The Corporate Average Fuel Economy (CAFE) standards are federal requirements that regulate the number of miles a vehicle should travel on a gallon of gasoline (NHTSA 2022). The policy goal is for vehicles to create less emissions and to save American families money by reducing fuel consumption (Bloomberg 2022). Historically, any light-duty vehicle made in 2020 or after needs to get at least 37 miles per gallon (Dolan 2018). However, in 2022, the Biden administration updated the standards to achieve 49 miles per gallon by 2026 (NHTSA 2022). In 1978, when the first CAFÉ standards were introduced, the requirement was just 18 miles per gallon (Salzman and Thompson 2019, 320). Clearly there has been great improvements in fuel use costs and emissions, however, many critics argue that the standards increase the cost of new vehicles and reduce safety. CAFE standards may be at the end of their usefulness and should be replaced with more comprehensive solutions.
Increasing fuel economy standards helps consumers save money by reducing the amount of fuel needed to travel a certain distance. However, it also sets up the situation for the “rebound effect” where individuals will drive more total miles because it is cheaper to do so (Dolan 2018). While the overall impact leads to reduced fuel costs, it can setup unintended consequences that more driving can lead to like increased accident risk, increased wear and tear on vehicles and roads, and increased reliance on vehicles (Dolan 2018). It is often touted by critics that the CAFE standards increase fatality rates because vehicles are getting lighter as well (Dolan 2018). However, studies investigating this issue have found that the lightening of vehicles to comply with the standards applies to all vehicles, so there are actually a few hundred fatalities per year less, instead of more, due to the overall weight of all cars going down (Harvey 2017).
While the standards do reduce fuel use costs, critics like to highlight the fact that it increases the price of new vehicles as manufacturers must redesign their models to comply with the rules (The Federalist Society 2021, 1:24). This creates an equity issue where lower income individuals can not afford the higher upfront costs of a new vehicle even though the long-term cost of running the vehicle may be cheaper. This leads to older, unsafe, and more polluting vehicles staying on the roads longer as people try and make their older vehicles last (The Federalist Society 2021, 1:30). Even well-intended policies, like CAFE standards, run into these kinds of complicated issues where perverse incentives lead to behaviors that are the opposite of the intended policy goal.
Like many environmental laws, CAFE standards are not perfect. However, they have led to decreased oil consumption, vehicles emissions, and saved consumers money. With the latest standards nearing 50 mpg, it may be time to look at different policy methods to achieving these goals. As many economists have stated, and I have reported on previously, a carbon tax is a much more efficient and effective policy approach that not only improves transportation, but all energy-based emissions (Dolan 2018). As we move towards 2026, and the new CAFE standards, we should be developing a carbon tax policy that will supersede CAFE standards and ensure that alternative fuel vehicles are evaluated in a more comprehensive way in the future as well.
Author: Logan Callen
Bloomberg. 2022. “Buttigieg Announces New U.S. Vehicles Standards.” YouTube. April 1. Accessed August 1, 2022. https://www.youtube.com/watch?v=Ky0Y339yoe4.
Dolan, Ed. 2018. “The Tough Economics of Fuel Economy Standards.” Niskanen Center. Accessed August 1, 2022. https://www.niskanencenter.org/the-tough-economics-of-fuel-economy-standards/.
Harvey, Chelsea. 2017. “Scientists Just Debunked One of the Biggest Arguments Against Fuel Economy Standards for Cars.” The Washington Post. Accessed August 1, 2022. https://www.washingtonpost.com/news/energy-environment/wp/2017/05/03/scientists-just-debunked-one-of-the-biggest-arguments-against-fuel-economy-standards-for-cars/.
NHTSA. 2022. “Corporate Average Fuel Economy.” National Highway Traffic Safety Administration. Accessed August 1, 2022. https://www.nhtsa.gov/laws-regulations/corporate-average-fuel-economy.
Salzman, James, and Barton H. Jr. Thompson. 2019. Environmental Law and Policy. 5th ed. St. Paul, MN: Foundation Press.
The Federalist Society. 2021. “Are Fuel Economy Standards Useful in Lowering Carbon Pollution?” YouTube. January 5. Accessed August 1, 2022. https://www.youtube.com/watch?v=pTLdMzGe270.