CAFE Reform

As I was reading the accounts yesterday of the Congressional meeting with the heads of Detroit's big three automakers on the subject of fuel economy, I was struck by Senator Dorgan's comment to Mr. Wagoner of GM, "I think this issue is over." While it's clear that he intended that as an admonition against more foot-dragging, I hope it isn't literally true. What we need is not just higher fuel economy standards, but a reform of the whole CAFE system, to make it more compatible with the other energy and environmental policies that will be forthcoming in the next few years. It's also important that we limit its potential for creating further unintended consequences.

In my blogging, I suspect I have seemed fairly negative about CAFE in general, because of the problems it has created, and because by itself it remains an incomplete mechanism for saving fuel or reducing emissions. The current system is a legacy of the first energy crisis, and while it has been updated somewhat, its main features were crafted in a world that worried much more about the gas going into a car's tank than the gases coming out of its tailpipe. Lets imagine that Congress could start with a blank piece of paper, rather than merely boosting what's already in place by 10 mpg or so. Here are some key attributes I believe a new CAFE system should have, in order to provide the maximum benefit for both energy security and climate change:

• SUV loophole phaseout - While the current system is morphing into a footprint-based scale, rather than two simple SUV and passenger car fuel economy targets, this is still a sop to Detroit's current advantage in big, heavy vehicles. By some date certain, say 2015, all vehicles intended for consumers should be treated equally under CAFE. Let's recognize that this will hit US carmakers disproportionally and give them some other benefit to offset it that doesn't just perpetuate this disparity.


• Shared penalty burden - Car companies have long argued that they can only make the cars that consumers will buy. In addition to penalties on manufacturers for missing their CAFE target, the gas guzzler tax on new vehicles should be increased and applied to all cars falling short of the CAFE for their class. Furthermore, this tax should be collected every time a vehicle is sold, not just on new cars. This would align consumers' and manufacturers' interests in cars that will meet the tougher standards.


• Fuel neutrality - If our goal is reducing energy consumption, it ought not matter what fuel a car uses. An SUV getting 15 mpg on E-85 may be achieve an effective 100 mpg on gasoline, but it is still guzzling ethanol that could displace gasoline in other cars. A "flexible fuel vehicle" uses the same amount of energy as the conventional model, and the time to close this wasteful loophole is now, before there are 50 million FFVs on the road. In the same way, the electricity consumption of plug-in hybrids, once available, should be counted along with their gasoline consumption. Electricity takes energy to generate, and 70% of the US supply produces greenhouse gas emissions. Ditto for hydrogen cars.


• Compatibility with CO2 targets - Even if CAFE does not eventually shift to tallying pounds of CO2/mile, rather than miles/gallon, it ought to incorporate a backup standard that addresses greenhouse gases directly, rather than indirectly through fuels with widely varying specific emissions.

I don't imagine for a moment that changing our fuel economy standards along these lines would be easy, politically, but considering the scale of the problems created by the old system, it's worth taking the time to design a new CAFE system properly, especially if it's going to be one of our primary tools for getting oil imports and greenhouse gas emissions under control. Building a new CAFE program along these lines will also send important signals to the market and to consumers, in advance of the enactment of pricing greenhouse gases, via cap-and-trade or a carbon tax.