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How can the U.S. increase vehicle fuel efficiency?
December 12, 2007

A week ago, I wrote about the passenger vehicle fuel efficiency in various countries and lamented on how the U.S. was far behind other countries (and continents), including Europe, Japan, and even China. Our friend Tim wondered if the key factor for this difference was gas price – countries with high gas prices tend to have vehicles with higher fuel efficiency, and conversely, countries with low gas prices are likely to have more gasoline guzzlers. Well here are the gas prices from a few countries in November 2007(1):

As you can see, despite all our moaning about the high gas price, drivers from European countries and Japan pay way more than we do. It would seem that vehicle fuel efficiency is correlated to gas price (though not proportional) (2).

But it begs the question – why are gas prices so different in different countries, given crude oil (from which gasoline is refined) is a commodity and traded on international open markets? Turns out it is different tax policies at work. According to Christian Monitor, “On average, 60% of the price European drivers pay at the pump goes to their governments in taxes.” In comparison, 15% of the gas price American drivers pay goes is tax.

There are undoubtedly a handful of other factors that impact why European countries, Japan and China have higher vehicle fuel efficiency, such as minimum fuel efficient standard, urban density, public transportation infrastructure, culture, and etc. And I am not calling for gasoline tax increase here (yet). But it is painfully obvious that price does influence consumer behavior – the type of cars they choose to purchase, how much they drive, and even where they live (urban living vs. suburban sprawl).

So what do we do to improve our sad state of fuel inefficiency? Aside from green-minded consumers voluntarily down-shifting their automotive consumption, the U.S. government urgently needs to use the available levers in its back pocket to influence the vehicle fuel efficiency. Just to name a few:

• Exercise balanced gasoline tax policy
• Reward fuel-efficiency car purchase by providing tax breaks (e.g., Canadian government offers $1000 to $2000 for the purchase of a vehicle that achieves 36 mpg or better)
• Provide non-financial incentives such as car pool lane privilege (already implemented in California)
• Close the loophole on SUV tax breaks - The deduction stems from the long-standing and somewhat bizarre classification of SUVs as light trucks rather than cars. The original truck tax break was partly intended to help farmers buy pickup trucks. Weird huh?
• Set minimum Corporate Average Fuel Economy (CAFE) standard, plain and simple (okay, nothing is simple)
• Other Suggestions?

There will always be people who argue how all these options will destroy the economy. I am not a macro-economist, but I believe that if Japan and Europe can average 40 miles per gallon and China can average 35 miles per gallon NOW, we have no excuse.

I will end with Gore’s Nobel prize acceptance speech, “The future is knocking at our door right now. Make no mistake: The next generation will ask us one of two questions. Either they will ask “What were you thinking? Why didn’t you act?” or they will ask instead, “How did you find the moral courage to rise and successfully resolve a crisis that so many said was impossible to solve?”

Related posts:
Diary of a Prius
Smart Car Finally available in the U.S.
Tesla Delays Electric Roadster Delivery

CindyW at Organicpicks

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(1). Sources: AARoadwatch and International Herald Tribute
(2). Use the average miles per gallon European data for the shown European countries

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