Wednesday, February 21, 2007

Cafe Standards II

I was recently shown a couple of links about CAFE standards. The first link is to the NHTSA site entitled CAFE Overview - Frequently Asked Questions.
Since 1983, manufacturers have paid more than $500 million incivil penalties. Most European manufacturers regularly pay CAFEcivil penalties ranging from less than $1 million to more than$20 million annually. Asian and domestic manufacturers havenever paid a civil penalty.

Well so much for the EU being better at fuel efficiency than the USA. OOOOPS! I stuck my foot in my mouth there, anyway look at post script for a more thorough explanation. I wonder if CAFE really works? Isn't the object to reduce gas consumption? But before I try to answer that, please take a moment to read the portion labeled: How is a manufacturer’s CAFE determined for a given model year?...
So it is based on number sold of each model in a 'fleet' and the average MPG for that model. But this does nothing to address which vehicles will be driven farther and how they will be driven. Instead of the market (individuals) deciding how best to conserve fuel, the manufacturers have to market to a CAFE standard. What ever happened to the Station Wagon?

Let me use a fleet of 2 to illustrate some points. My parents tended to have two vehicles when I was growing up. A Ford F150 pickup (12-15 mpg) and a VW Bug(30 mpg). Now their CAFE would be about 21 mpg. But this disregards the fact that most miles were put onto the Bug. So his actual average was above 21 mpg. Also the vehicles were used for strictly different functions and thus one could not substitute for the other. The Bug was used for daily activity and commuting to work. While the F150 was used for hauling stuff for the farm and our frequent hunting trips. When we went hunting it was usually 3 in the F150 and many times it was 4 hunters. Thus the actually MPG for the individual was actually 36 mpg. So I am just saying that sales has no bearing on actual fuel consumption or conservation. Another person I met had a pickup and with a computerized control system he was able to increase his fuel economy greatly. Of course going 50mph on the roads pissed off more than a few people.

The second article (China Set to Act on Fuel Economy; Tougher Standards Than in U.S.) is a little old but has some interesting parts.
Various Chinese government agencies still have three months to review the legal language in the fuel economy rules, giving automakers some time to lobby against them; as yet, there has been no mention of the approval of the new rules in the government-controlled Chinese media.

Well that is great, how well do plans tend to work when they are implemented without a democratic process? Of course 'Experts' should be the decider of what is best for society. I wonder why that theory does not hold for the IMF.
The new standards are based on a vehicle's weight — lighter vehicles must go the farthest on a gallon — and on the type of transmission, with manual-shift cars required to go farther than those with less efficient automatic transmissions.

Seems like this is distorting the market. Now manufacturers have an incentive to switch to automatic transmission heavier vehicles and thus create the incentive for less efficient vehicles on the market.
The Chinese rules do not cover pickups or commercial trucks.

That is funny. Do you think they created a loophole that manufacturers will try to exploit?
The fastest way to improve fuel efficiency is to switch from gasoline to diesel engines, as Volkswagen is starting to do in China. The latest diesel engines are much cleaner than those of a decade ago, but are still more polluting than gasoline engines of similar power.

Again we have the trade off between more fuel efficiency and a cleaner environment. As a matter of fact if we reduced our smog controls we could increase fuel efficiency overnight.
In the United States, G.M. has argued that tighter fuel economy rules are unnecessary because technological improvements will someday improve efficiency anyway. G.M. and other automakers have also contended in the United States that higher gasoline taxes would represent a better policy than higher gas mileage standards, because it would give drivers an economic incentive to choose more efficient vehicles and to drive fewer miles.

I couldn't agree more!
Another company that could run into trouble over the Chinese mileage standards is Toyota, which on Nov. 6 began selling a locally produced version of its full-size Land Cruiser sport utility vehicle in China. A spokesman said on Monday that Toyota had not yet heard about the new Chinese fuel economy regulations, which have been prepared with a level of secrecy typical of many Chinese regulatory actions.

This line is one of Toyota's most profitable line. This is one of the reasons the US automobile industry is losing ground. They are losing their profitable lines and unable to find something to replace it with.

The original debate I had was about international CAFE standards, but so far I have only been shown China standards. But now let us look some distortions in the market that are not conducive to saving energy.
CAFE advocates claim that all the gains in fuel economy over the past 30 years can be attributed to the command and control approach. An historical look at the data shows that fuel price did more to increase fuel economy than any other factor. In the early years of CAFE, manufacturers exceeded standards by a wide margin largely due to high fuel prices driving customer purchase decisions. When fuel prices stabilized, so did average fuel economy. CAFE Standard

So maybe GM is right.
The Dutch have the dubious distinction of paying the most to fill 'er up, according to the U.S. Deptatment of Energy. (There are various agencies that track gasoline prices, but these are among the most recent figures available.) As of April 10, drivers in the Netherlands were paying the equivalent of about $6.73 a gallon at the pump. The gas itself cost $2.61; the rest — $4.12 — represented tax. That’s a 158 percent tax. By comparison, the U.S. has the lowest tax on gasoline of any industrialized country: about 15 percent at current prices. What does gasoline cost in other countries?

So what is more effective, trying to dictate what vehicles will be purchased or going to the source of what you want to control? And now for other countries...
So much for Europe and Japan. In less-developed parts of the world, some countries actually subsidize pump prices to keep them below what the gasoline actually costs to make. China, which recently raised fuel prices, still keeps them well below international market rates. Chinese drivers — and farmers — still pay the equivalent of less than $2 a gallon. As a result, the oil refining industry there is losing billions of dollars. That’s why the Chinese government is expected to continue to try to raise retail prices, while trying to avoid a major consumer backlash.

The cheapest places to top off, not surprisingly, are in countries that produce the most oil. In Iraq, until recently, pump prices were capped at 10 cents a gallon. Prices have recently risen to nearly 40 cents a gallon — still a bargain compared to the U.S. Iran also keeps pump prices low — less than 35 cents a gallon, according to a recent Reuters survey.

But for a real bargain, drive on down to Venezuela, where President Hugo Chavez has made a name for himself lately by delivering heating fuel to low-income American families at bargain prices. In Venezuela, you’ll pay just 12 cents a gallon to fill your tank.

Doesn't sound like much if any incentive to reduce consumption in some of those countries.
And this same theme is spelled out more fully in Asian countries subsidizing fuel hit hard by higher oil prices.

And lastly, 'Just-in-Case': How to Think About Uncertainty and Global Warming:
"One can only wish that U.S. political leaders might have the insight to understand and the courage to act upon the breathtakingly-simple market-friendly idea that the right carbon tax could do way more to unleash the decentralized power of greedy, self-seeking American inventive genius on the problem of developing economically-feasible non-carbon-intensive alternative technologies than all of the command-and-control schemes and patchwork subsidies making the rounds in Washington these days."


P.S.: A friend of mine has pointed out that I did not look into my statement very well. I jumped to a conclusion or did not explain concisely what the issue was. In his own words:
"Well so much for the EU being better at fuel efficiency than the USA."
Actually, European car manufacturers are quite good at fuel efficiency. The average fuel efficiency of European cars is over 40 mpg (5.9 L/100 km) and North American cars only average 20.4 mpg (11.5 L/100 km).
http://en.wikipedia.org/wiki/Fuel_economy

However, European car manufacturers make cars especially for the US market. The line of cars you see here in the US from Mercedes, BMW, Audi, Volvo, Volkswagen, Saab, Jaguar... are happy to pay the CAFE fines so that they can sell gas guzzling luxury cars and SUVs here. Since they concentrate on the luxury end of the market, they don't want to dilute their luxury niche with econo-boxes. Thus they don't introduce their economy cars in the US. For example you hardly ever see Mercedes' SmartCar or other A series cars, BMW 100 series cars, VW's Eos, Fox or Polo... etc. here in the US.

Since I don't know the European market, I will take what he says as fact. It is also important to look at the forwarding link to Fuel Efficiency and Lessons from Europe. And I will take the numbers as truth also, even if the measurement of the averages may not make sense. I believe it is not average MPG per vehicle that matters it is MPG per person mile driven. But even with all this, does this not signify that CAFE standards are not efficient in reducing gas consumption? The way the fleet system of calculating CAFE standards favors some fleets over others and not individual vehicles. So European car manufacturers are violating the intent of our regulations for economic gains. Why don't they regulate their exports since they think they know better than the US.

Links:
Cars: Fuel Economy

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