CAFE Standards are Extremely Inefficient

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.


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