CRI News


New "Fuel Economy Standards" provide safer, less expensive vehicles
 
July 30, 2020
 
The U.S. Department of Transportation, and the Environmental Protection Agency have released a new final fuel economy rule for passenger cars and light trucks that will be a win for consumer choice. The Safer Affordable Fuel Efficient (SAFE) Vehicles.
 
The rule requires average fuel economy of new vehicles to increase by 1.5-percent a year for the model years 2021 to 2026 increasing average miles per gallon from 25.5 in 2019 to 37 in 2026. 
 
The rule also removes a waiver for California to set its own fuel economy standard, and creates a single national standard to create regulatory certainty for auto manufacturers. A national standard will help automakers streamline their product and manufacturing lines. 
 
The research decision culminates three years of analysis of alternative options. Prior to the new standards, stricter standards, and the California waiver had been established during the Obama Presidency. The Obama era standards would have required a fleet average of 46.7 miles per gallon. 
 
Auto manufacturers have failed to meet earlier standards despite price shifting. In an effort to meet the 46.7 mpg. standard, car manufacturers that offered small cars with higher fuel economy at below cost, and offset the losses by charging premiums for heavier vehicles. 
 
In spite of the subsidization of small vehicles at the expense of larger vehicles, consumers continued to buy larger vehicles. This was due to a number of underlying motives that drove consumers towards larger vehicles.
 
Part of the reason families chose larger vehicles is for safety. Heavier vehicle have lower rates of injuries, and deaths. Additionally, larger vehicles are often preferred for their interior space and ability to transport multiple children with room for things like sports equipment and groceries. 
 
Consumer preferences and needs for larger vehicles, along with technological limits, are big barriers to raising fuel economy. 
 
The federal agencies estimate the price shifting strategy has added $4,000 to vehicle prices that now average $37,000. That results in families keeping older, higher polluting, less efficient cars on the road. 
 
The rule change is expected to increase old vehicle turnover by one million vehicles between 2021 and 2026 compared to the 2012 rule. 
 
The increase in vehicle turnover and reduced costs to automobile dealerships, should help auto retailers sell more vehicles. Auto manufacturers will need to make cars lighter, and improve engine efficiency starting in the 2021 model year to meet the new standard.
 
The federal agencies Regulatory Impact Analysis calculates that the new rule will save 1,000’s of lives a year. Additionally, over the span of a vehicles life, the new rule will save consumers $2,340 in ownership costs compared to the old 2012 rule, as costs will no longer need to be shifted to larger vehicles that consumers continuously show preference for. This should help many families buy the new cars that they want and help dealers sell more inventory. 
 
California retains the ability to set separate standards for air pollution emissions, but not carbon dioxide emissions. Unique atmospheric conditions, including local inversion layers, and air pollution traveling from Asia have left California as one of the few areas in the country with ground level ozone pollution more than marginally higher than national air quality standards. The same is not true for carbon dioxide emissions that occur on a global scale, thus the waiver removal.
           
Auto manufacturers will see a $253 billion reduction regulatory cost. The new rule will result in slightly higher carbon dioxide emissions. However, those emissions will only result in three one-thousandths of a degree in higher temperatures, an amount unmeasurable on a global scale. 
 
A Benefit Cost Analysis estimates net societal benefits of the new rule of $176 billion through 2029. The environmental impact is nearly net neutral while allowing consumers will have access to less expensive, safer cars that meet their needs. It is a win all around for the environment, the consumer, and the automotive industry.

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