Op/Ed: C.A.F.E. Economics 101

Under some circumstance, ignorance can truly be bliss. However, the current administration’s proposal to increase the C.A.F.E. standards while ignoring the basic economic realities of price incentives leads to a different outcome, that being an increase in highway fatalities.

It is a fundamental law of economics that any decrease in price will lead to an increase in consumption. Requiring automobile manufactures to build vehicles that average 35.5 miles per gallon effectively reduces the price per mile of driving. Lowering the cost of driving will give consumers the incentive to drive more miles.

Consumers reacted to the recent escalation in gasoline prices by combining trips, eliminating vacation travel, and using mass transit. An increase in the C.A.F.E. standard would have the opposite effect by giving consumers less incentive to conserve on their driving.

Economists estimate that for every 10 percent increase in fuel efficiency, there is a 2 percent increase in the number of miles driven. It can be debated whether total oil consumption would increase or decrease with the new standards, but it is an unambiguous result that they lead to an increase in the number of miles driven by the average consumer. More miles driven cause more accidents, which in turn leads to an increase in the number of traffic fatalities.

The C.A.F.E. standards proposed by the administration will force the production of smaller, lighter cars. Reports issued by the Office of Technology Assessment of the United States Congress, the National Safety Council, the Brooking Institute, the Insurance Institute for Highway Safety, and the National Academy of Sciences, are in agreement that reductions in the size and weight of passenger cars pose a safety threat to drivers and their passengers. According to a study conducted by the National Highway Traffic Safety Administration, there is a 5.6 increase in the accident fatality rate for every 100-pound reduction in vehicle weight. It is estimated that there are an additional 1,000 traffic fatalities per year attributable to the current C.A.F.E. standards, and this number will only increase over time as the higher standards are enacted.

Prior to the introduction of the fuel efficiency requirements, there was relatively little variance in the size and weight of vehicles on the road. This changed with the introduction of C.A.F.E. standards in 1975. Automobile manufacturers changed their mix of vehicles; large station-wagons disappeared from the inventory, and were replaced by SUVs which did not fall under the standards. Sedans became lighter and smaller in an effort to increase fleet mileage. Michelle White of the University of California at San Diego found that for each 1 million SUVs that replace cars, between 34 and 93 additional car occupants, pedestrians, bicyclists, or motorcyclists are killed per year. According to physicist Leonard Evans, drivers in lighter cars may be 12 times as likely to die in a crash when the other vehicle is twice as heavy as the lighter car.

With the new standards, it can be expected that the automobile industry will turn out even lighter and smaller cars, with higher price tags, than they do today. This higher price will give consumers the incentive to hold onto their current vehicles for longer periods of time which will only serve to increase the mix of vehicles on the highway, leading to an increase in fatalities.

President Obama’s claims that increasing the C.A.F.E. standards will lead to a reduction in oil consumption and improve the environment. These may be laudable goals, but there is a far more efficient way to accomplish these outcomes. In the same manner that a decrease in price leads to an increase in consumption, an increase in price causes consumption to fall. An additional 30 cents per gallon gasoline tax would have the same effect as the proposed increase in required fuel efficiency. This additional tax would cost the average consumer approximately $225 per year. This is compared to the $1,300 increase in the price of a new automobile resulting from the new C.A.F.E. standards.

An additional benefit of an increase in the gasoline tax over more stringent C.A.F.E. standards is the revenue generated by the tax would go into the Highway Trust Fund and be spent on improvements in the nation’s infrastructure, whereas the increased price of a new automobile would received by the car manufacturers.

Why would President Obama reject the efficient method to reduce oil consumption and pollution? Tax increases on the majority of citizens are rarely politically supported, whereas pandering the environmental lobby ensures their continued support.

More people driving more miles in lighter vehicles resulting in more fatalities all in the name of political support. Is this the change the electorate asked for this past November?

Gottwalt is an assistant professor and chairman of the economics department at Sweet Briar College. He wrote this commentary for The News & Advance.