Fuel Economy Panacea

By Doug Bandow

With the administration's support, Congress is preparing to increase fuel economy standards for American autos. The measure is supposed to save energy, but these rules have proved far better at increasing automaker costs and killing drivers than reducing America's dependence on foreign oil.

In 1975, Congress concocted Corporate Average Fuel Economy (CAFE) standards, which set the average fuel economy to be attained by cars sold by each automaker. It's a nutty approach.

First, CAFE put America's auto industry at a disadvantage because U.S. producers concentrated on the larger cars that Americans liked to drive. Today American make most of their money from light trucks (including SUVs), which outsell autos.

The administration's new CAFE rules regarding the former are expected to cost the three U.S. automakers about $2 billion ― and their Japanese competitors nothing.

Second, CAFE is supposed to cut total energy use, but CAFE actually creates an incentive to drive more. Higher mileage reduces the cost of driving.

As a result, conclude economists Randall Lutter and Troy Kravitz, CAFE ``increases vehicle miles traveled, thereby boosting traffic accidents and congestion. The increase in the costs of accidents and congestion fully offsets and probably outweighs the social benefits resulting from greater fuel economy."

The number of miles driven by cars and light trucks more than doubled between 1975 and 2000.

Third, meeting CAFE raises automaker and consumer costs by forcing companies to make cars that people don't want. Numerous high mileage vehicles are currently available, but many people prefer larger cars for a variety of reasons.

That has forced U.S. companies to lower prices on smaller autos (selling many at a loss), since hiking sales is the only way to meet CAFE, and increase prices on larger vehicles.

Moreover, lowering automobile costs puts more cars on the road, particularly as second or third vehicles in a family. But raising prices for lower-income families who need a larger vehicle likely causes some of them to hold onto their older autos, which have lower gas mileage ― further undercutting the objective of reducing energy consumption.

Fourth, CAFE kills. Design modification and materials substitution can make cars lighter and safer, but doing so costs money and it is not easy to do both simultaneously.

The easiest way to improve mileage is to cut vehicle weight, but reducing the amount of metal surrounding drivers and passengers leaves them more vulnerable in an accident.

In 2002 the National Academy of Sciences reported that CAFE kills an extra 1,300 to 2,600 people a year.

Alas, the dumber the idea in Washington, the more support it seems to receive. The administration, after doing little for years, now advocates raising CAFE four percent annually.

Congressional leaders have agreed to hike the level to 35 pmg in 2020, up from 27.5 and 22.5 for cars and light trucks, respectively.

It could cost the automakers $114 billion to retool their assembly lines. Explains Gary Witzenburg of the Car Connection: ``Almost no one outside the fuel-economy business understands how incredibly tough, probably impossible, and enormously expensive that really would be."

The only way to meet the proposed standard, he adds, ``would be to dieselize and hybridize virtually everything ― at an incremental cost (not retail price) of $5,000-$8,000 per vehicle ― and downsize trucks to where they could barely haul the contents of a homeless auto worker's shopping cart."

Yet even accepting the flawed assumption that the legislation would cut oil use by 1.2 million barrels a day, the energy benefits would be minimal.

Explains Jerry Taylor of the Cato Institute: ``Given that the Energy Information Administration thinks world crude oil production would be 103.8 million barrels a day by 2020, the reduction would be 1.2 percent of global demand and result in a 1.3 percent decline in price ― nowhere near enough to defund terrorists, denude oil producers of wealth, or secure energy independence."

Most alternatives would simply slot the rate of increase or maintain a separate, lower standard for SUVs. This ``moderate" approach would wreck the industry. kill people, and limit consumer choice more slowly, while having even less impact on energy use.

Rising fuel costs are the best antidote to high energy consumption. As prices rise, people drive less and switch to more fuel-efficient vehicles. Fuel economy should be left to the marketplace.

Washington has come up with a lot of bad policies over the years. Few are worse than CAFE. If Congress proceeds along this mistaken course, the U.S. might wake up to find that we have no auto industry left.

Doug Bandow is vice president of Policy for Citizen Outreach and a former special assistant to President Ronald Reagan. He is the author of ``Leviathan Unchained: Washington's Bipartisan Big Government Consensus'' (forthcoming, Xulon Press). He can be reached at chessset@aol.com.