October 4, 2007

Why CAFE Makes Fuel Economy Worse

Andrew Charles

Earlier today GM's Tom Wilkinson posted a well-argued criticism of over-simplistic CAFE provisions () at the company's . Despite reinforcing his own explanations of why certain CAFE proposals are bad policy with a number of supporting sources, reaction on the GM blog alone indicates that people still do not understand the inherent problems with the CAFE approach to increasing average fuel economy. It seems that for many people the argument simply boils down to “increased fuel economy across the board is good, therefore we should increase fuel economy standards across the board”. Perhaps the difficulty is that there are so many reasons CAFE is bad policy it is hard to know where to begin trying to explain what they are, and too much effort for either lawmakers or consumers to understand.

Let's start by elaborating the basic flaws with most CAFE proposals before examining their less-obvious implications:

  1. CAFE requires manufacturers to sell more fuel efficient vehicles, but gives consumers little or no incentive to buy them.
  2. Most CAFE proposals ignore the effect of vehicle size and function on weight and aerodynamics, key factors determining fuel economy. The current separation of car and truck fleets is a minimal, and not very effective acknowledgment of this, the further refinement of the truck fleet standard to require higher economy from smaller trucks is a much bigger step in the right direction. Despite the assumptions of one commenter, under the current requirements a Japanese compact truck is often not more fuel efficient than a fullsize domestic truck. Unfortunately too many people seem to think that you can achieve the same fuel economy irrespective of a vehicle's size and weight. This only works in cloud-cuckoo-land—no matter how efficient the drivetrain, and how slick the aerodynamics, you can always improve fuel efficiency further by reducing a vehicles size and weight.

The combined effect of these two shortcomings is that CAFE proposals ignore the effect of a manufacturer's product mix (the proportion of vehicles sold in each market segment) on both their ability to meet CAFE requirements and incentive to improve fuel economy. It is not, as some people seem to believe, simply a matter of “If you build it (a smaller, more efficient vehicle), they (consumers) will come.” The common argument against this has been the obvious tendency of consumers to buy larger, more powerful vehicles — a habit that has been enabled by manufacturers efforts to improve fuel economy. This simple fact explains why, as a whole, average fuel economy has improved only marginally over the years, and in some has actually gotten worse. As has been so widely argued, consumers need an economic incentive to buy more fuel efficient vehicles. Despite the cynicism of many environmentalists and consumers, manufacturers across the board support such incentives to drive demand for more fuel efficient vehicles, as it means higher prices (and profit margins) for smaller vehicles. You only have to compare the relative prices of compact cars in Europe and the USA to see this (despite the much higher level of competition in Europe which drives down margins).

Be Sociable, Share!

Pages: 1 2 3

Tags: , , , , , , , , , , , ,

Comments are closed.