Wrong Road

The Bush Administration Demonstrates a Mistrust of the Market

The following article originally appeared Jan. 10, 2002, in National Review Online.

Surrounded by hundreds of gleaming new autos at the 2002 North American International Auto Show, Detroit's annual celebration of the internal combustion engine, U.S. Energy Secretary Spencer Abraham on Wednesday effectively conceded what the Big Three and their customers have known for years: the feds have no business dictating vehicle design.

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No longer will taxpayers hand over hundreds of millions of dollars annually to underwrite Al Gore's vain dream of producing by 2004 an affordable emissions-free family sedan capable of 80 miles per gallon. Abraham instead announced a different type of environmental tax—a subsidy for hydrogen fuel-cell research—likewise intended to improve air quality and reduce American dependence on foreign oil.

This new plan, dubbed "Freedom CAR" (Cooperative Automotive Research), certainly constitutes a more flexible approach than Gore's Partnership for a New Generation of Vehicles, which attempted to force nascent technology into specific automotive applications—which Abraham supported while a Michigan senator. But substituting one research priority for another, sans deadlines, still amounts to unwarranted federal meddling in the automotive industry, and exposes a troubling mistrust of the market on the part of the Bush administration.

"The long-term results of this cooperative effort will be cars and trucks that are more efficient, cheaper to operate, pollution-free and competitive in the showroom,'' Abraham said. Which echoes precisely what Mr. Gore promised in launching his program in 1993.

As so unfortunately has been demonstrated by the failure of PNGV (as well as California's unsuccessful electric-vehicle mandate), R&D decisions are best left to private investors, who have a track record far superior to government in picking winning technologies based on economically rational—not politically expedient—considerations. At century's turn, for example, auto pioneers experimented with steam and electricity as well as fossil fuels. But the superiority of internal combustion—not special-interest lobbying—won out.

Washington funneled more than $1.5 billion over eight years into PNGV, along with an additional $1 billion a year from Ford Motor Co., General Motors Corp., and DaimlerChrysler AG—under threat of tighter fuel economy standards. Some progress has been achieved. Automakers last year unveiled high-mileage concept cars, but none met PNGV's overly ambitious cost or emissions targets. Consequently, in its annual review of the program in August, the National Research Council judged the supercar goals to be inherently unrealistic.

It may well be that fuel-cell technology would be farther along today were it not for the diversion of billions of dollars into the narrow PNGV scheme. (Hydrogen-based power has a great many applications ignored by the focus on automotive applications.) And while fuel cells may now appear to be the most promising alternative to the internal combustion engine, other possibilities may be overlooked by government's latest shift of R&D funding.

Underlying both the Gore and Bush push for alternate-fuel sources is the presumption that corporate executives and their shareholders have somehow failed to respond to dire environmental circumstance. But technological progress is unstoppable if and when there exists a shortage of supply or a change in demand. At present, however, world oil supplies are cheap and abundant (temporary price spikes notwithstanding), and automakers have already eliminated more than 95 percent of tailpipe emissions since 1970. Consequently, consumers understandably prefer the power and safety of heavier conventional vehicles to premium-priced subcompacts that require overnight recharging every 70 miles.

The Big Three may be banking on Freedom CAR as a defense against higher fuel-efficiency standards. But past efforts at "compromise" have only emboldened the auto-bashers to demand ever more regulation. And given the sorry state of the industry, this is hardly an opportune time to be dabbling in high-concept vehicles. Mass production of fuel-cell-powered cars is a decade or more down the line. But today, Ford Motor is on the verge of slashing 17,000 jobs and idling three North American assembly plants. It seems obvious that Ford and its rivals have more to worry about than placating the environmental lobby.

The feds could help improve fuel efficiency dramatically, however, by repealing the stringent emissions standards that preclude use of the diesel-engine technology that would boost mileage by 25 percent or more. But Democrats and Republicans alike are far more practiced in telling businesses what to do than actually eliminating the regulatory obstacles impeding the private sector.

"The Big Three may be banking on Freedom CAR as a defense against higher fuel-efficiency standards. But past efforts at "compromise" have only emboldened the auto-bashers to demand ever more regulation."