CAFÉ: The Triumph of Dogma

Congressman Scott Peters wrote an impassioned defense of CAFÉ in the Washington Post’s Power Post. His article reveals an argument built on dogma and assumption. He is dismissive of any criticism of CAFÉ and accuses republicans of wanting to “ gut fuel efficiency standards. In defending CAFÉ as “one of the most successful energy conservation programs”, he embraces conservation without limitation or understanding of how CAFÉ works.

CAFÉ was a creation of the post oil embargo panic. Its goal then was reducing oil imports by reducing gasoline consumption. The initial goal could be defended, as there was a concern that unchecked imports would transfer too much wealth and power to the Persian Gulf. Also, at that time, there was the widely held belief that the world was running out of oil, the end of oil was predicted to be at the end of the 20th century. While the goal could be defended, the mechanism, CAFÉ, can’t. It shows Congress’ lust for power and lack of faith in market forces. A gasoline tax would have been far more effective and much easier to implement. Analyses have concluded that a gasoline tax would be 6 to 14 times more effective.

Since the 1970s, CAFÉ has morphed from fuel conservation, which it did not achieve because as the cost of driving declined drivers increased miles driven, into a means for emissions reductions, specifically CO2. EPA has a long record for setting fuel and tailpipe standards as a mechanism for improving air quality, so CAFÉ was not needed to do that. While a case can be made that the standard setting process has been based on worst-case assumptions, which it has, there is no question that air quality has achieved tremendous improvements. Using CAFÉ to achieve CO2 objectives is nothing less that a case of orthodoxy driving regulation.

CAFÉ is a two-sided coin. One side reflects the air quality improvements, including reductions in CO2 emissions. The other and darker side represents the consequences of government fuel efficiency mandates. Until the most recent standards, manufacturers had to build lighter and smaller cars to meet fleet mileage requirements. Over the decades since the 1970s there has been accumulating evidence that lighter, smaller vehicles have led to greater highway fatalities.

Since most buyers prefer larger vehicles, smaller ones had to be sold at a loss. Cross subsidization allowed for those lower prices by making larger vehicles more expensive. Cross subsidization is compelling evidence that CAFÉ is in conflict with consumer preferences.

The current CAFÉ standards have eliminated that flaw by using vehicle class standards—vehicle foot-print—for calculating applicable standards. The current approach according to a paper from the Energy Institute at the University of California at Berkeley—New CAFÉ Standards: The Good, the Bad, and the Ugly, January 2016—is counter-productive “… the footprint-based targets may actually incentivize manufacturers to increase the average footprint of their fleet. This may make sense from a political point-of-view because domestic manufacturers produce large numbers of SUVs and pickups, but it doesn’t make sense from the perspective of reducing GHGs.” This explains why manufacturers were willing to accept more aggressive standards. They can sell more larger vehicles which are more profitable while appearing to be good corporate citizens.

As Milton Friedman observed, there is no such thing as a free lunch. Analyses of the new standards have concluded that they increased manufacturing cost initially by $1000 and by $3000 by the time they are fully implemented. This is because manufacturers have to substitute lighter material for metal and develop new drive train technologies. While advocates hail new technologies as a benefit of CAFÉ, they are assuming that those technologies would not have come about from meeting consumer preferences and competition among manufacturers. There cannot be any dispute that technology forcing leads to higher costs than competition.

 

The CAFÉ program is now dogma and a costly tool to reduce greenhouse gas emissions. It will do nothing to impact climate change but has allowed manufacturers to game the system and increase profitability. This is just another example of the Bootlegger and Baptist theory! It also is strong evidence why there is a need for strong regulatory reform that includes “look back” provisions and a strong role for effective agency oversight by Congress. No major rule such as CAFÉ should go into effect until approved by Congress.

 

Author: billo38@icloud.com

Founder and president of Solutions Consulting which focuses on public policy issues, strategic planning, and strategic communications.

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