Strong Fuel Economy Standards Needed Even When Oil Prices Are Low

Now that pump prices have dropped, automakers are once again rushing to sell gas-thirsty SUVs and pickups and calling for a weakening of the coming historic 54.5 miles-per-gallon fuel economy standard.

But is that a smart strategy given the volatility of the global oil market, U.S. vulnerability to events in unstable and sometimes unfriendly oil-producing countries, and the auto industry's history of shortsighted business decisions?

And does it make sense to retreat on a key initiative to reduce carbon pollution at a time when the public has become increasingly anxious about climate change's threats to our health, environment and economy?

In a word: no.

Forgotten lessons?

When President Obama--who is scheduled to visit the Detroit auto show today-- reached an historic agreement in 2011 to strengthen standards to the equivalent of 54.5 mpg by model year 2025, almost all the automakers stood by the president in support.

But with lower oil prices, automakers are now eager to weaken those historic standards that they agreed to just four years ago.

Has the auto industry forgotten so soon the lesson of past oil shocks?

Twice in the past 40 years, Detroit automakers have been caught flat-footed selling gas-thirsty vehicles that no one wanted to buy because of high gas prices and needing taxpayer bailouts. Just six years ago, American taxpayers agreed to bail out GM and Chrysler, eventually providing a total of $80 billion in loans. The bailout is estimated to have saved 1.5 million jobs, jobs that would be at risk if gas prices skyrocket again.

Putting jobs and innovation at risk

Betting that oil prices will remain low by weakening standards is a high-octane gamble.

It would undermine huge investments in clean vehicle technologies that are already generating jobs, catalyzing innovation and creating profits.

Four years ago, we found there were already more than 150,000 workers located in 500 facilities across 43 states manufacturing components and technology that contribute to increased fuel efficiency (see Supplying Ingenuity).

Based on the last data from the Environmental Protection Agency (EPA), these jobs have grown even faster than anticipated with the auto industry ``adopting fuel-efficient technologies such as turbocharging and advanced transmissions at a faster pace than EPA projected.''

And major investments in electric cars, including by GM, Ford and Chrysler, are poised to start paying off as well.

Among the cars touted at this month's Detroit Auto Show was the Chevrolet Bolt that can travel more than 200 miles on a charge, for $30,000 after federal tax credits (the average price of a new car). With this groundbreaking vehicle, GM may be the first to "crack the code" for a mainstream electric car, with Nissan and Tesla poised to follow with similar products. Even late-to-the-game Chrysler is introducing a plug-in minivan.

Standards are working

Despite their rhetoric, automakers are not struggling to comply with the current fuel economy standards which gradually rise to the equivalent of 54.5 mpg by model year 2025.

Quite the contrary, in 2014, automakers not only complied with clean car standards for a third time in a row, but over-complied by a record margin, according to the latest EPA data.

Overall, automobiles sold in 2014 were 5 miles per gallon more fuel efficient than 10 years ago, averaging 24.3 mpg, according to the U.S. EPA Fuel Economy Trends report.

Increasing fuel economy standards did not prevent automakers from having a record sales year in 2015 (17.47 million units), demonstrating that strong sales and higher fuel efficiency can go hand-in-hand and, in fact, that consumers still want to go further on a gallon of gas.

Benefits of fuel economy standards still high, despite low oil prices

The standards, combined with an earlier round of fuel-economy standards issued by the Obama administration in 2010, are projected to keep 6 billion metric tons of carbon pollution out of the atmosphere over the life of the vehicles.

Even with lower oil prices, the standards offer fuel savings and pollution reduction benefits "well in excess of costs," as Council of Foreign Relations fellows Varun Sivaram and Michael A. Levi concluded in a recent paper. They also found that energy security and environmental benefits are even stronger than what the government projected from fuel economy standards back in 2012.

Strong standards are needed now more than ever.

The rollercoaster of the world oil market does not lend itself to smart planning.

Betting on low oil prices by rushing to sell gas-thirsty vehicles and weakening standards would not only threaten our health, our climate, and our energy security: It also puts auto companies, its workers, and its investors at risk.

Especially with today's low oil prices, the auto industry needs a strong "North Star" to guide its long-term investments.

With record sales and healthy profits, now is the time for automakers to double down on innovation and leadership in clean car technologies.

About the Authors

Roland Hwang

Director, Energy & Transportation program

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