Since EPA is legally bound to regulate vehicle fuel emissions, their new standards are a reasonable step. But it is an example of the kinds of command-and-control regulations that should be used only sparingly to address climate change.

Since the Supreme Court ruled in Massachusetts v. EPA that the agency must regulate greenhouse gases two years ago, legal petitions have been piling up on the Administrator’s desk. For example, a number of states and environmental organizations have petitioned the EPA to regulate GHG emissions from airplanes, ships, and nonroad vehicles. These petitions will require a response. But if EPA begins to address each complaint with another bureaucratic rule, we will end up with a spider’s web of red tape, a big price tag, and we won’t have much to show for it in terms of emissions reductions. Instead, the agency should use its authority under section 211 of the Clean Air Act to create a cap-and trade mechanism for vehicle fuels. A detailed legal analysis of that section can be found here.

Plus, while hopes are dimming for climate legislation from Congress this year, a bill is likely to be passed at some point. Depending on the timing, there is a risk of a collision course between a congressional cap-and-trade and a set of prescriptive top-down style regulations from the Administration. To avoid overlapping, redundancy, and excessive expense EPA should begin to take steps now to avoid this mess.

Under section 211, EPA could move quickly to put in place a cap-and-trade on vehicle fuels, similar to the way cap-and-trade legislation would deal with mobile sources. Based on carbon content, EPA could set an economy-wide maximum pollution level, auction permits, and allow trading of permits. Unfortunately, this is only the first step because it will only cover mobile sources. But it is still incredibly valuable, because those sources account for a huge percentage of U.S. emissions.

While the Administration holds its breath for Congress to act, the joint efficiency standards suffice. But EPA should not implement too many more command-and-control regulations; instead, if there is further delay in Congress, that should be a signal that EPA should do its best to create a workable, market-based, system on its own.

The vehicle efficiency regulations recently released by the Obama Administration have drawn support from a broad spectrum of interested parties, from vehicle manufacturers to environmental advocates, from consumer safety groups to labor organizations. Most notably, they have garnered a diverse group of supporters without diluting the effectiveness of the regulations.

While we look forward to further improvement in CAFE standards, procedures and loopholes, we applaud the administration’s bold step: This measure will harness the power of energy efficiency to save consumers money while reducing greenhouse gas emissions and enhancing our national security.

Far from making new cars more expensive, the standards will save car-owners money every day. EPA estimates that any price premium from a vehicle’s increased energy efficiency will be far outweighed by life-cycle savings on gasoline – after accounting for the additional expense, each driver will still save more than $3,000 over the lifetime of a vehicle, thanks to this measure.

In addition, the new standards will also enhance our energy security, lowering U.S. oil consumption by 1.9 million barrels every day! Furthermore, the new standards will mitigate the effects of global climate change, reducing greenhouse gas emissions from light-duty vehicles by about 21 percent compared to maintaining the status quo.

There remain several loopholes in CAFE regulations that weaken the power of any new standard, and we hope these will be addressed. For example, CAFE test procedures do not reflect real-world driving conditions, so the real fuel economy of a given vehicle is likely 20-25 percent below its CAFE-tested number.

Also, the regulations assume that “flex-fuel vehicles,” which can run on either gasoline or ethanol, run on each fuel half of the time – but in fact, most flex-fuel vehicles run almost exclusively on gasoline! Assuming that the split is 50-50 has the effect of artificially inflating the fuel economy of flex-fuel vehicles.

And, since EPA regulates only vehicle tailpipe emissions, the new regulations will assume that plug-in electric vehicles have zero emissions; in fact, electric vehicles will only shift their emissions to power plants, most of which are powered mainly by fossil fuels that produce greenhouse gas emissions.

These flaws notwithstanding, the administration’s proposed standard is a major step forward for a nation that has lagged behind other countries in the fuel efficiency of its vehicle fleet. Policies that enable consumers to take control of their gasoline spending and their environmental impact will move the United States along the path toward a clean, green economy; and we applaud the new regulations for advancing that objective.

The release of the joint Notice of Proposed Rulemaking (NPRM) by the Environmental Protection Agency (EPA) and the National Highway Traffic Safety Administration (NHTSA) to regulate the fuel economy and carbon dioxide emissions from cars and light trucks (light duty vehicles) marks the culmination of the most important development in American Energy policy since the beginning of the program to regulate vehicle fuel economy thirty five years ago.

Oil consumption lies at the intersection of the national energy, security and environmental challenges facing the nation, not to mention the fact that spending on gasoline is the single largest household energy expenditure and constitutes a larger expenditure than almost every other category, including food. The proposed standard is cash flow positive for the typical household from the get-go – i.e. the reduction in gasoline expenditures exceeds the cost of energy savings technology in the first month – and saves $3,000 over the life of the vehicle.

The U.S. consumes one quarter of all the world’s oil but owns only 3 percent of its reserves, and ships $175 billion per year abroad to pay for the rest.. Reducing this dependence is central to a secure energy future. Light duty vehicles also account for over 60 percent of U.S. greenhouse gas emissions (GHG) from mobile sources -- the fastest growing sector of GHG emission.

Beyond the immediate impact of the proposed rule on consumers, the Notice institutionalizes four steps to improve the way vehicles standards are set that will ensure the U.S. auto industry is rebuilt to meet the challenges of the 21^st century.

The first step was the decision to coordinate federal energy and environmental policy, with state emissions policy as it affects vehicles. Coordinating energy and environmental policy is a “no brainer.” The notion that environmental policy had to be set independently of fuel efficiency standards, especially with respect to climate change, is nonsensical. There is a direct physical relationship between fuel consumption and tailpipe carbon dioxide emissions that only the bizarre twists of Washington D.C. policy making could try to avoid.

Second, at the same time, the collaborative approach preserves the right of the states, led by California, to exercise leadership in environmental policy. The rule adopts the environmental target set by California and over a dozen other states for their vehicle fleets and thereby pulls the national fleet ahead substantially. It maintains dynamic federalism, which serves the public interest by expanding the resources and points of view brought to bear on an important policy area.

The third important step was to raise the standard substantially as a part of the collaboration and compromise. The emissions regulation, adopted by over a dozen other states, required large reductions in greenhouse gas emissions that would inherently require higher fuel economy for vehicles. By adopting the California target for 2016, the federal standard is increased by 3 miles per gallon above what the Bush Administration had proposed and achieves the minimum level of 35 miles per gallon almost half a decade ahead of the minimum improvement Congress had required in the Energy Independence and Security Act of 2007 (EISA).

The fourth important step is to introduce transparency into the regulatory process. This transparency comes at two levels. First, the EPA and NHTSA have made a determined effort to base the proposed rule on publicly available data. This sheds important light on how decisions on being made. Second, the proposed rule is honest in identifying which factors have constrained the level of fuel economy. The notice makes it clear that simple economic and energy considerations would have dictated a higher level for the standard, but the current, fragile state of the industry precluded moving immediately to those higher levels. Being honest on this point sets the stage for much higher standards in the future, once the industry recovers from the current cyclical downturn. The NPRM invokes the fragile state of the industry several times as the constraint on what can be done within the framework of the redesign and refresh design patterns of the industry. But the Notice recognizes that future years might be treated differently and notes that a different conclusion might be reached for the 2017 model year. It is vital to the long term health of the industry and to meeting the energy and environmental challenges in the decades ahead that the Administration view this rule as the start of a transition to a period of sustained rapid increases in fuel economy and abatement of greenhouse gas emissions from vehicles.

These are important initial steps in the long march to a 21^st century auto industry in the U.S. It is imperative, however, that the administration send a strong signal to automakers that future standards will be dictated more by the economic and environmental benefits to society than by whether the industry is able to implement the available technologies that provide those benefits. Such a signal will ensure that as the industry emerges from the cyclical downturn, redefining and retooling itself, it will be more flexible and prepared to meet more stringent standards more quickly.

The following steps will send that signal, by pointing future rulemakings in the correct direction.

1) The Energy Independence and Security Act of 2007 requires NHTSA to give the industry 18 months notice of an increase in standards, which means the 2012 standard must be set in short order. For years farther off, NHTSA and EPA should commit to continual reanalysis and make it clear that the levels contained in the Notice are tentative. As the retooled industry returns to health, it should reevaluate its ability to meet higher standards.

2) NHTSA should identify the midpoint between the economic optimum (maximum net benefits) and the environmental optimum (maximum energy saved) that available technology will support as the point where the proper balance is struck between the economic, environmental and energy conservation goals of the Act.

3) It should declare that, once the cyclical downturn has passed and the industry is restored to health, it will set the standard at the point where 50% of the automakers are capable of meeting it without incurring fines.

This historic proposal moves America further down the road to cleaner, more fuel-efficient vehicles. It will reduce global warming pollution, break our dependence on oil, and save drivers money at the pump. In addition, there is consensus that these standards will be needed to complement the coming cap and trade system.

I was honored to be at the Rose Garden ceremony back in May when President Obama announced this program. It was quite a sight to see the president flanked by auto executives and members of the United Auto Workers. It was a welcome sign that many forces have come together and agree that the future of the auto industry lies in making cleaner, higher mileage vehicles.

By using good science and smart policy, the design of the national program standards will ensure that low emissions and safety all go hand-in-hand. Two key indicators reveal this to be the case:

1. The new standards are "size-based." Under this system, any incentive to make vehicles smaller to meet the standard is neutralized by the fact the standards are more stringent for smaller vehicles.

2. The latest, best research shows that safety is about size and design, not weight. In fact, as shown in analysis by Professor Marc Ross of the University of Michigan and Tom Wenzel of DOE, reducing weight without changing size can save lives.

The joint standards proposed by EPA and NHTSA represent lofty aspirations. Reducing our country’s long-standing dependence on foreign oil, decreasing greenhouse gas emissions from the transportation sector and saving consumers money on fuel can be achieved through a smart and all inclusive approach to regulating light and medium duty vehicles. I am pleased to see that, according to the EPA, their joint technology assessment “indicates there is a wide range of technologies available for manufacturers to consider in upgrading vehicles to reduce greenhouse gas emissions and improve fuel economy.”

Here lies the most important component to effective regulation and policymaking on this issue – technology neutrality. As these regulations are reviewed and commented on over the next 60 days, it’s important for all stakeholders to consider technology-neutral provisions that will lead to reductions in petroleum use and CO2 emissions, rather than picking and choosing specific technologies. Effective regulations will empower the consumer to decide what vehicle technology best meets their “real world” driving needs, today and in the future. One such option that offers the fuel and carbon efficient benefits and has become popular with car buyers this year is advanced clean diesel technology.

Today’s advanced diesel engines are ultra clean, meeting the nation’s toughest air quality standards. Advanced clean diesel-powered vehicles average 30 percent better fuel economy and 20 percent lower CO2 emissions than traditional gasoline engines, which benefit both consumers and the environment. All of these benefits come without sacrificing the power Americans need or want in their vehicles. Advanced diesel technology provides an average of 50 percent more power (torque) than a traditional gasoline engine. And along with these long term fuel-efficiency and CO2 advantages, consumers can receive federal fuel efficient vehicle tax credits when they purchase a new advanced diesel vehicle and enjoy higher resale values.

Now that multiple advanced clean diesel models have been on the market in 2009, the percentage of consumers selecting clean diesel as an available option is surpassing the percentage of consumers selecting a hybrid electric powertrain option on available vehicles. They are finding advanced diesel provides real world fuel economy and, coupled with diesel’s traditional high resale value, it provides a low-cost method for CO2 reduction.

Policymakers continue to seek the silver bullet vehicle technology and Congress has been investing heavily in specific technologies. Indeed, the EPA is offering advanced technology credits for the supply side, intended to “encourage the commercialization of advanced greenhouse gas/fuel economy control technologies…” We hope provisions such as this one will reward any technologies – now and in the future – that achieve the fuel economy and GHG reductions we seek. While investing in the future, policymakers must not lose sight of the immediate benefits that can be derived from a proven technology.

It’s not every day that engineers, environmentalists, safety advocates and automakers applaud new federal vehicle standards. That’s what happened last week when the Obama administration proposed new joint fuel economy and heat-trapping emissions standards. Once finalized, these historic standards will achieve the greatest oil savings and emissions reductions from the transportation sector in more than 30 years.

Based on UCS’s analysis, the proposed standards would cut U.S. oil dependence by 1.3 million barrels per day in 2020 – nearly as much as we currently import from Saudi Arabia. As a result, drivers could expect to save $25 billion to $60 billion at the gas pump, depending on the price of gas – even after paying for the vehicles’ energy efficient technology. The standards also would cut global warming emissions by 217 million metric tons in 2020 – the equivalent of taking 32 million cars and light trucks off the road in that year.

The good news is automakers could cost-effectively meet these standards with existing fuel-saving technology. In our 2007 report, “Setting the Standard” (pdf), UCS demonstrated that currently available technology could safely boost fleetwide fuel economy to more than 40 miles per gallon by 2020 -- and enhance safety, expand consumer choice, and save drivers money at the same time.

Regardless, Sen. James Inhofe (R-Okla.) has attacked this landmark agreement. The same person who once invited a science fiction author to testify before Congress regarding climate science now claims that slashing oil imports “will not enhance America’s energy security.” That doesn’t make much sense to us.

The United States is ready for a responsible, 21^st century clean energy economy that spurs innovation, creates jobs, cuts emissions, and strengthens national security. These new proposed clean vehicle standards are a critical part of that plan. Now it’s time for Congress to pass strong climate and energy legislation to help all sectors of our economy move forward.

Implementing new emissions standards for vehicles does not mean there will be a decrease in safety. In fact, the American Iron and Steel Institute’s Steel Market Development Institute is developing stronger, lighter and more affordable grades of advanced high-strength steels (AHSS) that will help automakers achieve the new tough standards announced by President Obama. Today’s AHSS can reduce a vehicle’s structural weight by as much as 25 to 32 percent – helping to reduce fuel consumption and CO2 emissions – while remaining the strong and safe material for which steel is known. In addition, the use of advanced high-strength steels can help reduce the total life cycle CO2 emissions of an automobile by virtue of its mass reduction capability, its relatively low energy CO2 intensity compared to other materials (i.e. about 25 percent of that of aluminum or less than 15 percent of that of magnesium) and its total recyclability.

A recent study by research firm, Ducker Worldwide, shows that AHSS is the fastest growing material in today’s new vehicles, which indicates that automakers already see the benefits of these new steels in terms of cost, mass reduction, fuel efficiency and safety. According to the study, because of these advantages, manufacturers will continue to expand the implementation of these grades to meet the new fuel economy requirements, while maintaining crash safety and affordability.

Uncle Sam is on the wrong track, but for global, not domestic, reasons.

Standard setting gives the advantage to the technical experts of car companies. And they have tied knots in the standards for 35 years. That problem has a simple fix, but let’s ignore it. Perhaps this time, tighter standards will survive the experts. If they do, there’s some often-overlooked good news. But we’re still missing a huge opportunity.

Stricter CAFE standards will reduce the price of oil. That’s good for us—and for the whole world. But here’s what puzzles me. We’re fighting climate change with CAFE standards. These lower the price of oil for China among others. We’re desperate for a climate deal with the Chinese, and they’re desperate for low oil prices. But we don’t mention oil during climate talks. Never. Why is that? Why hit them with sticks, when we have this carrot?

We’re cutting off our nose to spite our face. Most environmentalists are not speaking to energy security advocates because of the likes of Sarah Palin. As a consequence, we’re missing the best opportunity to fix the climate. Here’s why.

1. China and the U.S. have a strong common interest.

2. Climate-friendly measures such as CAFE standards are most effective against oil price spikes.

3. We need each other.

4. The payoff is far more immediate and tangible than a cooler climate in 50 years.

A common interest. The Chinese have gone from importing 25 percent to importing 50 percent of their oil in the last nine years. So, as the DOE tells us, “The Chinese government’s energy policies are dominated by the country’s growing demand for oil and its reliance on oil imports.” We’re both addicted to oil, and both need to prevent oil price spikes.

Climate policy cuts oil prices. It’s right there in DOE’s 1998 report on the Kyoto Protocol. DOE found that Kyoto would lower the world price of oil by almost 5 to 1. A 1 percent cut in world demand for oil would cause almost a 5 percent drop in the price of oil. They did not talk it up, but it’s in their numbers. This effect can be found in every climate model that asks the question, though the numbers vary. I’ve analyzed the implications based on the lowest number I could find (1.5 to 1) and found that a global climate policy could pay for our policy costs for the next decade or two, simply by reducing the price of imported oil.

Before the $145 oil price spike in 2008, the International Energy Agency (IEA) predicted “global demand, particularly in China, could grow much more quickly than projected. … a supply-side crunch in the period to 2015, involving an abrupt run-up in prices, cannot be ruled out.” It did not take that long. Nothing has changed, and a repeat performance should be expected. In the IEA’s High Growth (for China) Scenario, a 1% demand reduction causes a 12% reduction in the world price of oil. That’s huge.

We need each other. Our CAFE standards benefit China. In fact we get less than 1/3 of the total oil-price benefit from acting along. Right now, China gets even less of the benefit if it acts alone—because it imports less oil. Instead of giving away our ace, we should go to China and say: “Cooperation will help us both. Agree to climate policies that are similar to ours (but not a cap) and together we will organize all of the big oil users to cut carbon. We will emphasis oil, since that will pay for this policy. But if you don’t cooperate, we won’t be able to do much.”

Did they really forget China’s oil problem? I have made a close study of this for almost three years. Even where you would most expect to find oil being mentioned, for example in the Roadmap for U.S.-China Cooperation on Energy and Climate Change (co-chaired by Steven Chu), there is not one mention of China’s oil problem, let alone its connection with climate policy.

Leading the world is a fine idea, but leadership requires understanding our partners and making use of common interests. And it requires looking at the global picture. That picture includes China, and it includes energy security.

U.S. regulations are not too ambitious. Japan and Western Europe have higher efficiency standards and safe cars. The German death rate per 100,000 people on the roads is about half that of the United States. Western European death rates are generally lower than the United States as well.

It is prudent to address any residual concerns not be forgoing efficiency standards, but specifying mileage, safety, and emissions standards at the same time. This would likely ,mean legislation. Mileage standards can also be specified as CO2 tailpipe standards. The EPA already has the authority to do this. One advantage of doing it as CO2 standards is that it will encourage plug in hybrids and electric cars. The most important legislative commitment would be for the federal government to commit that all of its vehicle purchases would be all-electric or plug-in hybrids by say 2016 or so, except where security or functionality dictate otherwise. This would create a market for efficient vehicles and accelerate the shift. Of course, safety standards should be applied to electric and plug-in vehicles as well.

We have the technology. Do we have the will to reduce the use of oil and oil imports? That is the question.

EPA’s CAFE announcement reminds me of the old adage that if your only tool is a hammer, every problem is a nail. At best, the history of these emissions standards is checkered. Though there’s no doubt that the policy has saved some amount of oil, it has also lead to increased highway fatalities, the death of the station wagon (now making a come back as the cross over), and the creation of the SUV.

Claims about CAFE standards effectiveness and what they still can accomplish are like second or third marriages, a triumph of hope over experience.

Although it appears that EPA plans to structure its rule along the lines recommended by the National Academies of Science, CAFÉ remains a second best approach to fuel economy. There is an abundance of evidence, empirical and analytical, that price is the most effective driver for reducing fuel use. When fuel prices are high, consumers turn to higher mileage vehicles; when they go back down, they prefer comfort and size to miles per gallon. Europe has a policy of maintaining high gasoline prices and its auto industry has fared better than ours and its vehicle fleet has been rationalized to reflect higher prices.

The Congressional Budget Office has been very clear about the superiority of a gasoline tax over CAFE:

In fact, a tax increase would have a significant advantage over more stringent CAFE standards in the initial years because, while consumers would only gradually buy new, more-fuel-efficient vehicles, they would reduce their driving immediately in response to the tax. That change would not only reduce gasoline consumption, but it would also lower other social costs of driving, such as traffic congestion and the frequency of accidents. In contrast, higher CAFE standards would tend to encourage driving (by lowering the per-mile cost) and would thus increase those social costs.

Auto manufacturers have accepted the EPA standards to achieve a national standard instead of being faced with a California standard that some other states would have adopted as well. And, no doubt, the government’s deep involvement in the auto industry has made it more difficult for them to fight these new rules even though they probably go beyond what is economically realistic between now and 2016.

Improvements can be made in fuel efficiency and were being made as a consequence of last year’s spike in oil prices and no expectation for a return of $30 oil. But, achieving a fleet average of 35 miles per gallon by 2016 is a daunting challenge. Substituting lighter weight materials, adopting hybrid technology and advanced engine and drive train systems will make cars more expensive. The upper estimate of $1,300 may be too low.

The highest mileage vehicles will be the smaller ones and hybrids. Hybrids can cost $4,000 more than their gasoline counterparts. And small vehicles are not popular except in metropolitan areas -- meaning that manufacturers will have to continue subsidizing them by charging higher prices for the vehicles most Americans want.

In the end, the new standard will do little for global greenhouse gas levels and achieve far less than predicted in reducing oil imports. The answer to the latter is to produce more domestically and create the good paying jobs that go with that production.

CAFE demonstrates that once government adopts a policy, it doesn’t abandon it even if it not a good one. They simply make it more complex.