The Nation's Pulse

Killing Drivers, Increasing Costs

Uncle Sam's CAFE panacea.

By 12.3.07

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Congress is running out of floor time before the Christmas holiday, but legislators still hope to push through the mishmash energy bill. The measure, which could hit the House floor this week, likely will include increased fuel economy standards for American autos. Democratic leaders and the White House alike are backing the proposal in the name of saving energy. But these rules have proved far better at increasing automaker costs and killing drivers than reducing America's dependence on foreign oil.

The desire to save energy seems to bring out the worst in Washington micro-management. Over the years, Uncle Sam has set the speed limit for every road and temperature in every public building in America. In 1975, Congress concocted Corporate Average Fuel Economy (CAFE) standards, which set the average fuel economy to be attained by cars sold by each automaker.

It's a thoroughly nutty approach. First, CAFE put Detroit, America's home auto industry, at a disadvantage because U.S. producers concentrated on the larger cars that Americans liked to drive. Japanese exporters primarily produced small cars, which more easily satisfied CAFE. The regulation is one reason stationwagons, once an American favorite, have disappeared.

Today American firms concentrate on light trucks (including SUVs), which outsell autos. The administration's new CAFE rules for light trucks are expected to cost the three U.S. automakers about $2 billion--and their Japanese competitors nothing.

Second, CAFE is supposed to cut total energy use as people buy the same cars and do the same amount of driving. But CAFÉ actually creates an incentive to drive more, changing people's behavior.

Increasing mileage requirements lowers the cost of driving. Raising mileage from 20 to 30 mpg would have the same effect as cutting the price of gas from $3.00 per gallon to $1.50 per gallon. The marginal cost of driving another mile would fall 50 percent. Yet many of the advocates of increasing CAFE to save energy are the same people who want to raise the gas tax to save energy.

In fact, the National Research Council reported that CAFÉ "reduces the fuel cost per mile of driving, thereby encouraging faster growth in vehicle travel than would otherwise be the case." Economists Randall Lutter and Troy Kravitz concluded that "By lowering the costs of driving, [CAFE] increases vehicle miles traveled, thereby boosting traffic accidents and congestion. The increase in the costs of accidents and congestion fully offsets and probably outweighs the social benefits resulting from greater fuel economy." The Department of Transportation reports that the number of miles driven by cars and light trucks more than doubled between 1975 and 2000.

Third, meeting CAFE raises automaker and consumer costs by forcing companies to make cars that people don't want. Numerous high mileage vehicles are currently available, but many people prefer larger cars for reasons of family size, work requirements, personal comfort, or recreational preference. That has forced U.S. companies to lower prices on smaller autos (often losing money as a result), since hiking sales is the only way to meet CAFE, and increase prices on larger vehicles. Ford reportedly loses money on its cars while making $8000 per light truck sold.

CAFE's cost to consumers is obvious. Moreover, CAFE likely puts more cars on the road, and more cars mean more driving. Again, price matters: if you reduce automobile costs, more cars will be sold and driven, particularly as second or third vehicles in a family.

But raising prices for lower-income families who need a larger car likely causes some of them to hold onto their older vehicles, which have lower gas mileage and emit more pollution. Which further undercuts the objective of reducing energy consumption.

Fourth, CAFE kills. Weight is destiny when it comes to both conservation and safety. Design modification and materials substitution can make cars lighter and safer, but doing so costs money and it is not easy to do both at the same time. The easiest way to improve mileage is to cut vehicle weight, but reducing the amount of metal surrounding drivers and passengers leaves them more vulnerable in an accident.

In 2002 the National Academy of Sciences found that CAFE kills an extra 1300 to 2600 people a year. Some CAFE advocates suggest that the problem is too many pick-ups and SUVs, which could be pushed off the road entirely with a sufficiently high standard. But there always will be trucks, buses, and other large vehicles plying the roads. Smaller cars will remain more vulnerable in an accident.

What a policy. Observes James Taylor of the Heartland Institute: "More Americans needlessly die on the roads each and every year as a result of these fuel econony standards than have died in Iraq during the entirety of both Gulf wars combined. All of this merely to 'conserve' a little fuel."

But the dumber the idea in Washington, the more support it seems to have these days. And from Republicans as well as Democrats.

The administration, after doing nothing for years, now supports raising CAFE four percent annually. Earlier this year the Senate voted to hike the level to 35 pmg in 2020, up from 27.5 and 22.5 for cars and light trucks, respectively.

The U.S. industry is currently set to spend $2 billion to comply with new fuel economy rules for light trucks. The Senate bill would cost automakers, who already suffer huge "legacy" costs from previous generous pension and health insurance contracts, about $114 billion to retool their assembly lines.

Explains Gary Witzenburg of the Car Connection: "Almost no one outside the fuel-economy business understands how incredibly tough, probably impossible, and enormously expensive that really would be. Even Toyota -- whose hybrid-boosted 2006 car and truck CAFEs were 34.4 and 23.7 mpg, respectively -- calls the 35-mpg standard 'very aggressive' and 'difficult to meet,' adding that, 'the time frame is too soon.'" The only way to meet the standard, he adds, "would be to dieselize and hybridize virtually everything -- at an incremental cost (not retail price) of $5000- $8000 per vehicle -- and downsize trucks to where they could barely haul the contents of a homeless auto worker's shopping cart. New emissions standards are making diesels way more expensive, and there's not enough battery raw material on the planet for an all- hybrid fleet."

Yet even accepting the flawed assumptions of the bill's backers, the energy benefits would be minimal. Explains Jerry Taylor of the Cato Institute: "If the Senate's proposed CAFE standard of 35 mpg by 2020 were to become law, proponents believe that it would reduce oil consumption by, at most, about 1.2 million barrels a day. Given that the Energy Information Administration thinks world crude oil production would be 103.8 million barrels a day by 2020, the reduction would be 1.2 percent of global demand and result in a 1.3 percent decline in price-- nowhere near enough to defund terrorists, denude oil producers of wealth, or secure energy independence."

No matter. Sen. Byron Dorgan (D-ND) rhapsodized: "Now, in our vehicles, we have better cup-holders, we have keyless entry, we have better music systems, we have heated seats. It is time that we expect more automobile efficiency."

The main alternative comes from Reps. Baron Hill (D-Ind.) and Lee Terry (R-Neb.), who have introduced what they call a "tough piece of legislation, with no loopholes and no gimmicks." It would maintain separate standards for autos and light trucks, hiking the levels to 35 mpg and 32 mpg, respectively, by 2022. Although only slightly less stringent than the Senate bill, the Hill-Terry legislation was denounced as "feeble" by the Sierra Club.

Actually, the Sierra Club is right. The "moderate" position is to only wreck the industry, kill people, and limit consumer choice more slowly, while having even less impact on energy use. To think that we pay lawmakers to come up with such klunkers.

Rising fuel costs are the best antidote to high energy consumption. As prices rise, people drive less and switch to more fuel-efficient vehicles. Indeed, Sen. Barbara Boxer (D-Cal.) didn't realize the import of her remarks when she chided Transportation Secretary Norman Mineta last year for not unilaterally hiking CAFE standards more: "You are so far behind what's even happening in the marketplace." If so, why not leave the issue up to the marketplace?

Washington has come up with a lot of bad policies over the years. Few are worse than CAFE. If someone in the nation's capital doesn't wake up and fight this counterproductive legislation, we might wake up to find that we have no auto industry left.

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About the Author
Doug Bandow is a senior fellow at the Cato Institute. A former Special Assistant to President Ronald Reagan, he is the author and editor of several books, including The Politics of Plunder: Misgovernment in Washington (Transaction).