The Trump administration recently proposed the Safer Affordable Fuel-Efficient (SAFE) Vehicles Rule. The proposed rule offers modifications to Obama-era Corporate Average Fuel Economy (CAFE) standards with a “preferred alternative” for model years 2021 through 2026.
Without a doubt, the Trump administration’s proposed revision is a welcome victory for consumers’ wallets and for consumer choice.
The Obama administration implemented fuel-efficiency mandates that would force auto manufacturers to have a fleetwide fuel-economy average of 54.5 miles per gallon by 2025. The new rule’s “preferred” change would maintain the existing fuel-economy mandate through 2020 (increasing to 37 mpg) and keep the level at 37 mpg through 2025.
New fuel-efficiency standards create a number of unintended consequences, including higher prices for new cars and costly retooling of existing auto plants.
A 2016 Heritage Foundation analysis estimates the Obama fuel-economy mandates increased new-car prices $6,800 more than the pre-2009 baseline trend, and that eliminating the more aggressive standards would save 2025 car buyers at least $7,200 per vehicle.
As my colleagues detail, “Economists and engineers accurately predicted that the [model year] 2016 standards would hurt consumers by at least $3,800 per car.”
Consumers—not government bureaucrats—should make decisions about what cars they drive.
If consumers value saving money on gasoline, they will simply choose to purchase more fuel-efficient cars, and automakers will meet that demand without a federal mandate. If consumers value other attributes—vehicle weight, engine power, safety—Washington shouldn’t force automakers to ignore consumers’ preferences.
In fact, a 2011 paper from the Massachusetts Institute of Technology found that if vehicle weight, horsepower, and torque were held constant at 1980 levels, fuel efficiency would have increased 60 percent from 1980 to 2006 instead of the 15 percent increase that did occur.
The reason fuel-efficiency increase occurred at 15 percent instead of 60 percent is because auto manufacturers met buyers’ demands for heavier vehicles with more torque and horsepower. When the federal government comes in and says we need to have a fuel economy of 54.5 miles per gallon, regulators override those preferences.
Congress established fuel-economy mandates in the 1970s as a response to the Arab oil embargo. A fear existed that the world was running out of oil and that America was too dependent on foreign oil.
CAFE standards were sold under the false notion of scarcity. It makes no sense now that we have an abundance of oil. But even if the world were running out of oil, fuel-economy mandates were not a good policy then and are not a good policy now.
CAFE standards are not just a relic of the past, but a systemic problem of the way policymakers, regulators, lobbyists, and pundits treat energy markets. Policies and regulations are based on alleged expertise and on making bold predictions about the future of energy supply and demand.
Rather than rely on regulations to tell producers and consumers what to do, we have price signals for that. Higher gas prices communicate information to energy producers to drill for more oil. They communication information to entrepreneurs to invest in new extraction technologies, alternative vehicle technologies, or more fuel-efficient cars.
Prices also communicate information to energy users to buy more fuel-efficient products, to carpool, or to find other modes of transportation.
When Obama-era regulators set CAFE standards and estimated the alleged savings to consumers, they demonstrated the same level of hubris our politicians did in the 1970s.
When crafting these standards, the Environmental Protection Agency and National Highway Traffic Safety Administration estimated that gas prices would be $3.87 per gallon in 2025, increasing to $4.24 per gallon by 2040. They used these price projections to project how much money consumers would save on fuel costs.
While those price-projection scenarios are certainly plausible, increases in supply could also certainly drive prices down, and consumers would save less money on gas by purchasing a more fuel-efficient car.
Alternatively, gas prices could rise even higher than the government projections, and consumers could save even more money from mandated fuel efficiency.
The reality is, we don’t know. It is difficult to project gas prices 22 weeks ahead, let alone for the next 22 years, and it’s dangerous to base policy on those predictions.
Trump’s course correction on CAFE is a welcome step. Congress should demonstrate similar courage and recognize that we don’t need to mandate energy use for cars, dishwashers, or even clocks on microwaves, and scrap these standards altogether.