Washington, DC – U.S. Senators Dianne Feinstein (D-Calif.) and Olympia Snowe (R-Maine) today urged the Department of Energy to ensure that the $25 billion loan program for the struggling automobile industry is used to build more fuel efficient vehicles.

Specifically, the Senators urged Energy Department Secretary Samuel Bodman to issue a revised interim rule-making, which would require that any auto company receiving loan assistance from the Advanced Technology Vehicles Manufacturing Incentive Program to use those funds to construct vehicles that are 25 percent more efficient than the CAFE standard for that vehicle in the year the retooled auto manufacturing factory reopens.

Senators Feinstein and Snowe were the lead sponsors of the “Ten-in-Ten Fuel Economy” law, which was enacted by Congress in December 2007 as part of the comprehensive energy package. The law requires an increase in average fuel economy standards for America’s fleet of vehicles by at least 10 miles per gallon over 10 years. This was the largest increase in fuel efficiency in more than two decades.

Following is the letter sent by Senators Feinstein and Snowe to Energy Secretary Bodman today:

November 14, 2008

The Honorable Samuel W. Bodman
Secretary
United States Department of Energy
1000 Independence Avenue SW
Washington, DC 20585

Dear Mr. Secretary:

We are writing to request changes in the interim final rule under which the Department of Energy (DOE) is implementing the Advanced Technology Vehicles Manufacturing Incentive Program.  We believe that DOE was in error when it defined the “base year” of this program as 2005 instead of the year a retooled factory reopens.  DOE’s error will allow automakers to receive subsidized loans for mere compliance with Corporate Average Fuel Economy (CAFE) regulations, which would violate Congress’s intent and squander government resources.

As the authors of the Ten-in-Ten Fuel Economy Act (P.L. 110-140), which increases CAFE standards at least 40 percent over ten years, we believe the DOE loan program must fund a transformation in the automobile companies’ business models towards advanced technology hybrid and other high efficiency vehicles.  The American people are providing $25 billion in loans to reduce dependence on oil, create consumer savings at the gas pump, and cut climate change pollution.  A public investment of this size must produce measurable increases in fuel economy beyond what the law already requires. 

As you know, Section 136 of the Energy Independence and Security Act of 2007 (EISA) authorized DOE to issue loans to auto companies that retool factories for the construction of “Advanced Technology Vehicles.” 

Congress intended this program to fund the construction of vehicles that exceed new fuel economy standards by at least 25 percent.  Senators Bayh, Lugar, and Obama each introduced legislation proposing financial support to automakers that produce “Advanced Technology Vehicles,” and each of their bills listed specific high efficiency technologies, such as plug-in hybrid electric vehicles and fuel cell vehicles.  In its report accompanying the legislation that passed the Senate, the Committee on Energy & Natural Resources stated that “Advanced technology vehicles are defined as those that … achieve at least 125 percent of combined fuel economy for vehicles of a substantial similar footprint.”  The report indicates the Committee’s expectation that vehicles funded by the program exceed the fuel economy of vehicles sold at the same time, not a date in the past.  The Senate provision, modified from a grant to a loan program, became Section 136 of EISA.

Unfortunately, DOE has interpreted the law as giving the agency full discretion to choose the “base year” from which improvements should be measured, and DOE has chosen model year 2005.  The fleetwide fuel economy in 2005 was only 25.4 miles per gallon (mpg).  After adjusting based on attributes, vehicles qualifying for loans would need only to average 31.75 mpg.  Based on the National Highway Traffic Safety Administration’s (NHTSA) proposed fleetwide CAFE standard of 31.6 mpg in 2015, it appears that DOE is establishing a program to subsidize compliance with these new CAFE standards.

If DOE believes the statute requires that it use an historic base year, it should certainly use the most recent model year available.  In March 2008, the U.S. Department of Transportation published CAFE compliance data, including sales volumes by manufacturer, demonstrating that fleetwide fuel economy reached 26.6 mpg in model year 2007.  Using this most recent year of historical data, the vehicles qualifying for loans would need to be, on average, at least 1.5 mpg more efficient than DOE has proposed.

To fully comply with the intent of Section 136, DOE should modify its loan program to ensure that vehicles funded by the program are 25 percent more efficient than the CAFE standard for that vehicle in the year the retooled factory will produce vehicles.  Congress enacted new CAFE standards in the same Act establishing Section 136, and to implement this loan program in a manner which ignores these new standards simply does not make sense.

DOE states in its interim rule that it considered using the CAFE standard for vehicles as its base year but declined to do so because attribute-based CAFE standards do not currently exist for passenger vehicles.  But DOE failed to note that:

1. The Ten-in-Ten Fuel Economy Act requires NHTSA to issue fleetwide CAFE standards based on attributes for model years 2011 through 2020, 
   
2. NHTSA has already published draft standards for model years 2011-2015, and 
   
3. NHTSA intends to finalize these standards in the very near future. 

DOE should clearly indicate in its final rule that it will use these standards as its future year baseline as soon as NHTSA finalizes the standards.

Section 136 has the potential to help the American automotive industry establish itself as the world’s leading producer of fuel efficient, cost effective, advanced technology vehicles.  But DOE must ensure that the program’s limited funds are used to create technological breakthroughs.  We hope you share our commitment to assuring that Federal resources are targeted to vehicles that are more efficient than minimum standards will soon require.

We look forward to working with you on this important issue.

Sincerely,

Dianne Feinstein             Olympia J. Snowe
United States Senator     United States Senator
 

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