Showdown Over Fuel Efficiency
It’s coming. As Peter Whoriskey writes in the Washington Post:
Over the next few months, regulators are scheduled to set the next round of U.S. fuel economy standards for [automotive] manufacturers. Among the proposals under consideration is one that would lift average fuel economy under the law to as much as 62 mpg by 2025.
He lays out the crux of the battle and the opposing sides:
The preeminent issue in the debate is how much the price of cars “” gas, hybrids, plug-ins or whatever inventors come up with”” would rise if regulations dictate such standards.
On one side are automakers, which warn that the highest targets could add as much as $10,000 to the price of a new car, devastating a U.S. industry that just two years ago was bailed out by the government.
And on the other side
are environmentalists, who dismiss the automakers’ cost estimates as bloated and argue that the costs of investing in fuel efficiency are tiny compared with the effects of global warming and dependence on foreign oil. The proposal to raise the standard to 62 mpg, which would translate into “real world” average efficiency of about 45 mpg, is also backed by 17 U.S. senators, who last month issued a letter of support for a “maximum feasible” standard.
“The cost of investing in clean car technology will be vastly outweighed by the billions saved averting the dangers of global warming,” said Roland Hwang, transportation director for the Natural Resources Defense Council.
The debate, it seems, will turn on exactly what those passed-down costs to the consumer will be. Those figures are all over the map, depending on which source you choose (and the WaPo reporter offers a bunch). Towards the end of the article, he discusses some studies and surveys that suggest consumers aren’t willing to pay higher up-front prices for more fuel efficient cars.
UPDATE: I’ll add that I found it odd that the WaPo piece doesn’t mention the higher gas prices at the pumps, and how this might factor into the debate.
A 4 cylinder camry touts 22 city 32 hwy on the sticker (no doubt less in the real world). And we’re gonna get to 62 in a dozen years? I don’t know how this can be taken seriously.
These types of stories always have the most interesting math.
“The Environmental Protection Agency, meanwhile, has estimated that the additional costs would be between $2,800 and $3,500, but the savings in fuel would be more than $5,000.”
Hmm. My Honda (non-hybrid) gets 35 MPG and the new higher level standard would be 62 MPG. At 12,000 miles per year and gas at $3.80/gallon, the fuel savings from switching to a 62MPG car would be $578 per year. In short, it would take about 10 years to realize the savings the EPA estimates here and five years to break even at their lowest projected cost increase- this is assuming I don’t finance the car of course. So, let’s say this is all about gas guzzlers- the cars that get under 20MPG. Assuming you can talk someone into switching from a large vehicle to a tiny one, you still need five years to realize the EPA’s estimated fuel savings and 2.5 years to break even.
Raising the price of gas wont happen – for a very progressive reason. Poor people can’t afford the up-front cost difference of more efficient cars- they will end up buying the used large cars and therefore end up being disproportionately hurt by the gas tax hike.
Finally, consider this- the story says going to 62MPG would reduce GHG emissions 6%. According to the Wall Street Journal, auto and light truck sales are on track to be 12,652,800 this year. At the EPA’s low end estimate pf $2,800 extra for a 62MPG car and using this year’s sales data, it would cost a minimum of $35.4 billion per year to achieve a 6% emissions reduction via strict CAFE standards. You need 85 to 100% emissions reductions. Is this the best use of $35.billion a year? It may be, but I haven’t seen anyone really debating that question. Look at it from a pure green perspective- if you had $35.4 billion in hand, would you spend it on a marginal increase in fuel efficiency, windmills and solar plants, next-gen nukes?
@1 kdk,
A Toyota Camry tips the scales at over 3,000 pounds.
Replacing 2,000 pounds of steel with 400 pounds of carbon fiber + composites will drop the weight down into the neighborhood of 1,500 pounds, about the same as a 1986 Chevy Sprint.(Some of the weight savings will come from a smaller engine as the car will be substantially lighter)
There has been a lot of research on automotive grade carbon fibers which is why the cost estimates are all over the lot.
Currently, since aircraft grade carbon fiber is the dominant consumer in the carbon fiber market no one is making ‘automotive’ grade which is theoretically cheaper.
Of course there is also a huge question as to ‘market acceptance’.
One of the prime reasons people will give for owning larger/heavier vehicles is a perception of increased safety.
@harrywr2
Don’t forget wind resistance.
A Harley Davison 883 Sportster gets 45 city, 60 hwy, and weighs in at 580 lbs.
Thanks for the post Keith. This is catnip for me 🙂
Overall, the article does a pretty poor job IMO providing good context and a summary of the key issues. Surprising really, as Whoriskey seems to have covered Detroit in more than a few articles. I agree that it’s odd that gas prices aren’t given more prominence in the article, first because it’s a good hook at the moment, and second because the assumptions you make about future fuel prices is one of the key determinants of net cost/savings (maybe he doesn’t want to piss off his AAM contacts).
FYI, the reports referenced in the article can be found here for the EPA and here for the Michigan Uni study. Note that the EPA uses the EIA’s 2010 Reference Case to forecast future fuel prices. In 2020, they assume a $3.34 a gallon rising to a whopping…wait for it….$3.91/gallon in 2035. Raise your hand if you think either of these estimates are remotely plausible :D. What this means, in effect, is that the EPA is being ultra-conservative in its cost estimates, even with its most stringent scenarios. In this respect it’s simply following a long tradition when it comes to regulatory cost estimates and the auto industry. NRDC has a great graphic here that shows this (the 2010 study it references is here)
For those interested in some substantive analyses, K.G. Duleep (engineering perspective) and David Greene (economist perspective) and Walter McManus are good names to start with. Keith, Greene in particular has done a lot of work on the consumer loss aversion and how that impedes ‘rationale’ purchase decisions when it comes to vehicles. See here for a good summary of the literature.
@5
Now you’re talking! Boy, do I miss having a motorcycle (have had a few), but I gave it up after the kids came. Too many close calls in NYC (once after being nearly run off the GW bridge ramp).
Marlowe,
I wasn’t wowed, either, with the context of the WaPo article, so thanks for the additional info and links.
Marlowe,
Setting cost savings aside for the moment, can you explain the technology improvements that will get average mpg to 62.
My car runs about 20 miles per gallon. I drive about 1000 miles per month. If I had a 50 mpg vehicle I’d save $360/year per $1 of fuel price. If the price at the pump goes to $5 I’d save 1800 a year. Of course I’d pay extra $10,000 for such a car and so would everyone else.
Tell me once again – why so we need to have the government involved in this business if we think that prices are going north of $4 in the near future? Clearly there will be a huge demand for super-efficient vehicles and with it will come the supply.
@8
too lazy to RTFR eh? broadly speaking to get to 62 you need a whole bunch of technologies that individually don’t get much (except for hybridization and PHEVs) but collectively add up to quite a bit. Some of these techs include:
-weight reduction of ICE models
-hybridization of ICE models
-cylinder deactivation
-turbo charging
-low resistance tires
-variable valve timing
-continuously variable transmission
-accelerated uptake of PHEV and EVs
I could go on, but you get the point….
People who think that US car efficiency have anything to do with GW need to sober up one day and look at the data. What is the percentage of CO2 that is emitted by cars in US? How big a dent in the global emissions would be achieved by improving US car efficiency?
Audi was selling a car that got 80 mpg a few years ago. If what is being proposed is a fleet average, I don’t think it will be that difficult. Some hybrids (not all!) are pretty close to that now.
The key to fleet efficiency will lie in treatment of commercial transportation. If we have adequate rail transport for commerce the goals will be easily achievable. If we do not have adequate rail transport, all the gains from the passenger fleet will be outweighed by commercial consumption, as the U.S. population, agricultural and manufacturing output continue to grow.
As one who believes that hybrid and high mileage cars are going to succeed dramatically over the next few years without market nudges, I’m inclined to view this as not a huge deal.
Marlowe (this is not really a criticism), you should not make facile assumptions about the time constraints on other readers when you write ‘RTFR.’ Especially as some commenters are rather liberal in their sprinkling of links in their comments. You might get frustrated when comments appear that show the writer hasn’t had time to read the report, but they may be emphasizing a different point. I personally prefer targeted quotes and a link to just a link alone.
There are some who believe that over-pasting of links is sometimes used as a tactic to imply mass validation of the point the commenter is making, and that some links are not as emphatic in support o the comments as the commenter might have the reader believe.
I don’t think the Intertubes Board of Netiquette has actually pronounced on this. Perhaps your comment to kdk33 at #8 could have been rephrased as, “They list some in the report, actually, including…”
As someone who has been known to get furious (or at least irritated) in various comment threads, I am trying to adjust my attitudes and behaviour. I am embarrassed to note (because it is so late in coming) that I am happier with the results, cathartic as snark may sometimes be…
Although people frequently give safety as a reason to get large vehicles, I think that part of that hides a more general desire for those vehicles that some people either don’t want to admit to others, or maybe to themselves.
If gas does stay expensive, the desire to be mobile may well outweigh this desire for larger vehicles. I also think that when it comes to actual cost, people exaggerate the impact of high gas prices. The distance people drive and the time they spend to find a gas station that is 5 cents cheaper per gallon seems irrational. So all the calculations about money spent and how long it takes to make it back probably are overweighed by the emotional impact of seeing that individual bill each time they fill up. I doubt that many people will actually do the calculation and decide based on it.
I also think that the real cost goes far beyond the cost of filling your tank up. Whether we talk about the environment, foreign policy, trade deficits, or nationalism related to sending lots of money to countries that aren’t very friendly to the United States, the cost of inefficient usage really adds up.
@Sashka
That’s poorly framed. @ $3/gallon you would save $1080 per year with the 50mpg vehicle. The incremental savings is indeed $360 per $1 increase, but that’s missing the elephant in the room.
As to why standards are needed. Lots of reasons (see the last link in the post above). For starters, not everyone is an engineer/economist/expert of future fuel prices. Consequently, most people don’t possess enough expertise or information to make optimal decisions about the trade-offs between fuel economy and other considerations when buying vehicles.
sorry misread Sashka. Ignore first paragraph.
@kdk,
“Harley Davidson mileage”
The drag coefficients for motorcycles tend to be awful.
http://www.bgsoflex.com/airdragchart.html
Then there is the issue that their is little or no effort in the motorcycle world to optimize for fuel economy.
@Tom,
fair enough. It wasn’t meant as a snark so i should have added :).
You’re right about freight. It will be the hardest nut to crack in the transportation sector.
@Dean
People behave irrationally all the time, and car and gasoline purchasing behaviour are among the best examples. If people really were rational why would they spend an hour in line at a gas station to save $5 when they get paid $50/hr at the office? Why wouldn’t they choose a vehicle that provides a 20% ROI, when they’re perfectly happy with mutual funds that get < 10%? I’d suggest that dynamics at the dealership level (where margins tend to be higher on less efficient vehicles) play a role, with preferential financing rates being the most obvious tool at their disposal to get you into that V6 instead of the V4…
@ Marlowe
Most people are also not good in math yet they have ways to have their mortgage payment calculated. They may not be very smart but they know a good deal when they see it. When offered a low rate with zero down on a dream home of course they took it because they had enough feel for value and risk.
When the nice gentleman at the car dealership will tell them that their saving on gas will more then cover the difference in their monthly payment they will know where the value is.
The government, on the other hand, is not known to be expert in anything. Except for wasting money, of course.
“When offered a low rate with zero down on a dream home of course they took it because they had enough feel for value and risk.”
Apparently you weren’t paying attention to what’s been happening real estate market in the U.S. for the last few years. You’re libertarian perspective is predictable if not entirely convincing.
I was talking about what lead to the crash if it wasn’t clear yet. If you don’t know anything about it then Lewis’ book is a good introduction.
Your socialist perspective …
@21
If anything, the example with the real estate market proves my point. Large numbers of people did not have sufficient expertise about their finances or the prospects of the market. Combined with weak mortgage rules and oversight, and the infamous sub-prime mortgages and you have a recipe for disaster, as we’ve all seen. when it comes to cars, you have the same lack of expertise on the part of the consumer, an incentive for dealers to push less efficient vehicles (because they have higher margins) and relatively high exit costs when things go south…
Actually, the mortgage crises makes the case that government should stay out of the markets. It was fannie, freddie, and the community reinvestment act that artificially reduced the cost of risk. Hence bakers made bad loans, but quickly pawned them off on Fannie.
When the market turned many lost out. But that doesn’t mean they made a bad risk decision. They behaved rationally given the cost of risk. And most, even when they lost, just walked away. They gambled they lost – oh well.
I’m not optimistic that average fuel economy will approach 62, That it requires a wide range of technologies to achieve makes me even less so – technologies usually cost more to develop and deliver less than expected, and with so many technologies needed the law of averages probably applies.
Individuals sometimes make irrational decisions, but they act rationally more often than we think. The market is by definition rational. The irrationallity people see is when they apply their unique (sometimes biased) decision criteria and find that people, or the market choose differently. The explanation is that they have different criteria.
People don’t choose cars to maximize IRR. Too many other factors are at play. They are choosing rationally according to their criteria. Government can mandate 62 mgp cars, and maybe I’m wrong about the techology and it all kinda sorta works out, so by some criteria they will be better investments. OTOH, they may be more dangerous, slower, smaller (tough if you have a big family), uglier.
Kinda like low flush toilets.
@ 22
Not really. The subprime borrowers themselves lost little or nothing because they had little or no equity. It’s the so-called sophisticated investors who lost the bulk of the money and needed bailouts. The sub-prime mortgages have been around for a long time and the rules have been weak. But nothing bad has happened until some idiots decided to invest tens and hundreds of billions in mortgage derivatives that they could not even remotely understand. That created almost unlimited demand on mortgages of any quality, subprime or ridiculous. And of course, the supply showed up. Where was our “competent” government when the bubble was growing? They were busy telling us that everything is fine. Why does this experience support your faith in government is beyond me.
kdk33 Says:
May 13th, 2011 at 4:42 pm
<i>People don’t choose cars to maximize IRR. Too many other factors are at play. They are choosing rationally according to their criteria. Government can mandate 62 mgp cars, and maybe I’m wrong about the techology and it all kinda sorta works out, so by some criteria they will be better investments. OTOH, they may be more dangerous, slower, smaller (tough if you have a big family), uglier</i>
You’ve hit the real problem/challenge on the head. I owned a 1985 Chevy Sprint…which is still on the top 10 list for best MPG ever. They were inexpensive and relatively fuel efficient. It was fairly sprightly with a relatively light weight driver but add a passenger or two and it didn’t do hills all that well. Then people wanted airbags, and improved crash worthiness. Pretty soon that impressive mileage became just okay mileage and the difference between the ‘gas sipping champ’ and something bigger with a lot more utility wasn’t so much.
Now I have a 250cc scooter for my daily commuter(80 MPG), a 600cc scooter(50 MPG) for days trips and weekend getaways with the wife and an SUV(20 MPG) for everything else.
My largest vehicle expense isn’t gasoline, it’s insurance. I’m old, accident and ticket free so my rates are pretty low. For young people the cost of insurance discourages them from having a ‘high MPG vehicle’ for a daily commuter then having an additional ‘everything else’ vehicle. So they choose a low MPG ‘does everything’ vehicle as their vehicle.
Keith, why don’t you take a page from Lucia and have a quatloos contest on what U.S. fleet mileage will rise to in 2011, 2012 and on into infinity, or however long you intend to put up with we reprobates and scoundrels?
Might be fun.