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Big battle brewing over fuel economy standards

Carmel Cine fills her car’s tank at a local gas station in Miami. The Obama administration is hinting that it will require carmakers to produce fleets of cars and trucks that get an average 56.2 miles per gallon by 2025.Alan Diaz / AP

The White House appears to be looking for a way to compromise on future fuel economy increases, but it remains to be seen whether planned new mileage rules will satisfy those on either side of the debate.

The Obama administration is hinting that it will require carmakers to produce fleets of cars and trucks that get an average 56.2 miles per gallon by 2025. That would represent a nearly a 60 percent increase over the 35.5 mpg mandate in place for 2016. But the end result, representing an increase of 5 percent annually, still would be significantly lower than the 62 mpg number the Environmental Protection Agency originally was considering.

Proponents of an even bigger increase in fuel economy standards say the compromise figure would not do enough to reduce global warming or decrease America’s dependence upon foreign oil.

But some industry representatives and others say even the 56.2 mpg standard could result in costs that are more than the public can bear, leading to sharp declines in new car sales and the loss of thousands of automotive jobs. They have suggested a standard of perhaps 47 mpg, which would represent a 3 percent annual increase over a decade.

“Overly ambitious standards set 14 years in the future risk severe economic harm if consumers’ wants and needs are not met,” said Bailey Wood, a spokesman for the National Automobile Dealers Association.

The Corporate Average Fuel Economy or CAFE standards have been controversial since they were made law in 1975 following the first Middle East oil shock. Opponents of the standards were able to effectively freeze the rules for two decades, with only the most modest increases until the Obama administration negotiated an increase beginning with the 2012 model year through 2016.

Given sporadic run-ups in oil prices over the past two years and growing concerns about global warming, proponents of government-mandated fuel standards now feel they have momentum to achieve the biggest mileage increases since the original rules were passed more than three decades ago.

Clearly, consumers want improved fuel economy. That is reflected in the market’s shift toward smaller vehicles and downsized powertrains. But growing frustration with government and public debate over global warming have made the original 62 mpg goal more difficult to sell than some had initially expected.

Also complicating matters: Americans are concerned about jobs, and a study issued this month by the Center for Automotive Research raised serious questions about the costs and benefits  of pushing fuel economy too far, too fast.

The risk “is serious,” proclaimed the CAR study, which said the higher standards could boost the price of a typical car sold in the U.S. by as much as $9,000 while reducing new car sales by up to 5.5 million units a year, potentially eliminating as many as 265,000 American jobs.

Advocates of CAFE standards decried the CAR report as “propaganda,” pointing instead to another study issued by the Boston Consulting Group on the same day as the CAR report.

The Boston Consulting Group is far less negative about the projected sharp rise in mileage. It would be “a lot cheaper than expected,” said Boston Consulting Group analyst Xavier Mosquet, who estimated the average cost at $2,000 per vehicle. That, he contended, would be easily paid for by fuel savings, especially if gas prices keep going up, as many expect.

Why such a discrepancy between the two projections? There are plenty of assumptions that go into forecasting what consumer demand will be more than a decade out — as well as the sorts of technology that might be available to meet those needs.

Industry leaders such as Ford global product development chief Derrick Kuzak say that motorists will not only be forced to substantially downsize, but that they will also likely no longer be able to get the sort of powertrains popular today. The industry will likely be forced to replace V8s, V6s and even smaller 4-cylinder engines with battery-based technologies that could limit range, performance and payload.

On the other hand, CAFE proponents point to the substantial number of conventional vehicles that already deliver 40 mpg on the highway without using hybrid technologies that could yield even more savings. The Boston Consulting study, for one, sees tremendous opportunities using direct injection, turbocharging and more advanced transmission systems.

The administration backed down on the earlier 62 mpg standard once the new Republican-majority House was seated, in January. But the issue of fuel economy is less partisan than some might think.

Liberal Sen. Carl Levin, D-Mich., is one of those siding with the industry, saying that even the reduced 56 mpg target is too high. On the other hand, a group of 15 prominent Republicans, including former governors, members of Congress and EPA administrators, wrote the White House last week to back the full 62 mpg target.

With consumers so worried about fuel prices, there are few who expect the CAFE debate to be put on the back burner again. What’s unclear is whether the new proposal is the point at which the White House expects to begin bargaining with the auto industry, or if it sees 56 mpg as the compromise it is willing to settle for.

Administration representatives have reportedly been meeting with officials from the auto industry, Capitol Hill leaders and others in recent days, hoping to take the political temperature.

“No decision has been made yet, but our goal remains to propose [a revised mileage] rule this September,” said White House spokesman Matt Lehrich.