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Government Fuel Standards: You Can’t Have Your Cake and Eat it too
By Scott Alford on June 25, 2013
Government environmental regulations are actively working against each other, in the latest example of the unprecedented lack of leadership in the executive branch. The Obama White House and the Environmental Protection Agency (EPA) have each imposed contradictory regulations upon the automobile and oil industries in an attempt to reduce fuel consumption yet increase renewable fuel production. Fuel economy and biofuel standards are sending mixed signals to the market about government policy priorities which frustrate the market and burden the economy with unnaturally high prices.
On one hand, the White House is setting new fuel economy standards through the National Highway Traffic Safety Administration (NHTSA). Called the Corporate Average Fuel Economy (CAFE) standards, they dramatically increase fuel mileage requirements to 54.5 miles per gallon by 2025 for the entire fleet of cars. This incredibly ambitious regulation by the Obama Administration would require car manufacturers to increase mileage per gallon by making cars lighter and by creating more efficient engines. These regulations are set to impose thousands of extra dollars upon consumers for every new vehicle. These overzealous expectations have lead many experts to speculate that automobile manufactures will struggle to meet the expectations of the Obama Administration at a reasonable cost to the consumer.
On the other hand, the EPA has decided to double down with newly imposed Renewable Fuel Standards (RFS), which reduce fuel efficiency on car engines. Earlier this year, the EPA overstepped its authority by requiring a higher ethanol standard from auto makers, from E-10 to E-15. This would gradually reduce the gas mileage of car engines because ethanol is less energy dense. By mandating higher consumption of lower density fuels such as ethanol fuel, the EPA is undermining the automobile companies who are trying to attain a nearly unreachable CAFE standard.
These policies are clearly counterproductive. The government has demonstrated that its priorities often don’t align with the consumer choices. Instead, costly regulations are often established to benefit special interests, like the renewable fuels market, rather than to establish effective goals. Government coordination of the market has resulted in major setbacks, not progress. The National Association of Convenience Stores (NACS), many convenience stores obviously being gasoline stations, explained “RFS and CAFE policies cannot coexist without substantial changes in the retail and vehicle markets to accommodate significantly higher concentrations of renewable fuels.”
In an attempt to comply with the stiff regulations, already reeling auto manufacturers could be crippled. Automakers could be penalized for failing to meet the standards. If an auto manufacture’s combined fleet fuel economy doesn’t meet the standards, they may opt to quit the business rather than pay the extensive fines for failing to meet the requirements. Fewer producers of cars will reduce competition and consumer choice. Car companies who weather the government regulations will be ‘rewarded’ with lower profits as sales slow and profit margins close in response to regulatory costs.
The retailers of fuel are the final group affected by the cost of the new regulations. The fuel industry has to invest in a completely new infrastructure to accommodate new blends of fuel. The NACS has projected it could cost the industry $22 billion in infrastructure remodeling alone. CAFE—RFS regulatory burden is a classic case of the left hand and right hand tugging on opposite ends of the same rope.
By trying to have the best of both worlds, the government will have fewer environmental benefits but at a high economic price tag. Instead of government having their hands in the regulating business, the government should institute a policy of Laissez Faire (hands off) economics which would allow the best technologies to progress in the market without the burden of the government’s counterintuitive policies.