Obama's Fuel Standards Don't Add Up

September 12, 2012

The Obama administration revealed its new Corporate Average Fuel Economy standards (CAFE), which seeks to raise the fuel standards of cars to 35.5 miles per gallon (mpg) in 2016 and 54.5 mpg in 2025, says Diana Furchtgott-Roth, a senior fellow at the Manhattan Institute.

The new CAFE standards had support, but not without bullying from the White House. The Environmental Protection Agency (EPA), for example, threatened to allow California to set its own mileage standards, which would force auto companies to make two sets of cars: one that met California's standards, one for the rest of the country. Furthermore, the Obama administration's investment in General Motors and Chrysler gave it leverage in forcing companies to improve fuel standards.

On the surface it seems that the new standards will help the average consumer by reducing gas costs. However, a closer look reveals the true impact that the CAFE standards have on consumers and the auto industry.

  • According to the EPA, auto makers would have to spend $51 billion for model years 2012-2016.
  • Those figures increase to a cost of $140 billion to make lighter cars for model years 2017 to 2025.
  • Furthermore, the price of new cars will rise by $4,000 to $11,000 between 2008 and 2025.

Additionally, there are unintended consequences of the CAFE standards that will cause it to fail.

  • For example, the lighter cars will be less safe according to a survey of 1,100 engineers.
  • Moreover, higher vehicle prices will cause people to keep their old cars longer. This means that older cars will have worse fuel standards and the auto industry won't be able to profit off their new models.
  • Also, as new cars are avoided, the price of used cars will increase, which will affect consumers as well.

Rather than relying on the new CAFE standards to increase energy independence, the Obama administration can pursue measures that increase domestic energy production. The United States has vast reserves of oil, coal and natural gas that can be utilized for domestic energy. Even nuclear power offers a viable alternative for domestic energy.

Source: Diana Furchtgott-Roth, "Obama's Fuel Standards Don't Add Up," MarketWatch, August 31, 2012.

 

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