A recent article by Sam Kazman in National Review on CAFE fuel-economy standards made a point I hadn’t seen before. It’s obvious in retrospect, so I’m sure it was already out there and I just missed it. In any case, it’s worthy of notice.
Because of the law of demand, it’s not clear whether CAFE standards actually reduce fuel consumption. Improving fuel economy makes driving cheaper, and making a commodity cheaper causes people to consume more of it. More driving means more fuel used.
So fuel economy has an indeterminate effect on fuel usage. The direct effect reduces usage, but the indirect effect (by encouraging driving) increases it. Which effect is greater depends on the shape of the demand curve. For some people (like me), fuel costs have little effect on driving habits, but for others it has a great effect. Without empirical data, there’s no way to say which dominates.
POSTSCRIPT: An additional knock against CAFE standards is they regulate average fuel economy, when it’s the numerator that policymakers care about. One way that automakers can (and do) meet CAFE standards is by selling cheap, light cars at a loss in order to counterbalance the less fuel-efficient vehicles that are their main business. This improves the average fuel economy, but it does so by putting more cars on the road, which increases fuel usage. When you combine this effect with the previous one, it seems very likely indeed that CAFE standards do nothing to conserve fuel.
And then there’s always the thousands of people killed every year by CAFE standards.
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