Agencies Double Fuel Economy Standards

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EPA and NHTSA require an average of 54.5 mpg for vehicles by 2025.

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The Environmental Protection Agency (EPA) and the National Highway Traffic Safety Administration (NHTSA) have jointly announced final rules that will effectively double fuel economy standards for cars and light-duty trucks to a fleet-wide average of 54.5 miles per gallon (mpg) by 2025. Essentially same as the proposed version from last year, the rules follow President Obama’s 2009 announcement of a new fuel economy policy and continue on the same path as the agencies’ rule issued last year that requires increased fuel economy for automobiles over the next four years.

The latest rule, issued Tuesday of this week, does not require that every type of car achieve fuel economy of 54.5 mpg but specifies different fuel economy levels for different types of vehicles. Passenger cars of Model Year 2025, for example, will be required to have fuel economy of 55.3 mpg. Light trucks in the same year will face a lower requirement of 39.3 mpg. Further, because the agencies use “footprint-based standards,” the average fuel economy required of each auto manufacturer will depend on the mix and volume of vehicles it produces in a given year.

NHTSA estimates that the tougher standards will cause a per-vehicle price increase of $1,836 upfront but will save an average driver between $3,400 to $5,000 over the life of the vehicle. According to NHTSA estimates, the new rules will result in up to $475 billion in society-wide fuel savings and $150 billion in cost increase in the purchase of vehicles. Factoring in what the agency describes as “other benefits,” it expects the program to produce net benefits of up to $451 billion.

The ongoing pressure from the White House and the agencies seems to be having an effect on the auto industry. Ford, for example, is responding to the new standards by changing the steel-based body of its best-selling F-150 trucks to aluminum. Also, manufacturers are producing more hybrids and electric cars, as NHTSA estimates that they will comprise between 26 and 49 percent of all vehicle sales by 2025.

The agencies’ announcement drew contrasting reactions from political leaders. Highlighting the new rule’s effect on energy security and middle class families, President Obama proclaimed that “[t]hese fuel standards represent the single most important step [the United States has] ever taken to reduce [its] dependence on foreign oil.” Republican presidential candidate Mitt Romney opposes the rule, arguing that “the extreme standards … will limit choices available to American families,” according to a spokesperson.

The rules also garnered different reactions from automobile manufacturers.  Thirteen major auto manufacturers – including Detroit’s Big Three – reportedly support the new rule, but German manufacturers Daimler and Volkswagen have argued that the rule favors light trucks, which are primarily manufactured by American companies, and that it does not account adequately for diesel vehicles.