Junk the CAFE Standards

In 1975, in the wake of the massive disruption in oil and gas markets stemming from the 1973 mid-east war between Israel and its Arab neighbors, Congress passed The Corporate Average Fuel Economy () Standards that took the novel position that the proper way to introduce fuel economy was to set standards, not for each individual car or, but for each fleet of cars or light-trucks produced by either a domestic or foreign automobile maker. The ostensible of this initiative was to reduce the overall level of oil and gas consumption in light of the boycott that had been organized by the Organization of Petroleum Exporting Counties (OPEC) in 1973-1974, which raised prices and reduced the supply of gasoline at the pump. At the same time, the Nixon Administration introduced a set of that in turn reduced the supply of domestic oil and gas, a misguided move made-to-order for OPEC as lengthy queues at the pump emerged across the United States. The market price for gasoline was far higher than the allowable price, and that gap meant that drivers were willing to wait in queues until the total cost of purchase price plus the cost of waiting time equaled their reservation price. The key defect of the system is that waiting time and idling engines did not increase supply but resulted in a deadweight loss of substantial proportions.

The OPEC embargo was eventually lifted. But the CAFE regulations lived on as an effort to reduce oil and gas consumption by putting ever tighter restrictions on average fleet mileage. During the Biden administration, the government doubled down on these restrictions, and the recent Trump Fact Sheet no time in taking pot shots at a standard that it branded as onerous on the industry. To the apparent pleasure of major automobile manufacturers, Trump stated that he would restore CAFE standards to levels that conventional gasoline and diesel vehicles can meet. The Biden administration's standards imposed unrealistic fuel-economy requirements, which meant that Trump’s lower mileage figure showed greater “fidelity” to the original CAFE program, which was followed by his more dubious claim that the Biden standards “broke the law.”

The differences here are not trivial. The new Transportation Department plan cuts the required fuel levels for new passenger vehicles to about 34.5 MPG, down from the 50 MPG standard planned by President Biden covering years after he left office. That number was designed as a covert means to compel the adoption of a larger EV fleet, because no modifications to the standard internal combustion engine could achieve that stringent target.

As critics quickly, this is Trump’s latest salvo in his long-standing effort to undo the entire Biden agenda. The last key step was to undo California’s effort to use its EV standards to ban the sale of new gas-powered cars in California by 2035 – a position that it adopted in lock-step with some 17 other states. He then gutted the CAFE standard by reducing the civil punishment for CAFE violations to $0.00. And his administration is now hard at work trying to the 2009 endangerment finding for carbon dioxide that lies behind the new move.