Curbing Global Warming: Raising Fuel Economy Standards

Transportation is the fastest growing sector of U.S. greenhouse gas emissions. Raising CAFE standards for passenger vehicles, which account for 20 percent of U.S. emissions, is an essential part of a domestic strategy to reduce greenhouse gas pollution. In its August 2000 report entitled "Automobile Fuel Economy: Potential Effects of Increasing the Corporate Average Fuel Economy Standards," the General Accounting Office concluded that raising CAFE standards can reduce oil consumption and thereby reduce global warming pollution.

A critical starting point is closing the loophole that allows light trucks to meet a lower fuel economy standard than cars. The CAFE standard for cars is 27.5 mpg, while for light trucks the standard is only 20.7 mpg. Moreover, while the fuel economy standard for light trucks has stagnated for 19 years, the market share of these vehicles has jumped from 20 percent in the 1970s to nearly 50 percent of new vehicle sales in 1999. As a result, these vehicles are driving demand for oil to an all time high, and driving up emissions of global warming pollution. Light trucks in the U.S. alone spew 237 million tons of CO2 into the atmosphere each year. Even Ford Motor Company has recognized the serious emission problem posed by SUVs, admitting that SUVs threaten the environment by emitting more global warming and smog-forming pollution than cars. The company also recognizes that SUVs endanger other motorists.

The Sierra Club has documented the importance of addressing the issue of SUV fuel economy in a new report entitled "Driving up the Heat: SUVs and Global Warming."

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As of last year, the explosive growth in light truck sales had already brought the average fuel economy of all the Nation's new vehicles to its lowest point since 1980, according to EPA's 1999 Fuel Economy Trends Report. Indeed, while a 14-mile per gallon SUV emits more than 130 tons of carbon dioxide over its lifetime, the average new car emits 74 tons. A new Honda Insight will emit only 27 tons.

Closing the light truck loophole alone would slash U.S. CO2 emissions by 240 million tons per year when fully phased in.

Importantly, raising CAFE standards for light trucks will save oil and reduce U.S. dependence on imports-a key consideration in the original CAFE law. According to the 1999 EPA Fuel Economy Trends Report: "Based on lower average fuel economies and projected longer useful lives, EPA estimates that the new light-duty trucks sold in 1999 will consume, over their lifetimes, almost 60 percent of the fuel used by all of the new light vehicles sold in 1999."

The technology is available to ensure that tomorrow's SUVs are more efficient, and therefore pollute less. According to the Union of Concerned Scientists, the bestselling Ford Explorer, which gets only 19 mpg, could be a 34-mpg vehicle by putting today's technology to work. The cost of the technology is made back by the consumer in about two years from savings at the gas pump.

Gasoline-electric hybrid technology will allow automakers to achieve improved CAFE standards for all vehicles. Both Honda and Toyota are pressing ahead with hybrid gasoline-electric technology. Honda's Insight gets more than 60 mpg, and Toyota's 5-passenger Prius travels 50 miles to the gallon. Ford has announced that it will put hybrid technology into its Escape SUV to achieve 40 mpg. And, Toyota unveiled a 42-mpg hybrid minivan at the 2000 Tokyo auto show.

It is critical that hybrid or other technologies, such as fuel cells, are not used only to reduce oil consumption and pollution spewing from individual vehicles, or simply to assist manufacturers in complying with the existing low standards, but rather are used to ensure that real improvements are made to the entire fleet. Because their vehicles remain so inefficient, Ford, General Motors and DaimlerChrysler are all having problems meeting the low 20.7-mpg CAFE standard for light trucks. Because CAFE is an average standard, hybrid technology could become one more tool which automakers use to enable them to comply with the existing standard. Ford's Escape, for example, could be used to offset the low mileage of the other vehicles in the automaker fleet, and not result in overall improvement.

While both Ford and General Motors have made important pledges to raise the fuel economy of their light trucks, progress by all automakers in all passenger vehicles must be assured. Raising the CAFE standard for both cars and light trucks will ensure that the fuel economy improvements reflect what is technologically feasible and result in the maximum reductions in CO2. This step will show the rest of the world that the U.S. is taking real actions to reduce the threat of global warming.

*The attachments referred to have been retained in the Committee files.

Raising CAFE standards will also further reduce hydrocarbon emissions, save consumers money at the pump and create jobs. An analysis by the American Council for an Energy Efficient Economy concludes that the consumer savings at the pump would translate into a net increase of 244,000 jobs nationwide, with 47,000 of these in the auto industry.

CAFE and Safety

CAFE standards have no impact on auto safety. The rate of traffic fatalities decreased by 50 percent over the same time that fuel economy doubled under the existing standards. The auto industry has consistently opposed the CAFE law using the safety argument. In 1974, a Ford representative argued before Congress that CAFE would result in a "product line consisting of either all sub-Pinto-sized vehicles or some mix of vehicles ranging from a sub-sub-compact to perhaps a Maverick." Of course, this dire prediction proved to be untrue, just as today's parade of horribles will be.

The auto industry met CAFE requirements while providing consumers with a full range of cars and light trucks. In fact, when Congress passed the CAFE law, America had the industrialized world's least efficient fleet of vehicles. The CAFE law spurred development of technology and improved the competitiveness of our auto industry. Eighty-five percent of efficiency improvements came from technologies such as more efficient engines and transmissions, and better aerodynamics.

Research by both the Center for Auto Safety on cars, and by the Union of Concerned Scientists on SUVs, demonstrates that higher fuel economy standards can be achieved using existing technologies, while also reducing occupant deaths and injuries without altering the vehicle mix. Cost-effective technologies such as improved engines and transmissions and new materials are the keys to achieving higher fuel economy in both cars and light trucks. These technologies will also help the American automotive industry face an increasingly competitive future.

Raising light truck CAFE standards, in fact, would help restore balance and compatibility to the overall vehicle fleet, resulting in reductions in traffic fatalities and pollution. Light trucks pose safety dangers to their owners and occupants. SUVs are four times more likely to roll over in an accident. Rollovers account for 62 percent of SUV deaths, but only 22 percent in cars. Yet automakers continue to fight new standards protecting occupants in rollover accidents. According to a study by the National Crash Analysis Center, an organization funded by both the government and the auto industry, occupants of an SUV are just as likely as occupants of a car to die once the vehicle is involved in an accident. One explanation is that SUVs have high rollover rates.

Light trucks, particularly heavy SUVs and pickups, are fundamentally incompatible with cars on the road. According to the National Highway Traffic Safety Administration, collisions between cars and light trucks account for more than half of all fatalities in crashes between light duty vehicles. Nearly 60 percent of all fatalities in light vehicle side impacts occur when the striking vehicle is a light truck. SUVs are nearly three times as likely to kill drivers of other vehicles during collisions than are cars. Finally, these vehicles pose excessive risks to pedestrians because of their design, weight and weaker brakes. The same technologies that will help to improve light truck fuel economy can help to improve their safety.

Public Support for Raising CAFE Standards

Polls consistently show that the American people support raising fuel economy standards. An August 1999 World Wildlife Fund poll of light truck owners showed that 73 percent believed light trucks should be cleaner, and two-thirds would pay significantly more for their next truck if it polluted less. Significantly, 70 percent believed automakers would not clean up their trucks if they are not required to do so. Another August 1999 poll, by Zogby International, of predominately Independent and Republican voters in New Hampshire revealed that 75 percent favor increasing fuel economy to address global warming, even at an extra cost of $300. In 1998, a Research/Strategy/Management, Inc. poll conducted for the Sustainable Energy Coalition showed that 97 percent of Americans favored use of new technologies that would improve fuel economy. And the 1998 Scripps Howard Texas Poll revealed that Americans are very supportive of measures that will reduce our dependence on oil. Sixty-four percent of Texans agreed with the following statement: "We should reduce our dependence on coal and oil energy sources in order to decrease the impacts of global warming even if that means we will pay more for cleaner, renewable energy sources.'

The results of these polls are consistent with polls dating back to the early 1990s. A 1991 poll conducted for the Union of Concerned Scientists demonstrated over

whelming public support, exceeding 80 percent, for requiring 40 to 45 miles per gallon fuel economy standards.

The CAFE Freeze Rider

CAFE standards for both cars and light trucks have not changed in years because of a rider to the Transportation Appropriations bill that bars the Department of Transportation (DOT) from implementing the law. The rider has been in place since 1996. The fuel economy freeze rider has precluded the Department from using funds to "prepare, propose, or promulgate" CAFE standards. In effect, this blocks the department from considering technical feasibility of improving the standards, the economic practicality of doing so, the effect of other Federal motor vehicle standards on fuel economy, and the need of the Nation to conserve oil.

The rider blocking the DOT from doing its work has frozen fuel economy standards for both cars and light trucks. Light truck fuel economy has been most affected because the freeze provision killed a light truck fuel economy rulemaking; it has allowed the large disparity between car and light truck fuel economy to persist. The CAFE rider has, in essence, substituted Congress's judgment on the "technical feasibility" of raising light truck standards as well as the effect of other Federal motor vehicle safety standards on fuel economy for that of the experts it charged with undertaking this analysis. And, by stealth, the rider even denies the American people the benefit of DOT's analysis that it would do in preparation for proposing new standards.

In 1999, 42 Senators supported the "Clean Car Resolution" opposing the Housebased anti-CAFE rider. In 2000, members of the Senate reached an agreement for FY 2001 which calls for the National Academy of Sciences, in conjunction with the DOT, to study CAFE standards. The Academy will consider the four factors in the original law as well as several other issues including safety. This victory over a complete freeze on even a study of CAFE still leaves the DOT unable to act on CAFE in the face of today's high oil prices.

Clean Energy and Energy Efficiency

The United States has entered the 21st century relying on dirty, polluting 19th century fossil fuel technology. In contrast, our economic competitors, Japan and Europe, use only half the energy we do to achieve roughly the same standard of living. We need to clean up our electric power plants. Many electric utilities still use coal to produce electricity, spewing millions of tons of carbon dioxide and other pollution into the atmosphere every year. Converting these plants to burn cleaner natural gas could solve part of the problem. We could do much more to save energy in our homes and office buildings. More energy efficient lighting, appliances, heating and air-conditioning could keep millions of tons of carbon dioxide out of the air each

year.

Harnessing the clean, abundant energy of the sun and wind is critical to solving the global warming problem. Technological advances have brought the cost of electricity generated by the wind down by 85 percent since 1981. Wind "farms" are now producing energy from coast to coast. Solar energy technology has made remarkable progress as new photovoltaic cells have been developed to convert ever greater amounts of sunlight directly into electricity. Today the costs of wind and solar power are approaching that of cheap, dirty coal plants.

Midwestern states in particular hold enormous potential as sources of renewable energy. Renewable sources currently make up less than 1 percent of the energy market in the U.S. However, states like Kansas, Nebraska, North Dakota, and South Dakota hold the potential to become the Saudi Arabia of wind power. We need to invest more in research, development and demonstration to put these clean domestic technologies over the top and enact standards that require an increasing percentage of our energy to come from these clean, renewable sources.

Conclusion: Taking Action

Raising CAFE standards is a sensible and essential solution to the global warming pollution problem. New standards will ensure that new cars and light trucks utilize modern technology to achieve real oil savings and pollution reductions. If we are to curb global warming, we must also put better technology into power plants, offices, and homes, as well as invest in the next generation of energy saving technologies.

There are high costs to inaction. If we fail to act to curb global warming we will impose on our children enormous impacts on health, coasts, agriculture, and infrastructure. These impacts carry a price tag in the hundreds of billions of dollars. And, what is the dollar value on lives lost to heat waves, infectious disease, and extreme weather?

Experts have joined in emphasizing how global warming will affect us all. And they have emphasized that the steps to curb global warming pollution can be costeffective.

The time to act to curb global warming is now. The IPCC scientists tell us that our children and grandchildren are facing a very serious threat. They warn us that global warming threatens our health with disease and heat waves, our coasts with rising seas, our agriculture with drought and extreme weather, and our river communities with flooding. We can and must take action to protect our children's future.

The CHAIRMAN. Thank you very much.
Mr. Morgheim, welcome.

STATEMENT OF JEFF MORGHEIM, CLIMATE CHANGE

MANAGER, BP, HOUSTON, TEXAS

Mr. MORGHEIM. Thank you. Mr. Chairman and members of the Committee: My name is Jeff Morgheim and I am the Climate Change Manager for BP. I am based in Houston, Texas, where I manage BP's emissions trading system.

The BP system is the world's first global trading system for greenhouse gases and is the only trading system that has voluntary participation across a company's entire operations. The BP trading system is the product of a commitment to explore the use of trading systems to control emissions and is becoming a powerful tool that is helping BP meet its reduction target cost effectively.

I would like to recount how we developed the system. In May 1997, Sir John Browne, Chief Executive Officer of BP, announced that BP would reduce its emissions of greenhouse gases and that we would launch an internal pilot emissions trading system. In July 1997, BP teamed with Environmental Defense to develop that pilot trading system. Environmental Defense has played a very important part in our initiative and we would like to again express our thanks to Fred Krupp, the Executive Director, as well as Dan Dudek, the Senior Economist of Environmental Defense, for their contribution and their continued support.

The goal of instituting our system has come to fruition. On January 14th of this year, the first trade was made with the sale of emissions to our refinery in Toledo, Ohio, and I am pleased to announce that BP has just traded its one millionth ton of greenhouse gases with the sale of permits from our western gas operations to a refinery in Salt Lake City.

You will find more information on the mechanics and the functionality of our trading system in my written testimony. Now I would like to take you live to our Internet site to demonstrate the trading system for you.

[Screen.]

What you are seeing is the home page for the trading system, which contains key price data at the top of the screen, as well as the total volume that has been traded to date. As of right now, we have traded roughly 1.2 million tons of greenhouse permits, which are measured as carbon dioxide emission equivalents.

What I would like to do for my demonstration today is actually put a bid on the system

The CHAIRMAN. We are going to join Senator Brownback and get a little closer.

Senator BROWNBACK. My eyes are not that good.

Senator KERRY. Mr. Morgheim, why do you not explain exactly what the effect of a trade is, why it is beneficial, what it means. Mr. MORGHEIM. OK, I will answer that. The purpose of our trading system is that BP is committed to a reduction goal. We are going to cut our emissions by 10 percent from 1990 levels by the year 2010. The purpose of the trading system is to take our annual emission targets and then allocate that to each business unit, and we have over 150 around the world, 55 percent of our assets based right here in the United States.

What the trading allows us to do is to let those business units that have very low-cost reduction options make more investments in carbon dioxide reductions and then sell those permits to business units who may be growing so fast that, even if they deploy the latest technology for controlling their emissions, they are nonetheless going to rise above their emission targets.

So what this allows us to do is make the right investment in the right place, so that we hit the target as a company and we do it cost effectively. That is the spirit behind the trading system.

The CHAIRMAN. Proceed.

Mr. MORGHEIM. Before I put a bid for the Gulf of Mexico deep water exploration, what I would like to do is find out how the market is behaving today.

[Screen.]

I apologize for the delay here. We are live, so we have to put up with things like modems and such.

What you see here, the red dots are offers to sell permits. So these are business units who are emitting less permits than they were allocated, because they have taken reductions in their emissions through energy efficiency or other steps. The green triangles are bids to purchase.

What we see here is a very active market. The screen would show along the X axis the price per ton and the end of the graph runs from $0 per ton to $20 per ton on the X axis. The Y axis runs for quantity of tons that are being traded. So you can see we have a very active market, and I am pleased to announce that having more green dots than red triangles means that more businesses than not are actually beating the reduction targets and so it looks like a buyers' market for permits because we are overdelivering on our reduction commitment.

Now, I would like to get an idea of how the price has behaved recently before I set my bid. What this graph shows is a plot of all the traded prices for permits from the trades that have been executed, the one million tons that have been traded. What we see is that here in the past 1 or 2 weeks the price has really come down. I think what this is indicating is that business units are now getting comfortable that they, in fact, are going to beat the reduction targets, so there is now an oversupply of permits in the system. And like any market, it is driving that price down.

So now, just to round this out I am going to go ahead and put a bid on the system. Just to refresh our memories of what the system looks like, we had the four offers out here ranging from $2 a ton to $5 a ton. For demonstration purposes only, because I think the business unit would be very upset if they found me buying permits on their behalf, I am just going to go ahead and put in a bid