NCPA - National Center for Policy Analysis

Higher CAFE Standards Not the Answer

January 23, 2003

Proponents of stricter Corporate Average Fuel Economy (CAFE) standards, including the authors of a recent National Research Council (NRC) report, claim that increasing CAFE standards is the policy equivalent of a free lunch. According to Andrew N. Kleit, nothing could be further from the truth.

Kleit concludes that higher CAFE standards would reduce consumer welfare and motorist safety, harm the environment and increase the profits of foreign firms. Worst of all, he says, higher fuel economy standards do not save gasoline very effectively.

  • Because pollution from a car is a direct function of the number of miles it is driven and people in more fuel efficient vehicles drive more, the net result from an increase in CAFE standards is an increase in automobile pollutants.
  • Compliance with stricter standards means that automakers lighten their cars -- lighter, smaller cars mean more fatalities from automobile accidents.
  • Increasing the standards by just 3 miles per gallon would cause U.S. automakers to lose about $1.24 billion, while foreign automakers would increase their profits by $260 million.
  • The standards may reduce fuel consumption per mile, but as they lower the per-mile cost of operating a car, drivers have less financial incentive to drive less and increase the overall amount they drive.

If policymakers wish to reduce energy consumption, Kleit says, they should tax gasoline consumption instead. Unfortunately, raising and extending CAFE standards is a politically attractive policy to reduce gasoline consumption's external costs. Because of that attractiveness, there is little debate on the real issues involved in energy consumption.

Source: Andrew N. Kleit, "CAFE Changes, By the Numbers," Regulation, Fall 2003, Cato Institute.

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