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New House Bill Would Require Use of “Realistic” Fuel Pricing for CAFE Requirements

US Representatives Edward J. Markey (D-MA) and Todd Russell Platts (R-PA) introduced a bill, the “Accuracy in Fuel Economy Standards Act,” requiring the Department of Transportation to use “realistic and rational” gas price assumptions as it calculates the maximum feasible fuel economy standards for the coming years as required by the energy bill (EISA 2007) passed by Congress last year.

Last December, Congress passed the Energy Independence and Security Act of 2007 (EISA 2007), which contained the first mandated increase in fuel economy standards since 1975. The new law directs the National Highway Traffic Safety Administration (NHTSA) to raise fuel economy standards for both cars and light trucks to a fleet wide average of at least 35 miles per gallon in 2020, starting with model year 2011 vehicles. In each model year, NHTSA is additionally directed to require the maximum feasible fuel economy increase, even if the maximum feasible increases result in the 35 mpg standard being met earlier than 2020.

In April, NHTSA issued proposed fuel economy standards for model years 2011-15 which are projected to result in a projected fleetwide average of 31.6 mpg. (Earlier post.) However, NHTSA used EIA’s 2008 forecast for gasoline prices that range from $2.42/gallon in 2016 to $2.51/gallon in 2030.

The two Representatives say that NHTSA’s reliance on unrealistic projections have the effect of artificially lowering the calculated maximum feasible fuel economy standards. If NHTSA used the Energy Information Administration’s (EIA) higher gasoline price scenario range of $3.14/gallon in 2016 to $3.74/gallon in 2030, its own analysis showed that technology is available to cost-effectively achieve a much higher fleet-wide fuel economy of nearly 35 mpg in 2015.

On 11 June 2008, EIA Administrator Guy Caruso testified before the Select Committee and agreed that NHTSA should use EIA’s higher gas price scenario in setting fuel economy standards.

Comments

mahonj

Seems sensible - but the new range of 3.14 - 3.74 / gallon seems a bit low.
$4 - $6 might be a bit more like it - unless they can arrange a big war between China and India.

Sounds like these guys need a reality check.

The Scoot

Call me a bleeding heart, but I would rather we not have to witness a war between the two most populous nations on earth, nations with nuclear weapons, by the way.

This is all rather irrelevant, isn't it? The market is acting. The days of eight miles to the gallon soccer mom vehicles are over, pretty much.

dollared

@ the Scoot,

I'm with you. But don't forget that Washington, right now, is controlled by people who want that war. Oh, they say they don't, but they want all the profits that come from 1) bidding up oil to the levels where we might fight WWIII for it, and 2) who want us to buy the missile shield and other armaments for that war.

And if that raises the risk of the end of our country, well, they can always move on. They'll have enough money....

Peter

Am I missing something? Why can't we require cars to be more fuel efficient even if fuel is cheap? If we had done that ages back, we wouldn't be where we are now. On the flip side, expensive fuel lessens the need for fuel economy standards. In fact, we really only need fuel economy standards when fuel is cheap.

tthoms

The Scoot:

You have nailed it. Current CAFE standards are now rendered irrelevant due to the market, and I can't see a time where oil prices will drop, nor do I believe in smoke-filled rooms in the White House or the Capitol building where people are plotting a war between India and China (despite what certain conspiracy theorists surmise).

I'm guessing 2-5 years will bring a whole new transportation paradigm, without needing D.C.'s intervention.

Tripp

The problem with letting the market fix the problem is that it's a helluva lot more painful. We should be proactive not reactive.

tom deplume

The weakness of the CAFE concept is if we double the average mileage but sell twice as many cars we still burn the same amount of fuel. It isn't the mpg per vehicle that is important in a post PO world and in regards to the CO2 impact that matters. It is the total amount of fuel burned that must come down. That means rationing of the total supply.

tthoms

Tripp:
Tripp:
If, by "We", you mean national governments, I would disagree. Bureaucracies, such as national governments, are happy to take on more responsibilities (and more power), and are reluctant to surrender them. They also tend to do what is in the best interest of the bureaucracy, not the people. Perfect illustrations of this are the biofuels mess and banking industry bailouts.
Thats why the notions of small government and enumerated power are so important.
Unfortunately, we seem to have given up these notions over the past century in the name of terms such as "progress"," expediency" and "proactive".

d burgdorff

Peter - You missed the point of the argument. The govenment does not want to require car companies to meet a mileage standard by increasing the cost of each car to the point where there would be no fuel payback. If we assume a high fuel cost the consumer will be willing to pay extra for (for example) carbon composite technology.

This brings us to my point. Why do we need a CAFE standard that only requires what would happen anyway? Europeans don't have a mandate and they get much better mileage. That's due to the high cost of fuel (taxes). CAFE is just political feelgood BS.

Actually I think EIA's forecast is closer to the truth. Remember, the most expensive oil produced in the world right now costs $50/barrel.

dollared

tthoms,

You are just repeating ideology, not facts. If we still had banking regulation, we wouldn't be facing a mortgage meltdown. The bureaucrats successfully protected us for 50 years, and then first with the S&Ls and now with the Wall Street mortgage trade, the politicians, led by McCain and Gramm, sold us out and put us in a position where we have to loan money to Wall Street just so Main Street doesn't face a foreclosure meltdown.

I could go on and on: the most efficient health insurance company in the US is Medicare; the most efficient pension program is Social Security. The reason why 1200 people got salmonella was because industry refused to agree to tracing of food origin, so the FDA had no way of tracing the origin of the outbreak.

The truth is that some things are done better by the market, and some things are done better by we the people, through our government. CAFE is one of those things, as long as it isn't perverted by the Bush Adminstration's. Here, that is clearly what is happening, and Congress is right to step in and override the favors that these guys are doing for the oil industry.

Peter

d-burgdorff:

I didn't miss the point. My point is the same as yours. With high fuel prices, whether due to taxes or just the market, CAFE is unnecessary. Without high fuel prices, if we want people to drive more fuel efficient cars, we must mandate more fuel efficient cars. With the mandate, it doesn't matter if there is a payoff, you must buy a more fuel efficient car. This new bill suggests that we only mandate fuel efficiency if there is a payoff.

I'm not sure what the cost of production of oil has to do with anything. As any economist will tell you, price is determined by the intersection of supply and demand. Cost of production has nothing to do with it. Oil can cost $50 to get out of the ground, but if there is only a little bit of it available and lots of people demanding it, price will be $200.

OldNeil

tthoms: I'm afraid you've just contradicted yourself. The banking industry bailouts are an example of "small government" Compare the number of bank failures in "small government" countries like the US to bank failures in countries with strong bank regulations like Canada. Pay particular attention to US bank failures in the great depression to Canadian bank failures.

mahonj

I don't think oil will ever be cheap again - there is too much demand coming onstream - even if the open up the Arctic and US continental shelf.

The most rational thing is to move to cars that use very little (even no) gasoline.

But gas is the $7.60 in Europe and diesel is about $8.50 / us gal - and people are still driving, they are just driving smaller, more economical cars.

There is loads the car manufacturers can do once their marketing departments tell them that they really need to make economical cars - look at what BMW has done in the last few years.

The main thing is to specify the end result (lower fuel consumption), not the way to get there and let the manufacturers fight it out.

d burgdorff

Peter - I stand corrected concerning your comment on CAFE.

Cost of production has everything to do with supply curves. The amount a supplier offers at a given price has to do with his cost of production. In the short run supply cannot increase with high prices. In the long run it will.

I guess I disagree with your idea that oil is almost depleted. I recall reading that when a well is considered depleted, it still has 2/3 of its oil. It just requires a higher price to be worth getting. As long as oil stays above $50/barrel companies will want to produce more.

Peter

d-burgdorff:

I don't disagree that there is plenty of oil still out there that can be retrieved, at ever increasing cost. I didn't mean to imply that I think we are running out, just that high demand relative to current supply is increasing the cost. I agree, if oil is now $120 a barrel but only costs $50 to produce, there is some potential for an increase in supply and a decrease in price. But there is only so much oil that can be produced at a cost of $50-100 per barrel. At some point, the cost of production of additional oil will be more than people will be willing to pay at the pump, demand will drop and the suppliers will stop drilling for the stuff. There may be oil that can profitably be extracted for $500 per barrel, but nobody will buying it at that price. I don't think we are running out, but I do think we are approaching the point where demand will go down as price goes up and the incentive to drill for oil that is harder and harder to get to will not be there. So, we don't really have to run out of oil. We just have to get to the point where the cost of production exceeds ability to pay. I think we are going to see that happen and we will end up leaving quite a bit of oil in the ground as we switch to alternatives.

MG

d burgdorff,

According to some recent reports oil from Canadian tar sands costs $US80 to produce.
It used to be $US50, but due to over-printing of US currency not any more.
In Euros the jump of oil price wasn't nearly as dramatic.

GdB

I was just going to correct that confused statement "most expensive oil produced in the world right now costs $50/barrel", but I noticed Peter took care of it.

GdB

I was just going to correct that confused statement "most expensive oil produced in the world right now costs $50/barrel", but I noticed Peter took care of it.

tthoms

dollared:

"the most efficient health insurance company in the US is Medicare; the most efficient pension program is Social Security."

Since it's rather obvious that both are heading toward bankruptcy, I'm afraid that you're going to have to back that up.

OldNeil:
"tthoms: I'm afraid you've just contradicted yourself. The banking industry bailouts are an example of "small government""

To the contrary, it is a perfect example of big government. The Fed loans money at non-market rates, who in turn loan it out to banks who loan it out to questionable borrowers, because the money is cheap. Then when the banks hit the skids, the government pays out more money to bail them out instead of letting both the bank and the borrower receive their come-uppance.

I'm not sure that comparing US and Canadian banks is apples and oranges, being that the size of their economies are so different.
Also, Canada is a Socialist country. It is true that things are strictly controlled and regulated to reduce risk. However, if you reduce risk you reduce reward and incentive. Not for me. I prefer being free.

Andrey Levin

MG:

Two years ago tarsand oil cost less than 20 US$ per barrel to produce. Artificially low US dollar and artificially high Canadian dollar pushed this number to around 30 US$ per barrel.

Reported higher cost of tarsand oil is due to policy of government of Alberta, which allows very high rate of capital amortization, counted as production cost.

MG

Andrey Levin:

Different sources give different costs. One thing is sure, it is that the tar sands operations, the way they've been done so far, do huge environmental damage, especially in terms of water pollution. Government of Alberta allows that, and current PM of Canada usually says 'yes' even before the phone from Washington rings.
With more foresight and better planning they could have used the same nat gas as a fuel for cars (investing in CNG charging stations, offering new CNG car models), as is done in many parts of the world, and built CANDU reactors for heat (and imposing much stricter water pollution regulations for operators), in the process creating tens of thousands of jobs in both countries.

Regarding "artificially high Canadian dollar", I don't agree, I think it is much more natural for loonie to follow Ozi dollar, as both are mostly resource economies.
But too strong loonie would hurt eastern provinces, especially Ontario, with strong industry, so some compromise is found to keep the jobs in industries.

Just look at the charts of major currencies (check Brazilian Real as well - a resources currency) from Dec 2007 and decide for yourself what looks artificial, what natural.

philmcneal

awesome info MG, good to know more about the country you live in :)

Andrey Levin

MG:

100% agree that tar sand operation need much tougher control of water usage and contamination. Huge settling ponds are crying shame and ticking bomb (I hate to think what damage will be done if dam will break and contaminated by hydrocarbons and fine silt water will rush into Athabaska river).

All resource-exporting countries currently have (artificially) inflated currencies. It will subside when new mining projects will come on line and commodities prices will drop, probably in 3-5 years.

As for NG as transportation fuel instead of tar sand oil, don’t you think that oil companies are that stupid for not doing it? For every unit of energy used as NG in tar sand operations about 5 units of energy of liquid fuel is produced. For newer projects, this ratio is even higher.

@MG

and current PM of Canada usually says 'yes' even before the phone from Washington rings

Remember MG the NAFTA agreement. That proportionality clause requires Canada, in perpetuity, to make available to the US an amount of oil and natural gas equivalent to our own domestic usage.

Andrey Levin

Provisions of NAFTA requires that Canada gives US buyers equal (no limitations and no additional duties) assess to Canadian oil as for Canadian buyers. Oil is traded on open market (NYMEX) at world prices, and could be bought by any customer from any country. Naturally, because of convenience of proximity, most of oil flows to American refineries.

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