It's an interesting question. For one thing, the federal government DOES dictate energy policy, so in some sense the question is actually moot. Still, you could ask 'why is that so?' and then 'is that a good enough reason to continue to do it that way?'

Speaking as someone whose father works for the Department of Energy (he's a research physicist), I would be very unlikely to advocate its abolition. But even though I acknowledge my bias, I think there are some very good reasons for the federal government to dictate energy policy.

1) The Constitution. I believe that queenfan is a bit off when she mentions the Interstate Commerce Act. From my understanding of Constitutional Law, the reason that the federal government regulates in this area stems directly from the Commerce Clause of Article I of the United States Constitution. Congress shall have the power to regulate interstate commerce. It's hard to think of an industry that is necessarily more interstate than the energy industry, from the physical interstate highways and the interstate movement of cars, boats, trucks, and planes, to the cross-country stretches of power lines and canals, dams and pipelines, not to mention the haze of water pollutants and smokestack emissions given off by power plants and refineries, which do not halt at state lines. It is without question that the Constitution gives the authority to regulate this industry to the federal government. If it's interstate, then we need a uniform standard to avoid confusion and inconsistency, whether we are talking about air pollution levels or printing currency.

2) Putting aside Congress's authority to do so, let's look at the issue of what the state alternatives might be, and whether those alternatives might do well or poorly.

Taking your example, let's say that the states regulated CAFE standards instead of the feds. What would this mean? If it means that a person buying a car in a particular state can only get cars that meet certain efficiency requirements, then the result may be a shift in car buying trends so that clusters of car dealerships near state borders will experience a boom or a drop in business. Buying a car in one state and driving it hundreds or thousands of miles back to where you live in another state would become more common. If enough nearby states or big states (CA, TX) pick high enough efficiency standards to make it inconvenient enough to buy a Hummer, then maybe, to a small degree, overall car efficiencies would rise a bit. But maybe not. CA has had an impact b/c it's such a big market and could only increase efficiency, but that's a unique situation; if every state could go either way, some states would try to be pollution havens, others would try to attract green consumers, and others would come up with odd conditions or requirements, like including used cars, or trucks and motorcycles to skew the numbers, until the data would probably be so messed up and confusing that no one could even tell whether fuel efficiency standards were rising or falling.

If it means that you can't drive a car in a particular state without meeting their requirements, then we'd have checkpoints at borders, and the free flow of people and goods across state lines would be hampered. That would be an intolerable situation, and the costs would be enormous. I can imagine massive parking lots and rental cars to use to cross state lines, like a park and ride.

3) Looking at your other example, let's say that regulation of what fuel we burn was a state issue. Thinking ahead to possible consequences, let's say that some states take a couple of the extreme positions out there (always possible if it's a state issue- this would be bound to happen). Maybe Iowa will decide to promote corn farmers and require all fuel sold in-state to be 100% corn-based ethanol. Practically every cross-country truck in the US goes through Iowa, so they'd all need new engines, which would be prohibitively expensive, or they'll need to carry their own fuel all the way through the state. Carrying all that extra weight would make every thing in the country that is shipped by truck cost more- a lot more. Vehicles that would get stuck there without access to fuel they could burn might have to be towed out or ship in their own fuel (which they couldn't buy in-state)--- huge wastefulness and cost. Other trucks would reroute around Iowa, increasing traffic, car accidents, and road wear in surrounding states, assuming that there was a clear path through states with a particular kind of fuel (these states might not want all that traffic, and this could motivate them to adopt similarly extreme laws).

If there was no clear path, then certain services or products would stop being offered in some places because it would be too costly to get them there- the potential effect this would have on state economies could theoretically be catastrophic. Although that might deter states from enacting laws that varied from the standard, if your state was surrounded by others with such rules, you might not be able to do anything about it. There wouldn't even *be* a standard for long, because states given the authority to regulate would probably do so eventually, and it would be harder and harder to tell who was 'out of step.'

Yes, I think that the federal government needs to regulate energy policy. No state or group of states would be in as good of a position to do so, and Congress has been given that type of Constitutional power for a reason.