Late last year, California and twelve other states requested a waiver from the federal law that gives the Environmental Protection Agency (EPA) the authority to set motor vehicle fuel economy and emissions standards nation-wide. Their rationale was that they wanted to have a greater impact within their states’ boarders on reducing oil consumption and the contribution of automobiles to global climate change. President George W. Bush rejected the 12 states’ proposal citing that the resulting “patchwork” of requirements would require additional costs for both the manufactures and the government. President Bush was right.
Non-value adedd complexity - A uniform set of standards for all states is a more efficient form of regulation. Meeting these emissions regulations requires specific vehicle design / engineering solutions affecting the vehicle’s engine, fuel system and exhaust system hardware and electronic control systems hardware and software. Multiple regulations would require multiple hardware and software configurations to meet them. Multiple hardware and software configurations require multiple service parts and procedures to fix and maintain them. Have we moved so far from being a nation that “makes things” that we cannot understand the simple logic behind this? Part of the reason that the European Union was formed was to eliminate some of the inefficiencies that were caused by varying regulations across the boarders of neighboring countries.
More bureaucracy, more cost - The complexity of multiple regulations will also require added costs from the government to monitor and ensure compliance. Multiple regulations will mean higher costs in some states and lower costs in others. If you live near the Hudson River, chances are, you buy your gasoline in New Jersey because it’s cheaper than buying it in New York. I expect that vehicle sales would follow the same pattern in cities near state borders with different emissions regulations. Also, what impact would this have on the secondary / used car market? Will a vehicle originally bought new in Iowa be saleable to an eBay used car buyer in California? Multiple regulations and regulatory bodies will offer no benefit to the most important person in the car-buying equation, the consumer.
Some would argue that the solution to this is to just go with the higher emissions and greenhouse gas standards set by the states, but this approach is also flawed. The EPA is a federal agency charged to make regulations in the best interest of the United States. They likely take a bigger picutre view towards balancing the preservation of the environment with other national priorities. State agencies, like the California Air Resources Board (CARB), are primarily focused on the interests and priorities of their respective states.
The customer is still king... $4 gas is the real "decider" - Consumers say they want cleaner more efficient vehicles, but when gas is relatively cheap, they vote with their wallets for more size and power. You cannot legislate away the laws of physics. Regardless of the energy source, larger and more powerful vehicles will always require more energy. More regulations and more regulatory bodies will not change the basic fundamentals that drive the consumer – (1) what they want and (2) what they can afford.
What will Obama do? And, other options for states - Today, President Obama ordered his new EPA chief to increase fuel economy standards in 2011 and re-examine the California proposal for separate and higher state vehicle emissions regulations. It is my hope that he will consider the total cost implications and not just what comes across well in a sound bite. In his announcement, the President stated, “It will be the policy of my administration to reverse our dependence on foreign oil.” If so, the most effective way to do this would be to increase the price of gasoline through a higher gas tax. Similarly, if states want to regulate the mix of vehicles in their state towards fuel efficient vehicles, they can base their registration fees on engine displacement or CO2 output - higher license plate fees for pick-ups, lower fees for fuel-efficient compacts. Consumer incentives and disincentives like higher fuel prices will make consumers drive less, live closer to where they work and choose one of the many (slow-selling) fuel efficient vehicles that are already on the market today. Nothing moved consumers away from large SUVs and pickups faster than the $4 / gallon gasoline of last summer. Now that gas has dipped below $2 / gallon, sales of Honda Civics and hybrids are down and personal-use truck sales are picking back up.
Forbes Magazine's Jerry Flint, who has covered the global automotive industry for decades, offers his insightful analysis of this issue in his article titled - What Detroit Needs From Washington - The auto industry has been around for over a century, but politicians still do not understand the business. - By Jerry Flint. Check it out.
