Fuel Economy Standards Are Only Half a Solution

Posted: May 20, 2009 12:02 PM BIO
Fuel Economy Standards Are Only Half a Solution
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Read More: Automakers, California Fuel Rule, Chevy Volt, Fuel Efficiency, Fuel Efficiency Standards, Gas Tax, Gm, Obama Administration, Subsidies, US Military, Green News

Share Print CommentsIn a remarkably bold regulatory move, the Obama administration is setting new, aggressive fuel efficiency standards for cars and trucks. The new goal will be 39 miles per gallon by a 2016 (which is around the corner in car model development time). This is big environmental news this week and for good reason. But as important wide-reaching as this kind of rule is, it seems like only half a solution.

The arguments against the ruling are of course being vociferously proclaimed from the usual suspects. But it's not easy to write them all off. It will cost more to make the technological changes, all at a time that the U.S. automakers are on life support. I tend to think the claims of expense from new standards that force innovation are generally overstated by alot...but it won't be costless to producers. The total cost of ownership to customers should go down with these kinds of fuel efficiency improvements, but that only matters if they buy the cars. And this brings us to the real problem -- what's the incentive for consumers. This concern, voiced by the industry and others, is far harder to dismiss. Unless gas is over $4/gallon, or we pay consumers to buy greener cars, why will they buy these new vehicles?

I've wondered since the car bailout packages why we didn't just take that money and commit to buying greener vehicles. GM wants $20 billion -- ok, we'll put $20,000 towards 1 million Chevy Volts as fast as you can make them. The government could buy them for government vehicles (imagine every FBI agent with a Volt -- if the bad guys saw one, I guess they'd an agent was coming, but then again, they wouldn't hear it coming).

Remarkably, the industry is not responding quite as negatively as you'd think to all of this. they're happy not to face California's rules -- and then 49 other state regs. One national standard is preferable. And a very optimistic piece in the Wall Street Journal says "Car Makers Expect to Hit Fuel Goals."

But will they really hit the goals without the demand side pushing for it? It seems like a good time to have an even tougher conversation about what we can do to help consumers buy green. We have a remarkable consensus brewing that we need to move off of fossil fuels. The report from retired generals and admirals that just came out in the last few days was astonishing. As BusinessWeek reported, these military leaders believe fossil fuel, if it included the costs of transport and security, would run the army (and all of us) hundreds of dollars a gallon. Only 10% of the oil supporting the troops is actually moving the vehicles -- the other 90% went to "other vehicles delivering and protecting fuel and forces." As the report sums up, "This is the antithesis of efficiency." In a telling passage, the article reported:

"Our energy posture is not sustainable. It can be exploited by those who want to do us harm," retired Air Force Lieutenant General Larry Farrell, a co-author of the report, said in an interview. Finding a suitable alternative fuel and scaling it up to the size of the U.S. economy "is a 30-year project," Farrell said. "We've got to get started now."
It seems that starting with cars and trucks now would be a good idea then -- at the very least, maybe it frees up fuels for uses that are harder to avoid like flight and military. But we won't get there if people don't buy the cars. And why would they at $2 a gallon? With even the military saying we need some massive shifts, can we actually talk seriously now about giant subsidies to car buyers or, better yet, a tax on gas that puts a $4 floor on the price? Without those demand-side measures, we have only half a solution

net zero gas tax

Americans have a deep and understandable aversion to gasoline taxes. In a culture more single-mindedly devoted to individual freedom than any other, tampering with access to the open road is met with visceral opposition. That's why earnest efforts to alter American driving habits take the form of regulation of the auto companies--the better to hide the hand of government and protect politicians from the inevitable popular backlash.

But it's not just love of the car. America is a nation of continental expanses. Distances between population centers can be vast. The mass-transit mini-car culture of Europe just doesn't work in big sky country.

This combination of geography and romance is the principal reason gas taxes are so astonishingly low in America. The federal tax is 18.4 cents per gallon. In Britain, as in much of Europe, the tax approaches $4 per gallon--more than 20 times the federal levy here.

Savvy politicians (i.e., those who succeed in getting themselves elected president) know this and tread carefully. Ronald Reagan managed a 5-cent increase. So did Bush 41. Bill Clinton needed a big fight to get a 4.3-cent increase. The lesson has been widely learned. No one with national ambitions proposes a major gas tax. Indeed, this summer featured the absurd spectacle of two leading presidential candidates (John McCain and Hillary Clinton) seriously proposing a temporary gas tax suspension.

Today's economic climate of financial instability and deepening recession, moreover, makes the piling on of new taxes--gasoline or otherwise--not just politically unpalatable but economically dubious in the extreme.

So why even think about it? Because the virtues of a gas tax remain what they have always been. A tax that suppresses U.S. gas consumption can have a major effect on reducing world oil prices. And the benefits of low world oil prices are obvious: They put tremendous pressure on OPEC, as evidenced by its disarray during the current collapse; they deal serious economic damage to energy-exporting geopolitical adversaries such as Russia, Venezuela, and Iran; and they reduce the enormous U.S. imbalance of oil trade which last year alone diverted a quarter of $1 trillion abroad. Furthermore, a reduction in U.S. demand alters the balance of power between producer and consumer, making us less dependent on oil exporters. It begins weaning us off foreign oil, and, if combined with nuclear power and renewed U.S. oil and gas drilling, puts us on the road to energy independence.

High gas prices, whether achieved by market forces or by government imposition, encourage fuel economy. In the short term, they simply reduce the amount of driving. In the longer term, they lead to the increased (voluntary) shift to more fuel-efficient cars. They render redundant and unnecessary the absurd CAFE standards--the ever-changing Corporate Average Fuel Economy regulations that mandate the fuel efficiency of various car and truck fleets--which introduce terrible distortions into the market. As the consumer market adjusts itself to more fuel-efficient autos, the green car culture of the future that environmentalists are attempting to impose by decree begins to shape itself unmandated. This shift has the collateral environmental effect of reducing pollution and CO2 emissions, an important benefit for those who believe in man-made global warming and a painless bonus for agnostics (like me) who nonetheless believe that the endless pumping of CO2 into the atmosphere cannot be a good thing.