CBO Hangs Price Tag on Tougher Fuel Economy Standards

Published February 1, 2004

According to Congressional Budget Office (CBO) estimates released on January 5, a federally mandated increase in corporate average fuel economy (CAFE) standards for cars and light trucks would raise average vehicle prices $228, costing consumers an extra $2.4 billion a year and the auto industry another $1.2 billion.

The CBO modeled a hypothetical increase in CAFE standards–about 31.3 mpg for cars and 24.5 mpg for light trucks–that it estimated would be needed to reduce fuel consumption by 10 percent. Currently, car makers must ensure their 2005 automobile fleets get 27.5 miles per gallon. Light trucks must average 21 miles per gallon.

In addition to the dollar cost imposed by increasing fuel economy standards, “Higher CAFE standards could … reduce social welfare by worsening traffic congestion and increasing the number of traffic accidents,” noted the CBO. “That undesirable outcome could occur because higher CAFE standards would lower the per-mile cost of driving, providing new-vehicle owners with an incentive to drive more.

“While the increase in driving associated with higher CAFE standards may be relatively small,” the CBO concluded, “some studies suggest that the resulting costs of the increased congestion and traffic accidents may nevertheless be large.”

DOT Proposes New Standards

The CBO report came just two weeks after the U.S. Department of Transportation’s National Highway Traffic Safety Administration (NHTSA) announced plans to restrict the range of mileage options on light trucks and similar vehicles. The proposed changes, according to the Wall Street Journal, “would represent the biggest regulatory rewrite in the 25-year history of the fuel-economy program.”

The NHTSA’s December 22 advance notice of proposed rulemaking, published in the Federal Register, includes several potential reform options, including a new program to tie fuel economy mandates to vehicle weight. The United Auto Workers union warned that would cause auto makers to close small-car factories, because smaller cars, already less profitable for the automakers than larger vehicles, would no longer be necessary to balance the fuel efficiency of a manufacturer’s overall fleet.

Anti-car and -truck activists are unhappy that the proposed rule changes would not force SUVs and light trucks to conform to the demanding mileage requirements applicable to smaller automobiles. Applying such standards to SUVs would require dramatic price increases to pay for new technologies, making the vehicles too expensive for many Americans, or require reductions in horsepower, safety, and other aspects of performance.

“Consumers purchase vehicles to meet their family needs for affordability, passenger room, payload capacity, increased safety features, and utility,” notes the Alliance of Automobile Manufacturers, an industry group. “Automakers are investing billions to develop and introduce breakthrough technologies that will lead to significant fuel economy gains–without sacrificing the features that consumers demand.”

According to Sam Kazman, general counsel for the Competitive Enterprise Institute, SUV critics fail to grasp the variety of reasons why consumers choose SUVs and larger vehicles. One important reason, according to Kazman, is safety.

“By discouraging the purchase of large SUVs in favor smaller, less crashworthy SUVs,” Kazman predicted, “the most likely effect of the CAFE increase will be to boost highway fatalities. DOT claimed there’d be no safety impact. That, however, has been its position on CAFE for over two decades, despite National Academy of Science findings and court rulings to the contrary.

“CAFE kills people,” Kazman noted. According to the NHTSA’s own data, he pointed out, mandatory fuel requirements cause up to 3,000 deaths per year.

“If an agency keeps its head in the sand for that long, is it any wonder that it ends up brain-dead?” he asked.

H2 a “Light Truck”?

The NHTSA’s proposed rules would classify the General Motors Hummer H2 as a light truck, rather than a heavy truck, to force it to meet fuel economy standards applicable to smaller vehicles such as the Ford Ranger light pickup. Some light trucks would be reclassified as automobiles, forcing them to conform to more stringent fuel economy requirements.

DOT is also considering whether to set fuel economy standards for some or all vehicles weighing between 8,500 and 10,000 pounds, a category that currently is not required to comply with CAFE standards.

The proposed rule follows an April 2003 increase in fuel economy standards for light trucks that represented the largest increase in mandatory fuel economy standards in 20 years.

James M. Taylor is managing editor of Environment & Climate News. His email address is [email protected].

For more information …

The Congressional Budget Office’s 37-page December 2003 report, The Economic Costs of Fuel Economy Standards versus a Gasoline Tax, is available through PolicyBot. Point your Web browser to http://www.heartland.org, click on the PolicyBot icon, and search for document #14111.