Misguided Policy: Fuel Efficiency Standards
The Obama administration recently announced its plan for increasing fuel efficiency standards between 2012 and 2016. Here’s the operative portion of the announcement:
Right now, the rules governing fuel economy in this country are inadequate, uncertain, and in flux. First, there is the standard for fuel economy administered by the Department of Transportation. On top of that, the Environmental Protection Agency, in response to a decision by the Supreme Court, may have to set limits on greenhouse gas emissions from vehicles — establishing another standard. California has sought permission under the Clean Air Act to require that vehicles sold in California meet yet another even stricter emission rule. And 13 states and the District of Columbia have agreed to adopt California greenhouse gas reductions if the permission — called a waiver — is granted.
Car companies might then face three different sets of overlapping requirements, one administered by the Department of Transportation, one administered by the EPA, and still a third administered by California and 13 other states. This proposed national policy, under the leadership of two agencies — and bringing together 14 states, 10 companies, as well as auto workers and environmental groups — changes all that.
Underlying this plan are two obvious politi-speak shorthand issues – Climate Change and Energy Independence (CC/EI), but in the aim to devise a policy for cars, seen to be a major contributor to the CC/EI problem, the administration may not have fully thought through the implications of their particular solution. Certainly, there are other trails being blazed on the CC/EI issue that aim to more directly address the issues themselves – so I don’t assume that this policy is intended as the silver bullet, however, because these are two issues that the general public readily associates with an extra burden both socially and on the wallet (or pocket book as the case may be), it’s interesting to see the specter of future savings accumulated for individuals in cars that will meet these new standards vs the known fuel expenditure of vehicles today being raised as a selling point for raising fuel efficiency standards. The idea is that in the long-run with a car of tomorrow I’ll spend less on gas than I would in a car of today – and if I’m the budgeting and finance-watching type, I’ll recognize these savings in just 3 years time.
With all the agencies, industry representatives, and lobbies represented at the announcement, you’d think most interests would be satisfied, if not excited, about the news. The question that is being raised now by advocates at the heart of the CC/EI movements is where are your priorities Mr. President? Specifically, individuals with cars that meet the new fuel efficiency standards will enjoy some insulation against the volatility of gas prices – but it’s the same gas made from the same oil, so it doesn’t seem outside the realm of possibility that individuals may choose to drive more. We’ve already seen this fuel demand ebb and flow with the peaks and valleys of prices at the pump.
Making cars that use less fuel only seems like a reasonable approach if the idea is that we are at or near peak fuel consumption – in lieu of that, to hit its aims, the policy goal probably should have provided direct downside pressure on fossil fuel demand the way more emissions-friendly cars or a increase in gas taxes would have done.
