Policy focuses on energy efficiency, encouraging, in the light duty vehicle area, the development of fuel efficient vehicles, consumer attention to energy efficiency and greater use of alternative fuels. However, action on reducing demand alone will not be sufficient. You either have to accept an ever-widening gap between demand and domestic supply, with all the negative consequences that entails, or you also have to begin thinking about how we increase our own supply of clean vehicle fuels.

To address these challenges, the President's National Energy Policy has adopted an approach that is comprehensive and strikes a balance among our priorities.

First, our policy balances the need for increased supplies of energy with the need to accelerate conservation efforts by utilizing cutting edge technology. For example, increased utilization of advanced vehicle materials, hybrid drive-train technology and new, clean direct injection engine designs can provide significant efficiency improvements in light duty vehicle efficiency without sacrificing other attributes. The challenge we face is getting this technology into the vehicles for consumers at a reasonable price. The Administration looks forward to working with Congress to determine the best way to achieve this goal.

Second, we believe energy security dictates more focus on the system that provides the clean petroleum products that serve our transportation needs. We have an enormous and complex transportation fuels refining, distribution and storage system in this country that, while significantly dependent on imported oil, does give us the broad mix of petroleum products needed to meet current demand and support energy security. Unfortunately, that system is having difficulty keeping up with growing demand and a product slate that is shifting towards greater demand for middle distillates. At the same time, new environmental requirements for ever cleaner products will require even greater investment. We need to spend more attention to improving and increasing that clean product capacity, and we need to redress the governmental policies that inhibit that.

Third, our policy appropriately balances our essential requirements for traditional sources of transportation fuels with the need for renewable and alternative fuel sources. It also recommends tax incentives for the use of certain renewables and advanced technology vehicles and more focused research on next-generation sources like hydrogen, through fuel cells.

The President's energy policy also harmonizes growth in domestic energy production with environmental protection. This commitment to conservation and environmental protection is not an afterthought; it is a commitment woven throughout. Transportation fuels production without regard to the environment is simply not an option.

We support this balanced approach with a number of specific recommended actions. The Administration can carry out many of these recommendations on its own, either through executive orders or agency-directed actions. We are moving ahead to implement proposals as quickly as possible. One day after the release of our National Energy Policy, the President issued two executive orders directing Federal agencies to accelerate approval of energy-related projects and directing Federal agencies to consider the effects of proposed regulations on energy supply, distribution or use. Both of these executive orders will affect fuels regulations and refinery operation critical to an adequate supply of transportation fuel.

Moreover, where appropriate, Federal agencies, including the Department of Energy, are directed to take a variety of actions to reduce and diversify vehicle fuel use. Under existing Executive Order 13149, Federal fleets have to reduce petroleum consumption by 20 percent by 2005, using improved efficiency, reduced vehicle use and alternative fuels. This reduction in fuel use is equivalent to increasing the fuel

economy of all the vehicles in the federal fleet by 6 mpg. This is a significantly greater savings than that which would be required by section 704 of S. 597. The Executive Order, however, gives federal fleet managers a choice of how they achieve the savings; they are not limited to buying only higher fuel economy new vehicles. Some of the recommendations contained in the National Energy Policy report that relate to vehicle fuel use and production require legislative action and we can find several areas for concurrence with proposed legislation. For example, reauthorization of the Spark Matsunaga Hydrogen Research, Development and Demonstration Act of 1990, similar to what is called for by S. 1053, is supported in the NEP. However, we are concerned that legislative proposals that mandate use of specific technologies or fuels on a rigid timetable are not a good way to get us to our goals. Success of the technology development, adequacy of the fuel supply, or cost-effectiveness cannot be assured by legislation. Our goal should be to create the technology base and policy context in which the market can make cost-effective choices that respect our environmental goals and move us towards our energy security goals.

We all recognize energy as a critical challenge. We recognize that the efficiency and fuel diversity of our light duty vehicle fleet can be improved. We also recognize that parts of our petroleum product supply and delivery system need enhancement or modernization. And we all recognize that conservation and stewardship must go hand in hand with achieving these objectives. This Committee has a long and proud tradition of developing bipartisan energy legislation. The Administration recognizes that all major energy bills have been bipartisan in nature and looks forward to working closely together with you to develop bipartisan energy legislation.

In closing, let me say, Mr. Chairman, that I believe the Department of Energy is particularly well suited to make a serious contribution to finding solutions to the energy challenges we will face over the next twenty years. The Department is the single largest supporter of basic research in the physical sciences and manages major programs in basic energy science, high energy and nuclear physics, fusion energy sciences, environmental research, and advanced scientific computing research. In different ways, each of these areas will play a role in providing greater energy security for the American people. As the policy report notes, "The President's goal of reliable, affordable and environmentally sound energy supplies will not be reached overnight. It will call forth innovations in science, research and engineering. It will require time and the best efforts of leaders in both political parties."

Mr. Chairman, this concludes my testimony and I would be happy to answer any questions the Committee may have at this time.

The Chairman Thank you very much.
Mr. Shelton.

STATEMENT OF L. ROBERT SHELTON, EXECUTIVE DIRECTOR,
NATIONAL HIGHWAY TRAFFIC SAFETY ADMINISTRATION,
DEPARTMENT OF TRANSPORTATION

Mr. SHELTON. Thank you, Mr. Chairman. On behalf of the U.S. Department of Transportation, I welcome the opportunity to contribute to the committee's consideration of measures to reduce the demand for petroleum products in the light duty vehicle sector. This is a matter of importance to the economy and to our national energy security.

As its principal contribution to energy conservation in the light duty vehicle fleet, the Department administers the Corporate Average Fuel Economy program. Enacted in 1975 in response to the energy crisis caused by the 1973 to 1974 oil embargo, the CAFE program requires motor vehicle manufacturers to ensure that their new vehicle fleets meet a specified average level of fuel economy in each model year.

The CAFE standard for passenger cars is set by statute at 27.5 miles per gallon, whereas the CAFE standard for light trucks is set by the Department by regulation for each model year. The light truck CAFE standard has been frozen at the model year 1996 level of 20.7 miles per gallon by provisions in the Department's annual appropriations acts.

The early years of the CAFE program were marked by significant improvements in fuel economy as public demand for energy efficient vehicles during the late 1970's and the early 1980's continued to be strong. Since the mid-1980's, however, gasoline prices have typically been stable or declining and consumer demand has tended to favor vehicle utility, safety, and performance over fuel economy, with the result that the fuel efficiency level of the passenger car fleet has leveled off. At the same time, the arrival of new types of passenger vehicles, such as minivans and sport utility vehicles, has attracted buyers away from passenger cars into these less fuel efficient models.

The result is that the average fuel economy for the new light duty vehicle fleet as a whole has declined from an all-time high of 26.2 miles per gallon in model year 1987 to 24.5 miles per gallon for this model year. This decline means that today's fleet is using more petroleum, an increasing percentage of which is imported, than it would have if fuel efficiency had continued to improve beyond the early years of the CAFE program.

It is in this context that we must re-examine the CAFE program and other conservation measures. The Department welcomes lifting the restrictions on CAFE rulemaking Congress has imposed since fiscal 1996 to permit the Department to once again engage in rulemaking that will set the fuel economy standard for the light truck fleet.

In a July 10 letter to the appropriations committees, Secretary Mineta urged them to consider legislation that would remove the restriction before the end of this fiscal year so that the Department would not need to wait until the start of the new fiscal year, but could begin work right away.

Whenever the Department is free the go forward with rulemaking in the CAFE program, our rulemaking will be fully informed by the National Academy of Sciences report expected later this month, despite today's New York Times article, and our work will be consistent with the President's national energy policy considerations. We will have to overcome the effects of the 6-year freeze. The Department has not been able to collect data or conduct any analyses that will be needed to establish the statutorily required determination that a specified fuel economy level is a maximum feasible level.

We believe that responsibly crafted CAFE standards under existing law should increase fuel economy without negatively impacting the automobile industry. As you know, the President's national energy policy report recommends the that standards should be based on sound science and should consider passenger safety, economic concerns, and the impacts on both domestic and non-domestic manufacturers.

It is clear that there are many points of view about the best means to improve the fuel economy of the light duty vehicle fleet, as illustrated by the continuing debate in the Congress on whether to legislate higher CAFE standards or to require specific reductions in fuel consumption by certain segments of the fleet, such as light trucks. We are listening to these debates with interest because they offer an opportunity to explore alternative means of conserving petroleum.

To achieve a specified CAFE level, a manufacturer must produce fuel efficient vehicles that the public will buy. If demand for fuel efficient vehicles slackens, whether because fuel prices decline or because consumer preferences change, manufacturers may need to provide incentives, such as rebates or lower prices, to meet required CAFE levels. If other cost effective measures can be devised to increase consumer demand for fuel efficient vehicles, those measures should be examined. In fact, the President's national energy policy report recommends that the Secretary of Transportation evaluate market-based approaches to increasing new motor vehicle fuel economy.

We want to assure the committee that the Department will carry out its responsibilities under the CAFE law to the best of its abil ity, with the goal of improving fleet fuel economy, producing benefits to the economy, and to our national energy security.

This concludes my statement. I will be pleased to answer your questions.

The CHAIRMAN. Thank you very much.

Let me start and ask a few questions about the process from here on as you see it. You referred to this, Mr. Shelton, in your comments already. But you are currently prohibited, the Department of Transportation is prohibited, from proceeding with any kind of analysis or investigation to determine what an appropriate fuel efficiency standard might be.

Mr. SHELTON. Yes, we are, Mr. Chairman, yes.

The CHAIRMAN. Secretary Mineta has asked the appropriations committees of the two Houses to go ahead and relieve him of that prohibition so that he can get on with developing a new standard, is that right?

Mr. SHELTON. Yes, sir. He sent a letter up last week asking the Department to be relieved of that prohibition.

The CHAIRMAN. So if he were relieved of that in the next couple of weeks, what is the time frame for getting from where we are today to an actual new standard being implemented by the Department of Transportation?

Mr. SHELTON. We have established standards for light trucks through model year 2003. We are required by statute to set standards at least 18 months in advance of a model year. So we have to set standards for model years 2004 and later light trucks and model year 2004 would start approximately October 1, 2003, so we have to set the standard for 2004 18 months earlier, which would be approximately April 1, 2002.

If the freeze were lifted, the Department would start right now on establishing light truck standards for at least 2004. We would need to get a standard in place for model year 2004 light trucks by April 1, so we would proceed to getting that rulemaking done, and that rulemaking might encompass model years also beyond 2004. We have that option.

The CHAIRMAN. Did you see the article this morning in the New York Times that both Senator Murkowski and I referred to? Mr. SHELTON. Yes, sir, I did, Mr. Chairman.

The CHAIRMAN. Did you have any perspective you could give us on this issue of sales of flexible fuel vehicles that can be either gasoline or ethanol? I gather that the draft report, and it is still just