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April 3, 2017
Industry And Environmentalists Can Both Win On Fuel Economy. Here's How.
There is a deal to be made on fuel economy that reduces costs for the auto industry and still cuts massive amounts of oil consumption both in the near and long term.
By Sam Orivia Forbes
Earlier this month, at an automotive testing facility just outside Detroit, President Trump announced that his administration will re-open an eleventh hour final determination by the Obama Administration that would have cemented light-duty fuel economy standards for the years 2022 to 2025. Those rules represented the final phase of a broader National Program on fuel economy that federal regulators originally projected would save nearly 12 billion barrels of oil over their lifetime by doubling the efficiency of cars sold in 2025 compared to those sold in 2010.
The announcement was cheered by automakers, who are hoping to avoid being held to the rules’ most onerous targets at a time when demand for highly fuel-efficient models is low and demand for trucks is at record highs. But it was met with widespread criticism from environmental advocates, who argue that any weakening of the standards represents a setback on efforts to curb greenhouse gas emissions.
But environmentalists are picking the wrong fight. There is a deal to be made on fuel economy that reduces costs for the auto industry and still cuts massive amounts of oil consumption both in the near and long term. The re-opened review provides the launching point.
First, consider this fact. According to the EPA’s own estimates, the overwhelming majority—nearly 90%—of originally projected fuel savings under the current policy will have been locked into place by 2021. This might seem confusing given that the real headline-grabbing numbers don’t come into play until 2025. But because they regulate efficiency instead of consumption, the current standards run into some simple math: there are declining marginal benefits of increasing fuel efficiency. The fuel savings of going from 10 to 20 miles per gallon (mpg) are far greater than going from 40 to 50 mpg. In other words, the biggest benefits are captured at the beginning.
The 2021 fuel economy targets were originally expected to produce a fleet of new vehicles that averaged 42 mpg in 2021, up from 28.7 mpg in 2012. Over a 200,000 mile lifetime, that is a savings of more than 2,200 gallons in fuel per vehicle. But by pushing the fleet average to the originally projected 46.2 mpg in 2025, the rules achieve only an additional 430 gallons in savings per vehicle. The bottom line is that if the Trump Administration simply extends the 2021 fuel economy targets forward through 2025, the final rules would forgo just 1 billion barrels of fuel savings out of the originally-targeted 12 billion.