Energy conservation
A few points, specifically about fuel economy standards:
1. It is intensely misleading to say that standards "fail to deliver all or any of its promised reduction in total gallons consumed." We know that about 10 or 20% of the gains calculated by ignoring changes in vmt (vehicle miles of travel) will be lost because of increased driving. No way can "all" of the reductions be lost. And good analysts factor in the rebound effect in their "promises."
2. The market works when consumers pay the full costs. We could have some pretty good arguments about whether the price consumers pay for gasoline really encompasses its full costs to the US. Would we be in Iraq if we weren't dependent on imported oil? Would we allow Saudi Arabia to get away with financing global terrorism if we didn't depend on them to stabilize oil markets? Shall I go on?
3. Finally, a number of analysts have observed that the net benefits of improved fuel efficiency tend to be fairly small over quite a range of incremental improvements and investments in technology. Further, there are real tradeoffs between higher fuel economy and higher performance, so that automakers have to decide whether to offer potential purchasers better fuel economy or faster 0-60 mph performance. It's not surprising that automakers don't want to take a chance on making large investments in fuel economy when their competitors may offer better performance, or just a lower price. Lots of market risk there. If the government forces everybody to make the same tradeoff, though, much of the market risk disappears. What remains is the possibility that purchasers won't like the new models and put off buying. Bad news, but this didn't happen with the first fuel economy standards, and it didn't even happen with emission standards, which offer nothing (visible) to the purchaser (at least better fuel efficiency pays back at the pump). I'd be the first to admit that some of the very large increases in CAFE standards proposed by environmental groups might really result in a slump in sales—but that doesn't mean that a more reasonable increase, say 25% by 2015, couldn't be accomplished without such an effect.
4. Finally, the regulatory approach can't be taken without adverse impacts, that is, market distortion. Taxing gasoline would be a better approach, especially if we reduced other (hopefully the least efficient) taxes to make the whole thing revenue neutral. However, there are ways to regulate, including the allowance of permit trading and the use of attribute-based standards, that can greatly reduce market distortions.
Steven Plotkin
Argonne National Laboratory
Washington, DC
