Our Curious CAFE Culture
In my column for Defining Ideas this week, I argue that despite the Obama administration’s call to raise CAFE standards, there is a better way--surely--to regulate automobile emissions.
Under the banner of savings in energy consumption, American policy makers have opted to impose a set of objective, nationwide fuel efficiency standards that fleets of automobiles must meet. These CAFE standards have long been prized as a way to induce more efficient use of energy in American automobiles. The idea behind the CAFE standards is to speed up fuel efficiency technology via regulation instead of relying on market forces. The regulator puts up a target in miles per gallon (mpg) that is just out of reach and which the industry must meet over a designated period of time. The industry then finds the resources to reach the appropriate target sooner than it would have otherwise done.
In previous years, CAFE standards were often ambitious but the consequences for noncompliance were softened somewhat by the relatively low fines that were placed on luxury car-makers whose fleets did not meet the appropriate standards. But leave it to the Obama administration, with its faulty economic intuitions, to turn a bad idea into a horrible one, and to do so in two related ways. First, the administration has proposed to raise the CAFE standards far higher than they once were—from about 29 mpg in 2010 to about 56 mpg by 2025. The second part of its strategy is to increase the level of fines for noncompliance so that they really start to bite on firms whose fleets do not meet the appropriate standard.
I argue that we should eliminate CAFE standards, but we should not eliminate all regulation on automobile emissions. In particular, two types of regulation seem appropriate. The first is a set of user fees that are based on a combination of congestion and wear and tear on public highways. The second item to regulate is the emission risk from tailpipes. In addition, taxing standards should be set to induce new, lower-polluting cars to enter the market, thereby increasing the incentive to substitute in clean for dirty cars.
Continue reading at Defining Ideas.
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Jun '10
Re: Our Curious CAFE Culture
Professor, I must disagree with you. Regulation is the mechanism by which the administrative state spreads its tentacles into every aspect of our lives. You don't deal with a ravenous octopus by chopping at its tentacles. You'll get eaten all the same. The EPA needs to be dismantled and its authority transferred to the states. If California wants to enact draconian environmental laws that drive up costs and limit consumer choices, let them have at it. The good people of Texas, or Kentucky, or New Hampshire probably have other ideas.
Jun '10
Re: Our Curious CAFE Culture
I disagree with you for another reason. Do you really think we poor LIKE to drive dirty old clunkers? We drive what we can afford. Yes, it costs more in the long run, but the price is spread over time. It's easier to come up with an extra $25 per month for more oil than to come up with, say, $60,000 for an efficient car. I'm bouncing around the bottom (this week we eat the cat food, next week we eat the cats), a truly fuel efficient car costs as much as my modest home. "Market forces," in my experience, are more focused on separating consumers from their money than providing value. Otherwise we'd have our affordable flying cars.
Sep '10
Re: Our Curious CAFE Culture
One quibble regarding hydraulic fracture stimulation or fracking as you put it. The technology is not new and has been around for 50 years. Most conventional gas wells in the US are and have been fracture stimulated to the tune of nearly 2 million wells to date. What is relatively new is drilling the well with a large horizontal section to directly access more the the natural gas reservoir. Hydraulic Fracturing has been adapted to these horizontal wells by fracturing small sections of the horizontal part of the well bore in sequence (so 8 to 15 small fracks instead of one large frac). This combination of horizontal drilling and multi-stage fracking is what has made enormous amounts of shale gas available.
I bring this up because it is being misreported widelty that fracking is new technology. This misrepresentation feeds into the fallacy that it is dangerous because it is new and untried. It is neither and if the technology was prone to pollute fresh water aquifers by its design, then this problem should have been apparent over the previous decades and millions of fracture stimulations.
Sep '10
Re: Our Curious CAFE Culture
Now, regarding your policy prescriptions, you are precisely right that CAFE is a poor method. CAFE makes cars more expensive but makes driving them less so. Efficiency leads us to Jevons paradox where efficiency ironically breeds use. The Gov't would be better off just taxing fuel to discourage over use of vehicles but not discourage their manufacture and ownership (through higher prices of vehicles). The irony is not wasted on me that we have recently spent 10s of billions to bail out car companies while discouraging the sale of cars through CAFE regulation and the higher prices they produce. Additionally, since the CAFE standards make newer less polluting cars more expensive, this has the unintended consequence of encouraging people to hold on to their hyper-polluting clunkers as Robert suggests above.
On, regulatory capture, CAFE standards don't apply to E85 vehicles (designed to run on gasoline or a mixutre of 85/15 ethanol/gasoline). The cost of converting a vehicle to E85 is only a few hundred dollars so you will notice that most large GM products (suburbans and the like) will be sold as E85 vehicles even though they will never burn E85 as a fuel.
May '11
Re: Our Curious CAFE Culture
Question:
Are taxes used to fund the government or are they used to promote a behavior?
Before you answer "Both", consider how large and intrusive our government is.
Sep '10
Re: Our Curious CAFE Culture
Pilli: Question:
Are taxes used to fund the government or are they used to promote a behavior?
Before you answer "Both", consider how large and intrusive our government is. · Jul 12 at 7:10am
This is just reality. The argument I would make is that if we are going to continue to do this stuff (and there is no end in sight). We should do it in such a way as to cause the least harm.
I would go further than that by agreeing the with Professor that it is legitimate to collect taxes for road use and safety as well as negative externalities associated with exhaust. Along this line, if the government wants less emissions they should tax emissions. What they have chosen to do with CAFE is place a hidden tax on cars. That is why it is bad.
Mar '11
Re: Our Curious CAFE Culture
Consumers already have a very good way to optimize their choices: their pocketbook.
CAFE should be dismantled. People should be allowed to buy what they want - and if that means Crown Vics, then why the heck not? We pay at the pump, and decide for ourselves what our priorities are.
I cheefully prefer to drive a larger, less fuel efficient vehicle - when it is much safer than a small one. Why is this not a rational decision to make?
Mar '11
Re: Our Curious CAFE Culture
Government already taxes emissions - gas taxes, up and down the supply chain, are VERY high.