Obama's Unfortunate Regulatory Legacy

On January 18, 2011, President Barak Obama signed Executive Order 13563, Improving Regulation and Regulatory Review, which required a comprehensive review of all federal regulations by federal agencies under the authority of the executive branch. In his editorial in the Wall Street Journal, also published on January 18, 2011, President Obama explained the rationale behind Executive Order 13563:

"This order requires that federal agencies ensure that regulations protect our safety, health and environment while promoting economic growth. It's a review that will help bring order to regulations that have become a patchwork of overlapping rules, the result of tinkering by administrations and legislators of both parties and the influence of special interests in Washington over decades."

The results of this high-profile regulatory review and effectiveness initiative by the Obama administration apparently did not reach an important sector of the economy - the American small business community. In a March 2012 survey, the National Federation of Independent Business (NFIB), the nation's premier small business association, reported that in its random sample of 819 NFIB members, 21 percent cited "unreasonable regulation and ted tape" as a major concern for future growth and business optimism, up significantly from the 13 percent of its membership citing "government regulation and red tape" in its January 2011 "Small Business Optimism Index" survey results.

In a March 13, 2012 Heritage Foundation report ("Red Tape Rising: Obama-Era Regulation at the Three-Year Mark"), authors James L. Gattuso and Diane Katz, both research fellows in regulatory policy, found that the Obama administration had instituted 106 new major rules that increased the regulatory burden on Americans by more than $46 billion annually, five times the cost imposed by the George W. Bush administration during its first three years, and in addition to nearly $11 billion in one-time implementation costs. Moreover, since President Obama signed Executive Order 13563 the Heritage Foundation researchers found 32 major new rules instituted for 2011, accounting for an increase in regulatory costs of almost $10 billion annually, and another $6.6 billion in one-time implementation costs.

The impact of recent Administration environmental regulations on American businesses and consumers is illustrated in how one such regulation influences the American consumer's decision on purchasing an automobile. In 2011, the U.S. National Highway Traffic Safety Administration, an agency of the U.S. Department of Transportation, established new corporate average fuel fleet economy (CAFE) standards for automobiles and light trucks operating in America. These new CAFE standards require an annual 5 percent improvement for automobiles, a 3.5 percent improvement for light trucks for the first five years and 5 percent annually thereafter. The end result is that the CAFE standard for the automotive industry will be 54.5 miles per gallon (mpg) by the year 2025, more than double today's standard of 24.1 mpg.

Not surprisingly, the fact that 54.5mpg will be the eventual fleet average guarantees that some automobiles will be below this mileage standard while others will be higher. The end result of establishing this CAFE standard will be that a mix of hybrids, plug-in hybrids, and plug-in electric vehicles (PEVs) will be offered to the American consumer to eventually reach this mileage standard, as these vehicles are touted for offering high average mpg. Yet, when it comes to PEV vehicles, the American consumer is exhibiting buyer reluctance. According to the Consumer Reports 2012 Car Brand Perception Survey, 87 percent of U.S. adults have anxiety or concern about electric vehicles, with 77 percent concerned over PEV and plug-in hybrids' lack of driving range. Other American consumer concerns include the silence of electric vehicles, which some consumers believe could result in more pedestrian accidents, as well as the potential for fires initiated by home electric vehicle charging equipment.

Pike Research, in its 2011 Electric Vehicle Survey, found that 40 percent of 1,051 U.S. consumers surveyed expressed that they would be either "extremely" or "very interested" in buying a PEV. This survey result, however, compares unfavorably with 44 percent in 2010, and 48 percent in 2009. "Price is the most significant barrier to consumer interest in electric vehicles," said Pike Research director John Gartner. "About two-thirds of our survey respondents who stated that they would not be interested in purchasing a PEV said that they felt such a vehicle would be too expensive." Interestingly, this survey result is generated in spite of the fact that a consumer may be eligible for up to a $7,500 federal income tax credit when they purchase a PEV. "Others said they would want to wait a few years until the technology is proven, and almost half said that a PEV would not have sufficient range for their needs." In conclusion, Gartner believes that automakers will need to address these consumer issues "if PEVs are to move successfully out of the early adopter stages."

An example of this consumer backlash concerns General Motors' (GM) Chevrolet Volt, a compact automobile powered primarily by a lithium battery (but has a small back-up gasoline engine that is started when the battery runs low). In 2011, GM sold 7,700 Volts, well below its annual goal of 10,000 vehicles. The announced GM sales goal for 2012, 45,000 Volts sold in the U.S., has been abandoned with the company announcing that it will instead focus on matching supply with demand. The Volt, with a consumer price tag of $40,000, is also eligible for up to a $7,500 federal tax credit subsidy to a buyer. The Wall Street Journal reported that one California man was considering buying a Volt, but eventually purchased a Toyota Prius, a hybrid that has outshone the Volt in many consumer purchasing surveys. His reasons for not purchasing the Volt are familiar: "Short range, expensive, no infrastructure support, and the element of uncertainty with performance."

For market-inducing business regulation to be successful the technology employed must match the market demand. Furthermore, everything necessary to connect these two critical components must be fully implemented. In conclusion, as the case of PEVs clearly illustrates, this Obama command-and-control regulatory performance mandate is a glaring example of well-intentioned public policy attempting to force a premature and inadequately supported technology on an unwilling American consumer.