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Auto Manufacturing Fund a part of Senate Greenhouse Gas Bill

Automotive Engineering, December 2007

Higher fuel efficiency standards for autos are rearing their political head in a bi-partisan greenhouse gas bill heading for the Senate floor. The global warming bill which was likely to pass the Senate Environment and Public Works Committee in November includes a $232 billion “manufacturing incentive” fund for the auto industry which companies will only be able to access if their vehicle lineup averages 35 miles per gallon starting in 2012, the year those funds would start to flow. The money can be used for, among other things, engineering integration.

This CAFE provision in the America's Climate Security Act is different, of course, than the one the Senate passed as part of its omnibus energy bill. There the Senate mandated that fleets average 35 miles per gallon by 2020, no ifs, ands or buts. It was a mandate. The House didn’t have a CAFE increase in its energy bill, and it looks like the Senate and House are having trouble coming to an agreement on a compromise energy bill. So the increased CAFE standard in the Senate bill may never see the light of day.

The 35 mpg CAFE standard in the greenhouse gas bill—sponsored by Sens. Joe Lieberman (D-Conn.) and John Warner (R-Va)--only comes into play if a car company wants some of the manufacturing incentive money. So it is not a formal mandate. But what company won’t want to dip into the $232 billion? So the 35 mpg fleet-wide threshold is a de facto requirement, and kicks in four years earlier than the one in the Senate energy bill.

The Lieberman/Warner bill’s main objective is to reduce total U.S. greenhouse-gas emissions from electric power, transportation (large fleets, not consumer autos) and manufacturing (auto factories included) sources by as much as 19% below the 2005 level in 2020 and by as much as 63% below the 2005 level in 2050. Lieberman and Sen. John McCain (R-Ariz.) sponsored a very similar bill in the past which was rejected twice by the Senate. What is different this time around is the breadth of Republican support, for one thing. Of the seven co-sponsors of Lieberman/Warner, four voted against one or both of the earlier iterations. Now they are supporters.

In addition, greenhouse gas reductions have floated to the top of the presidential agenda, giving them added heat. On November 5, Sen. Hillary Clinton (D-N.Y.) gave a speech in Iowa in which she proposed a number of initiatives including $20 billion of “Green Vehicle Bonds” to help U.S. automakers retool their plants to meet greenhouse gas caps.

The Lieberman/Warner bill allows companies in all industries, including the electric utilities, who are a major target of the bill, to buy emission credits in an auction which allow them to emit more carbon than their industry “cap” would otherwise allow. The money from the auction goes to a Climate Change Credit Corporation. One of the things the auction proceeds will go for is a new advanced technology vehicles manufacturing incentive program. The Corporation would provide money to automobile manufacturers and component suppliers to pay up to 30 percent of the cost of reequipping or expanding an existing manufacturing facility to produce and/or engineer qualifying vehicles and qualifying components. In the original version of the Lieberman/Warner bill, vehicles eligible for funding were defined as those meeting Tier II Bin 5 emission standards, any new emission standard for fine particulate matter and at least 125 percent of the average base year combined fuel economy, calculated on an energy-equivalent basis, for vehicles of a substantially similar footprint.

When the bill came up for a vote in subcommittee, Sen. Bernie Sanders (D-Vt) offered an amendment changing the last requirement of the three to one where a company’s entire fleet would have to meet a standard of 35 miles per gallon. That amendment passed. Call that amendment CAFE 2, a more draconian proposal, given the start date, than CAFE 1 in the Senate energy bill. The auto industry hasn’t reacted to the Sanders’ amendment yet. But it will.