ACCUMULATING PERIPHERALS


Making cars more fuel-efficient does, in fact, save fuel by mattsteinglass
May 20, 2009, 11:28 am
Filed under: Conservatism, Economics, Environment

President Obama announced yesterday that the US would dramatically raise CAFE standards by 2020 2016, meeting California’s high future standards for fleet fuel efficiency. Environmentalists applauded. Even the auto manufacturers applauded — the national standards give them certainty. And naturally, “ideas” journalists and bloggers scrambled for ways to say this was a bad move, or wouldn’t accomplish anything, or would actually kill people. Because that’s our job. News journalists are paid to report when a man bites a dog, not when a dog bites a man. “Ideas” journalists and bloggers are paid (or usually not paid!) to argue, however tenuously, that the dog you think you see biting a man is actually a man biting a dog.

The main problem contrarians generally have with CAFE standards is what’s called the “rebound” effect. When cars become more fuel-efficient, it costs less to drive them, which leads to increased driving that cancels out some of the lower fuel consumption. Megan McArdle writes:

It will reduce our carbon emissions, but not by as much as advertised, because more fuel efficient cars make driving cheaper, so people will do more of it.  This “rebound” effect robs about 25% of gains, and also means more congestion, and more wear-and-tear on roads

The rebound effect is real, and it’s a legitimate thing to factor in. And some papers have indeed found rebound effects in the 23% range or higher. But it turns out that the effect probably isn’t that high. This paper by Kenneth Small and Kurt Dender found that while the rebound effect had been high in the late ’60s and ’70s, it had shrunk to a short-term effect of 2.2% and a long-term effect of 10.7% by 1997-2001. True, two main reasons were income growth and low fuel prices, which does mean that the more we try to reduce driving through high fuel prices, the greater the rebound effect will be. (The richer you are and the cheaper gas is, the less fuel spending matters to you, so the less fuel efficiency affects your driving.) But another main reason is congestion, which is an increasing drag on people’s willingness to drive. Even if you drive a Prius, you’re not going to drive an extra 10 miles if it’s going to take you 45 minutes. (A forthcoming Stanford study promises to focus on this effect.) And as fuel efficiency rises and driving rises, congestion rises, which restrains that extra driving and limits the rebound effect.

The short-term rebound effect is always going to be small — people just don’t change their driving habits that quickly because of fuel costs. ($4-a-gallon gas led to driving reductions last year of just a few percent.) The long-term effects are somewhere in the double digits. At the Freakonomics blog, Eric Morris glosses a 2000 International Energy Agency report on this as follows: “The research suggested that miles driven would increase by 10 to 30 percent of the percent increase in fuel economy.” If I understand this correctly, if cars were no more fuel-efficient in 2001 than in 1966, we would have been driving 10 to 30 percent less, holding gas prices equal. (Which they were, roughly.)

But think about that for a second. If cars were no more fuel-efficient in 2001 than in 1966, we would have been driving 10 to 30 percent less. We would have been burning vastly more fuel. In other words, mandatorily shifting the fuel efficiency of the fleet is an extremely efficient way to burn less fuel. (Not to mention the fact that all those extra miles driven had some utility to the people who drove them. How many extra family vacations to the Adirondacks went into producing the “rebound effect”? Those vacations are worth something — a lot, in fact.) And this gets us to the salient point: the claim is that raising CAFE standards is to some extent an inefficient way to reduce fuel consumption compared to what? How high would the price of gas have to go to achieve an equivalent reduction in fuel consumption and CO2 emissions to Obama’s higher CAFE standards? How high would user fees on highways have to go? What would be the distributional effects? What would be the cost to the economy?

Here’s the thing. Actions often produce countervailing reactions that reduce the effect of those actions. But in general, most actions tend to mostly do the thing they’re intended to do; the countervailing reactions tend to be smaller. The countervailing reactions may be more interesting and surprising, and hence provide some of the best topics for journalists. But they also tend to provide the best justifications for powerful, wealthy individuals and organizations who don’t want to change the status quo, because they profit from it. Pretty much since the birth of neoconservatism in the late ’60s, there’s been a confluence of interest between certain kinds of “ideas” journalism, think tanks, and extremely wealthy individuals and established industries like finance, automakers, and oil. That confluence of interests lies in trying to show that government programs that serve the public interest at the expense of these established private interests are actually, for various clever reasons, counterproductive. And so we get people focusing on whether the minimum wage hurts the poor, or whether raising taxes lowers government revenue, or whether CAFE standards increase fuel consumption, or whatever. But the world isn’t really that interesting. The minimum wage mostly helps the poor. Raising taxes mostly increases government revenue. And CAFE standards greatly reduce fuel consumption, and it’s a very good thing that the President is raising them.

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5 Comments so far
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Very nice post, up until the last paragraph’s non-sense about tax and minimum wage.

One thing though, is that CAFE causes people who own cars to be able to drive more, but it decreases the number of people who are able to buy a new car slightly. It increases inequallity a little, it may create a tiny bit of a barrier into the driving class. But I think you are right that CAFE is a net benefit as it reduces operating costs and creates greater opportunity people to do business.

Comment by aaron

I think you’re imagining that a gas tax would reduce emissions without efficiency gains. But of course, those of us who dislike CAFE compared to alternatives don’t envision everyone driving 1966 Thunderbirds two miles a day; obviously, more fuel efficient cars would be a big part of the savings. The problem with CAFE is that they’re rigid. Instead of letting drivers choose how they want to reduce their carbon emissions–more efficient cars, shorter trips, more carpooling, fewer cars–CAFE picks one way. A mixed, more flexible strategy would be superior in both emissions reduction and total utility.

Comment by Megan McArdle

Honestly, I don’t know that minimum wages help the poor, unless you look exclusively at the short term, or the very long term. For example, if you go for the “long range” story arc of:

Minimum wages increase the cost of labor, and businesses compensate by finding ways to avoid the labor, or to automate it. Advances in automation lead to smarter, more effective robots, which are able to take on more menial tasks, further diminishing the value of unskilled labor, while also lowering the cost of manufacturing and services. Ultimately, we end up in a “Diamond Age” scenario, where unskilled people live their whole lives on a fairly prosperous welfare income in a society where robots perform all manual labor.

Which seems to me likely to happen whether we raise minimum wages or not. I suppose you could make an argument it will happen faster if we make labor more expensive, but that will still cause a fair amount of stress in the transition period, which is liable to last 100+ years. Plus, I’d be surprised if your thoughts went in this direction.

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