We’re headed off-road in this edition of the Rant to discuss fuel mileage standards. Last Monday, April 2, the EPA rolled back Obama era EPA fuel mileage standards, also known as corporate average fuel economy standards, or CAFE standards. There are many opinions on this, from ACEEE to The Wall Street Journal and thousands of others. I will stick with facts and reality and stay out of that muck.
It would be great if the efficiency in buildings and cost of energy were as transparent as they are for vehicles. I think everyone knows how many gallons of gasoline or diesel their vehicle will take on a fill-up. You can see the cost per gallon at the station.
Tail Wags Dog
The CAFE standards are a sham. Maybe you have read the book, Freakonomics. What I remember from that book is a reverse psychology argument. Per my recollection, they describe campaign cash following success, not leading it. In other words, the candidate with the most cash has the most cash because he or she is the frontrunner. They are not in first because they have the most money.
From the following chart, it is rather obvious that the same theory applies to CAFE standards. Can anyone look at that chart and say the standards are propelling mileage higher? The standards are simply reacting to what consumers are buying, and what they are buying depends on oil prices that set vehicle fuel prices.
We endured a few oil price spikes in the modern era, after 2000. Specifically, gasoline prices shot to near $3.00 per gallon after Katrina shut down a lot of oil production in the Gulf. After that, but just before the 2008 crisis, fuel prices were again extravagantly high in 2007. This is reflected in the chart above where fuel economies ticked up as a result of vehicle choice, not fuel economy improvement. I.e., consumers switched from big pickup trucks and SUVs to cars.
People set price anchors, right? For instance, I go to the grocery store once a week, and I plan to spend $50-75. If it’s more than that, I think, what the hell happened? Oh, I bought that expensive cheese and some other $5-10 items I don’t normally get. Note, when I shop the beer aisle – no anchors! I just tell myself the four packs I’m getting at $3.50 per bottle would be $9 at the bar. The more you spend, the more you save.
I think filling up at the Pump and Munch comes with anchors too. For me, that is $20-30. For others, it might be $60. When they’re seeing the fill-up price drop to $40, damn, it’s time to upgrade to LandCrusher or yuge coal-rolling 4×4.
It’s a pretty sure bet that Figure 1 guy didn’t vote for, or send money, to Hillary.
The Chicken Tax
Just before Scott Pruitt announced the rollback of the Obama CAFEs, Holman Jenkins with The Wall Street Journal inked an interesting article regarding pickup trucks and their exorbitant prices. On the one hand, I’m amazed at the sorts of cars you can get for $30,000. On the other hand, I’m amazed at what people pay for a Ford F-150. Jenkins’ article helps explain why.
Fifty-five years ago, Lyndon Johnson retaliated against European import restrictions on frozen chicken – by taxing the tar out of pickup trucks from Europe. Perhaps you have wondered why there are no Fahrvergnügenesque VW, Mercedes, or Audi pickup trucks in your town. It’s because of the chicken tax. Is it enough to keep F-150 prices north of $40k?
Speaking of anchors, isn’t it interesting that when drivers see their full-tank price drop from $60 to $40, they go out and spend an extra twenty grand on a huge vehicle?
Why do I find myself checking my wallet whenever I hear politicians claim their policy is “good for consumers”? We can assume bills do the opposite of what the claim or name would imply. For instance, “net neutrality” sounds grand, but what it really does is gives power to tech giants to pay off bureaucrats to control bandwidth on the internet. I.e., Netflix, and YouTube (Google(Alphabet)) do not want to pay for their bandwidth-guzzling content. Instead, they want to require internet service providers to reserve space for themselves. It is anything but “neutrality.”
Despite the fact that fuel economy standards follow CAFE, rather than lead CAFE, a standard of 54.5 miles per gallon by 2025 set by the Obama administration in 2012 is an economic unreality. The answer to, “Can we ___?” is almost always yes, if you or the market is willing to pay for it.
My Mini Cooper with a tiny 1.6-liter engine tops out at about 48 mpg under the right conditions: summer driving on two-lane (slower) roads. When it’s barreling into the wind at 80 mph in wintertime, the mileage is closer to 30 mpg. If the tin can Cooper can’t come close, the technology and market are also not close. No mandate will change that.