A chance for change in energy policy

U.S. gasoline consumption is one of the most critical challenges in energy policy.  One out of every 9 barrels of all oil consumed globally is consumed as gasoline in the U.S.  It is a huge drag on consumer pocketbooks and the economy, the primary cause of U.S. dependence on mid-East imports, and a major source of pollution and global warming emissions.  The fact that even President Bush-- an oil man from Texas-- declared that we had to end our addiction to oil, underscores the challenge we face.  But the Bush administration did not act with the aggressiveness that the President’s words seemed to demand.

The Obama Administration has the opportunity to dramatically change the pace of change in one of the most important determinants of U.S. oil consumption by setting higher fuel economy standards for cars and trucks.  If it makes the right choice, it could save consumers hundreds of billions of dollars.  Very soon, the Environmental Protection Agency and the National Highway and Traffic Safety Administration are expected to release a Notice of Intent for fuel efficiency standards for cars, SUVs, and pickup trucks through 2025.
 
The Consumer Federation of American (CFA) has found that a standard of 60 miles per gallon (mpg) by 2025 is a sweet spot for policy, delivering massive consumer savings and enjoying widespread public support.  Studies from MIT, the University of Michigan and the National Academy of Sciences indicate that the technology to achieve a 60 mpg goal is technically feasible for carmakers, without reducing the performance or size of the vehicles.  
 
We have analyzed the consumer economics in a variety of ways, and they all are consumer-friendly. For example, although putting fuel saving technologies into new vehicles raises the cost of a new car, the value of fuel savings is even larger.  According to a recent CFA economic analysis, a standard of 60 mpg by 2025 will save the typical American car or light truck buyer $1,000 by the time a typical auto loan is paid off, and  $5,000 over ten years.  Viewed another way, the investment in fuel economy pays for itself in about 2 ½ years.  This is far shorter than the 5-year payback 62 percent of the respondents to our recent survey said would be acceptable for fuel economy investments.    
 
A poll CFA conducted in September found that a majority of Americans --59 percent-- want the Administration to set a standard of 60 mpg by 2025.  Over three-quarters of the respondents believe a significant increase in fuel economy would be good for the U.S., and 60 percent believe that automakers would actually be more profitable if they increased the fuel efficiency of their vehicles.  Beyond basic economics, there are other reasons the public supports higher fuel economy, including concern about gasoline prices, dependence on mid-East oil and global warming.  
 
Although the technologies necessary to achieve the goal of 60 mpg are already in hand, or soon will be, automakers have not always been accepting of change. They have a history of saying they cannot handle mandated improvements-- like airbags, catalytic converters, and seat belts-- and predicting dire consequences that never come to pass.
 
Now is the time for the public policy to set a high standard, and for the automakers to step up to the plate and deliver.  Setting the standard at a high level for the long term is critically important in order to put the industry on a track to achieve a level that public opinion and economic analysis clearly supports. And giving the car makers a long lead time of 15 years will allow them the time they need to transform the vehicle fleet.
 
Now the Obama Administration must decide. Will it champion efficient cars that save drivers money and curb our appetite for foreign oil? Will it encourage American car makers to innovate, to better compete in a global economy, and to foster the new supply chains that would create new jobs that go hand-in-glove with technological innovation?  Or, will it leave billions of dollars of potential consumer savings behind again?  
 
EPA and NHTSA should set the next round of fuel economy standards at 60 mpg by 2025-- a level that pushes the American auto industry to give consumers what they’ve been demanding: competitive, world class cars that go farther on a dollar.
 
Legislating energy policy has proven to be difficult, but setting fuel economy standards at a much higher level is a chance for the Obama Administration to deliver change that is good for the consumer, the nation and the environment.


Mark Cooper is the Director of Research for the Consumer Federation of America, a non-profit association of over 280 consumer groups that was founded in 1968 to advance the consumer’s interest through advocacy, research, and education.