How Economists Proved Car Companies Are Lying about Better Mileage
November 22, 2011. Nothing’s perfect, but at present, but conservation sure beats whatever’s in second place. And if you don’t like paying taxes to our Uncle Sam, stop for a moment to consider what we pay to Iran and Saudi Arabia (yes, I know we mainly buy from Canada, but that just means someone else pays Iran for us). I’m not getting off track here, our best conservation opportunity is aimed squarely at the world oil market.
The American Economic Review (look) just estimated what it cost to improve a car’s mileage by 1 mile per gallon. Between $9 and $27 on the price of a new car. And how did they figure this. They took a very careful look at how car companies use and don’t use loopholes in CAFE standards. When they make only partial use of a very cheap loophole that proves they are not up against any high-cost barier. And that’s what we see.
This completely gives the lie to car company’s moaning and groaning over how much it would cost them (and by implication, us) to give us better gas mileage. It also confirms what Amory Lovin’s has said for years (and I’m not fan of Lovin’s) and what I explained in my book Carbonomics. By fighting car companies on their own turff — engineering — they set themselves up for failure. And fail they did. This is all because environmentalists love command and control, which gets them right into the engineering — what’s practical and how much will it cost.
The right way to solve this problem is economics. That’s how to put real pressure on car companies. Use a fee-bate. Charge a fee for cars with low mileage and give a rebate for cars with high mileage. Then the car companies can never argue, “Oh we can’t possibly meet that standard.” With a fee-bate there is no standard. And that’s what makes environmentalist nervous. But they need to curb their control-freak habits and learn some economics. After all, it’s greed that drives corporations. Learn how that works and you can weild some power. So would your rather get the job done, or try to get some satisfaction out of telling car companies what they can and cannot do. Given that the companies win anyway, I’d have to call that a no-brainer.