If you’re sufficiently geeky, the monthly free seminar/webinar series sponsored by the California Air Resources Board covers some fascinating environmental ground. One recent seminar provided an economist’s view of American automobile fuel economy standards, with particular insight into the effects of these standards on driving behavior. I’m drawing a lot from that one here, and give due credit to Soren Anderson, a visiting researcher at UC Berkeley, whose great slides (.pdf) provided me fodder here.
Simplified refresher: for the past 30 years, the US has had automobile fuel economy standards in place. These standards have mandated, at a manufacturer/importer level, an “overall fleet sales-weighted average” fuel economy level. So each automaker has had to ensure that, when averaged together, all the autos it sells each year achieve the required fuel economy level. The required level has been stable at 27.5 mpg for many years.
One way automakers could reach the target has been to design, market and sell small, efficient cars to bring their fleet average down. (I’m aware of, but ignoring here, the practice of making cars just big enough and just truck-y enough to be exempted from the standards altogether.) This incentive to create small and efficient cars has meant a diverse selection of small and efficient cars for people to buy. Since these cars cost less to operate than their inefficient counterparts, the economist would say that car buyers should prefer to purchase them, depending of course on the value of other car-choice attributes.
So far, so good. Automakers have incentives to create small cars, we have incentives to buy them. This means that without giving up anything we like and want, we have made our driving more efficient.
But the standards have recently been changed. Among other changes, the standards now coming into force differ with car size. On the positive side, this means that automakers have incentives to make all cars efficient (for their size). But on the other side, it means they no longer have incentives, or have less powerful ones, to design and sell small cars.
In other words, the new standards force us, the consumers, to demand small cars of our automakers if we want them to keep making small cars. Yikes! I am not sure I have that faith in our car buyers. Do you?