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Home » Auto Ownership

New Fuel Economy Standards: 54.5 MPG by 2025

Last updated by on 12 Comments

I almost missed this news as it was quietly slipped in between Super PAC programming, but a historical increase in fuel economy standards was finalized last week.

The National Highway Traffic Safety Administration (NHTSA) and Environmental Protection Agency (EPA) teamed up with the Obama administration, automakers, the United Auto Workers, environmental groups, and the State of California to set the new fuel economy standards.

These new standards were an extension of the Corporate Average Fuel Economy Standards (CAFE) and create rules to raise the average automaker fleet’s fuel economy to 35.5 mpg in 2016 (previous standard set in 2009) and 54.5 mpg in 2025.

This would present a 90% increase in average fuel efficiency versus the 2011 model year average of 28.6 miles per gallon.

Somewhat surprisingly, 13 of the largest automakers, including Ford, GM, Toyota, Honda and Chrysler, which together account for more than 90% of all vehicles sold in the United States, announced their support for the new standards.

The Impact of Obama’s New Fuel Economy Standards

Vehicle Costs: The Obama administration estimates an increase in vehicle costs of $1,800, however, they claim the new average standard would present a cost savings of $8,200 in fuel savings over a vehicle produced in 2010 ($1.7 trillion saved).

Environment: From an environmental standpoint, the new standards are projected to save 12 billion barrels of oil and eliminate 6 billion metric tons of CO2 pollution over the life of the program (more CO2 than the U.S. produced in 2010).

obama fuel economy standardsCanada, with a population around 10% of the U.S., has already announced they will be copying the new U.S. standards. Silly Canadians… always copying (except when it comes to health care, of course).

Economy: The new standards should help the economy as well. The less everyone has to spend on gas, the more we have to spend on everything else. And the less businesses have to spend on transportation costs. On top of that, automakers will need to hire more engineers to figure out how to meet the standards.

Without major population increases, this should theoretically cut down our foreign oil dependency significantly, improving our competitive position in the global economy.

U.S. has Lagged in Fuel Efficiency

new fuel economy standardsPrior to this regulation, fuel economy in the U.S. has been flat for decades. We’ve fallen behind other developed countries by significant margins.

Check out the NHTSA chart to the right, which shows the average U.S. fuel economy over the years.

Up until the last few years, when prior CAFE standard increases took effect, the average fuel economy had actually declined in the two decades following the early 1980′s.

Pathetic!

Of course, gas prices were so low and the global warming theory was only in its infant stages, so nobody really cared or pushed for changes.

The Need for a Market Nudge

Let fuel economy take care of itself in the marketplace, some would say.

The majority of consumers have been saying fuel economy is important (fuel economy was recently voted the #1 purchase consideration), but purchasing habits have not caught up.

You would think that many of the most fuel efficient cars would consistently make the list of top-selling vehicles, but that hasn’t happened. The list still includes many gas guzzlers, even after gas prices crossed $4 per gallon and everyone’s panties were all up in a bunch.

Why is this?

Consumers have typically had to pay up for fuel efficiency. Fuel economy has become a marketable vehicle feature. When the average fuel efficiency is as low as it is, the consumers who do care enough (usually those with a guilty environmental conscience) are willing to pay more for it. But most are not.

When presented with a 37 mpg hybrid vehicle for $30,000 versus a larger 30 mpg gas-only vehicle for $20,000, which do you choose?

The mpg spread hasn’t been large enough to justify the higher costs associated with hybrids and electrics.

Markets are self-driven, only to the extent that consumers have enough reasonably priced choices to drive it.

Until now, automakers haven’t needed to push change and have been disincentivized to do so. It adds to their costs – they must retool their factories, hire more engineers to design more fuel efficient vehicles, and test new technologies. There are costs involved in doing all of that. How do the automakers then maintain their almighty profit levels? By charging more for the cars. But if they charge more for marginal fuel efficiency gains, they lose out in the marketplace. So, it’s been easy for them to stick to an unwritten gentleman’s agreement to simply maintain status quo in the U.S. Therefore, the pace of change has been lethargic, especially when compared to other countries.

In response to the new standards (which they agreed to), many automaker’s statements had a tone of relief. Their competitors are being pushed to meet the same fuel efficiency gains, which levels the cost and profitability playing field for all of them. The technological possibility was always there, but now they finally have the key to unlock it.

It’s no coincidence you’ve already started seeing a jump in fuel efficiency in the last year with many non-hybrid vehicles from Ford, Chevy, Mazda, Toyota, and Hyundai/Kia hitting 40 mpg for the first time. One only has to look as far as the previous CAFE standards, which required 35.5 mpg by 2016, and the new impending standards.

I don’t think it will take until 2025 to get to 54.5 mpg. As soon as one or two automakers start making the claim that they beat the rest of the pack there, the rest will quickly follow suit.

Removing all political bias, it’s hard to see any losers here.

And with global warming and peak oil threatening, it can’t come soon enough.

As for me, I’ll still be riding my bike to work, even when they do hit 54.5 mpg.

New Fuel Economy Standards Discussion:

  • Are you excited about the new fuel efficiency standards? Do you think they are too high, too low, just right?
  • What effects do you think the new standards will have?
  • Will this impact your vehicle purchasing behaviors over the next decade?

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12 Comments »
  • Chris says:

    While I’m usually against the Gov’t interfering with the market, I think they finally did something good here. I’m pretty excited about having fleets of more fuel efficient vehicles being available to us within a decade.

    This has actually changed our vehicle purchasing decision. My wife and I both have vehicles with 6-digit milage, but this just gives us more reason to save up for a more fuel efficient vehicle a few years from now instead of splurging on something new right now.

    As a side note, I love this blog! You really help me to keep my focus on our financial independence goals. Just about any time I’ve wanted to waste all kinds of money on something frivolous, I just read your new post and that almost always talks me down from the monetary edge.

  • Natalie H says:

    Woot! That’s great. I’m looking forward to more energy efficient vehicles. I’ve got a hybrid car now but I still try to walk or take my scooter everywhere. My $1000 Vespa gets 80 mpg and beats a hybrid car on costs any day.

  • Nicholas says:

    “The state of California” has had such great success with regulations to encourage growth and keep costs down, how can one not be excited about regulation with their involvement?

  • Ferdinand says:

    Wow, that’s a bit of a good news. I am in for the generation with energy efficient cars of the future. Count me in.

  • Michael says:

    While I think this is great in theory, it may have unintended consequences!

    For example, I own a garbage company and all new diesel trucks have “diesel particulate filters” as required by the Clean Air Act. They basically capture harmful emissions and burn them off. Great idea in theory, but these filters are nightmares! My trucks are constantly in the shop. And I’m not the only one. Ask anyone with new diesel trucks (landscapers, etc.) and they will tell you that these emissions rules have cost them thousands!

    • G.E. Miller says:

      I would also say that diesel emissions have “unintended consequences” and have societal costs in the trillions. We all pay for it one way or another. Shouldn’t it be those who are actually using it who are bearing most of the burden of cost?

      • Nick says:

        That’s easy to say when you’re not the one footing the bill.

        • G.E. Miller says:

          There are costs associated with running any business. Would you want a coal plant to move in right next door to you? Do you think people want diesel fumes spewing out in to the air that they breathe?

          • Nicholas says:

            If the energy company paid for the plant and we truely enforced property rights in this country the way it was intended – then why not? They have every right to move next door to me if they purchase the land.

            If people don’t want diesel fumes spewing out into the air they breathe, they will stop buying products that run on diesel. Problem solved, without the govt putting a gun to anyones head.

          • G.E. Miller says:

            You’re assuming 3 things:
            1. enough people are smart enough to make that connection
            2. enough people are caring or ambitious enough to do something about it
            3. there are legitimate alternatives

            All pretty big assumptions. Meanwhile, the people who are aware and care about it have no choice but to breathe in the poison. Completely de-regulated free-market ideology, at its finest. Why don’t you come over and swim in my lead pool. My wife and I filled it with mercury. And I’ve got some asbestos water wings for ya.

          • Nicholas says:

            You’re assuming a heck of a lot of things.

            1. You know what is better for people than they do.
            2. Since you know better, it’s okay to put a gun to their head and force them to do something.
            3. The technology will be there to make an cars run at 54.5 MPG by 2025.

            Tell me, if the technology isn’t there by 2025 what is going to happen? It will be illegal to sell cars? If you don’t want to ‘breathe poison’, then stop contributing. Don’t drive a car. Ride a bike everywhere, and live in the woods. Everyone seems to know what everyone else needs to do, but never look in the mirror. In fact, by folks firing up their computers and going to your website, CO2 is being emitted into the air. Why are you contributing to the poison? We should ban computers, car, so on and so forth if we really wanted to clean up the air.

  • Treasury Planning says:

    For some business entrepreneurs the word ‘compliance’ causes shivers down their spine and lots of headaches. It’s such a long job and that i need to specialize in transfer new customers to the business! I cannot pay my time doing such lot paperwork!, they usually shout in despair.

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