Benefits of Higher Auto MPG Will Not Occur

The US government is increasing the fuel economy standards for new automobiles. It raised the automobile standard to 39 miles a gallon for cars and 30 for trucks (or a fleet wide average of 35.5 mpg) by 2016.

Unfortunately, economic analysis show that much of the expected benefits will not occur anywhere near the amount announced or expected. (For another, much more detailed analysis reaching the same conclusion, see Keith Hennessey's Blog).

Increasing miles per gallon is the same as lowering the price of gasoline. Increasing a cars mpg from 30.2 mpg to 39 mpg means that for every 100 miles driven, the car will use 2.56 gallons instead of 3.31 gallons of gasoline. It is a savings of almost 3/4 gallons or about a 23% savings in fuel and fuel cost.

Gasoline has two price elasticities. A lower gas price means both more cars on the road, i.e. more traffic, and more miles driven per vehicle. Studies show that a 10 percent decrease in gasoline prices increases traffic by 3 percent and increases driven miles by 6 percent. (Elasticities of Road Traffic and Fuel Consumption with Respect to Price and Income: A Review, Phil Goodwin, Joyce Dargay and Mark Hanly, Transport Reviews, Vol. 24, No. 3, 275–292, May 2004)

A 23 percent decrease in gas prices (by increasing mpg) means that there will be about 7 percent more cars (.23x.3) on the road and about 14 percent more miles driven per car (.23x.6). In total, it is about a 22 percent increase in miles driven. (107 percent number of cars times 114 percent miles driven).

Since fuel use, due to new mpg, will decrease by 23 percent but total miles driven will increase by 22 percent. In effect, this change will have no effect on gasoline usage or CO2 emissions. It is strictly a political move to placate parts of the electorate, but it will have no effect on the environment, global warming or oil imports.

As fuel becomes cheaper, its total usage increases. It is called the Jevons Paradox and has been known since 1865 when it was studied to explain the increase in coal use in England as steam engines became more efficient.

Additionally, higher mpg leads to people driver further and therefore willing to live farther from work and shopping. It increases sprawl.

Since population will increase and GDP will grow in total, production efficiency is a much better way to control CO2 emissions and to drive fuel efficiencies. The relationship between growth and CO2 is known as the Kaya Identity and is used by world organizations concerned about decreasing global energy use and preventing global warming.