We’re from the government and we’re here to help

Imagine you are in the market for a new light truck.  Let’s say it’s a new Ford Explorer.  You go to your favorite Ford dealer and the helpful salesperson tells you that she has two 2011 Explorers with identical performance and features.  One of these cars costs $2000 more and gets 49.6 mpg, the other gets 27.5 mpg.  You are the type of driver who buys a new car with cash every 10-12 years and drives it into the ground.  So you do some quick calculations using a 7% discount rate and figure that you will save nearly $5,200 in gasoline over the life of the car.  That’s a net gain of $3,200 over the life of the car.  Moreover, you will recoup your additional expenses in the first four years of ownership.  Your friend who is shopping with you, finances all of his vehicles. But you run the calculations for him and discover that even if he finances the car over 60 months, he will save $12 per month during the loan period.

If this deal sounds good to you, you are in luck.  This is exactly the deal that the National Highway Traffic Safety Administration (NHTSA) and the Environmental Protection Agency (EPA) claim to be offering in their newly proposed regulation for increased fuel efficiency standards, laboriously titled “2017 and Later Model Year Light-Duty Vehicle Greenhouse Gas Emissions and Corporate Average Fuel Economy Standards” [FactSheet, Full Notice of Proposed Rulemaking (800+ pages)].

The goal of the proposed NHTSA rule is to increase the average industry fleet-wide fuel economy for cars and light trucks to 40.1 mpg by 2021 and to 49.6 mpg by 2025.  The simultaneous rule by EPA, which is based off the fuel economy standards proposed by NHTSA, limits greenhouse gas emissions from vehicles to 163 grams per mile (g/m) by 2025.  The claim is that these standards can be met and in so doing, consumers will actually save an average of $3,200 per vehicle over the life of a new car.  We are from the government and we are here to help!

There is a lot of flexibility built into this rule.  There are options to earn credits for over-compliance, which can both be carried forward (banking) and carried back (borrowing).  There are allowances for credit transfer between cars and light trucks and even credit trading across manufacturers.  There is also plenty of flexibility built into the GHG standards allowing for credits for air-conditioning improvements, off-cycle improvements, an electric vehicle multiplier, and credits for hybridization of full size trucks.  All of these sources of regulatory flexibility should lower the costs of attaining the standard and allow each manufacturer to attain the standard in a cost-effective way given its fleet.

Still, the presentation of benefits and costs suggests a free lunch.  Actually, a lunch that you are paid $3,200 to eat.  Even with all of these cost-lowering flexibility measures, this seems hard to swallow.  And it should be, because it is wrong.

To see why the costs are much higher than the analysis suggest, image you are back at the Ford dealer.  The salesperson presents a new 2011 Explorer, which gets 27.5 mpg and tells you that this car retails for $22,000.  Then she shows you a 1997 model-year Ford Explorer that has never been driven or owned (the odometer reads 0), but this 1997 Explorer has been tweaked to get 49.6 mpg.  She’ll sell you this modified 1997 model Explorer for $24,000.  What do you choose?  Many of you will get the 2011 model with the worse gas mileage.  Some of you might buy the 1997 model car with the better gas mileage, but clearly your cost is not just $2000.  It’s the monetary costs ($2,000) plus the difference in performance/features between the 1997 and the 2011 model.

What the benefit-cost analysis conducted by NHTSA and EPA says is that by 2025 the car manufactures can produce a car that has the same performance as 2011 cars on the market today, but gets double the gas mileage.  This car will cost $2,000 more than cars sold today.  But nobody expects that absent this regulation 2025 models will perform like 2011 models.  We expect innovation in performance, features, safety, etc.  The real cost of the regulation is how much of this we will give up between now and 2025 in order to get a doubling of the fuel economy of vehicles.

I have blogged before about my frustration that the right insists that all regulation is job-killing.  But I’m equally frustrated when the left insists that regulations are costless. Maybe doubling fuel economy is a good idea.  Maybe the benefits to us of reduced carbon emissions, reduced oil consumption, increased national security, are worth trading off more horsepower, torque, or other features.  Maybe not.  But that is what a benefit-cost analysis should be helping us decide.   We want jobs, economic growth, clean air, clean water, good schools, etc.  The challenge is how to balance out those competing desires with our limited resources.  It may not be a great sound bite, but it is the truth.

1997 Ford Explorer

2011 Ford Explorer

34 Comments

  1. When analyzing costs and benefits in this blog, it is assumed that except for the attribute of doubling mpg, the model cars produced by 2025 will have the same performances in all other aspects as cars produced by 2011. If this is the case, consumers will probably prefer cars with less mpg but better performances in all other aspects. However, with spillover and learning-by-doing, I guess the more gas-efficient car models will adopt other new technologies to enhance performances close to the same level of their generation. Thus, it might be easier for 2025 purchasers to compare among cars out of their calculations of gas savings, with smaller gap in other aspects.
    I speculate that current economical automakers will welcome and support this standards, cuz they will probably achieve the same standards of fuel efficiency with less costs, and then gain price advantages in the future. The fuel economy standards might finally help certain automakers gain competitiveness in the industry.

  2. I’m going to be the first to steal a page from Jim Salzman’s class and ask: is this EPA regulation requiring that manufacturers increase the AVERAGE industry fleet-wide fuel economy for cars and light trucks? Because if so, it will most probably (at least in the short term) result in, for example, most of these cars being shipped to California (where people are more likely to buy the cars that are better for Mother Earth, even at a higher price tag), which gives them more leeway to sell the cheaper to produce less efficient cars elsewhere.

    Even setting that aside, though, I feel bad for the EPA. It seems like they can’t seem to catch a break when it comes to their analyses.

  3. Courtney Kutchins

    November 22, 2011 at 1:25 pm

    There was a spot on NPR this morning about the future of the hybrid vehicle market. Apparently some form of a hybrid car was invented in 1916, but it didn’t take off because of the price tag. 80 years later, we see the Prius and other hybrid vehicles hit the mainstream market. While people are more willing to buy hybrid cars now, many people are still discouraged by the price tag relative to cars that get lower gas mileage. While I support government efforts to encourage innovation in the auto industry, I agree that they are making the wrong argument to consumers.

    What really miffs me is that the discussion (from what I can tell) doesn’t include anything about insurance rates. When consumers make decisions about which car to buy, they also compare insurance rates between vehicles.The insurance premium for a $15k 2012 40+mpg Hyundai Accent is almost double that of a typical SUV. Any savings gained from buying and owning the small fuel-efficient car is siphoned off to insurance companies. I can’t point to a government solution to this problem. But if government is going to REALLY try to get consumers to buy their argument that fuel-efficient cars will be cheaper in the long run than non-fuel efficient cars, they need to address the insurance trade-off.

    As an eco-concerned driver, what would you rather pay for? Insurance or gas? And does anybody know something about the range of insurance premiums for hybrids?

    • I read an article last year (sorry, can’t find it anymore…) that said at first insurance rates for the Prius were low because the early adopters were mostly carbon-conscious folks who didn’t drive much – less driving means a lower accident rate, leading to lower premiums. However, now that the Prius is more mainstream (Toyota’s 3rd most popular vehicle in its whole fleet), the accident rate is approaching that of traditional vehicles, leading to increases in insurance premiums. In fact, some project that the insurance premiums for Priuses and other hybrids will climb faster than traditional cars, because people are opting to take their high-mileage hybrid on long trips. More miles driven means higher premiums.

    • I drive a Prius, and my premiums are pretty low. They didn’t go up at all when I traded in my previous non-hybrid Toyota in 2010.

  4. One of the problems you discuss is performance in exchange for fuel efficiency. It is assumed that one comes at the cost of the other. While this may be true, do we really need the power and the features that exists in many cars today? The answer is probably not.

    I remember growing up in Sacramento and being stunned by the number of individuals who were purchasing massive four wheel drive Hummers to commute to and from work. Having spent the last five years living in the Sierra Nevada mountains, I understand the value of having four wheel or all wheel drive. If you are regularly going off road or have to frequently drive in major snow storms, both make sense. But even the worst snow storms can be safely endured with snow tires, chains, smart driving, and a general attention to the forecast. And really, how often does the average city dweller really NEED to go off road in an environment that requires four wheel drive? Usually not very often.

    This argument also applies to high performance cars. We live in the United States, not Germany–we are not swimming in autobahns with no speed limits. So then why do we need cars that go from 0-60 in five seconds or less and have a top speed of over 120mph? Or trucks with massive towing capacity when many people haven’t towed a single thing in their life? With the exception of perhaps police cars and real working vehicles we just don’t need the horsepower and the torque. Yeah going fast or knowing you can pull stuff is nice and convenient, but what percentage of the population actually NEEDS this power for legitimate reasons? I argue that the answer is substantially less than the percentage of the population that owns such vehicles.

    Yet as gas prices climb, the value we place on such unnecessary performance features will likely be eclipsed by the value we place on fuel efficiency. It is just another tradeoff. Although this regulation doesn’t specifically address this issue (and it should), it is possible that this regulation will simply incorporate previously ignored negative externalities of our vehicle consumption decisions.

  5. I’d like to piggy back off of what Rachel said and ask – why is it assumed that fuel economy improvements of vehicles and innovation in performance, features, and safety are mutually exclusive? Certainly, I can see how more time and expertise might have to be diverted to comply with the new regulations, but it seems unlikely that a company would stop improving the performance and aesthetic and safety of their models.

    Because of the inherent flexibility in this policy (with banking and borrowing of permits allowed), it is likely that different companies will be making changes to their models during different times. Not all of them will focus their money and research on fuel economy improvements all at once. As a result, to stay competitive from year-to-year, companies must continue to improve all vehicle performance parameters. Additionally, as new methods are developed and (depending on patents or other complications) resulting products become available in the market place, it is likely that new expertise and technology would lower the cost of complying the the EPA mandate. This may also serve to make performance upgrades AND fuel efficiency changes attainable simultaneously.

  6. I agree that the argument is flawed. However the cost savings from buying a car with reduced gas mileage never gets very far with me anyways. For example say you buy a car every ten years. If you buy a car that is okay, but not really what you want you can save $3200 over the lifetime of the car. Now the salesman tells you that for just $27 more a month you can buy the car that you really want. I think most people jump on the second deal. You are already spending $20-40 thousand on something you will want to enjoy every day. What is another $27 a month? The problem with the cost savings argument is that most new SUV buyers really CAN afford $3-4 gas.

    Why do people choose the car that they eventually end up buying? Because it is cool? Because it is eco-friendly? Because their favorite superhero drives one? Because it has lots of cup holders? Who knows? Car buying is an emotional decision and I’m not a big believer in shaming people into doing what someone else feels is the right thing.

    There is a reason agencies fall under the Executive branch. If the government wants to raise fuel standards, than it should just do so. The focus should not be on the cost to the individual consumer but in trying to alleviate the burden on the car manufacturers, which is sounds like the NHTSA is trying to address.

  7. Where I come from, rural North Carolina, big trucks and fast cars are a status symbol in a way. There was mention above that torque, horsepower, payload are things that people probably don’t need. This might be true, but when is isn’t about a need it’s about a want. The vast majority of songs these people listen to on the radio mention a truck or a mustang. It is ingrained in them. NASCAR was born here, people live for cars here. I am really interested in how this plays out. Other than costs I think fuel efficiency is something that the average SUV or truck owner isn’t concerned with. How could they be? They might not even believe in global warming. I don’t see trade-offs between performance and features for fuel efficiency going over that great. It is hard to imagine the large truck and SUV market going away. People will still want to tow their horses to Uwharrie National Forest, they will still want to tow their bass boat to Jordan Lake, they’ll still want to tow their mustang with their diesel F250 to the drag strip. I think it will take a fundamental shift in a mindset, at least around here, to get people to even consider thinking about this on a critical level. The balancing act mentioned at the end of the post can seem so impossible at times, it’s so polarized.

  8. It is true that people always expect innovation in performance, features, safety. However, in choosing between performance and gas mileage, the situation will be more complex. The final decision depends on what is the initial demand of the buys and how he weighted different features of a new car. In the discuss, the difference of permance of cars are defined as huge as 1997 and 2011. It, in my opinion, exaggerate the performance difference. In the vehicle industry, now, most of them are actually facing the bottleneck of making major innovation in car’s feature. What’s more, the trend is,based on the Concept Auto Show, vehicle manufacturers are introduing green energy cars like the electronic powed vehicles. So, the car manufacturers are not passively adopt the regulation but somewhat, they might take it as a chance of bring new technology inovation. The car market is very robust and the competency among different car manufacturers is fierce, so they will try their their best to make their car enviromentally friendly and also balance the perfarmance of it.

  9. I think Jonathan’s anecdote above pretty much says it all, as far as what we “need” in a vehicle, vs. what we expect or desire. I’d venture a guess that the vast majority of people who buy Ford Explorers, or F-150s, or Chevy Tahoes, do it because it’s the car that makes them feel good, it’s a status symbol, and it’s what their friends are driving (not to mention how manly it makes you feel). Torque and horsepower and payload make you feel better about your vehicle, but for most people, the torque and horsepower and payload of the 1997 F-150 is perfectly adequate for their “needs” (or in this case, desires).

    Yes, of course there are contractors and plumbers and ranchers out there that truly require big pickups to do their jobs, but what percentage of F-150 buyers do they represent? Realistically, a small percentage. Safety standards are of course a legitimate concern but I haven’t read anywhere how increasing fuel standards will negatively impact safety in vehicles.

    The way I see it, we either pay now, or we pay later. That is, we pay now, in the form of lowered standards for torque and horsepower on our oversized pickups and SUVs, or we pay later in the form of increased drought, loss of biodiversity, sea level rise, desertification, and so on. I’ll take the former!

  10. Like Jonathan, I too am from a rural area. Though a significant number of truck/SUV owners in my hometown don’t need those vehicles for their intended purpose, a greater number do. This is due to the prevalence of part-time farming and small businesses based on manual labor, as well as the mountainous terrain. I do not see most of these people being sold on greater gas mileage. Like many polarizing environmental issues, this one could benefit from a marketing scheme that convinces the skeptics.

  11. Marc Monbouquette

    November 27, 2011 at 3:11 pm

    On the surface, a jump from the Model Year (MY) 2007 CAFE standard for light trucks of 22.2 mpg (http://www.nhtsa.gov/staticfiles/rulemaking/pdf/cafe/CAFE_2012-2016_FRIA_04012010.pdf) to 49.1 mpg by MY 2025 seems extreme. A more than DOUBLING of fuel economy standards for a category that includes gas-guzzlers like Excursions and Escalades within 17 years?? You’ve got to be kidding!

    Well, just like the article, this scenario does not quite describe the reality of the case. As briefly mentioned in the article, CAFE stands for Corporate Average Fuel Economy, which means that a car manufacturer must achieve that minimum AVERAGE fuel economy across its entire fleet of light trucks. It does not mean that every single light truck produced must have at least an mpg of 49.1 mpg by MY 2025. As such, the comparison between two models of trucks with widely different fuel economies isn’t quite accurate, because the $2,000 increase in purchasing costs and the $3,200 decrease in fuel costs are calculated as averages across the entire fleet–not just for two models. In reality, the increased purchasing costs and decreased fuel costs would be much greater than the figures given if you were comparing two models with a 22.1 mpg difference in fuel economy.

    Furthermore, something else that is briefly mentioned but is somewhat obfuscated by the comparison between Ford Explorers is that whereas the original scheme of setting CAFE standards under the Energy Policy and Conservation Act of 1975 distinguished between standards for passenger cars and light trucks, the Energy Independence and Security Act of 2007 bypassed this by setting forth a standard of 35 mpg for both cars AND trucks by 2020. NHTSA has gone above and beyond the statutory minimum by requiring 40.1 mpg by 2021 and 49.6 mpg by 2025, but it is again a bit facetious to be talking about Ford Explorers reaching 49.6 mpg when this minimum, fleet-wide average includes hybrids and electric cars.

    Sorry, these two paragraphs were a bit nit-picky, but I find it a easier to have these conversations on exact terms.

    In any case, you’re right that the published costs simply deal with differences in fuel and materials, but when you rue the fact that the left doesn’t admit that regulation entails costs, is one able to couple private costs with public benefits when doing cost-benefit analysis? Maybe when you calculate aggregate private cost, or deadweight loss to society. But if this can be included in the C/B analysis then I see the aggregate private benefit being $3,200 on average, seeing that the loss of performance and safety will be canceled out by less polluted air and less extreme climatic effects. Or is one not allowed to include these public benefits?

    Personally, I feel that CAFE standards are supposed to encourage smaller, lighter cars, and I could care less if the price of Escalades go through the roof because Cadillac won’t be able to find a large market segment for them while still remaining in compliance. (Don’t tell Fox News I said that.)

  12. I am the type of driver that has a car for 10-12 years and then gets a new one. In fact, I just switched from driving a 1994 Jeep Wrangler to a 2011 Volkswagen Golf TDI. The reason I switched (besides the fact that the ‘ole Jeep was dying) was that I was tired of getting horrible gas mileage. The fact that this regulation might possibly get cars better gas mileage is awesome; however, like you said there are costs associated with that regulation. I do believe that, with innovation in the auto industry, light-duty greenhouse gas emissions will decrease in the future and that their mileage will increase. Although, without a regulation such as the one proposed I doubt they will double by 2025. While regulation does have costs associated with it, it also has a force-factor to drive innovation.

  13. I appreciate the arguments made in the original post as well as many of the comments. A handful of years ago I was in the market for a new car, which for me is usually a used car which I keep for 10-12 years. (I like Japanese cars so buying a used car that has been well cared for prior to my purchase and driving it for that long, is not a crazy notion). I was interested in getting a more fuel-efficient car and was looking forward to feeling really good about saving money while saving the environment. At the time, the only real contender in the used car market was a Honda Insight (http://autos.msn.com/research/vip/overview.aspx?year=2003&make=Honda&model=Insight). I drove quite a distance to test drive one that I thought I might buy on the spot since I was so in love with the concept. After test driving the Insight, however, I had to scratch it off my list of cars I would consider owning. I could deal with the lack of get-up-and-go, this was a green car after all. What I could not handle was the incredibly loud road noise and the fact that it felt like I was driving a tin can. I’m sure newer models have improved on this problem, but for that car it was a deal-breaker for me and I was very surprised to take the Insight off my list of potential options. At the time I didn’t really see the situation as the greener option being costly in some way, but it was: I was not willing to pay the cost of poor sound insulation in order to be a more environmentally conscious driver.

    Fast forward a few years to when I was living in Santa Cruz, California and had the opportunity to talk with someone on a regular basis who works part-time for Tesla, the California manufacturer of 100% electric vehicles (http://www.teslamotors.com/). Anyone who is familiar with Teslas will tell you that these environmentally forward thinking cars do not compromise on performance – if performance is getting from 0 to 60 mph in 3.7 seconds. Because the engine is an AC induction motor with a single speed gear box instead of a gasoline-powered internal combustion engine with multiple gears, the get-up-and-go starts from the get-go. Having driven a friend’s performance roadster, I can see why high-performance cars are appealing – they are incredibly fun to drive. You can’t wait to get into the car so you can drive it.

    That said, do I need a high-performance car for the type of driving I routinely do? Absolutely not. I agree with Rachel that many car owners, especially in metropolitan areas, are not likely to need all of the features and performance that their cars provide, be they SUVs or high-performance speed machines. I also agree with Jon and Kelly: in the more rural areas I’ve been in, having an SUV is essential from a practical standpoint as well as a social perspective. In fact, I currently own a Honda CRV and make full use of its carrying capacity on a fairly regular basis. So where does that leave me on the performance vs. environmentally beneficial debate? It has me looking toward emerging technologies like the Tesla. Yes, the limited number of charging stations for electric vehicles is an issue/cost. Yes, the longish (4 to 6 hour) charging time can be unappealing and is for some, an undesirable cost. However the possibility of zero emissions and fabulous performance (in a roadster kind of a way) has me rethinking what type of car I might want to purchase in the future. It will be interesting to see how my benefit-cost analysis plays out when it is time for my next car since Teslas do not come cheap (and I haven’t won the lottery yet). But if I do consider buying a Tesla, it is good to know that website (https://www.teslamotors.com/own) assures me that “WE’RE HERE TO HELP.”

  14. I agree that vehicles are very much a status symbol in our society. This isn’t a new concept – listen to a Beach Boys album – but the type of car has chaned over the years. These days, bigger is better.
    The most shocking example I’ve witnessed was post Hurricane Katrina in New Orleans. When FEMA money was distributed, some residents used those funds improperly and used the funds to buy new luxury SUVs. [See: http://www.theledger.com/article/20090809/NEWS/908095011%5D I can’t begin to describe the shock that you feel when you’re standing in a demolished, water-logged neighborhood, and you see a former resident drive by in a new Escalade. It was the clearest example of a person’s priorities – status over utility. Fancy car over repairs to your house; status-worthy car over what you actually need. Our society needs to better balance its priorities: most of us say we want clean air and water, but not everyone is willing to look ‘uncool’ to get there. While the government has honorable intentions on its regulations [providing essential storm repairs, creating fuel-efficient vehicles], there’s no controlling what society deems popular. Until everyone is on the same page that it’s cool to be green, the regulations likely won’t have their intended impact.

  15. How do we choose between performance and fuel efficiency when buying a car? This blog has triggered my thought about this question. As I’ve been considering buying a used these days, I have some personal experience to share. Like many other girls, I don’t care so much about performance like how fast a car can speed up as boys. In this way, I prefer Japanese cars which usually have the advantages of lighter weight and fuel efficient. In this sense, girls are more environmentally friendly. Also, one thing I love about driving in North Carolina is that you always enjoy the natural beauty of the roadside and the blue sky. Thus I think we should find a way to protect the green nature that we benefit from, and setting priority to fuel efficiency when choosing a car is one way.
    Besides, I have talked to two dealers, and both of them told me that since the financial crisis, gas savers such as Toyota and Honda have becoming more and more popular in the used car market. That is, less income have led to more environmentally friendly choice.

  16. I just want to agree with Courtney K. Either you pay upfront with insurance because your car is smaller and made with lighter plastic, and therefore more print to damage, or you get a big car and pay for gas over the lifetime of the car. I personally switched about a year and a half ago from a 1995 Toyota Land Cruiser which got about 10-12 miles to the gallon on a good day to a 2007 Honda Accord. The amount I am saving in gas is actually pretty ridiculous however, I do miss sitting high above the road in my monster truck knowing that anything that hit me would crumple up. All of that to say, I think it comes down to getting used to something new. Maybe in order to have better fuel efficiency cars in the future will have less torque, I think that’s ok, because that’s progress. Just like how wind turbines are seen by some to be eyesores, well its a sign of progress. It’s change and we need to embrace it.

  17. Regardless of the argument used to sell the regulation, the political climate of late, and in that I mean largely trends in purchasing decisions make it feasible to set a more aggressive target for fuel economy improvements right now. With the current economic outlook, a savings sales pitch is also salient and while not particularly nuanced or maybe correct, it is likely effective for some fraction of the population which is all that is required to shift along the demand curve.

    For myself, I just moved down the fuel economy curve with the verbal commitment that the next vehicle be second/third generation electric… Just waiting to make sure they get all the unstable lithium battery kinks worked out. http://www.scientificamerican.com/article.cfm?id=charge-under-control Who said new tech wasn’t cool or exciting?

  18. I found this week’s post and resulting comments very interesting. Most of us seem to agree that better fuel economy standards are necessary but are angered by some of the issues/inconsistencies (both in terms of the incorrectness of the cost argument cited in the blog post, as well as other issues like insurance rates and loss of some features and safety measures). To be honest, I’m not sure where I come down on this. Sure, I dislike the fact that the cost savings argument being touted isn’t entirely accurate (especially considering the fact that once these flaws are pointed out to consumers, the argument is significantly weakened), yet at the same time, I very strongly feel that we need tighter standards for fuel economy, and if this arguments get even some consumers to make the decision to buy a vehicle with better gas mileage, then its a good thing. We need to start somewhere in terms of getting more people to buy these higher fuel efficiency vehicles because that is the only way that some of the other problems related to these vehicles will be solved.In other words, the more of these vehicles that are on the road, the more likely it is that insurance rate and safety problems will be solved. For example, higher fuel efficiency standards may result in fewer large vehicles on the roads, which will help solve the safety concerns and therefore the insurance rate problems.

  19. While reading this blog and the comments I kept thinking more on the real compliance of such laws. I agree that it is very important to set rules to reduce gasoline consumption and emissions and other externalities associated with it. I think it is good to see how governments are moving forward in setting these kinds of standards that will allow reducing environmental damages. But I still think about the process to achieve these standards.

    On one side, the consumer will have to make decisions whether to buy one car or the other. Of course if we think about the savings of more efficient cars, in theory we should be more likely to choose the one that will save us the most. But in practice, of course, that is not always true. If we can buy a car today at a lower price, compared to another that is more expensive but will save us more money in the long run, we would not necessarily make a rational decision and go for the efficient one. And this type of “irrational” (and very likely to happen) consumer behavior will have impacts on the demand of cars, which will then have impacts on the sales and the producers decisions.

    On the other side, how are the producers going to move forward to meet these standards? They will have to improve their technology and their processes, which not only has monetary costs, but also costs of training, time spent, etc. For sure, if they HAVE to meet these standards, they will do so, but it will definitely have some costs. As Prof. Bennear mentions, there are no costless regulations and we should understand that if there are always costs associated with rules, we have be able to weigh them against the benefits and try to get the truest value of the benefits the law will generate.

  20. I know I’m not the first to say this, but I feel like we’re being presented with a false choice: performance or fuel efficiency. I admit I don’t know too much about cars, but I feel like my hybrid drives as well as any other mid-size car in its price range that I’ve tested. I don’t see any reason why performance and fuel efficiency can’t evolve together.

    In terms of the role of government, I think we absolutely need them to set fuel efficiency standards. In my humble, non-car-loving opinion, cars are among the most irrational purchases that Americans make. They’re status symbols, and we don’t need half the bells and whistles they come with. I believe that too many Americans will continue to buy gas guzzlers notwithstanding high fuel prices, which means manufacturers won’t have sufficient incentives to develop fuel efficiency technology in the absence of regulation. I’m not saying there are no costs to regulating fuel efficiency, but I think the costs are outweighed by the negative externalities of fuel-inefficient cars (e.g., costs to health, safety and the environment).

  21. I agree with Keith: we do not necessarily need to choose among fuel efficiency, performance and even safety. With the progress of material of car, car manufactures are making lighter cars with better impact-resistant, which perfectly combine the safety and energy efficiency improvements. Likewise, with the advancing technologies in car manufacture, we could expect a better scenario in 15 years when more eco-friendly cars come along with better performance. I think that is partly the reason why Apple is such a success: customers don’t need to choose at all, because they already combined all the attractive features. And the reason why I say this is when I saw the we-car in our campus, I thought it made a good combination of fuel efficiency and appearance. I haven’t had a chance to drive it, but I would like to hear the comment about their performances.
    Admittedly, it’s true that most benefits come at a certain cost. As environmental majored students we would take it natural to choose environment and health. But it is never easy to make a decision in the real world, especially when it comes to environmental benefits that are hard to measure. Still I would argue that besides environmental and health benefits, we also need to consider the energy safety benefits since both U.S. and China are not with abundant oil resources. Will it be easier to choose new regulations if we take this into account?
    Last but not least, one paradox I learned from the Energy class is that more efficiency always leads to a increasing total consumption in energy rather than a decreasing consumption. In countries like U.S.(I’m wondering if there is room left for vehicles possessing capacity rises), people may prefer driving instead of flight more if the efficiency improves. In countries like China, improved efficiency may lead to higher vehicles possessing rate. This makes me wonder that even the efficiency will reach the expected level, will it result in less fuel consumptions in transportation?

  22. Lori mentions that the regulation set forth by the NHTSA does not incorporate the “real” costs of losing performance due to R&D investment towards higher fuel efficiency or by a shift in fleet production towards more fuel efficient (w/ less performance) vehicles. I dont feel these costs are that huge or even that important given the crisis of curbing carbon emmissions. I highly disagree with the last paragraph of the blog about maybe the benefits associated with less polluting cars/trucks are worth the trade off on performance like HP, torque, electronic gizmos, etc. They are worth the trade-offs! I think these perceived trade-offs are just that.

    What the true performance of a car is and how people actually drive (realized performance) are two entirely different things. An analogy is that of the current day PC. It has ridiculous storage, crazy graphics, blazing fast processor yet short of the computer programmers and gamers, nobody even comes close to using the performance of the machine. Same for cars. I have both raced and off-roaded with both sports vehicles and trucks. It basically takes a race-track to have a chance at reaching the perfomance level of most vehicles in today’s world, be it a Honda or BMW. Most people are essentially driving racecars without even knowing it. Horsepower is already ridiculously through the roof for sedans, suv’s and trucks. Mash the throttle in any model and youre going to go fast. How fast is fast enough? The performance curve is so far beyond the efficiency curve, why not give it a chance to catch up. If you lose 10,20, or even 100 horsepower through a focus on fuel economy by 2025, the average driver will have no idea except for the number next to the “HP @ 3500 rpm: ??” will be lower. Its just a perceived loss.

    How about safey? Will it really be sacrificed? It would be interesting to compare technology gain benefits vs those gained from a reduction of large trucks and SUVs from our highways due to such regulation.

    I do think the gains from such regulation are misrepresented. The price tag of more fuel efficient cars will likely be much higher than $2000. And time will only tell how reliable these models will be and what repair costs will be. Buyers who drive less may never even see return on investment or cost savings on the life of the car. However, the global social benefits of GHG reduction are endless.

    Doubling the fuel economy is a great idea, not “maybe a good idea”. The time came decades ago to realize MPG significance. When gas is $8 a gallon, people will be scrambling to sell their 250hp Nissan Maximas, 220hp Hondas, 300hp Ford F-150s.

  23. Lori, your piece might better be titled “The New Paternalism”, because basically that’s all what you are describing is. You are saying that what the government is practicing is basically a very subtle form of paternalism because the government is telling society that what we ‘really’ want- where we really want to spend our money- is more fuel efficient cars- not spiffy new features, without telling us that we are even giving anything up to get that magic 49.6 mpg. Its not just a “free-lunch” sham, its an out-and-out lie.

    But it is one I am more than willing to live with. Personally, given the choice, I’d skip the giant death machine and buy a compact. Its safer (for me AND for the other person- SUV’s kill), more fuel efficient, and, lets face it, much more fun when cornering at 60+ mph. Plus its cheaper and uses up a lot less of the earth’s resources to build and run. So I say let the lie stand and the American people be fooled.

    One thing I think your analysis is ignoring- that one of the earlier bloggers brought up- is the role of innovation in all of this. Of course industry has yet to invent the technology that will allow 3,000+ lbs to get down the road on half the energy it currently uses. But while it is busy inventing its way out of that impossible physics problem, I suspect they will also find numerous ways to allow that magic free lunch to stay just that- free (and then charge folks a few bucks extra on the side).

  24. When analyzing costs and benefits of how to choose an appropriate car, it is not that easy to draw the conclusion. This discussion has too many assumptions and only want to tell the readers that the EPA regulation and try to persuade people to choose a lower-gas-cost car. As technology makes more and more progress it is hard to feel the difference of performance of different cars in the same type.

    10 years ago, you can quickly tell the difference about car performance between a Germany car or a Japanese car, because Germany car was outstanding in every field. 10 years passed, when this question arises again, you have to hesitate and think more time then tell the result. Japanese cars become easily drive and their performance is better and better. If you are not professional driver it is hard to tell the difference. At this point, people care more about the gas efficiency and environment friendly.

    However, in this case more points should be considered. Chevrolet recently took off a totally new car 2012 volt and it is a electronic charged car. It is a real gas saving car and help people save a lot of money. But this car has not sold well as expected. Because there is a new problem coming out. Electronic charging station does not widely exist. It is really not convenient to take charge which shows there is no difference from ordinary cheaper car. When new kind of fuel like ethanol is applied to a car. The service should be updated as well.

  25. Courtney Colwell

    December 2, 2011 at 1:21 pm

    It is frustrating to hear that the EPA is promoting this cost benefit analysis. By promoting half-truths they are undermining the overall message. This opens the door for people to ask “what else are they not telling us about fuel efficiency?” or anything else for that matter. Practices like these only hurt everyone in the long run. This is especially harmful because of the current political situation in the United States. People do not trust the government and telling only part of the story certainly doesn’t help.

  26. The argument in this blog article is that the real cost of the regulation (i.e. reduced innovation in areas other than increasing gas mileage) is not being taken into account in the cost-savings touted by the National Highway Traffic Safety Administration and the EPA. We have been warned in many classes of being over-reliant on models, and I would throw cost-benefit analyses into this category. In most cases, is impossible to take into account every single factor in a cost-benefit analysis. A thought that came to me while reading this article, is whether or not the costs of performing a cost benefit analyses are ever factored into the decision making process? And whether or not a more detailed evaluation of the costs of the regulation would really lead to a better environmental outcome? In this scenario, it seems like reducing gas mileage is an objectively good idea. Is it really worth the time and effort to do a more intensive cost-benefit analysis in this scenario? If it does turn out that consumers aren’t spending as much money as they believe – in a situation where believing they are saving more money is actually helping the environment – is that a bad thing? It may not be economically efficient, but should we ALWAYS be striving for economic efficiency? Won’t we have to sacrifice efficiency at some point, when we discover that the economically efficient level of environmental quality doesn’t meet the level of environmental quality that we desire (or at least that environmental enthusiasts like me desire)?

  27. I had the same feeling with Courtney that it’s kind of frustrating that EPA gives half-truths information about the cost-benefit analysis to the consumers about choosing a car. From their information is that we consumer are paid $3200 dollars to eat a “free lunch”, based on the millage calculation. But there are a lot other information relative to the cost-benefit calculation are missed, like other features and performance about the car, the insurance cost difference between the cars. EPA should improve this by giving full information about the cost of giving up the low mpg cars. And also, why EPA is not only giving incentives for not compact and hybrid cars, but instead they still give credits to big SUV like Ford explorers? Ture, some people do like driving SUV and some people do not have environmental awareness that driving SUV is using a lot of the earth’s resources and increase other driver’s driving risk, so giving those people the credit may encourage them to buy the cars with high mpg which can do some benefits to saving the resource.

  28. Lannas Barfield

    December 5, 2011 at 9:16 am

    I agree that this is not the ideal policy to address emissions and other externalities of driving. Making each marginal mile driven less expensive will only encourage more driving, erasing gains from greater efficiency and increasing other driving externalities (time spent in traffic, damage and injury from accidents). And the government is certainly being less than forthright in selling the regulation.

    But, these are average emissions of a corporate fleet, and manufacturers that chose not to, or cannot meet, the standard can purchase credits from competitors. Competition between manufacturers and within individual manufacturer offerings will still exist. The government is merely dictating what short-term priority manufactures should focus their innovation on. Tech and cost gains will be achieved and further innovation can address other consumer preferences. This is entirely consistent with the role of government in addressing conflict between the public good and individual self-interest. The fact that it is not an ideal strategy could be attributed as much to political circumstances as to poor analysis. Emissions standards have precedent and can gain backing, while a fuel or milage tax is an impossibility right now.

    Poor policy should certainly be exposed, but is not evidence in itself that government should not be acting on an issue.

  29. Cidney Christie

    December 5, 2011 at 7:12 pm

    I agree with some of the comments above regarding consumer preferences to maintain the “status quo” with performance vehicles versus actual utility and the benefit-cost analysis of insurance rates and with certain cars. Just to bring up a new futuristic scenario, say the natural gas vehicle market expands just when we are reaching this new fuel economy standard set by 2025. The natural gas Honda Civic was just named 2012 Green Car of the Year by California based Green Car Journal http://abcnews.go.com/US/wireStory/civic-natural-gas-consumers-15056922#.TtxsEYQ9WSo.
    This natural gas Civic (MSRP $24,820) has a little less torque compared to the normal four-cylinder engine of other Civic sedans (MSRP $16,575, not trying to beat up on civics as they are reliable cars but they’re pretty low on the performance totem pole so that’s not saying very much) and you’re unable to get the bells and whistles of leather seats and a sunroof (the sun shining down on me while I drive is important, otherwise I feel like I’m in an aluminum can). I know that MSRP’s change based on consumer preferences and bargains etc. but will people really see the added benefit of fuel economy with such a price difference in NG vs. Conventional vehicles? Especially when they have to factor in constructing a natural gas replenishment station at his/her home? What does the introduction of natural gas to this electric and conventional gas market mean for the EPA’s benefit cost analysis and the external costs of unconventional gas drilling in the U.S. and globally? I’m curious to find out…

  30. I see Professor Bennear’s point that the cost to the consumer of upgrading to the more fuel efficient car would be higher than the estimated $2000 and that we would need to quantify the difference in performance and features between the two models to arrive at the “real costs”, however, given the pace of innovation and the fact that regardless of whatever regulation government throws at the US auto industry, to remain competitive with its international competitors US auto manufacturers will inevitably produce 2025 cars with more than decent performance and safety features. So the tradeoff between driving a more fuel efficient car vs. one with ‘better’ performance and safety features should not come at too high of a cost. As many of my classmates have already mentioned, consumers need not rack their brains over this one; they would not need to choose between higher fuel efficiency and performance and safety. In essence we are choosing between a car with higher fuel efficiency plus everything else the 2025 has minus a few bells and whistles, and a car with lower fuel efficiency and more bells and whistles. It really comes down to perceived cost vs. real cost, as Jeremiah pointed out earlier. But do we really need all those bells and whistles? From what I’ve observed, most (sensible) drivers use only a fraction of the performance/power of a car anyway.

  31. Alexandra Donargo

    December 7, 2011 at 7:28 pm

    Don’t hate me. I really like big cars….even worse…. I grew up in the heart of Manhattan and always wanted an SUV. When I had the chance to get a new-ish (used) car, all I wanted was something big. I finally got talked down by my friends and family (I agreed it was a bit of an egregious environmental faux pas) and settled on a CRV that is more fuel-efficient (24 mpg and19 in the city) but still has that big car flavor. Is there any reason (besides driving down to Durham) that I need anything more than, lets say, a smart car? Nope. Will I ever get a smart car? Nope. I know this is completely irrational and I do try to make up for this portion of my carbon footprint in other ways.

    My point in admitting this is to stress the importance of recognizing the irrationality that sometimes goes into an individual’s economic decisions and should be accounted for in any cost-benefit analysis. I agree with my fellow students that cars have been, and still are, a status symbol. For me it is not really about status but liking the feeling of driving big cars. The benefits “of feeling good” here are even less tangible than the benefit of reduced carbon emissions but unfortunately they play a role in my economic decisions. I wonder how much of the irrational disconnect in behavior and knowledge is balanced into the equations that drive government regulations.

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