The administration came under criticism by a variety of sources recently regarding CAFE mileage standards for the model years 2017-2025; reportedly the administration is considering a final target as high as 62 MPG. The occasion for the most recent outburst was the release last week of a report by the respected Center for Automotive Research (CAR). In it CAR calculated that a target of a CAFE standard of 62 MPG for 2025 would add $9,800 to the price of the average car and cost the auto industry a quarter of a million jobs due to reduced auto sales.
I think these complaints are knee-jerk and unfair. As I previously wrote, CAFE standard have been a dud in both design and ambition for twenty years, but the new version are reasonable, (probably) effective, and economically justified. The CAR report does not change my view. A more nuanced view of the report, and the coming standards for 2017-2025, includes these perspectives:
- New standards are not the initiative of this administration -- they are required by the Energy Act of 2007. (The NHTSA at DOT is the agency responsible for CAFE standards, but the EPA has shoehorned itself into the mix by its unilateral adoption of responsibility for greenhouse gas emissions. I don't support EPAs role in CAFE, but its actual impact is TBD.)
- The administration has not adopted the 62 MPG standard. Reportedly, it is considering an ultimate target of 47-62 MPG; the standards are due out it September. The '07 Act requires that standards be set with consideration to what is economically feasible.
- The Obama Administration, even with a second term, will be long gone before the engineering even begins for most of the model years 2017-25. If new standards are really infeasible in the future, they will be reduced.
- The penalty for failure to comply with CAFE standards is very modest -- $55 per MPG per car. So automakers have the option of failing to meet standards and paying the fine, if that makes more economic sense. Missing by 10 MPG only costs $550.
- While CAR estimates that achievement of the 56 MPG standard will add $6,700 and the 47 MPG standard $3,700, others (including DOT/EPA, of course) have estimated lower figures, in the $2,500 or less range for mid-50's MPG. This much we know: no one knows for sure. Engineering for model year 2025 won't even be finalized until mid 2023, 12 years from now.
- Fuel economy in the range discussed here saves enormous amounts of fuel, which can justify a seemingly large up-front cost. While the CAR report highlights what it thinks will be the high cost of meeting 62 MPG, it forecasts that the lower bound of the potential range (47 MPG) is economically justified at gas at $3.50 cents per gallon, and gas of $6.00 per gallon pays for improved fuel economy all the way up to a 56 MPG standard.
CAR says one needs to multiply CAFE standards by 0.8 to get "real world" MPG figures. So in real life terms, EPA is considering 38-50 MPG, vs. 22 for new cars today. The midpoint of the considered range is about 55 CAFE, or 44 real life -- that is, a doubling. I for one would be delighted to replace my 17 MPG Government Motors family hauler with one getting 34 MPG. Nudging automakers in that direction is good policy.