Improving CAFE

Recently I wrote about the perverse incentives set up by the current CAFE system, which at least partially undermines the environmental benefits of buying a hybrid car. I then mused about what a more flexible market-based system of tradable fuel economy credits might look like.

Via Kevin Drum, I see that this idea has been kicking around for at least a few years now. A 2002 examination of CAFE’s effectiveness and impact lays out a more extensive proposal for how a fuel economy market might work.

The book’s version is better than mine, but the benefits are the same: greater flexibility for auto manufacturers in meeting fuel economy standards, and better incentives for manufacturers to actually exceed the guidelines.

Under CAFE, [maufacturers] have no incentive to further increase fuel economy. But under a tradable fuel economy credits system, they would have the option of further increasing fuel economy and receiving additional credits that they could sell to other manufacturers.

Perhaps this is an idea whose time has come.

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adam