Regulated to Death


May 19 was a perfect day for a White House photo op. The sun was out, the Rose Garden was full, and everyone was smiling, even the CEOs of several automakers — which was ironic, because they were there to sign a suicide pact. 

President Obama was unveiling, in his words, a “historic agreement” — a “harbinger of a change in the way business is done in Washington.” The federal government’s fuel-economy standards were being ratcheted up yet again, to 39 mpg for cars and 30 mpg for SUVs and other light trucks by 2016. That is one huge increase over the current standards, 27.5 and 23.1 mpg. And it is just latest turn in a decades-long saga known as Corporate Average Fuel Economy. 

CAFE regulations were imposed in the wake of the 1973 oil embargo. They mandated gradual increases in the fuel-economy standards that new cars were required, on balance, to meet (i.e., not every new car had to meet the standards, but an automaker’s fleet had to average out to the stipulated target). 

Fuel economy has certainly improved since CAFE’s enactment. The most rapid increase came in the decade after CAFE first took effect in 1978, when fuel economy for new domestic cars rose from 18 mpg to over 27 mpg. But rising gasoline prices also contributed, by stoking consumers’ demand for vehicles that used less gas. A 2002 National Research Council study was unable to determine whether CAFE was the most important force, while Brookings Institution scholar Robert W. Crandall believes that gas-price increases accounted for nearly all of the improvement. 

Higher CAFE standards are also touted as a way to reduce our dependence on foreign oil. The relationship may sound logical — use less gas, import less oil — but it’s not borne out by history. CAFE standards rose in the 1980s, but so did our net dependence on foreign oil — from 37 percent in 1980 to 42 percent in 1990. In fact, our overall use of gas increased as well. There is a basic reason CAFE standards may have only a weak impact on oil consumption. Higher fuel efficiency reduces the marginal cost of driving — that is, the more miles per gallon your car gets, the less it costs you to drive each additional mile. So higher fuel economy may actually encourage more driving, and CAFE’s impact on gas consumption may therefore be far weaker than its proponents claim. 

But CAFE does have some strong effects — such as increasing new-car prices and restricting the range of models available to the public. CAFE probably contributed to the demise of the full-size station wagon, which had low fuel economy. That, ironically, may have contributed to the rise of the SUV, an even less fuel-efficient model that fell into the less regulated “light truck” category. 

And then there is CAFE’s impact on safety. It restricts the production of larger, heavier vehicles, which generally get fewer miles per gallon than smaller, lighter cars. But they’re also more crashworthy: They have more mass with which to absorb collision force, and more space in which occupants can safely decelerate (with the help of seat belts and air bags) before striking the car’s interior. According to the National Research Council study, the 27.5 mpg standard — which was Congress’s target when it initially enacted CAFE — contributed to about 2,000 traffic fatalities per year. 

Since the regulations have been on the books for more than three decades, that adds up to a whopping death toll, one that CAFE’s proponents have refused to admit. The agency that runs CAFE, the National Highway Traffic Safety Administration (NHTSA), has run into trouble over this issue. More than two decades ago, my organization, the Competitive Enterprise Institute, began challenging the NHTSA for refusing to factor safety into its deliberations when setting CAFE standards. In 1992, a federal appeals court agreed with us, and found that the agency, whose middle name is literally “Safety,” had used “fudged analysis,” “statistical legerdemain,” and “bureaucratic mumbo-jumbo” to obscure the fact that one of its programs was killing people. 

I naïvely thought this would spell the end of CAFE. After all, if a private manufacturer had produced something that caused a mere fraction of CAFE’s carnage, it would long ago have been forced out of business. But I failed to appreciate just how different the rules of survival are for government projects. Not only did CAFE continue, but its requirements are now more stringent, and more lethal, than ever. 

When industry and government shake hands over a product mandate, consumers had better run for the hills. President Obama promised that the costly technologies required under the new standards would rapidly pay for themselves in reduced gasoline costs, but he sounded like a used-car salesman. If these technologies were so great for consumers, then they’d be great for carmakers’ bottom lines. In that case, they wouldn’t need to be mandated by government. 

But the auto industry did have one reason to celebrate. It was getting something that regulated industries will kill for: harmonization of regulations. For several years carmakers had faced the possibility that California and other states would impose more stringent fuel-economy standards than those at the federal level, under the guise of reducing carbon-dioxide emissions. California, however, had agreed to hold off temporarily on enacting its own standard, given the increased stringency of the new federal rule. The nightmarish scenario of having to meet different standards for different parts of the country was thus removed, at least for the time being. Instead of multiple nooses around its neck, the industry will have only one. 

If you want to see how the industry is learning to live with that noose, consider General Motors’s shifting stance on CAFE. Last June, in comments filed with the NHTSA, it warned that a 35 mpg standard might require the use of “expensive technologies . . . that consumers may not find acceptable — due to price concerns, drivability issues, loss of utility, and noise/vibration acceptance levels.” And that was under the assumption that the 35 mpg standard would be in place by 2020, which would have allowed more breathing room than President Obama’s target of 2016 does. 

But in December, when GM filed its restructuring plan with Congress in a bid for bailout funds, those concerns were gone. Instead, GM offered a mea culpa: “GM has made mistakes in the past . . . [including] insufficient investment in smaller, more fuel-efficient vehicles for the U.S.” And at the Rose Garden ceremony, GM declared that it was “fully committed” to the president’s approach. So it is that an industry’s commitment to consumers is being replaced by a commitment to government. 

But for the government to achieve what it desires, consumers have to behave in a certain way, and there’s no guarantee they will. Suppose they don’t flock to the new cars — what then? They may well hold on to their old cars longer, which means that our on-the-road fleet could end up having lower fuel economy than if CAFE hadn’t been changed at all. And that scenario will be even more likely if gas prices stay low, because then the public will have even less reason to sacrifice such things as comfort and safety in the name of fuel economy. 

So we have a Bizarro World in which the auto industry may root for high gas prices because they make complying with CAFE easier, even though they also make driving more expensive. And government may well try to boost gas prices, given that its auto-bailout funds and regulatory scheme hang in the balance. Simply raising gas taxes would probably be too politically honest; voters would never accept it, and rightfully so. But a complicated cap-and-trade approach, such as that contained in the new Waxman-Markey climate bill, might be politically viable. It would boost gas prices, avoid getting labeled a tax, and be good for the Earth all at once. What could be better? 

There was a disturbing but largely unreported prelude to the White House event. A week before the ceremony, Charles A. Hurley, who had been nominated by the president to head the NHTSA, withdrew his name. What reportedly killed his nomination was his work for the Insurance Institute for Highway Safety, which is perhaps the last industry group to recognize the tradeoff between CAFE and vehicle safety publicly. 

Making use of decades of auto-crash data, the Institute has long advised consumers on the importance of size and weight in car safety. It drove the point home again last April, by releasing a report on a series of mini-car test crashes in which the vehicles performed significantly worse than mid-size cars. 

But well-founded as it was, Charles Hurley’s view on CAFE and safety was too much for environmentalists. They have never admitted the tradeoff in the past, and now they apparently will go gunning for anyone who does. Dan Becker, former head of the Sierra Club’s global-warming program and reportedly a key player in killing Hurley’s nomination, said: “I’d rather talk about the future than . . . kick a dead horse. This gives the Obama administration the opportunity to choose someone who is committed to both sides of NHTSA’s jurisdiction — safety and fuel economy.” So much for the laws of physics. 

Hurley’s fate provides an Orwellian contrast to President Obama’s recent claim that “under my administration, the days of science taking a back seat to ideology are over.” Science taking a back seat to ideology? Buckle up, you ain’t seen nothin’ yet.