Saturday, August 2, 2008

Better fuel standards?

A New York Times editorial calls for tougher fuel economy (mpg) standards. They further claim that consumers and the auto industry would be in much better shape, had Congress done so 5, 10 or 20 years ago.

That seems unlikely, given how CAFE is applied in practice. Automakers continue to sell whatever quantity of popular vehicle is being sold, regardless of its fuel efficiency (example: SUVs). Other cars in the fleet are sold to balance out the CAFE standards, occasionally at slim-to-no-profit. Thus, raising federally required fuel efficiency does little to address pollution, carbon, or oil supply/demand problems. If gasoline is always cheap, fuel efficiency only slightly reduces demand. Fuel efficiency combined with cheap gasoline can even increase demand, if the nation collectively feels it can drive more due to owning efficient cars.

If we wish to benefit from hindsight, the best solution is a carbon tax (or price floor), as noted in a fantastic piece by conservative George Will. (Here in America, a conservative calling for a tax is highly unusual)

If a carbon tax had been in place 5, 10, 20 years ago, the oil prices would be the same as today, yet all that additional money would have stayed inside the United States rather than going to Nigeria, Russia, and the Middle East. High oil and gas prices accomplish what decades of environmentalism and government regulation failed to do: raise efficiency, sink SUV sales, and encourage investors to take a serious look at alternative energy.

Calling for tougher CAFE standards will do little. An oil price floor or gasoline price floor will directly accomplish the NYT's desired goals (reducing auto emissions, reducing fossil fuel use, etc.) while also being far more open, honest, transparent, and simple.

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