What the New CAFE Standards Really Mean


smart car

Yesterday, the Obama administration upped the corporate average fuel efficiency (CAFE) standards for the U.S. automobile fleet from 27.5 miles per gallon (mpg) to 35.5 mpg by 2016. According to the government, the new standards will add about $1,000 to the price of new automobiles, but drivers will be able to recoup the cost through buying less gasoline over the life of the vehicles. Maybe. But this convoluted effort to reduce American consumption of gasoline actually functions 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.

In 2002, the National Academy of Sciences issued a report on CAFE standards which 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 Obama administration's stated goals of reducing imports of foreign oil and cutting greenhouse gas emissions much more efficiently than labyrinthine CAFE standards—since taxes would apply to all vehicles, not just new ones.

Utlimately, there is no getting around the fact that setting higher 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.