The Obama Administration announced new regulations requiring automakers to sell cars and light trucks which average 54.5 miles per gallon by 2025. This requires cars and light trucks to be twice as fuel-efficient as the current regulations in just 12 years. President Obama has said: “These fuel standards represent the single most important step we’ve ever taken to reduce our dependence on foreign oil.” (The Keystone Pipeline might have reduced dependency even more but that was a step not taken.) In contrast, a spokesperson for Mitt Romney said “Governor Romney opposes the extreme standards that President Obama has imposed, which will limit the choices available to American families.”
The more stringent standards are promoted as a way to reduce the demand for oil. One way to do this is by reducing the demand for cars and driving but Bob King, President of the United Autoworkers, believes the new standards will make it cheaper to drive. He said: “These new standards will help propel the auto industry forward by giving American families long-term relief from volatile fuel prices. Lowering the total cost of driving will make automobiles more affordable and expand the market for new vehicles.” Unfortunately it is quite likely that King is wrong and the more stringent regulations will increase the cost of vehicles and the cost of travel per passenger mile.
Motor vehicles contribute to traffic and air pollution (negative externalities) and use public roads. Sensible policy includes gasoline taxes and vehicle registration fees. It may be appropriate to raise gasoline taxes and vehicle fees if the perceived costs of the negative externalities caused by cars and trucks have increased. It makes little sense, however, to double the fuel efficiency regulations for cars and light trucks by 2025. The new regulations will have unintended consequences, including:
- A shift to the production of smaller vehicles that will make it more difficult for car pooling and result in even more vehicles with only a single passenger on our roads and highways. Higher gas taxes would encourage more car pooling and reduce traffic.
- A delay in purchases of newer and more fuel-efficient (but more expensive) vehicles further increasing the average age of vehicles on the road. Higher gas taxes would encourage people to trade in less efficient cars.
- Drivers will be encouraged to drive more often once they have incurred the fixed cost of buying a new more efficient car. Cars that achieve 54.5 miles per gallon will cause drivers to make more trips and increase traffic and congestion. Higher gas prices cause drivers to economize on the number of trips and reduce traffic.
- A shift to the production of lighter and less safe vehicles. Higher gas taxes make it more expensive to operate larger and heavier vehicles but families who value those features would still be able to purchase larger vehicles.
This is not to say that gas taxes should be raised but rather that higher gas taxes make far more sense than the new regulations which will cause families to delay trading in their older less efficient cars for newer more efficient ones. The new regulations may make it impossible for soccer moms and dads to take their families and friends together in the same vehicle, will reduce car pooling and won’t reduce traffic and congestion. Other than that it is a great idea.