By on July 28, 2009

The list of CAFE violators (in PDF form) reads like a valet’s to-do list: Mercedes, Porsche, Ferrari, Maserati. These firms pay CAFE fines because, well, they can. CAFE fines are calculated by multiplying each tenth of a mile per gallon of average non-compliance by $5.50, then multiplying that dollar amount by the number of vehicles sold. As a result, luxury firms pay the highest fines when they try to go mass market: Merecedes paid about $30 million for 2007. But if CAFE is already weighted to let small companies off the hook, why are we hearing about new rules which seem to relax standards for firms selling fewer than 400k vehicles per term? Aren’t the regular loopholes enough?

The answer takes a little digging to find, but it explains everything. Proposed rules for the 2011-2015 standard (PDF) reveal that

EPCA authorizes increasing the civil penalty up to $10.00, exclusive of inflationary adjustments, if NHTSA decides that the increase in the penalty—

(i) will result in, or substantially further, substantial energy
conservation for automobiles in model years in which the increased
penalty may be imposed; and
(ii) will not have a substantial deleterious impact on the economy of the
United States, a State, or a region of a State.

Doubling the CAFE fine would force the small firms to finally get serious about efficiency . . . unless there were a loophole. Hence the loophole.

Of course, that’s not going to be enough come the day when greenhouse gasses become a regulated pollutant under the Clean Air Act. As proposed rules for CAFE/GHG coordination explain:

failure to meet the standards after credit opportunities are exhausted would ultimately result in the potential for penalties under [Energy Policy and Conservation Act] (CAFE), and under the [Clean Air Act] as well. The CAA allows considerable discretion in assessment of penalties. Penalties under the CAA are typically determined on a vehicle-specific basis by determining the number of a manufacturer’s highest emitting vehicles that caused the fleet average standard violation. This is the same mechanism used for EPA’s National LEV and Tier 2 corporate average standards, and to date there have been no instances of noncompliance.

In short, fines are going to double, and the risk of a Clean Air Act violation lawsuit means non-compliant firms face double jeopardy.

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6 Comments on “Daily Podcast: CAFE Culture...”

  • avatar

    The $5.50 is meaningless to the likes of Mercedes, Porsche, Ferrari, Maserati. Changing it to $10 will still be meaningless. In fact, since those vehicles are already expensive (and not just because of the big engines), a higher fine will put them at a competitive advantage compared to big 3 muscle cars, which are expensive only because of their powerful engines.

    Even at $10 per tenth of a MPG, a $1000 fine buys you a 10 MPG waiver. Cars currently benching 17 MPG are already paying several thousand in gas guzzling fines.

  • avatar

    Of course, the companies that are fined merely pass the addional cost of doing business in the USA on to the consumer. So your Benz would be a couple 100 cheaper if it weren’t for CAFE.

    It’s also interesting to note from a purely economic standpoint that with exotic car companies, the CAFE fines will do nothing to curb pollution. Is a potential Farrari owner going to be deterred from buying a Ferrari merely because it costs an extra couple thousand of dollars? It actually could have the opposite effect. With hyper exotics, the more expensive the car is, the more desirable it is. The point being that I bet the low volume exotic car companies couldn’t care what the Cafe fines are.

    Cafe fines only get interesting once you get to the high volume sellers. To date no American car company has ever paid a Cafe fine. With the raised standards, I wonder how that is going to effect the bottomlines of the “new” GM and Chrysler if they decide once again not to be competative in the small car market.

  • avatar
    Robert Schwartz

    Maybe the Feds are more interested in collecting the money, than in environmental virtue.

  • avatar

    Like we’ve said before, this an exceptionally complex way of getting the same thing you can get out of a simple gas tax.

    • 0 avatar

      Except that with a gas tax, you pay a penalty regardless of mileage of your car and do so every time you fill your tank.  Other methods (CAFE, mileage based registration surcharges) only penalize those who choose to purchase a lower efficiency vehicle…a proposition that I find more fair.

  • avatar

    Correct, dean, and under this law the bureaucracy has the “discretion” to be judge, jury and executioner.

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