What is America's best "green" regulation?
Admittedly, this is as near a prettiest-girl-in-Maine contest as one can conceive. But not every federal green rule or program is lousy.
My nomination for best of the lot? Federal vehicle fuel mileage rules, known as CAFE standards. (Corporate Average Fuel Economy).
CAFE rules have been the law of the land since 1975, but have had only modest effect on the cars Americans purchased. Until recently, the standards were rarely raised -- and never to hard levels. They excluded half of vehicles sold (trucks, SUVs, vans) and included numerous loopholes. Penalties for non-compliance were modest.
The bipartisan 2007 Energy Act revamped the CAFE program to make it both more comprehensive and smarter. It brought most trucks and SUVs more fully into the system, and raised targets for both cars and trucks substantially. It also introduced a system to assign mileage targets by "vehicle footprint," with larger vehicles getting lower mileage bogies, reducing a bias to smaller cars -- and the companies that make them.
The Act set a fleet average target of 35 MPG by 2020 (vs. 25 today and 18 in 1978). For 2021-30, the law charges the NTHSA, which administers CAFE, to set higher standards based on "maximum feasibility" with input from the National Academy of Sciences.
The Obama Administration has accelerated the adoption of these targets. It established targets for 2012-2016 that end with a fleet target of 35.5 MPG -- 39 for cars and 30 for trucks. Draft targets for model years 2017-25 will be announced by September 2011. The Administration reportedly is evaluating MPG increases in the 3-6% per year range. The high end of that range yields a MPG target of 62.
(A note about these figures. Gas mileage figures for the CAFE fleet calculations come from different testing standards than those used for consumer "mileage stickers." Some contend that real-life driving yields mileage ~20% lower than what results from the CAFE-specific test procedure.)
At a recent Energy Department conference, John German provided a remarkably upbeat outlook for the the coming changes induced by tougher mileage standards. John is a veteran of Chrysler engineering and the EPA and is now with the International Council for on Clean Transportation.
John's presentation, definitely worth a scan, made the following compelling points:
- Consensus government estimates for cars scoring MPG in the mid 50's by 2025 suggest an incremental cost of around $2,000.
- At a cost of $2,000, the payback period for fuel savings is 2.5 years -- an economic no-brainer.
- Studies show that consumers have trouble optimizing the gas mileage issue in a complex purchase decision like a new car purchase.
- Numerous complementary advances in internal combustion vehicles (better tires, transmissions, turbocharging, lighter weights, etc.) will likely be the cheapest and most utilized path to achieve the highest mileage standards, but advances in the cost effectiveness of other technology sets could surprise (hybrids, diesel).
For almost more than 20 years, CAFE regulations have been essentially dormant in terms of affecting vehicles sold. Now they are poised to actually perform the core mission as originally conceived, which is to push automakers to adopt cost effective technologies to improve fuel efficiency.
So what makes these regulations especially laudable?
Here are my list:
- The regulations are directed at, and consistent with, a legitimate national interest: reduced petroleum usage.
- Arguably, market inefficiency exist that regulation can help mitigate, such as the full cost of gas not being reflected in its price (national security costs, pollution); consumers not placing a sufficient value of efficiency due to short ownership periods or purchase complexity.
- The regs probably lead to more fuel efficient vehicles being available at an economic incremental cost.
- Standards reduce uncertainty for producers regarding competitor offerings, and soften the competitive impact of swings in consumer demands relative to volatile energy prices.
- Over 35 years, the rules have evolved and improved in terms of effectiveness and intelligence; CAFE regulations pre-2000 were very poorly crafted.
- Standards are designed to be consistent with feasible and cost effective technological evolution.
- CAFE standards are very popular with citizens.
- Simpler, consumer oriented interventions to address the same goal, such as a gas tax, are not politically feasible.
- Penalties for failure to meet targets are modest -- $55 per 1 MPG for vehicle -- so the system is appropriately more a nudge to producers than a mandate, and the cost of the regs getting out of sync with what is feasible is pretty modest.