(Agencies)
Updated: 2007-12-02 13:53

WASHINGTON - The groundbreaking deal in Congress of the United States to raise mile-per-gallon standards will compel the auto industry to churn out more fuel-efficient vehicles on a faster timeline than the companies wanted, though with flexibility to get the job done.

The auto industry's fleet of new cars, sport utility vehicles, pickup trucks and vans will have to average 35 mpg by 2020, according to the agreement that congressional negotiators announced late Friday. That compares with the 2008 requirement of 27.5 mpg average for cars and 22.5 mpg for light trucks. It would be first increase ordered by Congress in three decades.

Majority Democrats plan to include the requirement in broader energy legislation to be debated in the context of $90-per-barrel oil, $3-plus pump prices and growing concerns about climate change. The House plans to begin debate this week.

"It is a major milestone and the first concrete legislation to address global warming," said Sen. Dianne Feinstein, D-Calif.

While Senate Democrats were quick to embrace the compromise, the energy bill may face problems over requirements for nonpublic electric utilities to produce 15 percent of their power from renewable energy sources such as wind or solar.

Sen. Pete Domenici, R-N.M., on Saturday said that idea "will make this bill untenable for many in the Senate."

Environmentalists have sought stricter mileage standards for years, saying that is the most effective way to curb greenhouse gas emissions and oil consumption.

The energy bill will help accelerate plans by automakers to bring more fuel-efficient technologies to conventional engines and alternatives such as gas-electric hybrids and vehicles running on ethanol blends. For the first time, for example, manufacturers will receive credits for building vehicles running on biodiesel fuel.

Domestic automakers and Toyota Motor Corp. vehemently opposed a Senate bill approved passed in June that contained the same mileage requirements and timeline. They warned the measure would limit the choice of vehicles, threaten jobs and drive up costs.

The companies backed an alternative of 32 mpg to 35 mpg by 2022. At the time, Chrysler LLC executive Tom LaSorda told employees the Senate bill would "add up to a staggering $6,700 -- almost a 40 percent increase -- to the cost of every Chrysler vehicle."

But the compromise worked out by Rep. John Dingell, D-Mich., House Speaker Nancy Pelosi, D-Calif., and Senate leaders, maintains a significant boost in mileage standards while giving the industry more flexibility and certainty as they plan new vehicles.

The proposal would continue separate standards for cars and trucks, extend credits for producing vehicles that run on ethanol blends, and allow automakers to receive separate credits for exceeding the standards and then apply those credits to other model years.

Michigan lawmakers secured an extension of the current 1.2 mpg credit for the production of each "flexible fuel" vehicle, capable of running on ethanol blends of 15 percent gasoline and 85 percent ethanol. Without the extension, the credits may have run out by 2010, but under the deal, they will be phased out by 2020.

The United Auto Workers union also won a provision intended to prevent companies from shifting production of less profitable small cars to overseas plants. At stake are an estimated 17,000 jobs.

The House's energy bill, approved in August, did not include mileage standards, and lawmakers had worked since then to include them.

Rick Wagoner, General Motors Corp.'s chairman and chief executive, said the new rules would "pose a significant technical and economic challenge to the industry." He said GM would tackle the changes "with an array of engineering, research and development resources."

GM, Chrysler and Ford Motor Co. have announced plans to double their production by 2010 of flex-fuel vehicles. Toyota has said it will bring the option to the Tundra pickup.

Among hybrids, Toyota has dominated the market with the Prius, but several automakers are beginning to bring the technology to large SUVs and pickups.

Environmental groups estimate the deal would save the country 1.2 million barrels of oil per day by 2020 while helping motorists save at the pump.

"Cars are going to be more attractive to consumers because they won't cost as much to own and operate," said David Doniger, director of the climate center for the Natural Resources Defense Council.