Friday, May 22, 2009

Costly CAFE

It's been forever since we've seen any action here @ C4tR- apparently most of us have day jobs :)

Regardless, I came across this interesting rundown of President Obama's recent push to accelerate the CAFE (Corporate Average Fuel Economy) requirements & what impact it will have on our economy, safety, etc. The author is Kieth Hennessey who helped President Bush formulate the last proposed CAFE increase, so he knows more than a little about the subject.

Of particular note to me is the shift in values focus. In a nut shell, the Presidents proposals provide a net zero benefit to society (see quote below) - and that's even assuming you view "greenhouse gasses" as a threat.

In a nutshell, we sacrificing highway safety, increasing the burden on auto manufacturers during a recession and increasing consumer costs for a net zero gain - again that assumes you believe reduction of greenhouse gasses will actually have any measurable impact on the climate - especially since India, China and other developing nations show no indications of slowing down.

From the article:
2. Rather than maximizing net societal benefits, this proposal raises the standard until (total societal benefits = total societal costs), meaning the net benefits to society are roughly zero. This is not an invalid framework for making a policy decision, but it is unusual. It represents a different value choice.

The NHTSA analyses look at a range of benefits to society, including economic and national security benefits from using less oil, health and environmental benefits from less pollution, and environmental benefits from fewer greeenhouse gas emissions (this is new). They also consider the costs, primarily from requiring more fuel-saving technologies to be included by manufacturers. NHTSA assumes these increased costs are passed on to consumers. More expensive cars mean that fewer cars are sold, which means that fewer auto workers are needed. NHTSA calculates economic costs to car buyers and to society as a whole, and job losses among U.S. auto workers.

A standard rule-making methodology is to look at all the costs to society, and all the benefits, and make them comparable (by converting them into dollar equivalents). You then ask, “What policy will maximize the net benefit to society as a whole, taking into account all costs and benefits?” This is the approach NHTSA used in building the yellow line.

The blue line represents a different approach. (See the TC=TB line on Table VII-6 on page 613 of the NHTSA analysis.) You take the same analysis of costs and benefits, but instead ask, “How much can we increase fuel economy before the costs to society as a whole outweigh the benefits to society as a whole?” This results (in theory) in no net benefit (and no net cost) to society, but allows you to maximize the fuel economy subject to this constraint.

The Obama Administration’s numbers are in line with this latter approach. It’s not wrong. The Obama approach is quite different. It represents a different value choice, in which a higher priority is placed on the benefits of increased fuel economy, and lower priorities are placed on increased costs to car buyers and job loss in the auto industry.

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