CAFE Standards are Extremely Inefficient

by on February 23, 2013 at 7:43 am in Economics, Law | Permalink

In Modern Principles, Tyler and I explain that a command and control regulation is a less flexible and thus more expensive way of reducing energy consumption than is a tax. How much more expensive? A recent analysis estimates that the new fuel economy standards are 6 to 14 times more expensive than an equal consumption-reducing gas tax. Valerie Karplus, one of the authors of the new analysis, writes in the NYTimes:

I and other scientists at the Massachusetts Institute of Technology estimate that the new standards will cost the economy on the whole — for the same reduction in gas use — at least six times more than a federal gas tax of roughly 45 cents per dollar of gasoline. That is because a gas tax provides immediate, direct incentives for drivers to reduce gasoline use, while the efficiency standards must squeeze the reduction out of new vehicles only. The new standards also encourage more driving, not less.

The full paper is here and a free summary is here.

Eric Rasmusen February 23, 2013 at 7:50 am

I wonder if there is anyone with a PhD in economics who supports the CAFE standards? (Or, rather, is willing to say so in public.)

david February 23, 2013 at 8:02 am

Probably many, but they would universally caveat it with “because I think it is the best that can be politically achieved” or “because I don’t think any hypothetical accompanying tax transfers to neutralize the distributive impacts of a gas tax would actually occur”.

john personna February 23, 2013 at 9:34 am

Perhaps if you gave them the real choice, of CAFE or nothing. Then you might get a few on board. As others note, a higher gas tax is blessed by being totally impossible. Thus, economists can take the low risk position of endorsing the impossible. (I’m sure we all remember that the US verges more often on “gas tax holidays” than it does federal gas taxes even high enough to cover federal highway spending.)

Rahul February 24, 2013 at 12:12 am

” the new standards will cost the economy on the whole — for the same reduction in gas use — at least six times more than a federal gas tax of roughly 45 cents per dollar of gasoline.”

Isn’t the crucial distinction here about who bears the cost? With CAFE it is “the economy on the whole” and with a gas tax the consumer directly?

DanC February 23, 2013 at 7:57 am

Yes but a gas tax increase costs politicians six times as many votes.

RZ0 February 23, 2013 at 10:41 am

+1
Politicians would generally love to raise the gas tax and pay for new bridges, etc., that people want and they can name after themselves.
That they don’t, even when it is more economically efficient, tells you that it is politically impossible.

adam February 23, 2013 at 11:19 am

And more to the point: CAFE standards are inefficient in the economic theory world, but way more efficient in the real world because they can actually get through Congress.

Ergo, CAFE standards are infinitely more efficient because they can actually exist; this is an under-appreciated aspect which deserves more thought ;)

Brian Donohue February 23, 2013 at 1:18 pm

Yeah but lots of other countries have much higher gas taxes. This is not politically impossible per se, but rather, it seems to me, a political dysfunction peculiar to America.

Paul Mineiro February 23, 2013 at 1:42 pm

The ability for politicians of other countries to force unpopular proposals on their citizens isn’t always good. Europe is getting pro-cyclical austerity right now even though people clearly hate it. That would never happen in good ol’ USA!

Eli Rabett February 26, 2013 at 10:24 am

We have Republican politicians and libertarian economists.

dead serious February 23, 2013 at 8:18 am

The tax scenario reduces gas consumption, but it also reduces consumer mobility.

The CAFE standard scenario reduces gas consumption, and it increases consumer mobility.

rpl February 27, 2013 at 1:36 pm

You should consider reading the paper. It turns out that the people who do these studies actually think about these things, and they include economic benefits foregone under a policy under the “costs” of that policy. In other words, if people used to drive more before the policy, and after the policy they drive less, then that reduced mobility is a cost and is accounted as such. The claim the MIT group is making is that including all of those costs the CAFE standards cost 6-14 times more than a tax (for the same reduction in gasoline use).

prior_approval February 23, 2013 at 8:18 am

Well, poking around, there does seem to be this stunning proof of just how poorly CAFE standards worked in terms of the American car industry -

‘Before the oil price increases of the 2000s, overall fuel economy for both cars and light trucks in the U.S. market reached its highest level in 1987, when manufacturers managed 26.2 mpg (8.98 L/100 km). The average in 2004 was 24.6 mpg.[25] In that time, vehicles increased in size from an average of 3,220 pounds to 4,066 pounds (1,461 kg to 1,844 kg), in part due to an increase in truck ownership from 28% to 53%.’

http://en.wikipedia.org/wiki/Corporate_Average_Fuel_Economy#Performance_in_practice

Yeah, that idea of raising gas taxes has been around a while. And never seems to get anywhere, unlike CAFE standards, which had a very notable impact between 1978 and 1987 – an impact so large that it took 17 years to beat.

If only someone had suggested raising gas taxes, possibly back in the 1980 Republican presidential primaries. ‘He introduced (as congressional legislation) his signature campaign proposal, advocating that a 50-cent a gallon gas tax be enacted with a corresponding 50% reduction in social security taxes. This idea, while not broadly supported, was hailed as interesting and innovative.[15] Experts agreed that it would reduce consumption dramatically and cost average families nothing if they drove less than about 18,000 miles a year, depending upon the fuel efficiency of their vehicles.’ http://en.wikipedia.org/wiki/John_B._Anderson#Run_as_independent

Of course, Anderson was not exactly a typical Republican, even for his times –

‘The turning point for Anderson occurred in the first political event of 1980, a Republican candidates debate in Des Moines, Iowa on January 5, 1980. On stage Anderson successfully showed that he was very different from the others in the GOP race. He was alone in supporting Jimmy Carter’s grain embargo against the Soviet Union as a reaction to its recent invasion of Afghanistan, an unpopular position in an agricultural state. Anderson also took issue with the other candidates who criticized his 50/50 plan, whose only new strategies for dealing with the energy crisis were decontrolling the industry and mining more coal.

When questioned about which episode in their career they most regretted, none of the other candidates would answer the question, except Anderson, who cited his vote for the Gulf of Tonkin resolution. Unlike the others, he said lowering taxes, increasing defense spending, and balancing the budget was an impossible combination. In a stirring summation,[17] Anderson invoked his father’s emigration to the United States and said that we would have to make sacrifices today for a better tomorrow. For the next week, Anderson’s name and face were all over the national news programs, in newspapers, and in national news magazines.’

Oh well, 1980 seems such a long time ago.

john personna February 23, 2013 at 9:36 am

My cynical view is that we allow CAFE standards to rise only as fast as consumer choice. That is they lag the move to Honda Civics and then Priuses, allowing CAFE to look like it did something. (Something actually triggered by higher gasoline base price.)

valuethinker February 25, 2013 at 5:43 pm

john persona

But the Civiv and the Prius are the *best in class* (ie the marginal) not the average car.

Given that gas prices are cyclical, and in 1998 dropped back to the levels of the early 1950s in real terms, car fuel economy kept up.

Of course we can imagine a Hamiltonian/ Burkeain government that would carpe diem and raise gasoline taxes to say $2.00/ gallon at that moment, thus sacrificing short term electoral gain in favour of long term revenue raising. Such is more or less what the British government did in the 1990s, until the 2000 petrol tanker drivers strike (since then they’ve let petrol duty rise by less than inflation).

But that’s not how US politics works.

The argument against CAFE was the SUV exemption. And indeed average fuel economy did fall in the late 1990s– but not back to the 1980 level.

One can wish for more efficient schemes of regulation, and one can wish for optimal taxation, but the reality is optimal taxation of petrol (gasoline) ain’t gonna happen in the current US political economy.

Nonetheless given that gasoline prices are doubtless going to slip back at some point, the investment in higher fleet fuel economy is still something, long term, you want to have made. That’s in part why the Europeans are pushing the envelope on car efficiency– they can see the way the world is going. (the German manufacturers argue discrimination, the French and Italian ones who dominate in small econocars are happier).

Eric H February 23, 2013 at 11:01 am

Your proof leaves out the 1979 crisis in Iran, the subsequent hostilities, Carter’s oil price deregulation, the rise in gasoline prices, and the consumer shift to Toyota, Honda, and Datsun.

valuethinker February 25, 2013 at 8:01 am

Support for Anderson likely cost Carter the election. the margin was very close.

And Ronald Reagan believed conservation was unAmerican, and seemed to genuinely believe that trees cause air pollution. Carter and his wearing sweaters in the White House was derided, and the solar panels were ripped off the WH roof (apparently they still work at some college in New England). Although Governor Reagan stopped the Pat Brown ‘if you can pave it, then pave it’ in California– he, like Margaret Thatcher (who first warned of global warming), was a much more flexible politician than his acolytes give him credit for.

In a world where the US was more like Japan or Europe in the 1980s, who fetishized conservation (particularly the Japanese, also the Dutch, Danes, Scandinavians) we’d be in a very different place now and the costs to switch would be much lower.

Norman Pfyster February 23, 2013 at 9:06 am

Long run vs. short run equilibrium? In the short term, gas tax would decrease driving, but people would buy more gas-efficient vehicles (and manufacturers would have an incentive to produce them). In the long run, it seems like we get to the same outcome. The only difference I see is that under the tax, we would reach that outcome sooner, as people would replace cars (which should count as a cost to the tax side of the equation).

Bender Bending Rodriguez February 23, 2013 at 6:44 pm

What you’re missing is that exemptions are made for so-called light trucks and utility vehicles. Raise ground clearance and put in a fold down seat and that car is now an SUV (*cough* PT Cruiser *cough*). We moved people out of 22 mpg station wagons and into 18mpg SUVs in the name of increasing fuel economy — remind me again how well that works?

That exemption is gone, but the game being played now is setting up fuel lines and seals for M85, putting a “Flex Fuel” badge on the car, and claiming a (IIRC) 10% mileage credit towards CAFE standards.

Dave Barnes February 23, 2013 at 9:40 am
Rahul February 24, 2013 at 12:21 am

Karplus writes at NYT:

“Greater efficiency packs less of a psychological punch because consumers pay more only when they buy a new car.”

Surely, new cars post CAFE haven’t gotten 6 to 14 times more expensive? How exactly does Valarie calculate the “six times more” quantum of costs by CAFE? The best I got was this jargon:

“Cost is defined here as equivalent variation, which is an economic measure of the change in consumption relative to a reference (No Policy) case”

Can anyone explain?!

db February 23, 2013 at 9:50 am

Why have CAFE or higher gasoline taxes? The most efficient allocation of the resource is for it to be at its natural market price.

john personna February 23, 2013 at 9:56 am

There are two related questions. First, can markets respond fast enough to prevent “fuel crises?” Second and related, should politicians stack the deck towards alternate fuels (and higher efficiency) to damp the effect of future crises?

I might actually lean toward letting people respond now, as a political moderate. I’ve had my Prius for 7 years and 112K miles. I was running at 60 mpg for much of the day yesterday. The damn thing just works, and is a fairly inexpensive choice these days (especially if you pick up a 2005, like mine).

Of course, if we go all the way out to letting the market decide, we should stop subsidizing oil production and roads from general federal funds, and make it a straight up use tax on users of roads and fossil fuels.

dbp February 23, 2013 at 2:24 pm

John,

I pretty much agree with everything you say here. I would add that, if we did pay for the roads using only gas taxes (which I think is fine) then the tax would neet to go up and this would both encourage purchase of fuel efficient vehicles and discourage driving.

Bender Bending Rodriguez February 24, 2013 at 7:39 pm

Of course, if we go all the way out to letting the market decide, we should stop subsidizing oil production and roads from general federal funds, and make it a straight up use tax on users of roads and fossil fuels.

You do realize that, at the state level, road users can be taxed via more than just a levy on gasoline, right?

MA February 23, 2013 at 9:57 am

No negative externalities on the planet you live on? Must be nice.

dbp February 23, 2013 at 2:35 pm

There are negative externalities on “my” planet, sure. But two things:

1. It the tax was being used to mitigate the externalies then that would be fine. It is not being used in this manner.

2. Using a tax to drive down consumption causes an innefficient use of a resource. As an example: Take a contractor, he cannot accept jobs beyond some distance from his home base. It costs him travel time and fuel to get to potential work sites. Higher fuel prices mean that his potential customer base is more geographically limited.

john personna February 23, 2013 at 9:52 pm

With low fuel prices it makes sense to drive an mostly-empty full size pickup most of the time, so that you have it when you need it mostly-full. That is a convenience trade though, rather than an efficiency one. Contractors in higher fuel cost environments driver smaller trucks and vans, and perhaps arrange special delivery more often than does a full size truck driver. Less convenience, more efficiency.

valuethinker February 25, 2013 at 12:41 pm

dbp

On 2 the whole point of a tax on a negative externality is to reduce output of that externality.

So using a tax to drive down consumption (or emission of that externality) is precisely what is intended.

On 1 whether a gas tax or CAFE it is mitigating externalities. That’s the whole point.

In an ideal world the US would join other developed countries and tax gasoline at $2.00-3.00 per gallon (less than Europe allowing for a bigger country). Pay it out in a per person rebate if you must (so you’d get the substitution effect but some offset from the income effect).

However this is not an ideal world and that is not feasible (a lower carbon tax generally would in fact be preferrable if you can only have one tax).

CAFE is a second best solution.

Floccina February 23, 2013 at 11:05 pm

+1 though I might support a rise in gasoline taxes if goes to road improvement and or a co2 tax (combined with a payout for removal of co2 from the air through biochar or enhanced weathering or deep ocean iron fertilization).

mw February 23, 2013 at 9:53 am

There’s not a Democrat on god’s green earth whose *preferred* global warming solution was CAFE standards. Without the Republican party, there’s no question that we’d have a carbon tax or higher gas tax or cap and trade instead.

Steve C. February 23, 2013 at 10:33 am

I’d be okay with higher gas taxes if politicians had to pay for gas out of their personal funds. Law makers are insulated from the cost of living by office budgets, campaign funds and car allowances, not to mention a vast fleet of GSA provided SUVs. Their connection to the economics of daily life is attenuated at best.

doug February 23, 2013 at 12:34 pm

Cut off your nose to spite your face much. Why care about the politicians. Think about your world and that of your children.

Lord February 23, 2013 at 1:02 pm

See, Republicans do like regulation, especially over taxes.

JWatts February 23, 2013 at 4:16 pm

First the CAFE standards were not enacted due to global warming so that issue wasn’t even relevant for the first 20 years of the standard. Secondly, the CAFE standards were enacted in 1975. At that time Democrats controlled the White House, and both wings of Congress. History says that Democrats will indeed choose the CAFE standard over a gas tax.

valuethinker February 25, 2013 at 12:45 pm

JWatts

Of course the president at the time was Jerry Ford (R), AFAIK he did not try to veto the bill.

Oh sorry, he wasn’t a ‘real Republican’?

History says that Republicans would do nothing, and that the voters will slam any party that is seen to be raising gas prices. See Saint Ronnie. And the problem of rising US gas consumption and dependence on overseas oil imports would simply reoccur- -probably biting in the 2020s. By which time another generation of gas guzzlers would be on the streets, in the hands of the sorts of poor people who buy 2nd and 3rd hand used cars. Just like 1998 Ford Explorers now.

So the Democrats are being rational. They think there is a problem with US gas consumption, and they are trying to do what is politically feasible about it.

A really creative GOP would ‘jump the curve’ and propose a 45 cent gas tax instead. Proceeds to be distributed on a per capita basis (or so after a certain agreed level of deficit reduction). Now THAT would be a radical solution coming from a free market right wing party.

Cold. Day. In. H*ll.

KPres February 23, 2013 at 7:15 pm

Democrats can have a gas tax whenever they want. Just offset it with reduced income taxes across the board and it’ll breeze through. But the Dems would never go for that, because its not really about carbon or any of that. Its about expanding the state and forcible redistribution.

valuethinker February 25, 2013 at 12:47 pm

So why don’t Congressional GOP come up with your proposal? Too busy cutting taxes on those over $250k pa?

Democrats have impure motives, but Republican legislators do not?

valuethinker February 25, 2013 at 7:49 am

Except Clinton and Gore.

Among Democrats who favoured taxes over regulation.

The proposed carbon tax was one of the reasons for being routed by the elections of 1992 that brought Newt Gingrich to power.

maguro February 23, 2013 at 10:46 am

“I and other scientists at the Massachusetts Institute of Technology estimate that the new standards will cost the economy on the whole — for the same reduction in gas use — at least six times more than a federal gas tax of roughly 45 cents per dollar of gasoline.”

I question the assumption that CAFE has reduced gas usage at all. What would the average MPG of the fleet be in the absence of CAFE? Would Honda refuse to sell Civics in the US if CAFE didn’t force them to? The most obvious effect has been that people who want large vehicles now buy trucks instead of cars, which is probably a net negative in terms of gasoline use reduction.

john personna February 23, 2013 at 11:01 am

Sure, and they switched to SUVs which were classed with trucks, making them a “cheater car” with low mpg.

Finch February 23, 2013 at 12:17 pm

For that matter, manufacturers have gotten quite good at making cars that achieve good mileage on the mandated tests when driven in a completely unrealistic manner. Witness Priuses and Corvettes, both of which achieve great test results that are completely inconsistent with real world performance. Yes, it’s possible to keep a Corvette in sixth gear all the time, but no one really does that. A straight-up gas tax eliminates that form of cheating as well. The recent test revisions were an improvement, but it’s fundamentally a hard problem.

john personna February 23, 2013 at 12:30 pm

As I say, I have a prius and have about 50 mpg as my life mileage (after 100k miles). I think that’s better than EPA. I know people who do worse. You can do worse. A too-short driving mix runs the engine more to heat the catalytic converter. Say you need 10 mile average trips. Also, mpg drops markedly above 70 mph. So the way to do worse is to lead-foot short trips.

Sbard February 24, 2013 at 3:26 am

Note the controversy over the Ford C-Max’s mileage. It turns out that the EPA test cycle involves no speeds over 60mph so Ford programmed the C-Max to run on electric power only up to 62mph. Meanwhile, no on will actually be driving the car that slowly on the highways.

Dismalist February 23, 2013 at 11:05 am

An existing modern diesel engine for automobiles gets 54 mpg. All the R&D necessary to meet new CAFE standards, and all the R&D that went and goes into hybrids, is a waste. I doubt CAFE standards were ever binding. In the US, taxes on diesel fuel are higher than on gasoline. Draw your own conclusions.

john personna February 23, 2013 at 11:27 am

Diesels get 54 mpg in very specific circumstance: small cars, highway driving. A Prius is bigger than a Jetta and gets 54 mpg in mixed city driving. I’ve got 112K miles now and have averaged better than 50 for all those miles. (The thing non-hybrid owners don’t get is that they consciously or sub quote “best remembered” mpg, whereas we don’t have to do that. My trip computer is showing better than 50 right now.)

john personna February 23, 2013 at 11:32 am

I hope this link works. It is the “shared database” comparison between the 2005 VW Jetta diesel and the 2005 Prius hybrid. Averaging against all reporting users, the Jetta has a cumulative 35 mpg, the Prius has 46 mpg. I guess those Prius drivers are not as committed to good mpg (cruise control, coast down) as I.

Finch February 23, 2013 at 12:22 pm

Doesn’t that say that the diesel averages 45.2 mpg and the Prius 47.7? I.e., that the diesel handily beats the EPA estimates? With a 30% bigger engine than the Prius?

john personna February 23, 2013 at 12:25 pm

mea culpa. i just glommed on to the first numbers on the page. Yes, the jetta gets mpg close to the prius in real life, mixed driving. (“bigger” is different, given all the gas, diesel, and electric components in play. I seldom stick my foot in the prius, but it will use both gas and electric hard, if you tell it.)

john personna February 23, 2013 at 12:27 pm

(The diesel would have hill-climbing and towing over the hybrid – at the cost of particulates and lung cancers. California encourages various non-diesels for that public health aspect.)

valuethinker February 25, 2013 at 8:06 am

Diesels unfortunately have the micro particulate problem (PM10 and below). Which is beginning to be the new frontier on urban health issues. The hardest thing to fix might also be the deadliest (the figures on lower income kids, who grow up closer to expressways and busy roads than higher income kids, even in the same neighbourhood, are pretty shocking– equivalent of growing up in a house full of smokers).

Europe is in a box with all its diesels. Co2 looks good, but every other kind of pollution, it looks bad. Europe has traded fuel economy off against environmental health. That wouldn’t work in many places in the USA– particularly California and Denver CO.

There’s also the nagging ‘black soot’ or black carbon problem in global warming calcuations. Our bands of uncertainty on this are the widest of any exogenous forcing factor. And the effect would be particularly strong in places that get snow (like Greenland).

Chuck Currie February 23, 2013 at 11:37 am

Isn’t the current scheme of gas taxes and CAFE standards like burning the candle at both ends when it comes to highway expansion and maintenance?

A switch from a per gallon tax to a per mile tax sounds fair – you use it, you pay for it – but, it would hit the lower income/high MPG/long commute workers harder than the high income/low MPG/short commute workers. A pretty hard sell, I would think.

More energy production = lower energy cost + unrestricted energy use = more economic growth = more tax revenue = I don’t get why the central planning experts don’t get this. Our goal should be cheap and universally available energy – not energy restriction.

Cheers

brainwarped February 23, 2013 at 11:57 am

Chuck, you hit the nail on the head. I have not read the paper, but I’ll venture a guess that it is a low-level normative economic analysis that uses a fact or two to support their hypothesis, and there may be some economics in there somewhere?

It is true that a gas tax would work better, but the utilitarianism of a gas tax would probably turn out to be lower than using policy (if someone did some research :) ). A gas tax is poor policy because it is a regressive tax.

On the other hand, and this is my egocentric response, like those above, I’d vote for a $5 tax increase per gallon of gasoline because I drive very few miles per year, and gas is cheap for me right now (I spend $80 per month on it).

Dismalist February 23, 2013 at 1:15 pm

A gas tax increase can be compensated by an increase in food stamps and the EITC for the poorer, and a reduction in the income tax for the better off. The point of a gas tax increase is not the extra revenue; it’s about substituting away from gas.

ThomasH February 23, 2013 at 3:11 pm

“Central planning” advocates try to link specific taxes to specific externalities. There should be one tax on congestion, another on carbon emissions, another on road use specific to the charactersistics of the vehicle, another on petroleum imports to shift the terms of trade,etc. Practical politicians do what they can. People differ on the point (Solyndra?) at which “doing what they can” is better than doing nothing at all.

Sbard February 24, 2013 at 3:30 am

Almost all of the wear on public roads comes from 18-wheelers but they don’t have to pay anywhere remotely near the costs of the wear they inflict on the infrastructure (road wear increases with the fourth or fifth power of axle weight. A vehicle that weighs twice as much does 16-32 times the damage to the road.)

Justin February 23, 2013 at 11:40 am

Does this analysis consider the positive effects of new technologies developed to comply with this regulation? Or would the technological outcomes be the same for both the CAFE and tax plans?

maguro February 23, 2013 at 1:18 pm

And what new technologies were developed to comply with CAFE? I’m not aware of any.

liberalarts February 23, 2013 at 2:11 pm

Not sure, but I think that the broad use of fuel injection replaced carburetion around the same time that CAFE came into play. Also, CAFE compliance came largely from shrinking and lightening cars. Thus a lot of engineering work went into making trunks more space efficient and in making plastic parts to replace metal without compromising safety.

maguro February 23, 2013 at 4:00 pm

Fuel injection replaced carbs becuse of emission restrictions, not CAFE. It’s hard to attribute any of that other stuff to CAFE either, since it was only the domestic brands that were ever in any danger of CAFE non-compliance and they weren’t exactly world leaders in fuel efficiency innovation.

mulp February 24, 2013 at 11:08 am

Let’s see, the high efficiency cars were developed in Europe where fuel cost $4 a gallon to the less than $1 a gallon fuel in the US, $4 made up of $3 in taxes. CAFE brought those higher efficiency technologies to the majority of US cars without the $4 gas.

We now have the $4 fuel while Europe and Asia are at $8-10, but we as consumers and producers spent 8 years trying to get around the 1980 era CAFE standards from the mid-90s by switching to trucks even as fuel prices were soaring from oil producer tax hikes of $2+ of that same time.

maguro February 24, 2013 at 1:00 pm

You still haven’t demonstrated that CAFE led to new technologies, you’re merely asserting that it did. Even without CAFE, we still have had access to fuel efficient cars like the original Civic and the Datsun B210. I guess you can credit (blame?) CAFE with domestic efforts like the Chevette, since GM might not have bothered trying to build a small car otherwise, but presumably most Chevette buyers would’ve opted for a fuel efficient import had it not been available.

valuethinker February 25, 2013 at 12:33 pm

Maguro

Take the David Edgerton line. Technology is about adoption not about innovation. The CAFE forced the adoption of a number of new automotive technologies.

After all you can find things like front wheel drive in the 1930s. The Citroens in the early 50s had advances which are still not entirely universal re steering, suspension etc.

What CAFE forced North American car manufacturers to do was to adopt innovations. In addition a lot of innovation is process related– how things are made, not what the final product looks like. So learning how to make smaller, lighter cars with the same or superior performance.

It’s a political impossibility that the US would have say $2/gal gas taxes, even $1 a la Australia and Canada is basically very unlikely. To get the equivalent rise in fuel economy of a CAFE you’d probably need over $2.00 (remembering the income effect offsets the substitution effect).

Michael Giberson February 23, 2013 at 12:10 pm

Paul Portney, who led a National Research Council study of CAFE standards in 2001 while he was president of Resources for the Future, essentially concludes:
(1) Hard to tell if CAFE standards actually have had much impact (given the tendency for gasoline price increases to occur during the same time standards were increased). (2) At best they are slow-acting and expensive ways to address the related externalities compared to gasoline tax increases. (3) But, so long as Congress lacks the insight and wisdom to pursue increasing the gasoline tax, he reluctantly concludes that CAFE is better than nothing.
See http://www.rff.org/rff/Documents/RFF-Resources-147-pennywise.pdf

ThomasH February 23, 2013 at 4:40 pm

Why would “reducing energy consumption” or “gasoline use” be a worthwhile objective, anyway? Less exposure to economically disruptive boycotts might be of some use, but that would point to taxation of importation of fuels subject to boycott from potentially boycotting sources and constant adjustment of that taxation as the source specific risk of boycotts varied. CAFE make more sense as a fourth or fifth best carbon tax, alongside other fourth or fifth best measures like ethanol mandates, green energy percentage mandates, electric car subsidies, and the like. Efficiency of different measures should be measured in relation to a carbon emissions reduced.

Daniel Sochor February 23, 2013 at 6:05 pm

A tax on vehicle size and weight should also be considered. Many new trucks, SUVs, and wagons have improved gas mileage and yet impose externalities by using a larger amount of road and parking space than small sedans. Their extra weight also puts a greater burden on road surfaces.

Bartman February 23, 2013 at 10:36 pm
Larry February 24, 2013 at 3:57 am

Duh!

mulp February 24, 2013 at 10:56 am

In the past 15 years, the tax on transportation fuel imposed by the oil producers is at least $2 a gallon.

The biggest hit has been on fleet users and their customers, and higher efficiency alternatives are available but have not been deployed to any significant degrees.

1. substitute trains for trucks and planes – high speed freight is very viable if investment is made in capital. The transcontinental railroad was built in less time, so rebuilding key freight lines to provide high speed intermodal carriage could have been done if all it took was price.

2. switching to electric drive trucks using just diesel would provide improved efficiency – electric drive on trains quickly beat the weight and efficiency loss of the kind of drive used in trucks, long before the gains of technology slashed efficiency losses in electric drive during the 80s and 90s.

3. switching to natural gas

The reason the $2 tax on fuel has not resulted in dramatic changes in freight transport is decisions are made based on the lowest capital cost option, not on the total lifetime cost.

Ground source heat pumps are cheaper than fuel oil in operating costs and in lifetime costs, but those are not standard. Natural gas is cheaper than fuel oil and pipelines are capital investments with 50+ year lifetimes which spread that capital cost over long decades.

Even insulation in homes is cheaper than natural gas for the first five years of a new structure, but even LEED Silver is not the minimum standard and LEED is a private sector standard, not government regulation.

If the sectors of the private sector are not driven to invest in improved efficiency from a 50 cents tax per dollar imposed by oil producers over 15 years that matches the fleet efficiency of Europe and Asia where the tax is more like 75 cents tax per dollar imposed by governments and producers. CAFE standards basically require the Euro and Asian capital investments by car buyers in the US without the $8+ per gallon fuel cost.

KevinH February 24, 2013 at 7:52 pm

“he new standards also encourage more driving, not less.”

This seems like a completely od statement to make, and one that complicates the stance that it is easy to tell the efficiency of command and control regiems. Here, people are experiencing more of a social good with fewer per good costs, both directly and through externalities. You couldn’t really get at what the relative costs of such a program were without dealing with how the tax money is spent, and some measure of subjective utility derived there from.

valuethinker February 25, 2013 at 7:57 am

Costs of compliance fall over time. In 13 years time the average US car is scrapped, so the fleet improvement feeds through (also newer cars are generally driven more miles).

That’s very clear from the standards which were said to be ‘unachievable’ at the start of the 1980s but easily achieved by the end. Had US manufacturers moved faster, they might not have ceded the small car segment to the Japanese.

The problem is one of distortion– the light truck/ SUV angle. That’s a generic problem with regulation, and the major objection to it. That and higher fuel economy may mean more driving (the income effect is undoubtedly positive, but Vehicle Miles Travelled per capita is no longer rising– is that the internet, or is that the recession? Or both?).

In practice to get the kind of required CAFE improvements, gas taxes would have to be at least $1.00 maybe $2.00 per gallon– in Europe they are c. $4-5.00 per gallon to achieve those efficiencies.

You didn’t see big movements in US auto fleet efficiency when gas prices went from ? c. $3.00 to $4.00? over the last few years. That’s a hell of a ‘tax’ from oil producers to consumers.

And if consumers don’t find those efficient models on the lots, they don’t buy them. That was the trouble in the late 70s and early 80s– you couldn’t buy an efficient small family vehicle (we had the first ‘downsized’ GM family sedans– Oldsmobile Cutlass/ Pontiac Lemans — ughhh). Anyone remember the Chevy Citation?

I cannot see Americans voting for electors who give them $2.00/ gallon gas taxes. Let alone $4.00.

Eli Rabett February 26, 2013 at 9:44 am

Why does this remind Eli of Lizzy Borden pleading for mercy as an orphan

The answer to Tim Worstall’s question about why the US has CAFE standards and not an increase in gas taxes is Tim Worstall. Timmy, of course is one of the libertarian crowd who thinks taxes are evil. It ain’t just the politicians folks.

How to give a girl a kiss March 18, 2013 at 12:27 pm

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