Economic and Security Impacts of Light-Duty Fuel Economy Standards

On February 29, 2012, the Environmental and Energy Study Institute (EESI) held a briefing on the economic impacts of both in-place and proposed corporate average fuel economy (CAFE) standards for passenger vehicles and light-duty trucks. Higher fuel economy standards can cut drivers’ fuel costs, increase energy security, protect the environment, and promote both economic growth and technological advancement. After remaining unchanged for more than 20 years, vehicle efficiency will this year begin to rise by five percent annually, reaching 35.5 miles per gallon (mpg) by Model Year 2016. This standard is projected to conserve 1.8 billion barrels of oil over the lifetime of new vehicles sold during this period.

The Obama administration, in consultation with the auto industry, has proposed to raise CAFE standards to 54.5 mpg by Model Year 2025. The Environmental Protection Agency estimates that this rule would generate $311 billion to $421 billion in net savings. A final ruling is expected this summer.

The briefing will cover topics such as CAFE standards’ overall financial impact on drivers, public opinion regarding fuel economy, the effects of a higher national standard on the automotive industry, implications for national security through reduced oil consumption, and how vehicle technology will likely advance to meet the 2025 standard. Speakers at this event included:

• Dr. David Greene, Corporate Fellow, Oak Ridge National Laboratory
• Shannon Baker-Branstetter, Policy Counsel, Consumers Union
• Adrian Deveny, Office of Senator Jeff Merkley (D-OR)
• Jonathan Gensler, Fellow, Truman National Security Project; former Army Captain

Dr. David Greene has studied transportation policy issues for the U.S. government for more than 30 years and authored more than 200 publications. He is an emeritus member of both the Energy and Alternative Fuels Committees of the Transportation Research Board.

Highlights from Speaker Presentations:

• The United States imports oil at a cost of $850 million per day. This figure rises to $1 billion when the price of a barrel reaches $114. Sen. Merkley’s white paper “America Over a Barrel” addresses the need to reduce oil consumption, largely through the transportation sector.
• Cost-effective fuel economy improvements save consumers money, reduce the costs of oil dependence, reduce greenhouse gas (GHG) emissions, and increase the demand for U.S. jobs. It additionally drives innovation and investment in renewable and energy efficient technologies.
• The automobile industry is twice as labor intensive as the petroleum industry. Fuel economy investments, therefore, create jobs while also retaining a greater percentage of transportation dollars in the domestic economy.
• The implementation of fuel economy standards in 1975 has an annual savings of 70 billion gallons of fuel, saving the country $250 billion this year alone.
• The proposed increase in 2025 fuel economy/GHG emission standards of light-duty vehicles puts the United States on track to potentially reduce vehicle GHG emissions 80 percent by 2050.
• Recent estimates from the National Highway Traffic Safety Administration (NHTSA) show payback periods of less than four years for anticipated fuel economy improvements. Higher gas prices will reduce the payback period, as this calculation assumed a gas price for 2025 that will likely be surpassed this year. The cost and savings figures for new CAFE rules have broad support from automakers, labor, consumer groups, and environmental groups.
• A Consumers Union survey showed overwhelming public support (93 percent) for improvements in fuel efficiency standards. Eighty-three percent of respondents would accept paying a higher upfront cost for a more fuel efficient car if there is a payback rate within five years.
• Prospective purchasers of cars tend to underestimate the long-term savings from higher fuel economy and therefore perceive a more efficient vehicle as a riskier investment than it is. Fuel efficiency standards reduce the impact of flawed risk analysis.
• Electric vehicles (EV) in the United States run on energy that is almost entirely domestically produced. This is a boon to national security but does not represent the cleanest form of energy to run a car. Greater adoption of electric vehicles can serve as a stepping point for further integration of distributed energy from renewable technologies.
• Sen. Merkley cosponsored the Promoting Electric Vehicles Act of 2011 (S. 948), which seeks to expand EV adoption by creating Department of Energy-supported EV deployment communities, encouraging EV use in government and private fleets, funding R&D programs for advanced batteries and EV infrastructure, and requiring utilities to plan for EV infrastructure.
• Potential conflict with Iran should be reflected in how the United States approaches petrol consumption. While the United States does not purchase oil from Iran, many NATO members and other allies do. Any interruptions in the supply chain can adversely affect the oil market and the global economy.
• Fuel efficiency is a pertinent national security concern with fuel consumption posing tactical and operational threats. Oil dollars fund terrorist operations and support regimes that are hostile to the United States and its allies.