Adam wonders today about whether the rise in fuel economy of automobiles is a result of regulation, or a response of technology and wealth to price. I don’t have a lot of time, so here are a couple charts:
Inflation-Adjusted Price of Gasoline
Average Fuel Economy
Two things I would like to note from a quick comparison:
- The spike in fuel economy is not abnormal*, and could probably be fully explained by ratex. There was a LOT of low-hanging fruit to be picked in by the end of the ’70s that would facilitate such a large spike.
- Progressives will likely lament that average fuel economy has actually decreased…but of course that likely has nothing to do with physical engines becoming less efficient. It is most likely due to both increased luxury and safety — some of which is mandated, some of which is response to demand.
Addendum: CAFE standards were first ruminated in 1975 as a response to the (first 1970′s) oil shock of the previous years. However, the first laws were passed in 1978, setting a regulation of 19mpg for cars and 17.2mpg for trucks (4WD is a little lower). However, these individual numbers don’t matter. What matters is the average fuel efficiency of a company’s entire fleet of vehicles. The first combined fuel economy standard was 17.2mpg. Thus, a company could have any mix of vehicle as long as it hit this number (i.e. a truck with 5mpg and a car with 30mpg would pass CAFE standards). These standards were raised every year (except 1985, when they were relaxed) until 1991; where the CAFE standard stood at 20.7 until 2007, when George W. Bush expanded it to mandate 35mpg by 2020…and it has once again begun slowly climbing.
I don’t have the study at my fingertips, but CAFE standards have actually hurt the competitiveness of US automakers. High-end European automakers (BMW in particular) regularly balk the CAFE standards because of the premium they command, and thus simply pass the cost of the penalty on to their customers. Japanese automakers have steadily increased fuel economy beyond the standard ever since it was created. It is only US automakers who ride the line on the CAFE…having to play catch-up every time it changed.
Now, return to the graphs. If you look at the green line, it tells a very interesting story. It jumps almost immediately to 19mpg by 1979…which connects to its previous trajectory. But there is a languish between 1977 and 1979 where it levels off completely. My guess? Regulatory uncertainty. So CAFE, of course, can be held responsible for the jump in mileage — but the counterfactual that this would have happened anyway in the late 70′s – early 80′s, without activist government (and not to mention, CAFE is horrendous policy**), is just as strong.
Addendum 2: I suppose that one who was skeptical of the market price mechanism would point out that fuel economy has pretty much languished along with the CAFE standards…to that I would say 1. take a look at the price chart again, and 2. keep this is mind:
The average new car or light-duty truck sold in the 2003 model year tipped the scales at 4,021 pounds, breaking the two-ton barrier for the first time since the mid-1970′s, according to a report released by the Environmental Protection Agency last week.
In that light, cars are ridiculously more efficient. Since the early 90′s, we’ve just been piling on the luxury and safety at a very quick rate.
*By not abnormal, I mean with the numerous supply-side inefficiencies, a reaction of this magnitude to a move in price could be expected.
**My preferred policy? Gasoline taxes.