New Fuel Efficiency Standards Increase Conservation, Raise Vehicle Price Tags

The Obama administration has set new fuel efficiency standards at a fleet-wide average of 34.1 miles per gallon, and for the first time ever, a federal tailpipe emissions limit has been set. The benefits of lower emissions and higher fuel efficiency far outweigh the costs to automakers, which may run up to $60 billion by 2016, the year by which the new standards must be met.

The National Highway Traffic Safety Administration (NHTSA) and the Environmental Protection Agency (EPA) are scheduled to finalize the administration’s proposal by March 30, 2010 in order for it to begin taking effect.

When implemented, the plan will yield a 950 million metric ton reduction of greenhouse gas emissions, a $3,000 per vehicle fuel cost reduction and conservation of an estimated 1.8 billion barrels of oil over the lifetime of new vehicles produced between 2012 and 2016.

Lisa Jackson, EPA Administrator, says that 42 million cars will be taken out of service due to the new standards.

Although the new requirements will cost automakers billions in production costs, the NHTSA estimates a sales increase of over 65,000 vehicles through 2016 with an accompanying addition of 5,700+ jobs in the auto industry due to higher demand. If fuel prices rise as some expect, the demand for newer, lighter more fuel efficient vehicles is expected to rise accordingly.

The NHTSA did admit, however, that there is a possible loss of sales on the horizon as prices for the high tech cars rise and consumers decide to hold on to their vehicles longer than they normally would.

There is additional concern that the lighter vehicles may add to the automobile crash fatality numbers, but the agency stressed that automakers can meet the new standards and improved fuel efficiency in their vehicles without reducing weight. Transportation Secretary Ray LaHood said “it’s going to be up to the automobile manufacturers to decide the weight and how they are going to meet these standards.”

The Obama administration’s proposal does leave some room to accommodate special considerations within the auto industry; luxury automakers will have a lower standard to meet if they sell less than 400,000 units per year. Although displeasing to larger car companies, the NHTSA is confident that all vehicles produced will be able to catch up and meet the standards by 2016.

The automakers will also be allowed to use flexible fuel credits through 2015 that will give them a waiver for some requirements for building flex-fuel vehicles.

The goal is that by 2016, passenger cars will average 38 miles per gallon and light trucks will average 28.3 miles per gallon. Each auto company will have requirements tailored to their business, factoring in model mix and some other considerations.

Posted in In the News

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