President Obama announced new fuel efficiency standards Friday that will require cars to get 54.5 miles per gallon by 2025--which would be almost double the current 27.3 miles per gallon standard--which the White House says will save 12 billion barrels of oil and eventually save $8,000 per car in fuel costs. General Motors, Ford, and Chrysler endorsed the plan, as did the United Auto Workers and California, which is allowed to set its own fuel standards thanks to the Clean Air Act. The reaction to the announcement from all sides--green groups and climate-change skeptics--has been "notably tame," The Washington Post's Brad Plumer writes. "But as a policy to cut down on America's oil use, this could turn out to be one of the biggest in decades--if it actually works."
If the final federal rules ended up too weak, California was threatening to impose its own, tougher standards, and a dozen other states would follow. Automakers had a choice: Deal with the Obama administration, which has been receptive to their input, or face the wrath of blue states such as California, which haven't.
One old trick was to design cars, such as the Subaru Outback, so that they could be classified as light trucks, which historically had laxer mileage rules. A few years ago, UC Davis economist Christopher Knittel found that early CAFE standards gave automakers perverse incentives to build bigger, hulking vehicles. That loophole was closed in 2007, but it would be naive to pretend that similar gray areas won't be found.
At issue is a "technology reopener" that allows auto manufacturers to fight the standards after 2021, in the hopes that they can renegotiate rules with a future administration that may be more lenient on the industry. The reopener potentially gives auto companies an incentive not to develop technologies immediately so they can argue down the road that the standard can't be met.
Say goodbye to cars and trucks as you know them. Say hello to a brave new future ushered in by the Environmental Protection Agency. ...The Obama Administration is issuing rules--without congressional approval--to significantly change the way the auto industry is doing business, forcing it to make vehicles that few are buying today (only 2,745 Chevy Volts have been sold this year). And in order to achieve that compliance, the Administration will likely have to fund the retooling plants and subsidize consumers' purchase of the high-mileage cars. Meanwhile, the cost of gasoline is going up, yet the President has restricted drilling in the Gulf, leaving the United States unable to tap its domestic oil reserves.