The $114 Billion Bargain
The automakers and the National Highway Traffic Safety Administration (NHTSA) testified about CAFE this week to the House Energy and Commerce Committee. No surprises in their statements.
The surprise came in reactions to a leaked NHTSA analysis of what it would cost to increase CAFE 4% per year between 2010 and 2017. Analysis is probably giving the report more credence than it warrants. NHTSA cost estimates come directly from the automakers, literally. The agency has neither the capacity nor the resources to analyze or question the automakers figures.
So the automakers claim it would cost them $114 billion to meet the higher CAFE proposed for 2017. Detroit News estimates the Big Three’s share would be $85 billion. I guess that ends the debate. Not hardly.
No one is claiming that increasing the CAFE standard is a zero-cost policy. But the automakers seem to be claiming that increasing the CAFE standard is a zero-benefit policy, and that keeping the status quo is a zero-cost policy.
The right way to look at the alleged $114 billion cost is as an investment. Without knowing the monetary value of the benefits the investment would create it is impossible to decide whether $114 billion is too high, too low, or just right.
And it is simply not acceptable to focus on just the costs for just one alternative. All choices—including the choice to do nothing—have costs and benefits that must be estimated and evaluated in a comprehensive analysis.
Doing nothing about fuel economy policy would be to choose the status quo. Without quantifying the externality costs of choosing the status quo (e.g., global warming, climate change, national security, economic vulnerability to fuel spikes), it is impossible to decide between the status quo and raising CAFE (or investment credits, or any of the other policy choices available).