Corporate Average Fuel Economy Standards (C.A.F.E. Economics 101)

Below is an Op/Ed from a Virginia newspaper concerning the advisability of new C.A.F.E. standards.  I disagree with the conclusions.

By Eugene Gotwalt
Published: June 7, 2009

Under some circumstance, ignorance can truly be bliss. However, the current administration’s proposal to increase the C.A.F.E. standards while ignoring the basic economic realities of price incentives leads to a different outcome, that being an increase in highway fatalities.

It is a fundamental law of economics that any decrease in price will lead to an increase in consumption. Requiring automobile manufactures to build vehicles that average 35.5 miles per gallon effectively reduces the price per mile of driving. Lowering the cost of driving will give consumers the incentive to drive more miles.

Consumers reacted to the recent escalation in gasoline prices by combining trips, eliminating vacation travel, and using mass transit. An increase in the C.A.F.E. standard would have the opposite effect by giving consumers less incentive to conserve on their driving.

Economists estimate that for every 10 percent increase in fuel efficiency, there is a 2 percent increase in the number of miles driven. It can be debated whether total oil consumption would increase or decrease with the new standards, but it is an unambiguous result that they lead to an increase in the number of miles driven by the average consumer. More miles driven cause more accidents, which in turn leads to an increase in the number of traffic fatalities.

[snip]

President Obama’s claims that increasing the C.A.F.E. standards will lead to a reduction in oil consumption and improve the environment. These may be laudable goals, but there is a far more efficient way to accomplish these outcomes. In the same manner that a decrease in price leads to an increase in consumption, an increase in price causes consumption to fall. An additional 30 cents per gallon gasoline tax would have the same effect as the proposed increase in required fuel efficiency. This additional tax would cost the average consumer approximately $225 per year. This is compared to the $1,300 increase in the price of a new automobile resulting from the new C.A.F.E. standards.

[snip]

Why would President Obama reject the efficient method to reduce oil consumption and pollution? Tax increases on the majority of citizens are rarely politically supported, whereas pandering the environmental lobby ensures their continued support.

More people driving more miles in lighter vehicles resulting in more fatalities all in the name of political support. Is this the change the electorate asked for this past November?

SOURCE

A 30 cent per gallon tax increase, according to Eugene Gotwalt is the way to go to encourage fuel conservation.  There’s a lot wrong with that position in my opinion, but the first is he claims that increase would cost consumers approximately $225 a year whereas a vehicle with higher MPG standards would cost $1300.   While that  may be true it would be a better comparison to divide $1300 by the number of years the vehicle would be owned by the buyer as well as factoring in the savings on gas for the higher fuel efficiency, add the two and compare that to $225 a year.  In my opinion his comparison as it stands is not a valid and fair comparison of the costs.

Secondly, a gas tax is a regressive tax.  The people who would be hurt the most would be poor people who are unlikely or unable to rush out and purchase a new fuel efficient vehicle.  They wouldn’t have an increased fuel efficiency to offset the cost of the 30 cent tax.

Gotwalt goes on to say that higher fuel efficiency will encourage driving and thus cause more highway fatalities.  I suppose that’s true but lots of things encourage more driving such as summer and holidays.   So?  What’s his point?  We shouldn’t drive because we might have an accident? In addition, smaller cars are mainly more dangerous when you put them up against larger vehicles.  The more people who drive smaller cars the less danger.    But, yes, a 30 cent per gallon gas tax would keep all those pesky lower income people off the road.  (Economics 101)