The Sad CAFE
posted by Liberal Seagull at 2:40 PM
Congress is once again tinkering around the margins of the Corporate Average Fuel Economy (CAFE) law. While the effort is laudable, it's long past time we admitted that CAFE is obsolete and discussed alternate ways to encourage better fuel economy. While CAFE was partially responsible for a dramatic increase in fuel economy from 1975 to the mid 1980s, in recent years average fuel economy has declined. I believe this is in no small measure due to market distortions created by CAFE itself.
CAFE was passed in 1975 as a response to the 1973-1974 OPEC oil embargo. The concern then, as now, was with our nation's dependency on foreign oil. The law required (and still requires) that the average fuel economy of the cars a company sells meet a minimum standard. The goal was to double the 1974 passenger car fuel economy by 1985, to 27.5 mpg. Light trucks, however, were treated differently; no specific goal was set, only a guideline that the standard should be the "maximum feasible." The "maximum feasible" has always been interpreted to mean a standard significantly lower than that for cars. At the time, this probably seemed like a reasonable compromise; people did not generally drive trucks for pleasure, and they only represented 19% of total vehicle sales.
The consequences of this double standard were predictable for anyone who understands economics. In the 1990s, cheap gas created a demand for bigger, more powerful vehicles. Manufacturers couldn't cheaply meet this demand with passenger cars due to the fuel economy standards, so they created a new category of vehicles that were car-like, but met the CAFE definition of light trucks -- SUVs. Light truck sales exploded, going from 28% of the market in 1987 to 50% of the market in 2006. Meanwhile, average overall fuel economy declined, from 22.1 mpg to 21.0.
Further tinkering on the supply side, by changing the manufacturers' fuel economy rules, will probably not fix the problem, although recent proposals to make the car and light truck economy standards equal may help. What are really needed are demand-side incentives, because this is an area where basic free-market forces really do work. If there's public demand for higher fuel economy, manufacturers will scramble to provide it. It's not just rising CAFE standards that caused fuel economy to hit an all-time high in 1987; the Iranian revolution in 1981 triggered a vicious spike in gas prices that remained fresh in people's minds for several years afterwards, and they sought out economical rides. Today, interest in more fuel-efficient cars is starting to perk up as gas prices again reach record-setting levels. Abolishing CAFE and establishing a carbon tax, fuel tax, or even an income-tax incentive based on buying economical vehicles would go a long way towards speeding up this process. Unfortunately, these are politically difficult solutions, so what we'll probably get is more tinkering with the current, broken law.
By the way, this isn't to say I have much sympathy for the American auto manufacturers' lobbying efforts against raising CAFE standards. They're offering the same litany of tired old excuses -- it's too expensive, it's not practical, it'll mean cars that are unsafe -- that they've offered in response to every new fuel economy and emissions control proposal since the 1960s. They're continuing to show the same lack of vision that caused them to hand over leadership of the industry to the Japanese in the 1980s. It's depressing to see that the Big Three (well, really, the Big 2.5) have learned so little in the last two decades.
CAFE was passed in 1975 as a response to the 1973-1974 OPEC oil embargo. The concern then, as now, was with our nation's dependency on foreign oil. The law required (and still requires) that the average fuel economy of the cars a company sells meet a minimum standard. The goal was to double the 1974 passenger car fuel economy by 1985, to 27.5 mpg. Light trucks, however, were treated differently; no specific goal was set, only a guideline that the standard should be the "maximum feasible." The "maximum feasible" has always been interpreted to mean a standard significantly lower than that for cars. At the time, this probably seemed like a reasonable compromise; people did not generally drive trucks for pleasure, and they only represented 19% of total vehicle sales.
The consequences of this double standard were predictable for anyone who understands economics. In the 1990s, cheap gas created a demand for bigger, more powerful vehicles. Manufacturers couldn't cheaply meet this demand with passenger cars due to the fuel economy standards, so they created a new category of vehicles that were car-like, but met the CAFE definition of light trucks -- SUVs. Light truck sales exploded, going from 28% of the market in 1987 to 50% of the market in 2006. Meanwhile, average overall fuel economy declined, from 22.1 mpg to 21.0.
Further tinkering on the supply side, by changing the manufacturers' fuel economy rules, will probably not fix the problem, although recent proposals to make the car and light truck economy standards equal may help. What are really needed are demand-side incentives, because this is an area where basic free-market forces really do work. If there's public demand for higher fuel economy, manufacturers will scramble to provide it. It's not just rising CAFE standards that caused fuel economy to hit an all-time high in 1987; the Iranian revolution in 1981 triggered a vicious spike in gas prices that remained fresh in people's minds for several years afterwards, and they sought out economical rides. Today, interest in more fuel-efficient cars is starting to perk up as gas prices again reach record-setting levels. Abolishing CAFE and establishing a carbon tax, fuel tax, or even an income-tax incentive based on buying economical vehicles would go a long way towards speeding up this process. Unfortunately, these are politically difficult solutions, so what we'll probably get is more tinkering with the current, broken law.
By the way, this isn't to say I have much sympathy for the American auto manufacturers' lobbying efforts against raising CAFE standards. They're offering the same litany of tired old excuses -- it's too expensive, it's not practical, it'll mean cars that are unsafe -- that they've offered in response to every new fuel economy and emissions control proposal since the 1960s. They're continuing to show the same lack of vision that caused them to hand over leadership of the industry to the Japanese in the 1980s. It's depressing to see that the Big Three (well, really, the Big 2.5) have learned so little in the last two decades.
<< Home