The federal government’s fuel economy standards for new cars are a prime example of a program whose unintended consequences far outweigh its regulatory goals. The program, popularly known as CAFE (Corporate Average Fuel Economy), was enacted in 1975 in the wake of the Middle East oil shocks. Its purpose was to reduce U.S. consumption of gasoline and dependence on foreign oil by setting minimum standards for the fuel efficiency of new cars. Over the years, that purpose has expanded. Today, the alleged threat of climate change is one of the major arguments in support of making CAFE standards more stringent.
Since the CAFE program’s enactment, fuel economy for new cars has doubled. Much of that increase, however, was due not to CAFE standards but to rising gasoline prices, which increased consumer demand for more fuel-efficient cars. Moreover, the CAFE program has had a number of side effects that have reduced its fuel-saving effect. For example, by restricting the availability of large passenger cars, the CAFE program has boosted consumer demand for even less fuel-efficient vehicles, such as vans and sport utility vehicles (SUVs), which fall into a less regulated vehicle category. Moreover, higher fuel-efficiency mandates tend to stimulate more driving by reducing the cost of each additional mile.
Most important, the program’s fuel savings have imposed a human toll that proponents refuse to acknowledge: CAFE standards kill people. They cause new cars to be downsized— that is, to be made smaller and lighter. Smaller cars generally get more miles per gallon than larger cars, but they are also less crashworthy. The result is that the CAFE program has increased traffic fatalities by 1,000 or more deaths per year. Given that this program has been in effect for over a quarter of a century, the cumulative death toll may well make it the federal government’s deadliest regulatory program.
Government mandates to reduce gasoline use rest on a very questionable principle. Why shouldn’t people be able to use as much gasoline as they are willing to pay for? After all, we derive benefits from natural resources. Mobility empowers us. It allows us to structure our lives, giving us flexibility in choosing our communities and our jobs and in handling our family and professional responsibilities. As long as the price we pay for gasoline at the pump is not subsidized by the government, any attempt to restrict our mobility should be subject to serious question. If the government is going to restrict gasoline consumption (and that is a big if, the validity of which we question), then higher gasoline taxes are the most efficient way of doing so. They immediately affect all consumers, compared to the many years that it takes for CAFE to affect the production of new cars. More important, a tax increase is far more politically honest than the CAFE standards, because its magnitude is readily apparent to the public. The CAFE program’s effects, in contrast, are relatively invisible. That is what makes the program so attractive to politicians and government regulation advocates—and so dangerous to the public at large.