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Despite Criticism, New Fuel Standards Will Ease Pain at the Pump

Should Also Reduce Dependency on Foreign Oil, Pollution


Does it surprise you to learn that only 14-26 percent of the energy from fuel is used to get you from point A to point B? Refueling our cars is probably one of the most routine, yet unpleasant, tasks we take on in our daily lives. Under no other circumstances do we have to watch our dollars go up, up, up, bit by bit. And yet we have nothing fun to show for it...no new pair of shoes, no vacation, not even a hot fudge sundae.

The Obama Administration’s new national fuel economy standards for passenger vehicles are being touted by the Administration as being able to do much to address the pain at the pump. And those claims may not be unfounded. Vehicles that are more fuel efficient mean Americans save some money at the pump, and the country reduces its dependence on foreign oil while hopefully growing the U.S. economy. It appears to be a win-win with benefits to consumer pocketbooks, the environment and the nation's energy portfolio. But the action is not without its critics who warn that raising the fuel standards will force automakers to develop and manufacture engines that are more fuel efficient. They say those engines will be more costly and those costs will--not surprisingly--be passed along to the consumer via higher sticker prices on models beginning in 2013. In fact, higher prices have already been announced for some models, with the gap ranging upwards of $3,000 compared to the price of last year's model. Estimates are that the new fuel efficiency standards for 2017 to 2025 will cost the auto industry $157.3 billion and add an average of $2,000 extra to the sticker price of new vehicles.

Not all automakers are unhappy with the new standards. Honda went on record in support of the measure, primarily due to the extra credits afforded for those selling natural-gas powered vehicles. Tesla also voiced its backing once the company learned that any extra credits it accumulated could be sold to other automakers in need.

The standards were finalized back in August, and build on the Obama Administration’s first set of fuel economy increases which raised the average fuel economy of passenger vehicles to 35.5 miles per gallon by 2016, the first such increase since 1985. Under the new rules, cars and light-duty trucks built for model years 2017-2025 are expected to reach industry-average fuel efficiency equivalents of 54.5 miles per gallon by 2025. The measure will nearly double the fuel efficiency of cars on the road today.

So how does it work? The standards are based on an industry average fuel economy goal, but a manufacturer’s individual requirements depend on the vehicles it makes. This helps to safeguard consumer choice, meaning Americans can still buy the vehicle that best suits their needs. But consumers don’t have to wait until 2025 to start seeing some savings at the pump as more fuel-efficient vehicles, including hybrids and EVs, have already made their way to the showroom floor due at least in part to President Obama's first set of fuel economy standards. So far, consumer reaction has been positive, according to the Department of Energy. The average fuel economy of new cars sold in October 2012 reached an all-time high of 24.1 miles per gallon, according to the University of Michigan’s Transportation Research Institute.

Projections on cost savings for consumers poke holes in arguments that the new fuel standards will hurt consumers due to higher vehicle costs. By 2025, the Department of Energy estimates savings will reach an estimated $8,200 in fuel costs over the lifetime of a newly purchased vehicle, which equates to about four year's worth of gasoline expenses for the average household. That's a lot of wiggle room for sticker prices to creep up and still see substantial savings. And even those raising concerns over added vehicle costs will be hard-bent to argue against the benefits to the environment of more fuel efficient cars. The standards will also help clean the air we breathe, reducing greenhouse gas emissions by more than 65 percent compared to standards in 2016. That means fewer pollutants and less ugly soot and smog.

Of course, improving fuel economy of the nation's passenger vehicles is also one of the quickest ways to reduce our dependence on foreign oil, a boost to our economy here at home. The program is projected to save an estimated 12.2 billion barrels of oil, which means that by 2025, the standards will cut oil consumption by an estimated 2.2 million barrels a day. The fuel economy program alone is expected to get the country at least halfway to President Obama’s goal of cutting oil imports one-third by 2025.

It appears the Administration is not ignoring concerns of automakers or potential costs being passed on to consumers. The Energy Department states that a wide range of technologies available have already been made available, but admits that achieving these historic goals will also require innovative new technologies and manufacturing. The Administration also anticipates innovation will spur economic growth and create high-quality domestic jobs, though such benefits can be hard to measure at this point. Still, it appears the EPA is not shy about making the prediction that the new fuel economy standards will create more than 148,000 additional jobs between 2017-2025.

Bottom line: The new standards are designed to save consumers upwards of $1.7 trillion at the pump, reduce the nation's dependence on foreign oil by 12 billion barrels and lessen greenhouse gas emissions by 6 billion metric tons over the life of the program. In the process, the new standards should also encourage adoption of electric and hybrid vehicles.

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