21st Century Solutions to High Gas Prices
Gas Price Spikes and the Economy
The 2004 gasoline price spikes are not new to consumers. Gasoline prices have been spiking for the past four years, with no relief in sight. The most effective way to insulate consumers from these price spikes is to increase fuel economy standards, but government has not learned a 30-year lesson: high energy costs combined with low efficiency hurt the economy. The last four major price shocks (1973-74, the late 1970s/early 1980s, and early 1990's) were all followed by recessions.1
While today's gasoline prices may not hit consumers as badly as peaks during the late 1980's (due to inflation), current "record" prices are placing a significant drain on the economy—a drain that could be avoided if consumers had cars and trucks with better fuel economy.
Technology On the Shelf
Technologies developed by automakers could increase the fuel economy of the average car and truck to 40 mpg over the next 10 years, without relying on hybrids. At a gasoline price of only $1.40 per gallon, increasing fuel economy standards to require that automakers take technology off the shelf and put it to work over the next decade will save consumers over $40 billion dollars per year by 2015,2 rising to more than $70 billion when all cars and trucks have been replaced. In comparison, consumers spent more than $180 billion on gasoline during the last 12 months (see note 5 below).
While the 40-mpg fuel economy goal could not be reached overnight, the pattern of automakers not putting technologies to work means that many simple options have been available and unused for years. The technology in the UCS Better SUV blueprint, the "UCS Guardian," could improve safety and raise SUV fuel economy to the level of today's cars (nearly 28 mpg) while also increasing the new vehicle fleet average fuel economy to 32 mpg (versus about 24 mpg today). At today's gas prices, these fuel economy technologies pay for themselves in about 18 months.
Consumer Savings
UCS' practical solutions can lead to consumers saving tens of billions of dollars every year. In contrast, others call for everything from drilling in sensitive areas—with only 2% of the world's oil reserves we simply cannot drill our way out—to cutting federal gas taxes, which will mean more potholes, unsafe roads, and less transit.
With the price of gasoline averaging over $1.60 per gallon due to price spikes during the last 12 months,3 UCS analysis finds that consumers who bought new cars and trucks last year would have saved over $4 billion at the pump if automakers had put this existing technology to work.4
Looking at it another way, In March 2004, with gas prices reaching "record" levels and averaging about $1.78 per gallon,3 SUV owners could have saved more than $600 million if all SUVs on the road had been made to reach the fuel economy of today's average car.5 If all cars and trucks on the road last month had been made to reach an average fuel economy of 32 mpg, consumers would have saved over $3.7 billion on fuel.5 That is $3.7 billion in the hands of the average consumer in March that would have helped to create new jobs and improve the economy.
Insurance Against Price Spikes
Policy makers have a tool that is not being used to protect consumers. Increasing the fuel economy of the nation's cars and trucks to 40 mpg over the next decade will insulate consumers from gasoline price spikes over the long run. Gasoline would have to fall to $1.25 per gallon to achieve the same savings possible from a 32-mpg fleet. To match the savings of a 40-mpg fleet, prices would have to fall to around $0.80, which is highly unlikely in the future. In fact, the U.S. Energy Information Administration predicts average gasoline prices will hover near $1.50 per gallon for the next 20 years (not necessarily accounting for price spikes).
Notes
(1) Energy Information Administration: “Energy Price Impacts on the US Economy.” http://www.eia.doe.gov/oiaf/economy/energy_price.html
(2) Savings from 40 mpg by 2014 from Friedman, David. 2003. Building a Better SUV: A Blueprint for Saving Lives, Money, and Gasoline. Union of Concerned Scientists. September.
(3) 12-month average and March average calculated from the combined average weekly gasoline price for all grades, all areas, and all formulas from the Energy Information Administration. http://www.eia.doe.gov/oil_gas/petroleum/data_publications
/wrgp/mogas_history.html
(4) First year vehicle mileage of 15,600 miles (1995 National Personal Transportation Survey), 2003 vehicle sales of 16.6 million units (wardsauto.com), test fuel economy of 25 mpg, and on-road degradation factor of 18%.
(5) Lifetime average mileage of 1,000 miles per month, 25 million registered SUVs (UCS estimate) and 200 million registered cars and trucks, test fuel economy of 21mpg for SUVs and 25mpg for the average vehicle, and on-road degradation factor of 18%.
