A new economic analysis in an issue brief from the Consumer Federation of America (CFA) is recommending that the Obama Administration set a fleet-wide car and light truck fuel economy standard of 60 mpg (3.92 L/100km) by 2025. The Obama Administration will release a Notice of Intent for 2017-2025 light duty fuel economy standards on 30 September.
The current CAFE standard calls for fleet fuel economy of approximately 34 mpg in 2016—a target that the CFA termed “very modest”. The CFA brief says that:“The analysis showed that it would have been economically and environmentally beneficial to set a much higher standard.”
According to the CFA brief, “Setting the Next Round of Fuel Economy Standards: Consumers Benefit at 60 miles per gallon (or More)”, the 2016 standard of 34 mpg (6.92 L/100km) falls far short than what would be in the best interest of consumers and society. The economic analysis shows that going to 38 mpg (6.19 L/100km) would have delivered additional benefits of $140 billion over the life of the vehicles covered. Moving the standard to 60 mpg will add hundreds of billions of consumer savings and reduced greenhouse gas emissions by hundreds of millions of tonnes, according to the CFA.
Previous fuel economy standards have left huge consumer savings on the table. A 60 mile per gallon standard in 2025 will capture those enormous benefits and provide important protections for American consumers.—Setting the Next Round of Fuel Economy Standards
The new analysis examines the consumer and societal impacts of the 2016 standard, calculates the standard that achieves the maximum net economic benefit and measures the consumer and society impacts of those standards.
The decision to coordinate standard setting between California, the Environmental Protection Agency and the National Highway Traffic Safety Administration was an important step forward that required a compromise on the initial levels at which the standards were set. The procedural progress must now be followed up with substantive progress that moves the standards to much higher levels. A real victory can only be claimed when the standards are set at a level that captures the immense benefits that had been left on the table.—report author Mark Cooper, CFA Director of Research
The report includes a consumer pocketbook analysis, which finds that for consumers purchasing 60 mpg cars and trucks the value of the gas savings will be greater than the increased cost of the loan.
The report combines estimates of technology cost from the National Academy of Sciences and MIT with the costs benefit analysis previously prepared by the Environmental Protection Agency and the National Highway Traffic Safety Administration (NHTSA) to derive its estimates of what is technologically feasible and economically justified.
The Energy Information Administration’s projected price of gasoline for 2025 of $3.50 (in 2010 dollars) is used. For the consumer pocketbook analysis, a five-year auto loan at 7% interest is assumed (which is the average auto loan rate for the past 20 years).
Separately, a new study by John DeCicco at the University of Michigan concluded that new fleet fuel economy could increase to (unadjusted) 52 mpg (4.52 L/100km) by 2025 and 74 mpg (3.18 L/100km) by 2035 or 41 mpg (5.74 L/100km) and 60 mpg (3.92 L/100km) (adjusted) given an aggressive focus on improving fuel economy through improvement to engines and hybrid system, and a willingness on the consumer’s part to forego increases in power. (Earlier post.)
The CFA report acknowledges that the technology cost-curves used in its analysis are long-term (2035). However, the CFA economic analysis concludes:
...the analysis in this paper focuses on standards to be set in 2025. The acceleration of a decade could be a challenge for the industry, but the technologies that underlay the cost curves are already in the vehicle fleet to some extent, or close to being in the fleet. Setting a high standard for a decade and a half in the future can push the industry to be more innovative and responsive to consumer demand, as well as national energy and environmental needs and goals. Coordinating between the three agencies with authority to set standards (CARB, EPA and NHTSA) and preserving California’s important role in maintaining momentum were important procedural steps to progress, now it is vital to move the standards to the much higher levels that the consumer pocketbook and societal cost benefit analysis support.—Setting the Next Round of Fuel Economy Standards