Tuesday, August 23, 2005

More on oil

The US government has decided to ease CAFE onto the auto industry according to this article, no doubt due to some crafty lobbying by the manufacturers. The market itself will probably have some say about that as well, and might even force automakers to all be well above the average because of high oil prices and consumers' inability to afford to fill up their cars.

What's interesting is that in light of the Federal Government's attempts to deal with higher fuel prices, not only are consumers reacting, but so are state governments. California has its own CARB or California Air Resources Board, which allows it to mandate emission restrictions onto vehicles above and beyond anything set forth by the federal government. From a legal perspective I'm not sure how this organization ever survived a commerce clause lawsuit by the automakers, but essentially it is an additional restriction on manufacturers, and it is a restriction that is also being considered by Oregon and Washington. Much of New England has already restricted their emission levels as well. It's obviously a Blue State movement.

So we have local government and the market wielding incredible forces upon the auto industry to essentially change what they make. Can they do it? I think so. If you look at the EPA mileage of a Honda Civic over the course of the last 10 years you find that it has stayed constant. But its horsepower and size have increased. Automakers face a very crucial challenge: Do they keep the cars they make the same size and reduce horsepower and engine size, or do they decrease the size of the vehicles and keep the engine size the same? Auto enthusiasts will no doubt hope for the latter, but I think since humans are visual creatures the smart (i.e. profitable) route would be to offer cars that are the same size with less power. Americans have shown very different tastes from their European brethren. They don't necessarily need more finely crafted vehicles, but they do want size. Regardless of where you stand on this debate one thing is for certain. Cars are going to change dramatically in the very near future.

I think that the Clean Air Act specifically authorizes CA to mandate stricter emissions standard, b/c when it was legislated LA air was so bad they figured CA should make it stricter.
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