Fuel Economy Goes to Washington

As Congress heads for a show-down over fuel economy standards this week, they should consider the suite of tools at their disposal to influence corporate and household decisions about oil consumption and greenhouse gas emissions. Old familiar mandates that demand specific behaviors and have been successful include:

  • Fuel economy standards (aimed at manufacturers) and speed limits (aimed at drivers).
  • Consumer incentives and disincentives: tax credits for hybrids and taxes for gas guzzlers

These sweet and bitter pills are designed to give consumers a personal financial interest in fuel economy and greenhouse gas emissions reductions beyond what the market alone can provide.

Then there are the carrot and stick approaches:

  • Investment tax credits or retiree healthcare subsidies in exchange for investments in advanced technology providing manufacturers a similar incentive to invest more than they otherwise would.

A well-designed policy ought to include a full complement of instruments to maximize the potential of each. Mandates and incentives. Consumer-targeted and manufacturer-targeted. No single approach is likely to be the entire solution for two important reasons. First, the problems being addressed, oil dependence and global warming, are large and complex, and must be addressed from multiple directions. Second, the effectiveness of any single policy instrument eventually diminishes over time and further progress needs to come from something else. Best to start with multiple instruments than to discover we don’t have them later.

The differing views of the appropriate CAFE standard seemed to be irreconcilable as recently as 2006, but it now appears that a sustained focus on CAFE in recent months will soon result in legislation. It must include a mandated goal to ensure real oil savings, but should include additional tools to be truly productive.

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  • Jerry

    Thats BS the car companies mismanage their business and products and now the tax payers have to subsidize the employee health benefits.
    Cafe is a joke it has more loopholes than a three ring circus.

  • Dan

    the same thing happened in the 70’s with Chrysler. It was mismanaged and you and I as tax payers bailed them out. Now here we go again. Capitalism is dead and here comes socialism.

  • Pablo

    CAFE is a joke distracting our attention because it has “A” for Average. I would replace it with CIFE (“I” for Individual)- Car Individual Fuel Economy, instead of Corporate Average. Then there will be no excuse for the outrageous fuel economy deviations of some cars.
    Mixture of small and big cars on the road is deadly for the people in the small cars; CAFE creates such mixture; CIFE limits the deadly differences and I would add uniform bumper standard.

  • Don

    Capitalism is doing its job by getting rid of dysfuctional organizations. That is the so called big three with their greedy executives and their single anti-patriotic union.

  • David

    The government did NOT bail out Chrysler. The government gave *loan guarantees* so that banks would loan money to Chrysler. Those loans were paid off SEVEN YEARS EARLY. Even the administrative costs of the loan guarantees were paid for by *Chrysler* NOT the taxpayers.

  • Gerald Shields

    (1) Hybrids, particularly ones that can get 35 MPG or over should get the “Hummer” tax breaks. Hummers and other SUVs that have below 20 MPG should be taxed. The crappier the gas mileage, the more it should be taxed.

    (2) Loan guarantees to banks that loan money to automakers and tax breaks should be given to ailing automakers. However, the requirements to get these is: Their entire line of vehicles should average about 40 MPG.

    (3) Auto dealerships should get tax breaks for selling fuel efficient cars and get taxed for selling gas guzzlers.

  • Gerald Shields

    Also, a 50% tax break should be given to someone who buys a microcompact car.

  • AP

    Just roll in a $2/gallon fuel tax increase over 5 years, REFUND that money as a tax credit on income tax. Then who cares how the manufacturers meet the demand for fuel-efficient vehicles?

    You don’t need CAFE, you don’t have to define what cars and trucks are, and you don’t have to watch-dog car-makers. They would respond or die!

  • Randy

    Right on! The Europeans and many others have heavily taxed gasoline for years and it works. European and Japanese cars are much more fuel efficient than the US counterparts. Bogus US manufacturer claims that they can’t make safe, fuel efficient cars are ridiculous in the face of the cars they sell in Europe and many other parts of the world.