When President Bush unveiled his National Energy Strategy on Feb. 20, it was met with somewhat predictable criticism from Democratic legislators and environmentalists.
While the points of disagreement were many, one particular bone of contention was the refusal of the Bush administration to propose higher fuel economy standards for a new automobiles.Corporate Average Fuel Economy (CAFE) standards were enacted in 1975 as a means of reducing America's consumption of foreign oil. Since then, environmentalists also have adopted CAFE standards as a means of reducing pollution by increasing auto fleet efficiency.
In the name of energy conservation and environmentalism, Sen. Richard Bryan, D-Nev., is proposing to increase the current standard of 27.5 miles per gallon to about 40 miles per gallon.
Actually, the proposal would require all auto manufacturers to increase average new car fuel efficiency by 40 percent.
There is only one problem: statistical evidence suggests that CAFE standards do not reduce gasoline consumption or pollution in any meaningful way.
In a recent report for the Center for the Study of American Business, we analyzed the impact of CAFE standards on gasoline consumption. Our analysis did not find a significant relationship between the two.
If CAFE has any effect, it is minuscule: increasing CAFE standards by 40 percent would decrease gasoline demand by less than one-fourth of 1 percent - less than one day's consumption of gasoline per year.
A study by Andrew Kleit of the Federal Trade Commission suggests that the cost could be as high as $11 for every gallon of gasoline saved.
CAFE standards do force auto manufacturers to make new cars that are more fuel efficient, and they do reduce the per mile cost of driving, so why don't they reduce fuel consumption?
First of all, to make cars more fuel-efficient, automakers must build smaller cars, and to meet the fleet standards, they must sell more small cars than larger cars.
The problem is, many people don't want small cars, especially high-priced small cars, so they either switch to small pickup trucks (which are less fuel-efficient) or they just keep their old gas-guzzlers. In either case, the fuel economy of the total United States auto fleet does not improve significantly.
Second, by reducing the cost of driving, CAFE standards encourage people to drive farther.
Automobile emissions standards are based on the amount of emissions per mile, not per gallon of gasoline burned. Consequently, CAFE regulations encourage people to drive more miles, emitting the same amount of pollution every mile - instead of decreasing pollution, CAFE standards may actually make it worse.
What are the alternatives? The most obvious, and most discussed, proposal is a gasoline tax increase. Our study suggest that a gasoline tax increase of 2 percent to 5 percent would have the same impact on gasoline consumption as increasing CAFE standards 40 percent.
Another alternative is to provide incentives - R&D subsidies or tax credits - to encourage manufacturers to invest in technology to increase fuel economy.
Given the high cost of CAFE standards and their apparent lack of effectiveness, the current debate over how to set CAFE standards - a specific number of miles per gallon or a uniform percentage increase - and how high to raise them seems futile.
Rather than continuing with a costly and fruitless policy, we should seek out alternative means to achieve our energy goals in an economically efficient manner.