Vehicle Standards Are Energy Efficiency at Its Best – and Too Valuable to Roll Back - by American Council for an Energy-Efficient Economy (ACEEE)

The Trump administration is reportedly launching a rollback of vehicle efficiency standards that greatly benefit the US economy.  These standards save consumers money, create jobs, help reduce US reliance on foreign oil, and lower carbon emissions.  The Corporate Average Fuel Economy (CAFE) and greenhouse gas emissions standards adopted since 2009 will reduce fuel consumption by more than 2 million barrels of oil per day by 2025 (the equivalent of taking 53 million cars off the road) and will eliminate 6 billion tons of greenhouse gas emissions over the lifetimes of vehicles of model years 2012-2025. Consumers will save over $1 trillion at the gas pump, which is more than three times the added cost of the more efficient vehicles.  The energy savings compare favorably to any other efficiency policy out there:  an ACEEE analysis of primary energy savings from recent and prospective policies—including the Clean Power Plan—showed vehicle standards to be the biggest saver from today through 2040.

Benefits of the program extend beyond savings for new car buyers.  At the time the standards for model years 2017-2025 were proposed in 2011, ACEEE projected they would create 50,000 jobs in the auto sector by 2030 because of the additional components and labor needed to develop and produce more-efficient cars.  Moreover, there would be a net gain of 570,000 jobs economy-wide by 2030.  This gain represents new auto industry jobs as well as jobs created in all sectors because of car buyers’ spending of added disposable income from owning more-efficient vehicles.  It takes into account jobs lost in oil-related sectors because of reduced demand for fuel.

So what’s not to like?

Automakers are decrying a decision made by the Environmental Protection Agency (EPA) in January, as part of a mandatory review, that reaffirms existing greenhouse gas emissions standards for model years 2022 through 2025.  They argue that the decision ignores vehicle affordability and consumer acceptance of new technologies.  But this claim is based on the notion that EPA and the National Highway Traffic Safety Administration (NHTSA), which sets CAFE standards, underestimated the need for plug-in vehicles and full hybrids to achieve the standards.  At present, these advanced vehicles represent a substantially costlier pathway to improve fuel economy on a dollar-per-gallon-saved basis than incremental improvements to conventional technologies, especially when fuel prices are low.

The agencies have presented detailed technology scenarios that would allow manufacturers to meet the standards, and the role of plug-ins and full hybrids in those scenarios is very small. EPA’s review found that the standards could be met at a lower cost than it projected when the standards were adopted in 2010 primarily because of the emergence of additional, lower-cost technologies than those relied upon in the original compliance demonstration.  This replenishment of the supply of affordable efficiency technologies is a phenomenon familiar to those who have followed energy efficiency advances in any sector, and it is one reason that meeting efficiency standards tends to cost less than predicted.

Similarly, recent claims that the standards would result in heavy losses in auto industry jobs are based on a woefully flawed analysis that ignores technological and economic realities.  The specific assumptions underlying ACEEE’s earlier estimates of job gains will inevitably differ somewhat from how things unfold—and in particular gasoline price projections have come down since then—but the impressive growth of the auto industry during the recent years of brisk advances in fuel efficiency technology is certainly consistent with the fundamentals of our analysis.

While manufacturer posturing on vehicle standards is much in the news, it’s important to bear in mind that the timeline for these historic increases in fuel economy standards was designed to accommodate the industry’s requests for long lead time and regulatory stability.  The CEO of parts supplier Borg-Warner, James Verrier, recently made this plea:  “Do not slow down the pace on CAFE standards.  We’ve come a long way as an industry, and we need to keep going forward.”

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