Don't Linger in this CAFE

Paul Mulshine of the Star Ledger "outs" me in his column today for driving an SUV myself, in the sense of a vehicle subject to the lower standards of fuel economy for light trucks under the CAFE regulations. Like many of my liberal friends in rural New England, I drive a Subaru Outback. I had no idea at the time I purchased it that it qualifies as a light truck, which is the focus of Paul's rather amusing article on the new regulations. If it's any consolation, I walk to work most days.

Our friend the Minuteman has picked up the topic, focusing on the increase in the light truck requirements but the odd coupling of this change with lower standards for larger vehicles within the group. Okay, let's think this one through. With a separate standard for light trucks over the past years, we've seen more SUVs in the light truck category and fewer cars in the other category. Anyone want to bet that we won't simply see more quantity in the less fuel efficient categories over time?

I think the CAFE standards are lunacy as currently conceived, and I'll cite three issues. The first issue, as I've alluded to earlier, is that the problem we care about is total usage of gasoline. Total use is the amount of miles driven divided by fuel economy. CAFE standards, at best, address fuel economy, but they provide no incentive to economize on the number of miles driven. This is why a gas tax is better--it allows people to decide how they want to conserve on fuel usage, fewer miles or fewer gallons per mile.

The second issue is that the CAFE standards operate at the level of a fleet of vehicles produced by one manufacturer. I have never heard of a rationale for regulating a company's whole product line. The more economy cars a company makes, the more fuel-inefficient cars it can make without penalty. Why provide an incentive for Toyota to make larger cars just because it happens to make good small cars? If the objective is to regulate the average fuel economy of all cars on the road, then there ought to be a tradable permit system established. We would get a better variety of cars on the market, though not at any one particular dealer. Pure welfare gain.

The third issue is that the CAFE standards operate in a hidden fashion, and as a result there have been plenty of abuses. CAFE standards are negotiated behind the scenes with a few entities (the manufacturers). They lobby for complexity and then exploit loopholes, like the different standards for cars and light trucks or, as I fear, all these new flavors of SUV. Lack of transparency is the enabler of bad policy. Is there anything more transparent than a gas tax at the pump?

Keep it simple. Scrap CAFE, set a higher gas tax, and return the aggregate revenues from that gas tax through lower income taxes in a progressive fashion.

Linked at Outside the Beltway's Traffic Jam.

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