Congress has no business dictating automotive fuel efficiency?

Question

Congress has no business dictating automotive fuel efficiency.
Everybody in Washington wants to force the auto industry to make more fuel-efficient cars and trucks. President Bush wants to require new vehicles to meet federal standards (to be determined) based on how heavy they are. The Senate wants to mandate that every car, pick-up truck, and SUV sold in 2020 average a fuel efficiency of at least 35 miles per gallon — far more aggressive than the 27.5 mile per gallon standard now in place for passenger vehicles. The House could offer an amendment on fuel standards from the floor on Friday. Either way, we’ll find out later this week what’s in store.

Would the market produce “too little” conservation without corporate average fuel efficiency (CAFE) standards? At first glance, no. The “right” (that is, efficient) amount of gasoline consumption will occur naturally as long as fuel markets are free and gasoline prices reflect total costs. In fact, a review of market data by Clemson University economist Molly Espey and Santosh Nair found that consumers actually overvalue fuel efficiency. That is, they pay more up front in higher car prices than the present value of the fuel savings over the lifetimes of the cars.

But driving imposes costs on others that aren’t reflected in fuel prices, like environmental degradation. Because gasoline prices do not reflect total costs, consumption is higher than it ought to be. Congress is therefore doing the economy a favor by mandating increased increments of energy conservation, right?

The argument is clever, but wrong.

Increasing CAFE standards will not decrease the amount of pollution coming from the U.S. auto fleet. That’s because we regulate emissions per mile traveled, not per gallon of gasoline burned. Improvements in fuel efficiency reduce the cost of driving and thus increase vehicle miles traveled. Moreover, automakers have an incentive to offset the costs associated with improving fuel efficiency by spending less complying with federal pollution standards with which they currently over-comply.

Those two observations explain calculations from Pennsylvania State economist Andrew Kleit showing that a 50 percent increase in CAFE standards would increase total emissions of volatile organic compounds by 2.3 percent, nitrogen oxide emissions by 3.8 percent, and carbon-monoxide emissions by 5 percent.

Another rationale for CAFE standards is that gasoline purchases send money to foreign terrorists who kill and maim with our dollars. Energy conservation, according to many, is our “ace in the hole” against al Qaeda and its ilk.

If there were a relationship between our “energy addiction” and Islamic terrorism, one would expect to find a correlation between world crude oil prices and Islamic terror attacks or mortality from the same. But there is no statistical relationship between the two. Terrorism is a very low-cost endeavor and manpower, not money, is its necessary determinant. That explains why even the lowest inflation-adjusted oil prices in history proved no obstacle to the rise of Islamic terror organizations in the 1990s.

While it’s true that nasty regimes like Iran are getting rich off our driving habits, the extent to which oil profits fuel its nastiness is unclear. After all, Pakistan is a poor country with no oil revenues, but it had no problem building a nuclear arsenal. The same goes for North Korea. Iran without oil revenues might look like Syria. Venezuela without oil revenues might look like Cuba. In short, while rich bad actors are probably more dangerous than poor ones, oil revenues don’t seem to make much difference at the margin.

Finally, we’re told that CAFE helps secure our energy independence. But the amount of oil we import is related to the difference between domestic and foreign crude oil prices. Reducing oil demand may reduce the total amount of oil we consume, but it will not reduce the degree to which we rely on foreign oil to meet our needs.

Regardless, tightening CAFE standards would have little impact on any of these alleged problems. If the Senate’s proposed CAFE standard of 35 mpg by 2020 were to become law, 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.

Congress has no business dictating automotive fuel efficiency. That’s a job for consumers, not vote-hustling politicians. There are no problems for CAFE standards to solve. Hence, they shouldn’t be tightened; they should be repealed.

Answer 1

I think they do. The car industry is certainly not going to step up.
.

Answer 2

"Improvements in fuel efficiency reduce the cost of driving and thus increase vehicle miles traveled". ??? Your words.
How do you figure? I drive to work, I drive home. Done. If that job is 35 miles away, I use 2 gallons of fuel.
Leaving it to the ways of old (17mpg) I would use 4 gallons to do the same trip.....twice as much.
I use to "just drive around" in my youth, aimlessly going nowhere, but still there is only SO many miles you can put on a vehicle in a day. Period.
Now you can either pay a fortune in order to keep the monster going, or just a few bills out of YOUR pocket.
Your logic is illogical.
If congress can legislate fuel consumption ratings and the automotive industry is ABLE to comply, then don't you wonder how efficient cars really CAN be (and what power the oil companies DO have over them?)

Besides why are we looking to the auto MANUFACTURERS for a different car with different power. They just build cars. They don't invent them. Never did. Their R.&D. is in regards to production techniques.

Answer 3

Four arguments against you.

One) We don't take into account the hidden costs of our gasoline consumption. One of the biggests costs not included in the price of gasoline is how much military spending me must make to keep our supplies going.

Two) Iran is not getting rich off of our gasoline because we don't get any gasoline from Iran.

Three) A regression analysis that compares world gas prices with terrorist attacks or deaths is a bad measurement. It doesn't take into account economic changes which are caused by the terror attacks themselves (i.e. how much money we have to spend to feel safe AFTER an attack). It also doesn't take into account what the effects of our policies have on the recruitability of potential terrorists. Just by being in Saudi Arabia and protecting oil interests of the Saudi family makes more people hate us. When more people hate us, then they will be more likely to be recruited into terrorism.

Four: If we reduce consumption, it will mean we can rely less on foreign oil, simply because we can use our own domestic production (at the same rates we produce now) for a larger share of the pie. Additionally, transportation costs for the oil will be much lower for domestic than foreign oil.

There is definitely a correlation between our oil dependence and terrorism. It's just that the mathematics are much more complicated than the simple figures you are trying to use.

Answer 4

Shoulda-coulda-woulda on paper. Reality is people who use turbos USE turbos. Ask if your mpg will drop 50% and I'll say yes. Anyone saying they will save gas or even equal what you have is playing mind games to justify doing it. Save your bucks for keeping the car well tuned. If that's not ringing any bells for you, divide the price of buying and installing a turbo by the price of a gallon of fuel.

Answer 5

Perhaps they are just trying to save the environment. I guess they should stop regulating the amount of smog that factorys put into the air also then.
Should the government stop putting taxes on cigaretts.
Should we get rid of the FDA while we are at it. What do we need the gov't for to tell us whats healthy for us then also.
What kind of car do you drive? Perhaps you have a fuel efficent hybrid.

Answer 6

Good article, governmental interference in free enterprise has proven over and over to be disastrous. Remember the long lines at gas stations in the late 70's? Blame price ceilings imposed by your govt. Govt should never interfere with regulation like this, let the consumer decide what car they want to drive.

Answer 7

If no fuel efficient cars are available then how will those consumers choose them? It is only the auto maker lobby that has kept the vehicles inefficient. If they can buy politicians and avoid the costs of improving engine performance auto makers will always take that option. They have proven that for decades.

Answer 8

Why in the world not? Everyday we face rising fuel costs purchased from shakey suppliers. It is a national security issue as well as an environmental issue.

They also need to mandate more recycling.

Answer 9

The government is allowed to make laws on cars.

Answer 10

Actually, that's explicitly one of their enumerated powers in Article I Section 8.

Congress may pass any laws relating to the instrumentalities of interstate commerce -- meaning vehicles and roads.

Answer 11

Congress' job is to represent the people's grievances. Obviously oil is one of the major grievance of the world as you know it.