August 8, 2011 • Current Events, Energy Efficiency, Sustainability

The Summer of Policy – Fuel Economy Standards

by Eric Bickel

The third and final part of the “Summer of Policy” series takes a look at the new fuel economy standards goal released on July 29th from the Obama administration. This is the lightest of the three in terms of content, so it’s sort of like dessert. However, there’s more math involved in this one (so the dessert metaphor kind of breaks down).

This one is probably the most interesting of the three policies, as fuel economy is an everyday thing. President Obama is looking to vastly improve the fuel efficiency of vehicles sold in the US. This has a two-pronged effect in that it both reduces the dependence on oil in the US, and reduces greenhouse gas emissions (officially making it the third emissions-related policy action this summer). You can check out the official blog post on the policy here (and yes, I do prefer to imagine Obama writing these blog posts) along with a pretty fun graphic complete with a random scan thing for your smartphone.

So, as someone who likes to mess around with numbers, I thought I’d play around with these a little bit. According to the Bureau of Transportation Statistics the average passenger car fuel efficiency for both short- and long-wheel based light duty vehicles in the US is 20.6 mpg. By 2025, the new fuel economy standards call for a fleet-wide average of 54.5 mpg. Therefore, the average American in 2025 will be getting 33.9 more mpg than the average person today. Not too shabby, especially considering that this is just average and not necessarily the top-of-the-line auto sold in 2025 with the highest fuel efficiency. It’s also not compared to the top-of-the-line auto sold in 2010 with the highest fuel efficiency, but I’m taking some liberties here for the sake of argument.

“What about me?”

Based on data also from the BTS, Americans drive an average of 2.7 trillion miles (data from 1990 to 2010) on US highways per year. Based on 2008 data, there were approximately 250 million vehicles registered in the US. Ignoring the fact that some people own multiple vehicles, that’s an average of 11,000 miles driven per year, per driver. With such a heavy dependence on vehicles, it becomes clear how increasing efficiencies can help to move the country away from a dependence on oil.

While cutting the need for oil in the US is a great move towards independency, it does little to impact the actual price unless global oil consumption as a whole declines. If we cut our usage, and emerging markets (e.g. China, India, Mexico) increase their usage by an equal-to-or-greater amount (which is not that farfetched), then the price of oil may not drop and we may not actually see an impact at the pump. As we continue to see growth from these markets, it’s becomes increasingly likely that it will take alternatives to gasoline that are less influenced by global demand fundamentals in order to achieve sustained relief from high oil prices.

While it’s a great step on a long road in the right direct, there is still a lot that needs to be done in developing alternatives. Until then, the oil market will continue to follow the lead of overall global demand.

Industry Reaction

This one is actually a pretty big win for President Obama, and has certainly flown under the radar. While it was less than the environmentalists wanted, it was more than what the Big 3 in Detroit wanted to see. He also had the support of the Association of Global Automakers, which is a pretty strong cheerleader to have in your corner when looking to enact change in the world of autos. In all, there’s not much bad press when it comes to the higher fuel efficiency. It’s the Goldilocks version of fuel standards – not too much for the automakers to huff about, not too little for the environmentalists to really take offense to, but just enough in order for Obama to find a compromise.

Ultimately, each of the policies discussed in this series will play out in their own right. Regulation has a way of being both confusing and unnecessary at times. The goal is to have a better understanding beforehand, and have the ability to adjust that understanding as reality unfolds. The trick, however, is not only understanding the policy, but also understanding both the direct and indirect impacts to individuals and corporations. What starts as a policy initiative today can very well be impacting you at both the consumer and corporate level tomorrow.

Here at Summit, we take pride in not only accomplishing the goal of understanding the policy, but also knowing how it will impact you – the consumer.

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