Higher CAFE standards will harm alternative fuels

I nearly choked to death when I saw that the Union of Concerned Scientists was advocating higher Corporate Average Fuel Economy (CAFE) standards in order to lower our dependence on foreign oil. I’ve seen a lot of garbage come out of this socialist front organization over the years, but this really takes the cake. You’d think as part of the “intellectual elite,” they would recognize the role that market forces can play in shaping behavior. I’m pretty sure Adam Smith first mentioned something about an invisible hand around 230 years ago.

What makes it so sad is that they’re simultaneously advocating the development of alternative technologies. The two initiatives are mutually exclusive; the consumer will choose whichever is more economical. You can’t make gas cheaper while shifting people to alternative fuels. This is beautifully illustrated by the fact that our ever higher oil prices are accompanied by record sales in hybrid vehicles.

It’s a simple fact that alternative technologies will likely carry a hefty premium for the foreseeable future. Internal combustion engines are a very mature and efficient technology; very little has changed in the past 120 or so years. Oil distribution, too, enjoys the high level of coordination and infrastructure that can only come with decades of growth and capital expenditure.

Why should you pay several thousand dollars more for a hybrid that in the long run, will actually cost you money compared to a conventional car? Why should you bother with the hassle of ethanol given that there are only three fillup stations in your entire metro area? Why should you bother spending a couple thousand dollars to install a Straight Vegetable Oil kit in your diesel truck if the savings won’t be that great?

You won’t. It’s that simple.

What does CAFE have to do with this? It would have a two-pronged effect on fuel consumption as a percentage of household budget. First, if average fuel economy for passenger cars was increased while mileage stayed the same, the demand for oil would go down, along with the price of a gallon of gas. Second, because your car is likely to be more fuel efficient, you’d be using less gas to do the same amount of travelling. Less fuel consumption at a lower unit price means a substantial reduction in how much you’re spending.

Why is this a bad thing? Surely if you’re spending less and using less gas, that means you’re reducing your dependence on foreign oil? Not exactly. You’re reducing the degree of dependence, but not the nature of the dependence itself. All you’re doing is drawing it into a longer, more protracted affair. It’s a bit like a heavy smoker compared to a more moderate one. Paradoxically, the guy with the two pack a day habit would actually be more likely to quit. Why? Because he feels the costs more. It’s much easier to make the decision to stop smoking when you spend $10 a day on the habit, cough up a liter of black gunk every morning, and can no longer get to your mailbox without feeling winded.

It’s the same thing for oil. The higher the price of oil, the more incentive there is for companies to invest in alternative technology. The more interest consumers will show in it. And the higher premiums everyone from the distributors to the drivers are willing to pay in order to move to the new tech. And as more and more money flows into research and design, the technology will mature. If not ever as economical as gasoline was, certainly much more so than now.

I think we can all agree that no matter whether we’re talking international politics, economics, or conservation, our dependence on oil is a bad thing. It’s not enough to simply cut back on the habit. We’ve got to quit. And that’s something we’ll never do as long as we aren’t pushed to. The more the price of oil affects the consumer, the faster we’ll move away from it.

One thought on “Higher CAFE standards will harm alternative fuels

  • April 29, 2007 at 7:59 pm

    CAFE rules add a multiplier of 1.15 for anything using alternative biofuels–

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