Repeal CAFE, Save the Auto Industry

[cross-posted at Michigan Youth Political Alliance]

I stumbled upon an interesting Wall Street Journal article, “How to Save Detroit and Save $50 Billion,” and not to indulge in nostalgia over the auto industry’s golden days as I would never do that without feeling repusive, but this article (along with others I found in my research), convinced me that CAFE or Corporate Average Fuel Economy is bunk for the most part and that scrapping it could salvage whatever dignity automakers still have left.

CAFE was a policy first established in 1975 to force auto makers to meet fuel-efficiency standards (e.g. so many miles per gallon) in light of the 1973 Arab oil embargo. It’s purpose was to ween ourselves off from foreign oil dependency, to create more fuel-efficient cars, and to satisfy the American consumers. Fast forward 33 years and auto makers are begging for $50 billion from Congress to help them cover the $100 billion in costs they need to pay to meet CAFE standards.

I never considered mileage standards to be at the root of the problem, but it is awfully close. In other nations, auto makers are not forced to meet mileage standards. Instead, they make fuel-efficient cars because it is profitable. In the market, consumers have a high demand for light, compact, fuel-efficient cars. However, making fuel-efficient cars in the United States have only recently become profitable with the high gas prices. Previously, the hottest cars on the market were the SUVS, pickup trucks and minivans. I’m not saying that their gas guzzling qualities are good, but if that’s what Americans want, then let them have it. By forcing auto makers to meet mileage standards, they had to divert billions of dollars worth of capital from designing, manufacturing, services, and the likes towards researching and developing fuel efficiency, an ultimately unprofitable area for the long term.

CAFE was instituted with auto safety and reducing consumption in mind. However, it has failed on both fronts. Mileage standards have forced auto makers to develop smaller, more lightweight cars that are more suspectible to crashes. The Heritage Foundation delivers some reliable and powerful data on this issue:

More than 25 years ago, research established that drivers of larger, heavier cars have lower risks in crashes than do drivers of smaller, lighter cars. 7 A 2000 study by Leonard Evans, now the president of the Science Serving Society in Michigan, found that adding a passenger to one of two identical cars involved in a two-car frontal crash reduces the driver fatality risk by 7.5 percent. 8 If the cars differ in mass by more than a passenger’s weight, adding a passenger to the lighter car will reduce total risk. 9

The Evans findings reinforce a 1989 study by economists Robert Crandall of the Brookings Institution and John Graham of the Harvard School of Public Health, who found that the weight of the average American automobile has been reduced 23 percent since 1974, much of this reduction a result of CAFE regulations. 10 Crandall and Graham stated that “the negative relationship between weight and occupant fatality risk is one of the most secure findings in the safety literature.” 11

On the issue of consumption, consumers have obviously not reduced their gas consumption in the last 33 years since CAFE was passed in Congress. By purchasing fuel-efficient cars, the consumer mindset is thinking that it is perfectly justifiable to drive those cars more than normal. Thus, extended driving leads to a ton more gas being burned. This is the case in most instances because of something called the “rebound effect,” something that makes sense with all technology. As things get easier to do, people want to do it more. The same Heritage article highlights this as well:

Advocates of higher CAFE standards argue that increasing miles per gallon will reduce gas consumption. What they fail to mention is the well-known “rebound effect”–greater energy efficiency leads to greater energy consumption. A recent article in The Wall Street Journal noted that in the 19th century, British economist Stanley Jevons found that coal consumption initially decreased by one-third after James Watt’s new, efficient steam engine began replacing older, more energy-hungry engines. 13 But in the ensuing years (1830 to 1863), consumption increased tenfold–the engines were cheaper to run and thus were used more often than the older, less efficient models. In short, greater efficiency produced more energy use, not less.

The same principle applies to CAFE standards. A more fuel-efficient vehicle costs less to drive per mile, so vehicle mileage increases. As the author of The Wall Street Journal article notes, “[s]ince 1970, the United States has made cars almost 50% more efficient; in that period of time, the average number of miles a person drives has doubled.” 14 This increase certainly offsets a portion of the gains made in fuel efficiency from government mandated standards.

In result, our dependency on foreign oil has grown, our own auto industry has declined to the point of near failure and our consumers are, well, not doing too badly. Well, except for the fact that their tax payers are going to be paying for the auto makers struggle to meet mileage mandates. We should seriously rethink how we can pull auto makers out of their pit of despair, and abolishing CAFE standards can be a start.

[cross-posted at Michigan Youth Political Alliance]