NRDC Study Shows CAFE Rules Will Pay Multiple Dividends
Last week the Natural Resources Defense Council (NRDC) released a study showing that pending Corporate Average Fuel Economy (CAFE) regulations have begun a cascade of benefits that far outweigh the costs of their implementation.
The Obama administration’s CAFE rules are expected to be finalized in August, or possibly as early as July. The NRDC’s report, titled “Relieving Pain at the Pump,” has estimated that by 2030, the CAFE rules’ “54.4” miles per gallon standard (about 40 mpg on sticker) will save Americans $68 billion in fuel costs.
CAFE addresses greenhouse gas reductions as well, and already, the NRDC study observes, consumers have been seeing a “bumper crop” of efficient vehicles as automakers have been working to meet existing and pending economy mandates.
“By the start of model year 2012, the number had tripled to 15 models as automakers steadily increased their fuel efficient options in anticipation of the new standards, and higher fuel prices,” the NRDC report says, noting there were just five compact/subcompact category models in 2009 that exceeded a rated 30 mpg.
As automakers prepare for mandated standards, more fuel-efficient choices – not to mention hybrid and electric varieties – are due to come onto the market adding to consumer choices in all vehicle categories.
Aside from that, the NRDC’s six-page pdf report touches on a number of statistics that add up to benefits for the economy, oil consumption, environment and consumers.
“According to the EPA and the NHTSA, the model year 2017 to 2025 standards will cut U.S. oil consumption by 1.7 million barrels per day by 2030, which is equivalent to the combined U.S. imports from Saudi Arabia and Iraq in 2011,” the study says. “The standards will also cut carbon pollution by 297 million metric tons in 2030, which is equivalent to the carbon dioxide emissions of 76 coal-fired power plants.”
One point of contention raised by the National Auto Dealers Association (NADA), others in the auto industry, and some House Republicans, is the actual cost-benefit ratio between cost to engineer an efficient fleet versus the average vehicle’s sticker price to be faced by consumers.
Presently, the average vehicle price is said to be a not-insubstantial $30,000 – although many less expensive options are of course available. The NADA has been especially outspoken in saying cons of the Obama administration’s fleet-wide mandates outweigh the pros.
On the opposite side of the fence – or should we say “aisle?” – and echoing the Obama administration, the NRDC says savings far outweigh an increase in sticker prices by 2025.
“Technologies to improve fuel efficiency will cost drivers about $2,000, but ultimately they will save more than $6,400 in fuel bills, resulting in a net saving of up to $4,400 over the life of the vehicle,” the NRDC report says.
The “life of the vehicle” will naturally vary, but the above statement was based on the federal government having crunched a host of projected numbers pertaining to new future vehicles, including estimated average annual mileage, likely survivability of new vehicles, the likely percentage of vehicles types – from conventional, hybrid, plug-in – and other details besides were weighed.
In an interview today, Luke Tonachel, NRDC senior vehicles analyst, said by 2025, the percentage of hybrids is expected to be about 15 percent – far higher than their roughly 3 percent today. While the future estimate is only an educated guess, this is what the government has calculated. It also figured around 82 percent would be advanced internal combustion vehicles, and 3 percent would be plug-ins, mostly the battery electric variety.
Tonachel said the “$2,000” estimated sticker price increase for 2025 is actually in comparison to 2016 prices. From 2012 through 2016, costs are also estimated to go up by $1,000, for a total of around $3,000 between 2012 and 2025.
While public comments were still being allowed earlier this year in the government’s formal rule making process, the NADA initially attempted to say costs would go up by as much as $5,000 per vehicle, but it has since dropped that stance. More recently, an NADA objection has centered around the statement that seven million new car buyers will be priced out of the new car market by 2025.
Expressing concern especially for lower income and college-age buyers, the NADA used U.S. Bureau of Labor Statistics to come up with its latest talking point – however now agreeing prices would go up by $3,000, not $5,000 as it tried to contend earlier this year. In any event, the NADA urged regulators to reconsider CAFE rules.
“The unintended consequences of the proposed fuel economy increases are clear,” said David Wagner, the primary author of the NADA study and an analyst with the NADA Used Car Guide to the Detroit News. “If the price of a vehicle goes up by the government estimate of almost $3,000, millions of people will no longer be able to finance a new vehicle.”
But having quietly dropped its line of attack on the actual price increase for new vehicles under CAFE, the NADA’s contention of the new ruling crushing new car buying aspirations was also questioned by the NRDC’s Tonachel.
The NADA’s latest talking points about “seven million” would-be buyers forced out of the market comes from a study it did in February, Tonachel said, and he questioned just how many in low income households would be prevented from buying a new car.
“The fact is that these households are not in the new car market; they are in the used car market. As the market turns over, used cars get more efficient so buyers in that market benefit from lower fuel bills,” Tonachel said. “Additionally, because of the fast depreciation of vehicles, the full incremental cost of fuel-efficient technologies will not get passed along.”
Further, he said, entry level cars may still be priced as value leaders by automakers looking to engender loyalty, particularly from first-time buyers.
“For those buyers that are of lower income but still in the new car market (like young buyers), the car makers have a strong incentive to price vehicles at very affordable levels,” Tonachel said. “Getting first-time buyers into your brand can build loyalty for future, higher profit sales. Therefore, the ~$2,000 average incremental cost is unlikely to be applied directly in less expensive new cars.”
We’ll add that the $19,000 and up Prius c is just one example of what a determined automaker can do today to create a value leader that returns very high efficiency for far less even than today’s average $30,000 cost for a new car. Other alternatives are also now on the market, and with time to work on refining efficiency tricks, more competitive choices ought to be available in any case.
Much more could be said on these topics, but we have to cut this somewhere. If you’re interested, the NRDC has state-by-state savings and other data worth perusing in its study. To see it for yourself, you can download the pdf here, or read more on its Web site.