The New Auto Fuel-Efficiency Standards -- Going Beyond the Headlines
On My 19th, 2009, President Obama announced new Federal fuel-efficiency standards for motor-vehicles that would make the current standards -- known as Corporate Average Fuel Economy -- or CAFE -- standards significantly more stringent. These CAFE standards measure compliance as the average of a company's entire fleet of cars, and so are more flexible and less costly than model-by-model standards, better matching consumer preferences and lowering production costs.
Other good news is that the administration's proposal will yield a single standard nationwide, rather than two fuel efficiency standards, one for California and the 13 other states that chose to follow its more stringent Pavley standards, and another standard for the rest of the country under the existing CAFE program. The result would have been that the states adopting the more stringent California standard would have brought about no incremental benefit for the environment beyond the national CAFE program, because auto manufacturers and importers would have largely undone the effects of the more stringent state-level fuel-efficiency requirements by selling more of the less fuel-efficient models in their fleets in the non-Pavley states. This has been validated in an interesting research paper by Lawrence Goulder (Stanford University), Mark Jacobsen (University of California, San Diego), and Arthur van Benthem (Stanford University). Thus, dual standards would have increased costs, but with little or no additional benefit to the environment.
These new Federal standards proposed by the Obama administration can therefore be one small step along the path to meaningful reductions in greenhouse gas emissions that cause climate change. That's the good news. But it's also true that the new standards are greatly inferior to other possible approaches.
First of all, CAFE affects only the cars we buy, not how much we drive them, and so CAFE standards are less cost-effective than gasoline prices at reducing gasoline consumption, because gas prices (whether reflecting market conditions or government taxes) affect both which cars we buy and our choices about driving.
Some people may think that CAFE standards -- unlike gas taxes -- are costless for consumers. But according to the administration, the increases in CAFE standards (including both scheduled increases already on the books and the new Obama proposal) will add -- on average -- $1,300 to the cost of producing a new car.
Because CAFE standards increase the price of new cars, the standards have the unintentional effect of keeping older -- dirtier and less fuel-efficient -- cars on the road longer. This counterproductive effect is typical of any vintage-differentiated-regulation, a topic which I have addressed in a previous post. There is abundant empirical research on this issue.
Also, by decreasing the cost per mile of driving, CAFE standards -- like any energy-efficiency technology standard -- exhibit a "rebound effect," namely, people have an incentive to drive more, not less, thereby lessening the anticipated reduction in gasoline usage. This has also been documented empirically.
The bottom line is that gasoline prices are a much more effective - and more cost-effective - means of cutting gasoline demand, both in the short term and the long term. But if increasing gasoline prices through gas taxes is politically impossible - which certainly appears to be the case in the current political climate - why raise all of these objections? Am I allowing the (infeasible) perfect to be the enemy of the good? Not at all, as I will explain.
There is, in fact, another policy instrument available that has the same desirable impacts as gas taxes on gasoline prices (and, more importantly, on all other fossil fuel prices, as well), but inspires dramatically less political opposition. And this instrument is not only politically feasible, but is right now achieving remarkable, broad-based political support in Washington. I'm talking about the economy-wide CO2 cap-and-trade system in Congressmen Waxman and Markey's legislation in the House of Representatives. Their cap-and-trade system will serve to increase the price of gasoline, cut demand, and reduce emissions. But, in addition, its impacts will go far beyond automobiles and trucks, and beyond the transportation sector, as well.
To seriously and cost-effectively address climate change, it is essential to put in place a single carbon price that affects all fossil fuels and all uses throughout the economy -- not only in the transportation sector, but also electric power, and the manufacturing, commercial, and residential sectors. This is precisely what cap-and-trade does. A meaningful, upstream, economy-wide cap-and-trade system will serve to increase the price of gasoline, as well as other fuels, electricity, and all goods and services in proportion to their carbon-intensity in production, and it does this (as would a carbon tax) in the right proportions for each fuel, energy source, and product, so that the overall cap is achieved at the least possible cost. The real bottom line is that cap-and-trade is the cheapest, best, and only politically feasible approach that can achieve the significant reductions in CO2 emissions that will be necessary to meet President Obama's ambitious climate goals.
Back to the Obama administration's CAFE proposal, a separate and distinct question is what will the effects be on the U.S. automobile industry? Will this be "good for the auto industry," as the White House press release claimed? Doesn't the presence of so many leading auto executives on the podium with the President clearly indicate that this regulatory change is good for the U.S. auto industry?
First, it is surely the case that a single national standard is better for the auto industry - and society more broadly - than the dual system that would have been brought about by the 14 Pavley states going forward with more stringent standards. There's nothing new about the U.S. auto industry wanting a single national standard. Indeed, for this reason, the industry supported the enactment of Federal clean air legislation in the 1970s. We all prefer bad news to worse news, but that does not mean we welcome the bad news or that's it good for us.
It's also true that the U.S. auto industry has vastly less political clout now than it has had in decades, plus a much smaller share of the U.S. automobile market. The industry is in severe economic decline, indeed on the verge of bankruptcy, and it is depending now on massive government handouts. In this climate, it is hardly surprising that the U.S. auto industry is being exceptionally cooperative with the Federal government.
But is this policy in the long-term interest of the U.S. auto industry; is this "good for the U.S. auto industry?" The answer to that question is unknown. Keep in mind that for decades the U.S. auto manufacturers have just barely complied with CAFE standards each year, while Japanese manufacturers and importers have exceeded the standards. So, at first blush, it would appear that it may be easier -- less costly -- for Japanese companies than U.S. companies to meet the heightened fuel-efficiency standards. I'm not saying that the new standards will put the U.S. companies out of business, but simply that we don't know at this point what the long-term impacts will be. In my view, one should be skeptical about claims to the contrary. As I've suggested in previous posts, the best reason to carry out environmental policies is that they are expected to be good for the environment.
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I've heard about how Toyotas, Hondas, etc... are so great and are green vehicles over and over again. Did you know they build less than 17% of their cars here? GM builds 78% here. The countries they build those cars in have almost NO EPA STANDARDS. The use slave labor and exploit human beings. Look it up online and see for yourself, it sickening!!!! Therefore, you just defeated the purpose of your "GREEN" vehicle. Those countries pollute more than any car here ever will. Don't they live in the same atmosphere as we do????
All Cap & Trade is going to do is raise the price of EVERYTHING for us right in the middle of a near depression. We will watch grandma and grandpa that can't afford to pay their utility bill freeze to death or die of heat stroke.
Then, to top it off President Obama's WALL STREET AUTO TASK FORCE encouraged GM to close 14 plants here and then take OUR FEDERAL TAX DOLLARS to pay Chinese, Korean and Mexican workers to take our jobs. Yes, people your taxes are paying foreigner wages. They are also taking away tax dollars for your communities in lost payroll and property taxes. The taxes that fund your schools, police, fire fighters and local government. There are plants in 17 states and suppliers and dealers in every state.
I voted for him, campaigned, attended his rally in Detroit and donated over $1000 to his campaign. I think I'm starting to regret it.......
CAFE standards are stupid. Just raise the friggin' gas tax until we pay nearly the same price that everybody else around the world does. Just give farmers and contractors a fair break. It would work like a charm. Regular folks would think twice before buying a Hummer for that 50 mile single person commute, but those who use trucks to provide important services and food etc. would be given a discount. Easy!
Just returned from a trip to the UK where I noticed an add for an Audi A6 diesel that pointed out how it was speced at 52 mpg. Still had the acceleration, handling and comfort that we expect but the fuel used to get from A to B is certanly at lot less. Seems that it could easily meet the 35 mpg US requirement.
I have always been a fervent supporter of President Obama. Saw him speak in person. Enthusiastic was not strong enough a word to describe my hope for the change to come. But as you can see I use the past tense because I`ve realized I`ve been completely duped! Cap&Trade and CAFE is mumbo-jumbo in that it assumes that there is climate change and it is due to the activity of mankind. Mankind causes climate change? Unsubstantiated. Logically then, Cap n` Trade and CAFE are based on false premises and are themselves false. The truth is the climate is always changing over long spans of time. Global Warming is a cult-religion requiring more faith than fact. Read the speech/article by Michael Crichton, a very intelligent man who passed away last year I believe--Many of us enjoyed his novels and films over the years. His writing was fiction based on some fact(Science Fiction). And to Crichton, global warming was best described as a cult-religion. So no thank you to mumbo jumbo and lies. Cap`n Trade? No. Cap`n Blood? Yes. CAFE? No. A cafe where I can get a good cup of joe?Most excellent. And easier to swallow than extreme falsehoods.Jeebus! And how I did once support Obama! I was played like a player-piano. And there ain`t even a player! My shame knows no bounds. Didn`t like Bush and now dislike Obama.Couldn`t vote for media darling McCandy-Caine, neither (yeah, either).
"Cap&Trade and CAFE is mumbo-jumbo in that it assumes that there is climate change and it is due to the activity of mankind."
Even if your argument were correct (I will not go into this here, as it is not the issue of this article), it would still make very strong economic sense to implement cap-and-trade. Read the article by Reuters about Paul Krugman's speech in Abu Dhabi yesterday:
http://www.reuters.com/article/newsOne/idUSTRE54O20L20090525
Excerpts: "We have averted utter catastrophe, but how do we get real recovery? We can't all export our way to recovery. There's no other planet to trade with." Krugman said. Global recovery could come about through more investment by major corporations, the emergence of a major technological innovation to match the IT revolution of the 1990s *or government moves on climate change*. "Legislation that will establish a cap-and-trade system for greenhouse gases' emissions is moving forward," he said, referring to the U.S. Congress.
so much for not raising taxes on anyone who makes less than 250k.unless these people dont buy a car or gas.everyones taxes will go up.no matter how you dress it up cap and trade is a tax increase on poeple who can afford it the least
I thank you for writing the truth, LarryB28!
Gas prices in the US are among the lowest in the world, by far. Besides, speculation with oil has much more impact on gas prices than government taxes, like the proposed cap-and-trade. Get your facts straight, Larry28!
Also, here is more to it than meets the eye: cap-and-trade is a 'wholistic' approach to stimulating the economy (see my more recent post above), which will ultimately benefit everybody - especially those most affected by the present economic crisis (and much faster that 'trickle-down').
I agree that cap-and-trade is the best solution. I worry that the effects will be largely diluted by reimbursing individuals that live in states where utilities rely on coal for increases in their utility bills. This will be counterproductive in terms of conservation and energy efficiency upgrades.
Unless cap-and-trade is coupled with deregulation of the utilities in the remaining states, I am pretty sure that the regulated rate process and the handouts to taxpayers in the central states will severely limit the effects of the caps.
This really bothers me. Anyone got an analysis that will cheer me up?
Yes. Cap and Trade and CAFE are badly misguided in nature and are in fact based completely on false premises. End of analysis.
I guess that's the kind of analysis that was done when the invasion of Iraq was planned... rather not get too much into detail - and let truth not stand in the way of a healthy prejudice...
Focusing on cap-and-trade policies for oil without cheap alternatives to replace it would be disastrous for the consumers. Viable, affordable, and environmentally-friendly substitutes for fuel must be made available first before a tax is imposed on industries. These energy companies burdened with additional taxes would take it out on the people by increasing their monthly bills. The result might be a decrease in consumption which would be bad for any economy. If people spend more on utilities, they would have less for everything else.
The better alternative for cap-and-trade is to invest on green energy technologies and power plants. Investments on upgrades to make factories, buildings, homes, etc more sustainable, more- efficient, and more environmentally friendly should be focused on as well.
Now I think what you write is very reasonable. Just my opinion. And so you know: No, I don`t "believe" in climate change as due to mankind. BUT I do firmly believe in protecting the environment. Clean water and clean air are good for all creatures. The danger in pushing a global warming agenda is that such tactics may well disillusion people like me who do believe in protecting the environment but are not willing to buy into the global warming scam. A lot of people are making a lot of money off of this scam as we speak. I have planted many trees and cleaned up my share of beaches, but I do this for the environment, not for some notion of global warming as a false crisis to be exploited by the left.
Just took delivery (last week) of a new 2010 Mercury Milan Hybrid. So far, I'm getting around 45 MPG in mixed city highway driving and if my experience with my other car (a 2008 Mercury Mariner Hybrid) is a predictor of future numbers, my MPG will get BETTER over time.
I'm doing my part ... and I didn't even have to buy outside North America to do it!
I wish to address global warming. However, I believe the focus we should pursue is the substitution of alternative energy sources at an economically acceptable price. The economic emergence of China & India (let alone a doubling of Earth's population during this century) will more than offset any benefit which may be derived by making the internal combustion engine more efficient. We need to develop alternative energy sources for ALL of our needs.
Last summer's gasoline prices has a small affect on the consumption of gas. However, the effect was relatively small & will not save our planet. It will, however, destroy the remnants of the middle class who have to utilize ever increasing amounts of their financial resources of home & transportation needs leaving less & less for other living costs.
You're skirting all around the issue but you're avoiding the heart of the matter. What good are " heightened fuel-efficiency standards" or " put in place a single carbon price that affects all fossil fuels and all uses throughout the economy " if the volume consumed increases massively anyway because of the skyrocketing number of people wanting their piece of the pie. The root of the environmental problem is the population of the planet is increasing faster than the planet's ability to support us. 40 yrs ago we were 4 billion people, now we're over 6 billion, 40 yrs from now we'll be more than 9 billion. If the population of the planet keeps increasing at it's current rate, by the end of this century it will have doubled from what it is now to over 12 billion people. If that happens no amount of fuel efficiency or carbon tax will make a difference. Our biggest problem will be fresh water which we won't have nearly enough of. No comprehensive environmental policy can work without addressing the planet's current rate of population growth.
The world's biggest problem is human population growth. I agree with you, and continue to be dismayed at the lack of attention this gets.
It's because there are no good solutions.
Actually, this notion of population growth is rather mistaken. Many believed we would already be in dire straits right now because of "the population explosion." Actually, many countries are suffering from population shrinkage. Demographics IS an interesting subject, I think. One of the most interesting subjects. Anyway, many countries share in common a low birth rate to the point of declining population. Once the birth rate hits 1.2 or so, then down goes the population. I have one child. Therefore, we (my wife and myself) are actually contributing to a decline in population. When we die, there is the one child.Only one of us is "replaced". In some countries the elderly population increases while the birth rate declines. It is hard to maintain a country with that kind of demographic. There are some radical groups that demand there be fewer of us out there. But the irony of it is that were they not alive, they would not have the ability to express this notion. And this means getting into some very ethically-challenging territory. A place I would rather not go!
Improved fuel efficiency and carbon taxes are just the beginning... of moving present, ubiquitous technology into an an entirely different direction. We have to start looking for (and financing) some viable alternatives NOW.
Market-driven solutions like gas tax, or cap-and-trade are like trying to reduce murders by charging a fine for each murder committed. Market-driven solutions are pushed by capitalists, because they can then legally "get away with murder" because they can afford to. Especially when the legislation gives them billions in free pollution credits.
The environment is not an economic problem, it is a social problem.
So: By law, ramp down the levels of greenhouse pollutants anyone is allowed to produce. To zero, ultimately. Prosecute and imprison the offenders (starting with the biggest), just like we do for robbers and murderers. That way the actual offenders get justice, while the rest of us find ways over a reasonably short period of time to live without polluting.
Think you're being treated unfairly? That's why we have a court system. Tell it to the judge.
Our very living creates green house gases. Are you advocating mass murder? Zero emissions is impossible. A large reduction in the emission of green house gases in as short a time as practical makes more sense.
The environment is an economic problem because economic activity impacts the environment.
The only value at work in the economy is money. If a value other than money is wanted, the market won't provide it. Free market adherents don't seem to see this.
Cap and trade is putting a value other than money (the environment) into monetary terms. The market can then continue to be all about money, with environmental values imposed on it.
Mr. Stavins,
What large family is going to buy a Smart Car?? It seems like Pres. Obama wants to regulate the size of the average family, too. SUV's were ideal for the large family, but Pres. Obama doesn't want gas guzzlers,so he has mandated more fuel efficient cars, promotes the Smart Car. No where has he issued safety regulations. To me safety comes first!!!!
Big cars are not necessarily safer. Some big SUVs have horrible crash test ratings, to a certain degree, more mass doesn't always equal increased safety. You have to start somewhere. Europe has done this 15 years ago, and it has lead to more fuel efficient cars. I had a Mercedes A class diesel as a rental a couple of months ago, which got about 56 mpg, It can easily accommodate a family of 5, and it is probably safer than most SUVs in this country. Once those emission standards get combines with tax incentives for new, efficient cars, the old 12 MPG dinosaurs will disappear in this country too.
Yes, both Mercedes and BMW have big models that are diesel and get great gas mileage. Not only that, they have every bit as much cache as big Buicks, Fords, Hummers, etc.
Ineed, some of these small cars are death traps. I'm not buying one.
What about electric cars???
They don't have the power that most people want (and some people need... truck drivers)
4 dollar per gallon gas last summer was the straw that broke the camel's back for most family budgets and is what sent this economy tailspinning into the current recession. (There were plenty of other underlying reasons, though.) Higher pump prices, along with higher energy costs passed on due to carbon cap and trade policies, will hurt the low and middle class families of this country. Plan on a long and deepening recession, people. Bush may have dumped us overboard, but Obama tossed us the anchor...
Not really. With the rebate for buying a more fuel efficient car and the additional gas mileage you can get out of a more efficient model you can pay the car payment. I know because I'm doing just that. Instead of driving a Frontier that gets around 17 miles per gallon, I drive a Hyundai that gets 32 miles per gallon. Do the math.
1) We're not entitled to cheap gas, or cheap electricity.
2) The overriding issue, to some of us anyway, is more important than money.
CAFE standards costing $1300 a car is not the only new hurdle for our auto industry. Dennis Kuchinich was on CSPAN with other Congressmen sounding the alarm over what Wall Streeters running the Administration plan to do this week while everyone's away from DC on Recess. It is evil.
Bankruptcy is a huge disaster and millions of voters will not forget Obama appointed a Wall Street crowd with an ulterior motive to force this bankruptcy.
The White House Auto Task Force is deliberately destroying massive numbers of jobs by forcing disestablishment of major percentages of Chrysler and GM. The cost is already up to 70 billion dollars and rising, will increase unemployment by a million, reduce state tax revenue by billions, and move jobs to China.
Wall Street has been the major culprit in the auto industry's woes (speculating on oil causing gas to go to $4 a gallon and hurting sales), freezing credit for both the auto manufacturers and car buyers further hurting sales and hurting the manufacturers ability to weather the recession also caused by Wall Street. The White House Task Force is composed of Wall Street insiders who have no experience in the auto industry. Now they are mismanaging many steps of their "Recovery" as well as their final solution for the auto industry. Wall Street plans to make money by wiping out our infrastructure and importing cars from China.
If Obama continues to stick with his Wall Street crowd, then nothing else matters about Obama.
Urban planning can ease the way for mass transit to move more people, more efficiently.
When will this happen? After everyone has lost everything? After the housing and food riots? Move them efficiently to the camps......
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