(Adds survival of tax credit; interest group reaction)

By John Crawley

WASHINGTON, May 8 (Reuters) - A U.S. Senate committee approved a bill on Tuesday that would make automakers sharply boost fuel efficiency of vehicles to help cut American dependence on imported oil by the end of the next decade.

But senior Republicans said the plan was unfair to struggling U.S.-based auto companies that depend on sales of less efficient sport utility vehicles and pickups.

"We need to make sure we are fair across the board to all manufacturers. There are some inherent disadvantages, especially on the truck issue," said Sen. Trent Lott of Mississippi.

The proposal to reform the 30-year-old Corporate Average Fuel Economy (CAFE) program would require that the nation's fleet of passenger cars and light trucks -- SUVs, minivans and pickups -- improve fuel efficiency by 4 percent annually. Changes would begin in 2011 and the fleet would have to average 35 miles per gallon by 2020.

Four percent gains would be expected annually after that but no longer-term target was set. The Transportation Department would set mileage formulas for vehicle classes, based on weight and size. The agency could reduce targets if it concludes manufacturers would be hurt financially, a clause that outraged consumer and environmental groups but gave industry little comfort.

Light trucks must currently get 24 mpg by 2011 while cars must average 27.5 mpg. The truck standard was changed last year. The passenger car standard has been the same since 1990.

Lawmakers scrapped plans, for now, to eliminate a popular tax credit for manufacturers that build vehicles capable of running on gasoline blended with ethanol, even though very few motorists have access to alternative fuels.

PRICE GOUGING PROVISION

Senate Commerce Committee members approved an amendment barring excessive fuel price increases during a federal emergency, like a hurricane. Leading oil companies said the "price gouging" provision would curtail markets and harm consumers.

The U.S. House of Representatives Energy and Commerce Committee is working on a similar bill, which is expected to emphasize reduced greenhouse gases and alternative fuels.

Momentum has been building in Congress for lawmakers to respond to soaring gas prices -- over $3 a gallon in some areas -- and address U.S. dependence on imported oil and the impact of carbon emissions on global warming.

Environmental and consumer organizations, as well as some powerful lawmakers in the Democratic-controlled Congress, say reducing gas use is the quickest way to cut fuel use.

Gasoline demand accounts for nearly half of the average daily U.S. consumption of 20.9 million barrels of oil. The Senate bill, proponents say, would save 2.1 million barrels of gasoline and other auto fuel per day by 2025. That is roughly the amount of refined products the U.S. imports now.

The measure, Democrats estimate, would also reduce tailpipe emissions by 18 percent.

Sen. Daniel Inouye, the Commerce Committee chairman, said the proposal was not perfect but "we've reached a stage where most parties would say this is fair."

Inouye, a Hawaii Democrat, said the full Senate could consider the bill in June.

Automakers called the Senate plan unworkable, saying compliance costs alone could exceed $114 billion.

General Motors Corp. <GM.N>, Ford Motor Co. <F.N>, and DaimlerChrysler AG's Chrysler Group <DCXGn.DE> would bear the brunt of the costs as their fleets favor SUVs, pickups and minivans, which get far lower gas mileage than popular sedans made by Japanese rivals like Toyota Motor Corp. <7203.T>.

Consumer group Public Citizen said the measure is weak and gives the government too many escape hatches or "off ramps" to set lower targets. The National Environmental Trust said the bill did not do enough and could leave motorists paying too much at the pump.

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