Vehicle Fuel Efficiency Set to Increase

By Ryan McGreal
Published May 20, 2009

The NY Times is reporting that the Big Three US Automakers, humbled by their dismal performance over the past couple of years, have quietly capitulated to a new suite of federal mileage standards that will increase average mileage to 6.6 l/100 km (35.5 mpg) by 2016.

US President Barack Obama, reinforcing again the popular sense that he's the right president at the right time, managed to gather the CEOs of all ten major global automakers, plus environmental groups and state officials to the White House to announce the change without the conference dissolving into a riot.

In 2005, car companies were able to stop fuel economy legislation. By 2007, with the country awakened to the realization that global warming was a threat, they were forced to go along with higher standards but managed to water them down.

This time, they arrived at the table so debilitated they could extract only the barest of concessions. The primary gift carmakers received from Mr. Obama in Tuesday's proposal was the certainty of one fuel economy standard from California to Maine, rather than the patchwork that would have resulted from two sets of regulations, one by the 18 states that wanted tighter standards, and another for everywhere else.

By contrast, the former Clinton administration's abortive efforts to raise fuel efficiency standards were stymied by a decade of strong economic growth coupled with historically low global oil prices. Why incraese efficiency when everyone can afford a Ford F150 and gas is a buck-fifty a gallon?

Gas Tax Must Be Higher

This announcement follows a recent - but barely reported - interview with Ford Motor Company chairman Bill Ford in which he acknowledges that the US needs to raise the cost of gas to get people to consume less of it:

We clearly need - whether it's a gasoline tax or cap and trade, it's something we do need because with gasoline at $2 [a gallon], customer behaviour is not driving in the direction that the government would like.

This, of course, is the lunk-headedly obvious truth that dare not speak its name in polite society: if you want people to consume less of something, it needs to cost more.

It's why Canadian vehicles have a higher average fuel economy than American vehicles (our gas tax is higher than the American tax), and why European vehicles have an even higher average economy still (their gas taxes are higher than ours) - despite the fact that North Americans and Europeans drive roughly the same average distance a year.

In fact, I'd go so far as to say that if US gas taxes don't increase enough to create a strong domestic market for more fuel efficient cars, the increased CAFE standards will simply punish automakers by forcing them to manufacture cars that Americans don't want.

GHG Cap-and-Trade Coming

The good news is that it looks like such a change is on its way. In light of a recent Supreme Court ruling, the US Environmental Protection Agency is on the verge of ruling that greenhouse gases are a threat to the environment and hence fall under its regulatory jurisdiction. At the same time, a national greenhouse gas cap-and-trade program is proceeding through Congress.

A cap-and-trade system, if the total allowable carbon permits are held low enough, will indirectly raise the price of high-emitting products. While I prefer a straightforward carbon tax, a cap-and-trade is much better than nothing, and may be more politically palatable to US lawmakers enamored with the trappings of markets.

One reason the auto industry is going along - aside from the obvious fact that the only reason they're not already dead in the water is the massive public subsidies they've received - is that everyone saw firsthand last summer what happens when oil prices go up. NY Times again:

James C. Lentz, the president of Toyota Motor Sales USA, now the country's second-biggest seller behind Ford ... said consumers' swift reaction to record gasoline prices last summer was an important factor in the industry's embrace of higher fuel standards. "The industry woke up to the fact last year that when gas hit $4.50 a gallon, consumers were going to demand better fuel economy," he said.

Although the article predictably doesn't mention projected oil price volatility, let alone peak oil itself, this statement certainly indicates that the oil industry understands last summer was just the first taste of things to come.

Canada to Adopt Similar Standards

Meanwhile, Canadian Prime Minister Stephen Harper is hoist on his own continentalist petard. The Financial Post reports that the Canadian government intends to adopt roughly equivalent standards in Canada.

Jim Prentice, the Environment Minister, told reporters in Calgary on Tuesday that Ottawa would ensure Canadian regulations closely mimic what Mr. Obama proposes.

"We will work together to ensure we have a single, dominant North American standard for carbon emissions and fuel economy," Mr. Prentice said. "The automotive industry in North America is deeply integrated -- therefore it doesn't profit any of us, either as consumers or manufacturers, to have competing standards."

Mr. Prentice said he would adjust current environmental legislation to ensure it is aligned with the new U.S. fuel economy standards. He said the Canadian standards will be expressed using a different metric -- grams of carbon dioxide per kilometre, instead of miles per gallon as in the United States - but will nevertheless be aligned with Washington's rules by amending environmental regulations on an annual basis.

Due to its higher fuel tax, the fleet of Canadian personal vehicles already has a higher average fuel economy than in the US. As a result, the new standards may be easier to achieve in Canada.

Three Canadian provinces - British Columbia, Manitoba and Quebec - had been developing their own in-house standards in the absence of a federal commitment to higher fuel efficiency. Since the US policy announcement, they have stated that they will wait and see whether the federal government follows through with its commitment to matching the new US standards.

In related news, GMC just announced that it will drop 264 dealerships across Canada as part of its bankruptcy restructuring.

Ryan McGreal, the editor of Raise the Hammer, lives in Hamilton with his family and works as a programmer, writer and consultant. Ryan volunteers with Hamilton Light Rail, a citizen group dedicated to bringing light rail transit to Hamilton. Ryan wrote a city affairs column in Hamilton Magazine, and several of his articles have been published in the Hamilton Spectator. His articles have also been published in The Walrus, HuffPost and Behind the Numbers. He maintains a personal website, has been known to share passing thoughts on Twitter and Facebook, and posts the occasional cat photo on Instagram.


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By UrbanRenaissance (registered) | Posted May 20, 2009 at 12:10:53

Well at least we're making some progress, too bad it took $150 a barrel oil and an economic meltdown to get us there though.

And it's a damn shame for those dealers and mechanics who are losing their jobs. At least the mechanics will still be needed at other shops to fix the GM vehicles already on the road.

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By JonC (registered) | Posted May 20, 2009 at 13:29:34

The other point to note about fuel efficiency changes in the states, is that the new limits are to be per vehicle as well as an overall average whereas just an average was previously used.

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By jason (registered) | Posted May 20, 2009 at 22:47:20

Imagine where we'd be today had the oil cartel/auto makers/government not confiscated and destroyed all the electric cars 20+ years ago??

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By Con Black (anonymous) | Posted May 21, 2009 at 12:59:58

Don't get too optimistic about this before you see the fine print.
(may 18 2009)
>>Cars and trucks must average 27.3 mpg by 2011, according to current federal regulations. Under the pending administration plan for 2012-16, annual mileage goals would top out at 42 miles per gallon (17.9 kilometres per litre) for cars and just over 26 mpg for light trucks, which include pickups, sport utilities and vans. <<

There still is a different set of rules for cars and trucks besides the fleet average target.

Probably 3/4 of trucks and suvs are not purchased based on need, but on fashion trendiness. You need only look at the astonishing data on changing vehicle mix since 1980 to see this.

If the usgov was serious about fuel economy they would have no category distinction between cars and trucks at all. Certainly buyers have no impediment to buying whatever vehicle they find most sexy, or have been brainwashed by marketers to believe they need.

Then again if the gov was really serious about fuel economy they would have a $4/gal gas tax like Europe.

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By Con Black (anonymous) | Posted May 23, 2009 at 09:43:19

Still, the fuel economy numbers above show that Obama expects the vehicle mix to be 56% cars and 44% trucks, vans, suv's in 2016. Not a much different mix from today, which is a good part of the reason why we are in the financial slump we are - it is wasteful of fuel and excessively luxurious and does not reflect need.

Based on historical use, a more sensible guestimate of need would be:
10% trucks (farmers)
0% suv's
20% vans (families of 5+; contractors)
70% cars (ever tried a roof rack or trailer hitch? oh yeah!)

But forget about dictating that; at a reasonable gas tax the market would figure that out for itself. Sometimes the market actually works, you just have to get the price right, i.e. reflecting the cost of consequences as well as production.

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By A Smith (anonymous) | Posted May 23, 2009 at 21:58:14

Gas taxes need to be abolished so that gas guzzlers [ ] will be cheaper to drive. This will make life more enjoyable for people and the environment tougher. Furthermore, public transit, public parks and all restrictions on private property rights need to be scrapped here in Hamilton and replaced by massive tax cuts. Who's with me?

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