Uncle Sam’s CAFE Panacea: Killing Drivers, Increasing Costs

With the Bush administration’s support, Congress is pushing to increase fuel economy standards for American autos. The measure is supposed to save energy and reduce America’s dependence on foreign oil, but these rules have proved far more effective at increasing automaker costs and killing drivers.<?xml:namespace prefix = o />

In 1975, Congress concocted the Corporate Average Fuel Economy standards program, which set the average fuel economy for each automaker’s entire vehicle fleet. It’s a nutty approach only a bureaucrat could love.

First, CAFE put America’s auto industry at a disadvantage because U.S. producers concentrate on the larger cars that Americans liked to drive. Today, American automakers make most of their money from light trucks, including SUVs, which outsell smaller cars. The administration’s new CAFE rules for light trucks are expected to cost the three U.S. automakers about $2 billion — and their Japanese and European competitors nothing.

Second, CAFE is supposed to cut total energy use, but it actually creates an incentive to drive more, because higher mileage reduces the cost of driving. As a result, conclude economists Randall Lutter and Troy Kravitz, CAFE “increases vehicle miles traveled, thereby boosting traffic accidents and congestion. The increase in the costs of accidents and congestion fully offsets and probably outweighs the social benefits resulting from greater fuel economy.” The number of miles driven by cars and light trucks more than doubled between 1975 and 2000.

Third, meeting CAFE standards raises automaker and consumer costs by forcing companies to make cars that people don’t want. Numerous high mileage vehicles are available, but many people prefer larger cars for a variety of reasons. That has forced U.S. companies to lower prices on smaller vehicles — selling many at a loss, since hiking sales is the only way to comply with CAFE — and increase prices on larger vehicles.

Moreover, raising prices for lower-income families who need a larger vehicle likely causes some of them to hold onto their older autos, which have lower gas mileage — further undercutting the objective of reducing energy consumption.

Fourth, and most important, CAFE kills. Design modification and materials substitution can make cars lighter and safer, but doing so costs money and it is not easy to do both simultaneously. The easiest way to improve mileage is to cut vehicle weight, but reducing the amount of metal surrounding drivers and passengers leaves them more vulnerable in an accident. In 2002, the National Academy of Sciences reported that CAFE kills an extra 1,300 to 2,600 people a year.

Alas, the dumber the idea in Washington, the more support it seems to receive. The Bush administration, after doing nothing for years, now advocates raising CAFE by 4 percent annually. The Senate has voted to hike the level to 35 mpg in 2020, up from 27.5 mpg and 22.5 mpg for cars and light trucks, respectively.

The U.S. auto industry is set to spend $2 billion to comply with new fuel economy rules for light trucks. The Senate bill would cost U.S. automakers — already suffering from huge legacy costs from previous generous pension and health insurance contracts — another $114 billion to retool their assembly lines.

“Almost no one outside the fuel-economy business understands how incredibly tough, probably impossible, and enormously expensive that really would be,” said Gary Witzenburg of the automotive Web publication Car Connection The only way to meet the proposed standard, he adds, “would be to dieselize and hybridize virtually everything — at an incremental cost (not retail price) of $5,000 to $8,000 per vehicle — and downsize trucks to where they could barely haul the contents of a homeless auto worker’s shopping cart.”

Yet even accepting the flawed assumption that the legislation would cut oil use by 1.2 million barrels a day, the energy benefits would be minimal. Explains Jerry Taylor of the Cato Institute: “Given that the Energy Information Administration thinks world crude oil production would be 103.8 million barrels a day by 2020, the reduction would be 1.2 percent of global demand and result in a 1.3 percent decline in price — nowhere near enough to defund terrorists, denude oil producers of wealth or secure energy independence.” 

The main alternative comes from Reps. Baron Hill, D-Ind., and Lee Terry, R-Neb., who would maintain separate standards for autos and light trucks, hiking the levels to 35 mpg and 32 mpg, respectively, by 2022. This “moderate” approach would wreck the industry, kill people and limit consumer choice only slightly more slowly, while having even less impact on energy use.

Fuel economy should be left to the marketplace. The only real curb on high energy consumption is high fuel costs. As prices rise, people drive less and switch to more fuel-efficient vehicles.

Washington has come up with a lot of bad policies over the years. Few are worse than CAFE — and the White House and Congress are working to make it even worse. If they succeed, it might well be curtains for the U.S. auto industry.