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Despite the Senate’s decision to reject Majority Leader Tom Daschle’s proposal for stringent new corporate average fuel economy standards for cars and trucks, new CAFE standards are still hot enough to burn consumers. The Senate has amended its pending energy bill to direct the National Highway Transportation Safety Administration to set “maximum feasible” standards for cars and light trucks based on a variety of factors not mentioned in current law. If the bill becomes law, NHTSA will set standards after explicitly considering for the first time highway safety, dependence on foreign oil, and air quality. While this broader set of considerations improves on current law, it means that NHTSA will have to wrestle with data indicating that more stringent standards make no economic sense.
Economists agree that CAFE standards are a needlessly costly way to fight dependence on foreign oil and global warming because they regulate vehicles instead of driving, the activity more closely related to these problems. Policies that reduce driving, such as higher fuel prices, would achieve these goals at lower cost than new CAFE standards.
Critics claim that CAFE kills because more fuel-efficient vehicles are lighter and intrinsically less safe. But also detrimental for safety is the effect of CAFE standards on driving. As CAFE standards become more stringent, driving increases because better fuel efficiency lowers the cost of operating a vehicle. Under the defeated Daschle proposal, which called for passenger cars, minivans, sport utility vehicles and pickups to collectively get at least 35 miles per gallon by 2013, new light trucks would be driven about 8 percent more. This amount reflects the gain in average fuel efficiency and conventional estimates of how operating costs affect driving. The average new light truck would log about 1080 more miles per year.
Extra driving boosts traffic accidents. Researchers estimate that an additional mile of driving raises accident costs by between 8¢ and 20¢. Although drivers pay some of these costs through their insurance, they do not consider them in deciding how much to drive because insurance premiums are not tightly tied to the number of miles driven. Given these estimates, increasing the fuel efficiency of light trucks to 32 mpg as proposed by Daschle would raise accident costs by between $86 and $220 per vehicle per year.
Extra driving also exacerbates traffic delays, which already cost Americans about $78 billion per year in time and fuel. Researchers have estimated congestion costs from additional driving to be between a penny and a quarter per vehicle per mile in key U.S. cities and more on important arteries. Although the average cost of congestion, about 2.4¢ per mile, is likely to understate the incremental cost of more driving, this figure implies increased congestion costs of $26 per vehicle per year.
Adding the accident and congestion costs gives additional highway costs of roughly $110 to $250 per light truck per year for Daschle’s proposal.
These costs exceed the gains to the U.S. from lower fuel consumption. As the Daschle proposal would provide annual savings of 225 gallons per light truck, the costs are between 50¢ and $1.10 per gallon saved. The National Academies of Sciences recently figured that the social gains to the U.S. of conserving fuel amount to 26¢ per gallon, including the value of lower world oil prices, reduced greenhouse gas emissions, and the environmental costs of gasoline production. This estimate, which the NAS described as “high”, implies that the benefits of the Daschle bill (at least the part concerning light trucks) are barely half of this lower-bound cost estimate.
Extending these calculations to include other effects strengthens the case against CAFE.
More stringent CAFE may worsen local air pollution. By 2004, new light trucks must emit no more nitrogen oxides than cars, but these standards are expressed per mile, so total emissions will rise as driving increases.
More fuel-efficient vehicles will cost more. Under the defeated Daschle proposal, new car costs—and prices—would rise by about $700, while light truck prices would rise by $1200.
Manufacturers could avoid the higher costs by making smaller and lighter vehicles. But the NAS reports that smaller vehicles produced in the late 1970s and early 1980s caused 1300 to 2600 deaths in 1993.
The inefficiencies associated with more stringent CAFE are entirely avoidable. A slight increase in fuel prices would reduce emissions and our dependence on Mideast oil more efficiently and quickly than a new CAFE standard. It would constrain rather than increase traffic accidents and delays. By applying to all fuel sources, it could do more to promote energy security than CAFE. A system of carbon permits tradable among fuel suppliers could reduce emissions by 2013 by as much as the Daschle bill for the equivalent of a couple of cents per gallon if applied to all vehicles and emissions sources. Neither NHTSA nor Congress should impose new CAFE standards. Congress, if it is interested in reducing emissions and improving energy security, should instead adopt a tradeable permit system or shift taxes towards motor fuel and away from labor and capital, so as to avoid the unnecessary costs of CAFE.
Randall Lutter is a fellow at the AEI-Brookings Joint Center for Regulatory Studies.
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