Why Do Fuel Economy Standards Matter With Cheap Gas?

, senior vehicles analyst | September 9, 2016, 2:54 pm EST
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Labor Day weekend is traditionally one of the most heavily trafficked times of year, and this year was no different.  Gasoline prices this Labor Day were the lowest for the holiday weekend since 2004, which I’m sure many of those who filled up their tank for a road trip this weekend noticed.

With gas prices so low, automakers are claiming that nobody wants fuel-efficient vehicles.  But consumers are smarter than that—they know that gas prices fluctuate, which is why they continue to look for the most efficient vehicle that meets their needs, consistently rating fuel economy a key trait in their decision-making process.

In fact, there are a number of reasons why fuel economy standards are critical in times of low gas prices, as we’ve outlined in a new fact sheet as part of our series on the mid-term review of the current passenger vehicle efficiency standards.

Fuel economy standards protect consumers from volatility

First and foremost, fuel economy standards act as a buffer against the volatility of oil prices.  In fact, this was a key impetus in the origin of the original fuel economy standards as a response to the 1973 Arab Oil Embargo and ensuing price shock.

Prices for gasoline (red) and crude oil (black) can shift rapidly. While rapid increases in the 1970s and 2000s led to major nationwide problems, even short spikes can affect consumer welfare significantly, particularly in a tight economy. Given the immense fluctuations since the 1970s, it is more prudent to minimize their impacts rather than assume prices will remain at today’s historic lows.

Prices for gasoline (red) and crude oil (black) can shift rapidly. While rapid increases in the 1970s and 2000s led to major nationwide problems, even short spikes can affect consumer welfare significantly, particularly in a tight economy. Given the immense fluctuations since the 1970s, it is more prudent to minimize their impacts rather than assume prices will remain at today’s historic lows.

Fuel economy standards protect the auto industry from price spikes

Cost-effective standards ensure that efficient vehicles are getting in the hands of consumers, and those consumers save money, whether gas is at $2 or $4 a gallon.  Just this week, Consumers Union released a study that shows even with low gas prices, the latest data shows that the average new car buyer can expect to start saving money the moment they drive off the lot—and that will only improve should gas prices return to average levels.

One of the biggest contributors to the bankruptcies of General Motors and Chrysler was their lack of preparedness for a market shift away from the big, truck-based SUVs—and that mistake was borne by the taxpayers in the middle of the Great Recession through the auto bailout.

By providing a hedge against fluctuating oil prices, the standards help assure a level playing field—the latest research shows that the Detroit automakers would be particularly susceptible to gas price fluctuations if the standards were weakened.  As a result, fuel prices again reaching $4 per gallon would cost the Detroit Three more than $1 billion—suppliers, too, would see investments in efficient technologies squandered and orders lost.

Strong standards make for a stronger economy

All of this speaks to the fact that strong fuel economy standards help create a stronger, more resilient economy.  Using less gasoline helps free up money for consumers to spend elsewhere in the economy, where a greater share of that spending can be re-spent in the United States instead of being spent abroad.  And of course this would have a concurrent impact on the additional costs to the economy due to trade imbalances and national security.

By 2030, the fuel economy standards on the books today will net the public about $350 billion each year, even after considering the costs of the technology used to reduce fuel use.  That equates to about $2500 per household thanks to the 2012-2025 fuel economy standards put in place under the current administration.  These savings are great for our economy, helping to translate into economic growth.  We estimate this will improve GDP by between $25 and $30 BILLION by 2030, netting 650,000 full-time jobs in the process.

Rolling back fuel economy standards now would be a huge mistake.  In a world where uncertainty is the only guarantee, it would be ludicrous to roll back the biggest buffer we have against the volatile oil market—too much is at stake for our country and the planet writ large.

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  • Thad Curtz

    Umm… not to mention helping to reduce emissions and keep the earth relatively habitable…