A lot has been said about the proposed Corporate Average Fuel Economy (CAFE) standards, little of it good. As you may have heard, the new fuel economy standard uses confusing miles-per-gallon measurements that have little or no relationship to the miles-per-gallon numbers that you'll see on a new vehicle's window sticker. CAFE has actually propagated two different miles-per-gallon numbers that appear to be the result of methodology wars between the Environmental Protection Agency (EPA) and the National Highway and Transportation Safety Administration (NHTSA). Then there was talk about setting standards not in terms of miles per gallon, but of gallons per 1,000 miles - actually a great idea but confusing the conversation as it stands. It's even more confusing when you consider it in light of the fact that the entire rest of the CAFE standards document maintains a laser-like focus on rate of fuel usage - not actual fuel usage - but such clarity is buried in 400+ page documents filled with charts, number and cryptic algorithms. Lost to the world of common sense, apparently.

There's also the issue of how automakers will get "credits" toward meeting their CAFE targets - including the credit that they will inexplicably get for producing flex-fuel cars, regardless of whether they're actually used with an alternative fuel, and regardless of the fact that the alternative fuel they use is ethanol, which is not known to be environmentally safer. And including the conspicuous absence on the credit list of diesel fuel, which is known to be safer and to promote using less fuel.

And then there's the small fact that CAFE's graduated standards, which allow for less stringent miles-per-gallon requirements for larger cars, actually create incentives for automakers to build larger vehicles and for consumers to buy them. New research estimates that these incentives will result in a net increase of CO2 into the atmosphere. So that seems, you know, bad.

But all this prompts one very obvious question: so what would you do, smartypants? If you know so much, why don't you come up with some ideas instead of just picking on other people's? Or do you just like to hang around and criticize?

Well, yes, I do quite enjoy doing that. I don't think I've ever made any secret of that. But it is true that after spending this much time going through the various standards and analyses and studies, all the flaws and holes and unintended consequences seem to point in the same direction. It's also only fair that after spending this much time going through other people's ideas and finding holes in them, that eventually I should propose one myself, so that people can find holes in it and pick on it. (Though what I have to say isn't that original, so it's pretty much had all the holes poked in it that it can hold.)

What it really comes down to is the skewed incentives - the way the standards make it more profitable and easier for automakers to make larger cars that use more fuel and emit more CO2. These aren't entirely the fault of CAFE's developers - though it's certainly true that the demands of the US Big Three automakers contributed to skewing the incentives. What really messes up the incentives produced by the standards are two things: first, the unbelievable complexity of the standards and each separate set of requirements; and second, the consistent focus on the rate of fuel usage, rather than actual fuel usage, as the ultimate goal of the whole mishmash. Put those two together and it's pretty much inevitable that the thing will be chock-full of incentives and opportunities to game the system.

In fact, it's become an accepted tenet of systems theory that any system, once it surpasses a certain level of complexity, will unavoidably create unintended (and unwanted) incentives. A famous example is the banking meltdown of 2008. As soon as it became clear just how badly the banks had messed up, people started asking: how could this happen? Aren't there regulations preventing this sort of thing? The answer, it turned out, was that yes, there were regulations preventing all the predictable abuses of the system. It was just that no one had realized, and therefore couldn't predict, that the system contained very strong incentives for selling mortgages to anyone who would take one - and, more crucially, that there was no one in the system at all who had an incentive to see that the mortgages were paid back.

Once you know that, the results seem entirely predictable (and some people did predict them). But the whole banking and investment system had become so complex that it was difficult for most people to see clearly all of the opportunities and incentives it created.

So how do you fix CAFE? I don't know. In fact, I don't know that you do fix it, though tightening the standards on larger vehicles, making them more proportional with the standards on smaller vehicles, would be a good start. But it would still be an incredibly complex system - and more importantly, it would still be entirely focused on the goal of causing automotive fleets to achieve a better average rate of fuel usage.

And that would be fine, if we were sure that having a lower average rate of fuel usage will cause drivers to use less fuel and emit less CO2. But we're not sure about that at all. Quite the opposite, in fact.

So, we need something really straightforward and uncomplicated that will incentivize drivers to lose less fuel. What could possibly do that?

Gas tax.

There, I said it. There's no getting away from it. Fuel has to cost more. We need a significant increase in the gas tax.

Yeah, yeah, I know. No politician would ever blah blah blah. I myself said a while back that the US would sooner sell the Statue of Liberty back to the French than raise taxes on gasoline. But the fact that solutions seem politically infeasible doesn't mean that no one should ever talk about them. If we all obeyed that rule, how would political prejudices ever change?

The first and most compelling objection to an increased gas tax is, of course, that it's regressive - it will place an undue burden on those who can least afford it. And that's true - but it's not an insurmountable obstacle. The revenue raised from such a tax would be sufficient to create mechanisms to ameliorate the burden - proportional tax deductions for fuel expenses, refundable tax credits for people under a certain income bracket, even a system of temporary fuel credits to help people adjust. (We'd just have to make sure it didn't get too complicated.)

The more you think about it, the more obvious and inevitable it seems. The only simple, straightforward, market-based way to get less of something is to make it cost more. Now all we need are some policy makers and politicians who have the brains and guts to push for this, and….

Okay, I won't hold my breath. Though if we don't come up with some better solution than what's on the table…holding your breath might not be such a bad idea.
 
 

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