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President Obama Acts on Higher Fuel Efficiency Standards

January 26th, 2009 . by economistmom

It’s a good thing for our nation’s economy…. Not as good as a carbon tax, because the CAFE standards use coersion rather than incentives and don’t raise badly-needed revenue, but it’s still a good thing–and even for the auto industry itself.  The story:

NEW YORK (CNNMoney.com) — President Obama set his green plan into action Monday, potentially reversing several Bush-era decisions on global warming and fuel efficiency.

In his first major environmental acts as president, Obama directed his Environmental Protection Agency to review a California application to regulate greenhouse gases and told his Department of Transportation to begin implementing fuel efficiency standards passed last year but not implemented by the Bush administration.

He also pushed for passage of the $825 billion economic stimulus package in the House and Senate. Those bills include money for investments in renewable energy, conservation and a better electric grid.

“No single issue is as fundamental to our future as energy,” Obama said at a White House news conference. “It is time for this moment of peril to be turned into one of progress.”…

Under the Clean Air act, California has long sought to tighten its air quality standards.

To achieve those standards, California would likely require cars to emit fewer greenhouse gases. Currently the federal government does not regulate carbon dioxide emissions - the main culprit in greenhouse gases.

The Bush administration recently denied California’s request saying that new federal fuel standards made stricter rules there unnecessary.

Obama said his administration will review that decision. Any change in policy would likely take months to implement.

“Let me be clear: Our goal is not to further burden an already struggling industry; it is to help America’s automakers prepare for the future,” said the president…

Regardless of what California does, Obama also moved to implement higher fuel efficiency standards passed in 2007.

Those increases - the first in more than 30 years - called for raising the average fuel economy from 27.5 miles a gallon for cars and 22 miles a gallon for trucks to 35 miles a gallon for the whole fleet by 2020.

Obama said the increased standards would save 2 million barrels of oil a day.

That’s about 10% of the country’s total oil consumption, and roughly the same amount the country currently imports from the Persian Gulf.

“This rule will be a downpayment on a broader and sustained effort to reduce our dependence on foreign oil,” said the president.

The new standards, originally supported by Bush, were put on hold during his last days in office, in response to the woes facing the auto industry.

The industry has long opposed raising fuel economy standards. It has argued that the new rules are expensive and unnecessary since is already makes fuel efficient cars…

I don’t think we should worry too much about what these higher fuel efficiency standards will do to the auto industry.  (Perhaps my auto industry friends and relatives will want to argue with me on this; I’m not sure.  But by the way, I don’t think the new rules could be both “expensive” and “unnecessary” (nonbinding?)…)  I believe the federal push for greater fuel efficiency will help to steer the automakers’ production more in the direction of where they need to go to be viable businesses (on their own) in the longer term.  (The automakers are given until 2020 to get up to 35 mpg.)  In the short term, the federal loans are the best immediate effort to keep them alive.  What we don’t want is to have our government rescue the industry while enabling “business as usual.”  The combination of the short-term rescue with longer-term “steering” is just one example of how we’ll have to conduct economic policy over the next couple years–assistance, but with (smart) strings attached.  This is what “fiscally-responsible deficit spending” looks like.

But a carbon tax policy (or higher gasoline taxes) would still do better.  For a comparison, see this recent CBO issue brief, and an earlier one.

4 Responses to “President Obama Acts on Higher Fuel Efficiency Standards”

  1. comment number 1 by: James Handley

    Prices work much better than regulations. People need a reason to want more efficient vehicles. SUVs sold (and evaded CAFE standards) because gasoline was so cheap that few cared about fuel cost.

    For more information about the advantages of revenue-neutral carbon taxes, see http://www.carbontax.org. And to send petitions and letters to your members of Congress go to http://www.pricecarbon.org

  2. comment number 2 by: Vicki

    What a waste of time and money!. Both Obama and Clinton jumped right into fixing the global warming problem today, completely out of touch with what is going on in our country. Most of the country is in a deep freeze and it’s the economy stupid!

    Just like the recycling movement, adding 3-4 more diesel trucks on the road while completely distroying our air quality. Now you want emission controls?.

    Quit pandering to the “dark greens” and make some real, effecient and effective changes!

  3. comment number 3 by: Chandra Vikash

    Instead of micromanaging fuel economy for each vehicle manufacturer in every state, the govt. would do much better to focus on the systemic fuel efficiency. This is a change that not only America but the entire world urgently needs today. The good news is that the solutions are available.

    The change primarily is about trying to see the problem from a higher level than the thinking that created them in the first place.

    This can be a win-win both for the commuters - safe bigger vehicles, more leg space, comfortable and luxurious seats running in safe and fuel-efficient speed limits and overall 10X better experience than they enjoy today

    as well as

    for the auto manufacturers - significantly better margins on each car, new opportunities to provide value added services - remote diagnostics and prognostics, annual contracts for maintenance and upgradations - performance, fuel, retrofitting; advanced traveler information, telematics, navigation assistance, emergency response etc. as well as lower cost structure. Even at lower volumes, they will be much better off.

    For the government, the economic stimulus is far more effective if it can focus on the auto industry to make this transition of what William Clay Ford Jr., the present Ford chairman, famously said in 2001 - to move from being “box sellers” to become “mobility service providers.

    What we certainly do not need are the so called smart cars with small, congested seats which most people prefer to or can afford to self-drive, with often empty seats. It’s not only the “smart cars” that are a problem but “the forced driving” in combination with outdated road traffic control systems worldwide which together create the “death traps”.

  4. comment number 4 by: SallyVCrockett

    What this country really needs (and you alluded to) is a revenue-neutral carbon tax. We need to raise the price of carbon-based energy and, by extension, provide powerful incentives for the development of new, climate-friendly technologies.