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Should Fuel Economy Standards Be Tied to Gas Prices?

gas pumpVolatile gasoline prices have caused carmakers and regulators alike to question the cost and effectiveness  of fuel economy standards, with some arguing they are too stringent and others saying they should be even stronger.

Ford and other major automakers have already begun lobbying president-elect Donald Trump and the EPA to roll back emissions and fuel-efficiency standards, which the industry says are neither achievable nor cost-effective.

In December the EPA proposed leaving the emissions standards for model years 2022-2025 in place. These require automakers to double passenger cars and light trucks’ fuel economy to 54.5 miles per gallon by 2025.

As the Trump administration takes a closer look at the rules in the coming months, a new study evaluates the current approach and proposes a market-based alternative: indexing the standards to rise and fall with the price of gasoline.

“Based on past fluctuations, gasoline prices over the next ten years could be anywhere from more than twice what is expected to less than half what is expected,” says Ryan Kellogg, a professor at the University of Chicago Harris School of Public Policy and author of the study. “The reality is, we just don’t know what the cost of gas is going to be, and the success of fuel economy standards hinges on that price signal. Indexing the standards to rise and fall with the price of gasoline provides a sensible approach to account for this large unknown.”

Automakers have repeatedly told lawmakers that the low price of gasoline is driving consumers to SUVs and other less fuel-efficient vehicles. Achieving the future fuel efficiency standards will be too difficult and costly for the industry to achieve, the Auto Alliance has warned.

Kellogg’s evaluation shows that allowing the standard to rise and fall with the price of gasoline more closely equates the costs and benefits. When gasoline prices are high, the standards would ratchet up to become binding, achieving maximum, cost-effective fuel and emissions savings. When gasoline prices are low, the standards would ratchet down, avoiding overly burdensome costs for automakers.

The study comes as average fuel economy of new light-duty vehicles sold in the US is on the decline.

The latest report from Dr. Michael Sivak and Brandon Schoettle at University of Michigan Transportation Research Institute (UMTRI) says December was 24.9 mpg, down 0.1 mpg from the revised value for November.

The average fuel economy of new vehicles sold in 2016 also dropped: it was 25.2 mpg, down 0.1 mpg from 2015.

 

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