Obama and Fuel Efficiency: The Ballad of Sad CAFE

May 20, 2009

Obama with Fords CEO Alan Mulaly

Obama with Ford's CEO Alan Mulaly

It was a sleek, impressive PR operation. Flanked by trade union leaders, auto-industry moguls and state governors (including the Gubernator himself, Arnold Schwarzenegger), Barack Obama yesterday announced what he called “a culture change on climate change.” The car manufacturers would, he told the assembled crowd, submit to new regulations. No longer would American automobiles be regarded as environmental dinosaurs – or oversized jokes – but they would again become the envy of the world.

“For the first time in history,” he intoned, “we have set in motion a national policy aimed at increasing gas mileage and decreasing greenhouse gas pollution for all new trucks and cars sold in the United States.” This would be a great break with White House tradition, a tradition born out of political cowardice, where “Calls for action rise and fall with the price of a barrel of oil” and nothing gets done.

Indeed, Obama adopted a distinctly religious mode of address – preaching that “No longer will we accept the notion that our politics are too small, our nation too divided, our people too weary of broken promises and lost opportunities to take up a historic calling” and that “No longer will we accept anything less than a common effort, made in good faith, to solve our toughest problems.”

But what was the substance of the announcement? Did this represent a genuine break with the old, “small” politics or was this more a case of glitz than grist? Well, the centrepiece is a promise to tighten fuel efficiency standards under the CAFE system, which sets a mandatory miles-per-gallon (mpg) average that companies must meet. Obama will launch a series of increases, taking CAFE from around 25 mpg now, to 35.5 mpg in 2016. The administration believes that this will be the equivalent of taking 58 million cars off the roads or shutting 194 coal power plants. 900 million metric tonnes of greenhouse gas emissions will be avoided, while America’s total emissions will – it has been reported – be decreased by 30 percent.

These are encouraging figures to be sure, and the tightening of CAFE is a long overdue benefit of electing a Democrat administration (although Clinton avoided making any substantive changes during his eight year stint, and allowed the sales of SUV’s to balloon). But there was a huge whiff of ambiguity about the White House event. Why were business leaders so content?

As Fritz Henderson, the CEO of General Motors put it, “Energy security and climate change are national priorities that require federal leadership, and the President’s direction makes sense for the country and the industry.” Ford’s “group vice president for sustainability, environment and safety engineering,” Susan Cischke, expressed her approval of tightening CAFE, telling the Washington Post that “What was so important for us was we had so many different regulations, testing procedures and classes of what we sell” making it “a huge amount of work just to certify the vehicles.” Obama’s tightening of the “national standard gives us the certainty and flexibility we need to meet these tough targets.” Toyota’s James Lentz was reported to have said that “eventually consumers would take fuel efficiency for granted the way they now expect cars to have air bags or stabilizers or anti-lock brakes.”

The auto industry has even set up an advocacy organization to promote the scheme. Called the Auto Alliance, its CEO, Dave McCurdy wrote a snappy op-ed for the Huffington Post about the plans, promising that “The auto industry will do our part to address the problems of climate change” and praising “a great leader in the White House.”

Something’s wrong here. After years of resisting tighter fuel efficiency standards, the auto giants are falling into line and singing the praises of just such a scheme. As is the media, with the Washington Post judging Obama’s move a “needed intervention on the supply side.”

The problem here is twofold. First of all, Obama’s plan comes at a time when the automobile giants are historically weak, and it could have gone further. With the government having rescued several of the major firms, Obama could have forced them to concentrate on fuel efficient vehicles, rather than leaving that job to market forces disciplined (or not) by CAFE standards. He could have turned GM and Chrysler into firms specializing in attractive, extremely fuel efficient passenger cars, and left the SUVs and Hummers to others, such as Ford. In the process, he could have reorganized the firms to downsize their heftty exectuive sectors and advertising, shifting more money to R&D and the workforce.

That didn’t happen. But he could also have opted to go for a fuel tax rather than a tightening of CAFE standards (and could, of course have done both). This isn’t a fringe view. The research group Resources for the Future carried out a study in 2004 of energy efficiency options for the U.S. Its researchers found that “Higher fuel taxes would (strongly) improve welfare by deterring vehicle use and reducing traffic congestion, accidents, and local pollution, in addition to reducing carbon emissions and oil dependence.”

Furthermore, “Studies that compare fuel taxes with CAFE standards find that the latter are far less cost-effective at reducing gasoline, one reason being that, by lowering fuel costs per mile driven, they (slightly) increase, rather than reduce, vehicle use.”

This is the dirty secret of fuel effiency measures that the White House soiree left unsaid. Making machines more efficient does not guarantee that they will be used less. It just makes them cheaper to use, which can lead to them being used more. Emissions might go down per unit, but go up in total, making CAFE standards a blunt policy instrument in the fight against climate change and dependency on insecure energy sources.

RFF argued that fuel efficiency should be pursued, to be sure, but “legislation ideally would specify a suspension of the progressive tightening of fuel economy if carbon or broader energy taxes were phased in down the road.” This is because relying solely on fuel effiency can have other dangerous effects. There would be, RFF argued, “the possibility that action on fuel economy standards might reduce pressure for other, more effective and efficient policies.”

This has been echoed by elements of the mainstream press, for whom the fuel tax is far from outlandish. The Financial Times reacted immediately to this week’s tightening of CAFE standards with a voluble editorial. “Fuel efficiency is a worthy goal. It helps fight global climate change and it promotes energy independence” its editorialist began, “But CAFE is about the worst possible way to pursue it.”

The FT labelled CAFE “a hidden, biased and inefficient tax” and argued that “Mr Obama’s reported plan to raise standards for cars to 39mpg would [only] be warranted if there were no alternative.” But for the FT, there is another option: “introducing a price on fossil fuel, through a carbon tax or a cap-and-trade programme extended to vehicle fuel.”

What has happened is that Barack Obama is seeking to push through the easy option. Taxing fuel in America is hard. It’s potentially unpopular, far more so than in Europe, where the car is a comparitively less important cultural icon and aspect of everyday life. It’s a truism by now that America has become automobile dependent, and its cities utterly so, with sprawling suburbs, rickety bus services and hardly a pavement to be seen. And in a financial crisis, with wages stagnant and job security at a low ebb, heaping more taxes on the everyday lives of Americans will hardly be seen as fair. If gas prices rocket again, which they will, then the situation becomes even more intractable.

As Ezra Klein wrote in the American Prospect back in 2005, “It’s one thing to sneak in a gas tax when fuel is cheap, but convincing Americans of it when they’re demanding a drop in gas prices is not, I think, a sound recipe for political survival” while “On the other hand, 93% of Americans support an increase in CAFE standards.”

So, although he claims to have made a break with “small” politics – Obama’s CAFE gambit is actually a comparitively safe move. Hell, even President Bush mused about tightening CAFE during the recent spike in oil prices. With the chastening of the auto-lobby via the economic crisis, such a move was child’s play.

But the problem for the U.S. and for the world at large, is that Obama’s plans will not make a difference in the fight against climate change. As the RFF report made clear, any emissions saved by making engines more efficient could well be offset by miles travelled increasing. Other, grander, strategies for rebuilding America so that its people are not dependent upon gasoline and the automobile, will probably be pushed aside (mass transit anyone? I thought not.) The easier option, which hands responsibility to the car companies and the market will take precedent until circumstances demand otherwise.

Obama’s plan is also extremely unambitious in global terms. This hasn’t been admitted by the administration, naturally enough, but the American press seem unwilling to discuss it either. But the truth is that even after the CAFE standards have been ratcheted up to 35.5 mpg in 2016, the U.S. will only have reached fuel efficiency levels that other nations reached years ago.

As a 2004 Pew Centre study found, the most stringent fuel efficiency standards are to be found in the European Union and in Japan, while even “The new Chinese standards are more stringent than those in Australia, Canada, California, and the United States.”

As of 2004, the EU’s standard stood at 40 mpg, four mpg higher than the U.S. automobile industry is expected to achieve even after Obama’s heroic tightening efforts. In Japan, meanwhile, they demand 46 mpg from new vehicles. In both places, standards are scheduled to rise in coming years, with the fastest rise slated in the EU – where new cars will have to meet a standard of 51mpg by 2012.

It puts America to shame that it can’t aim to match or surpass its nearest economic rivals, but that is the naked truth. In comparative terms, Obama’s plan does not represent progress so much as treading water in the global race for fuel efficiency.

But what else is there to say about Europe’s lead? Well, the important thing about developments in Europe is that while car manufacturers have been cajoled into signing voluntary agreements with the EU, European citizens have been driving (so to speak) the changes, via tax incentives. Fiscal incentives have meant that the number of diesel fuelled cars on Europe’s roads has increased exponentially, growing from some 14 percent of vehicles in 1990 to 52 percent by 2007.

This is far from a perfect arrangement. It will be tough for Europe to force further increases in efficiency via the diesel route alone, and the EU has adopted an aggressive push for biofuel usage over the next few years. This is an environmental catastrophe in the making, and will hardly result in reduced carbon emissions. And voluntary agreements with the car companies can only go so far. At some stage the corporations will have to foot more of the bill for delivering huge emissions reductions, rather than consumers who do so at present.

But the EU approach is much more successful than the U.S. approach. It’s a case of an almost wholly market based strategy being out-performed by a mixed strategy in which the state influences market choices. In both cases the corporations participating in the market are unchanged. The difference is that the EU has been able to directly influence consumer choices, while the U.S. has signally failed.

Well, that’s not true actually. CAFE allowed the massive expansion of the SUV market in the 1990s by dividing the automobile market up into “passenger cars” and “light trucks.” The automobile giants simply sold light trucks as passenger cars and avoided more stringent efficiency standards. This was the result of government intervention (via CAFE) and government non-intervention (via Bill Clinton and George W. Bush) but we should not be fooled into thinking that the market alone simply delivered what the consumer wanted.

Nonetheless though, the U.S. government hides behind “market forces” as an excuse to do little, and the automobile giants are happy for this to continue. But in both the EU and the U.S. the market itself will have to be disciplined and harnessed skillfully if the challenge of climate change is to be faced down.

There have always been voices calling for CAFE to be tightened, and often much more comprehensively and faster than Obama plans to do. As Ralph Nader argued in 2004, “It is time to update the CAFE standards, improve air pollution requirements and spark competition in the marketplace to stimulate the production of cars with greatly reduced environmental impacts.” Nader wanted “Congress [to] require the CAFE standard be raised to at least 45 mpg for cars and 35 mpg for light trucks, to be phased in over five years” – but of course he was ignored.

Nader once spearheaded a crucial intervention to make American cars safer. His book “Unsafe at any speed” helped to make seatbelts mandatory, saving thousands of lives every year. If you’ll pardon the pun, Obama’s plan should be labelled “UnCAFE at any speed” – we need what it claims to deliver faster and we need much more besides.

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2 Responses to “Obama and Fuel Efficiency: The Ballad of Sad CAFE”

  1. Watson Says:

    I think there are more worthwhile targets. The new CAFE regulations will result in lower carbon emissions. You clearly believe that they do not go far enough and that other measures are required but why not give Obama credit for a step in the right direction? He is not saying that CAFE is the only weapon in his locker for curbing carbon emissions. Some horses will perform without being whipped. Obama could be one such.

  2. szamko Says:

    “The new CAFE regulations will result in lower carbon emissions.”

    Not necessarily so actually. Increasing efficency will result in fewer emissions per mile driven, but may also result in the number of miles being driven increasing.

    I did give Obama some credit for the move to tighten CAFE, but it still leaves the U.S. woefully adrift of Europe and Japan – even the Carter administration back in the 1970s was proposing tightening it to 48 mpg by the mid 1980s. But now we’ll have to wait until 2016 for a revision – which is too late.

    We need action now – and Obama could have delivered much more. I think it’s important to point this out, regardless of what direction he seems to be moving in.

    If we just applaud and pat him on the back, then will he move further? I doubt it.


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