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Motor Vehicle Fuel Efficiency Standards Are Inefficient: Study

new study by the Reason Foundation’s Julian Morris and Arthur Wardle finds that the federal government’s Corporate Average Fuel Economy (CAFE) program, administered by the National Highway Traffic Safety Administration (NHTSA), is a highly inefficient method for reducing either motor vehicle greenhouse gas emissions or U.S. oil consumption.

Regarding emissions, Morris and Wardle write:

Using NHTSA’s lowest estimate for the annual cost of implementing the 2017–2025 standards, $5.4 billion, and NHTSA’s maximum estimate for reductions in carbon dioxide emissions over the period 2016–2028, 62 million metric tons/year, CAFE represents an implicit cost of $87 per ton of carbon reduced. That is higher than most estimates of the “social cost of carbon” (SCC) and more than twice the SCC developed by the EPA for the federal government (but since rescinded by President Trump). It is also more than 100 times the average price of a ton of carbon dioxide traded on the Chicago Climate Exchange (CCX). Using a higher—and more realistic—estimate of annual cost of $50 billion/year, and lower—but more realistic—estimate of emissions reduction of 50 million metric tons/year, CAFE represents an implicit cost of $1,000/ton. At the highest cost (186.1 billion/year) and lowest reduction (31.2 million metric tons/year), the implicit cost is about $6,000/ton.

Regarding oil consumption, the authors write:

Likewise, if we take the EPA’s estimates, CAFE would reduce oil consumption by an annual average of 133 million barrels at a cost of $5.4 billion—equivalent to $40.5/barrel. But if we take the more realistic estimate of oil savings of 100 million barrels/year and a more realistic cost of even $50 billion/year, the cost per barrel of oil saved rises to $500/barrel. That’s more than ten times the current price, five times the prevailing price in 2012, and more than three times the highest price oil has ever reached ($156.34 in June 2008).

The authors contend that new taxes on fuel consumption or vehicle miles traveled would be a more cost-effective way to reduce greenhouse gas emissions and oil usage. Regrettably, the otherwise excellent report does not consider whether repeal without replacement is the best option. Former Reason analysts Joel Schwartz and Lynne Kiesling make a powerful case against coercive conservation in this comment letter.