Want to fix pain at the pump? Go with the cars…
In the current crazy debate on high gas prices and what to do about them , we’d like to see politicians stand up for the things that really save families and businesses money.
The punch line is: More oil just doesn’t help Americans with pain at the pump, but new fuel economy standards and vehicle innovation does. How big is the difference? It’s not even close.
Lets take a back of the envelope look at what popular “solutions” actually do about what Americans spend on gasoline– today, in a few years, and decades from now.
What do these charts tell us?
1. What seem like very big oil projects (which often carry big risks) cut just a few cents on the gallon in 2030 – and have virtually no effect today. Supply and demand does work, but it works on a global scale and we’re small players in the huge global oil market.
Like a small farmer thinking about whether to plant another 100 acres of corn, we’re price takers in the oil market, not price setters (and like that farmer, oil companies are sure hoping the price stays up, not hoping it goes down)
2. By far the biggest and quickest way to change what we pay for fuel is to improve what we drive. Thanks to new fuel economy standards and the innovation that is coming with them, families and businesses are taking back control at the pump. Even if it will be five or ten years before you buy your next new (or new used ) car or truck, vehicle fuel efficiency is improving so fast that that new vehicles will bring quicker and deeper cuts in what we pay for fuel than all the drilling projects put together. In the short term, consumers can also change how much they drive, or choose other ways to travel where good transit exists, but new vehicle standards bring fuel savings comparatively quickly for all kinds of vehicles, drivers and lifestyles.
3. Filling up with electricity is a big deal. Compared to petroleum, electricity is cheap, stable and secure. While oil prices keep rising, the U.S. Energy Information Agency (EIA) projects electricity prices dropping in real terms through 2030. Though we don’t reflect it in the chart, electric vehicle technology costs are also dropping while electric engine efficiency improves. Sure, the cost of electric vehicles today is higher than a comparable vehicle, but when you’re saving $3 on every gallon or 10 grand on fuel every 5 years, that gives some room to spare – even today.
As a CNN article pointed out this week there really isn’t much a President (or a Presidential candidate) can do about world oil prices, but what these charts show is that Americans’ household budgets and business bottom lines depend on getting their hands on new vehicle innovation.
Lets challenge our politicians to focus on the real solutions: Getting savings into Americans’ hands means support for the strong new fuel economy standards and for other measures that speed R&D and manufacturing of advanced vehicle technology in America – from pick-up trucks with powerful highly efficient gasoline and diesel engines, to electric and plug-in hybrid electric sedans.
But what about? More details…
4. Are those gas price increases in the 2015 graph? Yes, the Keystone XL pipeline is expected to raise, not lower, gasoline prices in the Midwest. Today, without a pipeline to coastal refineries, much Canadian tar sands oil is “stuck” in the Midwest and sells at a discount relative to the price for comparable Mexican heavy crude on the world market. If a pipeline is built from Canada to the Gulf, the oil can reach many markets, and the company expects $2-$4 Billion a year in additional revenues from selling it at the higher world price. Unfortunately, that means consumers in the Midwest would have to pay that price too.
5. Even once the cost of advanced technology is added in, more fuel efficient cars and trucks still save consumers a ton. The charts above just show fuel costs. Adding advanced technology to make cars more efficient does add a little to the cost of the car – but not nearly as much as consumers get back in savings on fuel. Fuel savings are about three times as big as technology costs, so consumers still come out way ahead.
We also left out the direct impact that the new fuel economy standards have on world oil prices. Making our cars more efficient cuts oil demand more than any of the drilling projects shown above increase supply. As we said on drilling, these impacts are very small, but increasing vehicle efficiency does a better job of directly impacting on gasoline prices too.
6. Choosing made in America advanced technology over continued more spending on fuel has other benefits as well. New more fuel efficient vehicles are a key element driving a US automotive and manufacturing recovery that has added 200,000 direct jobs in the last 2 ½ years. And when American families and businesses save at the pump they spend those savings building jobs at home. A recent study found that respending of savings from more efficient vehicles would add nearly half a million additional jobs.
Come again? How did we get the gas price equivalent? If you buy a car that’s twice as efficient as the one you have today, you go twice as far on the same gallon of gas. Every mile you drive, every trip to work, will cost half as much in fuel. So the effect on your wallet is the same as if you still had the old car and the gas price at the pump was cut in half. A 5% increase in vehicle efficiency is like a 5% cut in gas prices, 20% is like 20%, etc. etc. Taking the average fuel economy and gas price today as a starting point, we’ve calculated the reduction in how much Americans will spend on gas as a result of different vehicle changes, and stated it as the gas price you would need to get the same savings.
Methodology: This is a back of the envelope estimate. Sources are included in hyperlinks throughout, but in general, estimates of oil production impacts on world oil prices come from department of energy analyses (drilling in the Arctic National Wildlife Refuge, adding or reducing production on the Outer Continental Shelf). They use different base years and reference cases – but a consistent message recurs of a very small impact on world oil prices – in the realm of just a few cents per gallon that takes many years to arrive. Impacts on gasoline spending as a result of new vehicle efficiency improvements are calculated from the fuel economy levels required in existing and proposed fuel economy standards as compared to levels today. The change in efficiency of all vehicles on the road (new and used) requires projecting the gradual adoption of new vehicles into the existing vehicle stock and calculating the resulting average efficiency. We relied on a stock model developed by the Natural Resources Defense Council (NRDC) for this projection. We have made a conservative estimate of future electric vehicle fueling cost using current electric vehicle efficiency and EIA projected average residential electricity prices. We do not reflect improvements to EV technology, or the fact that many utilities offer lower electricity rates for off-peak EV fueling.