CAFE standards
Chrysler will be fined for missing its CAFE quota, and this detail is interesting to me:

The fine for violating CAFE standards is $5.50 for ever tenth of a mile under the 27.5 mpg goal, multiplied by the number of vehicles imported.

If most of the vehicles are in the general vicinity of that 27.5 mpg, $55 per mpg is basically $1 per gallon per million miles, multiplied by the number of miles a vehicle goes in its lifetime; using 200,000 miles, we get 20 cents per gallon.

At least in one form, the new energy bill was to make CAFE credits tradable, and I was given the impression that this was likely to make it into the final version. If you do this, make the CAFE requirement higher than is likely to be met, and start doing your averages and assessing your fines in terms of gallons per mile rather than miles per gallon — perhaps adjusting for lifetime mileage differentials — you're pretty much left with a tax that's legally incident on the car companies but has the same effect, on certain margins, as a 20 cent per gallon gas tax.¹ On other margins it has the same problems as CAFE always has had vis-a-vis a gas tax: it can actually reduce the marginal cost (to the driver) of driving more miles. If the CAFE limits are just barely achieved, mileage will have been improved as a result of them, but the prices of high-mileage cars will be lower than without CAFE standards, and driving two 60 mpg cars is cheaper, relative to the non-CAFE world, than car pooling in a 40 mpg car; the latter uses more gas. The gas tax gets this exactly right automatically; if a 40 mpg car goes 120 miles, it pays taxes on 3 gallons of gas, while two 60 mpg cars making the trip would incur taxes on 4 gallons of gas.<sup>2

1</sup> Without the change in the calculation of averages and fines, you're over-taxing degradations in the gas mileage of cars that already use little gas, and under-taxing them in gas guzzlers, so that if two fleets of the same number of vehicles use the same amount of gasoline, the one with more uniform gas mileages will pay higher taxes than the one with a lot of guzzlers and hybrids. I wouldn't expect much political resistance to this technical correction, though I don't think I have a great intuition on those things, but I also don't think it would make all that big a difference in practice.

² You get back to a gas tax on this margin as well if you're willing to raise the CAFE requirement to infinity. (If you do that, the "technical correction" becomes more important.) This rather blows the façade off the notion that a mandate is being imposed and a fine assessed for failing to meet it, rather than allowing the market to do things in the efficient way without heavy-handed top-down controls. For all its successes, efficiency seems less politically popular than heavy-handed micromanaging.
- posted by dWj @ 7:53 PM