Price of Gas

CAFE and You, Part 1 - the history of CAFE

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This is the first of a multi-part series on the Corporate Average Fuel Economy standard and how it affects American automotive, for good or ill. This part looks at the storied history of CAFE, which was born as a tribute to unintended consequences and continued meddling.

The Corporate Average Fuel Economy (CAFE) standard is a law which requires automakers to produce vehicles that meet a specific standard of fuel economy for a given year. Put simply, if the CAFE requirement is 30mpg, then the fleet sales for an automaker must have a total average miles per gallon of 30 or face fines. On its surface, that is what CAFE does, but digging a little deeper, we see that it does a lot more than just that.

CAFE is responsible for the creation of the SUV and its eventual dominant market position and for the creation of today's crossover, which is now beginning to dominate the marketplace. It's also, inadvertently, the reason that pickup truck sales are high. In this short series of articles, we'll find out why one law of economics, "You cannot change just one thing," holds true and that every action has reactions, many of which will be unintended.

How CAFE Began
The history of CAFE begins in the 1950s as oil begins to become of dominant concern, post World War II. The Cold War fomented many battles where neither antagonist fired a shot, but in which gallons of blood were spilled in the Middle East as East and West fought for control of the oil fields. Eventually, this gave rise to the Organization of Petroleum Exporting Countries (OPEC), as nations split by many ideologies, banded together in an effort to shake off their oil-obsessed masters.

All of the non-U.S. media reportage of the formative years of OPEC show that its member states all had one thing in common: hatred for President Eisenhower's instituted price fixes and controls on imported oil to the U.S. A policy which subsequent administrations continued.

These policies were begun in the U.S. in an effort to stem what one member of Congress called "out of control oil monopolies" (ignoring the obvious faux pas in his statement). So price caps were put on oil and, subsequently, gasoline and other petro-based fuels. Called the Mandatory Oil Import Quota Program (MOIP), at first, this had little affect as the price caps were well above the cost of oil. When OPEC stopped exporting to the U.S. in order to protest our meddling in their countries (and the price fixing monopoly created by MOIP), though, imports almost completely ceased and the price of oil jumped almost overnight. Although oil went from $3/barrel to over $11 in just a few months, then President Nixon refused to suspend price fixing, so oil refineries stopped producing gasoline and other fuels in order to keep from going bankrupt. This, obviously, made fuel a huge commodity and faced with high demand and low supply, fuel reserves quickly ran dry.


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The EPAs mandate was to end dependence on foreign oil? Really, if such was it's intent, it never got anywhere near achieving it.
The original arguments for creating and the original mandate from Congress that ultimately did create the EPA (and then CAFE) were to "end dependence on foreign oil." Back then, "foreign oil" was the boogeyman of the day, whereas today it's "terrorism."