Measure Puts SUVs on Road to Tax Credits


In an unusual meeting of the minds, environmentalists and auto industry representatives got together with lawmakers earlier this year and agreed on a new incentive to advance both of their causes: a tax credit for fuel-efficient "hybrid" cars.

The idea seemed like a winner.

Now, with legislation approved by the House and headed to the Senate, environmentalists say the industry has finagled the fine print to give the tax credit to the very epitome of excess: gas-guzzling sport-utility vehicles.

The House bill would give motorists a tax break for buying hybrid gas-electric SUVs with mileage ratings as low as 18 miles per gallon. With the Senate expected to take up the issue soon, environmentalists are lobbying for an alternative measure that would promote cleaner and much more fuel-efficient vehicles.

Environmentalists say car makers should not be rewarded for making a gas guzzler only slightly less of a gas guzzler.

"We do not want to see taxpayer dollars going to reward a vehicle's past inefficiency," said David Friedman, senior analyst for the Union of Concerned Scientists. "What we should really be rewarding is how little fuel a vehicle uses, not how much it saves compared to how inefficient it was before it was made into a hybrid."

Environmentalists say they're not anti-SUV. "The technology exists now for hybrid [SUVs] to get 40 miles per gallon," said Sheila Lynch, executive director of the Boston-based Northeast Advance Vehicle Consortium. "The carrots should go to those manufacturers who are achieving those standards."

Hybrid vehicles combine a conventional gasoline-powered engine with an electric motor. The motor provides all of the power when the vehicle is driven at slow speeds or provides a boost to the gasoline engine during acceleration. Its batteries are recharged in start-and-stop traffic by a process called "regenerative braking." Among the hybrid SUVs that would qualify for a tax credit is a 22-mpg Dodge Durango, to be introduced in 2003. DaimlerChrysler contends it is deserving because it will burn 30% less fuel than a conventional 17-mpg gas-powered Durango.

"If your starting point is that we're not going to dictate what vehicles people are going to drive, and our goal is to reduce fuel consumption, then this way makes sense," said Gloria Bergquist of the Alliance of Automobile Manufacturers.

"There are people who would belittle a 20% to 25% improvement on a large SUV," said Dennis Fitzgibbons, DaimlerChrysler director of public policy in Washington. "But in point of fact, over the life of that vehicle, you're going to be saving hundreds of gallons [of gasoline] every year."

The clash illustrates how the energy versus environment struggle is being fought at close quarters in government. Compromises have been few, and cooperation has been halting.

With both sides confident of public support for their cause, neither has been inclined to yield much ground. And the dispute could unravel one of the few provisions of the energy legislation that has enjoyed broad bipartisan support.

Environmentalists and auto makers, along with members of Congress, remain sharply divided over whether to increase fuel economy standards for all vehicles.

Tax incentives to promote the sale of hybrids have also received bipartisan support. President Bush proposed $4 billion in such credits in his energy plan. Environmental groups worked with Ford, Honda and Toyota, Sen. Orrin G. Hatch (R-Utah), and other lawmakers to draft a bill containing the credits.

The Senate measure would provide a credit for hybrids, even SUVs, but bases it on the percentage of improvement in the vehicle's fuel economy.

The House bill, environmentalists complain, offers substantial tax credits for minor mileage improvements of inefficient vehicles. "It isn't performance-based anymore," objected David Doniger, policy director of the Natural Resources Defense Council's climate center.

Environmentalists also object that the House bill does not require hybrids to meet an emission standard, as called for in the Senate measure. "The principle of government money going to a vehicle that could be less clean than the average vehicle on the road makes no sense," Friedman said.

The House bill would provide credits of $250 to $4,500 to buyers of hybrids. The amount varies based on several factors, including fuel savings, a provision that critics say benefits SUVs.

Under the House bill, the hybrid Durango could qualify for a credit close to $2,500, according to industry officials. DaimlerChrysler says that's fair because the technology will add about $3,000 to the cost of each hybrid.

The only hybrid vehicles already being sold to consumers are the Toyota Prius four-door compact sedan and the Honda Insight two-seater. The Prius gets about 50 mpg and the Insight about 60 mpg; each sells for about $20,000.

DaimlerChrysler estimates that the hybrid Durango, if driven 14,000 miles a year for 12 years, would conserve 1,640 gallons of fuel--more than the Toyota or Honda hybrids.

Friedman counters with his own comparison: The Durango, over its life, would use about 2.6 times as much fuel and emit 2.6 times the amount of greenhouse gases as the Prius.

Availability of the Toyota and Honda hybrids is limited because the Japanese auto makers want to introduce the costly technology gradually. Toyota expects to sell 12,000 Priuses in the United States this year and says there is a four-month waiting list. Demand for Honda's Insight has leveled off at about 5,000 per year, with no significant waiting period.

"If Congress is conservation-sensitive, then they should be concerned over vehicles people want to buy," said Reg Modlin, DaimlerChrysler director of environmental and energy planning. Modlin said more than half the new vehicles sold in the U.S. are light trucks: minivans, SUVs and pickups.

Modlin wouldn't estimate production volume for the Durango. "We're capable of building what the market is willing to buy. If incentives come through, we'll sell more."

DaimlerChrysler's U.S. competitors also have hybrids in the works for introduction in 2003.

Ford plans a hybrid version of its Escape compact SUV that would get about 40 mpg. General Motors sources say the company will introduce hybrid versions of its Chevrolet Silverado and GMC Sierra pickups, and Chevrolet TrailBlazer and GMC Envoy full-size SUVs that would get about 35 mpg. GM also plans hybrid vehicles that have not been unveiled, as well as hybrid versions of certain sedans.

Environmentalists complain that car makers are reaping the benefits of tax incentives while using hybrids to offset the production of more gas-guzzling SUVs.

"You are essentially using taxpayer dollars to help the auto industry run in place," said the Sierra Club's Ann Mesnikoff.

Car makers must meet a federal fuel-economy standard of 20.7 mpg for SUVs and other light trucks and 27.5 mpg for passenger cars. But they are permitted to average the standard across their fleets, so smaller cars can offset the guzzlers.

"You're asking taxpayers to help somebody buy a nice high-tech vehicle," Mesnikoff said. "But at the end of the day, you've got to able to say there is an overall societal benefit."


Simon reported from Washington and Jones from Detroit.

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