Getting Rid of New CAFE or Fuel Economy Standards—Another Auto Industry Bailout?
News reports are suggesting that the new US Administration is considering getting rid of the latest round of Corporate Average Fuel Economy (CAFE) standards. But who will this benefit? The new standards were originally expected to cost the auto industry $87 billion, while saving American citizens $120 billion in fuel costs. But the auto industry is ahead of schedule and under the projected cost. So why change now?
Aside from the $120 billion that consumers are likely to lose from this deal, there are also reductions in health care costs that come from better fuel efficiency. Not burning some 170 billion additional gallons of gasoline would save Americans between $150 billion and $450 billion in health care and lost wages from asthma, emphysema and bronchitis, among other factors (see calculations below).
It’s also worth noting that the CAFE price tag is an investment into R&D—much of it in high-wage employment in an industry that needs jobs. And the auto companies will not lose that $87 billion (or whatever the actual cost is). They’ll recoup it in higher auto prices. The net to consumers will still be positive due simply to reduced fuel costs.
Japanese automakers have always been ahead of the curve in fuel efficiency and now is no exception. European maker BMW has been making large strides in efficiency and while VW has had emissions reporting issues, its generally high fuel efficiency is not in question. So again, who, exactly, would benefit from the reduction in CAFE standards? It looks like we’re back to those same actors who got bailed out in 2009. And why do they need this? They’re all profitable right now—in spite of all the investment into fuel efficiency.
Relaxing the CAFE standards is likely to give American automakers the green light to continue to crank out gas-guzzling vehicles with no need to innovate. Americans will continue to breathe in the additional smog created by those cars and some of us will get sick. Eventually the free market will counteract today’s oil glut and we’ll be back to high gas prices and a lack of demand for the big cars, and these same automakers will be in trouble, asking for yet another bailout to save an ever-decreasing number of jobs. The cycle has happened before; it will happen again. Why not push them to step up and keep ahead of the curve, instead? It’s better for our health, it’s better for our pocketbook, it’s better for jobs, it’s better for our country.
How Do We Calculate the Cost of Emissions?
We can use Life Cycle Assessment to calculate the emissions from 170 billion gallons of gasoline. These emissions are then added up by how much damage they cause. The unit used for human health damage is a Disability Adjusted Life Year or DALY. DALYs measure both reduced quality of life from disease and the amount life is shorted by the disease. The emissions from production and use of 170 billion gallons of gasoline will cause 3 million DALYs worth of damage.
The World Health Organization (WHO) estimates that the cost of a DALY from health care and lost wages is between 1 and 3 times per capita GDP. Insurance companies put a cap on how much they will pay for an intervention based on DALYs and the values in the US are between $50,000 and $130,000 — almost identical to the WHO values. Using these values, we come up with a cost of between $150 billion and $450 billion in health-related costs from the use of 170 billion gallons of gasoline.
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About the Author: Lise Laurin, CEO and Founder of EarthShift Global
Lise is a pioneer in Sustainability Return on Investment (S-ROI) and Life Cycle Assessment (LCA). She continues to develop and leverage sustainability consulting services, LCA as well as SROI software and training programs to build organizational capacity in driving large-scale change. Her unique skill set and knowledge base has put her in demand globally by companies, organizations and governments alike.
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