Low gas prices justify rethinking of fuel economy regulations, IU SPEA report finds

  • Feb. 4, 2016


BLOOMINGTON, Ind. -- Indiana University researchers say policymakers should weigh falling gas prices and increasing truck sales as they reconsider the design of future environmental regulations affecting U.S. automakers.

Fuel economy and greenhouse gas regulations announced in 2012 are about to go into effect for the 2017-21 model years, and more stringent standards are scheduled to follow pending a review by federal and state regulators. Meanwhile, California has announced its own plan to require automakers to increase the share of zero-emission vehicles -- such as cars that run on electricity or hydrogen -- sold within the state. The researchers at IU’s School of Public and Environmental Affairs say conditions have changed dramatically since these regulations were drawn up.

"Fuel efficiency is a natural selling point for cost-conscious consumers when gas prices are high. When the price of fuel is low, however, evidence shows that drivers find hybrid and electric cars less appealing," said Saba Siddiki, one of the study’s authors.

The report, "Rethinking Auto Fuel Economy Policy: Technical and Policy Suggestions for the 2016-17 Midterm Reviews," explores factors regulators should consider, including:

  • Lower gas prices. Oil prices have dropped significantly and are expected to stay low. New evidence shows that when faced with lower prices at the pump, car shoppers prefer larger vehicles, like pickup trucks and SUVs, over smaller, more fuel-efficient cars.
  • Advances in fuel-saving technologies. Many technical improvements to gas engines, lightweight materials, diesel technology and hybrids have been made in the years since the regulations were announced.
  • Interaction between federal regulations and state reforms. California and other states have introduced environmental standards separate from those laid out by the federal government. As automakers seek to comply with multiple sets of rules, federal and state regulations should be aligned to avoid unintended consequences.
  • Supplemental policies that could stimulate interest in green cars. To get car shoppers to trade their old vehicles for newer, greener models, policymakers should consider the costs and benefits of strategies like raising gasoline taxes, improving consumer information or introducing green car subsidies.

"This report contains important considerations of the challenges associated with overlapping federal and state policies, and is grounded in the context of current developments within the U.S. auto industry," said co-author and associate professor Sanya Carley.

The auto industry plays a central role in the U.S. economy. Parts manufacturers, production plants and retail auto sales provide jobs in almost every state, but the outcome of the regulatory review will be watched especially closely in the Midwest.

"Our study focuses on new vehicle sales because they affect both the environment and the economy," Siddiki said."“It is important to consider how the economic impacts of changes in vehicle sales differ by region. A drop in new vehicle sales will likely have a disproportionate effect on the South and the Midwest, which rely heavily on auto manufacturing jobs."

As part of this same study, the authors plan to follow up with a second report in January 2017 that will provide quantitative modeling of the impact of the regulations on new vehicle sales, employment and other aspects of the economy.

The report’s authors include Sanya Carley, Denvil Duncan, John D. Graham and Nikolaos Zirogiannis of SPEA at IU Bloomington and Saba Siddiki of SPEA at IUPUI. Dan Esposito, a SPEA graduate student, also contributed to the report.

Funding for this study was provided by a grant to Indiana University from the Alliance of Automobile Manufacturers. The report was reviewed by the project’s peer review advisory board and is available on SPEA’s website. Public comments are encouraged and will be used by the authors when compiling the second report.

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