Should more fuel efficient vehicles be required by law?

1. Should more fuel efficient vehicles be required by law? By Nicholas Luebker

2. The Fuel Problem • The U.S. is heavily reliant upon politically unstable foreign oil sources. • 56% of the U.S.’s fuel comes from foreign sources http://www.csmonitor.com/2005/0519/p14s01-sten.htm • Low fuel efficiencies make us more vulnerable to oil price spikes • Hurricane Katrina, over $3 a gallon • Automobiles 2nd biggest factor after industry to contributing to global warming by producing green house gases such as: CO, CO2, NO2, CH4 (methane)

3. Old Fuel Economy Requirements • Require an “average” fuel economy • The average mpg for a company’s entire fleet of vehicles had to be 22 mpg. • Allowed companies to make lots of little, light weight cars cars and keep selling the lucrative gas guzzling SUVs. • *Vehicles over 8500 lbs not even tested • Includes: Avalanche, Silverado, Dodge Ram, F-250 & 350, Hummer 1 & 2 • http://www.fueleconomy.gov/feg/which_tested.shtml • Aspire vs. Explorerin • Average Mpg • Aspire ~37 • 4WD Explorer ~ 15 • For every 1 Aspire sold, could sell 2.1 Explorers and still achieve an avg 22 mpg • Explorer also has double the CO2 emissions.

4. Why hasn’t the government required higher efficiencies for all vehicles? • For years, under standard vehicle designs, weight reductions were the main way to increase fuel economy. • Every 100 lbs removed from a vehicle improves efficiency by 1-2% • However, studies found that lighter cars were not nearly as safe. • In 1997, mathematician Charles Kahane estimated that even 100 lbs reductions in vehicles would increase the average fatalities per year by ~300 people because they were less safe. • Makes sense in basic physics model • Ironically, the government’s “average mpg” requirement increased the discrepancy between very small and light vehicles with high mpg (Aspire) and heavy SUVs but… http://www.4x4xtreme.com/4x4fotos/fotos.htm

5. Safety Concern Not Entirely Valid • Safety has much more to do with engineering than weight. • Stiffer design • More crumple room • Shorter engine • 2002 Honda Civic (mpg 39) designed to be light and safe, 1st to received 5 star crash test rating in all 4 categories. • 2002 Mini cooper, avg mpg ~28 • 2002 F-150, avg mpg ~15 • Crashing into same barrier at 40 mph. • http://www.bridger.us/2002/12/16/CrashTestingMINICooperVsFordF150

6. Will making vehicles more fuel efficient cost consumers? • Cheap Ideas: • Use lighter materials • Aluminum or high strength steel ~$1000 • Reduce Drag • Slippery car design, replace side mirrors with small video cameras ~$180 • Redesign engines • Added ability to shut off extra engine cylinders at cruising speeds ~$480 • Hybrid design • Use an electric motor to start car from idle ~$660 • Add more gears • 5 speeds are more efficient than automatics, 6 speeds would be even better. • Using a combination of these ideas can increase mileage by 30% • A 15 mpg SUV could get now get 20 mpg • *Savings of only $750 per year at $3 a gallon,but • Business Week 9/26/2005 Issue 3952, p40-41 • Saves ~ $5,000 over ten years, 17% of the original price.

7. Will higher prices of fuel cause people to buy more fuel efficient cars? • Ford Explorer and Expedition sales were down 25-30% earlier this year, but is it due entirely to high gas prices? • Unlikely to think about when buying a new car • Average cost of an SUV ~ $30,000 • Savings per year on fuel if bought a hybrid (Honda Insight) • Considering average miles per year ~ 15,000 • At 3 dollars a gallon, would save only $2,250 per year, less than 10% of the price • “If you can afford a $30,000 vehicle, you can afford the gas” (Petroleum Economist. London 2005. pg 1.) • Space, comfort, and horse power have value too, more tangible benefits than saving the environment. • Note: Yet over the 10 year life span of a car, total expenditure (purchase price plus fuel) • Insight costs ~$30,000 • Explorer costs ~$60,000 • Median income in 2004 ~$44,000 (www.census.gov), multiplied by 10 years, $30K only amounts to about ~14.6% of total earnings. • It is more likely that the decrease in sales is from greater competition in the SUV market.

8. What about increasing the gasoline tax to get people to buy more fuel efficient cars? • Would probably work, but with ill effects • Gasoline is a very inelastic commodity • Between -.11 in short run -.3 in long run. *numbers vary* (The Energy JournalOct 1993, v14, n4, p99) • i.e a 1% increase in price only decreases the amount of gasoline consumed by .11% • Vehicles are durable goods (i.e. they last a long time), not everyone can buy a new car immediately after prices go up and will suffer. • Economy is heavily reliant on low gasoline prices • Fast price increases could induce a recession. • Gradual price increases could induce inflation. • Unlikely that a large enough price hike would pass through legislation. • Slower to require higher vehicle fuel efficiencies, but easier to pass.

9. New Government Standards • National Highway Traffic Safety Association’s Corporate Average Fuel Economy (CAFE) separates vehicles into categories based on size (area between the wheels). • 6 different categories based on area. • Greater the area, the less stringent the standard • Decided to move away from weight categories because they felt companies would just make vehicles heavier. • Expected to be approved in April • Will take into effect on new vehicles of the 2010-2011 years. • “U.S. Secretary Mineta Unveils Plan Requiring Better GasMileage from SUVs, Pickups and Mini-vans” August 23, 2005. http://www.nhtsa.gov

10. How Do We Stack Up? • The U.S. is in last place of modern countries in fuel efficiency standards. • China’s fuel mileage goals are 22% tougher than the U.S. • CO2 per capita • U.S ~ 20 tons/year, was 6.6 back in 1995 (http://yosemite.epa.gov/oar/globalwarming.nsf/content/emissionsindividual.html) • Germany ~ 10 tons/year • UK ~ 9 tons/year • China ~ 2.5 tons/year

11. Too Little Too Late? • Will increasing fuel efficiency requirements impede global warming? • ~25% of U.S. fleet is composed of SUVs • Only about 1% of U.S. fleet turned over every year. • Change to more fuel efficient vehicles will take time, vehicles last longer than ever before. ~10 year life. • Changes aren’t required until 2011.

12. Overall Recap • The automotive industry’s argument that improving mileage would compromise safety is untrue. • It is a myth that it would cost consumers significantly more to increase fuel efficiency. • It is unlikely that market forces will cause the average fuel efficiency to go up on their own. • If the government tries to manipulate the market through gasoline taxes, there could be ill economic effects. • The U.S. currently has one of the worst CO2 emitted per capita in the world. • Because there is such a large fleet, it will take some time to reach.

13. Bibliography • “Crash Course: How U.S. Shifted Gears to Find Small Cars Can Be Safe, Too”. Wall Street Journal. New York, N.Y.: Sep 26, 2005. pg. A.1 • “Get Real”. Petroleum Economist. London: June 2005. pg. 1 • “Getting More Miles to the Gallon -Fast” Business Week 9/26/2005. Issue 3952, p40-41. • http://www.fueleconomy.gov/feg/which_tested.shtml • www.epa.gov, click global warming link • http://www.nhtsa.dot.gov/portal/site/nhtsa/menuitem.d0b5a45b55bfbe582f57529cdba046a0/ (CAFE regulations) • http://www.bridger.us/2002/12/16/CrashTestingMINICooperVsFordF150 • http://www.csmonitor.com/2005/0519/p14s01-sten.htm • “Another look at U.S. passenger vehicle use and the 'rebound' effect from improved fuel efficiency” The Energy Journal Oct 1993, v14, n4, p99(12)