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Obama's Fuel Standards Don't Add Up

August 31, 2012

By Diana Furchtgott-Roth

New requirements will make cars smaller, more expensive

It’s fitting that the Obama administration chose the opening day of the Republican convention in Tampa to roll out the final version of its new Corporate Average Fuel Economy Standards (CAFE), which would raise automobile fuel standards from 29.7 miles per gallon now, to 35.5 in 2016 to 54.5 in 2025.

Raising the CAFE standard and the related goal of reducing tailpipe emissions is an issue about regulation and the role of government that divides Republicans from Democrats.

Mitt Romney has said that he opposes both the 2016 and the 2025 standards, so rolling out the new standards on the day that he won the party’s nomination was tantamount to throwing down the gauntlet.

"These fuel standards represent the single most important step we’ve ever taken to reduce our dependence on foreign oil… It’ll strengthen our nation’s energy security, it’s good for middle class families and it will help create an economy built to last," President Obama said.

First enacted in 1975, CAFE requires auto makers to calculate average fuel economy — miles per gallon — across their respective fleets. The popular big, low-mpg vans and SUVs must be offset by high-mpg sedans, electric cars, and hybrids. The electric car market remains small, and General Motors (US:GM) just announced a suspension in production for its electric Chevy Volt.

The new standards combine a number of administration goals in one package — lower oil consumption and reduced imports, reduced exhaust pipe emissions, and use of electric cars.

This sounds good. How could anyone be opposed, particularly Romney, who wants to win the presidential election?

Multiple problems with arriving at the new 54 miles per gallon standard have been identified in a new report by the Republican House Committee on Government Oversight and Reform, released last month. The Committee’s Democratic minority was silent.

The report cited multiple emails showing that agreements were negotiated behind closed doors with a small group of auto makers, in violation of the Administrative Procedures Act. The companies were pressured into agreeing to the new standard by the Environmental Protection Agency, which threatened to allow California to set its own mileage standards. Had the Golden State done so, auto makers would have had to make two sets of cars, one for California, and one for the other 49 states, or one set that was California-compliant.

In a reference to the tens of billions of dollars that the Obama administration used to bail out GM and Chrysler, the Committee report said, "the Administration’s investment in GM and Chrysler gave it great leverage to force the companies to improve fuel economy without regard to cost."

One problem is that compliance will be expensive, because the technology does not yet exist to make cars that get 54 miles to the gallon that are no smaller than today’s models. EPA estimated that the retooling to make lighter cars would cost $140 billion for model years 2017 to 2025, following a cost of $51 billion for model years 2012-2016.

Perhaps the technology will be invented by 2025, perhaps not. Ron Bloom, White House Assistant to the President for Manufacturing Policy until his resignation in August 2011, told Toyota executives last summer, "Our technical folks think you can get there. It’s the best we can do."

Inevitably, prices of new cars will rise. The nonprofit, unaffiliated Center for Automotive Research anticipates an increase of $4,000 to $11,000 between 2008 and 2025. If that occurs, fewer motorists will buy new cars and employment in the auto industry will suffer. As for used cars, their prices will rise too, as new cars are avoided.

One must ask: If these fuel-saving technologies are so desirable, why do we need to require Americans to use them? The answer is that fuel-saving technologies are anything but a bargain unless the price of gasoline is far higher than it is now. In Europe, where gasoline prices range from $7.25 to $8.00 per gallon, people buy small, fuel-efficient cars. But this is because of fuel prices, not CAFE standards.

The new CAFE standards will result in unintended consequences. Most importantly, lighter cars are less safe. Despite what environmentalists say, it is a matter of physics. Larger, heavier vehicles give more protection in collisions because they have more mass to absorb collision forces.

In 2011 Wards Automotive surveyed 1,100 engineers, who concluded that "stringent fuel economy requirements like those set for 2025 will be impossible to meet without sacrificing the safety of the vehicles."

Further, with higher vehicle prices, consumers will keep their old cars longer, and old cars generally pollute more than new ones. By enacting drastic CAFE regulations, EPA and DOT are not intending to keep clunkers on the road, but this is exactly what will happen, for a while.

Other losers will be Americans who prefer large vehicles to carry families, equipment, and pets on daily trips or long vacations.

Auto makers have some wiggle room with light trucks, including SUVs, minivans, crossovers, and pickup trucks, which are subject to a less stringent standard. Their fuel efficiency has to increase by 3.5% a year from 2017 to 2021, unlike cars, which have to increase at 5%. This difference was meant to buy the cooperation of the domestic auto makers, who produce more trucks (with bigger profits than on sedans) than do foreign companies, enhancing the advantage they appear to have now.

With gas prices at around $4 gallon in many areas, consumers have every incentive to buy fuel-efficient cars if they want to do so. The implicit message of the administration in advocating higher fuel standards is that energy markets are unreliable and wrong.

The same administration that wants to raise CAFE standards has accused oil companies of price gouging when prices rise to reflect hurricanes in the Gulf of Mexico or turbulence in the Middle East. Price increases will eventually lead to less consumption.

If energy security is the rationale for CAFE standards, America needs to increase production of domestic oil, gas, and coal; invest in more refinery capacity; and build nuclear power plants. These are major components of Romney’s energy plan, yet the Obama administration has been noticeably slow on all these.

As EPA told a Mazda official in July 2011, as documented in the House Committee on Reform and Oversight report, the administration needed to do a final rule before the 2012 presidential elections because the president "wants to secure his legacy."

With attention focused on the party conventions and the elections, Americans will have a clear choice of whether they are allowed to choose the cars they drive, or whether they are forced into smaller, more expensive, vehicles.

Original Source: http://articles.marketwatch.com/2012-08-31/commentary/33508368_1_fuel-standards-electric-cars-mileage-standards

 

 
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