...Here are ten things you might want to know about President Obama’s new fuel economy proposal. I will reference some tables and analysis from the NHTSA analysis done for the near-final Bush rule. This is a long list, so this summary will let you skip around as you like:
1. It’s aggressive.
2. Rather than maximizing net societal benefits, this proposal raises the standard until (total societal benefits = total societal costs), meaning the net benefits to society are roughly zero. This is not an invalid framework for making a policy decision, but it is unusual. It represents a different value choice.
3. NHTSA estimated that a similar option would cost almost 50,000 U.S. auto manufacturing jobs over five years.
4. NHTSA guesses that under a similar option, manufacturers will make huge increases in dual clutches or automated manual transmissions, a big increase in hybrids, and medium-sized increases in diesel engines, downsizing engines, and turbocharging.
5. It will have a trivial effect on global climate change.
6. The national standard = the California standard (roughly).
7. The auto manufacturers got rolled by the Governator.
8. Granting the California waiver means California has leverage for next time.
9. In Washington, EPA is now in the driver’s seat, not NHTSA.
10. Today’s action will accelerate EPA’s regulation of greenhouse gas emissions from stationary sources. While Congress is futzing around on a climate change bill, EPA is getting ready to bring their “PSD” monster to your community soon.
...
keithhennessey.com
marginalrevolution.com
The Coming Auto Boom
David Henderson
An Application of Intertemporal Substitution
In its purest form, intertemporal substitution is substitution over time between two goods or services that are identical except for when they occur. So what I'm about to spell out isn't the purest form.
At marginalrevolution.com, Alex Tabarrok has highlighted the key findings of Keith Hennessey about President Obama's radical shift towards higher fuel-economy standards. I have little to add to that that Hennessey, Jenkins, and others have not already said. But there is an obvious implication that they have not pointed out: the short-term boom it will create in auto sales.
Under the Obama proposal, which is not yet a fait accompli, the new standards would kick in fully in 2016. It is unclear how they would rise between now and 2016 but it must be the case that they would be much less stringent in 2010 than they would be at their peak in 2016. The standards will cause cars to be smaller, less powerful, less safe, and more expensive. So what will consumers, who have shown what they think of these cars, do? I predict that if anything like Obama's standards get implemented, consumers will start buying powerful cars and trucks at a higher rate in the next few years. Watch for the coming auto boom. And then, of course, as the standards tighten, a major auto bust.
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