Having led and won the fight in the 1960s and ‘70s to reduce air pollution from automobiles, California's road regulators turned their sights on a more ambitious goal: curbing global warming at the tailpipe through fuel-economy standards. But powerful evidence shows that these standards are costly for consumers and have almost no impact on the environment.
The federal government has set fuel economy standards since the 1970s. Back in 2002, California proposed stricter rules for vehicles sold within its borders, and several other states followed suit. Worried that a fractured market would create a headache for automakers, the Bush Administration prevented California from implementing its 2002 law. But in 2007 President Bush signed a bill that effectively took the state's proposal nationwide, mandating a fleet average of 35 miles per gallon by 2020. In 2012—again thanks in part to pressure from California—President Obama raised the bar, mandating that the average reach 36.6 mpg by 2017 and 54.5 mpg by 2025. (Standards rise incrementally before the final deadline.)
Under the national Corporate Average Fuel Economy standard, regulators assess a vehicle's fuel economy on a sliding scale based on size. Regulators impose fines on an automaker if its mix of vehicles does not meet the size-adjusted standards on average. As a result, manufacturers have redesigned their fleets to use much more expensive, lighter engines that burn only a little less fuel.
Before the 2007 CAFE standards were implemented (from 2009 to 2012), three independent teams of economists and engineers estimated the financial impact for car owners. Unlike the Obama administration, which optimistically projected that the strict regulations and fines would save consumers more on gas than they cost to implement, the teams forecasted net per-vehicle consumer costs of $3,800 or more.
The independent analysts were right on the money. My colleague David Kreutzer and I examined actual price trends through Model Year 2015 and found that vehicle prices had risen $6,200 above the pre-2007 trend. Gas savings over the life of a new car might be $2,000, so the net cost is over $4,000.
If the 2025 standards come into effect unaltered, we expect the cost to reach $7,200 or more per vehicle. The gas savings are simply too small to offset the expense of the high-efficiency engines.
But what about the upside? Many Americans are willing to pay for environmental benefits, and maybe $3,800 a car is not too steep for them. But even the Obama administration predicted that CAFE standards will have a negligible effect on global warming. Specifically, the administration estimated that the standards implemented through Model Year 2016 will lower the global temperature by less than two hundredths of a degree by 2100. Using that projection, we can compare costs and benefits. Reducing the global temperature as the administration predicted would create a benefit equal to 0.0065% of world income, according to a widely-used model of climate impact. But CAFE's current cost to American consumers is already 0.054 % of world income, about 8 times larger.
Although California's Clean Cars Standard isn't binding—it was superseded by federal regulation—the legislature should repeal it anyway to send a message that this approach is not working as promised. We were told stricter fuel efficiency standards would help the environment and actually save consumers money. Instead, we're getting a truly tiny C02 benefit (presumably, at least, though it's too small to measure) and massive costs. And, unlike pollution controls, fuel-economy standards are not important to maintaining air quality.
Of course, one particular failure does not mean it's impossible to reduce the overall vehicular contribution to climate change. Rather than trying to make car trips more efficient, governments could help citizens reduce their reliance on long daily commutes.
One smart reform: Better land use policy. Let's take Los Angeles as an example. Despite a strong history of environmentalism and weather that is the envy of the world, the built environment in L.A. makes it unrealistic for most people to walk or bike to work.
Perversely, sprawl is encouraged by environmental review boards and neighborhood preservation campaigns. To allow denser, environmentally conscious construction, Sacramento should repeal the “private right of action” in the California Environmental Quality Act. The provision allows anonymous front groups to tie up construction projects in court, dissuading developers from investing in the first place. Los Angeles should also streamline its permitting processes and write more permissive zoning laws. None of these changes would hurt consumers; all of them would make residents less dependent on cars.
We don't need to pit the environment against prosperity.
Salim Furth is a Research Fellow in Macroeconomics at The Heritage Foundation.