New Motor Vehicle Fuel Economy Standards, Part 4:
The 'energy security' advocates
26 Jun 2007 in Regulatory Economics, Regulatory Policy
Critical support for the Senate-passed CAFE bill comes from energy security advocates, a mix of retired generals and flag officers and executives from companies that are especially vulnerable to energy price shocks.
The Energy Security Leadership Council (ESLC) is an example. The positions ESLC takes -- and the positions it doesn't -- are instructive.
The Energy Security Leadership Council (ESLC) is headed by Frederick W. Smith, Chairman, President, and CEO of FedEx Corporation, and General P.X. Kelley (Ret.), former Marine Corps Commandant and member of the Joint Chiefs of Staff. ESLC members say the problem is that the U.S. has become dangerously dependence on foreign supplies, but more importantly, susceptible to price shocks in the global oil market. This, they say, makes U.S. foreign policy subject to the whims of international power politics.
The ESLC has put forward a number of principles that it believes should guide policy, but most notably in this area, it supports CAFE to reduce oil consumption. In its monograph ESLC recommends:
- "Reform the Corporate Average Fuel Economy (CAFE) system in order to make it more market-, size-, and attribute-based and to allow for the application of different but increasingly stringent standards."
- "Set a target of 4% for annual increases in fuel efficiency of all passenger cars and light-duty trucks weighing up to 10,000 lbs."
- "Allow 'off-ramps' if 4% is technically infeasible, unsafe, or not cost-effective for a given year."
The ESLC gives the following reasons for supporting CAFE:
CAFE was instrumental in helping Americans lower oil usage by the early 1980s, but its requirements for cars have remained essentially unaltered for twenty years even as the imperatives of energy security have grown more pressing and technological advances have made efficiency improvements increasingly possible. Moreover, the weaker CAFE standards for pickup-trucks and SUVs, although recently marginally raised, have encouraged a market shift toward larger vehicles that get fewer miles per gallon (mpg) than the cars they functionally displace. As a consequence, America’s light-duty vehicle fleet has the lowest average fuel “economy” in the developed world (footnotes omitted).
This analysis excludes any acknowledgment of the costs that were borne to achieve these consumption reductions, or the fact that the same consumption reduction could have been achieved at much less cost using other policy instruments. For example, a 2002 report by a committee of the National Academy of Sciences estimated that CAFE reduced oil consumption by 2.8 million barrels per day but increased annual highway fatalities by 1,300 to 2,300. Whereas all additional highway deaths are real costs, only the energy security benefits of these "savings" in fuel consumption qualify as genuine benefits. Moreover, the calculations ignore the deadweight loss from CAFE's inherent inefficiency, as well as both the financial cost of achieving CAFE standards and the value of lost consumers' surplus resulting from not getting "amenities [consumers] clearly value, such as faster acceleration, greater carrying or towing capacity, and reliability" (NRC report at 3).
More interesting is the ESLC's suggestion that U.S fuel efficiency lags behind Europe because CAFE has not kept pace. This is at best misleading. Europe achieved higher fleet fuel economy by imposing very high gasoline taxes and adopting diesel technology that would be unacceptable here because of air pollution concerns --chiefly particulate matter and lead.
Also missing from the ESLC's monograph is any discussion of economic incentives, such as gas taxes. Tax policy shows up several places, but in each case it involves increased subsidies for activities the ESLC favors and decreased or eliminated subsidies for activities it does not. But if reduced consumption is the Council's objective, then an economic incentive such as a gas tax would seem to be the ideal remedy. Not only would it achieve any specific consumption reduction target more efficiently than a command-and-control approach such as CAFE, but it would do so sooner rather than later. A gas tax can start reducing consumption by all motor vehicle users today. It would take years before CAFE standards begin to reach the marketplace, and another decade or more for the motor vehicle fleet to turn over.
Three members of ESLC, including one of its co-chairman, are CEO's of airlines (a fourth represents a cruise line). None represents an automobile manufacturer. (Michael J. Jackson is chairman and CEO of AutoNation, which sells motor vehicles.) This may explain the ESLC's enthusiasm for policies that increase the cost of highway use but decrease the cost of aircraft use. the ESLC calls for several changes in Federal Aviation Administration policies and practices, but not for improvements in aircraft fuel economy, or the mandatory retirement of older model, less fuel-efficient aircraft. A fifth Council member is in the renewable fuels business, with no obvious interest in energy security or stable global oil prices but a clear interest in increased federal subsidies.
Energy Security Leadership Council, Recommendations to the Nation on Reducing U.S. Oil Dependence, December 2006.
ESLC Members
Admiral Dennis Blair, USN (Ret.)
Former Commander-in-Chief
United States Pacific Command
Admiral Vern Clark, USN (Ret.)
Former Chief of Naval Operations
Michael L. Eskew
Chairman and CEO
UPS, Inc.
Adam M. Goldstein
President
Royal Caribbean International
General John A. Gordon, USAF (Ret.)
Former Homeland Security Advisor to the President
Maurice R. Greenberg
Chairman and CEO
C.V. Starr & Company, Inc.
Robert D. Hormats
Vice Chairman
Goldman Sachs (International)
Michael J. Jackson
Chairman and CEO
AutoNation, Inc.
Admiral Gregory G. Johnson, USN (Ret.)
Former Commander
United States Naval Forces, Europe
Herbert D. Kelleher
Executive Chairman
Southwest Airlines Co.
General P.X. Kelley, USMC (Ret.)
28th Commandant
United States Marine Corps (co-Chair)
John F. Lehman
Former Secretary of the United States Navy
Andrew N. Liveris
Chairman and CEO
The Dow Chemical Company
General Michael E. Ryan, USAF (Ret.)
16th Chief of Staff, United States Air Force
Frederick W. Smith
Chairman, President and CEO,
FedEx Corp. (co-Chair)
Jeffrey C. Sprecher
CEO
IntercontinentalExchange (ICE)
David P. Steiner
CEO
Waste Management, Inc.
General Charles F. Wald, USAF (Ret.)
Former Deputy Commander
United States European Command
Franklin D. Kramer
National Security Coordinator (Advisor to the Council)
