On Monday, the EPA announced that it is is getting ready to relax the ambitious automotive fuel economy standards (CAFE standards) that were set during the Obama administration. Those standards would have required new cars sold in 2025 to average more than 50 miles per gallon. EPA administrator Scott Pruitt said that the Obama administration had set the standards “too high” and “made assumptions about the standards that didn’t comport with reality.”
CAFE standards are coming under fire, in part, because of the rising cost of new cars, which reached a record high of $36,000 at the end of 2017. The extra costs of building fuel-efficient cars might be worth it if CAFE standards were really an effective way to cut greenhouse gas emissions, but they are not. Instead, they are among the most notoriously inefficient of federal regulations.
The fundamental problem is that CAFE standards attack emissions only indirectly. Buying an efficient hybrid instead of a gas-guzzling SUV is just one of many ways you can cut back on fuel use. You can, instead, consolidate errands or make your next trip to the supermarket in your Honda, instead of your Ford F-250, if you have one of each. Given more time to adjust, you can switch to public transportation, move closer to work and shopping, or work at home.
CAFE standards encourage fuel saving only when choosing what car to buy. Once you upgrade to a low-mileage vehicle, though, the cost of driving an extra mile goes down, reducing your incentive to take other fuel-saving measures. As a result, the cost of cutting fuel use via CAFE standards is higher than achieving the same result more directly through a carbon tax or higher gasoline taxes—six to fourteen times higher, according to a study by a team of researchers at MIT.
So, if CAFE standards are such a bad idea, why do we have them? As I explained in an earlier post,
If you are an economist, choosing higher fuel taxes over CAFE standards looks like a no-brainer, but if you are a politician, fuel taxes have an obvious drawback. Fuel taxes make the cost of reducing consumption highly visible. You see the big dollars-per-gallon number right there in front of you every time you drive up to the pump. CAFE standards, in contrast, hide the cost. You pay the price of a higher-mileage car only when you buy a new one, and even then, the part of the price attributable to the mileage-enhancing features is not broken out as a separate item on the sticker. You may notice that your new car costs more than your old one did, but there are lots of other reasons for that besides fuel economy.
But that logic only goes so far. As new car prices push into the stratosphere, the chickens are coming home to roost. The administration is sure to get a lot of political mileage out of making cars more affordable, climate be damned.
Reposted from NiskanenCenter.com