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Consumer benefits of increased efficiency in 2025-2030 light-duty vehicles in the U.S.

Published Wed, 2017.06.21 | By

Joshua Miller and Nic Lutsey

Summary

Analyzes impacts of emerging vehicle efficiency technologies on consumer fuel savings, benefit-to-cost ratio, and payback period in the 2025–2030 time frame.


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This paper estimates consumer costs and benefits of increasingly efficient light-duty vehicles in 2025 to 2030. It considers the impacts of adopted 2025 standards and the potential extension of fuel efficiency improvements at a rate of 4% to 6% per year to 2030. It evaluates the impacts of these standards on the costs of vehicle technology and fuel savings under low, reference, and high fuel prices. Three implications for current, and potential future, fuel efficiency regulations in the United States stand out.

The 2025 standards provide tremendous value for American consumers. Under the fuel economy standards presently in place, buyers of model year 2025 vehicles who pay cash will fully recoup their investment in the third year of ownership. Those who finance their vehicles will see a net positive cash flow starting immediately. Moreover, the standards will net consumers thousands of dollars over the lifetime of the vehicle. Under reference fuel prices in future years, the consumer benefits would be more than three times the costs of the regulation. These findings are robust to changes in market conditions: fuel savings are 2.4 times the costs if fuel prices stay low for the next several decades.

Fuel efficiency and CO2 standards are an exemplary public policy with benefits that consistently and greatly exceed costs. Consumers directly benefit from the 2025 standards with thousands of dollars in fuel savings per vehicle. These consumer savings alone justify the efficiency standards. If the public benefits of the standards for energy security, climate change mitigation, and air quality were also included, the efficiency standards would make for an even bigger public policy win. Continuing these vehicle efficiency improvements to 2030 will continue to provide consumer benefits that exceed the costs—by a factor of 2 to 3 times under reference fuel prices. For a typical car loan, each of these 2030 standards would result in off-the-lot savings.

High consumer benefits are available across vehicle types, from cars to light trucks. The size-indexed standards ensure that all vehicle types see more high-efficiency vehicle options over time and allow the fleet to naturally shift with gasoline prices and broader economic trends. The average new car fuel economy label would increase from 35 mpg in 2021 to 41 mpg in 2025 under the adopted standards, and to 52 mpg in 2030 assuming improvements of 5%/year—each of these steps would save consumers $2,300–$2,600 in fuel costs over the lifetime of the vehicle. For trucks, the average fuel economy would increase from 25 mpg in 2021, to 30 mpg in 2025, to 38 mpg in 2030—each step would save consumers $3,900–$4,000 in fuel costs per vehicle.