NHTSA has not raised the  CAFE standard for cars above 27.5 mpg since 1990 because, among other  reasons, NHTSA officials wish to first restructure the program to mitigate  potential negative effects on safety of raising the standards. EPA reports the yearly CAFE results for each  manufacturer to NHTSA for CAFE enforcement. 2 for a display of how  the standard applies to trucks of different sizes). For example, the Senate passed a bill that calls for cars and light  trucks to achieve a combined CAFE average of 35 mpg by 2020. Most  of these experts said CAFE was somewhat effective in reducing fuel  consumption, and a study by NAS estimated that in 2002 CAFE, along with  other factors, contributed to saving about 2.8 million barrels of fuel per  day, or about 14 percent of consumption in that year. As  noted, NHTSA has made this change to the light truck program; and as of  model year 2011, light trucks will be required to meet size-based CAFE  standards, and the agency would like to institute a similar change for cars. Some Market-Based Policy Options Could Complement the CAFE Program

Through reviews of our past reports and other studies, interviews with  experts, reviews of recently proposed legislation, and analysis of existing  programs in the United States and other countries, we identified several  market-based policies involving cars and light trucks that could  complement and strengthen CAFE’s fuel-saving effects or that could be  broader reaching and potentially more cost-effective alternatives to the  CAFE program. However, some of these incentives may  work at cross purposes to programs intended to reduce fuel consumption. Market-based incentives  have also been used to increase the availability and use of biofuels, but our  recent report on these efforts identified several limitations, and the cost- effectiveness of these programs is unclear. Several options, including a  tax on fuel or a carbon cap-and-trade program, affect a broader range of  fuel-saving behaviors among consumers and could be more cost-effective. Such options could help the nation reach larger, long-term fuel-saving  goals at a lower cost than CAFE, but time would be needed to design and  garner support for each before it could be implemented. Several issues may limit the effectiveness of the Gas Guzzler Tax. Expanding the use of alternative fuels can work in parallel with CAFE  standards to reduce oil consumption. In addition, evaluating and  updating existing consumer incentives, such as tax credits for buying fuel- saving vehicles or taxes on purchases of vehicles with low fuel economy  ratings, could strengthen the CAFE program’s fuel-saving effects. Thus, Congress should consider giving NHTSA (1) the authority  to reform the car CAFE program much as it restructured the light truck  CAFE program and evaluate additional refinements to the program such  as credit trading; (2) the resources to update information on the  capabilities of new technologies to enhance passenger vehicle fuel  economy—as was done in the 2002 NAS study; and (3) the flexibility to  adjust the program in the future in response to changes in the passenger  vehicle market, such as improved automotive technology and changes in  the mix of passenger vehicle types. To help ensure the nation’s fuel-saving goals are achieved in the most  efficient fashion, we further recommend that the Secretary of  Transportation, in coordination with all relevant agency officials, including  the Secretary of Energy, the Administrator of the Environmental  Protection Agency, and the Secretary of the Treasury evaluate the impacts  existing and potential policy options are having or might have on fuel  consumption by cars and light trucks beyond what may be achieved  through CAFE standards alone and report on the result of this evaluation. Specifically, such an analysis should evaluate (1) existing consumer  incentives that complement CAFE to determine whether changes to the  incentives could improve their effectiveness and reduce their costs; (2)  existing incentives that may affect fuel consumption by cars and light  trucks—whether these policies were designed to do so or not—to ensure  that policies meant to reduce fuel consumption are not being counteracted  inadvertently by policies that increase fuel consumption; and (3) broader  reaching strategies such as a carbon tax, cap-and-trade program, and  others, as possible long-term alternatives to the CAFE program. To assess NHTSA’s capabilities to further revise CAFE standards, we  reviewed budgets for the CAFE program and NHTSA’s fiscal year 2007  budget.
Why GAO Did This Study

Concerns over national security, environmental stresses, and high fuel prices have raised interest in reducing oil consumption. Through the Corporate Average Fuel Economy (CAFE) program, the National Highway Traffic Safety Administration (NHTSA) requires cars and light trucks to meet certain fuel economy standards. As requested, GAO discusses (1) how CAFE standards are designed to reduce fuel consumption, (2) strengths and weaknesses of the CAFE program and NHTSA's capabilities, and (3) market-based policies that could complement or replace CAFE. To do this work, GAO reviewed recent studies and interviewed leading experts and agency officials.

What GAO Found

NHTSA, an administration within the Department of Transportation(DOT), is primarily responsible for setting and enforcing CAFE standards for cars and light trucks, although the Environmental Protection Agency (EPA) and the Department of Energy (DOE) are also involved. NHTSA raised the light truck CAFE standards from 20.7 miles per gallon (mpg) in 2004 to 22.2 mpg in 2007. Subsequently, NHTSA, which has authority to restructure the light truck program, set different standards for light trucks of different sizes. The new approach takes full effect in 2011. However, NHTSA has not raised the CAFE standard for cars above 27.5 mpg since 1990 due, in part, to provisions in DOT's annual appropriations acts for fiscal years 1996 through 2001 and, more recently, to NHTSA's desire to restructure the car CAFE program before raising the standard to avoid potential negative safety impacts. Many experts believe CAFE has helped save oil--for example, a study by the National Academy of Sciences estimated that in 2002 CAFE contributed to saving 2.8 million barrels of fuel a day in passenger vehicles, or 14 percent of consumption in that year. CAFE would help the nation work toward fuel-saving goals if standards are increased, and GAO's evaluation of NHTSA's capabilities suggests the agency could act quickly to implement new standards and restructure the program. However, GAO identified several characteristics that limit CAFE's potential to save fuel. Several refinements to the CAFE program could improve its effectiveness and reduce costs, such as setting different standards for cars of different sizes as the restructured light truck program does and instituting a broader CAFE credit trading program. The Senate recently passed a bill modifying the CAFE program that includes these refinements. Meeting the nation's goals to reduce oil consumption over time will require more than CAFE alone, and GAO identified several market-based incentives involving passenger vehicles that could complement and strengthen CAFE's fuel-saving effects or that potentially could serve as alternatives to CAFE. Some market incentives, such as a tax credit for hybrid vehicles and the Gas Guzzler Tax on fuel-inefficient cars, currently exist to encourage consumers to buy fuel-efficient vehicles. However, GAO identified other vehicle purchasing incentives that may work at cross purposes to those intended to reduce fuel consumption. For example, market incentives have been used to increase the availability and use of alternative fuels; however, GAO's recent report on one of these efforts identified several limitations. Several additional policy options, including a tax on fuel or a carbon cap-and-trade program, would affect a broader range of fuel-saving behaviors among consumers and would likely be more cost-effective than CAFE. Such options could help the nation reach larger, long-term fuel-saving goals at a lower cost than CAFE, but time would be needed to design and garner support for each before it was implemented. However, increasing the CAFE standards and considering options to improve the program would contribute to fuel-saving goals in the immediate future.