Megan McArdle wants to know how fuel-efficiency standards for big trucks could possibly be efficiency-improving: after all, if making trucks more energy-efficient paid for itself, the trucking companies would do so voluntarily.
Reasonable question, but the answer isn’t far to seek. Increased consumption of oil increases the rents that oil producers can collect at the expense of oil consumers. So consumers as a group benefit from reduced consumption; it’s in the interest of each consumer to have other consumers reduce their consumption to an extent greater than justified by the individual benefit.
True, such “pecuniary externalities” don’t generally count in a benefit-cost analysis, but for a country that is a net importer to a big enough extent to move the world market – as we are – a trucking CAFE is an opportunity to confiscate foreign producers’ rents for the benefit of domestic consumers.
(The military and security implications of having to keep the oil flowing, the role of oil in sustaining kleptocracy and generating insurgency, and the link to pollution – including greenhouse-gas emissions – are just icing on the cake.)
Now, if Megan wants to respond that we could do just as well tax oil imports, or motor fuels at the pump, or do a carbon tax or a cap-and-trade, and that any of those things would outperform CAFE standards, I’m not going to disagree. As soon as the Tea Party has been ground into the dust and the GOP transformed into a party capable of seeing reason, we can talk about it. In the meantime, kudos to the President for using his executive powers to do the right thing. And recall that none of his Republican opponents would have done the same.
Megan McArdle says
I don’t think this really works. The small increase in efficiency is 5% of US consumption, and that itself assumes no rebound effect, which we know is not a realistic assumption (particularly in the case of big trucks, since unlike in cars, it is the load, not the truck itself, that comprises much of the weight that the engine is moving, so making the truck lighter, or reducing its power, actually means more trucks pulling more loads, not, say, more expensive alloys that weigh less than steel. No wonder the engine manufacturers like it.) The movement in the price is going to be small, particularly since we don’t buy diesel from the rent-extractors, but barrels of oil, of which diesel is one product.
With cars you can posit a sort of car-weight-collective-action-problem: it’s unsafe to be the smallest, lightest car on the road, so if you force everyone to have smaller cars, everyone’s better off. Now, in practice, this has completely backfired, since SUVs were at least to some extent a regulatory substitute for the large station wagons that CAFE made effectively impossible. But it’s a plausible argument.
This just doesn’t work for trucks. Trucks with less weight means more trucks pulling more loads; trucks with less power means more trucks pulling more loads, and also less safe trucks for other people on the road (you do not want a truck that starts rolling backwards down Wolf Creek Pass); trucks with less traction (what the engineers in my comments point out are a possible side effect of lower-resistance tires) are not something I want to be driving near in wet conditions. There’s a real possibility that we’re trying to reduce one negative externality by introducing another.
That’s not all this involves–there’s also aerodynamic improvements. But again, much of the drag comes from the container, and there are very large national implications for our very efficient freight and ship transport from attempting to change the shape of the containers we put on trucks. I’m not sure they’re clearly emissions reducing.
At any rate, it seems pretty likely to me that the $50 billion the administration claims it will be saving is a primitive direct extrapolation of the potential fuel savings assuming no rebound effect, not any sort of attempt to actually account for primary costs, much less the secondary and tertiary implications.
matt wilbert says
Let me propose a different mechanism. Suppose that it is cheaper to make a lot of trucks that are efficient instead of a few of them. By guaranteeing the market for a larger number of efficient trucks, you can lower the price below the point where they are cheaper to operate overall, which they were not when they were a lower volume product.
A second argument for the standards,which I think is very likely to be true, is that oil prices are going to be higher relative to truck prices in the future, but the market does a lousy job of incorporating future price increases into current behavior when the pattern of those increases is uncertain. So it wouldn’t save money now, but it will save money when it goes into effect.
If the market were sufficient to deal with this problem of deciding what kind of trucks to run, I suspect there would be a fleet of natural gas powered trucks now, given the huge disparity in the price of diesel and CNG. But there isn’t, and although the factors involved are somewhat different, it should give one pause about thinking that the market takes care of everything.
bobbyp says
Well, if we hadn’t forced all those people to cough up tax monies to pay for the vast expanses of concrete and asphalt those trucks roll on, we wouldn’t be having this discussion. Tertiary implications, indeed.
paul says
Uh, doesn’t this discussion assume that truck manufacturers are farsighted utility maximizers? You know, just like CDS issuers? The R&D costs simply aren’t attractive when you can keep doing what you’re doing.
Oh, and Megan McArdle might be right if truck aerodynamics, engines, power trains, energy recovery etc were already at their theoretical optima. And if trucks never went anywhere partly or mostly empty. And even when a truck is fully loaded, the engine, frame, and so forth come in somewhere around 20% of gross weight, so any substantial improvements will go directly to gas mileage.
MarkJ says
Isn’t air quality the major externality here that’s being ignored here? There’s no return to the manufacturer if a more efficient truck improves air quality, hence, they ignore that when designing trucks. But that doesn’t mean that cleaner air has no value. Making trucks more efficient may not pay for itself from the manufacturer’s or operator’s perspective, but because of the air quality externality, it may be more efficient from the perspective of society as a whole. Does the Atlantic’s Business and Economics editor really not understand externalities? That’s pretty basic economics – if she doesn’t get that simple concept then I think the Atlantic should look for a new Business and Economics editor.
SamChevre says
The really ironic thing is that in 1998, the EPA fined the engine manufacturers $83 million for selling engines that were much more efficient than the currently-available engines. (They passed EPA tests under test conditions, but under road conditions burned hotter and cleaner, resulting in lower fuel consumption and higher NOx emmissions.)
SamChevre says
To MarkJ,
Actually, with trucks, fuel efficiency and air quality tend to be opposed rather than in sync. Every mechanic and most truckers know how to bump fuel efficiency–bump up the burn temps and run clean air into the cylinder.
And every chemist and engine designer knows that if you do that, NOx skyrockets. Hence the $83 million fine and $1 billion settlement with the engine manufactuarers.
MobiusKlein says
Sam, it sounds like the engine manufacturers we fined because they knew that would happen, and decided to let the EPA use the lower NOx figures anyway. You lie (by omission) to the govt, the govt gets mad. I suspect they were cheaping out on the catalytic converter equivalent for diesel engines.
MarkJ says
Sam, I’m not a mechanic but then neither is McCardle, and she didn’t mention the inverse fuel economy-emissions relationship in her piece. Which means she didn’t address what could have been a potential and obvious answer to her question.
Will says
The idea that all truckers and trucking firms are perfect profit maximizers (even within the narrow bounds of the original argument) can be easily refuted by looking at the number of *new*, non-aero cabs being sold and driven long distance (see, Peterbilt 389), and that can be done by looking at just about any highway.
Brett Bellmore says
Here’s an externality for you: Roadbed damage is a high order function of tire PSI loading, and low rolling resistance tires are high PSI loading tires. (Trains get really low rolling resistance by having steel “tires”.) The fuel savings will probably be more than made up by increased roadbed maintainance. Which trucks are already not covering with their fuel purchases, since they do more damage to roadbed per gallon of fuel consumed than passenger cars already.
SamChevre says
Sam, it sounds like the engine manufacturers we fined because they knew that would happen, and decided to let the EPA use the lower NOx figures anyway. You lie (by omission) to the govt, the govt gets mad. I suspect they were cheaping out on the catalytic converter equivalent for diesel engines.
Not quite. (I’ve got a brother who is a truck driver and diesel mechanic, and was a mechanic then.)
The EPA prescribed a specific test–load, speed, etc–for truck engines, with a limit on both particulate and NOx emissions. What the engine manufacturers did was to set the engine computers up so that under test conditions, the engines ran in a low fuel efficiency/low emissions mode and passed the test, but under road conditions they ran in a high-efficiency/high-emissions mode.
In general, I find the lack of consideration given to the interactions between various kinds of externalities somewhat frustrating. We have cars that get 50 mpg for a big sedan, and have for decades (turbo diesels); it’s particulate emissions rules that keep them from being widely imported and used. We know there’s a trade-off between low rolling resistance in tires and roadbed damage; between fuel efficiency in both gas and diesel engines and NOx emissions; and so on. But somehow, the rules are made one component at a time.
Benny Lava says
Aren’t these CAFE standards just a barrier to entry for imports?
Stephanie Daugherty says
I’d be really happy to see fuel economy standards that are based on a competitive process. Take the average of the top 25% of vehicles in any given class each year and that becomes the new standard. If you can move fuel economy forward by a lot, you gain market advantage by being able to exclude competitors products, therefore the business case will become the same as the environmental case.
Barry says
MarkJ says:
August 12, 2011 at 9:06 am
“Sam, I’m not a mechanic but then neither is McCardle, and she didn’t mention the inverse fuel economy-emissions relationship in her piece. Which means she didn’t address what could have been a potential and obvious answer to her question.”
Megan McArdle is a Chicago shill, pure and simple. Read http://www.balloon-juice.com/2011/08/04/under-pressure/
and everything Tom Levenson has written about her at his Inverse Square blog (https://inversesquare.wordpress.com/, search for ‘McArdle’).
In any argument she makes, the reasonable starting assumption is that she’s gotten facts wrong, made arithmatic errors, and/or is leaving out key facts. Anytime she quotes research, she’s probably cherry-picking, and frequently not even getting the cherry-picked papers’ results correct.
Brett Bellmore says
“Take the average of the top 25% of vehicles in any given class each year and that becomes the new standard. “
All it would take to make that work, would be manufacturing all our vehicles in Lake Wobegon. I mean, you’d change the standard annually to outlaw 3/4s of the vehicles on the road??? What do you think the working lifetime of a car is, six months or so? Or are you just utterly innumerate?
Tangurena says
Damage done to roads is proportional to the 4th power of the axle load and 3rd power of speed.
http://en.wikipedia.org/wiki/AASHO_Road_Test
>A typical tractor-trailer weighing 80,000 pounds (36.287 t) with 8,000 pounds (3.629 t) on the steer axle and 36,000 pounds (16.329 t) on both of the tandem axle groups is expected to do 7,800 times more damage than a passenger vehicle with 2,000 pounds (0.907 t) on each axle.
http://en.wikipedia.org/wiki/Road
It would take the average person with a car/SUV over 21 years – driving their vehicle every single day – to do the same damage to roads that one fully loaded tractor trailer does in a single day.
Alex says
particularly in the case of big trucks, since unlike in cars, it is the load, not the truck itself, that comprises much of the weight that the engine is moving, so making the truck lighter, or reducing its power, actually means more trucks pulling more loads, not, say, more expensive alloys that weigh less than steel
This sentence makes no sense whatsoever. Why on earth would making the truck lighter – reducing its kerb weight and increasing the fraction of it that’s payload = mean “more trucks pulling more load”? Also, a 44 tonne artic with a 300hp engine has the same payload as one with 500hp, but it’s slower. Power, you may remember from basic high school physics, is defined as work over time.
And why would “making the truck lighter…mean more expensive alloys”? Do you mean making the truck out of light alloy? There’s no reason why that would reduce its payload, given that the alloy provided enough structural strength. But most of this just vanishes in the word salad.
Brett Bellmore says
“It would take the average person with a car/SUV over 21 years – driving their vehicle every single day – to do the same damage to roads that one fully loaded tractor trailer does in a single day.”
Exactly. Anybody who thinks the main cost of trucks is the fuel hasn’t a clue. The fact that vehicle taxes and fees have essentially nothing to do with a vehicle’s contribution to the road maintainance expenses those taxes and fees are supposed to be paying for is really warping vehicle design. And low rolling resistance tires would probably be a step, albeit small, in the wrong direction.
Really, if we were going to be rational we’d drop the gas tax as totally unrelated to road expenses, and impose an odometer tax with vehicles assigned to categories based on roadbed damage. Have to phase it in, an immediate jump to rational charges would destroy the trucking industry over-night, and we’re dependent on it. But it would result in a great drop in overall expenses, due to roadbeds lasting much longer. Probably involve the vehicles using a bit MORE gas, though, if they were optimized to minimize overall expense, rather than just fuel usage.