Fuel economy deal reached

WASHINGTON -- House leaders agreed late Friday to hike fuel economy standards 40 percent by 2020 to a fleet-wide average of 35 miles per gallon, a landmark deal that clears the way for a House vote by Wednesday.

The increase would be the first for passenger cars since 1985, marking a dramatic defeat for automakers, which have successfully foiled efforts to force increases for more than two decades.

U.S. Rep. John Dingell, D-Dearborn, and House Speaker Nancy Pelosi, D-Calif., finalized an agreement for raising corporate average fuel economy standards during a telephone call Friday evening.

The decisive call followed a series of discussions between Dingell and Pelosi over the past two days and a Nov. 13 letter from Dingell to Pelosi saying a deal was attainable. House Majority Leader Steny Hoyer, D-Maryland, also spoke to Dingell at length in an effort to close the deal.

Pelosi said higher fuel efficiency standards will be the "cornerstone" of an energy bill that will reach the House floor next week.

"This landmark energy legislation will offer the automobile industry the certainty it needs, while offering flexibility to automakers and ensuring we keep American manufacturing jobs and continued domestic production of smaller vehicles," Pelosi said in a statement.

Dingell said in a statement that the agreement "prescribes standards that are both aggressive and attainable."

The CAFE language is similar to what was in an energy bill passed by the Senate in June that also called for raising standards to 35 mpg by 2020, but eliminated separate rules for cars and light trucks. The current standard is 27.5 mpg for passenger cars and 22.2 mpg for trucks.

By early this week, Dingell and U.S. Sen. Carl Levin, D-Detroit, had won key concessions to keep separate standards for cars and trucks and to extend a credit automakers get for building flexible-fuel vehicles through 2020. That credit -- currently 1.2 mpg -- allows automakers to average less than required for building vehicles that can run on E85 ethanol or gasoline. They also won a provision sought by the United Auto Workers designed to keep small-car production in the United States.

Dingell and Levin unsuccessfully pushed for a concession on clarifying the regulatory responsibilities of the Environmental Protection Agency and the National Highway Traffic Safety Administration over setting emissions standards and fuel economy rules. Levin and Dingell had sought the provisions so the two agencies would not end up setting conflicting standards.

Critics saw that as an effort to prevent California from imposing its own tougher tailpipe emissions standards, which the state is allowed to do under the Clean Air Act with a waiver from the EPA. Pelosi and other Democrats held firm in talks with Dingell and Levin over the clarifying language, and the final deal does not address the issue.

The Detroit News has learned that under the deal any fines paid by companies that don't meet fuel economy standards will go into a fund to be used by domestic automakers for retooling U.S. plants -- a measure that could represent more than $100 million annually.

Environmentalists hailed the deal. Rep. Ed Markey, D-Mass., chairman of the House Select Committee on Global Warming, called the announcement a success after a "seven-year crusade."

"I know this is a difficult step to take for America's auto companies, but the status quo was helping neither our nation nor the companies themselves," Markey said.

David Friedman, research director of the clean vehicle program at the Union of Concerned Scientists, said the deal "is a victory for Americans struggling with $3 per gallon gasoline and would deliver savings of more than $20 billion in 2020."

The deal followed weeks of negotiations by House and Senate staffers, who often met more than 50 hours per week to hammer out an agreement that could win the support of Congress, the White House and automakers. Sens. Dianne Feinstein, D-Calif., a lead author of higher fuel economy standards and Daniel Inouye, D-Hawaii, chairman of the Senate Commerce Committee, were also involved in the talks this week to break the log-jam.

Over the weekend, aides will put the finishing touches on the more than 1,000-page bill, with the plan to go to the House Rules Committee by Tuesday night for a vote on the House floor Wednesday. The Senate hopes to approve the bill by the end of the year and send it to President Bush. Other aspects of the energy bill could prompt Republicans to try to mount a filibuster.

"The compromise reached tonight will require new fuel economy standards that will be challenging for auto manufacturers," Levin said Friday. "We got concessions on some of the most important issues."

Overshadowing the debate was California's request for a waiver under the Clean Air Act to impose its own more stringent carbon dioxide tailpipe emissions standards beginning in 2009. More than a dozen states want to join California in reducing emissions 30 percent by 2016, effectively hiking passenger car requirements to 43.7 miles per gallon.

The EPA has said it will decide whether to grant the waiver before the year's end. It is also to announce, along with NHTSA, a joint proposal to limit tailpipe emissions on a national level.

The energy bill will also require the use of at least 20 billion gallons of alternative fuels by 2020, especially ethanol -- though the final details of that part of the bill are under review.

The deal will be very expensive for automakers. GM chairman and CEO Rick Wagoner has said a similar bill could cost the Detroit automaker more than $40 billion over the next decade. A Bush administration analysis of a similar proposal said it could cost automakers more than $100 billion.

Automakers grudgingly decided to support it because there were no other options, and their political capital is waning. They have criticized the CAFÉ system, saying it distorts the marketplace by forcing them at times to offer incentives to sell smaller cars in order to meet the requirements.

The companies have found rough waters, repeatedly losing court decisions and in June were forced to back a smaller fuel economy increase that only a year ago would have been unthinkable.

The deal comes as Detroit's Big Three have lost considerable clout in recent years as they've closed factories and downsized. They were blindsided by a perfect storm of growing concern over climate change, imported oil and near-record high energy prices.

In June, Senate Majority Leader Harry Reid went further than rejecting automakers' arguments. "We don't believe you anymore," Reid said. "We've had enough."

If approved, the new requirements will eventually radically change the way Detroit does business and change the mix and look of the 16 million vehicles Americans buy annually.

It will no doubt hike the price of cars by forcing automakers to add expensive items like gasoline-electric hybrid engines and likely require automakers to make more lighter, smaller vehicles. It may force Detroit to shrink production of its SUVs and trucks, its largest most profitable vehicles.

If passed, the bill would give Democrats a big achievement to tout to voters who have put up with skyrocketing gas prices.

It would also hand President Bush a domestic achievement that would surely be part of his legacy, since it largely dovetails with his State of the Union proposal in January to hike fuel efficiency standards by an average of 4 percent per year over 10 years.

You can reach David Shepardson at (202) 662-8735 or dshepardson@detnews.com">dshepardson@detnews.com.