CAFE Standards

Last week the Trump administration announced its intent to freeze Corporate Average Fuel Economy standards (CAFE) at 2020 levels. Rules implemented in 2012 under the Obama administration would require a fleet average fuel economy of 54.5 miles per gallon (mpg) by 2025, but the new rule change would instead hold average fuel economy at about 37 mpg.Predictably, the announcement created a flurry of criticism, with theNew York Times editorial board characterizing the plan as reckless in the face of climate change. Much of this criticism misses a key point: CAFE has been repurposed to manage a problem for which it was not designed and is thus a very costly and imperfect remedy.  Enacted after the 1973-74 oil shock, CAFE was a political solution to a political problem: soaring oil prices. The standards were premised on the belief that consumers would not pay more for cars that used less fuel even if the reduced fuel use more than paid for the extra initial cost. Instead, CAFE sought to force automakers to produce higher mileage cars and thereby reduce fuel use despite the supposed myopia of consumers. But subsequenteconomicresearch has shown that consumers were not myopic. Consumers ’ willingness to pay for higher mileage capability approximately equals the expected future fuel cost savings without government intervention.Even though the original rationale for CAFE has been undermined by the evidence, CAFE lives on with a new purpose: climate change. Since the 2007 Supreme Cour...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs