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CAFE and You, Part 2 – Does CAFE Work?

This second part of a 3-part series on the Corporate Average Fuel Economy standard and how it affects American automotive, for good or ill, examines whether the regulations themselves are working as advertised. In government, failure is always an option.

In our last segment, we looked at the history of CAFE and how it was born from unintended consequences and governmental meddling in foreign affairs and markets. The stated purpose of CAFE (and the EPA from which it sprung) in the Energy Policy and Conservation Act of 1975 was to reduce our nation's dependence on foreign oil.

By any accounting on that standard alone, CAFE has failed miserably. Neither the Environmental Protection Agency nor the CAFE requirements have reduced our import of foreign petroleum. Our importation has increased thousands of times over what it was in the late 1960's and early 70's before OPEC and the oil crisis.

Today, we think of CAFE as the standard that requires automakers to produce more fuel efficient vehicles. By that measure, these regulations are a hit-and-miss success. Most measures, usually based on numbers given by the EPA (whose interest would very obviously be in showing itself to be useful), show that economy has improved greatly thanks to regulators forcing higher miles per gallon requirements on automakers.

CAFE Is Largely a Failure
The truth regarding how successful CAFE has been in reducing fuel economy is much less black and white than the EPA may wish you to believe. In New-vehicle characteristics and the cost of the Corporate Average Fuel Economy standard published by the RAND Journal of Economics (V.43, No.1, Spring 2012), Klier and Linn chart fuel economy gains vs. various market factors including CAFE from 1975 to 2008.


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Now fuel economy is improving, but I remember a story about how the weight gains of the 70s were eaten up by the new safety technology of the 80's and 90's along with stability and traction systems, improved braking, airbags systems and so on. Now innovation is rampant and progress is ubiquitous. Isn't this a function of the Obama increases in the CAFE requirements? And if the EPA was entirely about oil, were all the Superfund sites just smoke and mirrors?
If you read the above, you'll see the answer to these questions. The innovation happening now is largely a product of delays for the past three decades as automakers pushed to get higher economy to meet regs and ignored other tech until the efficiency goals were first met. The chart I referenced showed the weight loss of cars was very significant and the gains have only been about 2/3 of the losses, meaning we still have a net weight loss in the average vehicle. The 2007 addition to CAFE and Obama's modifications (covered in the not-yet-published 3rd part of this series) actually does little to change what was already on its way other than to speed it to market by forcing faster development. That might sound great, until you realize that it adds (by Obama's own estimates) $1,300 to the cost of the average car and will likely have unforeseen safety and performance implications. Given that the MPG improvements were going to happen anyway, the raise in regs appears to be more about politics than anything else. The EPA was ORIGINALLY all about getting us off foreign oil. Like all bureaucracies, the scope of its mandate changed as it grew.
CAFE is just more government control over another part of the market so they cn pretend they are doing something to help us when all they are doing is creating more control for themselves.