New Fuel Economy Standards Leave Poor Americans in the Dust

March 5, 2014

Sofie E. Miller

In remarks on February 18, President Obama announced fuel efficiency standards for new vehicles, referred to as Corporate Average Fuel Economy standards (CAFE standards). The standards, which will be proposed in March, 2015, would require new medium- and heavy-duty trucks to meet “ambitious” (but as-of-yet unspecified) new goals for fuel economy. However, while the President and the Washington Postrhapsodize about this new “win-win-win” solution, the wins assume that profit-motivated companies need government regulators to identify (and mandate) cost-savings. And past experience suggests that low-income Americans will be the biggest losers.

The premise of CAFE standards is fairly straightforward: mandating more fuel-efficient vehicles can save consumers some serious gas money over the long-term. The President’s new CAFE standards, which cover medium- and heavy-duty trucks, would apply to some pickup trucks, tow trucks, tractor trailers, dump-trucks, and semis, affecting both consumer and commercial products. While the regulated vehicles would be more expensive, proponents calculate that purchasers will recoup these higher upfront costs over time by paying less at the pump. One size does not fit all, however. While some industry and consumer sub-groups may benefit from increased fuel economy, others can’t afford the higher upfront costs and don’t value long-term savings as highly. Unfortunately, this puts fuel-efficient vehicles out of reach for many low-income Americans and small businesses that are strapped for cash.

But you wouldn’t guess as much from the President’s remarks. Before announcing the new push for fuel economy, the President complained that, despite the some economic progress, many middle-class and low-income households are still struggling:

But the trends, the long-term trends that have hurt middle-class families for decades have continued—folks at the top doing better than ever before; average wages and incomes have barely budged. Too many Americans are working harder than ever just to keep up. So our job is to not only get the economy growing but also to reverse these trends and make sure that everybody can succeed. We’ve got to build an economy that works for everybody, not just the fortunate few. [Emphasis added]

While this may be the President’s stated goal, past experience shows that it’s not what new CAFE standards would actually accomplish. Like many other energy efficiency standards, CAFE standards for consumer products may benefit some wealthy households at the expense of low-income households, an unintended redistributive consequence that is completely contrary to the President’s goals of building an equal-opportunity economy.

In an editorial supporting the new CAFE standards, the Washington Post suggests that increased fuel economy will help businesses that use commercial medium- and heavy-duty trucks to make more profitable decisions, because truckers are currently too short-sighted to see the economic benefit of better gas mileage:

Many truck upgrades will pay for themselves over time in saved fuel. But truckers might be discouraged by the upfront investments required. Truck manufacturers might be reluctant to invest in fuel-saving technology without assurance that the market will recognize its value.

This is similar to the line of reasoning used by the Department of Energy in setting energy efficiency standards for commercial products. Unfortunately for some commercial customers, the massive claimed benefits from fuel efficiency may not materialize as the agencies planned. It should be no surprise that businesses are already aware of how an investment in fuel economy could affect their bottom line—in the same way, it should be no surprise that the benefit of such investments differs from business to business. While a major corporation like Safeway may be easily able to make investments in fuel economy, other businesses (especially small businesses) may not be well-positioned to do so. The choices that commercial enterprises make regarding energy efficiency already reflect businesses’ bottom lines, and additional regulation may hurt, instead of help.