Fuel Economy Fraud (2005)

Closing the loopholes that increase U.S. oil dependence
June 2008

This is excerpted from the executive summary of the UCS report Fuel Economy Fraud: Closing the Loopholes that Increase U.S. Oil Dependence, August 2005.

In 1987, the fuel economy of the new U.S. car and truck fleet reached a peak of nearly 26 miles per gallon. By 2004, it had fallen to 24.4 miles per gallon, hovering around a 20-year low. This backsliding occurred because fuel economy standards have remained essentially unchanged over the past 20 years and automakers have increasingly exploited loopholes in Congressional and regulatory language. In addition, a flawed U.S. tax code actually provides financial incentives for consumers to switch to gas guzzlers. While most of these loopholes have been around for decades, government has either turned a blind eye to them or made them larger. This report documents three major loopholes in fuel economy standards and two major cracks in the tax code, and highlights the possibility that a whole new set of loopholes could be created as the Bush administration considers radical changes to the federal fuel economy standards program. Finally, we suggest solutions for closing or modifying these loopholes. The six loopholes considered are:

  • The non-passenger loophole (or "truck" loophole)—allows automakers to misclassify minivans, SUVs, station wagons, and even some cars as non-passenger vehicles, thereby qualifying them to meet a lower fuel economy standard. Congress or the National Highway Traffic Safety Administration (NHTSA) must modernize the definition of non-passenger vehicles to end this gaming.
  • The 8,500-pound loophole—exempts the largest pickups, vans, and SUVs from fuel economy standards altogether and denies consumers any fuel economy information on these vehicles.  NHTSA must move to include these vehicles in the fuel economy program, since standards for them are both practical and necessary.
  • The dual-fuel loophole (recently extended by the 2005 energy bill)—gives automakers extra credit toward meeting fuel economy standards in exchange for manufacturing vehicles that can run on alternative fuels but almost never do.  Congress should either eliminate this failed program or fix it by tying credits more directly to actual alternative fuel use.
  • The luxury SUV tax loophole—provides small-business owners with significantly higher tax breaks for large luxury trucks than smaller trucks or cars, regardless of the owner's needs. Congress must create a reasonable limit on tax breaks for larger trucks and update the amounts for smaller vehicles.
  • The gas-guzzler loophole—excludes SUVs, minivans, and pickups from paying a tax on excessive fuel use despite the fact that tax applied to gas-guzzling cars has effectively reduced their numbers. Congress should require trucks that get less than 17.5 mpg on the CAFE test to pay progressively higher taxes based on the amount of gas they guzzle.
  • The Next Loophole?—Attribute-based standards—a potential new set of loopholes that could be created if the government imposes new fuel economy standards based on vehicle attributes without also introducing an oil savings "backstop." NHTSA must include a backstop in any attribute-based system.

Based on government fuel economy data and consumer travel projections, our solutions could cut U.S. oil dependence by 1.5 million barrels per day in 2025 if they are phased in over the next five years (Table ES-1). In addition, consumers would save more than $30 billion, even after paying for off-the-shelf technologies that would help close the loopholes.

 Table ES-1: Savings from Closing Loopholes in
 Current Fuel Economy Standards

 2010

 2015

 2025

 Oil savings (million barrels per day)

 0.3

 0.8

 1.5

 Net consumer savings (billions)*

 $3.5

 $14.2

 $33

 Reduction in global warming pollution 
 (million metric tons CO2-equivalent)

 50

 150

 240

*Assumes a gasoline price of $2 per gallon.

While the most effective step that could be taken to cut U.S. oil dependence is higher fuel economy standards for every car and truck on the road, closing regulatory and tax loopholes is an important first step. Not only would this save oil in the near term, but it would also avoid the erosion of any future fuel economy increases and ensure that the planned benefits are realized.

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