The government’s action in imposing CAFE standards, which was intended to curb oil consumption, helped prompt the creation of the SUV and subsequent “gas guzzling.” CAFE Standard Insanity

By Michael J. Lynch

Oil exploration in Alaska’s Artic National Wildlife Refuge has once again become possible, if not probable, after the U.S. House of Representatives recently passed a major energy bill.  Environmentalists reacted by renewing their call for raising Corporate Average Fuel Economy (CAFE) standards in order to lower American consumption of oil and decrease fuel emissions.  But CAFE has proven itself a failure.

The Energy Policy Conservation Act of 1975 established CAFE standards as a reaction to the oil embargo of 1973.  CAFE requires auto manufacturers that sell cars or light trucks in the United States to meet fuel efficiency standards.  Under current CAFE standards, a manufacturer’s fleet of cars must get at least 27.5 miles per gallon (mpg) on average, while trucks must average at least 21 mpg.  When the government finds a company violation of CAFE, the manufacturer must pay a fine of $5.50 per tenth of a mile per gallon under the target for each and every car or truck manufactured.  Those fines add up, and European manufacturers regularly pay CAFE penalties ranging from $1 million to more than $20 million annually.  The benefit of these strict standards, or so the argument goes, is that they force manufacturers to make more fuel-efficient cars, reducing American dependence on foreign oil and decreasing our consumption of gasoline.

If only it were so.

As the Center has argued in the past, raising CAFE standards is a misguided and costly venture for countless reasons.  At the time CAFE standards were implemented the U.S. was importing 30 percent of its oil.  Today, over 50 percent of U.S. oil is imported.  While CAFE did create more fuel-efficient cars, it also increased the public’s incentive to drive because of the cheaper fuel costs.  According to the U.S. Department of Transportation’s Bureau of Transportation Statistics, Americans are driving twice as many miles as they did than in the 70’s.  More surprising, studies indicate that CAFE regulations are responsible for 46,000 traffic fatalities that were otherwise avoidable.  A more fuel efficient and therefore smaller car, amounts to less safety in the event of an accident.

What CAFE defenders also ignore is that government intervention usually causes more problems than it solves.  Indeed, the history and effect of CAFE standards perfectly illustrates this point.  The Transportation Research Board found in a 2002 study that “neither CAFE nor the alternative instruments directed at fuel economy have any significant gasoline reducing impacts.”  Moreover, not only has CAFE failed to accomplish its objectives, it has succeeded in doing just the opposite by helping to fuel an increase in oil consumption.

Take, for example, the clamor over Sport Utility Vehicles (SUVs).

The usual argument from environmental groups is that SUV popularity is responsible for a number of different preventable ills, and these groups blame automakers for bringing the SUV plague upon us.  SUVs, environmentalists say, are destroying the environment because of their poor fuel economy and higher emissions.  SUVs are driving up gas prices, they argue, because of the increased demand that comes from needing to fill larger gas tanks.  Some have even linked driving an SUV with indirect support for terrorism, contending that our oil consumption is propping up terrorist regimes.  For these reasons, environmentalists argue U.S. government must raise CAFE standards and invest in other energy sources.

While SUV popularity has contributed to greater oil consumption, we should look beyond automakers for the blame.  A careful look at auto making history tells us why this is the case.

Station wagons were very popular prior to CAFE.  Those vehicles were particularly popular among families because of the room they afforded multiple passengers.  When CAFE became law, automakers could not create station wagons that met the higher fuel efficiency standards for cars, so the companies nixed the popular models.

Car manufacturers still seeking a product that would make consumers happy and comply with government regulations found their solution in the SUV.  It offered the larger vehicle size consumers demanded but fell under the CAFE definition of a light truck.  This classification allowed SUVs to be subject to the lower fuel economy requirement of 21 mpg.  Therefore, the government’s action in imposing CAFE standards, which was intended to curb oil consumption, helped prompt the creation of the SUV and subsequent “gas guzzling.”

If not for the federal government’s intervention, companies would not have had nearly as strong — or as bizarre — an incentive to develop the SUV.  Manufacturers might have continued producing the already-popular family-oriented station wagons, whose emissions, while higher than a sedan, are lower than an SUV.  Yet, environmentalists still argue that raising CAFE standards will accomplish the very goals the standards have failed to improve in the past 25 years.  The old axiom, “insanity is doing the same thing over and over again expecting a different result,” rings true.

President Bush has urged Congress to put the energy bill on his desk by this summer.  We can only hope that Congress learns from its mistakes and ignores the environmentalists’ continued call for more government meddling. Allowing it would be insanity, indeed.


Michael J. Lynch is a Research Associate for the Center for Individual Freedom.

May 5, 2005
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