More data on how to improve automobile fuel efficiency

Paul Krugman's blog today discussed a recent study showing that through 2006 increasing gasoline prices were not inducing Americans to buy more fuel-efficient vehicles. The same study shows that in Europe and Japan, where the increase in fuel prices were proportionately much smaller than here, voluntary agreements with auto companies were yielding increased average fuel economy in new vehicles. Here's how I responded to PK.

In 2002 the National Research Council in Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) Standards published these conclusions (at 15):

"Figure 2.2 suggests that the CAFE standards were not generally a constraint for imported vehicles, at least until 1995, if then. Domestic manufacturers, on the other hand, made substantial fuel economy gains in line with what was required by the CAFE standards. The fuel economy numbers for new domestic passenger cars and light trucks over the past 25 years closely follow the standards. For foreign manufacturers, the standards appear to have served more as a floor toward which their fuel economy descended in the 1990s."

When in 1980-81 inflation-adjusted motor fuel prices were in the same high range they are now, new domestic vehicles purchased were on average more fuel efficient--even getting ahead of the CAFE standards by about a year. Then gasoline prices went down about as fast as they went up, and by early 1986, real pump prices were below where they had been in 1978. We continued to have ever cheaper gas for 17 years until 2003, and new vehicle fuel economy hugged the CAFE floor.

We had the fuel economy gain without the price pain. Furthermore, the recent pain has not been very effective in causing Americans to buy more fuel efficient cars. The Schipper paper you cited says this at 14:

"Yet comparing both new vehicle fuel economy and changes in the stock among the US, EU and Japan since 2002 [through 2006] show that [sic] improvements in the latter two but not in the first. This occurred even though the relative price changes in the US were larger since the price of crude and refining represents a much larger share to consumers than in Japan and Europe, where taxes are 2-3 times higher. From this comparison it is difficult not to conclude that the Voluntary agreements in both regions affected new vehicle fuel economy."

Not only have higher prices induced only very modest increases in fuel efficiency but we cannot count on gasoline prices to stay high or go higher. Remember we were said to be running out of oil in 1980-81 too. That's why we need CAFE standards--and tougher ones at that—if not to drive the change then at least to prevent backsliding.

Finally, I don't think you can compare the US to Europe and Japan. Figure 10 in the Schipper paper shows that GDP per capita is significantly lower there. I suggest the reason people with lower incomes buy smaller cars is not so much that they get better gas mileage but that smaller cars have smaller purchase prices.

Comments

[Jackie]

The only concern is that car prices may increase as a result of CAFE. The cost of the development of these efficient cars will most likely passed on to consumers.

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