All Cost, No Benefit

May 20, 2009 • Commentary
This article appeared in the USA Today on May 20, 2009.

The Obama administration’s plan to require new passenger vehicles sold in 2016 to get an average of 39 miles per gallon or better (30 mpg or more for SUVs, pickups and minivans) is likely to be all cost and no benefit.

If the proposed fuel efficiency standards were in place today, Edmunds​.com reports that only two cars — the 2010 Toyota Prius (50 mpg) and the 2009 Honda Civic Hybrid (42 mpg) — would meet the standard. Angry environmentalists might thus find themselves key‐​scratching “gas guzzlers” such as the 2009 Honda Fit (31 mpg), the 2009 Mini Cooper (32 mpg) and the 2009 Smart ForTwo (36 mpg).

There is little dispute that, as a consequence, cars would become more expensive and industry profits more scarce. Even the Obama administration concedes that automotive costs would increase by $600 per car on average and that industry revenues would decline by $13 billion to $20 billion a year. Others offer larger figures, but it’s difficult to peg costs with any certainty.

What do we gain by this? Very little.

We wouldn’t reduce our reliance on foreign oil: If we reduced global demand for crude oil, the most expensive‐​to‐​produce oil would go away first, and that oil is not in the Middle East. It’s in North America.

Consumers would not be better off: If gasoline prices remained in today’s neighborhood (that is, near their historical average, adjusted for inflation), the fuel savings from these new hybrids would not offset the higher sticker prices.

Moreover, many consumers would be forced to buy cars they don’t want.

Greenhouse gas emissions might not decline much, if at all. U.S. emissions would likely decline, but reduced U.S. demand for crude would mean reduced global crude prices, which in turn would increase demand for — and consumption of — oil outside the USA. Eventually, most if not all our reductions might be offset by increases elsewhere.

Finally, drivers and passengers would be less safe. Plenty of hard evidence suggests that smaller, lighter cars equal more highway injuries and fatalities.

Reduced fuel consumption is not an end unto itself. It is a means to an end. These means wouldn’t achieve the advertised ends.

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