PortFolio Weekly

PortFolio Weekly
April 13, 2004

A Missed Opportunity

by Jim Newsom

A little noticed piece of news from the presidential campaign trail recently caught my attention. The New York Times reported that Senator John Kerry intends to stick with a plan to increase the vehicle gas mileage standard 50% by the year 2015, a proposal he and Senator John McCain presented two years ago as the Kerry-McCain Fuel Efficiency Agreement.

Under the CAFE (Corporate Average Fuel Economy) standards now in place, a manufacturer’s cars and light trucks are required to average 24 miles per gallon when tested in the Environmental Protection Agency’s lab (27.5 mpg for passenger cars, 20.7 mpg for trucks.) Out in the real world, however, the average was actually 20.4 mpg for the 2002 model year, the worst since 1980. And Hummers and other monster SUVs are not included in these figures.

Kerry and McCain proposed eliminating the dual car/truck categorization and raising the standard to 36 miles per gallon by 2015 in order to reduce the country’s dependence on foreign oil and ease pollution. Unfortunately, automakers, oil industry lobbyists and senators from states with auto plants threw their muscle against the bill, claiming it would lead to job loss and “effectively eliminate sport utility vehicles, minivans and pickup trucks.” The proposal was defeated in the Senate by a vote of 62-38 in 2002, less than a year after the terrorist attacks of 9/11/01.

The idea of CAFÉ standards originated in the Energy Policy Conservation Act of 1975, passed by Congress after the 1973-74 Arab oil embargo introduced the idea of oil price shocks and ended the era of cheap gas. The short-term goal was to double new car fuel economy by the 1985 model year. It worked. By 1987, total fleet fuel economy hit 26.2 mpg. There was actually a worldwide oil glut.

Since that time, however, average fuel economy has steadily decreased. A large contributing factor is the growth in non-automobile sales. In 1987, light trucks made up 28.1% of the vehicle market. I don’t even think the term SUV existed. This year, light trucks make up more than 50% of new vehicle sales. And SUVs are everywhere, getting bigger, guzzling more gas, creating more crowded conditions in parking garages and jamming up streets and highways.

It didn’t have to be this way. When Jimmy Carter took office in 1977, one of his first priorities as President was to create a sustainable energy policy to lower oil consumption and prepare for the future. In a televised speech delivered on April 18, 1977, he said, “With the exception of preventing war, this is the greatest challenge our country will face during our lifetimes. The energy crisis has not yet overwhelmed us, but it will if we do not act quickly.”

From this speech came a variety of policies designed to wean the country from its petroleum dependence. One cornerstone was an emphasis on conservation. Another was the development of alternative fuel sources, in particular solar energy for which a new tax credit was implemented. Others included the insulation of American homes and buildings, reduction in gasoline consumption, more use of coal, and pricing that reflected the “true replacement costs of energy.” He set an example by installing solar panels on the White House roof to provide hot water. He announced “a national goal of achieving 20 percent of the nation's energy from the sun and other renewable resources by the year 2000,” and Congress followed up with appropriations for the development of synthetic and alternative fuels.

Although he was ridiculed in some quarters for his earnest attempts to convince Americans to conserve, one can’t help but wonder where we’d be today if Carter’s self-sufficient energy policies had been continued and built upon by his successors. One of the first things President Ronald Reagan did upon his arrival in 1981 was to take the solar panels down off the White House. As oil prices fell in the wake of Americans’ decreased demand, his administration chose to back off from increasing CAFE standards. After a decade-long downward trend, oil imports from the Persian Gulf suddenly skyrocketed in the late ‘80s.

Imagine our world today had we spent the last 20 years decreasing our need for foreign oil. Do you think the oil sheiks would have had the money to produce the vast inequities in their societies that have fed the Islamic terrorist movement? Would Ken Lay and the Enron crowd have been in a position to manipulate the energy market and cheat thousands out of their retirement savings? Would we have been thrust into the mire of Iraq, damaging American credibility around the world, losing American lives, feeding the Islamic hate machine, giving a greedy corporate pig like Haliburton the chance to bilk taxpayers with inflated invoices? Would our car-buying habits have devolved to the point where our streets and highways are increasingly clogged with combat-styled vehicles?

It’s too late to undo what’s been done or do what wasn’t done. But it’s not too late to face the future. Robert F. Kennedy, Jr., of the Natural Resources Defense Council has written that “an improvement right now of 2.7 miles per gallon would eliminate our need for all Persian Gulf oil.”

Congresswatchers say there’s little chance John Kerry can get his fuel efficiency standards passed, even if he’s elected President of the United States. I hope they’re wrong.

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