New Emission Standards - Obama's Grasp for (Ever More) Control

"There are two patterns for the realization of socialism.  The first pattern (we may call it the Lenin or the Russian pattern) is purely bureaucratic....

The second pattern (we may call it the Hindenburg or German pattern) nominally and seemingly preserves private ownership of the means of production and keeps the appearance of ordinary markets, prices, wages, and interest rates.  There are, however, no longer entrepreneurs, but only shop managers....[I]n all their activities they are bound to obey unconditionally the orders issued by the government's supreme office of production management....

This is socialism under the outward guise of the terminology of capitalism."

- Ludwig von Mises, Human Action

Steven Mufson of the Washington Post reported Tuesday (May 19) that President Obama plans to propose "tough standards for tailpipe emissions from new automobiles, establishing the first nationwide regulation for greenhouse gases."  The new "CAFE standards" will also raise fuel efficiency targets to 35.5 miles per gallon for new passenger cars and light trucks by 2016.  The cost of complying with the new standards?  According to Obama, the new 2016 CAFE targets will add $1,300 to each vehicle.

In this essay, I will expose Obama's math (robustly optimistic), and describe his real reason for pushing through the new standards (government tentacles writhing into our lives).

Why the New Standards?

Why the impetus for the new emission standards?  As Mufson wrote, "The measures are significant steps forward for the administration's energy agenda by cutting greenhouse-gas emissions that contribute to climate change and by easing U.S. dependence on oil, most of which is imported."

Climate Change - Reality or Myth?  Who Really Knows?

Before I address the real, underlying reason for the new emission standards, I want to dispel the accepted notion that, despite what Al Gore bleats to anyone who will listen, "climate change" is occurring, is accelerating, and is hastening the End of Life As We Know It.

I am not a meteorological expert, but I do know that the Cato Institute has some fearsome intellectuals in its corner.  On March 30, 2009, Cato purchased advertising space in many national newspapers for this ad to counter the popular myth that climate change is a foregone conclusion.

The ad includes supporting references and over 100 scientist signees, and states that "the case for alarm regarding climate change is grossly overstated" and that Obama's "characterization of the scientific facts regarding climate change and the degree of certainty informing the scientific debate is simply incorrect."

That ad, and the copious material on Cato's website discussing Energy and Environment, leads me to, at least, question whether global warming or climate change is 1) occurring, and 2) the direct result of Industrial Man.

Obama's Consolidation of Control

And the fundamental reason for Obama's pushing through the emission requirements?  Not surprisingly, it is related to his Administration dictating the restructuring of the auto industry (as I discussed here and here), and can be summed up in one word:  control.  

As Ludwig von Mises stated so clearly, consumers are all-powerful under a market economy:

"In his capacity as a businessman a man is a servant of the consumers, bound to comply with their wishes. He cannot indulge in his own whims and fancies. But his customers' whims and fancies are for him ultimate law, provided these customers are ready to pay for them. He is under the necessity of adjusting his conduct to the demand of the consumers."

Well, so much for a consumer-driven, market economy.  Obama is wresting control of the automotive industry away from consumers and giving it to the federal government -- precisely what he is doing, of course, to the health care, education, and energy sectors.  (He is even dissolving federalism by having bankrupt state governments lining up, hat in hand, to beg the White House for money.  Not, of course, that the Administration would ever expect anything in return for its generosity."  Oh, wait.)

The new emission standards will see automobile manufacturers increasingly reliant on small vehicles, to ensure their overall fleet fuel efficiency is in compliance.  And, of course, when the government needs to dictate production, that means it is unhappy with consumption patterns.

Sure enough, despite the recent energy shock of $4/gallon gasoline, people still want large SUVs and pickups.  As a matter of fact, the two best-selling cars in 2008 were the Ford F Series and the Chevy Silverado.  The Dodge Ram is also among the top ten.

In addition to three of the top ten best-selling vehicles (made by American manufacturers, it should be noted) being specifically targeted by the new emission standards, the standards happen to attack the very models that are the most profitable.  I am sure I'm not the only person shaking my head at Congress and the President tsk-tsking Chrysler, GM, and Ford for operating poor businesses -- and then undermining the only product lines keeping them on life support the last ten years or so.

Did Obama Pass Basic Arithmetic?

It should also be noted that, in addition to the new emission standards siphoning away profits from the car companies by forcing them to produce low-margin small vehicles, the regulations will also hurt ... anyone who wants to buy a new car.  Compliance with the new CAFE standards is expected to add up to $1,300 per vehicle, which Obama says will be repaid after three years.

Let's peer under the hood at Obama's math.

The calculations below show that, under the planned 2016 CAFE standards (35.5 mpg for passenger cars), someone driving a vehicle 10,000 miles a year would save 81.9 gallons of gas compared to the current CAFE standards of 27.5 mpg.  That 81.9 gallons per year (colored in light blue) calculates to 245.8 gallons of gas over three years (colored in tan):

Obama states that the $1,300 vehicle surcharge will be repaid within three years due to increased fuel efficiency.  (By the way, does anyone believe the additional cost will be $1,300?  Does the Administration have ANY incentive to low-ball the surcharge estimate?)  

So, if the 245.8 gallons of gas saved results in offsetting the $1,300 surcharge, how much must each gallon of gas cost?

$5.29 per gallon.  I will leave it to the reader to wonder about the likelihood of gas costing over five dollars a gallon in seven years ... and, more importantly, also question why Obama did not happen to mention that fact during his preening press conference.

Why Not Raise the Gasoline Tax Instead?

Harvard professor Gregory Mankiw (certainly no bleeding-heart liberal) advocated a "Pigouvian tax" on gas aimed at curbing gas consumption and correcting for “negative externalities” like pollution and threats from hostile foreign countries.  (Incidentally, these are exactly the outcomes being promoted for Obama's new emission standards.)

So, why doesn't Obama simply raise the gasoline tax?  That would, arguably, accomplish his exact goals without penalizing the automobile manufacturers to spend billions of dollars developing new fuel-efficiency mechanisms and upgrading their assembly plants.

Several reasons explain his choice of interfering with the automobile industry:

• Raising CAFE standards forces auto manufacturers to produce smaller, more efficient vehicles -- despite consumers' preferences.  Simply raising the gasoline tax would not directly compel manufacturers to design new car models.
• Obama, it has been shown, cares not a whit for free-market principles or business, so forcing auto manufacturers to upgrade their assembly plants is not likely to cause him to miss any sleep.
• Obama, by his fiscal policies, does not really care about future generations -- otherwise, why saddle them with trillions and trillions of dollars of debt?  So, saddling Americans with thousands of dollars of additional charges per vehicle to advance his interests ... is not likely to cause any missed sleep.
• Raising the gasoline tax would go against his campaign promise [sic] that 90 percent of Americans will have lower tax bills under his presidency.  Instead, the vehicle surcharge still costs taxpayers money, but he can still claim not raising taxes.

So, let's all pray for gas to skyrocket in price, so we can all pay off the additional costs to our cars that much sooner!