California Gets a "Green" Light

As you may have read, the Obama administration is moving toward giving California approval to cut greenhouse gas emissions by mandating better fuel economy.

The California regulations should mean 40 percent more miles per gallon for new cars starting in 2016. The good thing is that the innovations that can make this happen are not in the realm of science fiction. We already know what to do, and it doesn’t involve drastic changes like a switch to alternate fuels.

According to Nic Lutsey, an expert on auto technology and the environment at the University of California, Davis, all of the requisite technologies are either already available or stand a very strong chance of becoming available in time to meet the target dates. These include improvements in engines, transmissions, aerodynamics, tires and air conditioning.

Some economists would doubtless prefer to improve efficiency through price signals (i.e. higher fuel taxes) than this kind of mandate. Regulations that set targets like this have some drawbacks. For example, they generally lack incentives for producers to exceed the targets if they can. On the other hand, the last time we seriously tried to raise fuel economy standards (from the mid-1970′s to the mid-1980′s) it got the job done.

I suspect that we go with these kinds of mandates as opposed to using prices because the costs are better hidden from the voters’ gaze. We all understand higher taxes come out of our pockets, but it’s easy to delude ourselves into thinking that the costs of the higher standards fall entirely on the producers.

The automakers will, of course, bear part of the burden, but ultimately we will not be able to escape paying our share. Based on estimates of the engineering costs for the improvements, these technologies will probably raise the price of the typical car by something on the order of $1,000. (The automakers have higher estimates, but then again, they lost a bit of credibility by heavily overstating the potential cost of catalytic converters.)

One thousand dollars is, of course, a lot of money, both for consumers and for the automakers, who plausibly fear a loss of customers.

But thankfully, there would be a financial upside to the new m.p.g. initiative as well. It will save motorists several hundred dollars per year at the pump, meaning the improvements should pay for themselves in four to seven years (even taking into account the fact that future savings are not worth as much to the driver as the money he forks over to buy the car).

And the payback period might even be faster; this calculation assumes that the average California motorist pays $1.74 for gas, which may prove to be conservative. So the added upfront expenditure need not cut into new car sales, provided that we can be sure people understand the savings they are getting “down the road.”

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COMMENTS: 42


  1. the Gooch says:

    Great.
    First we give the automakers tons or our money to keep their failed business models on life support…now we regulate them into being even less profitable.
    I can’t wait to bail them out again next year.

    Does the calculation on how this is going to benefit the average California motorist take into account the price of the automotive bailouts shouldered by that motorist?

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  2. frankenduf says:

    CA tried this before- check out the documentary Who Killed the Electric Car?- the outcome was shocking- kinda like when CA tried to instantiate a streetcar system in the 50s- alas, history repeats itself

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  3. Speed says:

    ” … these technologies will probably raise the price of the typical car by something on the order of $1,000.”

    What is your authority for this number?

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  4. Tom says:

    Definitely important to note that we will end up paying for it no matter what happens. But it’s a good investment nonetheless; we need to cut our emissions. I hope we can at least come close to reaching our goal.

    http://www.worththeenergy.wordpress.com

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  5. MikeS says:

    On NPR yesterday the California authorities claimed the cost per car would be about $400 making the payback time much shorter for the higher MPG.

    So, we should probably have a list of all the estimates and where they come from.

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  6. Johnni says:

    I read a story several years ago about billboards in Michigan with Arnold Schwarzenegger’s face on them, and a message saying something like “Arnold wants to destroy Michigan” or implying a lack of patriotism.

    Great to see these states finally allowed to push the auto-makers. If Ford, GM, and Chrysler spent money on R&D instead of buying politicians, this would have happened a long time ago.

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  7. Usually Named says:

    All this presumes that people in California actually want to buy these cars.

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  8. John says:

    What happened to letting the consumers decide what they wanted?

    I understand that the masses are too foolish to buy a car that would be “better” for them just because they wanted to, but I don’t understand why the same government preaching economic recovery and stimulus would intentionally inflate prices on required goods. The government is in the process of driving the country further into debt, so that individuals will have more money to spend and save; at the same time they are driving up the prices of goods that those individuals will need…

    Please explain.

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  9. Nosybear says:

    The requirements are already met…. in Europe.

    Last time I was in Germany my rental was a diesel-powered Audi A3 with a sticker on the dash that said (in English), Limited to 230 Km/H. For the Metrically challenged, that’s fast. I determined the sticker to be true then, at the end of my stay, I filled up the tank. Efficiency: 42 MPG.

    Put another way, last year there were 102 models of car sold in Europe that got over 40 MPG. In the US there were two. An SUV brings the maker $5,000 in profits, a fuel-efficient small car $200. Follow the money – it’s not about technology. There’s plenty of technology to increase fuel efficiency. The US market wanted big gas guzzlers up until about last June. So that’s what we got.

    Oh, with the re-introduction of the VW TDI Jetta, we’re back up to three available cars with over 40 MPG. None of them are built in the US.

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  10. UnderstatementJones says:

    Also, keep in mind that demand for fuel is extremely inelastic in the short term. If you raise fuel taxes, you make people with inefficient cars hurt a lot in the short term, then you force them to buy a new, more efficient car. Which will still be more expensive, by the way.

    If you regulate the automakers, consumers take the hit later, when they’re buying a new car. Many of them will be able to offset the cost of the fuel economy price bump by choosing a cheaper car or fewer options.

    Also, American carmakers have not demonstrated particularly good ability to respond to market pressures. Though they might theoretically be flexible, they’re not. So sometimes it makes sense to make their decisions by fiat.

    So even if regulation is not the most economically efficient pathway, you can see how there are good arguments that it is the best econo-political path. And the interaction of politics with economics is not always as stupid as people assume – in this case, it’s not just about hiding costs from the consumer, but avoiding price shocks for the disadvantaged and moving a non-performing industry.

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  11. Gabriel Wolf says:

    This has already been done essentially; and it worked. Remember just five years ago when the Toyota Prius first came out, and there were hundred and hundreds of people waiting to get their hands on one? Well the prius isn’t a cheap car, and it doesn’t include many luxury items- people sprang for it because of the MPG. Just wait untill these come out and see, it will create increased car sales.

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  12. assumo says:

    @8,
    Who ever said that a car is a “required good” ? Sounds like the powers that made you think that are regulating you more than the government is. . . If the technology is there, why not implement it? Price controls may help CA meet emissions goals, but the net benefit to the consumer is increases greatly if a car goes farther on a gallon and give off less of the most foul pollutants. That is, of course, as long as we’re only treating symptoms here. If we want to get to the root of our problems, cities need to change the way they build and grow, transit needs to be built out to its full extent, and commuters need to a) get jobs that are close to them and b) use new beefed-up transit as much as possible. My crystal ball tells me that wishing alone isn’t going to make this happen. Oh, but I wish, I really do . . .

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  13. jblog says:

    Ideally, if we were going to do this, it would be done on a national level.

    Although in reality California is big enough and important enough that whatever they decide will become a de facto national standard.

    The reality is, we’re going to head in this direction — the U.S. automakers have made it clear they will not get there fast enough on their own.

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  14. Tim says:

    Once again, a government mandate is set in direct opposition to market forces and we are just expecting things to work out. They wont: it’s a train wreck in the making. What this will do in effect is cause every automaker to develop a California-only model, which is going to increase both cost and complexity at the worst possible time. If the automakers do comply, they run the risk of these models stacking up, unsold, on dealers lots (a very expensive proposition from a number of perspectives) and if they don’t comply, they are simply out of business in CA. I think we may see certain automakers simply pull out of California entirely.

    Perhaps the heart of the CA government is in the right place (so to speak) but once again, the bizarre, narcissistic character of the state shines right through. They are making a poorly reasoned decision without regard to the consequences for the economy as a whole or the rest of the country. They could probably establish the same reduction in carbon footprint by replacing every 4-way stop in CA with traffic circles and synchronizing traffic signals, but they wouldn’t be sticking it to the military-industrial complex that way.

    Perhaps most disturbing is this early sign of political cowardice on Obama’s part. The right thing to do would have been to wait for the EPA to raise its standards so that- at the very least- the complexity issue will have been reduced for the automakers (though this does nothing to address the demand issue). Or perhaps he’s trying to signal that the new CA standard will be the new national EPA standard? I suppose it’s possible-

    In any event, this posting is completely blind to the demand side of the problem, which- as evidenced by the automotive product disasters of the early 80′s- Californians are about to relive.

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  15. Arlen says:

    That’s alright, the Gooch, Detroit is hard at work spending taxpayer money to sue the taxpayers in the hopes of defeating this measure in court.

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  16. Compos Mentis says:

    Here comes the Socialism. You wouldn’t want to buy a car your stuff could actually fit in. America is not Europe. Stop trying to make it Europe. But that won’t stop the Socialists in California from running the Auto Makers out of business in their state, or just give the citizen a list of acceptable cars they are permitted to drive.

    It may be a free country, but it’s not a free state in California.

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  17. punk says:

    “… the improvements should pay for themselves in four to seven years”

    In four to seven years there won’t be any more oil and the high mpg cars will be abandoned in the landfill together with the low mpg ones.
    I say we go out with a blast, hummers all the way baby.

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  18. a_c says:

    “the bizarre, narcissistic character of the state shines right through. They are making a poorly reasoned decision without regard to the consequences for the economy as a whole or the rest of the country.”

    Hear, hear. They are forcing the rest of us to subsidize their own bleeding-heart eco-consciences. If they want to feel good about themselves, they should do it in a way that doesn’t impose on others.

    To paraphrase from the abortion debate: if you don’t like SUVs, don’t drive one!

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  19. Peter says:

    A couple of things seem to be left out here.

    1. It isn’t just CA that is hoping to adopt this measure. It is something like 13 or so states that represent the vast majority of the US population. Remember that the 9 most populous states have a majority of the people.

    2. California did this with their CA emissions standards, and while it did restrict choice, especially early on, it was actually a good technology forcing function.

    3. As many people have pointed out the technology already exists, and while right now it commands a cost premium this premium will not hold over the next 8 years.

    4. No matter what the rules are it will not stop people from buying cars. Yes it will shift the demand-supply crossing point, but there will not be a catastrophic change in buying behavior. Also keep in mind that current US auto sales are so far below the replacement rate that to maintain the current fleet the mean lifespan of a car would have to be 23+ years.

    Is the does the policy produce a net positive benefit to society, I don’t know, but it will not cause a calamity. As to price signals, the problem with these stems from the inability of humans to properly compare this with vastly different time scales, e.g. the right-now vs. over the next 3-10 years.

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  20. Mike M says:

    I’m shocked at some of the people that comment on this blog. This is nothing more than watered down centralized planning-but worse. Letting ignorant “Green” politicans FROM CALIFORNIA set energy policy for the entire country (which is the effect that this will have, as a number of states have already agreed to abide by the rules set by California) will be an unmitigated disaster.

    If they insist on passing ridiculious legislation at least do it at the federal level where it can be properly debated and considered.

    Johnni, please look up how much the former Big 3 spent on R&D last year. The number will shock you. If anything , this industry has suffered from too LITTLE government lobbying and savvy. (Or too much government involvement in the first place)

    I don’t have a problem with fuel efficient cars. But people don’t want to drive them. You can’t sell a good that people IN REALITY do not want to buy.

    By the way, the current small margins frequently cited as the reason more fuel efficient cars are produced result from previous efforts to mandate CAFE. Americans love trucks and SUVs, and it is highly profitable to manufacture and sell these. To meet Corporate Average Fuel Economy, those gas guzzlers must be offest by higher milage small cars for which demand is low.

    The only real solution is TAX GASOLINE if being green or engery independant is the aim. Everything else is political maneuvering.

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  21. Mike M says:

    Gabriel Wolf-

    How are MPG standards or emission regulations going to increase demand for cars? Your logic is non-existant.

    Yes, the Prius was/is popular. So? The F-150 has been the best selling vehicle in America for 31 out of the last 32 years (last year included-despite rising gas prices). It’s what CUSTOMERS WANT. Regulating supply will not change customer demand.

    Take an economics course.

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  22. GeneralDisarray says:

    As a Californian I can guarantee you the average Californian pays more than $1.74 for gas. Every metropolitan area in Northern California is now over $2 and I assume the same for our compatriots in LA and SD.

    Not that I’m complaining. Pushing around my Silverado at $4/gallon was a costly affair.

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  23. jblog says:

    Well the prius isn’t a cheap car, and it doesn’t include many luxury items- people sprang for it because of the MPG.
    To the contrary, my Prius has stuff on it you can’t get standard on a car that costs less than $5K-10K more — keyless entry, keyless start, back-up camera, head-up display, touchscreen controls.

    And that’s on the base model.

    Toyota really thought this car through and designed it exceptionally well.

    What I’ve been telling people for two years now since I got mine is if all you focus on is the gas mileage, you’re missing the car.

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  24. Kimota94 says:

    For all those decrying this move because they think that it will hurt the profitability of the American automakers, perhaps you should get out a world map and acquaint yourself with all the countries outside the U.S. who might actually be interested in your cars if they had half-decent gas mileage! That’s right.. you might actually sell cars OVERSEAS if you took fuel efficiency serious, instead of considering it another slap in the face (as inevitably seems to happen). Just imagine how much better off Ford, GM and Chrysler would be doing RIGHT NOW if they’d embraced fuel efficiency back in the 80s and 90s, instead of spending billions on lobbyists to fight against it.

    Boggles the mind…

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  25. Tim says:

    Hybrids account for 2% (yes, TWO) of all light vehicle sales. That is an uncontested fact, and that was through July of 2008, the PEAK of gas prices; and- that’s not just Priuses, but ALL Hybrids. There is a huge disconnnect here between the perceptions of the policy wonks and the realities of the market, thanks to our punch-drinking (and punch-dispensing) media.

    Here’s the opinion from the industry side, for what it’s worth: http://www.nada.org/advocacy+outreach/legislativeaffairs/patchwork

    Note that this is from the auto dealer’s association, not the manufacturers. That’s an important distinction, because we really don’t care WHAT we sell, as long as we have something TO sell that is not so laden with baggage and transactional friction that it will cause the whole distribution mechanism to grind to a halt. This very well may.

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  26. ks says:

    #11 Gabriel Wolf:
    Remember just five years ago when the Toyota Prius first came out, and there were hundred and hundreds of people waiting to get their hands on one? Well the prius isn’t a cheap car, and it doesn’t include many luxury items- people sprang for it because of the MPG
    =====

    No, people bought them because they were heavily subsidized by the now near-bankrupt state of California (as well as the federal government).

    Not only that, but by some measures, the Prius is worse for the environment than a full-sized Hummer. But that seems to be ok for Californians–they seem to have no problem destroying the environment in other parts of the world for very small improvements in their own state.

    Let the market decide!

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  27. davod says:

    Europe doesn’t have many cars over 40mpgs that aren’t diesels. If you count diesels you have to factor in that it take more oil to make a gallon of diesel(~1/3) which most of the difference in gas mileage between gas and diesel cars. Pollution wise diesel gives less co2 (global warming) but more particulate matter( lung cancer). It isn’t clear that is a good trade off.

    It is easy to make a 40 mpg. It is a lot harder to make one cheaply that people want to drive. It is easy to imagine the future where all cars get 40mpg but 75% of the people drive 15mpg trucks.

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  28. Akhilesh says:

    Even if the mileage standards were to go up, Americans would just drive more. Emissions won’t drop as much as anticipated.

    Clearly, the only way out is to increase taxes gradually – so that within 5 years, we would be paying $5 per gallon for gas.

    All that garbage about socialism and central planning does not hold. Because climate change is an externality.

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  29. Mike says:

    And what about the $25 billion we already gave the auto makers to upgrade to cleaner technology? Shouldn’t that carry the burden for the first 25 million units at $1,000 per?

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  30. sk says:

    is a prius really worse for the environment? this commentary, which cites the hummer vs prius study, begs to differ.
    http://www.slate.com/id/2186786/

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  31. Richard Sprague says:

    One aspect of this that goes undiscussed is the likelihood that this measure will likely result in HIGHER POLLUTION because all other things being equal, people will drive more miles in a more fuel-efficient car.

    See this study by Andrew Kleit at Pennsylvania State Univ:

    http://www.cato.org/pubs/regulation/regv25n3/v25n3-8.pdf

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  32. Travis says:

    “Some economists would doubtless prefer to improve efficiency through price signals …”

    The price of the gas has nothing to do with the fuel efficiency of the car. Raising the price of gas and increasing the fuel economy of cars are both ways of decreasing the amount of fuel Americans use. They should both be implemented, but they have nothing to do with one another.

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  33. Mike Dahlstrom says:

    One thing that seldom gets discussed is that federal highway funds are linked to air quality levels. (See http://www.ewg.org/node/14937 for some discussion on the issue).

    Since a state has little to no ability to control total population levels or the number of vehicles on the road, it is logical to conclude that they should have some ability to control emissions produces by these vehicles based upon the local conditions that govern whether they are more likely than the average to form smog. (i.e things such as terrain, temperature, weather, etc).

    Allowing the states to mandate vehicle emissions is a good way to accomplish this. It gives them the ability to craft requirements to meet the “local givens” that damage their ability to meet required federal mandates. Is it good for the auto companies? In the short term, no, but it could ultimately drive them to be able to build products with increased customization built into the design. This would make the auto industry comparable to other large industries like computers, airliners, etc. Detroit needs to move beyond the “any color you want as long as it is black” mentality and increase their flexibility in order to best meet customer demand and this will force them to do that. Will it cost? Of course – nothing is free, but the increased competitiveness will be a long-term benefit.

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  34. Daniel says:

    This reminds me of the daycare in Freakonomics. Parents didn’t feel bad about being late to pick up their children because there was a small fine imposed. If gas mileage is improved, people will just drive more, and not feel bad about it.

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  35. Kirilius says:

    I agree with #32 who says that both measures have to be taken: legislate more fuel-efficient cars AND increase gas tax. It is much like with smoking: ban smokers from public places AND make cigarettes more expensive.

    To those who say “if you don’t like SUVs, don’t drive one”: only me not driving SUV won’t help keep the planet greener. Same analogy with tobacco: I don’t like smoking and I don’t smoke but that is not enough because I am FORCED to inhale the smoke that other smokers produce. If I don’t drive an SUV I still have to breathe the polluted air that other people’s SUVs produce and I still have to pay the price for other people being careless about Earth’s natural resources.

    The whole notion of freedom is unbelievably twisted in some people’s minds. You want to be FREE to destroy the planet’s resources as fast as your SUV can manage? You want to be FREE to force me to breathe the smog you create? Is that what you call freedom?

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  36. TroubleMaker says:

    Is it really the case that in order to make Americans behave well, they need regulation?

    Lots of people buy efficient cars not because they have to (petrol’s not /that/ expensive, even over here in England), but because a) they can – European/Far Eastern cars are better engineered and get great economy and b) their consciences are enough to make them behave well.

    And as for comments saying “If you don’t like SUVs, don’t buy them” then you’re missing the following obvious negative externalities:
    o You pollute my world
    o Your vehicle drinks fuel, driving prices up
    o Your vehicle hits a pedestrian, it’s far more likely to do permanent damage to them
    o Your vehicle is hard to see round, making driving near you more dangerous than it needs to be

    The problem is not that I won’t buy an SUV (of course I won’t) – the problem is that you aren’t bright enough not to.

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  37. griff says:

    As has been pointed out (#9) there are already cars in Europe that meet these standards.

    And that’s right now – what do you think they’ll be producing by 2016?

    I’ll bet that Japan and Europe will be selling a lot more cars in California – I think the US is going to need to put in a lot of catch up effort.

    also, the reason that there are fuel efficient cars in Europe is because governments keep fuel taxes and car taxes high to reduce car/fuel use…

    So, all in all, I’m not sure this article is right in what it says.

    Finally – what’s wrong with being like Europe or even Socialist ? Its pretty good ! (come on over).

    Given peak oil, pollution and global warming (which exists everywhere outside the US) how is it good/sensible/better to allow only futures with cheap gas and drive a big car as much as you like?

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  38. nate says:

    if it’s such a good payback for the customer, the customer would already be choosing it.

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  39. Kirilius says:

    “if it’s such a good payback for the customer, the customer would already be choosing it.” – Wrong!

    The long-term consequences of pollution and depleting Earth’s resources are not hitting the customer too hard at the moment. Therefore the customer is not in a position to make an informed choice. The Western culture is short-term oriented. If you can put a few thousand dollars aside today you tend to care less what is going to happen tomorrow or a generation from now. Combine this with the prevailing ignorance about the world around us and you get a “customer” whose choice is far from to be trusted.

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  40. Clayton says:

    And to think, if the states had been allowed to regulate a few years ago, all the money the auto industry spent lobbying against the standards could have been money spent on engineering more efficient cars. Then we migh have those 40% higher MPG cars today instead of in 3/4 years.

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  41. jblog says:

    “Not only that, but by some measures, the Prius is worse for the environment than a full-sized Hummer.”

    This is factually incorrect and has been thoroughly debunked by the Union of Concerned Scientists, MIT, and Carnegie Mellon among others.

    http://www.sierraclub.org/sierra/200711/mrgreen_mailbag.asp

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  42. Steven says:

    Owning cars solely exist to benefit big oil, big banks, and big insurance. I’m glad that I opted NOT to own a car. I just got done paying for my home in just a little over 10 years. After paying all that interest and buying extra fancy accesories, does your car really appreciate in value? It’s a bad investment when you spend all that money on a car and get very little of it back when it comes time to sell it. With my home paid for, I got financial relief. If I had bought a car about ten years ago, I’d be struggling with trying to make my payments. No thanks for owning cars. If I need one, I can always rent one for a few days. Thank God for public transit, bicycles, taxis, and a loving mother and father who will let me borrow their car in exchange for a tank of gas once in a while.

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