CAFE Standards Were Never Meant to Fix Climate Change

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Several readers have pointed out that this article uses an outdated description of CAFE standards. Since 2011, the regulatory targets have applied not to an automaker’s fleet as a whole but to vehicle size, or “footprint.” So the mandates affect size classes rather than entire fleets. The column’s general points still stand. Some of the perverse effects specific to the adjusted mandate are discussed in this March 2017 column.

Ford Motor Co. plans to largely give up selling cars in North America, focusing instead on trucks and SUVs. The only sedans in its future lineup will be the Mustang and a crossover version of the Focus.

Meanwhile, the Donald Trump administration looks likely to roll back the Corporate Average Fuel Economy targets set by its predecessor’s Environmental Protection Agency. The Barack Obama administration’s CAFE standards require each automaker’s fleet to average 54.5 miles a gallon by 2025. (Carmakers can lower their targets by earning — or buying from their competitors — credits for adopting EPA-approved technologies such as energy-conserving air conditioning or making electric cars.) Environmentalists, and states like California that love them, are up in arms.

But the administration has a point — if not the courage to do better. CAFE standards are an absurdly indirect way to regulate emissions. And Ford’s decision demonstrates why.

Consider another energy-sucking invention that Americans love even more than their cars: mobile phones. In an independent trial conducted by consumer site Tom’s Guide, the Apple iPhone 8’s battery held its charge for 11 hours, 16 minutes, making it the longest-lasting in the Apple lineup. By contrast, the Asus ZenFone 3 Zoom topped the list at 16 hours, 46 minutes. The iPhone X, which Tom’s Guide has rated the “best phone overall,” scored a mere 10 hours, 49 minutes.

Different phones aimed at different consumers offer different features. Different companies pursue different strategies. They make different trade-offs between performance, battery life and cost. A company can offer a full line of phones or specialize. It can sell feature phones with batteries that last for days or souped-up smartphones with fancy screens that gobble power. None of this is controversial. There is no federal law mandating that every company’s lineup of phones average an 18-hour battery life by 2025. That would be ridiculous. Why should Apple change its iPhone designs or sell feature phones just to hit an arbitrary average?

But that’s exactly what happens with automobiles.

CAFE regulations implicitly assume that every carmaker offers a full assortment of vehicles. Higher average requirements distort corporate strategies and encourage companies that are good at making trucks to make compact cars as well, even if their customers don’t want them. This artificially induced competition, often at giveaway prices, hurts manufacturers that are good at making small cars. The credit system ameliorates this effect by allowing small-car specialists to sell their credits to competitors who produce larger vehicles, but only in a roundabout way.

In the real world, on real streets, emissions depend not on car dealers’ full offerings but on individual vehicles and the people who drive them. One drawback of CAFE standards is that they apply only to new cars, a tiny fraction of those on the road. So they take a long time to reduce actual emissions. The rest of us happily go on driving our out-of-date vehicles, using just as much gasoline as ever.

That gets to the second behavioral problem: Better gas mileage encourages people to drive more. CAFE targets are not, in fact, emissions standards. They were established as a response to the oil shocks of the 1970s, not to global warming. They were designed to conserve fuel. In a new, CAFE-approved gas-sipping car, you can go farther for the same amount of money.

The rules survive because the costs are hidden in corporate income statements rather than being made explicit at the gas pump. CAFE standards tell drivers that emissions are someone else’s problem. But that’s also why they fall short. They give the real decision makers — drivers — no reason to change their behavior.

It makes perfect sense for Ford to make trucks rather than cars, just as it does for Toyota Motor Corp. to make hybrids. Whether the target is cars or smartphones, however, it makes no sense to dictate a company’s product offering in order to pretend to fight climate change.

©2018 Bloomberg L.P.

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