Economy, Regs, & Taxes

Fuel Standards Belong in the Junkyard

Paul Albaugh · Mar. 8, 2016

Far too often, government regulations are proven to be costly, ineffective and of no benefit to economic growth — worse, they hamper it. Yet bureaucrats in Washington wield their power to influence markets and industries and for the most part, they get away with it because either too many Americans don’t care or they just don’t know how much these regulations cost.

Take fuel standards for instance. Government regulations on the auto industry and on those who supply the fuel to run those cars have not helped but hurt our nation’s economy. Furthermore, many in Washington have used the agenda of combatting climate change as cause for continuing or implementing more regulations — without any concern for the economic ramifications of doing so.

Of the many regulations foisted upon our economy, one of the most costly is the CAFE (Corporate Average Fuel Economy) standards. In a detailed report, The Heritage Foundation offers some keen insight into the government’s involvement with regulating the fuel standards by which auto manufacturers must abide or pay hefty fines.

For starters, the intent of the federal government regulating fuel standards was to decrease America’s dependence on foreign oil. Good intentions, but the consequences have been staggering. The cost-to-benefit ratio is unreasonable and even if the sole purpose of the CAFE standards were to fight climate change there are miniscule results.

(And it’s worth noting we’ve reduced our dependence on foreign oils by something leftists hate — drilling for our own oil.)

In 2009, the Obama administration implemented regulations required by Congress and as a result raised the CAFE standards by approximately nine miles per gallon through model year 2016. Many economists warned of the costs of regulating fuel standards. Yet despite their warnings, the government opted for regulations. The pervasive argument seems to be if you can’t tax it, regulate it. But regulation is just another form of taxation. The fact that it’s harder for consumers to see is precisely why government likes it so much.

With the increase in CAFE standards, there is a higher cost for consumers. According to several economic scholars, the standards will cost consumers an estimated $3,800 more per new vehicle. On top of that, the average price of a vehicle in the U.S. is about $6,200 above trends in new vehicle purchases in other parts of the world. The rise in costs alone should arguably be enough to scrap the CAFE standards, but the Environmental Protection Agency has stepped in and is now using the fuel standards as a tool to reduce carbon dioxide emissions in an effort to fight climate change.

Obama recently boasted that the change in fuel standards, which mandates that the average fleet of new vehicles meets the 49.6 miles per gallon mark by model year 2025, will reduce global temperatures by a whopping .007 degrees Celsius by the end of 2016. By the year 2100, our great grandchildren should see a decrease in temperature of .018 degrees Celsius. In other words, like nearly every other climate change regulation, the fuel standards won’t make a dent in the overall temperature of our planet. Just ignore the mounting costs and move right along.

There are several unintended consequences of the CAFE standards as well, which essentially counters any reason for making them permanent to fight climate change.

First, there is what is called the “rebound effect.” According to The Heritage Foundation, “When consumers are forced to buy more fuel-efficient vehicles, the cost per mile falls (since their cars use less gas) and they drive more. This offsets part of the fuel economy gain and adds congestion and road repair costs. Similarly, the rising price of new vehicles causes consumers to delay upgrades, leaving older vehicles on the road longer.”

Second, there is a high probability that millions of consumers will be forced out of the new car market altogether simply because people will not be able to afford the higher priced cars due to the fuel standards.

Finally, there is also the probability that the American Big Three automakers — Ford, GM and Chrysler, the latter two of which taxpayers bailed out a few years back — will see their corporate profits decline, while foreign auto manufacturers' corporate profits increase.

Keep in mind that these CAFE standards are not the only hindrance to American consumers. Requiring consumers to pump more ethanol into their fuel tanks is another federal regulation on our transportation that is both hurting consumers and harming the environment.

It’s past time that the government scrapped the fuel standard mandates (among a host of other damaging regulations), but until we have a new administration that values constitutionally limited government, little will be done to change anything for the better. So consider this issue when casting your vote.

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