The case for fuel efficiency standards

Thanks to Joe Hockey’s masterful salesmanship, the idea of restoring indexation of fuel exercise, let alone imposing a carbon price, is dead for the foreseeable future. This is one case where, despite my economistic prejudice in favor of price-based measures, I think regulation is the way to go. Australia is one of the few developed countries that does not impose fuel efficiency standards on motor vehicles. Now that the Obama Administration has greatly tightened US standards, we are set to have the most petrol-guzzling car fleet in the entire world.

The Climate Change Authority, of which I’m a board member, recently looked into the issue and concluded that, over the lifetime of a vehicle, fuel efficiency standards matching those of the US would save motorists thousands of dollars. Unfortunately, it’s difficult to factor this saving into the initial sale price, given that it may not be reflected in resale values. Still, this would be one of the easiest and cheapest ways of reducing CO2 emissions.

In the long run, given the demonstrated feasibility of electric vehicles, it should be possible to decarbonize most motor transport at a very modest cost. Once the infrastructure was set up properly, this would also solve a large part of the timing problem created by the fact that peak solar supply is in the middle of the day, when household demand is low, but when millions of cars are parked, and could be recharged.

28 thoughts on “The case for fuel efficiency standards

  1. @Collin Street

    And yet you can change people’s minds. Great leaders get others to follow them and change their views. Changed circumstances lead to changed minds (think of Pauline Hansen after she went to prison). Right now, Russians are having their opinions formed by Putin. Just how our collective views are formed seems a terribly important subject to me.

  2. @John Quiggin
    But if fuel efficiency standards bite, won’t the higher cost of cars have an adverse distributional impact too? This surely comes under my bit about the political advantages of “costs are harder to calculate and the thoughtless can be fooled into thinking someone else is paying them”.

    In fact to the extent that the cost of such standards for new cars encourages the cash-strapped to hold onto their old gas guzzlers longer and to drive them more kms, it is another way in which such standards are a less effective way of managing fuel consumption.

  3. @derrida derider

    As noted in the OP, the higher purchase costs are more than offset by lower costs of ownership. This will be particularly beneficial in the second-hand market, which undervalues fuel-efficiency.

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