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CAFE standards seem dumb

Congress has enacted a law which required auto manufacturers to have their fleet of models have a certain average MPG (miles per gallon). This is CAFE - Corporate Average Fuel Economy. This basically forces car companies to produce cars with higher MPG. The idea is that people will use less gasoline, but, as usual when the government dorks around with the market, there are a number of side effects.

First, freedom is taken away, as it always is, because the government knows that is best for us. The freedom to build whatever car the company wants has been removed. This reduces the choices available to the consumer. If the goal is to restrict the mileage people drive, then a higher tax on gasoline is a more logical choice. What's worse? A giant hummer that is driven 3000 miles per year or a Prius that is driven 30,000 miles per year? As far as fuel usage, the Prius is far worse than the Hummer. The government wants to take away the choice of buying a Hummer.

Actually, the law doesn't take away the choice, but it imposes a penalty of $5 per tenth of a mile under the target per vehicle. For example, let's say you want to start a car company that will only produce one model - a sports car that gets 15 mpg. With Obama's new CAFE standards of 35 mpg, you'd have to pay a $1000 ($5 * 200 tenths of a MPG) penalty for each vehicle. European manufacturers routinely pay penalties of up to $20 million per year for the cars they sell. US manufacturers could do the same, but they don't for political reasons.

So, how do you make a car with a high MPG? For easiest and most often used way is to make the car smaller and lighter. Unfortunately, smaller and lighter cars are much more dangerous if you get into an accident.

But the point is that the government shouldn't be meddling in such details. The right method to achieve what they supposedly desire is simply a higher gas tax. They don't choose this option because a tax isn't preceived as well as simply reducing choice.

Saving energy by knowing your consumption isn't a new idea

I work for Tendril Networks, Inc. - an energy management start-up company. We work with utilities on various technologies to reduce the use of electricity (typically at peak load times, but the details aren't relevant here). One of the devices included in our Home Area Network is a display which shows your currently energy usage and what you are paying per hour at that very moment. The utilities think that just showing users the immediate costs will prompt a 10-15% reduction in the use of energy. It sounded like a reasonable theory, but was there any data to support this? Turns out I found some data in a book I was reading.

I'm currently reading "Empires of Light" by Jill Jonnes. It's about the electrification of the world and the battle between Edison (DC advocate) and Westinghouse (AC advocate). AC won out, of course, mainly because of it's easy ability to change voltages through transformers and hence can be transmitted over great distances with negligible losses, but it had some major problems initially. One was the lack of an AC motor, but that problem was solved by Nikola Tesla. The other fundamental problem was the lack of an AC meter. Without a meter customers were charged a flat rate (based on what I'm not sure, but probably the number of devices hooked to their network). Working for Westinghouse, Oliver Shallenberger solved the AC meter problem and the results were very apropos to today power industry and to Tendril. I'll quote directly from the book:

"As soon as customers saw bills based on usage, they began turning off lights. Westinghouse central stations equipped with meters now had to generate only a half to two-thirds the amount of electricity as those central stations operating still without meters. The savings to the company were dramatic."

This was in 1890...

Obviously we all have meters, but most customers don't scrutinize their bills much. I think we have an analogous situation with our IHD's and our web portal as when people initially got meters. There will be a reduction in electrical usage and there is precedent for it.

Bill

Energy Efficiency

I just read a pretty interesting article on energy efficiency on the Time magazine site. In the article there are a number of annoying and incorrect assertions and assumptions. First, they state that efficiency is "a renewable-energy resource that is perfectly clean, remarkably cheap, surprisingly abundant and immediately available." This is not true. Efficiency is no form of energy, of course, and it will not power a single thing. That is, unless you can get things so efficient where they need no energy at all to run...

Next it talks about various power utility companies and in particular about Duke Energy's plans to help customers retrofit their house to use less energy. A clear sign that you aren't dealing with a free market is when a company tries to get its customers not to buy the product they produce. Power companies should have little incentive to make customers' houses or businesses more efficient in their use of energy. In a free market this cannot be in their interest, even with respect to black-outs and brown-outs. In those situations, if the utility was free to change prices depending upon load or the time of use, then these problems would solve themselves in the market.

A utility's only interest in efficiency should be in the efficiency of their power plant. They want these plants as efficient as possible. Or, at least they would if the market was free, but many places there is no incentive for a utility to build a more efficient plant, since they cannot reap the benefits of the extra cost of implementation.

Utilities might have an incentive for people to reduce usage during peaks times because they'd have to start up more expensive natural gas-fed turbines to produce the extra energy needed, but even that could be solved by just raising prices until users themselves turned things off or more than paid for the extra cost of the gas turbines. If the utility raised prices too high, then there would be a market for another energy producer to sell power at a cheaper price.

The article continues with another ridiculous example of how not to view efficiency: CAFE MPG efficiency requirements and the Big Three's opposition to these regulations. Car companies should be interested in one and only one thing: making cars that people will want to buy. That's it. Nothing else. If people want to buy high MPG cars, then car companies should build them. If people want to buy giant gas guzzling SUV's car companies should build them. Why? Because if they don't build what people want to buy, they go out of business, as they should.

So, if we want to force people to buy more efficient cars, you don't do that by forcing the car companies to build things people don't want. You do it by taxing gasoline so the point where people will want to buy a vehicle with a higher MPG. CAFE is a ridiculous law that has disadvantaged U.S. car manufacturers. European car manufacturers don't conform to this stupid rule and just pay a fine to get around it. U.S. car manufacturers should do the same, except for the political perception problems.

But the point is that consumers are the ones that should be interested in efficiency and if they are, producers will respond to their demands. The Toyota Prius was supposedly a really hot car and they were hard to find, but that was only because they didn't make very many. They are still a very small percentage of the overall car market. If the demand was greater, Toyota would make more, but it isn't.

The article then suggests that the solution to more efficiency is to just mandate that it happen. Isn't this a bit naive? Why don't they just pass a law that all cars get 100 mph? Obviously because that would put zero cars on the road, since it can't be done with today's technology. You can't just mandate an invention. California passed some law a decade ago or so about having a certain percentage of cars sold in their state be electric. It had to be repealed, of course.

This mandating of unreal things isn't only done in California. In 2006 Colorado passed a law that requires the state to produce 10% (or 20, I can't remember and it's not important here) from alternative sources, which the bill listed. One of the listed sources of energy was hydrogen. Hydrogen is only a source of energy when it is free of oxygen and since it is not, hydrogen is simply not a source of energy. Period. It is only a method of storing energy produced elsewhere (and it must store less energy than used to produce it because no process of converting energy is 100% efficient).

One interesting tidbit from the piece was that the average American home as 26 devices plugged in. Can this be right? In my home office alone I have 20 devices (2 computers, 2 monitors, 4 lights, 3 printers, 4 AV pieces of gear, a router, cable modem, and 3 external hard drives). And that doesn't even count various chargers that are sometimes plugged in. Yeah, I could be a bit more efficient myself.