Tag: auto makers

Gingrich & Woolsey on Energy

The other day, The Wall Street Journal provided a public service by lambasting Newt Gingrich for his absurd speech to the ethanol lobby in Des Moines last month (money line:  ”Obviously big urban newspapers want to kill it because it’s working, and you wonder, ‘What are their values?’”).  Today, Gingrich and fellow ethanol-maven James Woolsey struck back in those very same pages.  In doing so, Gingrich provided yet more evidence that he’s intellectually unfit for office.

“It is in this country’s long-term best interest,” he said, ”to stop the flow of $1 billion a day overseas.”  Really?  So money sent overseas is gone forever.  News to me.  The only thing you can buy with dollars earned from oil sales to the U.S. is to buy things denominated in dollars or to exchange them so that someone else can.  And we sell a lot of stuff to foreigners that are denominated in dollars (treasury bills for one) and that money comes right back to the good old U.S. of A.

But put that aside.  If Gingrich really believes this, then why not just ban all imports all together?  Is that what the GOP is about these days - rank gooberism on trade?

And one other thing; the U.S. does not spend $1 billion a day on foreign oil.  It spends about half that; $530 million a day (in 2009 anyway).

“[I] co-produced a movie with my wife, Callista, ‘We Have the Power,’ that argued for an ‘all of the above’ energy strategy which would maximize all forms of domestic energy production.”  Apparently, being a pol means that one doesn’t have to pick and choose between investments a, b, or c.  We’ll just mandate everyone invest in everything that can attract a lobbyist. 
When you hear this stuff about an ”all of the above” energy strategy, what you’re hearing is a complaint that the Democrats aren’t subsidizing enough of the energy industry.  They are too tight-fisted with the public purse.  They are not ambitious enough in their planning.  And while Republicans bang the table for more, more, and more handouts to private corporations, liberals like Amory Lovins (prominent left-of-center energy guru) and Carl Pope (former head of the Sierra Club) call for zeroing out everyone’s subsidies and leaving the energy market the heck alone (at least when it comes to this matter).  It’s a mad, mad world.
 
“Nevertheless,” says Gingrich, ”the Journal attempts to equate my career-long commitment to increased American energy production with the anti-energy agenda of President Obama. This is a laughable charge, especially considering I have been one of the most vocal opponents of the president’s energy policies since he took office.”  Perhaps, but on this matter, Gingrich is attacking the administration from the Left.  
 
Even more amusing was James Woolsey’s lecture to the editorial board over what it means to be a conservative.   “We could not help wondering,” he asked along with his co-author, Gal Luft, ”why the Journal, despite its commitment to free enterprise, chose to attack Newt Gingrich for his call to open vehicles to fuel competition, which would cost auto makers under $100 per new car.”  Well Jim, a commitment to free enterprise is a commitment to allow enterprises to be free to produce whatever they want.  Of course, if Woolsey had read Gingrich’s speech to the ethanol lobby, he would not need to wonder - it’s about their sick, twisted values.
 
Nonetheless, Woolsey claims that such a mandate ”is perfectly in line with conservative economic principles.”  That may be true given what conservatives believe about economics.  But it’s not consistent with a principled support for a free market.
 
Finally, “Challenging Mr. Gingrich’s conservative bona fides based on his support for breaking oil’s virtual monopoly over transportation fuel is not only myopic but also the best gift the Journal can give OPEC.”  But … oil dominates the transportation market because it is a heck of a lot cheaper than any other fuel.  If it weren’t so much cheaper than ethanol, then we would have no need for such massive subsidies for the same.  The same goes for electric cars.  If and when that changes, oil’s “monopoly” will crumble.  Until then, taking oil out of transportation markets simply takes cheap fuel out of transportation markets.  It would be fun to watch a Gingrich/Woolsey ticket run on that.

Obama’s Fuel-Economy Standards

If you like driving a big car or SUV, the good news about Obama’s new fuel-economy standards is that they won’t dictate what kind of car you will be able to buy in the future. If you want to buy a 15-mpg SUV, Detroit (or Aichi or Wolfsburg) will be free to make and sell you one.

The bad news is that the standards may make your car more expensive. Corporate Average Fuel Economy (CAFE) standards are actually calculated as the mean of gallons per mile, not miles per gallon. So, as of 2016, for every 15-mpg model made by an auto maker, that company will have to make five models of cars that can go 50 mpg in order for its fleet to meet Obama’s new target. Since bringing each new model to market can cost billions of dollars, if there are not enough people who want to buy those fuel-efficient cars to cover their design costs, the company will have to add a share of those costs to your SUV.

If you want to save energy, the good news is that Obama’s standards are more stringent than those in the Energy Independence and Security Act of 2007 – but not by much. While the 2007 law required new car fleets to average 35 mpg by 2020, Obama’s standard requires fleets to average 35.5 mpg by 2016.

The bad news is that nothing in Obama’s standard guarantees that they will actually save energy. The rule only requires that the mean fuel economy of all models, not all cars, made by a manufacturer meet the 35.5 mpg standard. Not much energy will be saved if gas guzzlers sell well and hybrids don’t.

If gas prices go up, people will buy the fuel-efficient models that auto makers are forced to make – but that would have happened anyway. If gas stays cheap, people will continue to buy fuel-inefficient cars (tempered only by having to pay extra to cover the start-up costs of models no one wants). If you believe that saving energy or reducing dependence on foreign oil is important, then you should prefer a stronger form incentive over this mandate.

The worst-cast scenario is that the new standards increase the cost of buying new cars but don’t save any energy (except to the extent that a few people can’t afford to own a car at all). The best-case scenario is that Obama’s standards result in future auto fleets that are not much different from what a free market would have produced. Considering that Honda and Toyota are now in a price war over their Insight vs. the third-generation Prius, that may be closer to the actual outcome.

The good news is that auto makers readily acquiesced to this standard, partly because they feared something worse but partly because they didn’t think it would cost much. The Obama administration estimates that the added cost of the new standard will be $1,300 per car, but that (if gasoline remains $3 per gallon) it will save drivers $500 per year. That means it could pay for itself in the long run – but only if people actually do buy more fuel-efficient cars.

The debate over the standard reminds me of the debate after Congress gave the Environmental Protection Agency the authority to regulate air quality in 1970. One faction favored of technical solutions to pollution, such as catalytic converters. The other faction argued for behavioral tools aimed at getting people to drive less.

Today, we know the behavioral solutions were a complete failure. Although many cities imposed urban-growth boundaries, built light rail, and implemented various disincentives to driving, not one can say they have reduced per-capita driving by even 1 percent.

On the other hand, the technical solutions were highly successful. Though we drive nearly three times as many miles as in 1970, total automotive air pollution has declined more than 50 percent.

There was a third faction in 1970 whose voice was almost inaudible: economists who argued that incentives would clean the air better than mandates. The mandates that were put in place only acted on new cars, and it took more than a decade (and now takes almost two decades) to turn over the American auto fleet. Properly designed incentives could have acted on all cars and cleaned the air much faster (by, for example, giving people a choice between retrofitting their cars or paying a pollution fee that was dedicated to cleaning up pollution elsewhere).

The lesson libertarians take from this is that incentives are better than mandates. But the point I like to make is that, though incentives might work better than mandates, technical solutions work far better than behavioral ones.

Despite the past failure of behavioral tools, there is a strong movement in the administration and Congress today for more behavioral controls aimed at reducing driving to save energy and greenhouse gas emissions. These behavioral tools will be expensive, they will have costly unintended consequences, and in the end they will do little to protect the environment.

I remain unpersuaded that we need to reduce greenhouse gas emissions. But if there is a political need to do so, we should at least do it in ways that cost little and provide other benefits that will help cover those costs. McKinsey & Company estimates that the United States can meet the most stringent greenhouse gas targets by investing in programs that cost no more than $50 per ton of greenhouse gas abatements. More fuel-efficient cars meet this test, says McKinsey, and will also reduce the emissions of other pollutants such as nitrogen oxides.

Meanwhile, light rail, growth boundaries, and other behavioral tools, if they save energy and reduce greenhouse gases at all, will only do so at costs of tens of thousands of dollars per ton. Though I am far from thrilled about Obama’s new policy, at least it reminds us that, for a relatively low cost, we can significantly reduce energy consumption and various pollution emissions without trying to socially engineer American lifestyles.