Fuel efficiency and the American driver

Congress is poised to finally make cars get better gas mileage. Consumers can expect to pay more for their vehicles but save on their gas bills.

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By Steve Hargreaves, CNNMoney.com staff writer

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Congress has reached agreement on a long-debated bill that will raise fuel efficiency.

NEW YORK (CNNMoney.com) -- More hybrids. More diesels. Smaller engines and fancier technology. And an initial sticker price increase that could total a couple thousand dollars.

Those are the likely outcomes now that Congress has decided to increase the national fuel efficiency standards to 35 miles a gallon by 2020, from the current average of 25.

The House and Senate, after months of negotiation and lobbying, agreed to the new standards late Friday night. The deal should spur resolution next week of a broad energy bill that includes proposals to use more biofuel in the nation's gas mix, eliminate tax incentives for the oil industry and require utilities to buy more renewable energy.

But the most closely-watched issue was fuel efficiency. The new standards could alter the economics of driving: The cost of new cars would at first increase but over time be offset by savings at the pump.

"The cost of the technology is dwarfed by the oil savings," said Ann Mevnikoff, Washington representative for the Sierra Club. "I think the American people would rather put that money into technology rather than see it disappear in oil."

Mevnikoff said by 2020 the country could save 1.2 million barrels of oil a day, or about the same amount the country currently imports from the Middle East. Even factoring in the technology costs, she said the savings would amount to $26.5 billion a year.

But the upfront technology costs could be substantial.

If the measures are enacted, the auto industry would give a strong push to its hybrid vehicles. Hybrids, which run on a combination of gasoline and electric power, usually cost about $2,000 to $3,000 more than conventional vehicles.

Detroit would also likely roll out more diesel vehicles, which would also cost $2,000 to $3,000 more than similar gasoline-powered vehicles but would get much better gas mileage.

Other options include heavier marketing of smaller cars with smaller engines, and increased use of "cylinder deactivation" - technology that automatically shuts off cylinders in larger engines when full power isn't needed.

"The challenge for us is to make these technologies more attractive to consumers and get them to purchase these vehicles," said Gloria Bergquist, spokesperson for the Alliance of Automobile Manufacturers, which includes most of the big domestic and foreign automakers. "There may be additional costs to those, which can start at a couple of thousand dollars. But consumers will benefit in the long run."

The domestic auto industry had long opposed fuel efficiency increases saying they would be too expensive and would compromise safety by pushing consumers toward smaller, lighter vehicles.

The measure seems likely to pass now that key congressional Democrats have reached an accord.

If legislation passes and is signed by President George W. Bush, it would mark the first major increase in U.S. fuel efficiency standards in more than three decades, said Mevnikoff.

It would also bring the United States closer in line with other countries, but would by no means make it the leader.

Vehicles in China average around 30 miles per gallon, a figure that is set to rise to about 35 miles per gallon by 2009, according to the Union of Concerned Scientists.

In Europe vehicles average about 37 miles per gallon and are set to get 50 miles a gallon by 2012. In Japan they currently average 45 miles per gallon.

Fleet-wide averages are so much better overseas because, by and large, they drive smaller cars, likely the result of much higher fuel costs. In Norway, for example, a gallon of gas costs over $8.

There's been some debate in this country as to whether higher fuel efficiency standards would result in people using less gas. Some argue a simple gasoline tax would be better, as American's will merely see their newfound mileage gains as a chance to drive more. To top of page

The Energy Bill Ė Other Provisions

Congressional aides are trying to meld House and Senate bills into one final bill, which could be ready for floor debate as early as Tuesday. In addition to raising fuel efficiency standards, legislators are considering three other major proposals:

Raise the biofuels mandate: This would require gasoline refiners to use more plant-derived fuel Ė like corn-based ethanol. The Senate proposed 36 billion gallons by 2022. The House has a more modest proposal. The bill is supported by the corn and ethanol industry and by those who seek greater energy independence. Itís opposed by refiners who say ethanol is inefficient and hard to transport, livestock farmers concerned about its effect of corn prices and environmentalists. An increase in the mandate is likely, but sources say it wonít be as high as the Senate wants.

Require utilities to buy more power from renewable energy: The House wants to make utilities get 15 percent of their power from renewable resources by 2020. About half the states already have this requirement, but a federal law is being opposed by Southeastern utilities and politicians who say their region has fewer renewable options. While proponents say the measure is still on the table, reports have said itís unlikely to pass.

Eliminate oil company tax breaks and use the money to fund renewables: The measure would eliminate some $16 billion in oil company tax breaks over the next ten years, mostly by exempting oil producers from the domestic manufacturing credit. But itís unlikely to pass. Opponents, including the White House, say it will discourage domestic energy production.

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.