Obama Raises US Fuel Mileage and Emissions Requirements for 2012

The new rules match California’s desired requirements and will make for a nationwide standard, but our writer asks, “Wouldn’t an increased gas tax do the trick a lot more efficiently?”

By Brendan Moore

04.19.2009

gas-pump-image-smallMost, if not all of you are aware that this increase will be announced today; you know because it was leaked by the Obama administration everywhere yesterday, and it was front-page news in all the major newspapers, internet sites and on television.

And the internet sites of newspapers and auto blogs are filled with comments about the plan to increase the mileage and emissions requirements, with a wide spectrum of viewpoints. There are people that say global warming doesn’t exist, people that say that we have plenty of oil, there are people that say, yes, there is global warming but this will wreck the economy, there are people that say, yes, force those auto companies to make those fuel-efficient cars, it’s about time, there are people espousing their belief that the fabled 100 mpg carburetor or special engine or special fuel injection has existed for years and the auto companies have simply withheld it from the public because they’re in cahoots with the oil companies, etc.

Whew.

Don’t you just love the public?

Just to refresh your memory, the new plan calls for average fuel standards for all new passenger vehicles would rise by 10 miles a gallon over today’s performance to 35.5 miles per gallon between the years of 2012 and 2016. That’s cars and trucks together. But, the new required fuel mileage for trucks is only 24.1 mpg, which is a mere 2.2 mpg over the current standard. The new standard for cars is anywhere from 39 mpg to 41 mpg (depending on whose numbers to believe) – the old standard was 30.2 mpg.

The future vehicles are also expected to put out a combined 30% fewer emissions.

Quickly, what does having two very different mpg standards, one for light trucks and one for cars, mean in the real world?

If you said, “light truck sales will go up”, you get a stuffed animal. And go up they will, unless the price of gasoline also goes up to previous levels of $4.50 USD per gallon. Why? Because Americans generally buy the largest vehicle they can afford, and there is no reason to think that behavior is going to change. Light trucks include pickup trucks and SUVs, and most crossovers.

Adding to the reasons that Americans will buy bigger is that these new fuel-efficient cars will cost much more than the same size cars do now – the technology to increase fuel-efficiency also increases price. The light trucks won’t cost much, if any more – 2.2 mpg increase isn’t a big increase, folks.

To their credit, there are people on those aforementioned blogs advocating an increased federal gas tax. I’m also in that camp; have been for decades. I believe a much higher gas tax is the best solution for the twin problems of increasing fuel efficiency and decreasing emissions.

Why?

Because most Americans are not going to use less gas, buy fuel-effiecient cars, buy electric vehicles, etc. because it’s “the right thing to do”, they’re not going to do something for ideological reasons. Americans tend to react to economic drivers, not moral imperatives. If gasoline costs $5.00 a gallon, I can guarantee that Americans will shun light-use trucks and SUVs as commuter cars, I can guarantee that, in their next car-buying cycle, they will buy smaller cars that get great fuel economy and I can guarantee that they will want hybrids and electric vehicles. I can also guarantee that they will use less gas in whatever vehicle they have now.

I’ve heard over and over again why a gas tax is the work of the devil – how about a contrary view?

Let’s take a look at some of the reasons people are putting forward to justify a raise in the tax. In no particular order of importance, those reasons are:

Our physical safety – In order to buy all of the oil we need, we currently pay huge amounts of money every day to people that regard our nation as satanic and evil. It doesn’t stop there. There are millions of people in a sub-group of this group that would relish the opportunity to kill as many Americans as possible. Every dollar we send to them gives them greater opportunity to exercise savagery against the United States. Less gas consumed means less barrels of oil bought from people who wish to use the money they get to destroy our country.

The increasing budget deficit – As many noted economists have pointed out, we’re going to be in a very bad way as more and more baby boomers retire and start receiving social security and medical benefits. It will be the equivalent of a slow fiscal cancer, wasting away the country’s health bit by bit. We cannot keep doing what we’ve been doing from a tax perspective and expect everything to turn out OK. It is an economic impossibility. Either taxes have to go up, or benefit payouts must be drastically cut. Most economists agree that even a $1 gas tax increase would result in an extra 100 billion dollars annually, thereby providing some measure of relief to future budget shortfalls. If you don’t’ want the extra tax revenues to go there, then you pick a line in the budget – schools, roads, Medicare, whatever.

It’s only fair from a cost perspective – The U.S. federal government has spent and still spends a lot of money ensuring that the oil keeps getting pumped out of various places in the world. This money is spent in the form of wars waged (1991 Iraq War, current war in Iraq, etc.), massive foreign aid to non oil-producing countries that we wouldn’t otherwise care so much about in oil-producing regions (Egypt, Israel, etc.) in order to have an ally and/or influence in those oil-producing regions, and various government subsidies and tax breaks to the oil industry and it’s collection of vendors and suppliers. If all those costs, which are borne by all taxpayers, regardless of their personal consumption of gasoline, were accurately imputed into the costs of gasoline, gasoline would be far more expensive.

Less pollution – Without belaboring the point too much, it cannot be disputed that Mother Nature is allergic to the stuff that comes out of a tailpipe. Less of that bad stuff around helps all of us here on this planet.

Less traffic – Less people driving means the ones left on the road can go faster. This is good, especially from my admittedly biased perspective as an auto enthusiast, but it will also save billions in shipping costs, etc..

It won’t cost as much as you think – As N. Gregory Mankiw, the noted Harvard professor and former chairman of The Council of Economic Advisors, stated in a Wall Street Journal article regarding gas taxes, there is something called tax incidence taught in every freshman tax analysis course. Tax incidence states that every tax cost is shared by both producer and consumer. The short version as it applies to this situation is that as a higher gasoline tax drives down consumption, market demand will subsequently fall, forcing oil prices lower. Just like magic, the actual purchase price of gasoline would increase by less than the tax because the cost of the major ingredient would be decreasing at the same time. More beautiful magic – as a practical matter, oil producers like Iran, Venezuela, Russia, and Kuwait pick up some of the cost of our increased tax gas.

It will produce a long-term solution to our oil addiction – As gasoline becomes more and more expensive, alternative fuels and alternative power modes become progressively more attractive and economically feasible. As a bonus, some of these alternatives are better for the environment, i.e., the Tesla, a very fast, very attractive sports car powered by ion-lithium batteries with a 300 mile range, and built by the Tesla Corporation in Silicon Valley. Too cutting edge? How about the proven technology of a hybrid vehicle?

It helps the auto manufacturers – Crazy talk? No. Reducing the importance of currently onerous regulatory oversight (fuel mileage requirements) by replacing it with market forces and increasing market certainty (American consumers will want fuel-efficient vehicles in ever-increasing numbers) is a dream come true for car companies, particularly the domestic ones. It is an oft-told lie that the domestic manufacturers cannot make any good vehicles except trucks and SUVs; the focus has been on those products in recent years because that’s what a lot of Americans wanted to buy, the vehicles themselves were highly profitable, and frankly, the domestic manufacturers needed the money. This was without a doubt a short-sighted strategy in retrospect, but one that never would have been followed in an environment of steadily rising gas prices with no possible return to cheap gas. With such market certainty, what’s left of the domestic auto manufacturers will quickly embrace production of high-quality fuel-efficient vehicles as well as alternative fuel vehicles. Don’t believe it? Well, when you have a guy like Bob Lutz of General Motors stating a few years ago at the Paris Auto Show that one of the best things that could happen in the U.S. would be a gradual increase in the price of gasoline to the same levels currently in Europe so GM can just get on with the business of making fuel-efficient cars, then you know just how important market certainty is to the automakers. Let’s face it – cheap gas in the US is what made the vehicles made in the US impossible to sell in any other major market in the world, since the vehicles produced in America could only be driven in a place where gasoline was ridiculously cheap. Since most astute people in the car business believe that the U.S. market will look very much like the market in Europe in the future (smaller, more profitable shares of the overall market led by a couple of market leaders), gas prices going up would simply accelerate the ability of Ford, GM, and the new (hopefully improved) Chrysler part of Fiat to focus on the future. By the way, in order to achieve price parity with Europe currently, gas prices in the U.S. would have to increase more than $4 per gallon. Tomorrow.

We can make it tax-neutral – Are you screaming, “No more taxes”? No problem. Since reducing fuel consumption is extremely important to the welfare of the United States, we will offset the tax on gasoline by reducing some other tax, like the income tax rate. Is there any better way to demonstrate just how important reducing fuel consumption is to this country?

So, after all this, you might reasonably say to yourself, “gosh, why isn’t there an active discussion about raising the gas tax”?

Because it is considered political suicide for any elected official to put forth the idea of a gas tax, that’s why. So, instead of something that will actually work, and work quickly, like raising the price of gasoline at the pump, we get government regulations like CAFE, which forces the automakers to make what the government says, but doesn’t force consumers to buy those cars that the government forced the automakers to produce. CAFE is idiotic. It is a flimsy excuse for a solution to a very pressing problem.

Give consumers a reason to burn less gasoline. Make gasoline more expensive then it is, and you’ll see a quick migration towards more fuel-efficient cars. Don’t resort to the federal government forcing the manufacturers to build cars and trucks that meet certain fuel economy standards. Simply raise the gas tax and then let consumers decide for themselves how much they want to pay to drive their vehicle to work, to soccer practice, to the airport, etc.

Just imagine if gasoline costs $5 a gallon in the US. There would be waiting lists for hybrids, for EVs (electric vehicles), small 45 mpg cars, diesel cars, propane-powered cars, etc. Most SUVs and light trucks would disappear from our roads as those vehicles would be used only by businesses and the occasional private citizen. A lot of the large crossovers would also go away as people made good economic decisions about just how much vehicle they actually needed.

And, just for the record, I have no problem with increased emissions requirements, but it may be a moot issue once gasoline consumption falls dramatically.

Will an increase in the federal gasoline tax happen, since it is the logical way to achieve our national goal of reducing gasoline consumption?

C,mon, you and I both know that answer.

COPYRIGHT Autosavant – All Rights Reserved

Author: Brendan Moore

Brendan Moore is a Principal Consultant with Cedar Point Consulting , a management consulting practice based in the Washington, DC area. He also manages Autosavant Consulting, a separate practice within Cedar Point Consulting. where he advises businesses connected to the auto industry. Cedar Point Consulting can be found at http://www.cedarpointconsulting.com.

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23 Comments

  1. Don’t know why I have to pay more for a car. I’d rather pay more for gas cause I hardly drive anywhere anyway.

  2. The clearest explanation for a gas tax that I’ve read, but doesn’t a gas tax increase really hurt poor people?

  3. CAFE is retarded, but I’d rather see govenment funding for alternative fuel technology.

  4. Is there any way to make sure that President Obama and all the other influential power brokers in Washington read this article? Incredibly succinct and well said, Mr. Moore! If we could just get this into the right hands.

  5. Unfortunately, economic analysis show that much of the expected benefits will not occur anywhere near the amount announced or expected.

    Increasing miles per gallon is the same as lowering the price of gasoline. Increasing a cars mpg from 30.2 mpg to 39 mpg means that for every 100 miles driven, the car will use 2.56 gallons instead of 3.31 gallons of gasoline. It is a savings of almost 3/4 gallons or about a 23% savings in fuel and fuel cost.

    Gasoline has two price elasticities. A lower gas price means both more cars on the road, i.e. more traffic, and more miles driven per vehicle. Studies show that a 10 percent decrease in gasoline prices increases traffic by 3 percent and increases driven miles by 6 percent.

    A 23 percent decrease in gas prices (by increasing mpg) means that there will be about 7 percent more cars (.23x.3) on the road and about 14 percent more miles driven per car (.23x.6). In total, it is about a 22 percent increase in miles driven. (107 percent number of cars times 114 percent miles driven).

    Since fuel use, due to new mpg, will decrease by 23 percent but total miles driven will increase by 22 percent. In effect, this change will have no effect on gasoline usage or CO2 emissions. It is strictly a political move to placate parts of the electorate, but it will have no effect on the environment or global warming.

    As fuel becomes cheaper, it total usage increases. It is called the Jevons Paradox and has been known since 1865 when it was studied to explain the increase in coal use in England as steam engines became more efficient.

    Additionally, higher mpg leads to people driver further and therefore willing to live farther from work and shopping. It increases sprawl.

    Since population will increase and GDP will grow in total, production efficiency is a much better way to control CO2 emissions and to drive fuel efficiencies. The relationship between growth and CO2 is known as the Kaya Identity and is used by world organizations concerned about decreasing global energy use and preventing global warming.

  6. Bill, I don’t think it’s a secret that a higher gas tax is the quickest, most efficient way to get people using less gas and buying more fuel efficient cars, but as the article states it is political suicide to suggest a gas tax.

    It’s we the people that are the problem. We want more of everything but we never want to pay for it, because we’re convinced there must be “another way”. So instead of taking a straight forward approach, we get politicians who just regulate the heck out of everything, increasing prices on the back end which, of course, eventually makes its way back to the consumer. But by taking such a circuitous route, everyone can deny responsibility.

  7. What a stupid idea!! Don’t raise taxes on gasoline, eliminate them!

    No more money to our money-sucking government and more money to the people. This “plan” is just thinly-disguised communism.

  8. Outstanding comment, Milton Recht. Great analysis of the situation.

    modern tea party, did you have fun on April 15? I assume you attended a tea party rally. We’re waiting for your comprehensive plan for improving auto emissions and reducing energy consumption. Eliminating the gas tax won’t do that.

    Communism! Socialism!

    By the way, although I feel that CAFE is a stupid idea and that the standards are increasing too rapidly (even if I give the concept the benefit of the doubt), this was probably the best outcome that the automakers could have seen given current realities (regulation-happy administration, politically-weakened administration, memory of 2008 gas price spike, California’s overzealous greenies, etc.) Having two standards would have been a disaster, so I’m glad that the administration chose that course. Obviously, so was the industry, since they didn’t oppose it (at least not publicly).

  9. There is no need to reduce emissions because there is no global warming. It is a hoax on the public from libs using junk science.

    And we have plenty of oil in this country, we just need to drill everywhere the oil is.

  10. Do you volunteer your back yard first for drilling?

    There is global warming; that is not in dispute by all but the most hard-right of the right-wingers. The debate is whether it is caused by human activities or is part of the end of a previous ice age, etc. (as climate periodically changes dramatically).

  11. Americans ridiculed Rick Wagoner as he was ousted from the throne at GM.

    At the same time Americans sing the praises of the brilliance of Allan Mullally over at Ford.

    Shortly before Wagoner left GM he advanced the proposal for increased federal gas taxes. The industry has already thrown a vast amount of its liquidity and taken on huge debt to shift its resources towards development of alternative energy powered vehicles.

    Wagoner posited that a sustainable recovery of the domestic market auto industry and the overall US economy cannot be based the reactionary whim of American consumers whose habits and preferences can vary with the wind.

    Alan Mullally echoed Wagoner’s sentiments. Yet Wagoner gets the axe.

    Go figure.

    Here’s an example of how American’s priorities are topsy turvy. We are willing to sacrifice 100,000s of thousands of lives, including over 4,000 American servicemen and women, to determine the sovereignty of a nation which possesses huge oil deposits. $600 billion we spend every year to sustain a military largely to ensure our continued access to the dominant supply of the planet’s oil. Yet few Americans can bring themselves to accept the alternative of vastly more energy and space efficient modes of personal transport and public transport because it violates our vain and antiquated notions of personal freedom and identity.

  12. Raising the gas tax is the best solution to a problem recognized by (nearly) all. Of course, raising taxes is political suicide, so it won’t happen. And Americans are overly sensitive to even small rises in the price of gas.

    The CAFE system is what created the SUV craze–the only wan you could get a large, powerful vehicle in the late 80’s and early 90’s was to buy a truck or SUV. So, when gas prices retreated in the mid-80’s, that’s exactly what they did. And automakers were happy to build them. The market demanded it. American companies focused much more on them–not surprising given their competitive advantage in the area–but foreign makes followed. At any rate, the popularity of gas-slurping SUVs would have remained limited had gas remained expensive.

    The current proposal will have the same effect. And gas price spikes will have disastrous consequences for the domestic industry, which unlike Asian and European makes, cannot simply grab a home-market model off the shelf to send to America. Big-engined performance cars will likely die, or face a stiff gas guzzler penalty. And because gas prices will remain lower than elsewhere, Americans will be encouraged to drive even more in their more efficient vehicles.

    I laud the goal, but believe that it will not do enough to curb our addiction to oil or cut greenhouse gas emissions. And the effects on the domestic industry will be disastrous.

  13. Yeeah, what a great idea. Just push the gas tax up a few dollars! Great idea,
    genius! Let’s nail all of those idiotic Americans who need to drive a car
    anywhere! They should just live in New York, or Boston, or San Francisco
    with Madame Pelosi where they have all that mass transit, what are they
    thinking?

    Those selfish capitalist pigs, who do they think they are, wanting to drive
    a car! Socialism, communism, liberalism, whatever you call it, a gas tax
    will bring this country to it’s knees.

    I bet you graduated from a liberal college in NYC. Or maybe Berkley. You
    probably worked for ACORN, or some damn community organizer group like the
    Messiah Obama. I say this because YOUR IDEAS ARE STUPID. You are a dumb
    writer and so is anybody else that supports a gas tax, like that idiot with all the figures about the milage requirements.

    I know you’re not a working man with any kind of common sense, that’s for
    sure.

    STUPID, STUPID, STUPID!!! NO MORE TAXES! You want more taxes, you can just
    pay mine if it makes you feel better.

  14. Oppressed Taxpayer has some issues, that’s for sure.

    But he does make a combination of crazy and obnoxious work in his own special way.

    OT, no matter how many times you say it, or how loud you say it, it still doesn’t make your point of view correct.

    I hope you get transferred to New York City, you cretin.

  15. CAFE + tax increase = YES; NOW.

  16. OT, I fear for this country’s future when people like you run their mouths.

    Gas tax, yes, it is the way to go, good post.

  17. BTW “oppressed taxpayer”–assuming you make enough money to even pay federal income taxes–to the extent your spittle-laden vitriol was directed at me, I attended public colleges and universities in Michigan. Where I still live. Near my dad and grandparents. All of whom are GM retirees.

    But perhaps that is merely cover for my nefarious elitist plans for raising top marginal tax rates back to a level lower than during the Reagan administration. Bwahahaha! Next–the soft pillows! And then, the comfy chair!

  18. As a Car Sales Guy, I’m constantly aware of stupid people who absolutely must buy the gargantumobile because “I go on a road trip with the family once a year” but will use it to commute alone the rest of the year.

    People need to focus on the vehicle that meets their needs the Majority of their time, not on the vehicle that meets 5% of their needs. They would save money on cars and on gas.

  19. All well and good as an idea, but you say yoursef it can’t happen because of politics, so a gas tax is therefore just fantasy.

  20. Abolish the gas tax, abolish CAFE, abolish the eco-nazis.

  21. I agree that increasing fuel prices (including FUEL taxes if necessary) is the best way to reduce FUEL consumption.

    However, there needs to be a significant concurrent collection of FUEL FRUGAL vehicles for those that NEED or want them.

    So on 6/01/09 I checked the revised and updated http://www.fueleconomy.gov/feg/advancedSearch.htm
    to see what was available that got 35/35 mpg city/highway in 2009/10.

    There were ONLY seven (7) vehicles: the Prius(2), ’09 Civic Hybrid, ’10 Insight(2), and the ’10 Fusion & Milan Hybrids.

    Of course there is the VW “50 state clean diesels” that do not “make the cut” according to EPA, however, independent testing suggest they do.

    That, however, raises the question of production cost of any “clean 50 state compliant diesel” vehicle.

    As we know, Detroit has claimed the incremental cost for “compliant diesel was very high and it has been inferred that could be well OVER $5,000.

    A friend just informed me that VW’s US “50 state” diesel Jetta TDI only costs about $1,300 more than their comparably equiped gasoline Jetta! Of course with the various incentive programs, the diesel MIGHT BE as much as $3,200 LESS expensive (out of pocket) than its’ gasoline counterpart!

    Does anyone think VW is selling their “50 state” diesels at a loss? I think not!

    By the way, each 45 mpg combined average vehicle put on the road typically saves about 15 barrels of IMPORTED oil per year (assuming annual driving distances remains unchanged) putting about $1,000 per year in IMPORTED OIL COST SAVINGS (at $65 /barrel) back into the US economy.

    That $1,000 injection into the US economy generates (stimulates) roughly $5,000 in economic activity until it is taxed into oblivion … generating $1,000 in tax revenue.

    At least that is the way it looks to me …

  22. The liberals love to talk about history and science created or recreated there way. Anyone who cares to do there own research in science and history can in fact descover real truth without idiological bias as the left wing nuts always do. The left always has an agenda to attack americans (no communist countries) and preserve nature which means there leaders are scaming some anti-american or anti-rich get rich scam and to take power from the people. They typically talk down about mankind (preferably americans) and never about Russians or any other country historically deadly to there own people or reckless to there own environment. Global warming another myth from the corrupt left. Do your own research and goto all four global temperature tracking outlets (Hadley, NASA’s GISS, UAH, RSS) and read the past year global temps have dropped precipitously. China has its coldest winter in 100 years, North America coldest in 50 years, Record levels of antarctic ice, Bagdad sees first snow in all of recorded history. I used to think the left was crazy in the 70’s, ignorant in the 90’s but in the 21st century simply a hateful overdrugged wacko’s that have no interest in truth. There agenda is no different than any other radical group they are against the american people because they have a chip on there shoulders. They are the product of brainwashing no different than the moonies or Jim Jones followers. They choose another way of life but want others to embrace them along there journey to self distruction hoping to take america with them. They should all go to fantasy island where the world will be the way they want it.

  23. Good thing the right wing has no agenda or ideological bias, right TAW? And surely your one-year examples of cold weather are indicative of a trend for a planet that’s 4.5 billion years old. Or is the earth 4,000 years old? I forget.

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