More On CAFE


Back before I was a witness before the House Committee on Oversight and Government Reform, I wrote a column critical of a report published by Ceres, a through that bills itself as leading a national coalition of investors, environmental organizations and other public interest groups. The report had been making the rounds in Washington, and I had problems with many of the report conclusions. Ceres wasn't happy with my critique, and we posted its response a few weeks back.

I debated weighing in with a response to Ceres' response, primarily because I am finding that with Corporate Average Fuel Economy (CAFE), the people who understand the issues the least have the most firmly held opinions. (Apologies to Lord Michel de Montaigne for appropriating his thought.) So in writing more on CAFE, it is not likely that minds are being changed. Plus, most of Ceres' response was simply a restatement of ideas in the original report.

But I am having second thoughts especially after Edmunds.com published a list of Frequently Asked Questions (FAQ) on what to expect when the proposed rules are published; those rules were released Wednesday. The FAQ has generated a fair amount of media attention, so it is clear CAFE is still a subject of interest. Second, Ceres is sending around emails reminding people of its claim that higher CAFE standards will create jobs. So I figured I might as well remind people why they won't.

To be fair, I should say it is highly unlikely that higher fuel-economy standards will result in a net increase in jobs. The point being that no one can say with certainty what will or will not happen a decade or more in the future. Heck, it is hard enough to get to a level of confidence about what to expect next year, let alone in 2025.

In fact, this strikes me as one reason why Congress was unusually wise when it restricted the National Highway Traffic Safety Administration (NHTSA) from setting CAFE standards for no more than five years in the future. Anything further out is really a leap into the unknown.

But let's get back specifically to Ceres' response. Reviewing its arguments, I come up with the following main points:

No. 1: Americans love better fuel economy. My initial response to this idea was dejected surprise. After all, hasn't this canard been thoroughly skewered? Sure there are plenty of polls citing consumer support for better fuel economy. Only Tuesday -- on the eve of the proposed CAFE rules being released – Consumer Reports released such a survey -- a flawed one
as I pointed out -- showing 93 percent of consumers it surveyed wanted higher fuel economy and would pay extra for it. An even earlier column discussed why these polls are not very useful. Yes, better fuel efficiency is nice, but don't ask consumers to pay more for it, or sacrifice any vehicle features to get it, which is the gist of the issue.

Having said this, when I step back, I have to admire the art behind how this point was made. Firstly, love is actually a fuzzy concept. Ceres didn't actually say the consumers would buy super- efficient vehicles, just that they love better fuel economy. Plus, Americans is plural, so presumably they mean more than one American. But they leave it open to interpretation as to how many. And I am sure there are more than a few Toyota Prius, Nissan Leaf, Chevrolet Volt and even Hyundai Elantra, Chevrolet Cruz and Ford Focus owners who "love" their vehicles' fuel economy.

Perhaps I have been spending too much time in Washington, a place where the parsing of words can have huge implications. (A relevant case in point: We may measure fuel economy by the amount of CO2 in the exhaust, but can't admit the two are related. If they were, the U.S. Environmental Protection Agency (EPA) waiver given to the California Air Resources Board (CARB) would be illegal. A lot can hang on a word.)

So while I take issue with the implication behind Ceres' statement, I have to admit it was artfully crafted.

No. 2: Higher fuel economy standards will be good for the economy, specifically they will create more jobs. To buttress this claim, Ceres worked with "the respected economic research firm Management Information Services, Inc. (MISI)." MISI may be respected, but I had never heard of them, so I went to the Internet to do some digging. They are Washington based (what a shock) and have been making the case for the economic benefits of green technologies for some time.

I also found that back in 2003, perhaps during a moment of sober reflection, MISI issued a report on the job creation potential of higher CAFE standards, but included the following caution: "there is no free lunch. There would be widespread job displacement within many industries, occupations, and states, and increased CAFE standards require that fuel economy be given priority over other vehicle improvements, increase the purchase price of vehicles, require manufacturers to produce vehicles that they otherwise would not, and require consumers to purchase vehicles that would not exist except for CAFE."

I would have to agree on all points.

No. 3: Higher mileage standards don't mean less desirable vehicles. This gets to the nub of the issue. I would agree that if car companies can deliver vehicles that offer the utility (space, features, comfort, performance, etc.) that consumers want, improve fuel efficiency and keep the price the same, consumers will snap them up. And to a certain extent, the car companies have been delivering exactly these vehicles.

Ceres seems to be making a couple of points. First is that consumers want higher fuel efficiency so much that sales will actually go up, even in the face of price increases. And the second is that the new "standards" grade on a curve. So consumers will continue to be able to choose from a full range of vehicles. Here, I think, Ceres is referring to the tiers, or vehicle categories, to be a part of the new standards.

I hate complexity on principle and these tiers are a great example of a scheme that has veered into complexity overload. So I am not a fan of these tiers. But the bigger point is this: I expect that the automakers will be able to meet the requirements of the new standards for the next few years without too much fuss. Perhaps a dose of "rationing" of sales of larger vehicle through prices increases, more use of turbochargers, direct injection, etc. It is later in this decade when things get murky. And it is not just me saying so. When I talk to senior car company execs, no one is pretending to have any idea how the standards will be met. There is vague talk about energy storage devices (flywheels, capacitors, etc.), or perhaps hope of a breakthrough on battery technology. But no one really can say.

And that is before we consider where fuel prices may be headed.

Ceres wraps up its response by citing surveys (don't get me started again on surveys) and quoting "government numbers" on the costs required to meet the standards and how consumers will be better off financially with higher mileage vehicles. (Specifically, it says higher prices will be paid for over time through savings at the pump.)

I have big problems with these estimates. The first is what are we assuming gas prices will be? The second is that consumers drive less when fuel prices are high. If we lower their cost of fuel, won't they correspondingly give back at least a portion of the "savings" by driving more? And the biggy is the notion of "government numbers." How reliable can these be when the automakers themselves can't even to say the technologies that will be required?

Anyway, the proposed standards are out. We will be poring through them and you can be sure I will have more to add on this issue soon.

Jeremy Anwyl: Vice Chairman of Edmunds.com. Follow @JeremyAnwyl on Twitter.

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