Government policies are typically sold as intuitively good ideas. We can give everyone access to health care and cut the deficit. We can inject money into the economy to create jobs and beat the recession. We’ll set up a “Consumer Protection Financial Agency” to do what? Protect the consumer, of course. Government mandates and regulations will help Americans save money on electric bills and at gas stations. The “government knows best” mentality spreads through all sectors of the economy. Yesterday, the Environmental Protection Agency (EPA) delivered that very message when it announced new fuel efficiency standards and tailpipe emission limits that will allegedly save consumers money at the pump. This is just the beginning of a long, regulatory path to regulate carbon dioxide emissions:
The Obama administration unveiled a landmark regulation setting fuel efficiency standards and tailpipe emissions limits — a move that will save 1.8 billion barrels of oil and reshape what Americans drive. The 1,469-page joint final regulation from the National Highway Traffic Safety Administration and Environmental Protection Agency sets estimated average fleet-wide fuel economy requirements at 34.1 mpg by 2016. The reason it isn’t 35 mpg is because automakers can use air conditioning improvement credits to meet part of the requirements for the 2012-2016 model years.
The regulation predicts the higher requirements will cost automakers $51.5 billion over five years and add $985 to the price of an average vehicle in 2016. EPA Administrator Lisa Jackson called it a “victory for automakers” and for drivers. Automakers will get certainty as they plan to meet new tough requirements and will meet just one standard for all states. But the government says the total value to society in reduced gasoline use and lower emissions will be about $240 billion, so the net benefit is about $190 billion.”
We’re lucky to have the government looking out for us. But what they forgot to mention were some of the unintended consequences of fuel efficiency standards. Mandating more miles-per-gallon increases the cost of buying a new car and makes them less safe. While the administration acknowledged higher sticker prices for vehicles, they may have underestimated those increases. Last year, President Obama said consumers would be better off paying $1,300 more for a new car because they will save $2,800 through better gas mileage. Jim Kliesch of Union of Concerned Scientists calls these estimates “completely realistic” in an Autoweek.com article, but other estimates place the price hikes at $1,800 for small cars and $8,000 for large pickups. Sandra Stojkovski of See More Systems, which specializes in systems engineering, “projects the sticker of a compact car will go up $1,800 to $2,000. The price of a mid-sized car is likely to increase $4,500 to $6,000, she says. Outfitting a full-sized pickup with a diesel, rather than a gasoline-powered V-8, and other new equipment could cost $9,000.”
Megan McArdle adds, “It will reduce our carbon emissions, but not by as much as advertised, because more fuel efficient cars make driving cheaper, so people will do more of it. This “rebound” effect robs about 25% of gains, and also means more congestion, and more wear-and-tear on roads.”
Consumers have a wide variety of choices when it comes to purchasing a vehicle; clearly, a number of smaller, fuel-efficient cars exist on the market today – including a growing number of hybrid vehicles. But Americans also need larger, safer vehicles for practical reasons: to take their kids to soccer practice, to tow their boat to the shore, or on small farms to haul equipment or produce. At first glance, more miles-per-gallon may sound like a good thing, but not when it obligates consumers to make sacrifices elsewhere. It’ll be fun for soccer moms to explain to their kids why they have to pile into a clown car and hold their bags on their lap while an 18-wheeler rumbles by next to them.