Increasing federal Corporate Average Fuel Economy (CAFE) standards is a standard part of the legislative agenda of those who seek to solve environmental and energy problems by restricting the types of vehicles Americans can purchase and drive. But there are more cost-effective ways to save fuel, and CAFE standards have a terrible unintended consequence: needless highway deaths.
CAFE standards, created by the 1975 Energy Policy Conservation Act, require manufacturers to achieve minimum targets for average fuel economy, expressed in miles per gallon (mpg). CAFE currently mandates fuel economy of 27.5 mpg for passenger cars and 22.2 mpg for light trucks, rising for light trucks to between 21.3 and 28.4 mpg by 2011, depending on the size or “footprint” of the vehicle. The 2007 Energy Independence and Security Act (EISA) requires new cars and light trucks sold in 2020 to deliver a combined fleet average of 35 miles per gallon.
Under rules proposed by the Department of Transportation in April 2008, fleet-wide fuel economy would increase by 4.5 percent annually through 2015. For passenger cars, fuel economy would rise from the current 27.5 mpg to 35.7 miles per gallon by 2015, while for light trucks, fuel economy would rise from 23.5 mpg in 2010 to 28.6 mpg in 2015 (Peters 2008). California is seeking a waiver from EPA to impose even higher standards.
Higher CAFE standards don’t benefit consumers
The idea that consumers can be made better off by restricting their freedom to choose – the presumption that lies at the bottom of all proposals to impose or raise CAFE standards – is false. Consumers are better positioned than regulators to choose the size, fuel economy, and other features of the cars and trucks they buy. Fuel economy information is plainly posted on new car price stickers, and the price of gasoline is advertised on every street corner.
The National Highway Traffic Safety Administration
(NHTSA) claims the proposed CAFE standards for model year 2015 would produce private net benefits (to car and light truck owners) of $13.3 billion (NHTSA 2008). But an independent analysis concluded NHTSA over-estimated the consumer benefits by some $16 billion, and the actual effect would be an annual net cost to consumers of $2.6 billion (NERA Economic Consulting 2008). CAFE advocates grossly over-estimate the value consumers place on fuel economy, and under-estimate the value they place on other features such as performance and cargo space.
Doesn’t promote energy independence
Reducing gasoline consumption does not mean less reliance on foreign sources of oil. In fact, it could mean just the opposite. Reduced demand for gasoline caused by higher CAFE standards would cause gasoline prices to be lower than they would be otherwise. Lower gasoline prices increase our reliance on imported oil, measured as a percentage of total oil consumption, because domestically produced oil is more expensive than imported oil.
A more sensible strategy is not to mandate energy efficiency standards but rather to increase energy diversity – the ability to rapidly switch from petroleum to other fuels in the event of an oil supply disruption. Encouraging car manufacturers to make flex-fuel vehicles – which can run on up E85 fuel – is an example of this kind of policy.
An ineffective way to combat global warming car and light truck emissions in the U.S. account for only 1.5 percent of all human-caused greenhouse gas emissions, a fraction that will become even smaller as emissions from developing countries rise. Raising CAFE standards even to 40 mpg would reduce the car and light truck share of greenhouse gases by less than one-half of 1 percent — a negligible amount.
Ian Parry and coauthors, with Resource for the Future, writes:
“It makes no sense to focus exclusively on automobiles when the huge bulk of the low-cost opportunities for carbon reduction lie in power generation” (Perry 2004).
An ineffective way to improve air quality
Limits on vehicle emissions of hydrocarbons, carbon monoxide, and nitrous oxide are set in grams per mile and are identical for every passenger car or light truck, as appropriate, regardless of their fuel economy. Higher CAFE standards, therefore, would not reduce air pollution.
Higher CAFE standards could actually increase emissions of pollutants and greenhouse gases by encouraging more driving (called the “rebound effect”), discouraging ride-sharing, and diverting investment and innovation from genuine breakthrough technologies into compliance with regulations that have little to do with real-world environmental effects (Kleit Fall 2002).
CAFE trades lives for oil
CAFE standards caused between 1,300 and 2,600 traffic deaths every year since they were established in 1975 (National Academy of Sciences 2002). This is because the best way to achieve fuel economy is to build lighter cars, which do not protect passengers as well as heavier vehicles during traffic accidents.
The new CAFE standards adopted in 2007 reduce somewhat the incentives for car manufacturers to subsidize the sale of very lightweight cars, but they still will increase the cost of highway accidents – including the costs of fatalities, injuries, and property damage – by at least $885 million a year (NHSTA 2008).
Anti-war activists, many of them environmentalists, sometimes accuse the Bush administration of “trading lives for oil” by deploying troops in the Middle East. But CAFE, which seeks to save a little oil, kills far more Americans each year than die in Iraq and Afghanistan. Why are there are no protests when politicians and bureaucrats trade real American lives for the illusion of energy independence?
The social costs of CAFE exceed the benefits
Some CAFE advocates claim the benefits of purchasing cars and trucks with better fuel economy are undervalued by buyers because they are shared with other people. This would be the case if CAFE mandates helped the nation achieve energy independence, fight global warming, or achieve other social benefits. But even the NHSTA believes this is false (NHSTA 2008).
NHSTA’s analysis of the costs and benefits of CAFE for the 2015 model year found social costs would exceed benefits by $1.35 billion a year, even though NHSTA exaggerated the benefits of reducing CO2 emissions and underestimated the negative effects of increased congestion caused by the “rebound effect.” NERA Economic Research puts the real social cost at $4.9 billion in 2015. (NERA Economic Research 2008).
Recommended reading: James D. Johnston, Driving America: Your Car, Your Government, Your Choice, American Enterprise Institute, 1997; Andrew N. Kleit, CAFE Changes, By the Numbers, Regulation, Vol. 25, No. 3, Fall 2002; NERA Economic Consulting, Evaluation of NHTSA’s Benefit-Cost Analysis of 2011-2015 CAFE Standards, 2008.