In a move sure to please his environmentalist base as we gear up for the 2012 election, the Obama administration’s Department of Transportation (DOT) and Environmental Protection Agency (EPA) are quietly moving to make another round of changes to CAFE standards. (That’s Corporate Average Fuel Economy, for those keeping score at home.) The changes would affect model years from 2017 to 2025.
While previous trial balloons on this front fell flat with both manufacturers and consumers in the polls, the White House seems to be trying a new tactic this time. If you want to push through an unpopular program, you need a villain to blame, so what will it be this time? High gas prices, of course. “We’re doing it to save the consumers!”
“Continuing the successful clean cars program will accelerate the environmental benefits, health protections and clean technology advances over the long-term. In addition to protecting our air and cutting fuel consumption, a clear path forward will give American automakers the certainty they need to make the right investments and promote innovations,” said EPA Administrator Lisa P. Jackson. “We will continue to work with automakers, environmentalists and other stakeholders to encourage standards that reduce our addiction to foreign oil, save money for American drivers, and clean up the air we breathe.”
“We must, and we will, keep the momentum going to make sure that all motor vehicles sold in America are realizing the best fuel economy and greenhouse gas reductions possible,” said U.S. Transportation Secretary Ray LaHood. “Continuing the national program would help create a more secure energy future by reducing the nation’s dependence on oil, which has been a national objective since the first oil price shocks in the 1970s.”
Unfortunately for Secretary LaHood, the Law of Unintended Consequences is still in play and ready to jump up and bite him where the sun don’t shine. In order to meet higher standards – particularly if those standards represent a significant jump from current technological capabilities – manufacturers are going to have to produce more “unconventional” (i.e., “green”) vehicles to bump up their average fuel efficiency across their fleet. Unconventional, green vehicles cost consumers more. And, according to the Energy Information Agency, more expensive cars during an economic downturn equal lower sales, which equals… (wait for it…) fewer jobs!
The cases estimate a demand response for new vehicle sales as a result of changes in average new vehicle price by employing a price elasticity of demand of -1. While this measure attempts to quantify the potential impact of the increase in vehicle price on sales, it is not intended to be inclusive of all the potential factors that could affect new vehicle purchase decisions made by consumers. As a result of higher vehicle prices, total new LDV sales in 2025 are 8 percent lower in the CAFE3 case and 14 percent lower in the CAFE6 case than in the Reference case.
Here’s a pop quiz for the folks at the EPA and the DOT. Don’t think about it too long or your heads will explode. What do you think happens to the American auto industry and the literally millions of jobs associated with it if their sales drop off by 14% in a single season?
Cue the Jeopardy music.