In a new post over at the Progressive Fix, Nathan takes an in-depth look at CAFE standards released last week by the EPA. While pushing the U.S. fleet-wide fuel economy to 35 miles per gallon by 2020 is certainly a step forward, he wonders whether that step—and its underlying analysis—is really taking U.S. climate policy in the right direction.
The new standards are largely a product of a compromise between states, the federal government and auto manufacturers last year. (Is it still a compromise if one party—the feds—owns a big chunk of another—the U.S. auto industry—and has Supremacy Clause powers over another—the states? Just asking.) They are also the end product of the Supreme Court’s Massachusetts v. EPA decision requiring the EPA to address impacts of greenhouse gases under the Clean Air Act. The requirements appear relatively modest: the existing requirement of 35 mpg fleet average fuel economy by 2020 is moved up to 2016 and increased by 0.5 mpg.
That apparently small change can have a big impact when you consider how many cars and trucks there are in the U.S. and how long those vehicles will remain on the road. The EPA claims that the standards will reduce greenhouse gas emissions by 960 million metric tons and cut U.S. auto emissions by 21 percent over business as usual by 2030. The EPA also estimates that increased up-front vehicle costs of about $1,000 will be offset over the course of each vehicle’s life by reduced fuel costs, resulting in a savings of about $3,000.
That’s good news for the environment, and good news for consumers, right? The auto industry is (at least for now) OK with the new standards, and the environmental community is generally happy as well. I think the positive spin is broadly correct—we’re better off with stricter CAFE standards than we would be without them.
That said, I’m skeptical about the size of the benefits estimated by the EPA. Performance standards, and in particular efficiency standards, are flawed policy tools—emissions benefits may be lower, and costs higher, than with the best alternative: a carbon price.
The largest problem with efficiency standards is that they encourage increased use of whatever is being made more efficient. If your car is more efficient, it’s cheaper to drive it, and you’ll probably do so more often (and for longer distances). You might even move farther away from work or make other choices that increase your fuel consumption (but not your cost—remember, you’re more efficient now). This is great for you since you get increased utility from driving more, but your vehicle emissions won’t go down as much. Even if you “save” more money over the life of the car, the added cost per unit of emissions reduction goes up. Other social costs, like traffic congestion and increased risk of accidents, go up as well. This is called the “rebound effect,” and estimating its size is the subject of significant research among economists.
The EPA is aware of this effect and, as you might expect from an 837-page rule (with a 475-page regulatory impact analysis and 215-page technical support document), accounted for it in its analysis. Both the EPA estimates of emissions reductions and of costs to consumers assume that owners of new, more efficient vehicles will drive more. Good job by the EPA, right? Maybe.
Read the rest of Nathan’s Post, Why the New CAFE Standards Are Good — But Hardly the Best Climate Policy, from The Progressive Fix here.
