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Environmental Protection Agency (EPA) Administrator Scott Pruitt announced plans to scrap an Obama regulation on fuel efficiency. Obama’s policy spiked automobile prices and outpaced the industry’s ability to adapt.
The Obama administration issued its fuel efficiency standards in 2012, hiking the “corporate average fuel efficiency (CAFE)” to a mandatory 54.5 mpg for new vehicles. The standard would have been implemented by 2025 following a gradual escalation beginning this year. Consumers would have paid over $2,000 extra on each new vehicle purchased.
Of course, the Obama admin promised $4,500+ in consumer savings from reduced fuel costs over the lifetime of a vehicle. But these estimates were based on thickly bloated gas price projections for future years. The 2012 final rulemaking came only three years after the “Great Recession,” in which gas prices spiked near $4.00 per gallon and the American fracking boom hadn’t fully impacted markets. To put it lightly, people were scared that gas would soon be expensive again.
But as we know, gas is cheap and plentiful today thanks to American innovation. Obama bureaucrats in 2012 estimated consumers would pay $3.02 per gallon in 2018, when in reality; Gas Buddy’s prediction published this year shows a $2.57 average. All those savings? Gone. Obama admin predictions could stray further from the truth in future years, including its projected $3.29 per gallon in 2025. Bureaucrats in 2012 also didn’t account for big supply-boosting discoveries like untapped oil reserves in Texas and Bahrain. Nor did they imagine President Trump opening oceans and federal lands for drilling.
So you wouldn’t have saved $4,500 in fuel costs, but you’d still pay $2,000 extra for cars!
Fuel efficiency standards demonstrate the futility of projecting consumer savings on volatile asset prices. Extrapolating volatile data is risky, since predictions are only as good as their underlying assumptions. In the meantime, consumers are left holding snake oil and paying more for cars. Obama and his EPA sold America a stealthy lie.
Price hikes from government-mandated efficiency standards come from compliance and development costs on manufacturers. They’ll spend resources on reengineering products. Cars will likely need to be smaller and lighter to boost fuel efficiency. Redesigning factories and blueprints to accommodate for these changes will cost money in compliance, research, and development. The expected millions spent on these activities explain an additional $2,000 per vehicle.
As expected, poor Americans are hurt the most by price hikes. Folks with small incomes don’t have time to wait for future savings – they prefer upfront cost savings. In economics, this is known as having a high “discount rate.” Future earnings are worth much less to lower income people than immediate value today. The consequence of fuel efficiency standards is that fewer Americans have accessible transportation. Knowing the radical left’s militant stance on reducing carbon emissions at any cost, maybe this consequence is intended.
Regardless, Americans are sure to hurt with smaller, expensive vehicles. Literally. Efficiency standards are linked to motor vehicle deaths. For every one mpg in additional CAFÉ standards, there’s an associated 149 additional vehicle fatalities. This is because companies will cut corners to arrive at efficiency mandates. They’ll decrease the weight of vehicles immediately before devising long-term engine efficiency improvements.
Some critics discredit the link between fatalities and efficiency standard, citing the overall decrease in vehicle fleet mass as safety-enhancing. This assertion is problematic. Yes, it is true that by physics, a lighter car produces less force upon impact than a heavier car at a given speed. Cars of equivalent lighter weights in an accident would inflict smaller forces on each other, having some safety benefit. However, lighter vehicles will fare much worse against heavier SUVs, tractor trailers, and any vehicle on the road from an older generation. Your lighter car won’t be safer if it’s hit by a bus.
It would take years for lighter vehicles to repopulate the active fleet, making early purchasers of lighter vehicles vulnerable in crashes. That’s because CAFE only applies to new vehicles. All the old ones are still on the road. So you’ll be vulnerable to accidents with heavier cars for a long time. Plus, weight reductions may come directly from safety components.
On top of all these problems, CAFE standards hurt consumers because they’re an average. Vehicle makers are incentivized to drop low efficiency vehicles and increase high efficiency vehicles to move the average. Larger vehicles will be effectively taxed and smaller vehicles will be effectively subsidized, since failing to meet CAFE results in large fines. Eliminating larger, less efficient vehicles reduces consumer choice. Adding high-efficiency vehicle options like hybrids and electric vehicles will burden consumers, since they cost about $5,000 more than gas-only vehicles. Evidence shows consumers consider vehicle prices more than future gas savings when shopping.
The result of higher upfront prices is fewer car shoppers. This is the simple law of demand. Higher price equals less quantity demanded. The automobile industry will sell fewer cars and suffer. This will deprive companies of profits for research development that could lead to greener vehicle technology without government mandates.
And who will be priced out of markets from higher costs? Poorer Americans. Not luxury drivers.
So all considered, CAFE standards hike prices, are based on faulty projections, hurt the poor, lead to more fatalities, reduce choice, wreck the industry, and diminish markets. Without government in the way, automakers can innovate and produce competitive greener technologies.
For all of these reasons, FreedomWorks supports Administrator Pruitt’s decision to review and hopefully lower or eliminate harmful CAFE regulations.