Post image for Mitchell, Reilly Tout Ruinous Calif. Auto Policy

Mitchell, Reilly Tout Ruinous Calif. Auto Policy

by Marlo Lewis on July 28, 2011

in Blog, Features

Earlier this week, Politico published an op-ed by former Sen. Majority Leader George Mitchell (1989-1995) and former EPA Administrator William Reilly (1989-1993) that is as intellectually mushy as it is politically devious. 

In “Calif. Must Again Lead Way on Emission Standards,” Mitchell and Reilly pretend that the California Air Resources Board’s (CARB’s) proposal to establish a 62 mpg fuel economy standard is the moderate middle between automakers who “protest that the proposal is too demanding” and environmentalists who “want something more stringent.” Horsefeathers!

In September 2010, CARB, EPA, and the National Highway Traffic Safety Administration (NHTSA) issued an Interim Joint Technical Assessment Report where they considered raising the passenger car fuel economy standard from 35.5 mpg in 2016 to 47 mpg, 51 mpg, 56 mpg, or 62 mpg in 2025.

Let’s not forget that the 2016 standard imposed by EPA, CARB, and NHTSA accelerated by four years the standard Congress set in the 2007 Energy Independence and Security Act, which was itself 27% more stringent than the previous standard (27.5 mpg). In May 2011, the Auto Alliance, citing a U.S. Energy Information Administration assessment (p. 26), cautioned EPA Administrator Lisa Jackson and Transportation Secretary Ray LaHood that a 62 mpg standard would depress auto sales in 2025 by 14%. Team Obama subsequently settled on a 56 mpg standard. That’s a tad less extreme than the 62 mpg standard championed by CARB, but it’s still over the top.

A remarkable study by the Center for Automotive Research (CAR) – The U.S. Automotive Market and Industry in 2025 (June 2011) — reveals how cockamamie these proposals are. CAR’s estimates of the costs of fuel-saving technologies required to meet fuel economy standards ranging from 47 mpg to 62 mpg come straight out of the June 2011 National Academy of Sciences report, Assessment of Fuel Economy Technologies for Light-Duty Vehicles, the most comprehensive and up-to-date survey of its kind. 

Here are the key findings related to the 62 mpg standard that CARB, Mitchell, and Reilly are pushing:

  • Only two technologies, battery electric vehicles (BEVs) and plug-in hybrid electric vehicles (PHEVs) are capable of meeting a 62 mpg standard.
  • BEV and PHEV technology would add $9,790 to the retail price of a new car in 2025 (compared to the price of a new car in 2009).
  • Expected new safety regulations will add another $1,500 to new-car retail price in 2025.
  • The total retail price increase of $11,290 due to fuel economy and safety regulations would exceed five-year fuel savings by $8,026 if gasoline prices average $3.50/gallon over the next 15 years and $4,551 if gasoline prices average $6.00/gallon.
  • Consumer spending on new motor vehicles in 2025 would fall from $713 billion in the baseline case to $669 billion if gasoline prices average $6.00/gallon and $626 billion if gasoline prices average $3.50/gallon.
  • Light motor vehicle sales in 2025 would fall from 17.9 million units in the baseline case to 14.5 million if gasoline prices average $6.00/gallon and 12.5 million if gasoline prices average $3.50/gallon.
  • Light motor vehicle production in 2025 would fall from 10.8 million units in the baseline case to 8.7 million if gasoline prices average $6.00/gallon and 7.5 million if gasoline prices average $3.50/gallon.
  • Automotive employment in 2025 would fall from 877,075 in the baseline case to 711,538 if gasoline prices average $6.00/gallon and 612,257 if gasoline prices average $3.50/gallon — a loss of 264,500 jobs.

CAR sums up the depressing chain of consequences of a 62 mpg standard combined with a $1,500 cost increase associated with new safety standards:

The cost to the consumer of purchasing a motor vehicle would rise by nearly 40 percent and the net cost by 27.7 percent over five years. As a result, U.S. sales of vehicles would fall by 5.4 million units and U.S. vehicle production by 3.3 million units. Motor vehicle and parts manufacturing employment would fall by 264,500, causing a total employment loss for the U.S. economy of 1.69 million. This loss would happen by 2025 but would start to cumulate with the increase in standards in 2017. Requirements to downsize vehicles [if fuel-economy targets could not be met via technology advances alone] would only increase these loss estimates, as the consumer value of vehicles would be seriously reduced.

Even omitting the $1,500 expense for new safety features, even the least stringent (47 mpg) standard CARB, EPA, and NHTSA were considering is a net money-loser for consumers if gasoline prices average $3.50/gallon. Only if gasoline prices average $6.00/gallon is the 47 mpg standard a net money saver. All of the more stringent standards are net money losers even with $6.00/gallon gasoline.

In the chart below, red numbers in parentheses are ‘negative savings,’ i.e. net losses. Numbers in the left-most column correspond to the four fuel-economy standards (47 mpg, 51 mpg, 56 mpg, and 62 mpg) proposed in CARB/EPA/NHTSA’s Interim Joint Technical Assessment Report. The numbers have been adjusted to reflect ”real world“ fuel economy, which is always lower than the official mpg ratings as determined by EPA laboratory tests.

 

A 62 mpg standard (49.6 mpg in “real world” fuel economy) imposes a $6,525 net loss on consumers over five years. The 56 mpg standard (44.8 mpg in “real world” fuel economy) imposes a $2,858 net loss.

As you’d expect, green groups like the Natural Resources Defense Council (NRDC) and the International Council on Clean Transportation (ICCT) claim the CAR study is rife with error. Earlier this month, CAR responded to the ICCT critique, which broadly overlaps with NRDC’s. I find CAR’s rebuttal persuasive. I won’t try to summarize this highly technical debate but do want to mention one point.

ICCT/NRDC argue that CAR overstates vehicle costs by assuming automakers would have to produce large numbers of BEVs and PHEVs to meet the 56 mpg and 62 mpg standards. It would be cheaper, they contend, to ramp up production of hybrid electric vehicles (HEVs). But, CAR responds, to meet a 56 mpg standard, almost 80% of all cars sold in 2025 would have to be HEVs, whereas under current policies HEVs are projected to capture only about 10% of the market in 2025. Moreover, HEVs would have to shed about 15% of their current mass. Other things being equal, the less mass a car has to absorb collision forces, the less protection it offers to motorists in crashes. “Small is beautiful” environmentalists may deny it, but when it comes to safety, size matters.

   

If I may translate, ICCT/NRDC are saying don’t worry, be happy, because a 56 mpg standard would function as a de-facto hybridization, weight-reduction mandate. But if so, the standard would create an automobile market that departs dramatically from revealed consumer preference (what people are actually buying). Making cars to please government planners rather than to satisfy consumers is no way to build a healthy auto industry. It’s a recipe for declining sales, profits, and employment. 

CARB, EPA, and NHTSA, aided and abetted by Mitchell, Reilly, ICCT, NRDC, and their ilk, are taking an enormous gamble with other people’s assets, livelihoods, and economic future. No doubt it’s loads of fun for them. But if we were living under a constitution of liberty, that sort of mischief would not be allowed.

Lawrie Ayres July 29, 2011 at 5:18 pm

Once again government trying to influence the market without considering the consequences and doing it by legislation. As fuel gets dearer so auto buyers start selecting for more efficient vehicles that’s a given. It happens elsewhere. There is no need for government intervention unless they are just trying to create big government and associated government knows best. The latter has never once been proved to be true.

Random Thesis August 6, 2011 at 9:28 am

56 mpg would work if Congress would just repeal the Law of Gravity, well 95% of gravity.

Comments on this entry are closed.

{ 2 trackbacks }

Previous post:

Next post: