CAFE Standards: The Most Obnoxious Regs of the Obama Era
With American voters having pretty decisively voted for divided control of Congress, it seems as if the next two years will be fraught with legislative gridlock. This presents the Trump administration with a great opportunity to keep satisfying its promise of repealing two regulations for every one implemented. A lack of legislative activity will give the Administration the time to focus on unraveling the central planning that’s taken place away from Congress for the past eight years and beyond.
One of the most absurd examples of this was the Obama administration’s Corporate Average Fuel Economy (CAFE) Standards for cars and lightweight trucks. The Environmental Protection Agency (EPA) and the National Highway Traffic Administration (NHTSA) recently closed a comment period on a proposal that would roll back some of the CAFE standards imposed during the Obama era. The agencies should now move forward to execute this rollback before these regulations warp the market even more than they already have.
The Obama administration aimed to raise CAFE standards from a combined average of 24.1 miles per gallon in 2011, to a whopping 54.5 miles per gallon by model year 2025. The goal was to reduce emissions and to save consumers money at the gas pump. As with all government interventions, however, these intervention were not all that they seemed to be. Indeed, a slew of unintended consequences that come along with them.
First, they will raise the cost of new cars significantly. In order to achieve the astronomical efficiency demanded by Obama's planners, automakers will have to use different, more expensive technology to manufacture their vehicles. They won’t, out of the goodness of their hearts, take those losses themselves, nor should they. They will offset the extra costs by raising the price of new cars. This is the market at work, and a pretty predictable consequence of expensive rulemaking.
The Obama administration's rationale for the higher prices was that consumers would absorb them simply because drivers would save about a dollar per gallon on gas prices in the long term. The thinking was akin to justifying a drastic increase in housing prices by saying that homeowners would be able to save a few bucks on their electric bill. The costs are not even close to comparable for consumers.
The regulations also work against the Obama administration’s expressed emissions goals. Given the rising cost of new cars, this will shift demand towards older, serviceable cars that remain less expensive. Older cars, with lower fuel-efficiency standards, will stay on the road longer and will maintain the old emission status quo. For those who do pay the extra money to get new, fuel efficient cars, studies show the added efficiency will result in them driving more than they previously did. Academic studies show this will offset at least 15 percent of the expected emission declines. Central planners tried to direct the market for vehicles and, as it always does, it backfired.
The CAFE standards also work against vehicle safety. One of the ways automakers will try to make their new cars more efficient, as the fuel efficiency bar moves closer towards 54.5 miles per gallon over time, will be to make their cars lighter. Lighter vehicles provide less protection for their occupants, and are more susceptible to high-cost damage on impact. These are other factors consumers take into account when they have to make a decision on a new car choice. The Obama-era standards actually make it more attractive to go for older cars, once again keeping them on the road longer.
The most obvious issue with the CAFE standards, though, is that they just aren’t doable for car companies. In its final days, the Obama EPA even admitted in its technical assessment of the regulations that it would be near impossible for the industry to get to that kind efficiency by 2025. Central planners can cook up whatever idealistic dreams they want in agency backrooms, but that doesn’t mean businesses can actually make them a reality or that the market will cooperate with this meddling. It’s a lesson that the previous Administration had to learn time and time again.
If nothing meaningful can be accomplished the next two years in Congress, all the Trump administration’s attention should be directed to issues like this. Making our economy work to its maximum efficiency means letting it be driven by market forces, rather than faceless, unelected bureaucrats. The Obama-era CAFE standards are an egregious example of central planning that is still on the books. Adopting the current proposal to roll them back would be an excellent first step.