Wednesday, March 15, 2017

Don't Just Roll Back Back Fuel Standards. End Them.

By Virginia Postrel
The Bloomberg View
March 15, 2017

To the outrage of environmentalists, the Trump administration plans to roll back its predecessor’s stringent gas-mileage regulations. Democratic senators are protesting and green groups are predicting lawsuits.

At issue is the Obama administration’s decree, enacted in its final days, that by 2025 automakers boost their fleets’ average fuel efficiency to more than 50 miles per gallon, up from about 35 mpg today. Car companies, who have President Donald Trump’s ear, call the targets unrealistic and warn that they’ll add at least $2,000 to the sticker price of new vehicles. Meeting the standards would likely require a huge expansion of hybrid and electric vehicles sales.

Although Congress originally established the Corporate Average Fuel Economy, or CAFE, standards to conserve gasoline in 1975, the Obama administration justified its sharp hike as a way to curb greenhouse gases under the Clean Air Act. A reversal will almost certainly trigger legal challenges.

Fighting over the right level for fuel-economy mandates obscures the fundamental problem, however. The CAFE standards are lousy environmental policy. Instead of targeting the real issue -- burning less gasoline -- the mandates meddle in corporate strategy, impose enormous hidden costs, and encourage drivers to hang on to their old gas guzzlers. Republicans should scrap the standards altogether while they control the White House and Congress. The CAFE rules are a terrible way to achieve either fuel savings or lower carbon emissions.

For starters, measuring miles per gallon is a misleading way to think about fuel efficiency. What we need is the reverse: gallons per mile. That more clearly shows how much fuel a given improvement might save. Going from 3.3 gallons per 100 miles (better known as 30 mpg) to 2 gallons per 100 miles (50 mpg) presents a much tougher design challenge than getting from 6.7 gallons per 100 miles (15 mpg) to 4 gallons per 100 miles (25 mpg). Yet the more modest improvement saves more than twice as much gasoline. And that’s without considering the relative popularity of gas guzzlers or how better gas mileage can encourage people to drive more.

And, of course, CAFE standards affect only new vehicles, a tiny percentage of the total. Higher mandates don’t get old ones off the road and, in fact, they may very likely keep gas guzzlers driving longer. Research by economists Mark Jacobsen of the University of California-San Diego and Arthur van Benthem at the Wharton School finds that among vehicles more than nine years old, the least fuel-efficient ones stay on the road the longest. By raising the prices of new vehicles, tighter fuel regulations encourage drivers to buy used ones or simply keep what they already have.

Nor does a fleet average make sense. Instead of governing a specific car’s efficiency, it directs and distorts corporate strategy. It forces American companies that are good at making and selling larger vehicles to make and sell little cars as well. It’s as though the Sub-Zero Freezer Co. had to balance its luxury models with mini fridges. That wouldn’t make a given kitchen any more efficient. It would just encourage wasteful production and corporate consolidations. (Perhaps Sub-Zero would merge with Danby or Haier, just as Porsche merged into Volkswagen.) Forcing General Motors to turn out more Chevy Cruzes may be good for rental-car fleets but it doesn’t do much for the environment.

Recognizing this flaw, last year the government began adjusting mileage and emissions requirements to the size (“footprint”) of each vehicle model. This policy, too, has perverse effects, forcing small cars to meet much stricter standards than larger ones. It especially punishes small but peppy cars. As Lucas Davis, an energy economist at Berkeley’s Haas School of Business, blogged:

"My Mini Cooper has a footprint of 39 square feet so in 2012 would have received an emissions target of 244 grams of carbon dioxide per mile. Actual emissions are 296 grams per mile, significantly above the emissions target. Even though my car is one of the smallest on the road weighing only 2,500 pounds and with a paltry 115 horsepower, it is less fuel-efficient than its footprint-based target. Thus if BMW wants to sell more Mini Coopers, it also needs to sell more of some other vehicle that is below its target and/or BMW needs to buy permits from some other manufacturer."

The more you examine how CAFE standards work, the more convoluted and absurd they appear. A rational approach would either raise the price of gasoline directly with additional gas taxes per gallon, offset by tax cuts elsewhere, or levy an emissions tax, payable with one’s car registration, based on the age and model of the car.

But the goal, it seems, isn’t to actually reduce how much gasoline Americans burn. It’s to signal concern, keep bureaucrats and lawyers employed, and boss auto designers around -- all the while allowing the rest of the population to keep their big cars, maintain their driving habits, and assume Washington is taking care of things.

Automakers won’t ask politicians to scrap the CAFE standards. They’re used to them. But Trump and his allies have promised to shake up Washington. If Trump and Congressional Republicans are going to pick a fight over fuel standards, they might as well go all the way.

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