Let’s Turn CAFE Regulation on Its Head
With the announcement of newly aggressive miles-per-gallon requirements for automobiles under the Corporate Average Fuel Economy (CAFE) standard, a new RFF Issue Brief makes the case for using a different measure for fuel efficiency. Senior Fellow Carolyn Fischer points out that there are some important practical reasons why focusing on gallons per 100 miles (GPHM) would be a better indicator of fuel economy than our current miles-per-gallon (MPG) metric.
When purchasing a car, consumers want to weigh the costs and benefits of different alternatives. Most consumers know how much driving they plan to do. Therefore, it makes more sense to hold that value constant and think about comparing the costs of achieving that value across different vehicles, something that is difficult to calculate using a MPG measure.
Another nice feature of GPHM is that fuel costs rise directly in proportion to that rating. So, a 10 percent decrease in GPHM equals a 10 percent reduction in fuel costs. On the other hand, not all increases in MPG are equal. A 10 percent increase in MPG does not correspond nicely to a reduction in fuel costs—it depends on where you're starting from. Suppose you drive 10,000 miles a year and a gallon of gas is $2. Going from 10 MPG to 11 MPG is worth $180, while going from 30 MPG to 33 MPG is only worth $60.
Finally, an MPG rating makes it difficult to trade CAFE credits. The Energy Independence and Security Act of 2007 set the stage for allowing CAFE credits to be traded across manufacturers as a way to efficiently reach a national target for fuel efficiency. But Fischer notes that CAFE credit trading is plagued by the same complication: different fleet MPG ratings are not always equal. Credit trading using MPG thus requires a very complex formula to ensure the integrity of the trades (specifically, it requires taking the harmonic average of the manufacturers' harmonic averages). "Of course, dedicated EPA regulators, auto manufacturers, and traders would be able to figure out those complicated formulas," writes Fischer, "but there's a much easier and more transparent way. Instead, all we have to do is switch to GPHM, and all fuel consumption is treated the same."
