Obama's Fuel Economy Follies

Politicians want you to pay more when you drive. They just won't admit it.

"We must ensure that the fuel-efficient cars of tomorrow are built right here in the United States of America," President Barack Obama declared yesterday. He also signed an order directing the Environmental Protection Agency (EPA) to review the denial of California's request to set its automobile mileage standards higher than those adopted by the federal government.

In 2007, Congress passed and President George Bush signed legislation aimed at increasing Corporate Average Fuel Economy (CAFE) standards to at least 35 miles per gallon (mpg) by 2020, up from 27.5 today. Federal CAFE standards were originally set in 1975 during the first "energy crisis." If an automaker's average mileage fails to meet the CAFE standards, it must pay a fine which currently stands at $5.50 per 0.1 mpg, multiplied by the manufacturer's total domestic production. Some companies choose to simply pay the penalty. For example, BMW handed over $230 million in fines last year while Daimler, the maker of Mercedes-Benz automobiles, paid $55 million, and Volvo paid $56 million.

Now, California and 13 other states, representing about 50 percent of the U.S. automobile market, want to force carmakers to meet the 35.7 mpg standard by 2016, rising to 42.5 mpg in 2020. Proponents argue that the higher mileage standard is needed to both cut the emissions of greenhouse gases that are contributing to man-made global warming and to reduce our dependence on foreign oil.

Do CAFE standards work? The CAFE standards established in 1975 during the first "oil crisis" explicitly aimed to reduce America's dependence on imported oil. In 1975, the U.S. imported about one-third of the petroleum it consumed. By 2008, imports accounted for about two-thirds of consumption. On the other hand, a National Academy of Sciences (NAS) report in 2002 estimated that CAFE standards had reduced U.S. oil consumption by 14 percent below what it would otherwise have been.

In 2007, the Pew Campaign For Fuel Efficiency released a poll in which 89 percent of respondents said that it was important for Congress to pass higher automobile fuel efficiency standards. Whatever Americans might tell pollsters, they voted quite differently with their pocketbooks. For example, CAFE standards on passenger vehicles had a big unintended consequence—the rise of sport utility vehicles (SUVs). Mileage standards for light trucks were set lower at 20.7 mpg and SUVs and minivans qualified as light trucks. In 1975, only 20 percent of vehicles sold were light trucks, but by 2002, that had risen to more than 50 percent of vehicles. In 2002, the San Francisco Chronicle reported that the EPA's 10 most fuel efficient models constituted less than 2 percent of auto sales. As recently as 2007, none of the top 10 vehicles chosen by consumers voting at the popular website CarGurus.com had an average gas mileage that met current federal CAFE standards

In his announcement yesterday, Obama estimated that the new federal mileage standard would save 2 million barrels of oil per day. Although estimates vary considerably, boosting fuel efficiency is not cost-free. California Air Resources Board Chair Mary Nichols endorses a rosy scenario, claiming that the state's new standards will only add about $400 per car. On the other hand, General Motors Vice Chairman Bob Lutz apocalyptically predicts that even the less stringent new federal CAFE standards will boost car prices by $4,000 to $10,000 per vehicle, averaging around $6,000. The Energy Information Administration's middle of the road calculation is that the new California regulations would add about $1,900 in costs to each vehicle. Essentially, CAFE standards function as a kind of inefficient stealth tax on driving. It's inefficient because drivers pay more, car companies make less money, and state and federal governments don't get any extra revenues.

But CAFE proponents argue that there is a bright side—the higher costs for the gas-sipping cars will be offset by lower gas bills. For example, a car driven 12,500 miles per year at 27.5 mpg would use 454 gallons of gas annually. Raising the mileage to 35 mpg reduces that figure to 357 gallons per year. So the new California standards would save drivers an average of 100 gallons per year. At $1.50 per gallon that comes to $150 per year; at $4 per gallon it comes to $400.

Politicians claim that manufacturing the new CAFE-compliant cars will increase jobs in the auto industry. But will it? All other things being equal, increasing the price of a product is not usually considered a sure fire recipe for attracting more customers. Higher prices mean lower demand, something that normally results in fewer jobs in the auto industry. On top of that is the fact that it takes fewer workers to manufacture the generally smaller cars that meet CAFE standards. It's hard to see how higher CAFE standards will produce more jobs.

If California's state legislators—and the other politicians who favor the new higher mileage standards—really want their citizens to drive more fuel efficient (and generally smaller) cars, there is a simpler and more honest policy: Hike gasoline taxes substantially. In 2002, the NAS's report correctly observed, "There is a marked inconsistency between pressing automotive manufacturers for improved fuel economy from new vehicles on the one hand and insisting on low real gasoline prices on the other. Higher real prices for gasoline—through increased gasoline taxes—would create both the demand for fuel efficient new vehicles and an incentive for owners of existing vehicles to drive them less." In other words, taxing gasoline would achieve the politicians' stated goals of reducing imports of foreign oil and cutting greenhouse gas emissions much more efficiently than convoluted CAFE standards—since taxes would apply to all vehicles, not just new ones.

The NAS further noted that more models of high mileage cars were produced abroad largely because gasoline in other countries costs $4 to $5 per gallon. Last year, we learned definitively that Americans respond with alacrity to higher fuel pump prices. As gasoline prices soared to over $4 per gallon, consumer demand for smaller cars rose by 37 percent over the previous year. At nearly 64 cents per gallon, California already imposes the highest gasoline tax in the country, yet Californians continue to insist on buying and driving cars of which their legislators disapprove. Ultimately, setting CAFE standards is just a way for cowardly politicians to avoid telling their fellow citizens that they should pay more for the privilege of driving.

Ronald Bailey is Reason magazine's science correspondent. His book Liberation Biology: The Scientific and Moral Case for the Biotech Revolution is now available from Prometheus Books.

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  • TallDave||

    cut greenhouse gas emissions

    A billion Chinese are quietly laughing somewhere.

  • Taktix®||

    A billion Chinese are quietly laughing somewhere.

    In China, maybe?

  • Xeones||

    somewhere

    Probably China, TallDave.

  • Xeones||

    Fuck!

  • TallDave||

    Racists.

  • Lefiti||

    You libertards like demand don't you? Increasing the cost of driving will increase the demand for public transportation and all your market-based arguments against light rail will be toast!

  • Lefiti||

    The above comment doesn't even sound like Lefiti. Bah. I guess it was inevitable that Lefiti based humor would decline steeply in quality.

  • Xeones||

    We have long since passed Peak Lefiti, Lefiti.

  • ||

    Aye caramba. It was exactly this sort of thing that the reservation of the power to regulate interstate commerce was supposed to prevent.

    Still, what's a Constitution when you are Hoping for Change!

    And allowing California to set standards for the nation is too juicy an opportunity to dodge responsibility for any politician to miss out on, so expect Obama, the hard-green enviros in his cabinet, and the Dem Congress to enthusiastically abdicate to the states on this one.

  • ||

    Does this only apply to cars "sold" in CA or does it make them illegal to own those models going forward? If it just means you can't sell them in CA, I hope it passes and I'll set up an SUV dealership just over the border, should be a great business opportunity.

  • ||

    Emissions standards that apply to individual states are now interstate commerce?

    Damn conservatives, always stretching the meaning of that term!

  • ||

    there is a simpler and more honest policy: Hike gasoline taxes substantially.

    Why is this so difficult to understand?

  • ||

    General Motors Vice Chairman Bob Lutz apocalyptically predicts that even the less stringent new federal CAFE standards will boost car prices by $4,000 to $10,000 per vehicle, averaging around $6,000.

    Bob Lutz is an idiot.

  • Alan Vanneman||

    "Although estimates vary considerably, boosting fuel efficiency is not cost-free. California Air Resources Board Chair Mary Nichols endorses a rosy scenario, claiming that the state's new standards will only add about $400 per car. On the other hand, General Motors Vice Chairman Bob Lutz apocalyptically predicts that even the less stringent new federal CAFE standards will boost car prices by $4,000 to $10,000 per vehicle, averaging around $6,000. The Energy Information Administration's middle of the road calculation is that the new California regulations would add about $1,900 in costs to each vehicle."

    Ron's playing a bit of a shell game here. He starts off talking about fuel efficiency, but then quotes EIA estimate of $1,900 in costs for complying with the California regs, which are about emissions as well as fuel efficiency. (Check the link if you don't believe me.)

    If we're only talking about fuel efficiency, manufacturers could simply stop making big cars and trucks, which of course they won't do. The problem is that Americans not only like big vehicles, they like massively overpowered ones.

    Joseph White in the WSJ notes that "A 1981 Honda Accord had a base engine with just 75 horsepower. A base model 2008 Accord has a 177 horsepower four-cylinder engine, and you can buy a six-cylinder model with 275 horsepower. As recently as the mid-1990s, that would have made the current Accord more powerful than a Cadillac Eldorado."

    http://online.wsj.com/article/SB120250712495854799.html?mod=rss_Eyes_on_the_Road

    The "new," super, super Cadillac has over 600 horsepower (and, no doubt, a bitchin' grille). Match that, Japan!

  • ||

    AV: No shell game. Check even MORE carefully and you will see that emissions are correlated explicitly to mileage by the EIA study.

  • ||

    It`s really all about the power (and the money).
    Someone has a vision of what our country should look like and they`re using what ever means to force it on us.

  • Kolohe||

    Serious question, too lazy to google:

    Is is *emissions* standards? or *mileage* standards? (Or both?) Because the two are indeed correlated but they are by no means the same thing.

  • Kolohe||

    My last was before Vanneman's and Bailey's posts, but now I'm more confused than ever.

  • ||

    Someone above pointed out the problem that smaller cars will likely result in fewer, not more workers building cars.

    But also, the raise in CAFE, etc. will likely result in reduced sales simply because there are a lot of people who actually like their big cars, or more likely, SUVs.

    I picked up a GMC 2500 4x4 Suburban this year, heavily used, and love it. Sure, when gas was $4 a gallon (when I bought it), it was expensive to run. But not now, and it is amazing what you can load into a vehicle that big. I didn't notice until I bought it, how many oversized SUVs and trucks there are on the road here in NW Nevada. Maybe half the vehicles on the road.

    Which brings us to the next problem with the state level emissions and CAFE standards. How does CA keep nonconforming vehicles out of their state if bought elsewhere? Reno sits maybe 4 hours from the Bay Area, and half that from Sacramento. That isn't too far to drive to pick up a new car (and there are cheap SW flights a number of times a day from Oakland and San Jose). LA and San Deigo are similarly close to AZ, and probably hourly flights to PHX.

    CA can't keep the nonconforming vehicles out, if for no other reason, than that would be restricting Interstate Commerce (that is, of course, why there are Interstate highways running between Reno, Las Vegas, and Phoenix, and the biggest cities in California).

  • Dr. Kenneth Noisewater||

    Grrr.. Why all this stupidity, just jack up the gas tax, use the money to pay down debt.. Federal $2.50/gal tax on gasoline ought to do it, and you don't have to mandate anything as far as product mix, tariffs, etc.. goes.

    Tax gas more, demand goes down, commodity price goes down, arab dictators get fucked... And that by itself is worth it to me..

  • Seward||

    ...reduce America's dependence on foreign oil.

    We've been "dependent" on foreign since something like 1913. All the hand waving, efforts to subsidize "alternative fuels," etc won't be changing that any time soon.

  • ..||

    When gas prices begin to spike this summer, as they most certainly will, both the opponents and the proponents of this latest idiocy will say, "I told you so." Truly sick.

  • Xmas||

    As a hybrid owner, I get all riled up when people talk about how you don't get back the extra cost of the hybrid with savings in gas costs.

    I'm not driving a hybrid for gas savings. Gas savings is just a bonus. The lower emissions are just a bonus. I drive a hybrid because I'm a big geek and I love technology and I have the money to spend.

    Now, I know every car driver is not going to be happy with driving a hybrid car (it's a little different). I understand that. A lot of people love a deep-throated growl, squealing tires and the feeling of taking off in the space shuttle. Commercially-available hybrids don't do that (how energy wasteful!). 4 cylinder econo-boxes don't do that. Smart cars don't do that. Underpowered SUVs don't do that.

    So besides tech-geeks, hippies, and people who can only afford the cheapest of small cars, who is going to be buying these new fuel-efficient vehicles?

    (As a side note, an electric vehicle built for speed and acceleration would probably push your eyeballs into the back of your skull, but those wouldn't be cheap.)

  • ||

    kolohe: See Table 10 "California Greenhouse Gas Emissions Standards for Light-Duty
    Vehicles" in the EIA report.

  • SIV||

    4 cylinder econo-boxes don't do that.

    4 cylinder econ-boxes are screamingly quick when they have a good HP/weight ratio.Unfortunately manufacturers and government mandates keep pushing the weight up, offsetting increases in HP. 1800-2000lbs with 150-180 hp at the wheels is fast, especially when properly geared.

  • Seward||

    Alan Vanneman,

    Smaller or even just simply more effecient cars will not reduce fuel consumption; while there is argument over this, no one has yet IMHO found a way around the Jevons paradox.

  • ||

    The real laugh about raising fuel efficiency with new CAFE standards is that the new cars will be very hard to sell. I drive a 20-25mpg CRV that's paid off. If I pay a $6,000 premium on a new car to save $400 per year, I need 15 years to recoup the 6K, never mind the interest I paid on the 6k over a 60-month loan. But I can't buy the car at all at current new-car prices. So I'll keep the car I love anyway.

  • ||

    As recently as the mid-1990s, that would have made the current Accord more powerful than a Cadillac Eldorado.

    I think that says more about the depth and breadth of Cadillac's suck-power at the time than anything else.

  • ||

    Anyone living in LA in the 1950's to 1970's can testify to the benefit of improved vehicle and industrial emissions: now there are more people and less smog, go figure.

    Bailey, how do you justify your parting zinger? That may be the result, but clean air costs money.

  • BDB||

    I'm willing to pay the money to prevent us from having China-like air quality!

  • ||

    Aye caramba. It was exactly this sort of thing that the reservation of the power to regulate interstate commerce was supposed to prevent.

    You obviously lack a sound legal education.
    The commerce clause was written so the congress could outlaw medicinal marijuana grown, prescribed, sold and consumed in one state. So sayeth Justices David H. Souter, Ruth Bader Ginsburg, John Paul Stevens, Stephen G. Breyer, Antonin Scalia and Anthony M. Kennedy.

    Automobiles have nothing to do with interstate commerce.

  • Gilbert Martin||

    "what the politicians really want is to make it more expensive to drive. They just don't want to say so."

    Yes and they also want to limit the types of vehicles that you can buy to only those having certain characteristics that they approve of.

    But they don't want to say that either.

  • BDB||

    J sub D, remember that part of Reefer Madness were the FBI Agent calmly explains that the feds can't do anything about the "marihuana" [sic] menace" because doing so would be unconstitutional? How quaint!

  • Brent||

    I just love Paris Hilton's tits. They are so sweet!

  • ||

    Gas consumption goes down - gas tax revenue goes down...........

    And we know the aristocracy won't allow their revenue streams to be lowered.

  • Gilbert Martin||

    "If we're only talking about fuel efficiency, manufacturers could simply stop making big cars and trucks, which of course they won't do. The problem is that Americans not only like big vehicles, they like massively overpowered ones."

    Freedom of choice isn't a problem, it's a feature.

    A good thing, since there is no legitimate reason why anyone shouldn't have a massively overpowered vehicle if they want one.

  • ||

    The CAFE standards established in 1975 during the first "oil crisis" explicitly aimed to reduce America's dependence on imported oil. In 1975, the U.S. imported about one-third of the petroleum it consumed. By 2008, imports accounted for about two-thirds of consumption. On the other hand, a National Academy of Sciences (NAS) report in 2002 estimated that CAFE standards had reduced U.S. oil consumption by 14 percent below what it would otherwise have been.



    Well, duh. People don't like to discuss it, but since Arab oil is the cheapest in the world, and US oil fairly expensive, the lower U.S. oil consumption, the greater percentage is likely to come from the Arabs. If we used very little oil, the world price wouldn't be high enough to justify most or all US sources.

  • Niger Delta Oil Guy||

    " but since Arab oil is the cheapest in the world"

    Nope. Nigerian.

  • ||

    Horst: Lower gas mileage no doubt helped contribute to less smog, but nearly all of the improvement in air quality came from the government mandate of catalytic converters. I'm not against low gas mileage per se, just against doing it stupidly and dishonestly.

  • ||

    Bailey:"just against doing it stupidly and dishonestly"

    Good luck with that... don't give up your idealistic dreams of eutrophia

  • kinnath||

    First car: 69 Camaro; 350 Cubic Inches; Four-Barrels; and three on the floor: 9 MPG city and maybe 14 MPG at 55 on the highway

    Current car: 06 350Z; 3.5L (about 210 cubic inches); fuel injected; 6 on the floor: 16+ MPG city and 24+ at 80 or better on the freeway.

    My stock Z would smoke my stock Camaro in any race format.

    It is not necessary to forsake performance for gas mileage. It is only necessary to engineer a good car.

  • ||

    R C Dean: Yes, isn't it interesting how the left can get so enthusiastic about states' rights when it suits them?

    Here's the law I want to see: nobody in Congress is allowed to buy or lease a vehicle that gets less mileage than the CAFE standard. Let them live by the rules they want to impose on everybody else.

  • Al Gore||

    Here's the law I want to see: nobody in Congress is allowed to buy or lease a vehicle that gets less mileage than the CAFE standard. Let them live by the rules they want to impose on everybody else.

    Does this mean I can't use my private jet anymore?

    But guys, come on. I'm so close to catching Manbearpig! I'm super serial, guys!

    Al Gore to the rescue! Whoosh! Whoosh!

  • ||

    Starting at 8:10 is the part about the feds being unable to do anything about this form of dope:


    reefer madness 3 of 7


    And then they go into the "these files are full of cases" part where there are only three file cabinets...

  • MNG||

    I realize this is a mighty big "IF" around here parts, but IF you bought the idea that higher emissions from cars led to a pollution problem that could cause actual physical harm to you and your loved ones, then certainly it would be justified to use government coercion to bring these emissions down, right? I mean, it would be like a law saying you can't throw rocks at other people.

    So the only issue is whether or not higher emissions from cars actually cause this condition and this condition has such effects. And that strikes me as something to be worked out by scientists.

  • ||

    MNG, that "IF" situation doesn't sound to unreasonable. But, we would have to weigh it against the idea of making driving so expensive only rich Republicans can afford it. Think of the poor people who will not be able to drive their crotchfruit children to the hospital because they couldn't afford a used car. (used cars become more valuable as new cars increase in price) Think of the autoworkers out of jobs as cars become too expensive. Autoworkers are in enough trouble right now. And what about the oil barons? They're people too.

  • ||

    "...cowardly politicians..." - redundant.

  • Chad||

    Tax carbon. Problem solved.

    Next?

  • ||

    Chad: Not unless everybody else on the planet does the same thing.

  • TallDave||

    kinnath,

    Yep, you nailed it. My Corvette gets better mileage than my old Cougar did, at about 3x the HP.

  • PFJ||

    The quickest way to figure out if someone knows anything about economics is to figure out their stance on CAFE vs. carbon taxes. Anyone who would prefer a large tax that the government doesn't even collect on a small number of people that doesn't even tax the root problem over a carbon tax is a moron and not worth talking to.

  • Neu Mejican||

    There seems to be a disingenuousness clash going on here.

    Politicians want X, it will cost Y, but they don't emphasize the cost, so they are being disingenuous?

    Ron Bailey claims that emphasizing X without discussing Y means that politicians want Y?

  • Neu Mejican||

    I wonder what this one costs...

    http://www.greencar.com/features/vw-235-mpg-car/

  • MJ||

    "Emissions standards that apply to individual states are now interstate commerce?"

    Given that auto manufacturer's are not going to make 50 different models to satisfy 50 different standards. Also given that there are only a few states that are large enough for the manufacturer's to justisfy conforming to and it will be the strictest standard of those states. Why is one large state setting the effective national standard a good thing in your book? Unless it's because you prefer the likely result?

  • ||

    The +$6k means one thing, the toyota Prius Hybrid will be the only car legal in Amerika. It will be renamed Obamawagen.

  • Sir Meatgoggles||

    Yay, the first of undoubtedly many Obama policies that will directly fuck over the poorest people in our society. I'm keeping track.

    This sort of shit is why libertarians should unite with smart progressive who actually recognize how bad economics and excessive environmentalism and bureaucracy lead to dire consequences for the poor...

  • ||

    "there is a simpler and more honest policy: Hike gasoline taxes substantially."

    Just do it. Europeans have paid much more per gallon for decades. As a result we use four time less gasoline per head of population, we have real public transportation, and a neutral trade balance (many European countries export real manufactured products, unlike the US, which manufactured esoteric financial products, in exchange for oil).

  • ||

    Emissions standards that apply to individual states are now interstate commerce?

    Why yes, joe, yes they are. The interstate commerce clause has been applied for decades to prohibit the states from adopting laws that burden interstate commerce even though those laws nominally apply only within the state (this is the so-called "dormant Commerce Clause").

    Illustration: Massachusetts cannot adopt a law prohibiting out-of-state garbage from being dumped in Massachusetts landfills.

    The application of this doctrine when the state law is supposedly a health and safety law is admittedly less than clear. However, there are any number of reasons for concluding that air pollution regulation is an area that is under the exclusive control of Congress.

    Plus, everyone knows that a California standard would be effectively a national standard, and that allowing California to set a national standard is merely a cheap dodge to avoid responsibility.

  • ||

    You obviously lack a sound legal education.

    Given that I got exactly the same legal education that our President did, I am hardly in a position to argue this point.

  • ||

    If you can tax my Wonder bread you can damn well tax a civilization-destroying chemical.

  • ||

    @Neu Mejican:

    "I wonder what this one costs...

    http://www.greencar.com/features/vw-235-mpg-car/"

    That's a pretty neat little car. And a rolling argument for the stupidity of our government in regulating cars. That thing according to our own USDOT regs is an illegal deathtrap that will not pass crash-test ratings. And with its European-spec diesel engine, it won't pass emissions at the Federal EPA standard. Its why you don't see diesel-car anything cruising in the States (the truck exemption for this stuff sneaks in again, hence diesel trucks, trains, and semis).

    By the time you adapt it for the USA - with airbags, steel-reinforcement bars, US-spec catalytic goodies, bumper junk, etc. - you're looking at a car that probably will weight twice as much and have a drag coefficient about two-thirds as good as the prototype shown. Back down to 80mpg or so. Top speed? Sixty...maybe.

    But that's really good, right? Look at what the car's made of. Magnesium? carbon fiber? Aluminum? Two cars I can think of made out of that kind of stuff are a McClaren Formula 1 and a Ferrari Enzo. Cheapest car with carbon fiber is the 'Vette Z06 which has carbon-fiber fenders. They're expensive (even the 'Vette). Hell of a tax credit needed for that little guy right there I can guarantee it.

    @Jan:
    "Just do it. Europeans have paid much more per gallon for decades. As a result we use four time less gasoline per head of population, we have real public transportation, and a neutral trade balance (many European countries export real manufactured products, unlike the US, which manufactured esoteric financial products, in exchange for oil)."

    I love it when people get snide about American productivity...on the internet of all places. The irony is so, so satisfying.

  • aaron||

    A gas tax is actually more damaging than CAFE. With cafe you sell less cars, but effectively increase the fuel supply, reducing the cost of operations. You also introduce more risk into operations with a gas tax. Margins are lowered and operating expenses are higher, making return on assets lower. It makes it more difficult to be entrepreneurial.

  • ||

    where is your discussion of the cost of emissions?

  • ||

    Ron, why no mention of Krauthammer's net-zero gas tax proposal here?

    And did you see this piece by Bruce Bartlett, that almost begs conservatives to look for new and less-damaging tax revenues (viz., gas taxes or a carbon tax)? http://www.politico.com/news/stories/0109/17936_Page2.html

    Boys, as for Commerce Clause considerations, when Congress approved the Clean Air Act, California was specifically granted the right to set tougher standards, subject to a waiver by the EPA that until last year has always been granted. Other states have a right to follow California: http://www.cleancarscampaign.org/web-content/cleanairact/cleanairact.html

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