Tuesday, September 11, 2007

Fuel Economy Regs: AEI-Brookings "Scholars" Offer the Best Analysis (GM's) Money Can Buy

by Tom Bozzo

I haven't been impressed by the output of the AEI-Brookings Joint Center for Regulatory Studies before, but Felix Salmon is back and points to a hit piece on the CAFE standards by Robert Crandall of Brookings and Hal Singer of the consulting firm Criterion Economics — not uncoincidentally written for the Wall Street Journal's loony op-ed page — that reads like it was written by the Heritage Foundation's densest intern on a bender.

It's hard to pick what among the piece's abundant rubbish deserves highlighting. You might think that one thing that's clearly within economists' purview is measuring the pecuniary costs and benefits of policy changes. Not so, say Crandall and Singer!
Ask any economist and he'll tell you that estimating the private costs and private benefits of increasing fuel economy is a fool's errand.
Right, because figuring out how much money consumers would save from burning less gas is just about the hardest cost-benefit analysis task in the world, which is why the calculations for this post took literally minutes to carry out. But I should have been satisfied that the magic market pixies have already ensured that every cost-effective technology has already been adopted!
With large numbers of vehicle producers and well-informed consumers, the market is so efficient, in fact, that it ensures that all such transactions will occur, generating the socially optimal level of fuel economy.
Well, that settles things, since a public that once majority-approved of George W. Bush's job performance could never incorrectly weigh the life-cycle costs of their durable goods purchases! (And the volume of SUV purchases has nothing to do with the marketing efforts to convince people that this is cool and this is not. [*])

There's the scary if totally undocumented claim that there would be big costs to higher fuel economy:
According to our preliminary estimates, every new GM customer would incur a net loss of several hundred dollars under the newly proposed standard, as the higher cost of the car would exceed the discounted fuel savings.
I can only assume that the "higher cost" is the (IMHO exaggerated) $4,000-$4,500 claimed by Bob Lutz for a diesel meeting U.S. emissions standards. Perhaps Crandall and Singer have also lowballed future fuel prices, since current levels seem highly optimistic as a forecast of the prices prevailing at the end of the next decade.

As I've previously shown, such engines can pay for themselves in fuel savings at existing fuel prices with no performance shortcomings, and current-technology 35 MPG midsize hybrid sedans don't sport premiums of nearly that size. Today's news from Frankfurt includes Honda's announcement that its new diesel four (expected in the U.S. Accord) meets U.S. emissions standards and will outperform its well-regarded predecessor — which turns in 42 MPG in the Euro Accord (aka Acura TSX) and still 36 in the aerodynamically-challenged CR-V — in power, torque, and fuel economy.

In fact, Crandall and Singer take a prize for what corporate cash can persuade the theoretically respectable to write. Behold, commentators who won't even pay lip service to the idea that U.S. oil dependency is a wee problem:
Even if one accepts the debatable proposition that less reliance on oil would improve our national security, we should focus our attention on all oil consumption, not just that used in new vehicles. [Emphasis added **]
I guess Michael "If Supplying Material to the Washington Times Doesn't Get You Knocked Off the Serious People List, It Should" O'Hanlon got to them on that one.

[*] Example adapted from actual vehicle purchase decision in my immediate family.

[**] I don't disagree with their claim, but it's at best in the spirit of making the perfect the enemy of the good.

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