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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  1. 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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  2. 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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  3. 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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  4. 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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  5. 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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  6. 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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  7. 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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  8. 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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