Thursday, May 04, 2006
Corporate Average Fuel Economy, or Café, standards as we know them have been set by Congress in attempt to get automobile makers to produce cars and trucks that are more fuel efficient. The recent hike in gas prices has led to a consideration by Congress to up the Café standards again. The last increase in acceptable miles per gallon set the standard at 27.5 mpg. This means that the average miles per gallon for the fleet of cars an automaker produces must be equal to or greater than this amount. If Congress were to up the standard to the proposed 33mpg there will be some high costs consumed by the automaker. It is unclear how well the automakers can absorb these costs. It is unclear if the companies even have the technology to meet the standards. These costs would eventually end up added to the sticker price of the vehicle. The consumer would ultimately foot the bill. The concern here is that the government appears to be thinking that if we have increased miles per gallon to our vehicles that we will not change our consumption habits any. The way it is understood by this author is that while even though our cars have continued to get more miles per gallon to a tank we still continue to increase our consumption of gasoline as a nation. So, I just don’t see how this will lower the price of gasonline. The price of gas is based upon the market for gas…meaning the supply and demand. If our demand continues to increase even though our cars are more efficient, I just don’t see this legislative decision to increase the required standards as a way to lower the price of gas. My thought is that it would be more efficient to put a bigger tax on gasoline. Consumers would not like to see these external costs internalized, however, that would force consumption habits to change more than an increase in the Café standards.