The current fuel-economy standards are akin to a dilapidated vehicle desperately in need of repairs. Although these rules, introduced in 1975, have led to more oil consumption and pollution than originally intended, a revision of these regulations makes more sense than abandoning them entirely.
Many economists argue that increasing gas taxes would be more effective than mandating car manufacturers to produce more fuel-efficient vehicles, and their perspective holds merit.
However, political realities often dictate what is possible. In response to this, the Biden administration recently tightened the Corporate Average Fuel Economy (CAFE) standards that had been relaxed under the Trump administration.
Despite this, several flaws in the CAFE system persist. For example, manufacturers that sell larger vehicles are subject to less stringent targets compared to those selling smaller ones.
This discrepancy is particularly pronounced when comparing passenger cars to light trucks, a category that includes larger crossovers and certain SUVs, such as the Toyota Rav4, Nissan Rogue, and Ford Escape. This issue was less prominent in the 1970s, when most people drove standard passenger cars.
Economists highlight that this size-based rule encourages automakers to focus on producing larger vehicles, as it makes it easier to meet fuel economy standards.
Moreover, the rule lacks a clear mechanism to limit the number of gas-guzzling vehicles a manufacturer can sell, leaving room for various loopholes. For instance, automakers are awarded credits for technologies that do not directly contribute to improved fuel efficiency.
Over time, efforts have been made to close some of these loopholes. For example, electric vehicles (EVs) were previously counted twice, and flex-fuel vehicles, which can run on higher ethanol blends, were treated as if they regularly used such fuels.
In reality, these flex-fuel vehicles rarely operated on high-ethanol fuels, and they did not improve real-world fuel efficiency, as noted in a 2017 along with Sam Ori.
A more cost-effective approach would be to tax carbon emissions or gasoline directly, as Europe does.
A study in San Diego found that the cost of saving a gallon of fuel through fuel-economy standards is three to six times higher than implementing a gasoline tax.
However, raising federal gasoline taxes, which have remained at 18.4 cents per gallon since 1993, is politically unfeasible, as carbon taxes are also unpopular.
In light of this, economists have proposed potential adjustments that could be made within the existing framework.
In a paper published last year, it is suggested eliminating the distinction between cars and light trucks, asserting that there is no valid economic reason to apply looser regulations to SUVs than to other passenger vehicles.
According to Ito, the Transportation Department might have the authority to make this change independently.
Professors Greenstone, Sunstein, and Ori have proposed a cap-and-trade system that would limit the total fuel consumption and carbon dioxide emissions of new vehicles sold each year. They suggest that the EPA could have broad discretion in implementing this system.
While fuel-economy standards may seem deceptively palatable to the public, they often obscure the true costs, as car buyers do not directly see these costs broken down.
Fortunately, substantial research has been conducted that identifies both the costs and the flaws in the current system. With the right tools, government agencies still have the opportunity to refine and strengthen this policy.