Embracing CAFE Society

May 22, 2009

Gas– Christopher Swann is a Reuters columnist. The views expressed are his own –

President Obama may have a political Midas touch, but his decision to tighten fuel efficiency rules for cars was assailed from two directions.

Some critics charged that the rules would force car prices higher at the worst possible time — dealing a possible lethal blow to the American auto industry and hurting struggling consumers at the same time. Others berated the president for preferring regulation over a simpler tax increase. The Corporate Average Fuel economy standards — or CAFE — are costly, inefficient and politically craven.

Both criticisms rest on mistaken assumptions about pricing. Firstly there is scant evidence that tightening fuel standards were a major force in pumping up the price of cars in the 1970s and 1980s. Between 1978 and 1985 U.S. automakers managed a 50 percent increase in fuel efficiency without breaking a sweat.

The notion that CAFE standards significantly push up prices assumes technological stasis. Auto research continually spins off fuel efficient technology. The automakers and buyers then face a trade-off between deploying this to cut down gas usage, or to enhance the power and size of the vehicle.

Since the United States stopped tightening the standards in the mid 1980s, carmakers have chosen he latter. Obama’s rules are expected to add just $1,300 to the price of a car by 2016 and it is fair to assume that the price increase would phase in gradually along with the standards.

It would take just three years for fuel savings to put car buyers back in the black, according to the American Council for an Energy Efficient Economy.

The second error is to assume that the car buying public can be swayed by a modest increase in fuel taxes.

Recent history suggests it would take huge and politically implausible tax increases to make much of a difference. Americans started to abandon the SUV only when gasoline prices soared to $4 a gallon in July 2007 — close to double the price at the end of 2006.

To have a significant impact Congress and the White House would need to increase the Federal tax on gasoline at least fivefold (at present, it is a mere 18.4 cents). Not even the wildly popular Obama could get away with that. It might be easier to confiscate all the guns in Texas.

Nor will the cap and trade proposals being mulled by U.S. lawmakers do the trick. If implemented these may add between 10 and 20 cents to the price of fuel, according to the American Council for an Energy Efficient Economy — insufficient to change the behaviour of even the most impecunious American.

The standards certainly have their flaws. They do nothing to discourage the guilty pleasure of using the car for trips within walking distance. By placing trucks in a separate, privileged category, the CAFE standards may have steered Americans towards heavier vehicles. But this is an argument for adjusting the rules rather than abandoning them.

Even so, they have produced results that a price signals alone would not have achieved — forcing auto companies to incorporate fuel saving technologies that might otherwise be used to boost the power of a car or increase its size.

Indeed, even the European Union — with gas taxes that most Americans would consider ludicrously punitive — is embracing fuel efficiency standards. Europeans are right to believe that taxes alone are not always sufficient.

5 comments

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How sad, I thought cafes were going to be implemented in every street corner for the enjoyment of the inhabitants, thus saving fuel.
One of the major issues nobody seems to want to deal with is how real estate, infrastructure and division of commercial, residential and industrial areas is made at the moment. I’m referring to the United States, of course. You’ll see miles and miles of houses, no small commerce in sight and then you’ll have enourmous commercial areas with your Walmart and so on.

Corner cafes and better corner stores to get a cheap gallon of milk would help curb global warming. Might even give local police something else to do besides writing tickets.

Posted by Dan Dan Dan | Report as abusive

What are we talking about? Gas prices? Come to central Asia where the real income is about $100 but people are managing to pay for their gas that costs $4 a gallon. Besides, cars that cost $3000 there costs about $11000 here but people are managing to buy those cars ever more expensive ones. Maybe it depends on the nation? Either you don’t know how spend or either you don’t know how to earn there is something wrong in your system.

Posted by Sideburn | Report as abusive

Okay, let me start with a full disclosure: (1.) Though I’m American, I live in SE Asia; (2.) I don’t drive here, and don’t own a vehicle at all, not even an assisted bicycle.

Still, in the U.S. fuel prices are two low, especially gasoline. Look at what our friends across the pond and elsewhere pay. In the city in which I live, excluding the rich (since the wealth divide is enormous here), the average monthly income is about $200, at current exchange rates. Gasoline is currently running around $3.80 per gallon. Yet the streets are choked with cars (and other vehicles). Yes, there’s a fair sized middle class in this particular city, and that accounts for a substantial portion of the traffic, but you’d be surprised how those towards the bottom of the pyramid have been able over the years to buy cars. Many more buy motorcycles.

I recognize the political difficulty — impossibility? — of raising the taxes at the pump, at least raise them by much. Perhaps spreading the tax around (as including oil and coal companies) might make this more palatable all around. Of course, that would require two taxes. Also, the effects would be limited. But *any* effect would be for the good, I assume. And for sure we could have increased revenues to research everything from clean coal to clean nuclear to green alternatives.

My two cents’ worth –

Posted by Mekhong Kurt | Report as abusive

CAFE standards make a lot of sense because the focus is on efficiency. Consumer behavior is not easy to predict. Taxation is not enough of an incentive to encourage responsible spending. Manufacturers for their part almost never change unless they have no choice. We only hear about manufacturers taking radical steps to change when their operations are struggling or close to bankruptcy. So having a moving bar up on the upside is good for industry, profits, investors and consumers.

Posted by Don | Report as abusive

Don, good observations.

There *is* good news. Electric cars are finally beginning, if only beginning, to come into their own. Yes, there’s the hidden cost of recharging via a coal-fired power plant, but work’s being done on that front, too. If power sources such as solar, wind, and geothermal can be worked out on industrial scales, we can move past that.

And though natural gas isn’t perfect, it is better than coal, and some heavyweights — such as T. Boone Pickens — are throwing their support towards vehicles powered by natural gas. A step — well, half a step — in the right direction.

Nuclear makes me a little queasy, even as I readily admit that over the decades we’ve had nuclear power plants, they’ve established an enviable safety record, overall. But I remember meeting a Russian lady at a party whose home was very near Chernobyl, and she and her family just happened to be traveling abroad when it went into meltdown, something my colleague who had invited her later confirmed. She and her family weren’t allowed to go home, for obvious reasons. (Not that they really wanted to, mind you.) Plus, eventually someone has to deal with the waste, unless we find a way to use it, too (and scientists are working frantically on that even as I type).

Air-powered vehicles aren’t making any splash, though apparently they hold tremendous promise. The techno wizards have already worked out the problems with the compression tanks, by replacing the metal ones with carbon fiber ones (or some such), redesigning them so if they get broken in an accident, they split, not explode, etc.

Even on the ordinary fossil fuel front, cars such as the Smart for 2 and Tata are quite fuel efficient.

I personally feel we ought to be paying more attention to mass transportation, expensive though it is. In the case of the U.S., I understand, as an American myself, we’re very much wed to our cars etc. Heck, way back when, one of my favorite pastimes was to hop in the carry on a beautiful weekend afternoon and spend hours driving around exploring “blue highways” and dirt lanes with a carload of buddies. Of course, back in that Stone Age, I could get gas at 14 cents/gallon, considerably cheaper than now, even adjusting for inflation. Besides, I usually borrowed Dad’s VW Beetle!

I’m from Texas, and Texans, like people from a number of other states, strongly believe in two things that are virtually identical: “They’ll take MY gun away when they pry it out of my cold, dead fingers!” — and “They’ll take away MY keys when they pry them from my cold, dead hand!” (Apologies to my fellow Texans who *don’t* feel that way — I know you’re there, but our reputation is spread wide and far. Smile.)

I sure as heck don’t believe building more and more and more highways is the answer; we’ve let the ones we have fall into an unforgivable state. We ought to fix those up first — while we’re building mass transit, both urban and long-distance.

Yes, people are driving more now that oil prices have dropped significantly — but several articles I’ve read say a variety of polls indicate that we’re finally “getting it.” Best of all, apparently people are striding rapidly towards efficiency, particularly at home. Turning off light. Lowering the thermostat on their hot water heaters and lowering the temp at which they wash clothes. Adjusting the aircon up and the heating down. Buying efficient stuff. Unplugging “energy vampires.” And so on.

So, there’s a lot out there that’s encouraging — but we can’t take our eye off the ball.

Last point: what to do about the fossil fuel industry’s employees if we do move away from use of such fuel in a truly big way? I don’t want to see those companies thrown into bankruptcy and their workers into the breadline. Maybe we could help those companies, as a nation, transition to greener activities. That would likely mean more tax money, unless the price of re-tooling and production drops significantly. If I were young enough, I’d likely go back to school and make a huge career change from being a (retired) university English teacher to something like making or installing solar panels/films, windmills, or the like. Maybe the oil workers could be helped do exactly that.

You know, I’ve long been a supporter of going green, though I wasn’t all that vocal about it until I read the interview an Austin paper had with T. Boone Pickens in which he said he was moving into windmills in a big way. I was well aware of the man long before that, and my jaw hit the floor. He was an *oilman,* for pete’s sake — and he’s saying “oil’s dead”??? THAT sure blew my socks off.

Well, okay, I’m probably up to a dime’s worth by now, so I’ll shut up! ;-)

Posted by Mekhong Kurt | Report as abusive