This suggests that the government is trying to offset peak oil or at least an oil crunch.
Price tag of 2025’s fuel efficiency standards: $157 billion
David Shepardson/ Detroit News Washington Bureau
Washington— Doubling fuel-efficiency standards to 54.5 mpg by 2025 won’t be cheap — and it will require the government to consider other implications.
The Obama administration finally unveiled the price tag to the auto industry for its proposed 2017-25 fuel economy regulations on Wednesday: $157.3 billion. But it will save consumers billions at the pump — and even billions more in time saved filling up at the pump.
In total, drivers will save $1.7 trillion at the pump — including the 2012-16 fuel increases. That’s far more than the costs of more expensive autos — and society will see net benefits of $252 billion to $358 billion.
But the administration said the savings at the pump will wipe out about $50 billion in gas tax revenue — and the government will have to find another way to fund road repairs.
It’s one of the most expensive – if not the most expensive regulation in U.S. history.
The hike – outlined in a nearly 900-page proposal — comes on top of the $51.5 billion price tag for 2012-2016 rules that boosted by more than 30 percent requirements to a fleet-wide average of 34.1 mpg by model year 2016.
Most of the increases — $113 billion — comes to boost passenger car fuel economy — while $44 billion will be to improve light trucks.
The proposal will boost the cost of an average car in 2025 by $2,023 and light truck by $1,578. But costs could be as high as $2,800 if a different analysis is used to forecast future price costs, the administration said.
But it will have other benefits — including saving Americans time at the gas pump. The fewer trips to the pump are worth about $10 billion in saved time or more, the agencies forecast.
The Obama administration said it opted not to forecast whether the new rules — and higher costs — will cause auto sales to rise or fall. Previously, the administration has predicted that higher up-front costs would reduce some sales.
The administration noted that economists generally agree that for every 1 percent hike in auto prices, it lowers sales by 1 percent. But that’s if owners perceive no change in the quality of the vehicle, the agencies said.
“Sales losses would occur only if consumers fail to value fuel economy improvements at least as much as they pay in higher prices,” the agencies wrote.
EPA and NHTSA are “exploring the question why there is not more consumer demand for higher fuel economy today.”
Margo Oge, the EPA’s director of the Office of Transportation & Air Quality, said the government predicted the regulations would have a “modest” impact on sales.
The administration cited “considerable uncertainty in the economics literature about the extent to which consumers value fuel savings from increased fuel economy.”
Since the administration isn’t forecasting any reduction in sales, it isn’t predicting any loss in jobs from the regulation.
The National Automobile Dealers Association notes that adding all of the 2011-2025 increases together could add about $3,000.
“This regulation gambles that millions of consumers will be able to afford thousands more for generally smaller, more expensive vehicles that may not meet their needs,” NADA said in a statement. “This policy is contrary to what most consumers are actually buying today, despite the wide availability of more fuel efficient models.”
The regulation will have other costs. Since it will be cheaper to drive, Americans will drive more – and the administration predicts congestion costs from added driving will be between $26.2 billion and $32.7 billion.
The rule also will have some safety implications. Americans will drive more – because it is cheaper to drive — and therefore get into more car crashes. NHTSA estimated the cost of the crashes over the life of the rule at $12.4 billion to $15.5 billion.
“”No one really knows exactly what the price of gas is going to be and what the driving is going to be,” said NHTSA Deputy Administrator Ron Medford.
The Obama administration says the benefits far outweigh the costs — and will save consumers at the pump. The buyer of a 2025 vehicle will save $3,000 to $4,400 in lifetime fuel savings over the higher up-front costs, EPA said.
General Motors Co. will need to spend $37.8 billion to comply, while Ford Motor Co. will have to spend $29.4 billion, and the Chrysler-Fiat alliance will spend $9.7 billion.
Toyota Motor Corp.’s will need to spend $23.2 billion on additional technology, while Honda Motor Co. will spend an estimated $15.3 billion. Nissan Motor Co.’s estimated cost increase is $15 billion.
Korean automaker Hyundai Motor Co. will see its costs increase by $8.2 billion, while its Kia unit’s costs will increase by $4.1 billion, the government said.
VW – which didn’t endorse the plan in July and has sought additional incentives for diesel vehicles –will see costs rise by $1 billion.
Ford spokeswoman Meghan Keck said the company is “still reviewing the details, but expect that they will be consistent with the framework announced this summer.”
Honda said in a statement that it has worked to boost fuel efficiency.
“While Honda has not had time to review today’s proposed regulation in detail, we welcome the challenge to significantly increase fuel efficiency and reduce greenhouse gas emissions,” the company said.
Jonathan Browning, president and CEO of Volkswagen Group of America, said the company “would like to see the same flexibilities and alternative compliance paths afforded the heaviest trucks be available to the smallest, already fuel-efficient passenger cars. Furthermore, the proposal is not technology neutral and does not encourage the benefits of technologies, like clean diesel.”
Transportation Secretary Ray LaHood noted that 13 major automakers endorsed the deal — as did California — in July. “I don’t think all of these CEOs would have been standing with the president if they didn’t think they could support this,” LaHood told reporters on a conference call. “You know how these executives are: it’s all about the bottom line.”
Most of the costs come in the final four years of the proposal – the 2022-2025 timeframe – which could still be changed during a “midterm review.”
The costs for 2017-2021 are $49 billion, while the remainder of the costs come in the 2022-2025 model years.
But the administration predicts Americans will shift to buying more cars. It predicts Americans will buy 16.1 million vehicles in 2016, including 62.6 percent cars. By 2025, it predicts 17.1 million vehicles will be sold, including 67 percent cars.
The administration predicts a steep fall-off in full size SUV sales in the coming years — from 3.3 percent of all vehicles sold in 2016 to 0.63 percent in 2025. Full-size SUVs have fallen this year to 3.9 percent of the market.
Mitch Bainwol, president & CEO of the Alliance of Automobile Manufacturers, said the administration “must consider that technology breakthroughs will be required and consumers will need to buy our most energy-efficient technologies in very large numbers to meet the goals.”
“Automakers have already invested billions of dollars in new technologies, so consumers now have many choices when shopping for fuel-efficient vehicles,” said Bainwol, who heads the group representing GM, Ford, Chrysler, Toyota, VW and seven others.