Standards Detached From Reality

Last week’s White House announcement of 2025 CAFE standards reinforces the notion that D.C. is 100 square miles surrounded by reality. Two reasons can explain the decision to mandate increased standards before it’s clear what technology would enable auto manufacturers to achieve the existing 2016 target of 35.5 mpg. It either stems from a political agenda or a detachment from reality.

President Obama is facing an unhappy base. Efforts to appease the environmental component of the Democratic Party represent a critical part of his re-election strategy. If not for these political ends, it’s difficult to imagine a scenario in which the administration discusses a new mileage standard until 2016 when facts, not hope, could provide the basis for action.

Those facts include the state of the economy, advances in battery technology, the cost of 35 mpg vehicles, and oil prices. The economy is already experiencing a tough enough time trying to climb out of the recession hole without EPA coming forward with another costly mandate—especially when its current regulations are chilling the investment climate necessary to create jobs.

The obvious question then is why would the manufacturers agree to the new mandate? It boils down to loopholes and timing.

Friday’s proposed regulations provide for reviews on progress and technology. If lack of progress, no battery breakthroughs, and high costs make the new standards seem impractical in the post-2016 timeframe (as they are likely to be), the language offers the industry an off ramp.

Further, a year constitutes the standard timeframe for a major rulemaking. If EPA publishes the proposal by its goal of September 30, the final rule will come out next September. If President Obama does not win re-election (though currently an unlikely outcome), his successor can simply roll back the rule as part of an economic revitalization package.

This represents a cynical view of the proposal. However, cynicism is justified by the reputation of this administration, the history of D.C. politics, and economic and technological realities.

Current economic conditions make an uncertain future even more unpredictable. Studies recently performed on high mileage vehicles—over 50 mpg—show an average price increase of over $6,000. Consumers’ ability to afford and willingness to pay that kind of premium depends on the growth in U.S. per-capita income. Our debt and deficit situation, how it’s resolved, and how well consumers do in reducing their personal debt will play major roles in determining the state of economy beyond 2016. With good fortune, we could be on a growth path of 3% or more or we could resemble Japan’s lost decade.

The National Research Council (NRC) and the Center for Automotive Research (CAR) have recently completed studies dealing with advanced automotive technologies and cost. The NRC concluded that mileage standards beyond 35 mpg would require a large number of electric hybrids and that for electric vehicles to be practical a battery breakthrough would be needed. An earlier NRC study concluded that battery costs would have to be reduced about 75% for EVs to be cost competitive.

CAR’s study looked at a number of scenarios and—like the NRC analysis—concluded that over 50% of the vehicles sold would have to be hybrids to achieve 56mpg and the average cost would be almost $7000.

Over the next decade, unanticipated advances in technology could drive down battery costs and make a 50 mpg vehicle practical for the average American. But if history is any indicator, don’t bet on it. Mileage has improved with advances in engine technology, the use of plastics and composites, and low roll resistant tires. But in making these advances, manufacturers have also reduced the weight of vehicles, including not including spare tires in some models.

According to Investor’s Business Daily, the weight of a Lincoln Continental is now the same as the 1974 Ford Maverick and the lighter cars result in 2,600 additional highway fatalities.

Over seven in 10 Americans live in the suburbs. The preference for suburban living has to do with demographics, family formation, and housing affordability. Where people live influences the type of vehicles that are preferred–full size, cross over, SUV, and pick-up in rural and suburban areas. It is hard to see how those will achieve 50+mpg in the 2025 time frame. That is where gimmicks come into play. If all new vehicles were flexible fuel vehicles (FFV), manufacturers would get credit for higher mileage even if no alternative fuel was consumed. Look for more FFVs.

All of this technology forcing is being driven by reducing oil imports and climate change. By the time we get to 2025, it could be even clearer that the climate change models have grossly over estimated the affects of CO2 and the amount of water vapor in the atmosphere. That is why actual temperature increases have been less than the models have predicted. And oil imports from unstable regions could be reduced by developing our own growing oil reserves.

Instead of using fear to force technology, the Obama Administration should pay heed to the counsel of the 14th century historian, Guiccardini: “… the affairs of the world are subject to so many accidents that seldom do things turn out as even the wisest predicted. Whoever refuses to take advantage of present good for fear of future danger … often discovers to his annoyance and disgrace that he has lost opportunities full of … glory, from dread of dangers which have turned out to be wholly imaginary.”

This article appeared in the National Journal’s Energy & Environment weblog at http://energy.nationaljournal.com/2011/08/sizing-up-obamas-fuel-economy.php#2037761

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