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Does CAFE Work?

Though imperfect, Corporate Average Fuel Economy standards have made US cars go farther on a gallon of gas.

File 20180405 189821 4h8c16.jpg?ixlib=rb 1.1
Customers line up to buy gasoline in San Jose, California, on March 15, 1974, during an Arab oil embargo. The crisis spurred enactment of the first U.S. vehicle fuel economy standards. AP

U.S. cars are twice as fuel-efficient today as they were 40 years ago. Corporate Average Fuel Economy (CAFE) standards are a major reason why.

These standards are in the news because the Trump administration plans to scale back increases scheduled under President Barack Obama that require automakers to double fuel economy by 2025. U.S. Environmental Protection Agency Administrator Scott Pruitt now says that this standard is too high.

This announcement has rightfully sparked debate – not just about narrow costs and benefits of fuel economy standards, but also over the U.S. role in shaping a global industry that faces a trio of radical transformations via electrification, self-driving cars and ride-sharing.

How have CAFE standards shaped the U.S. auto market? While they are an imperfect tool, these regulations have pushed automakers to greatly increase vehicle fuel economy – and have saved consumers millions of dollars.

Mandatory fuel economy label design adopted in 2011 for gasoline-powered vehicles.
NHTSA/EPA

Saving money and cutting pollution

Before Congress mandated the first CAFE standards in 1975, the average American car got about 13.5 miles per gallon. By 2016, fuel economy had roughly doubled to 25 miles per gallon.

To get a sense of what that means, if Americans kept driving exactly as much as they do today but operated pre-CAFE gas guzzlers, the average U.S. household would spend nearly US$2,000 more on gasoline each year. And annual U.S. carbon dioxide emissions would jump by 1 billion tons. Economists debate how much damage these emissions cause, but conventional estimates peg the cost at $37 billion per year.

Does CAFE deserve credit? Yes, at least partly. Historically, the average fuel economy of vehicles in the U.S. has closely tracked the minimum required by law. Fuel economy was stagnant before CAFE, then increased rapidly in lockstep with the law as CAFE standards phased in over 15 years.

Fuel Standards

The fuel efficiency of U.S.-built cars and light trucks has closely tracked CAFE standards since they were introduced in the 1970s.

 

Source: Data from U.S. Office of Energy Efficiency and Renewable Energy

 

When the standard sat unchanged in the 1990s, average fuel economy flatlined. Technological progress continued, but instead of designing cars that exceeded CAFE standards, auto makers made cars that were bigger and faster and just met the minimum efficiency required by law. This pattern only shifted in the early 2000s, when high gasoline prices drove fuel economy gains even while CAFE was flat.

The ConversationThere are better ways to improve fuel economy. Many economists like me would like to replace CAFE standards with a gasoline tax, or at least pair them with policies that target congestion and accidents. For now, however, as lawmakers debate scaling back CAFE standards, they should remember the important role these regulations have played.

James Sallee View All

James M. Sallee is an Assistant Professor in the Department of Agricultural and Resource Economics at UC Berkeley, a Research Associate of the Energy Institute at Haas, and a Faculty Research Fellow of the National Bureau of Economic Research. He is a public economist who studies topics related to energy, the environment and taxation. Much of his work evaluates policies aimed at mitigating greenhouse gas emissions related to the use of automobiles.

10 thoughts on “Does CAFE Work? Leave a comment

  1. Pingback: Does CAFE Work?
  2. There appears to have been a cover-up of the fact that CAFE kills people – thousands per year and more will die as the standards become stricter! The WSJ quotes 2200 to 3,900 per year from a 1989 Harvard-Brookings study, and up to 2,600 in 2003 from a NAS study. These were when a lenient CAFE level of 27.5 mpg. As an older driver with more brittle bones, etc.,I was attracted to the 4800 lb High-Tech MDX Acura with LKAS, dual stopping systems, etc. Most of the time it runs on three rotating cylinders with 22 mpg city and 30 on the highway. The Prius is a great [subsidized] hybrid but its fatality rate is nearly twice that of the MDX. It is just physics!

    • Safety impacts are an important consideration in CAFE. However, any analysis from 1989 is likely missing important facts because the footprint-based standards now in place sharply curtails the incentive to downsize vehicles to comply with CAFE. Mark Jacobsen has some clever research on the topic, suggesting that the net impact of new footprint-based standards on safety is minimal: https://www.aeaweb.org/articles?id=10.1257/app.5.3.1

  3. Just to play devil’s advocate, do you have any estimates of the cost of CAFE standards? This article only mentions the benefis from unburned gasoline and CO2 not generated.

    • There are many, highly varied, estimates of the costs of CAFE, including some of my own work, as well as government analyses by NHTSA and EPA. Importantly, there are direct costs (adding technology, etc.), as well as interrelated externalities. By inducing increased VMT through rebound, we think CAFE exacerbates congestion and safety externalities. My review article here discusses much of the literature: https://www.annualreviews.org/doi/abs/10.1146/annurev-resource-100815-095220

  4. This is a nice, pragmatic look at a situation that has been debated for years. One thing that strikes me about the relation of CAFE standards to new fleet fuel economy levels is how increases in the standards initially align with higher motor fuel prices.

    Both in the 1970s and again more recently, rising pump prices trigger political support for standards. At least for a few years, the regulatory signal and market signal are in sync. It would be interesting to see if the relative effects of price and regulation can be econometrically parsed now that we have roughly 40 years data spanning two episodes of rapidly rising prices and strengthening of the standards, with periods of moderate or low prices and relatively flat standards in between.

    In any case, it seems that “fuel prices are a fickle friend” for the need to maintain if not indeed increase vehicle efficiency as a way to at least partly address the externalities of motor fuel consumption. No doubt higher fuel taxes (now ideally based on carbon) would help, but at politically plausible levels, the tax would still have to fight market interest in other features as consumer incomes rise over time. I’m not sure what the answer is, but more and better analysis might well help.

    • Always agree that “more and better analysis might help”! Some cross-country comparisons might shed light on the same issue. Higher fuel economy in the EU is not driven by CAFE-style regulation (they did not have one until quite recently), but by higher fuel prices, which were high and (relatively) stable because of taxes.

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