Thursday, August 25, 2005

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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Anonymous said...

Andrew --

Just to drive your point home, your Outback only qualifies as an SUV for CAFE standards if it is a 2005 (or later) model. Before the last product redesign, the Outback did not meet the light-truck standard so you are only party to Subaru's CAFE-dodging design if you bought your Outback recently. Subaru took some flak in the press from its liberal New England base on getting the Outback reclassified as an SUV for CAFE regulations. I expect that its conservative New Enlgand base just sighed about the inefficiencies of regulations that set standards instead of modifiying prices.

The 2005 model looks quite similar to my 2004 Outback. One key difference for regulatory purposes is the slightly higher suspension for the 2005. However, these modest differences matter when it comes to regulatory line drawing.

JG said...

"Keep it simple. Scrap CAFE, set a higher gas tax"

The problem with that is they tried that to begin with, and it became clear the voters didn't want it and weren't going to stand for it. Thus CAFE was created instead.

So there's a fourth problem with CAFE standards -- they are anti-democratic, a (highly inefficient and costly) way around the voters' will.

Anonymous said...

Thanks for the information on the new Subaru.
Our 1999 for sure should not be classified as a SUV. My SUV's are two Dodge one ton dually pickups. Now these are SUV's. The 2001 diesel 4x4 auto gets 10 mpg but is carrying 2700 lbs of camper and pulling about 5000 lbs of horse trailer and horses. Remove the trailer and it gets 11 miles per gallon. That is uphill downhill sideways, whatever. The 1990 diesel 2x4 (empty) gets about 20 mpg around town and about 25 out on the freeway or about the same as the Subaru. No SUV driving socker mom will challange me at the 4 way stop signs when I am in the Dodge but everytime when I am in the Subaru.
The wife and I were wondering how high fuel prices would have to get to before we change our lifestyle. She suggested we would cut back on sailing our 12 foot yatch and I pointed out that everything related to horses had a fuel cost component to it. If fuel cost go high enough there will be a lot of cheap horse and cow meat for sale but milk will be expensive. I expect 10 bucks a gallon would get our attention.

Anonymous said...

The CAFE should be scrapped -- let the market deal with this issue.

If the government must interfere in this market, it should either tax gas or tax vehicle weight (at time of original sale).

Fat Man said...

Another problem with CAFE is that it has no impact on current fuel use and prices. No matter what happens, the model mix that the manufacturers will produce is set for the next 2 years at least. The lead time for a new model is at least two years and can run as long as 5 years.

Even when new models are available they will not be the only cars on the road. The average car lasts about 17 years in service. So the fleet turns over at the rate of about 6%/yr.

If the Government increased the CAFE standard to 40 mpg, it would be decade before there was a notable change and 20 years before the fleet was replaced.

Anonymous said...

CAFE is indeed a lame idea.
But Washington, DC is not a uniform spherical center of good policy: it is the land of second- (or twelfth-)best. Does anybody really think that a gas tax is politically feasible?
Repealing CAFE is politically feasible. Is nothing better than CAFE? That is our opportunity set in the real world, with perhaps a marginally stronger CAFE if the Dems get into power. For all of CAFE's stupidities, I don't think that nothing is better than an ugly something.

Andrew said...

I guess I just don't think CAFE is good enough to rate as a something--it gives the appearance of a something, but the results (it seems) of a nothing.

What is politically feasible? Just about anything, with the right leadership. Just about nothing, without it.

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