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CAFE: Serving Up A Killing Of A Deal Since 1975

CAFE: Serving Up A Killing Of A Deal Since 1975 published on

The July 2013 issue (hot off the ether-presses) of American Economic Journal: Applied Economics includes a study by Mark Jacobsen on the safety effects of corporate average fuel economy (CAFE) regulatory standards. (The paper was originally distributed as a National Bureau of Economic Research working paper in April 2012.)

CAFE standards were first introduced by the Energy Policy and Conservation Act of 1975 with the goal of reducing fuel (gasoline) consumption. The standards require auto manufacturers to meet certain fuel economy thresholds in each model year’s sales fleet, with different standards for cars and light-duty trucks and for “domestic” versus imported fleet vehicles. While innovations in engine technology and auto design contribute to fuel economy improvements, auto manufacturers have long achieved the biggest gains by producing smaller, lighter vehicles which are arguably less safe in the event of a collision. In fact, a 2002 National Academy of Sciences report concluded that downsizing related to fuel economy improvements between 1975 and 1993 resulted in roughly 2,000 additional fatalities in 1993, between 13,000 and 16,000 additional debilitating injuries, and between 97,000 and 195,000 total injuries.

Calculating the safety impact of CAFE is a little tricky because the composition of vehicles on the road plays a large role; a small car colliding with another small car has less risk of fatality than a small car colliding with a large car or truck. A significant contribution of Jacobsen’s analysis is that he takes into account both US fleet composition and unobserved driving behavior and vehicle selection (certain kinds of drivers choose certain kinds of vehicles for a reason, and different vehicles have different fatality effects). He finds that the current CAFE policy standard results in roughly 146 deaths per year for every 1 mpg increase in the fuel efficiency standard. Using EPA dollar-value-of-life equivalents, Jacobsen puts the price tag to society at $0.33 for every gallon of gasoline saved.

There is good news, though. Jacobsen also modeled the effects of alternate ways of regulating fuel economy standards, including a “footprint-based” regulation similar to the one adopted by the Obama Administration in August 2012 for models years starting in 2017. Jacobsen found that the footprint-based standard would only result in roughly 9 lives lost per 1 mpg increase in fuel economy standards–assuming the policy does not result in fleet composition changes. However, the standards announced by the Obama Administration are likely to continue shifting composition toward light-duty trucks. As a result, the fatality count is likely to be higher than 9 per 1 mpg. And considering that the Obama Administration has ordered the standards increase by upwards of 25 mpg, that suggests well over 225 fatalities a year even with the benefits of the new footprint-based regulation. But that’s better than the more than 3,600 fatalities a year implied by the current policy standards!

Of course, all of this assumes that CAFE regulations actually reduce fuel consumption or are responsible for increases in US fleet fuel economy to begin with. That in itself is a dubious conclusion. I did some research on that back in the day and was able to dig up an old hard copy of the report (here). The results were pretty conclusive that for the first 20 years of CAFE regulation, the regulations themselves had little if any effect on the fuel economy of new car fleets. Instead, gasoline prices and disposable income were the statistical drivers of fuel economy increases from 1978 to 1994. When the price of gas goes up, people demand more fuel-efficient cars–simple price incentives at work.

I haven’t done any updated statistical modeling, but the graph below seems consistent with my results from years ago. When gas prices were relatively flat through the late 1980s and 1990s, fuel economy of cars and light trucks was relatively flat. When gas prices started taking off in the early 2000s, fuel economy increased–despite CAFE standards remaining the same.

800px-CAFEStandard2

Source: CAFE and CAFE Standard data is from [http://www.nhtsa.gov/cars/rules/CAFE/NewPassengerCarFleet.htm] and is without copyright (government genesis). Price data is available from [http://www.eia.doe.gov/oil_gas/petroleum/data_publications/wrgp/]

So there you have it. Federal CAFE regulations may or may not have done much to reduce gasoline consumption in the US. If they have not been responsible for the increase in fuel economy, then they are just a bureaucratic quagmire costing companies and taxpayers a lot of money to keep track of records and manipulate fleet composition for no good reason. If they have actually had a meaningful effect on fuel economy, then they’ve also been responsible for thousands of deaths per year–and with the increases mandated by the Obama Administration, will kill more people for years to come.

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