Further Thoughts on Improving Fuel Economy

Yesterday, I briefly discussed Vaclav Smil’s argument that the U.S. has experienced “risible” improvements in the efficiency of its automobile fleet from 1986 to 2006, particularly when contrasted against the improvements circa 1975 to 1985. 

Smil is drawing on the EPA’s Fuel Economy Trends report. A friend, who follows these matters closely, wrote in to clarify potential misconceptions:

The overall story is that there have been solid, steady improvements in vehicle fuel economy, but the utility of those improvements has been realized in the form of larger cars. The ability to move one ton of automobile a mile with one gallon of gas has improved much faster than the ability to move one automobile a mile with one gallon of gas.

What is of interest to me, relative to Smil’s 50 mpg speculation, is that there’s a section at the end of the report in which the publishers explore a few counterfactual scenarios. Section VIII uses two techniques to do so. First, they imagine that everyone bought a car from the same size class (small sedan, midsize SUV, etc) or inertia weight class (a band of 500 or so pounds), but they bought one of the most fuel-efficient vehicles. So, it holds constant the revealed consumer preferences for vehicle types, but hypothesizes a higher demand for fuel economy as a characteristic.

The other approach picks 1981 as a base year, since it represented a high point for fuel economy, and calculates fleetwide mpg as if consumers had stuck with that year’s distribution of size and weight. In other words, it imagines what would have happened if we had not bought all those SUVs.

All in all, it’s a pretty solid exploration of what the available engine technology could have delivered, if drivers’ preferences had skewed more toward fuel economy. If Smil thinks we could have stayed on the 75-85 trend, he has to posit some technology that never made it into the vehicle fleet.

If consumers chose the “best-in-class” vehicles but the distribution of size class choices changed over time as it did on our planet, “MY2010 cars could have achieved from 16% to 26% better fuel economy than they did,” depending on how we benchmark the best-in-class vehicles.

But if we assume that consumers stuck with the distribution of size class choices of 1981 or 1988, the results are a bit different:

The base years of 1981 and 1988 were chosen because 1981 was the year with the lowest average weight and horsepower levels, and 1988 was, until recently, the year with the highest LAB fuel economy. This table includes the actual 1981 and 1988 fleet averages as a point of reference. In both of the weight distribution cases, the fuel economy of the re-mixed MY2010 fleet would have been higher than [it] actually is: 7% if the 1981 weight distribution is used, 12% if the 1988 weight distribution is used. For both re-mixed weight cases, interior volume and horsepower are substantially lower. Using the MY1981 and MY1988 size mix distributions did not change car fuel economy.

It seems that the real driver of what we might call “fuel economy stagnation” is the increase in interior volume and horsepower, as MIT economist Christopher Knittel has found. Peter Dizikes of the MIT News Office reports Knittel’s findings:

Specifically, between 1980 and 2006, the average gas mileage of vehicles sold in the United States increased by slightly more than 15 percent — a relatively modest improvement. But during that time, Knittel has found, the average curb weight of those vehicles increased 26 percent, while their horsepower rose 107 percent. All factors being equal, fuel economy actually increased by 60 percent between 1980 and 2006, as Knittel shows in a new research paper, “Automobiles on Steroids,” just published in the American Economic Review (download PDF).

Thus if Americans today were driving cars of the same size and power that were typical in 1980, the country’s fleet of autos would have jumped from an average of about 23 miles per gallon (mpg) to roughly 37 mpg, well above the current average of around 27 mpg. Instead, Knittel says, “Most of that technological progress has gone into [compensating for] weight and horsepower.”

And considering that the transportation sector produces more than 30 percent of U.S. greenhouse gas emissions, turning that innovation into increased overall mileage would produce notable environmental benefits. For his part, Knittel thinks it is understandable that consumers would opt for large, powerful vehicles, and that the most logical way to reduce emissions is through an increased gas tax that leads consumers to value fuel efficiency more highly.

“When it comes to climate change, leaving the market alone isn’t going to lead to the efficient outcome,” Knittel says. “The right starting point is a gas tax.”

Knittel offers a scenario of his own:

In July, President Barack Obama announced new standards calling for a fleet-wide average of 35.5 mpg by 2016, and 54.5 mpg by 2025.

According to Knittel’s calculations, the automakers could meet the new CAFE standards by simply maintaining the rate of technological innovation experienced since 1980 while reducing the weight and horsepower of the average vehicle sold by 25 percent. Alternately, Knittel notes, a shift back to the average weight and power seen in 1980, along with a continuation of the trend toward greater fuel efficiency, would lead to a fleet-wide average of 52 mpg by 2020.

That said, Knittel is skeptical that CAFE standards by themselves will have the impact a new gas tax would. Such mileage regulations, he says, “end up reducing the cost of driving. If you force people to buy more fuel-efficient cars through CAFE standards, you actually get what’s called ‘rebound,’ and they drive more than they would have.” A gas tax, he believes, would create demand for more fuel-efficient cars without as much rebound, the phenomenon through which greater efficiency leads to potentially greater consumption.

My own view is that instead of steep gas tax increases, we should embrace VMTs (with an option to pay a flat amount for unlimited driving, per James Whitty’s proposal) and pay-as-you-drive insurance, per an old Hamilton Institute proposal:

If all motorists paid for accident insurance per mile rather than in a lump sum, they would have an extra incentive to drive less. We estimate driving would decline by 8 percent nationwide, netting society the equivalent of about $50 billion to $60 billion a year by reducing driving-related harms. This driving reduction would reduce carbon dioxide emissions by 2 percent and oil consumption by about 4 percent. To put it in perspective, it would take a $1-per-gallon increase in the gasoline tax to achieve the same reduction in driving. Unlike an increase in the gas tax, PAYD would save most drivers money regardless of where they live. We estimate almost two-thirds of households would pay less for auto insurance, with each of those households saving an average of $270 per car.

It is easy to see why a PAYD strategy would be more attractive to conservatives wary of creating a new cash cow for government. The VMT is dicier, as it raises the specter of government monitoring of vehicles. Yet Whitty’s proposal allows privacy-conscious drivers to circumvent that by paying the flat fee, though this will come at a cost. The price system has a way of concentrating the mind on what we really care about.

Reihan Salam — Reihan Salam is executive editor of National Review and a National Review Institute policy fellow.

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