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CAFE Standards Are Stupid

CAFE (Corporate Average Fuel Economy), is the set of standards established by Congress in 1975 and subsequently managed by the NHTSA (National Highway Traffic Safety Administration) to limit the number and types of vehicles that Americans can buy – really.  Of course, the Congressional regulations weren’t sold to the public that way.  Officially, the standards were established under the guise of “improving automotive efficiency.”   Like Mom and apple pie, who can’t get behind “efficiency.”

As a knee-jerk reaction to the Arab oil embargo and the associated quickly rising gas prices in the 70s (relatively speaking, of course), Congress decided that it would force manufacturers – all of those that sold cars in the US – to produce cars with better fuel efficiency by setting MPG bars that they all had to leap over at specified periods of time.  By doing this, Americans were supposed to get exactly the cars we wanted.  So, instead of letting the buying public shape the marketplace with our choice of which cars to buy, Congress did it for us.

Not being the type of people who like being told what to do though, most Americans ignored the standards and spent their hard-earned dollars buying vehicles with gas mileage well below the average specified by CAFE (the average specified by the standards is of the cars a manufacturer makes – there is no weighting for which cars are actually being purchased).  As it turns out, the cars that the US government chose for us, were not the cars we wanted to buy.  Shocking, I tell you.

Over the past three decades, Americans chose to buy big cars – huge sedans, then station wagons, then SUVs.  The more sheet metal, the better.  And trucks . . . Americans made trucks, large ones at that, the most popular vehicles roaming our paved countryside.  CAFE standards be damned.

The fundamental problem with CAFE standards should be clear to everyone by now.  It’s not the mandate to car manufacturers and the follow-on limit to what products are available that makes people drive any particular vehicle – fuel efficient or not, it’s the choice of the car buyer.  That choice, of course, is driven by many factors – none of those being what the government says is better for them.

Does anyone believe that the current huge number of Priuses on the road are a result of more restrictive CAFE standards?  The current hybrid craze is entirely driven by the price of gas and the buyers of all those cars choosing, themselves, to find more fuel efficient cars.

Here’s an example.  Honda sold a car called the Insight for a few years in this country.  It was the highest mileage car ever sold here and, as you’d expect from Honda, it was fairly reasonably priced.  Sales of the car were so low, though, that Honda had to discontinue the model.  This was before $4.00+/gallon fuel.  Now, as with the Prius, there would be a waiting list for the car.  Even though the Insight’s fuel economy was above the CAFE standard of the time, no one cared.  The car made too many other tradeoffs to higher mileage ratings and people weren’t ready to make those sacrifices.  At $4.00+/gallon, such trade-offs seem pretty minor to many.  That’s what drives what we buy.

If the government needed to tinker with what we drive and consume (reasonable in some circumstances), then it should have done it by artificially increasing the cost of owning or driving a car.  If each gallon of gas had $5.00 of tax associated with it, driving and buying behavior would change VERY quickly.  Wagging the dog from the tail – enforcing policy through the manufacturer, however is like spitting in the wind.  It’s just stupid.

The bottom line is that if I want to drive a land-bruising monster that drinks gas like Homer Simson drinks Duff beer, then that should be my choice.  And, if the economics of driving such a vehicle motivates me to acquire a fuel-sipping petrol miser, that’s also my choice.  For most, the financial requirements of filling a $100/tank every day and half will drive us to think about more fuel efficient cars.  This, of course, is happening now.  CAFE standards create a synthetic economy that fundamentally fails to achieve it’s goals.  The standards haven’t changed the market.  Buyer choice, driven by loads of factors, but mostly economic ones, has.  High gas prices are making that abundantly clear right now.

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 June 24th, 2008  
 Will  
 Stuff with a Motor  
   
 21 Comments

21 Responses to CAFE Standards Are Stupid

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  2. CAFE standards were, and are, a failure, absolutely. But the point isn’t, and wasn’t, to constrain what American’s could buy, nor to save American’s money, but to decrease America’s dependence on foreign oil, which was, and is, a threat to our collective security.

    Cars have strict pollution requirements. Certainly many of us might buy a car with better gas mileage and better performance that belched carcinogens into school playgrounds the way Homer Simpson belches beer, but as a society we’ve decided to limit inidividual choices to protect the collective.

    The trade-offs between individual liberty and successful society are difficult. The problem with the CAFE standards was they didn’t accomplish their goal of reducing our dependence on imported oil, not that American’s couldn’t get around them.

  3. CAFE standards were, and are, a failure, absolutely. But the point isn’t, and wasn’t, to constrain what American’s could buy, nor to save American’s money, but to decrease America’s dependence on foreign oil, which was, and is, a threat to our collective security.

    Cars have strict pollution requirements. Certainly many of us might buy a car with better gas mileage and better performance that belched carcinogens into school playgrounds the way Homer Simpson belches beer, but as a society we’ve decided to limit inidividual choices to protect the collective.

    The trade-offs between individual liberty and successful society are difficult. The problem with the CAFE standards was they didn’t accomplish their goal of reducing our dependence on imported oil, not that American’s couldn’t get around them.

  4. Lorne,

    I believe that, in reality, CAFE standards as originally enacted by Congress were more about addressing the whining and complaining of US citizens concerning the price and availability of gas than they were about reducing the country’s dependence on foreign oil for security reasons. Not that the latter wasn’t a goal, it just wasn’t the main driver, IMHO.

    The primary *effect* of the standards was to limit the availability of cars that Americans wanted to buy – my sarcasm bleeds through when I state this as the goal of the standards, of course.

    While I agree with your statement, “as a society we’ve decided to limit individual choices to protect the collective,” CAFE succeeded in limiting choices WITHOUT protecting the collective. Therefore, they are “stupid.” I’m not questioning their goal, just their implementation. In the end, there were and are a variety of less bureaucratic methods that could have been employed to achieve the positive societal effects you mention. Many of these leverage personal choice, a free market and capitalism. Creating laws and regulations that work with, rather than against, the natural flow of society, is generally more effective.

  5. Lorne,

    I believe that, in reality, CAFE standards as originally enacted by Congress were more about addressing the whining and complaining of US citizens concerning the price and availability of gas than they were about reducing the country’s dependence on foreign oil for security reasons. Not that the latter wasn’t a goal, it just wasn’t the main driver, IMHO.

    The primary *effect* of the standards was to limit the availability of cars that Americans wanted to buy – my sarcasm bleeds through when I state this as the goal of the standards, of course.

    While I agree with your statement, “as a society we’ve decided to limit individual choices to protect the collective,” CAFE succeeded in limiting choices WITHOUT protecting the collective. Therefore, they are “stupid.” I’m not questioning their goal, just their implementation. In the end, there were and are a variety of less bureaucratic methods that could have been employed to achieve the positive societal effects you mention. Many of these leverage personal choice, a free market and capitalism. Creating laws and regulations that work with, rather than against, the natural flow of society, is generally more effective.

  6. We agree on many things: CAFE had dubious (mainly political) motives historically, was a poorly implemented public policy, and did not achieve any of its ends.

    While I agree in theory that CAFE had the effect of having some limit on the number and type of cars available to the American consumer, I don’t think this is the salient point for two reasons: (1) There just weren’t that many cars types that abandoned the US market for CAFE reasons. CAFE’s emphasis on average fleet-mileage let all the major car makers in. (2) The evidence of CAFE’s failure is that the average mileage for vehicles sold in 2006 was lower than that sold in 1986.

    Finally, if you feel you must take the Libertarian Leaning, Global Warming Denying, George Bush lovin’, God Lets Me Marry as Many Teenagers As I Want, Hummer for a ride, why not bash the auto safety codes? They had a much bigger impact on consumer cost, limitations on consumer choice, and many broad-line manufacturers abandoned the US market at that time.

    Yee-haw!

  7. We agree on many things: CAFE had dubious (mainly political) motives historically, was a poorly implemented public policy, and did not achieve any of its ends.

    While I agree in theory that CAFE had the effect of having some limit on the number and type of cars available to the American consumer, I don’t think this is the salient point for two reasons: (1) There just weren’t that many cars types that abandoned the US market for CAFE reasons. CAFE’s emphasis on average fleet-mileage let all the major car makers in. (2) The evidence of CAFE’s failure is that the average mileage for vehicles sold in 2006 was lower than that sold in 1986.

    Finally, if you feel you must take the Libertarian Leaning, Global Warming Denying, George Bush lovin’, God Lets Me Marry as Many Teenagers As I Want, Hummer for a ride, why not bash the auto safety codes? They had a much bigger impact on consumer cost, limitations on consumer choice, and many broad-line manufacturers abandoned the US market at that time.

    Yee-haw!

  8. Actually, I do think there should be a limit on the number of teens one is allowed to marry 😉

    You’re right. For all practical purposes, our choices didn’t get limited that much. It’s the point that they were limited at all as a means for changing behavior that drives me nuts.

    Give me time. I’ll get to safety regulations some time soon. 😉

  9. Actually, I do think there should be a limit on the number of teens one is allowed to marry 😉

    You’re right. For all practical purposes, our choices didn’t get limited that much. It’s the point that they were limited at all as a means for changing behavior that drives me nuts.

    Give me time. I’ll get to safety regulations some time soon. 😉

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  17. Interesting Will. No doubt your recent trip to Europe got you thinking about tax on gasoline. The whole world has been enjoying ridiculously cheap oil for years (since the early 80s probably the only commodity that has gone down in relative terms).

    Europe has taken the tack of heavily taxing petroleum – in an effort to reduce the usage of cars for various environmental reasons, but also as a stealth tax to create public funds. In the UK, we have been taxed a huge amount on gasoline for years. Something like 2/3 of the price of gas is tax. Last year it was running at around 0.8-0.9 pounds per litre (around 8 USD per US gallon I think) and now with the price of oil it is around $11-$12 (USD) per US gallon. If you think people are hurting here in the US, they are really hurting in Europe. That said, the price of gasoline has been so very high for such a long time (via taxation) that the trend of buying more economical cars has been present for at least 15 years. No doubt you saw that on your trip – far more smaller cars. Something like 50% of BMW’s car sales are turbo-diesel in Europe (ultra low sulphur diesel is widely available at every filling station and diesel is only marginally more expensive than regular gas unlike the US).

    Basically people bought what they needed generally speaking; there are still people buying large cars as status symbols just because they have the expendable income. Although the government is taking huge sums of money away from people, at least one of the small effects has been a drive by auto-makers to produce more economical cars. One of the big problems with having such a high tax on gas though is that when the total price hits breaking point (like it is now), it is very difficult for the government to lower the tax as that money has been rolled in to the budgets of the nation.

    Here in the US, stupidly cheap gas with hardly any tax has just allowed people to buy stupidly big cars. It still amazes me that people really need a Crapillac Escapade or Low-Gas Negotiator (insert real name as appropriate) and I just laugh at the occupants when I see one. Now that gas price has quadrupled in 5 years, these people are in real pain. But not just the big car drivers; those driving 4 cylinder compacts are hurting because they just aren’t used to budgeting for gasoline.

    I came over to Boston in March 2007 back when it was around $2.50 per gallon and just laughed about how cheap it was. Now it is $4+ and it still seems cheap, but mainly that’s because I’ve been used to the pain and have been used to budgeting myself with high fuel prices. I don’t think there will be any miracle cures in the next 10 years, but at least we can hope that more economical cars will make it over here to bridge the gap. VW and Merc both now sell 50 state legal diesels and Audi and Subaru are on their way too. 40mpg for an AWD wagon with a 0-60 of 8 seconds and far lower CO2 isn’t too bad eh? That’s the kind of thing that will hook people (well at least Bostonians) as long as we get low sulphur diesel at a price similar to gasoline.

    Check out Wired Autopia for very interesting daily news about the latest and greatest alternative automotive news: http://blog.wired.com/cars/

  18. Interesting Will. No doubt your recent trip to Europe got you thinking about tax on gasoline. The whole world has been enjoying ridiculously cheap oil for years (since the early 80s probably the only commodity that has gone down in relative terms).

    Europe has taken the tack of heavily taxing petroleum – in an effort to reduce the usage of cars for various environmental reasons, but also as a stealth tax to create public funds. In the UK, we have been taxed a huge amount on gasoline for years. Something like 2/3 of the price of gas is tax. Last year it was running at around 0.8-0.9 pounds per litre (around 8 USD per US gallon I think) and now with the price of oil it is around $11-$12 (USD) per US gallon. If you think people are hurting here in the US, they are really hurting in Europe. That said, the price of gasoline has been so very high for such a long time (via taxation) that the trend of buying more economical cars has been present for at least 15 years. No doubt you saw that on your trip – far more smaller cars. Something like 50% of BMW’s car sales are turbo-diesel in Europe (ultra low sulphur diesel is widely available at every filling station and diesel is only marginally more expensive than regular gas unlike the US).

    Basically people bought what they needed generally speaking; there are still people buying large cars as status symbols just because they have the expendable income. Although the government is taking huge sums of money away from people, at least one of the small effects has been a drive by auto-makers to produce more economical cars. One of the big problems with having such a high tax on gas though is that when the total price hits breaking point (like it is now), it is very difficult for the government to lower the tax as that money has been rolled in to the budgets of the nation.

    Here in the US, stupidly cheap gas with hardly any tax has just allowed people to buy stupidly big cars. It still amazes me that people really need a Crapillac Escapade or Low-Gas Negotiator (insert real name as appropriate) and I just laugh at the occupants when I see one. Now that gas price has quadrupled in 5 years, these people are in real pain. But not just the big car drivers; those driving 4 cylinder compacts are hurting because they just aren’t used to budgeting for gasoline.

    I came over to Boston in March 2007 back when it was around $2.50 per gallon and just laughed about how cheap it was. Now it is $4+ and it still seems cheap, but mainly that’s because I’ve been used to the pain and have been used to budgeting myself with high fuel prices. I don’t think there will be any miracle cures in the next 10 years, but at least we can hope that more economical cars will make it over here to bridge the gap. VW and Merc both now sell 50 state legal diesels and Audi and Subaru are on their way too. 40mpg for an AWD wagon with a 0-60 of 8 seconds and far lower CO2 isn’t too bad eh? That’s the kind of thing that will hook people (well at least Bostonians) as long as we get low sulphur diesel at a price similar to gasoline.

    Check out Wired Autopia for very interesting daily news about the latest and greatest alternative automotive news: http://blog.wired.com/cars/

  19. Hey Rob,

    Funny, I wrote this post before I went on my European adventure. You’re right of course. The fact that petrol prices across Europe have been jacked up for a long time has fundamentally changed driving and buying behavior throughout the EU. In the US, we’re so spoiled, it’s going to be a painful transition.

    My view is that we’re going to have to make this transition some time, so why not do it now? Classically, Americans only get things done when we have a boot up our ass or a major financial incentive motivating us. That’s fine and the high(er) gas prices of today are exactly that. The bailouts that have been proposed by certain government are whacked. If we’re gonna make a change, let’s keep the motivation high.

    By the way, I’m afraid that the whole gas vs. diesel thing is a bit harder in this country than the EU. While I am a huge proponent of more diesel vehicles, as it turns out, refining capacity in the US fundamentally produces less diesel than gas. If we inundate the market with diesels, diesel fuel prices will go through the roof. The US just doesn’t produce enough and it’s very difficult to change the refining infrastructure.

  20. Hey Rob,

    Funny, I wrote this post before I went on my European adventure. You’re right of course. The fact that petrol prices across Europe have been jacked up for a long time has fundamentally changed driving and buying behavior throughout the EU. In the US, we’re so spoiled, it’s going to be a painful transition.

    My view is that we’re going to have to make this transition some time, so why not do it now? Classically, Americans only get things done when we have a boot up our ass or a major financial incentive motivating us. That’s fine and the high(er) gas prices of today are exactly that. The bailouts that have been proposed by certain government are whacked. If we’re gonna make a change, let’s keep the motivation high.

    By the way, I’m afraid that the whole gas vs. diesel thing is a bit harder in this country than the EU. While I am a huge proponent of more diesel vehicles, as it turns out, refining capacity in the US fundamentally produces less diesel than gas. If we inundate the market with diesels, diesel fuel prices will go through the roof. The US just doesn’t produce enough and it’s very difficult to change the refining infrastructure.

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