A Step Backwards

Not long ago we were treated to the sight of Speaker of the House Dennis Hastert (R., Ill.) touting energy efficiency by riding in a hydrogen-powered vehicle. Then, when the photo-op was over, Hastert hopped out of the car and jumped into his gas-guzzling Chevy Suburban to drive back to his office. It was a perfect metaphor for our current energy policy, as most recently exemplified by the Bush Administration's proposal to revise the Corporate Average Fuel Economy (CAFE) standards.

A Brief History of CAFE

Fuel efficiency standards date back to the first energy crisis in the mid-seventies, when Congress passed the original CAFE legislation requiring an average level of efficiency for auto manufacturers. According to the law, if the fleet of cars that a manufacturer sold in a year failed to meet the minimal standard, then they would be subject to fines that increased depending on the extent to which they missed the mileage standard.

At the time car makers protested the standards, claiming they would be very expensive to meet and would lead to tiny, unsafe cars and therefore more automobile-related deaths. Despite the complaints, the plan worked. The average fuel efficiency of U.S. cars nearly doubled over the course of a decade, from less than 14 in 1974, to over 27 mpg in 1985, and the rate of traffic related fatalities fell.

But there was a loophole in the law. CAFE standards did not include light trucks in the calculations for average fuel efficiency. This meant that, while the industry was forced to produce relatively fuel efficient cars, it could grind out gas-guzzling SUVs, minivans, and pickups by the millions, unbothered by the mileage standards. Both Democrats and Republicans ignored this loophole even as it became increasingly clear that it was undermining the purpose of CAFE standards.

CAFE Today

President Bush's new proposal is an effort to formally institutionalize this situation. Carmakers will be required to make each type of car they produce more fuel efficient over time, but they will not be obligated to improve the average fuel efficiency of the cars they produce.

Thus, each car maker would have to gradually and steadily improve the mileage of each type of car, instead of improving the fuel efficiency of their entire fleet. According to EPA estimates, the 2006 Toyota Prius gets 55 miles per gallon (mpg), and the 2007 Ford Explorer gets 16 mpg. Under the new standards, both cars must improve their mileage. Which means that if, a few years from now, the Prius is still at 55 mpg and the Ford Explorer is at 20 mpg, Toyota will be penalized, while Ford will be a model corporate citizen.

This approach defeats the purpose of mileage standards. When people consume less gas the country is less dependent on foreign oil sources, and fewer greenhouse gases and other pollutants are poured into the atmosphere. This is good for the country. But what good does relative fuel efficiency do us? If a huge SUV is slightly more fuel efficient, so what?

The complexity of the new rules also invites gaming the system. As AutoWeek pointed out last month, if General Motors adds two inches of track width and four inches of wheelbase to one of its Hummer models, its fuel efficiency target in 2011 would be 1 mpg less than what it gets today. In effect, the proposed rules allow manufacturers to avoid efficiency targets simply by making their cars bigger. This will not lead to less fuel consumption.

The U.S. auto industry does face a serious problem in the years ahead, because it made itself completely dependent on light trucks for its profits in the nineties. This is one of the reasons the industry is in disastrous shape today—with people turning to smaller cars because of soaring gas prices, demand is shifting to a sector where the U.S. manufacturers have not been competitive. It is unfortunate that auto workers, whose health care and pension benefits are now at risk, are suffering for the industry's bad judgment.

Making a joke out of mileage standards is not a serious solution. The industry may need assistance regaining competitiveness in producing small cars, and workers' pensions and health care benefits should be protected. But mileage standards must apply to a manufacturer's entire fleet. Anything less is simply a waste of time and might lead people to believe that we are taking steps to reduce fuel consumption and help the environment, when in reality we are doing nothing.