Fuel Efficiency

     Democrats are trying to “take our country in a new direction” again. I can’t help but wonder why every time they try and do that they look to the same, tired ideas of the 1960’s and 1970’s.

     In their weekly radio address, Democrats called for “a new direction in energy policy.” What is this new direction? Well, a new Senate bill would apparently require automakers to increase the fuel economy of new cars, sport utility vehicles, and pickups beginning in 2020 to a fleet average of 35 miles per gallon. According to news reports, the average is currently about 27.5 mpg for cars and 22.2 mpg for SUVs and small trucks.

     Their goal is admirable. They’d like to “make America a global leader again in energy technology and get us off our over-dependence on foreign oil.” I think that’s something we can all agree on. America relies far too much on imported oil. Right now, imported oil accounts for about two-thirds of US consumption. That’s just more money leaving the country to fill the pockets of foreigners. All too often, its going to fill the pockets of folks who aren’t exactly our best friends. For example, upplying 1.182 million barrels per day, Venezuela (home of our friend Hugo Chavez) is the fourth largest source of US crude oil imports. To turn around an old phrase, you might say we’re feeding the mouth that bites us.

     The proposed solution is hardly a “new direction” though. In fact, its not new at all. Fuel economy standards have been around since 1975, when Congress first passed the Engery Policy Conservation Act, establishing Corporate Average Fuel Economy (CAFE) standards for passenger cars and light trucks. Responding to the Arab oil embargo of 1973-74, the Act was supposed to double new car fuel efficiency and reduce our dependence on foreign oil. Like most government programs though, it had mixed success.

     Since 1975, fuel economy standards have gone through four phases. Initially, there was a rapid increase – possibly necessary to meet the new requirements. Then, in the late 1980’s, the rate of the increase slowed until it gradually began to decline. The decline continued through the mid-1990’s. Since then, we’ve had relatively constant fuel economy of about 21 mpg on average. In other words, even with the CAFE standards in place for more then 30 years now, we haven’t seen an increase in fuel economy since the late 1980’s – 20 years ago.

     Until recently that is. You might be surprised to learn though that it has nothing to do with government regulation, and everything to do with market forces. Rising gas prices have caused sales of gas guzzling, fuel-inefficient trucks and SUVs to plummet. In the last year alone, sales of the Ford Expedition fell nearly thirty percent, while sales of the Lincoln Navigator slipped almost fifteen percent. People are changing their purchase preferences in response to rising fuel prices. I’d bet that it won’t be long before we start seeing average fuel economy increasing too.

     Raising CAFE standards might create a short-term increase in fuel efficiency. But, just like the last time the Democrats tried the idea, that’s all the change will be: short term. The problem is the way they’re going about it. They’re mandating performance. All that does is force people to live up to the minimum level they need to scrape by the new standards – and then give everything they’ve got to make sure the standards stay low. Once people get to the mandated level, they have no reason to continue improving.

     To really create lasting and continuing change, regulators need to provide auto manufacturers with incentives to improve fuel efficiency. They need a reason to pursue it on their own. Lucky for us, the market is already doing just that. In response to rising fuel costs, people are buying more fuel efficient cars. Auto manufacturers are supplying them too. Don’t believe me? Just look at Toyota. It’s poised to become the world’s top auto maker “with its range of fuel-efficient cars which appeal to drivers concerned about mileage and pollution.”

     We can take heart in the fact that we’re seeing movement in the right direction even without direction from Washington. But, if Democrats really wanted to contribute, there is a role for government to play. They need to change their focus though. They should be focussing not on increasing regulatory burdens, but rather on finding common-sense, pro-market ways of creating change. As one practical thinker has suggested, government should “take advantage of a coming explosion in scientific knowledge and innovation by offering incentives that will direct this scientific progress toward our shared environment goals.” The author of that article suggests that one way of doing that is to “significantly invest in prizes as a competitive alternative to the current peer-reviewed process of scientific research.” For example, the federal government could offer prizes for the development of high-gas-mileage cars and other carbon reduction challenges.” That would mean doing things a bit differently though. Then we really would be taking our country in a new direction.