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Advantages and Disadvantages of Corporate Average Fuel Economy Policy: A Report to the Illinois Senator Barrack Obama Research Paper

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Updated: Sep 9th, 2021

Executive summary

The U.S has been able to develop many policies that are intended to improve the countries energy sector. Some of these policies drafted in the past have had economic, financial, and environmental impacts on the companies implementing them and that is why people fear to implement them fully. It is considered to be disastrous to manufacturing companies especially those using fuel. As a result, fuel prices have continued to rise beyond the limits because of the increase in calls to adopt machines and automobiles that use other forms of energy apart from fuel to reduce dependence on gasoline. The policy also advocates for the use of automobiles that are sensitive and consume less gasoline. The policy developed by the president that has been dealt with in the paper is the one on modernizing and reforming the Corporate Average Fuel Economy-CAFÉ- standards for all automobiles and by extending the current light truck rule which allows for high consumption of fuel. The paper has identified high levels of unemployment, industry crisis, high operation costs, high road fatalities, and consumer benefits as setbacks to the implementation of the policy.

Introduction

The issue of gasoline use in the U.S is one of the subjects that have generated heated debate for the last two to three decades. One of the most pressing issues is that the U.S has no enough oil reserves that can sustain the country for another 100 years or so in addition to its dependence on imported oil from Arab countries. With recent relations between the U.S and the Arab world getting sour, the country will need to adopt policies that will make the country energy-dependent in the future. That is why the Bush administration has been drafting policies that are aimed at making the country a haven of energy reserves in the future.

In this paper, therefore, I would like to address the attention of my favorite senator, Senator Barrack Obama of Illinois who has been instrumental in drafting and supporting the energy policies at the senate level. This would serve as a guide for him as he discusses the issue with other senates at the house. In addition, he is also a presidential candidate who wants to lead this country in the next general election thus it would be of great importance if I get his attention on this pressing matter. The paper talks about the Corporate Average Fuel Economy policy that has been adopted and a reformed one by the Senate. It discusses the setbacks and the advantages it has offered to the industry and the country at large. It also examines the behaviors of players in these issues and their impacts on the industry. Finally, it will discuss the probability of success for the proposed legislation.

Review of the State of the Union Address, 2007

During his State of the Union Address in January 2007, President Bush outlined his proposals for the country in terms of broad initiatives that include the shift of how fuels are used and their composition in the country. He proposes the increase in the use of ‘alternative fuels’ as a means of containing the surge in importation of gasoline fuels from other countries in addition to their souring prices. (Department of Transportation National Highway Traffic Safety Administration Office of the Chief Counsel, 2006).

The overall proposals by the president have come to be popularly known as the ‘twenty in ten’ plan which outlines the three proposals which are;

To increase the supply of alternative and renewable fuels through the setting up of a standard which shall be compulsory for fuel users and that 35 billion gallons of alternative and renewable fuels by the year 2017 will be effective:

  • Modernizing and reforming the Corporate Average Fuel Economy-CAFÉ- standards for all automobiles and extending the current light truck rule which allows for high consumption of fuel.
  • Stepping up domestic oil production in an environmentally safe manner especially through an elaborate climate change confrontation technique (Department of Transportation National Highway Traffic Safety Administration Office of the Chief Counsel, 2006).

The Corporate Average Fuel Economy

The Corporate Average Fuel Economy-CAFÉ is one of the proposed regulations proposed by the Bush administration as a means of getting the country towards fuel independence in the next 10 years. CAFÉ was enacted by the U.S congress in the year 1975 after the government realized that it had to bring in standards that will improve the general fuel consumption by cars. This policy outlines that all vehicles-cars and trucks that exceed 8,500 lbs and do not comply with the standards cannot be allowed in the country regardless of whether it is manufactured in the U.S or sold there. (Paul & Howard, 2003).

What is CAFÉ?

CAFÉ is can be defined as the sales-weighted average fuel economy which is expressed in terms of miles per gallon of fuel consumed by an automobile. It enables the government to monitor the fuel used by the cars per mileage whenever they are bought in by the customers. When the standards set are not adhered to, there is a provision for credits and fines to be imposed on the manufacturer. The fuel economy as used in this paper is the average mileage covered by a car per gallon of gasoline used as calculated by the standards in the CAFÉ. (Department of Transportation National Highway Traffic Safety Administration Office of the Chief Counsel, 2006).

Two organizations ensure that these standards are upheld throughout the country. The U.S Environmental Protection Agency (EPA) and the National Highway Traffic Safety Administration (NHTSA) measure automobile fuel efficiency and regulate the standards in the industry respectively.

Limitations of the proposed policy-CAFÉ

Increased traffic fatalities

Previous studies have shown that there are increased numbers of traffic fatalities reported as a result of the implementation of the standards. The first thing that manufacturers of these automobiles do is to reduce the weights of their cars to comply with the standards especially the need to have fuel-efficient cars. When this happens, there are weight disparities giving room for risk-development of the people using the lighter vehicles. A Risk Analysis study conducted by the Institute of Public Affairs in the U.S found out that during the period between 2001 and 2003 when there were increased calls for more fuel-efficient vehicles, the number of fatal accidents had increased by 5%. More proponents of the CAFÉ standards argue that bigger cars are five times safer than smaller cars hence the need to impose the standards further to ensure safety (Anne, 2007).

Market forces

The automobile industry is one of the industries in the U.S that contribute a huge percentage of the country’s economic growth. This, therefore, means that the CAFÉ standards will affect the industry’s growth. Being forced to make specific design measurements and engineering will also result in firm losses and huge investments.

Costs

The cost of manufacturing and designing fuel; economy cars is also very high for the automakers. This cost will be transferred to the consumers who will in the long run dig deeper into their pockets to purchase the costly vehicles. This will mean that only those people who are well off in their incomes will be advantaged while the poor who may not afford them will be locked out (Paul & Howard, 2003).

Elimination of popular vehicles

Raising the standards of CAFÉ will eliminate popular models of current cars in the country. This will mean that customer’s favorites will be out of the market and replaced with expensive technologically based vehicles in the country. It is therefore a change of preference for most customers who will be forced to buy vehicles, not of their choice. (Paul & Howard, 2003).

Advantages of CAFÉ standards

Economic gains

Economists predict that if there is any fall in the gasoline prices, the average fuel economy for the vehicles will fall automatically and that increases in prices of gasoline will also lead to an increase in the average fuel economy. Recent studies have also indicated that contrary to expectations, the U.S economy had not dropped because of the said standards over the past two years between 2005 and 2006. This shows that the standards not only promote fuel/consumer safety but also increases the national output in terms of expenditure. (Paul & Howard, 2003).

Consumer benefits

The consumers may benefit from the new proposals in some way because some of them want to gain higher gasoline mileage using less money. They believe that fuel-saving energy will not only benefit the environment but in other sense, it will improve their household savings (Department of Transportation National Highway Traffic Safety Administration Office of the Chief Counsel, 2006).

Technological benefits

During this golden age, the benefits of using hi-tech automobiles cannot be underestimated. The fact that the new proposals will enhance the use of advanced technology will not mean that the society or consumers of these products will benefit on issues like reduced pollution, increased comfort, etc. this is a technology and it is the best thing somebody can gain while looking for pleasure (Harvey and Ted, 2007).

Senate proposals

The U.S uses 40% of all its oil consumption on fuelling cars and light trucks according to the Department of Transportation. This means that the country is losing millions of dollars to countries producing the precious product-gasoline. This is the main reason why the Senate has been completely disagreeing with the Bush administration on the CAFÉ standards arguing that the country will experience negative impacts in the process. The Senate has therefore provided its proposals regarding the issue of energy independence in the country. (Department of Transportation National Highway Traffic Safety Administration Office of the Chief Counsel, 2006).

The Senate is proposing that there must be some exemptions to the CAFÉ standards such as the exemption of pickups from such rules. There is a looming problem that overlies the use of the standards proposed by the president especially the part of increasing the penalties and the overall fuel economy. That is why the senate recognizes the fact that light and smaller vehicles are less protective posing an inbuilt contradiction between fuel economy and safety. The Senate is proposing that traffic administrators should probably come up with a standard that will see manufacturers of motor vehicles control and comply with the fuel efficiency of their vehicles. (Anne, 2007) The proposals by the Senate requires that a policy is put in place that will last for more than 30 years to come and will ensure that the twenty in ten plan by the government will work effectively

Implications of the proposed legislation

The U.S has recently adopted a National Energy Policy of 2005 which outlined some tax incentives aimed at reducing the dependence on gasoline by the U.S automobile industry In U.S, the federal budget for 2005 included tax incentives used to promote the use of fuel-efficient alternatives that would help the country towards a step to the liberation of energy use. It will also utilize more energy-efficient technologies that reduce emissions of greenhouse gases hence become an environmentally friendly country. (Harvey and Ted, 2007)

The other implications of the new proposals will be the fact there is a need for more industry changes in terms of reengineering and designs for the vehicles. This will mean that the automakers will have more reason to shift costs to the consumers in terms of the new models to be developed that are compliant with the CAFÉ standards.

Successes of these policies

To some extent, these policies may succeed if it gets the support of all the major stakeholders in the sector. The success rate according to the environmental protection agency is probably higher than what other countries may think. However, the two proposals by the president and that by the senate are closely related and need to be harmonized to have all energies directed to their implementation.

Conclusion

In conclusion, these proposals are aimed at making the country an energy-conserving country by the year 2011 and that all energy problems will have been reduced and the country may be declared energy independent. (Paul & Howard, 2003) As fuel prices are becoming part of the company’s concerns and worry, the companies need to effectively seek to have their transport systems become compliant with the policies in the sector such as the CAFÉ proposals. The policy is praised as intended to bring a ‘post industrial’ revolution on the issue of energy saving in the country which has its economy growing at a very high rate.

Reference

Anne, F. (2007): Comparison of Passenger Vehicle Fuel Economy and Greenhouse Gas Emission Standards in the U.S. Pedant Centre on Global Climate Change, Washington.

Bearn, V. (2003): Solutions to Climate Change; a Wider Scope Approach; Oxford University Press; U. K.

Department of Transportation National Highway Traffic Safety Administration Office of the Chief Counsel (2006): U.S. Congress Report on CAFÉ, NHTSA, U.S Washington DC.

Harvey, S. and Ted, G. (2007): Public Finance; McGraw-Hill/Irwin. 8th edition.

Paul R. & Howard, K. (2003): The Economics of Fuel Economy Standards; Resources for the Future, the National Academies, Texas.

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IvyPanda. 2021. "Advantages and Disadvantages of Corporate Average Fuel Economy Policy: A Report to the Illinois Senator Barrack Obama." September 9, 2021. https://ivypanda.com/essays/advantages-and-disadvantages-of-corporate-average-fuel-economy-policy-a-report-to-the-illinois-senator-barrack-obama/.

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IvyPanda. (2021) 'Advantages and Disadvantages of Corporate Average Fuel Economy Policy: A Report to the Illinois Senator Barrack Obama'. 9 September.

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