Think back to 2012, and consider everything you might have predicted for 2016. Would you have guessed that Donald Trump would be elected president? That the Cubs would win the World Series? Or, how about that the price of crude oil would be less than $50 a barrel for much of the year?

Yeah, you probably didn’t foresee any of those, not even the last one. But the U.S. Energy Information Administration missed the oil price fall too, as did the International Energy Agency and many other experts. As you may remember, oil was around $100 a barrel back in 2012, and gasoline was around $3.50 a gallon. Most predicted high prices would roll on. At the same time, the Environmental Protection Agency and the National Highway Traffic Safety Administration jointly issued new fuel economy standards for light-duty vehicles. In part because these agencies thought gas prices would stay expensive, their regulations specified increasingly aggressive fuel economy targets out to 2025: reducing transportation sector carbon emissions is cheap when high gas prices make consumers willing to pay for fuel economy. But now that the price of gas has cratered, consumers aren’t as keen on paying more for cars that will save them gas. What to do?

The Trump administration has said they will take a hard look at whether to adjust the level of the standards, as folks in the industry make noise about relaxing them because the gas prices have fallen so much that the standards are becoming too expensive to meet. But gas prices just as easily could have risen (imagine a global economic boom or a conflict between Iran and Saudi Arabia), so that consumers would voluntarily buy efficient hybrids by the millions. An honest gasoline price forecast would acknowledge that we have extraordinarily poor accuracy at predicting the price of gasoline years into the future. How should fuel economy standards deal with this uncertainty?

Continue reading at The Energy Collective…

Areas of Focus: Energy Markets
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Energy Markets
Well-functioning markets are essential for providing access to reliable, affordable energy. EPIC research is uncovering the policies, prices and information needed to help energy markets work efficiently.
Fossil Fuels
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Fossil Fuels
Under current policies, fossil fuels will play an important role in the energy system for the foreseeable future. EPIC research is exploring the costs and benefits of these fuels as...
Transportation
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Transportation
Mobility is central to economic activity. Yet, a lack of fuel diversity and continued demand growth have made the transportation industry a major contributor to global pollution and carbon emissions....
Climate Change
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Climate Change
Climate change is an urgent global challenge. EPIC research is helping to assess its impacts, quantify its costs, and identify an efficient set of policies to reduce emissions and adapt...
Climate Economics
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Climate Economics
Climate change will affect every sector of the economy, both locally and globally. EPIC research is quantifying these effects to help guide policymakers, businesses, and individuals working to mitigate and...
Climate Law & Policy
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Climate Law & Policy
As countries around the world implement policies to confront climate change, EPIC research is calculating which policies will have the most impact for the least cost.
Fuel Economy Standards
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Fuel Economy Standards
Fuel economy standards are the United States’ cornerstone transportation policy aimed at reducing both oil consumption and greenhouse gas emissions. EPIC research is exploring whether these standards are structured optimally...