July 30, 2007
Kill the Fatted CAFE:
Let Feebates Encourage the Purchase of Fuel-Efficient Cars
Can we trust Detroit when it comes to fuel efficiency?
For as long as anyone can remember, the Big Three have argued that
greater fuel efficiency would kill their domestic market. That remains
true today, when practically everyone is yelling at the automakers for
producing inefficient cars.
The real question, however, is this: Can we trust the American consumer
to buy more efficient cars?
The answer? No.
Todayís call for fuel efficiency isnít a new thing. There has been a
20-year lull between the last time people were hot for fuel-efficient
cars, and coincidentally itís been 20 years since the price of gas was
high enough to cause personal discomfort to consumers.
That should tell us something as Congress moves to increase Corporate
Average Fuel …conomy (CAF…) standards. The federal government could
require Detroitís automakers to increase their fleetwide fuel efficiency
averages, only to watch consumers lose interest if the price of fuel
were to again drop. This would leave the Big Three with an unfunded
federal mandate to manufacture something no one wants to buy.
Although this isnít likely (the price of gasoline will probably continue
to increase a little faster than the rate of inflation), policy makers
should keep it in mind. Itís one thing, in reaction to our growing
awareness of our twin problems of energy dependency and global warming,
to demand action. Itís another thing entirely to demand action that in
the long run might not be sustainable in the marketplace.
Rather than tinkering, Congress should simply scrap CAFE and address
efficiency through something that stimulates demand, not dictates
supply. An idea worth considering is something called a feebate.
feebate is a fairly simple thing. Those who choose to buy a gas-guzzling
truck or car are charged extra. Thatís OK, those of us who donít own
these things are already subsidizing those who do through our taxes that
help pay for things like keeping open our oil supply, public health
costs created by auto exhaust, environmental damage, wear and tear on
roads and a few other things. This extra fee would reflect those costs
currently covered by everyone else.
Rather than dropping that money into a government treasury, it would be
distributed to people who choose to buy smaller, more efficient cars.
The only money held by government would be what is necessary to
administer the program.
Although this requires government to offer the kinds of incentives that
would artificially stimulate demand for fuel efficient cars, it would
fulfill two things that that are highly positive.
The first is that a feebate program is sound economics. The government
doesnít mandate that people buy more efficient cars, and it doesnít
require the automakers to make cars that people could very easily opt
not to buy in the near future. It instead relies on incentives meant to
encourage good behavior.
The second is that it frees Detroit from what is an unfunded government
mandate. You can point fingers at the Big Three for not anticipating
this moment, and you should, but theirs is not at all like the tobacco
industry. Punitive policy would have a number of unintended negative
consequences. Bu, this would provide an ongoing incentive for Detroit to
conduct real research, not just play the numbers game of CAFE.
Feebate programs are still new enough that no one knows what kinds of
problems they might cause. A 2005 study in Canada concluded that they
would achieve their goal of more efficient cars, but at a cost to both
government and consumers. Earlier this year, Canadian auto lobbyists
said that the program (to the interpretation of this reader) hadnít
worked or was hurting the Canadian auto industry. And the Rocky Mountain
Institute, the most prominent organization pushing feebates, caveats its
reports with qualifications.
Itís become a fairly frequent thing to dismiss an idea because it comes
either with associated problems, or because it might require frequent
monitoring and tweaking. Thatís unfortunate, because we already know
that the two things weíve so far tried Ė nothing and CAF… Ė havenít been
effective at keeping fuel efficiency in check.
soon as gas prices dropped in the mid-80s, itís worth repeating, so did
consumer interest in small, fuel-efficient cars. That people today want
fuel-efficient cars Ė with gas prices regularly hovering at an
uncomfortable $3 a gallon every summer Ė should be instructive. The
sound practices of fuel-efficiency and consumer demand are today
aligned, and it would be smart government to make sure they stay that
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