Sunday, May 27, 2007

Sierra Club Fails Economics Class

That would be the headline if the Sierra Club turned in this analysis of increased CAFE standards for any of my economics classes.

The Sierra Club has a Miles Per Gallon website that calculates the savings from an increase in the CAFE (Corporate Average Fuel Economy) standards for different cars. Here are the increased fuel economy improvements they assume, from their "Under-the-Hood Look" at the numbers...

* 57% for small cars and small wagons
* 61% for compact and full-size pickup trucks
* 75% for midsize cars, midsize wagons, and large cars
* 78% for small SUVs
* 85% for minivans and large vans
* 98% for midsize and large SUVs

Based on information in the ACEEE report, "Technical Options for Improving the Fuel Economy of U.S. Cars and Light Trucks by 2010-2015," and further consultation with authors of the report.

Hey, great! I mean, why wouldn't we want to improve gas mileage for midsize and large SUVs by 98%? Well, what about the COST of doing this? Do they really think the cost of cars will stay the same as we force the automakers to implement this? I don't.

Second, they assume people will drive the same amount before and after the improved fuel efficiency. As the wesbite states, improved fuel efficiency means a "reduced cost of driving." If your fuel efficiency goes up by 98% (your mileage has almost doubled), your fuel costs have been cut in half! With the cost of driving cut in half, who thinks people will still drive the same amount? I don't.

Third, they tell me that over my car's lifetime (average of 12 years) I'll save 12 times as much as I save this year! Woah. That assumes that, 1) I drive the same amount each year, 2) the cost of gasoline stays the same each year, 3) my gas mileage stays the same for all 12 years, and 4) a dollar saved today is worth exactly the same as a dollar saved 12 years from now. If the Sierra Club really believes these things, especially #4, they are loonier than I thought.

I'm not saying that an increase in fuel efficiency standards would be a bad thing. It would be great. But it is just plain wrong and misleading to say that we can costlessly increase fuel efficiency standards by 98% for SUVs and to imply that the total savings for me are 12 times the potential savings this year.

The Sierra Club is trying to gain support for a fundamentally flawed policy (I would much prefer a carbon tax or a simple and substantial increase in the price of gasoline). And they are doing so in a misleading way. That makes me mad. If the Sierra Club were to turn this in for my environmental economics course I'd give them an A for effort, but they'd still fail.

The Bottom Line in all of this? If you want someone to do less of something (like emit greenhouse gasses into the atmosphere), make it expensive for them to do it! Do not make is cheaper and easier to pollute, by reducing the cost of driving. When are people going to suck it up and realize we simply cannot afford to continue our policy of cheap gasoline?

Thanks to Environmental Economics for first pointing out the Sierra Club website.

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