On its face, such mandates would seem unnecessary. Auto consumers have ample reason to want fuel economy (balanced against other desirable traits such as safety, performance, and comfort), and car makers have ample reason to supply it. And, as Regulation has repeatedly documented, there is plenty of evidence that the market operates well in this regard. (See, e.g., “Do Consumers Value Fuel Economy?” Winter 2005–2006; “Working Papers: CAFE Standards,” Winter 2015–2016.)

How did such a large increase in required fuel economy happen? Margo Oge, former director of the Office of Transportation and Air Quality in the U.S. Environmental Protection Agency, tells the story in her book, Driving the Future. Oge had a large role in designing these regulations and negotiating for them within the Obama administration and with the auto makers, both foreign and domestic. Her book helps readers understand how this extreme regulatory requirement came about.

She argues for the regulations, basing her case on the climate change that she fears would occur without a large reduction in the carbon footprint of cars and trucks. She takes for granted that there would be catastrophic global warming without such regulations. She does not consider other ways that economists have conceived for reducing carbon dioxide emissions, such as cap-and-trade or taxes on carbon use or CO₂ emissions. She also ignores or fails to understand any unintended consequences of the regulations she favors.

Climate change debate / Given how heavily Oge leans on climate science to make a case that the world is dangerously warming, it would have been nice had she taken the various criticisms of this view more seriously. At one point she refers to “climate change deniers,” although there are a number of climatologists at good universities, none of whom deny climate change, but all of whom are skeptical of current professions of certain doom. She is having none of it, insisting that “the cause of these earth-changing deviations should no longer be subject to debate.”

But should there be some debate? She has so much trouble granting that there might be a debate that at one point she refers to former President George H.W. Bush’s chief of staff John Sununu’s “effort to undermine the credibility of climate science.” How did Sununu undermine it? She writes: “Sununu ran computer models that he claimed showed uncertainties clouding the understanding of global warming.” What she misses is that undermining scientists’ conclusions with computer models is—unless the models are dishonestly or inappropriately programmed—part of the scientific method.

She also criticizes Sherwood Idso, whom she calls, correctly, “a respected scientist.” In his book Carbon Dioxide: Friend or Foe? Idso argues that increased greenhouse gas emissions “would actually increase food yield and provide other benefits.” Oge admits that this is “true for some parts of the planet for short periods of time.” But she writes that, overall, “Idso’s arguments gave a false impression of the future impacts that climate change would have on agriculture.” Unfortunately, she doesn’t bother to explain precisely why this “impression” is false, instead dismissing Idso’s book as being “popular and controversial” and, therefore, “exactly what industry interests wanted.” We can’t have that.

But let’s assume, as she does, that without a large cut in CO₂ emissions, global warming would continue. What would the consequences be? There is a large, serious economics literature on this, written by people who share her concerns. I have in mind people like Yale economist William Nordhaus. But she doesn’t reference his work, settling instead for a report by three people who are neither economists nor climate scientists: former treasury secretary Henry Paulson, former New York mayor Michael Bloomberg, and wealthy investor Tom Steyer. She cites a claim from their study that by 2050, if current trends continue, “up to $106 billion of the nation’s coastal property will likely be below sea level.” Put aside the important hedges “up to” and “likely”; does Oge realize how relatively small a $106 billion loss is? In 2013, according to the Federal Reserve’s Flow of Funds data, the value of all privately owned land and property in the United States was about $21.6 trillion. It’s almost certainly higher now. That $106 billion loss, therefore, though large in absolute value, would be less than 0.5% of the total.

Misunderstanding markets / To her credit, Oge understands why it would be a bad idea to require auto companies to use specific methods for reaching the ambitious regulatory mpg goals. She writes:

The EPA didn’t tell automakers what technology they had to use to make the improvements [in fuel economy]. It didn’t pick winners and losers. Instead, the mandate created a huge market for whatever new technology could get the job done. Private industry would have to figure out the rest.

Implicit in this passage is the idea that firms given a mandate will figure out the least-cost way of complying with the mandate. It’s good that she acknowledges this.

But once you understand why it would be a bad idea to require a particular technology, it’s pretty easy to see why it’s a bad idea to require a particular fuel economy for cars and trucks. Remember that Oge’s and others’ ultimate goal is not better fuel economy per se but, rather, lower CO₂ emissions. The least-cost way to get lower emissions is not to single out a particular sector of the economy—in this case, new cars and trucks—and require a minimum number of mpg. Instead, it is to have people cut the uses of CO₂ that have the least value for a given amount of emission.

How would government do this? Economists offer two answers: a cap-and-trade system or a tax on CO₂ emissions. I note parenthetically that even economists have gone a little astray in talking about carbon taxes. If global warming is a real threat, then the enemy is not carbon but CO₂. Equating a tax on carbon with a tax on CO₂ implicitly assumes that one could not use a given amount of carbon in a way that produces less CO₂. (There might even be a cheaper way to deal with future CO₂ emissions: geo-engineering. But Oge does not consider this.)

With a tax on CO₂ or a cap-and-trade system, everyone who uses carbon has an incentive to economize on emissions. So not only new car buyers, but also users of old cars would economize. Outside the auto sector, barbecue users, people heating their homes, manufacturers using fuel, and electric utilities—to name just a few—would economize. Yet Oge does not consider the option of cap-and-trade or a tax on CO₂ emissions. This omission is quite striking given how vocal economists have been in recent years about a tax or cap-and-trade.

It’s not as if she had no discussions with economists; she did, in both the George W. Bush and Obama administrations. She tells of one interaction with Michael Greenstone, chief economist on the Obama White House’s Council of Economic Advisers. In her telling, she had reported a finding that the higher price of the more fuel-efficient car would be more than offset by the savings in fuel expenditures. Greenstone challenged her. She quotes him as saying, “The consumer won’t fully value these fuel economy benefits, so we should discount them by 50 to 80 percent.”

Oge doesn’t say why he believed this. So I called him at the University of Chicago, where he is an economics professor, and asked him. He explained to me that if car buyers were not already demanding cars that had the fuel efficiency she was trying to achieve, it must be because there were other negatives besides the higher upfront price of the car. Those negatives might be the cars’ performance, esthetics, safety, or other features.

Oge writes, “Academics like Greenstone would still worry that we are messing with the magic of the market.” He explained to me that consumers know what they want better than central planners do. Summarizing her interaction with Greenstone, Oge writes, “The idea that the market functions perfectly is a powerful political and theoretical obstacle to fuel economy regulations.” The idea that economists think that the market functions perfectly is a caricature that many non-economists share. You don’t have to think that markets function perfectly—whatever that means—to think that they function well or, at least, better than government.

If one sentence crystallizes the problems caused by Oge’s lack of understanding of economics, it is this one, written about the then-freshly formed Obama administration: “There will be others, even within the new administration, who are ideologically opposed to the regulations—as is almost inevitable in any room filled with Washington lawyers and academic economists.” She, in short, sees economists—even ones in the Obama administration—as being ideologically opposed to regulation rather than being opposed because of their understanding of both markets and regulation.

Her lack of understanding of markets also leads her to miss a basic fact about the 1973 Arab oil embargo on the United States. The embargo, by itself, had no effect on the United States because oil is fungible. In a world market, selective embargoes against particular countries cannot work because buyers who get the oil from the embargoing countries can resell it. What hurt us and other oil-consuming countries in 1973 was not the embargo. At the time world demand was growing but world production was growing more slowly, pushing prices up. Oge attributes the gasoline lines of 1973 to the embargo, but that is wrong. The villain behind the gasoline lines was the one for whom she later worked: the U.S. government with its price controls on oil and gas. Countries whose governments avoided price controls, such as Switzerland, also avoided gasoline lines.

She is not alone in this basic misunderstanding. She tells of a conversation she had in the summer of 2013 with James Woolsey, a director of the Central Intelligence Agency during Bill Clinton’s presidency. In October 1973, when he was general counsel for the Senate Armed Services Committee, he had planned to run a congressional hearing on the Yom Kippur War. Instead, he “missed most of the hearing waiting in the long line at the pumps.” Oge quotes Woolsey, “I turned pretty hostile to oil then, and that was forty years ago.” Wow! One wonders what important decisions he made because he lacked this basic understanding of microeconomics.

Oge seems to be someone who tried to do what she thought was the right thing. It’s too bad that she didn’t have more understanding of economics. If she had, then we might not be contending in a few years with cars that get much higher fuel economy but suffer on yet unknown other dimensions.