During a speech two weeks ago at the Daimler Truck manufacturing plant in Mount Holly, N.C., President Obama bantered with an audience member over his administration’s proposed Corporate Average Fuel Economy (CAFE) standards:
President Obama: Now, because of these new standards for cars and trucks, they’re . . . all going to be able to go farther and use less fuel every year. And that means pretty soon you’ll be able to fill up your car every two weeks instead of every week — and, over time, that saves you, a typical family, about $8,000 a year.
Audience Member: We like that!
President Obama: You like that, don’t you?
Audience Member: Yes! (Applause.)
What’s not to like? After all, the average driver currently spends only $1,745 on gas each year. With $8,000 in savings, the average family — even if we assume it has two or even three drivers in it — would earn thousands of dollars of profit from its gas consumption.
Alas, the president’s $8,000 figure is either a misstatement or an exuberant exaggeration. In fact, if fuel efficiency doubles from 27.3 miles per gallon to 54.5 mpg by 2025, as the administration’s proposal requires, the average driver could save about $800 a year based on current prices and average mileage.
This error differs from the administration’s other statements about CAFE in degree, but not in kind. Take, for example, this claim in the administration’s one-year progress report “The Blueprint for a Secure Energy Future”: “The Administration’s new fuel economy standards are making cars and trucks rolling off assembly lines today more efficient and saving American families and businesses money at the pump.”
The president’s first CAFE proposal didn’t take effect until 2011. So, while these cars may save “American families and businesses money at the pump,” there is no way they have saved money on balance. Even under the rosiest projections, the amount these cars save customers on gas won’t surpass their higher prices — a result of complying with the fuel-efficiency standards — for several more years.
The Environmental Protection Agency estimates that the compliance costs of CAFE standards from 2011 to 2025 will be about $210 billion, or $3,100 per vehicle by 2025. The U.S. Energy Information Administration predicts that new cars under $15,000 will be “regulated out of existence.” The National Automobile Dealers Association (NADA) further predicts that as a result, 6.8 million licensed drivers will be unable to qualify for the necessary loans to finance a new car.
Even for drivers who still qualify for loans or can afford to pay cash, it would take five years of driving a Ford Fusion 12,000 miles a year (the current average) with $4-a-gallon gas for the driver to break even, according to an analysis by Edmunds that accepts the EPA’s estimated compliance costs. If gas prices went back down to $3, it would take seven years. And of the cars that Edmunds studied, the Ford Fusion is actually the quickest to break even. A Honda Civic would take 12.5 years to break even with $4-a-gallon gas.
Under less rosy projections, however, a net savings may never occur for most owners. The EPA has a tendency to underestimate the cost of its regulations. For instance, according to an analysis of the EPA’s 2004–2010 heavy-truck emission standards performed by the NADA, the EPA estimated that the cost would be $3,419 per vehicle, but the actual figure was between two and five times that amount, depending on make and model.
Nevertheless, as gas prices remain a preoccupation through the summer, the administration is certain to continue touting its CAFE standards as an important part of a long-term, all-of-the-above energy strategy. In reality, it will be a long time before the administration’s CAFE standards start saving anyone any money, let alone $8,000 a year.
— Nash Keune is a Thomas L. Rhodes Journalism Fellow at the Franklin Center.