I am in Norway at the moment, but I ran across a story that I wanted to call attention to. It is the same thing I wrote about in The Problem with CAFE:
NEW YORK (Fortune) — I hesitate to pick a fight with a two-time Pulitzer Prize-winner like New York Times columnist Thomas Friedman. On the critical issue of developing a national energy policy to lessen our consumption of imported oil, he’s been early, smart, and right.
But Friedman whiffed in his Times column yesterday, called “Et Tu, Toyota,” by hauling out one of the hoariest of urban myths: That forcing higher fuel economy standards on American car buyers is what’s needed to encourage more energy-efficient vehicles and make Detroit more competitive with its import competitors.
That’s wrong…and wrong. Forcing people to buy more efficient cars by ordering car companies to make them is like forcing people to lose weight by banning food companies from selling Big Macs and pizzas. The reason Americans consume so much gasoline is that they like their big pickup trucks, SUVs, and V-8 engines. The reason the automakers make them is because people want to buy them.
That’s exactly what I have argued. Fuel efficient vehicles are not in short supply. But the demand is not there. This is not a supply-side problem; we have to work on increasing demand for efficient vehicles. Ramp up demand, and the supply of vehicles will come.
Some of the points that Friedman makes to buttress his arguments are misleading. He praises Japan and Europe for auto fleets that have much better mileage standards than the U.S. without mentioning the fact that driving conditions are different – try steering a Lincoln Navigator through a medieval village in Italy – and gasoline taxes in those countries are so high that people are willing to squeeze into small cars. Start charging American drivers $8 a gallon and they’ll switch to small cars in a New York minute.
Exactly. Friedman has entirely missed the point on why autos here in Europe are so much more fuel efficient. If gasoline was 2 bucks a gallon here, I suspect things would be a bit different. And the puzzling thing to me is that a couple of years ago, in an interview with Grist, Friedman seemed to clearly understand the issue:
Q. Besides a gas tax, what other methods for reducing energy dependence would you propose?
A. I’d focus on two other things: I would begin building more nuclear power, and I’d have a carbon tax on coal and all high-emission energies that would raise their cost and make wind and solar much more cost-efficient.
Q. What about regulatory initiatives like CAFE standards?
A. That to me is captured by the [gas] tax because that makes hybrids a necessity and forces Detroit to convert large amounts of its fleet to hybrid technology — you drive the CAFE issue using a different mechanism.
But Friedman appears to have forgotten that logic, judging from his most recent article. Back to the CNN article:
American manufacturers DO build fuel-efficient cars but Americans don’t buy them. Ford (Charts, Fortune 500) is currently offering cut-rate financing on the 2008 Escape Hybrid, while GM (Charts, Fortune 500) is subsidizing the smallest car in its lineup, the Chevy Aveo. And GM can brag all it wants about having more models – 30 of them – than any other manufacturer that get more than 30 miles per gallon on the highway, but it gets precious little credit for it in the marketplace.
It has been argued here before that if the government wants to be serious about improving fuel economy, all it has to do is boost the tax on gasoline. The revenue generated could be rebated to lower-income drivers who are truly disadvantaged or invested in mass transit. The auto companies aren’t going to argue for such a tax because it would give them a black eye with consumers. And the government won’t do it either, because of its anti-tax bias. But Friedman, using his column as a bully pulpit, could argue for such a tax with impunity. And it would be a whole lot more effective than perpetuating the old myth about the ignorant luddites in Detroit who are withholding the small, fuel-sipping cars that Americans really want to buy.
I think Friedman is a guy who is really passionate and concerned about our energy policy. But he has gotten ahead of himself at times. He was on the ethanol can save us bandwagon early on, but it looks like he now he is exclusively on the sugarcane ethanol will save us bandwagon. I agree, sugarcane ethanol is a lot better than corn ethanol, but it helps to understand the scale of our oil consumption, so one can appreciate the scale of the ethanol production that would be required to displace it.
OK, back to meetings. Now, if I can figure out how to publish. For some reason, all the instructions for my blog are in Norwegian. I am having to guess at what Innlegg, Innstillinger, Mal, and Skriv mean. This keyboard is also unfamiliar. Some of the keys are out of place, and it also has letters like æ, å, and ø. Let’s see if “Publiser Innlegg” gets this published.
I’ve lived in Japan a long time, and I can assure you that traffic conditions and especially the price of fuel have a lot to do with what kind of cars people choose to drive. Big American cars ARE available here, but so few people drive them that spotting one on the road is a rarity.
Over the last few years, spiraling gasoline prices have brought about a big change in car sales and the makeup of Japan’s fleet. Passenger car sales have languished, while sales of the so-called “kei cars” (subcompacts with a maximum 660-cc engine displacement) have skyrocketed. People who said they would NEVER ride a stinking subcompact (including some of my in-laws) now embrace them with fervor. How times change!
Your point about CAFE standards hits the nail on the head — it is obvious that automakers, like the oil companies, are simply responding to consumer demand. Proposals such as these are simply covers designed to shift the blame for our problems onto someone else, making us think we can have something for nothing.
In a way, the answer to many of our problems seems simple — if we want to reduce the negative effects of our consumption we eventually are going to have to consume less. But do you remember what happened to Jimmy Carter when he went on national TV, asking Americans to turn their thermostats down and wear a sweater? He became the symbol of negativity and poor leadership, and it was the last time any politician dared to ask Americans to sacrifice.
Whether for good or bad, Americans do not want to be told that they have to sacrifice. Given this, perhaps ideas such as raising CAFE standards, or taxing windfall profits from oil companies make sense. They will not address the problem head on, but they might indirectly encourage conservation. And unlike 8 dollar gas, carbon taxes and the like, such ideas have an actual chance to become law.
I think you’ve described most of the problem, but there is one aspect …
We sometimes agree to do things en-masse that we are reluctant to do on our own. I will, if you will.
CAFE (or any design-side product restriction) might succeed if it was backed by a public consensus that it was time for all of us to switch.
But we don’t have that either. As recent numbers at Green Car Congress show, the market is splitting. High and low MPG cars are gaining marketshare as the middle loses.
So yeah, I don’t expect a serious CAFE to be passed until there is serious consensus, and by then (as you say) the market will likely have moved quite a bit on its own.
“…it is obvious that automakers, like the oil companies, are simply responding to consumer demand.”
One can also argue that crack cocaine and heroin dealers “are simply responding to consumer demand.”
This argument is silly. You motivate people to buy smaller, more efficient cars by changing the economics. You can do this indirectly with a gas tax, or directly with CAFE or feebates. Research and common sense show the direct approach is up to 10x more effective. Why? Because car buyers focus almost exclusively on their monthly payment and mostly ignore back-end costs such as maintenance, insurance, fuel, etc.
The “forcing carmakers to build cars people don’t want” argument is pure stupidity. 16 year old boys “want” Ferraris and Lamborghinis, not the hand-me-down Buicks and Toyotas they actually drive. Demand isn’t based solely on what people “want”, it’s based on how much they’re wiling to pay. Raise the payment on a 12mpg Suburban by $100/month and demand will fall.
But CAFE doesn’t affect monthly payments, you say? Don’t be obtuse. If GM builds fewer Suburbans and more Aveos, market pricing will change until demand matches supply. It’s Econ 101. I personally prefer a feebate system, but they both affect car-buying behavior by acting on the purchase price. Which, as I noted, is MUCH more cost-effective than raising the price of gas.
doggy, this is in the context of democracy, yes?
we only ‘motivate ourselves’ to the degree we are willing.
that is the catch-22, and what i was trying to say above.
if anything is silly, it is to think what the imperial ‘we’ might mandate if we were king.
I’m all for current taxes but using a carbon tax to subsidize public transportation is fundamentally bad policy. All transportation systems should expose their fully burdened cost to the end-user.
by subsidizing public transportation, you hide the benefits of other transportation systems (i.e. http://jcwinnie.biz/wordpress/?p=2220
electric bicycles are more efficient and cost effective than buses.) As well as increasing economic distortion of other markets. For example, one of the rarely discussed issues of public transportation is the influence it has on real estate prices. Properties which are relatively close to the transit stops will skyrocket in price and effectively be out of the price range range of the people that need it (aging, ill, disabled). Instead, it will go to the people with the most money.
I say yes to carbon taxes and revealing full costs of all transportation systems but no to subsidizing any transportation system from fees on the other. Let each system stand on its own merits or fail on its own flaws.
the economists make a good argument that it doesn’t matter where carbon tax money goes.
the primary goal is to reduce consumption. higher prices (if we were willing to enforce them upon ourselves) would do that.
of course there might be a gap between the kind of prices that would be effective at reducing consumption, and the kind of taxes we are willing to force upon ourselves.
most likely we’ll put slap-on-the-wrist style carbon taxes in place, and then wonder why we did not meet our goals.
“Research and common sense show the direct approach is up to 10x more effective.”
But CAFE is not a direct approach. It is no more direct than a gas tax; in fact, probably less direct than a gas tax. CAFE will only raise car prices in a convoluted manner, and there is no assurance that increasing CAFE will raise prices.
Gas taxes work. We know that from Europe. Do you have any examples where raising CAFE standards, in an area with low gas prices, has improved fuel efficiency? In areas with high gas prices, you don’t need CAFE standards.
The reason Americans consume so much gasoline is that they like their big pickup trucks, SUVs, and V-8 engines.
Isn’t that the point?
Regulations should correct imperfections in the marketplace, which neglects “externalities” such as the wellbeing of future generations.
So how does forcing carmakers to make less guzzlers result in more fuel efficient cars being sold? Let’s say under some sort of CAFE regulations, a given carmaker isn’t allowed to sell as many gas guzzlers as he did before (as a ratio of total sales). That’s a restricted supply (the restriction coming from CAFE regulations). So instead of telling customers: “I can’t sell you that guzzler, (because that would put me over my quota)”, the carmaker will increase his prices on guzzlers, to extract the maximum profit from the supply he is allowed to sell (which will bring the demand that you speak of down in line with the new supply). Since we’re talking about an average fuel economy standard, he should also lower the price of his fuel efficient cars to sell more of these, since each one sold allows him to sell more of his gas guzzlers. And those are now more profitable than ever per unit sold – though not necessarily as a whole. The fuel economy standards should also incite carmakers to offer more hybrids and other fuel saving technology in order to lower their mileage.
So, the nice things about “demands equals supply” is that working on the supply side to restrict supply of guzzlers WILL affect demand, through the price mechanism!
As someone pointed out, this “market mechanism” for meeting CAFE standards seems somewhat functionally similar to a “feebate” system (where the government charge a “fee” on low-mileage vehicles, and offer a rebate on high-mileage ones). In CAFE, you set the required average and carmakers adjust their prices to meet it. With feebates, you adjust the effective prices with a given level of fees and rebates, and you see what the effect on fuel economy is.
The gas tax isn’t necessarily a bad idea, but since it’s a diffuse cost through the life of the car, it might not have the same psychological effect as a higher sticker price right when you’re shopping for a new car. And those that have already bought a car might feel like you’re changing the rules of the game midway through. I also think that with the effect of reducing prices on smaller, more fuel-efficient vehicles, CAFE standards might have a less regressive effect on people with lower incomes (that drive) than the gas tax that would be required to achieve an equal reduction in fuel use. Though I should probably note that the gas tax does offer an incentive to reduce vehicles miles travelled, which CAFE does not, so there are also some advantages of going that way, if it should politically feasible.
There are many problems with the implementation of CAFE, such as the moronic idea of separate averages for cars and trucks, which incites carmakers to produce more of the latter. The numerous loopholes, such as those for “flex fuel”, are another. And though the standards would apply to everyone, raising them could cause problems for US car manufacturers who might not have a sufficient selection of smaller, more fuel efficient cars. But since peak oil and global warming are not going away, maybe forcing them to prepare might save them, in the long run, by getting them prepared. It’s not like they’ve been doing particularly well lately, and that’s not because of CAFE standards. CAFE standard aren’t a panacea, but implying they are useless, as Robert seems to be doing, seems unfair.
If you read his previous post, Robert isn’t against CAFE standards, he just thinks that there are better ways, and ways that have already worked in practice. But I don’t think he would say Don’t raise CAFE standards. I think he is saying raise gas taxes and it is a moot point.
The idea that automakers are simply responding to consumer demand is pretty naive. This is not an either/or; yes, there is a consumer demand element that is driven by things like traffic, parking, and fuel costs. But… automakers also spend a great deal of money creating demand. Given the high margins on SUVs, industry marketing has successfully (and somewhat incorrectly) convinced the public that SUVs are safer and better than what they have replaced, the old fashioned station wagon.
You’ll never seen a major shift in American car buying patterns without changes in consumer desires independent of that – perhaps triggered by high fuel prices, etc. – but CAFE standards perform a useful function by reigning in the understandable auto industry tendency to create demand for profitable but environmentally undesirable vehicles.
There was a comment here that mass transportation costs should be borne by end-user. I like free markets too.
But, in this case, there are problems. Pollution is one, and dependence on foreign energy courses is another.
If we tax pollution (necessary as the free market price mechanism cannot handle external costs sich as pollution) then what prices do we come up with?
Add to that our foreign policy and war apparatus, necessary as we depend on oil from thug states.
But, back to cars: I think a gasoline tax is justified, due to pollution, and oil dependence.
Politciallt palatable? Wel, how about Congress passes a 25 cents a gallon tax, which grows by 25 cents a year for next 10 years, and then adjourns on vacation?
“Well, how about Congress passes a 25 cents a gallon tax, which grows by 25 cents a year for next 10 years, and then adjourns on vacation?”
lovely. but we know the chances of that in the current cultural landscape are nil.
the really interesting question (for thomas or robert) is what it would take to put US voters in a “european” mindset.
many of us here (me and geoff at ‘energy outlook’) think it would take some dramatic and visible event. since the odds of that are unknown to slim … we wait
Robert-
Blogger is probably responding to the language settings in your browser. If it’s Firefox, you can go to Edit->Preferences->Advanced->General, and click the ‘Choose’ button under Languages.
Add ‘English’ and put it at the top of the list, and blogger should start sending English.
IE has similar settings, but I’m not sure where to find them.
Anonymous said: I’m all for current taxes but using a carbon tax to subsidize public transportation is fundamentally bad policy. All transportation systems should expose their fully burdened cost to the end-user.
Then you’re willing to pay a toll per mile driven to pay for roads? Otherwise, the road you drove in on was subsidized.
As has been noted above, free markets rarely figure in the future common good of a society, and consumers even more rarely. Sometimes, you have to regulate (or tax) that into the equation.
Then you’re willing to pay a toll per mile driven to pay for roads? Otherwise, the road you drove in on was subsidized.
yes I am in the form of a gas tax. the gas tax should cover costs of all highways, secondary and local roads.
As has been noted above, free markets rarely figure in the future common good of a society, and consumers even more rarely. Sometimes, you have to regulate (or tax) that into the equation.
I’ve never advocated a free market but I do advocate using economics plus transparency to change behavior.
bring on the carbon tax!
as a compensurate measure for income strapped persons, reduce their payroll tax with some/all carbon tax $$.
similar in concept to earned income credit.
someone shoul;d do math to see if it would really be $$ neutral or close enuff to make sense.
the trick will be to get POLS be intelligent, gutsy,have interest beyond their next election to try.
BUT, those characteristics and POLS leads to the word “OXYMORON” heh?
fran
To reiterate my theme, why should the “POLS” back a carbon tax when the “polls” do not? 😉
Gas taxes work. We know that from Europe.
$7/gal certainly depresses demand, but not enough. Europeans use about half as much oil per capita as Americans. But Europe is also much more urbanized than the US and has other incentives in place such as engine displacement taxes. To get the same 50% reduction here we’d need roughly $10/gallon. As Odograph points out, that’s politically impossible. Rural families are NOT going to vote $15k+ of gas taxes on themselves. That’s HALF the median household income in many rural states.
The taxes needed to raise gas to $10/gal represent $1 trillion of annual economic distortion. A $5000 per car feebate system is only $80 billion of distortion. The feebate would NOT destroy rural economies yet would have MORE effect on consumption. $5k/car upgrades us to PHEVs which cut gasoline use 80%, well below European levels.
A gas tax causes 10x more distortion, has less effect and is politically impossible. Arguing for a gas tax is basically arguing to do nothing at all.
A gas tax will do something that no amount of feebates can: change the incentive to drive wastefully or frugally, to drive or not drive, and ultimately to keep or replace the old inefficient vehicle.
Feebates can only work as fast as the fleet turns over. Taxes work immediately by rewarding every action which saves fuel, no matter what it is.
I think that fuel taxes should be fully refunded to the public in some form or other (which is another form of “feebate”). I have no problem with rural residents having a higher mileage allocation than suburbanites; $5/gallon fuel is just as strong an incentive to save no matter how much you’re getting back. So long as the allowance slides along with fuel consumption, everybody has to either get more efficient or pay the price to the rest of us.
— E-P, who can’t even post as “other” because of some new Blogger screwup.
Engineer-Poet,
Take a look our long term VMT trend. Think of how big a tax you’d need just to change the slope of the red line, much less roll it over and send it into decline.
Now look at the green line on that chart. We reduced VOCs 80% by changing our cars, not our lifestyles, and are on track to do the same with NOx. I submit that we can do the same with gasoline, but only if we focus on changing our cars and not all the other stuff you mentioned. It’s simply too hard to effect massive lifestyle changes in a democracy.
All we have to do to reverse the VMT trend is to deport our illegal immigrants and stop taking more. But that’s outside the box you’ve constructed for the solution space.
What Friedman was primarily complaining about was Toyota joining American manufacturers in their opposition to higher CAFE standards.
Toyota knows that CAFE has the potential for moving the industry toward efficiency faster than the market can. (Note that I say “potential.”)
Toyota (and even more so, Honda, which produces the lightest cars in the American market, and thus has the best average fuel economy.) will produce more fuel efficient cars than the Big Three, irrespective of CAFE, because Toyota produces cars for the entire world, whereas, the Big Three are primarily North American market operations.
By supporting the Big Three in their opposition to CAFE, Toyota effectively helps to cripple them for the future and thus reduce competition for itself.
Toyota has shown itself to be able consistently to outsmart American manufacturers.