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Thomas Friedman on the politics (not economics) of fuel economy


Thomas Friedman is a keen observer of political and economic affairs, and I’ve always admired his ability to show how the two tie together.  That’s why I was so disappointed with his post here.

His post excoriating Toyota for supporting the less aggressive of two competing proposals in Congress for boosting CAFE requirements reads to me like a political positioning document calculated to focus heat and light on proposal that is directionally sensible (better fuel economy is good) but problematic in the mechanics and implementation, and ultimately represents poor public policy.  (And I consider myself to be an environmentalist who is concerned about global warming.)

MotorTrend, of all publications, does a good job exploring the issues, and frankly, is more along the lines I would expect from Friedman.  They kick of their analysis with the comment that Friedman’s post is "so uniformed it’s hard to know where to start."  The thing is, I don’t believe this is simply uninformed on Friedman’s part.  He doesn’t generally put out uninformed opinions.  Moreover, the analysis strikes me as particularly un-Friedman like in that it doesn’t do the usual good job in linking economic and political drivers to explain social and political behavior.  Ironically, the Rep.  Dingell proposal (a Democrat from Michigan) is actually structured in a way that I think would do a much better job driving reduced greenhouse gases with economic incentives.  That proposal is also far from perfect, but at least it provides a mechanism to expose consumers to some pain for environmentally unfriendly behaviors in a relatively transparent way. 

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4 responses

  1. Jim

    Friedman’s support for CAFE standards doesn’t make him uninformed, it’s Motortrend’s Todd Lassa’s "analysis" that is full of half-truths, invective, and misdirection.  When you weed through all his BS, Lassa’s point is that there is no way automakers can meet increased CAFE standards and that consumers should bear the cost of improved efficiency through higher gas/carbon taxes.  Taxes could be part of the answer.  Higher taxes would probably discourage driving, reduce consumption and help the environment (yea!).  But higher gas taxes also have the negative consequence of being regressive — the poor who drive get hit a lot harder than A-Rod will as a percentage of their income. (Boo!  And another Boo for A-Rod!)  In the meantime, higher CAFE standards are possible to meet — never mind Lassa, who complains that only 3 cars in the US that can meet the standard (apparently he thinks that the only cars on the planet are those sold in the US).  He dismisses deisel and E85 because…why was that again?  High corn prices and Exxon-Mobil and OPEC?  Oh yeah, and gas prices are going up!  It’s the fault of big oil and the Arabs and the poor sot who bought a Tundra instead of a GM truck.  He’s hitting the Motortrend demographic.  At least he is man enough to admit that deisel could be part of the answer if the emmissions question in resolved — btw, I think deisel vehicles count in your fleet average fuel efficiency (another point in CAFE’s favor).  Finally, he manages to compare CAFE standards to the war in Iraq (now there is great analogy – really, how can a reasonable person even respond to that).  Let’s keep our eye on the ball — that is to reduce energy use and emmissions while keeping the cost to the consumer as low as possible.  Regulation has a role to play, so too, may taxes.  Dingell’s proposal may not have legs now (especially in an election year) but CAFE hasn’t increased for over 20 years.  The technology exists, others are using it.  If it takes legislation to encourage the automakers to deploy fuel efficient technology, that’s a policy tool that should be considered.

    October 21, 2007 at 10:24 am

  2. John

    Jim — Wow – I suspect (hope) your just pulling my leg here.  :-)  But just in case, I’ll respond as if you’re serious: 
     
    First, Lassa didn’t say that automakers can’t meet the higher of the two proposed CAFE standards — he did say they mostly can not do it with the vehicles for sale in the US now.  Can other vehicles be made available?  Sure, but American’s don’t want to choose those vehicles.  Why?  Because current incentives on vehicle buyers create a "tragedy of the commons" of sorts — the ill-effects of choosing a low fuel-economy vehicle are distributed, and most people feel their individual choice will not make meaningful difference (so they might as well get the car the prefer, other things being equal).  Basically, the pain inherent in choosing low fuel economy is not high enough to make them choose higher fuel economy.  Sure, a few people have started prioritizing fuel efficiency in their purchase process… but that’s mostly because gas prices have gone up.  While that’s good, many more are still not choosing higher fuel economy options — again, this is because there are trade-offs to be made and gain of high fuel economy doesn’t offset the pain of low fuel economy.  Lassa’s main point is Microeconomics 101: people make choices that give them what they expect to be the highest "utility". 
     
    Nor does Lassa’s commentary dismiss Diesel as you claim.  The implication from the text is that he favors it, although he’s realistic enough to note that the technology required to keep the NOx down is expensive and puts the vehicles out of range of most buyers.  As for E85 — i would agree he’s dismissive — and for good reason: there’s a lot less energy in E85 than gas.  Translation: instead of 350 miles on a tank of gas, you’ll 230 with e85.  Wow — 33% more trips to the gas station!  Just what consumers want!  (yes, that’s sarcasm).   The reailty is that E85 vehicles have been on the market in large numbers for many years — people buy them and put petrol in them, not E85.  To the extent that ethanol has gained traction in the last year or two, it’s largely thanks to rising costs of petroleum gas. 
     
    The eye on the ball?  It’s definitely not "to reduce energy use and emmissions while keeping the cost to the consumer as low as possible" — as you suggest.  It’s to reduce energy use and emmissions (period).  Nor is it about letting buyers blithely choose the shape and size of vehicle they prefer without feeling environmental consequence — as they do today.  It’s about giving buyers a *reason* to choose the things they are NOT choosing today.  To go against their predilection for Hummers and choose something fuel efficient anyway.  This is what more expensive gas will do for us.  Again and again, gas prices have proven to change consumer behaviors on fuel efficiency, and that’s the name of the game.  To change consumer behaviors, change gas prices. 
     
    Is this regressive?  Yes.  So what.  All taxes on basic needs are regressive, but if that’s what it takes to make people choose differently, so be it.  A progressive tax is not a real choice here.  Unfortunately, there’s not that many rich folks — most are poor-to-middle class.  Any system that exempts them means you’re not changing behaviors for the majority of the market. 
     
    Oh, you say you don’t want a tax at all?  Just want the automakers to make basically the same cars but just make them cleaner?  Yeah, they could do that.  Through a combination of advanced technologies and lightweight materials, cars could be much more fuel effecient.  Of course, that $15,000 focus just went up $25,000.  How’s that for regressive?  After all, it’s a tax, too, in this case — it’s just less transparent, and the money goes into the automotive industry instead of the government.  Maybe that’s good, since private business is supposed to distribute wealth more efficiently than governments! :-)  Just one problem — people will drastically reduce new car buying (that darn microeconomic theory again!).  This is not just bad for the auto industry — it’s bad for the environment, too.  That’s because fewer new cars entering the market means older, lower fuel-efficiency, higher emission vehicles will stay in service and continue polluting.  Think there’s not a big difference between newer and older cars?  A real example: A new Ford Focus can drive across country and emit less pollution than cutting your grass for an hour.  One of the most powerful ways to drive down automotive emissions and energy use is to get old cars off the street, and get more new cars into consumers’ hands. 
     
    Now, I’m sure Dingall’s proposal isn’t going to pass (it may already be dead).  But what’s good about it is that it recognizes a fundamental truth that people often forget.  The goal is not about cars at all — it’s less energy use and emissions.  Most of the carbon emissions in the US come from somewhere other than cars and trucks.  Cars and trucks make easy targets because they’re a big group.  And, of course, they should continue to get cleaner.  But the biggest source of energy use and emissions is our homes and buildings.     If we really want to make a difference, that’s a great place to start.  Certainly Dingall’s propsal to get rid of mortgage interest deduction on homes over 3000 square feet gives people an incentive to act in a way that is good for the environment.  And, it’s not very regressive, given most people losing a tax break like this would be relatively well off.  Even though saving money is not the goal, this is even a proposal that saves money!  After all, buying a house 2500 square foot house not only lets you keep the mortgage interest deduction, it’ll be a lot cheaper than a 3500 square footer. 
     
    Back to autos for a moment, there is a third way between fuel taxes and CAFE, of course.  Something we can all imagine.  Something with precedent.  And it’s substantially more likely than Dingall’s bill passing.  What is it? 
     
    Just start a war with another middle east country.  Perhaps Iran or Saudi Arabia, for maximum effect.  This will shoot the price of oil up to $130/barrel or so and should goose gas prices into the $5+ range pretty quick, and has the added bonus of putting money into the hands of businesses instead of government so it can be used most efficiently.  In fact, now that I think about it, this may already be the Bush administration’s environmental, energy, business, and foreign policy all rolled into one. 

    October 29, 2007 at 7:10 pm

  3. Jim

    Actually, I’m totally serious.  Lassa’s article is crap, based on half-truths and diversion.  You, on the other hand, make some good points.  But there are also several I can’t fully buy into.  You say that Americans don’t buy fuel efficient cars because "American’s don’t want to choose those vehicles".  You’re partly right here, but let’s ask why?  A large part of the reason is that the price of fuel in the U.S. is still bearable for most people.  But part of the reason is also that those vehicles are not available in the U.S. in large numbers. In fact, we don’t know if Americans want to choose those vehicles because they’ve never been offered in the U.S.  No one is disagreeing that consumers pick what gives them the highest utility among available choices, the problem here is with the choices.  You may be right, there is a tragedy of the commons-type dilemma here.  That’s exactly the type of problem that government policy is supposed to help solve, and there is a role for public policy here – in the form of government regulated fuel economy and emissions standards.  The original CAFE standards and California’s emission standards are a good example.  Do you really think Detroit would have made higher fuel economy, lower emissions vehicles without the original CAFE and CA regulation? 
     
    If the goal, as you say, is to reduce energy use and emissions (period) then the answer is even more clear.  100mpg and zero emission vehicles.  Unrealistic you say?  Yes, it’s true.  It would probably cost a fortune, especially at first.  Not many people really want that.  Good public policy involves tradeoffs between cost and achieving goals — it’s no good to implement a policy that is going to cost more than it’s worth.  That’s why higher CAFE standards make sense as part of a package of initiatives to improve emissions and reduce energy use.  The technology is available and in use.  While I confess that I don’t know exactly how much more it costs to produce some of these higher fuel efficiency/low emission vehicles sold in Asia and Europe, seeing the prices in other countries, I don’t see that the cost can be that much higher.  And additional production will make it even lower.      
     
    As for increasing gas prices… it’s true that higher gas prices change behavior, but so does regulation.  And I strongly disagree with your view that regressive taxation is just a burden consumers should have to bear.  I don’t think soaking the poor is the answer.  I don’t disagree with the thrust of Dingell’s proposal — there is lots of room for improvement in other industries also and some of his proposals make sense, but asking consumers to do more without asking the auto manufacturers to implement already existing solutions is just ass-kissing the auto industry.  Your point about getting older cars off the roads is a good one.  I don’t see an easy answer to that.  But over a period of several years, those vehicles are going to be off the road in any case.  Hopefully, they will be replaced by more fuel efficient cars and public transportation.  And you are also right that the point is about less energy use.  But our energy demand, especially for auto fuel, is still growing — even as prices increase.  Growing population, more people commuting… it adds up.  And most of the oil we import is used for gasoline.  More fuel efficient vehicles is part of the answer.  I don’t expect motor enthusiasts like Lassa and Motortrend readers to love that answer , because it means that some of the high performing vehicles they crave will not meet the standard.  And I don’t expect the auto industry to love it either, because they make big profits on the gas-guzzling SUVs and trucks that already benefit from lower fuel economy standards.  But higher fuel economy vehicles should be part of our national strategy to reduce fuel consumption and higher CAFE standards is a legitimate way to achieve that goal. 
     
    Finally, the problem is not with OPEC, it is with us.  If our goal is to reduce our dependence on foreign oil, then there are policies we can implement that will create incentives for industry and consumers to get us there — there is a cost/benefit calculation that we can make and base our policy on.  CAFE is part of the answer. 
     
    Your conclusion was great!  I wish I could disagree with the suggestion that this was part of the administration policy, but I can’t with any confidence.  I’d just say that starting another war in the middle east will probably have some pretty easily predictible costs that will outweigh the benefits.  Hopefully, we’ll pass higher CAFE standards instead.

    November 3, 2007 at 8:23 am

  4. John

    Very good response.  We’re not that far apart, actually.  You want higher CAFE, I want higher CAFE.  You think there’s a role for regulation, I think there’s a role for regulation.  You want lower energy use and emissions, I want that, too.  You see the problem as not with OPEC, but with us.  That’s what I think, too.  You believe we need to change the tradeoff equation, and I think that, too. 
     
    Perhaps where we disagree is that I believe gas prices have demonstrated themselves to be a very effective lever for changing behavior, and that taxing gas would be the most efficient way I know of to turn public policy goals into reality.  It’s targeted and relatively transparent.  It changes consumer behavior, and it does it without raising vehicle costs.  This is not a gift to the auto industry, this is the best thing for our environment because lower priced new cars means more people buying them to replace lower priced old (more polluting) cars. 
     
    It’s true that some markets have a broader selection of more fuel efficient vehicles in place.  There are many reasons for this.  One significant reason, I believe, is that these markets have significantly higher fuel taxes.  These have been in place over a long period of time, and have the led the auto market to evolve along very different lines than what we see in the US.  Another factor, I think, is that consumers in these markets have a greater awareness of the environmental consequences of their choices.   I think both of these factors can influence what consumers are demanding, and what industry is offering, in the US, too.  Can the auto industry do better to respond to changing consumer sentitments, and maybe even lead consumers?  Sure.  I support that.  For starters, I’d like to see them developing new models more quickly, so there’s less time lag between consumer readiness to accept a new model or a new design proposition, and when that model actually gets in front of consumers to choose.  This will also help efforts to lead consumers to be more successful.   
     
    BTW, auto industry wants this too.  It’s *THE* major source of competitive advantage in the auto industry.  Today, some new models are coming to market in only 12 months or so… but these are derived from an existing platform, and will largely share the environmental footprint of the sibling vehicles.  To change environmental footprint significantly, you usually need a new platform — which I think is still 3-4 years in most cases.  So the point is, there’s room for improvement, and it’s already a top priority. 
     
    Lastly, I think it’s important for person to understand that this is not just an automotive industry problem, but an all-industry problem.  That’s not an excuse for inaction in one area, but it’s a caution about accidentally reinforcing the incorrect notion that action in one industry is a subsitute for action in all parts of our lives.  People need to understand the environmental consequences of their actions, and policy should make it clear and explicit that actions beyond the choice of car are important.  The popular conception: "I’m doing my part, I’m driving a hybrid" is a dangerous one for our environment. 
     
    Net-Net:
    1.  This problem is bigger than auto industry and we need policy — and consumers — to recognize that.
    2.  Consumer behavior is the best driver of industry behavior, in the aggregate.
    3.  Consumers need to understand the environmental consequences of their choices. 
    4.  CAFE can help our environment, and it should be higher than it is.
    5.  Gas prices are the most effective lever for changing consumer behavior.  It’s the a major reason that other markets have less-polluting vehicle options today. 

    November 6, 2007 at 2:11 pm