Washington, DC, June 26, 2001 --  

With gas prices in America's cities hovering close to two dollars per gallon, politicians are scrambling to find a way to show their constituents they're doing something about high fuel prices. President Bush used the opportunity to try opening an Alaskan wildlife refuge for oil drilling, then retreated to the rhetoric of conservation when opponents successfully labeled him as an environmental spoiler. The end result: most federal politicians are now supporting new fuel-economy regulations on car manufacturers.¹

Politicians' claim that more regulation will be beneficial is ironic, given the track record of the existing federal rules. Back during the fuel crisis of the 1970s, the feds came up with a way to force manufacturers to make cars with higher gas mileage. They called it the Corporate Average Fuel Economy program. CAFE set a fuel economy standard all manufacturers were required to meet. The combined average fuel efficiency of all cars made by Ford in 1978, for example, had to be at least 18 miles per gallon to keep Ford from facing civil penalties.² Fines are multiplied by every tenth of a mile per gallon the fuel economy average lags behind the federal standard, then multiplied again by the number of cars manufactured in the year of the violation. Light trucks were initially exempt from these regulations, but were included a year later using a less-strict standard.

These federal rules forced manufacturers to market much more fuel-efficient cars. The problem was that consumers didn't want the tiny subcompacts that the standards allowed. Americans have always liked their big, powerful, gas-guzzling vehicles. As the efficiency standard became stricter, Americans slowly switched from their pre-CAFE large cars and station wagons to large minivans and sport utility vehicles that were covered under the less-strict light truck standard. Hence, CAFE actually hurt fuel efficiency by forcing consumers to switch from big passenger cars to even bigger light trucks. Today, almost half the new vehicles on the road are light trucks.³

Now that the damage has been done, proposals are floating in Congress to reform the system by bringing the light truck standards closer to the same level as passenger cars.⁴ It would be nice if this would lead to the downfall of the SUV -- which guzzles 50 percent more fuel than the typical passenger car, but it's far from likely.⁵ What started as an unintended consequence of the CAFE law has become a self-perpetuating fad. Americans love their SUVs. Many wouldn't switch back to station wagons or large cars even if they had to pay the cost manufacturers' fines.

The demand for ever-larger SUVs is so great that manufacturers might decide to pay the fines rather than make more efficient vehicles to meet proposed new federal standards. The existing 6.8 mile per gallon gap in CAFE standards between passenger cars and light trucks -- if eliminated by the feds and ignored by vehicle manufactures -- would result in fines of about 375 dollars for each truck, van and SUV that rolls off the assembly line. This fine could easily be passed on to consumers -- SUVs are currently the most profitable sector of the automotive market.

Even the few consumers who would be influenced not to buy a SUV for an extra 375 dollars probably wouldn't end up buying subcompacts. They are far more likely to continue driving their old vehicles -- vehicles that are often less fuel efficient due to their age and looser efficiency standards of the past.⁶

The proposed change in standard, therefore, is nothing more than a new tax on large motor vehicles. There is no evidence that it will lead to a change in the fuel-efficiency of vehicles.

But isn't this system, even if flawed, better than doing nothing? No. If history is to be the judge, such regulations are worse than nothing. The federal government's track record at regulating more fuel-efficient vehicles is worse than abysmal -- it is actually counter-productive. Rather than expand the reach of the flawed CAFE law, the public interest would be better served by eliminating it entirely.

Notes:

1. Washington Post, U.S. May Demand More SUV Miles Per Gallon, Friday, June 22, 2001

2. National Hightway Traffic Safety Administration, Automotive Fuel Economy Program 24th Annual Report to Congress, 1999

3. Ibid.

4. Washington Post, Ibid

5. National Hightway Traffic Safety Administration, Ibid.

6. Regulation, The changing Rationale for Motor Vehicle Fuel-Economy Regulation, Fall 1990

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Promoting Obnoxious 'Burbs, June 15, 1999