Why do consumers like CAFE? Well, the short answer is that a gas tax (which is infinitely superior from a pure policy perspective) hits them directly in the pocketbook, while CAFE forces automakers to absorb the cost increases before passing them along to consumers in the form of higher MSRPs. But underlying this fact is a larger issue that’s driving support of increased emissions regulation: gas is getting more expensive. As I pointed out in my recent editorial on the subject, for all the automakers’ whining about CAFE increases, it seems that energy prices are moving the market in the same direction anyway (the average family will spend $3,100 on gasoline this year).
According to a Consumer Federation of America study [PDF], the steadily-rising price of energy has consumer’s even more concerned about gas prices and dependence on the volatile Middle East than they were during the height of the last fuel price shock in the Summer of 2008. As a result, support for a 60 MPG fuel economy standard doesn’t go below 49% (among Independents) even assuming a ten-year payback period, and earns the support of 63% of Democrats. And before you dismiss this support as hysteria, consider the underlying economics for a moment…
The CFA lays out a fairly compelling case that argues for weighing the industry’s additional per-vehicle costs against the reduction in fuel expenditures on the consumer end. Now, estimates of per-vehicle cost increases for any given standard vary wildly depending on who you talk to, but based on this rough analysis, it seems fairly clear that the fuel cost savings almost always outweigh per-vehicle cost increases, meaning the industry should have no problem passing along the higher construction costs of CAFE compliance along to the consumer.
The study concludes:
Our analysis of the auto market shows that that there are numerous factors on both the supply-side and the demand-side of the auto market that cause it to produce less fuel economy that it should.19 Standards are an excellent way to address many of the market imperfections that hinder the development of fuel economy. We believe that the standards played a large part in pointing the industry in this direction and without standards, the market will not go far enough fast enough…
Over the past decade, whenever gasoline prices spiked, loud calls for short-term measures to reduce the pain at the pump are heard. Quick fixes, like gasoline tax holidays or releases from the strategic petroleum reserve may provide some short-term relief, but treating the symptom, rather than the cause is not going to solve the underlying problem. And, after a difficult decade there can be no doubt that there is a serious long-term problem. Our research shows that, while the public is certainly justified in demanding immediate relief, it also understands what the long term solution is. Over the course of the decade federal and state policymakers have cobbled together the building blocks with which to provide a meaningful long term solution.
The most effective response to the long-term problem of rising gasoline prices is to dramatically lower the consumption of gasoline. California and the Clean Cars states started in that direction first. They should continue to drive these consumer-friendly policies forward by working for an emissions standard that reinforces federal fuel economy standards and puts the U.S. on the path to doubling fuel economy by 2025. It would be extremely harmful to consumers, the economy, the environment and national security if policymakers squander this opportunity.