Links on CAFE Standards
May 22nd 2009 12:50
These links lay out the distortions created by Obama's proposed tougher fuel standards.
David Henderson: The Coming Auto Boom
David Henderson: Fuel Economy and Relative Prices
Jerry Taylor: All Cost, No Benefit
His listed costs:
1. Only two cars would meet the new CAFE standards today.
2. Cars would become more expensive (Obama's estimate: $600 per car).
3. The auto industry would see a shrink in profits (Obama's estimate: Revenue declines of $13-$20 billion per year).
4. Reducing U.S. demand for oil would not reduce demand for foreign oil, but rather reduce demand for the most expensive oil, a.k.a. North-American oil.
5. What the consumers save on fuel would not make up for higher price of cars.
6. The standards would force people to buy cars they would not necessarily want.
7. Even assuming the reduction of emissions in the U.S., the cheaper world price of oil from less U.S. demand would lead to a higher quantity demanded of oil internationally. Thus, the overall environmental impact of the CAFE standards is ambiguous.
8. The smaller and lighter cars that would be produced would make drivers less safe.
David Henderson: The Coming Auto Boom
Under the Obama proposal, which is not yet a fait accompli, the new standards would kick in fully in 2016. It is unclear how they would rise between now and 2016 but it must be the case that they would be much less stringent in 2010 than they would be at their peak in 2016. The standards will cause cars to be smaller, less powerful, less safe, and more expensive. So what will consumers, who have shown what they think of these cars, do? I predict that if anything like Obama's standards get implemented, consumers will start buying powerful cars and trucks at a higher rate in the next few years. Watch for the coming auto boom. And then, of course, as the standards tighten, a major auto bust.
One implication is that cars with high fuel-economy will become lower price relative to other cars. The reason: auto companies, to hit their 39 mpg standard, will price low-mileage cars artificially high to discourage "too many" sales of such cars and will price high-mileage cars artificially low to encourage more sales of those cars. What this means is that if you want to buy a Prius and you were planning to buy it in, say, 2011, you might want to wait a few years until Toyota lowers its price later in the decade to hit the target.
Jerry Taylor: All Cost, No Benefit
His listed costs:
1. Only two cars would meet the new CAFE standards today.
2. Cars would become more expensive (Obama's estimate: $600 per car).
3. The auto industry would see a shrink in profits (Obama's estimate: Revenue declines of $13-$20 billion per year).
4. Reducing U.S. demand for oil would not reduce demand for foreign oil, but rather reduce demand for the most expensive oil, a.k.a. North-American oil.
5. What the consumers save on fuel would not make up for higher price of cars.
6. The standards would force people to buy cars they would not necessarily want.
7. Even assuming the reduction of emissions in the U.S., the cheaper world price of oil from less U.S. demand would lead to a higher quantity demanded of oil internationally. Thus, the overall environmental impact of the CAFE standards is ambiguous.
8. The smaller and lighter cars that would be produced would make drivers less safe.
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