Haver Analytics
Haver Analytics
| Sep 08 2023

Shift in Focus Could Help Minimize Greenhouse Gases Emissions

The US has mandated that light vehicles become much more efficient in coming years in an effort to lower greenhouse gas emissions. For example, light vehicles will be required to average nearly 50 miles per gallon across automaker production by 2026. The requirements are set to become even more stringent thereafter, with the ultimate goal of pushing automakers toward an all-EV fleet in coming decades. However, as a practical matter, there are increasing costs to driving emissions to zero. The improvements in fuel efficiency for many models are reaching diminishing returns, so the benefit to the environment of further gains is minimal. In addition, the country is not ready for an all-EV fleet. As EV production ramps up, the costs of needed raw materials will skyrocket, driving up vehicle prices.

Policymakers could speed up progress toward lowering US gasoline usage and vehicle emissions with existing hybrid technology instead. To do this, policymakers would have to stop rewarding ever-higher miles per gallon for some models and instead focus on eliminating the worst gas-burning vehicles. This would bring down fuel usage in the meantime until the economy is readier for wide-scale EV production.

Diminishing Returns. We have made a lot of progress for many vehicles that now get 33 to 50 miles per gallon. At 33 miles per gallon, it would take huge further gains to save little in terms of gasoline usage.

Chart 1 shows miles per gallon on the horizontal axis and the corresponding gallons used to drive 100 miles on the vertical axis. By basing estimates of fuel efficiency on miles per gallon gauges, the gains seem much bigger than they are. As fuel efficiency rises – measured by miles per gallon – the fuel savings decline.

A better measure of fuel efficiency would be to look at fuel consumption the other way around – by comparing how many gallons it takes to drive 100 miles in each of the models. There is a point where it just takes too much increase in fuel efficiency to matter. Starting at 25 miles per gallon, it would take an increase of 8.3 to 33.3 miles per gallon to save one gallon of gasoline in 100 miles. At 33.3 miles per gallon, it would take an increase of 16.7 to 50 miles per gallon to save a gallon of gasoline. And at 50 miles per gallon it would take a rise to 100 miles per gallon. This shows the diminishing returns to better fuel economy.

Policymakers could make a difference by changing their mindset – instead of striving for higher and higher miles per gallon, they should set rules disallowing low mileage vehicles be made at all. These vehicles burn the most fuel and emit the most greenhouse gases.

Averaging Fuel Efficiency. The government does not require that every vehicle meet some fuel efficiency standard. Instead, there are requirements for new vehicle fleets across auto companies, known as CAFE requirements. Automakers get to choose how they achieve the goals. Unfortunately, these requirements push automakers to strive for ever-higher fuel efficiency for some models so that they can average out more gas-guzzling models.

This focus has limited progress in bringing down emissions, because the improvements are in vehicles that already have high gas mileage. Those vehicles have reached diminishing returns so there is little savings from further improvements in fuel efficiency.

To see the problem, let’s look at a simple example of an automaker that produces 10 models that each drive 10,000 miles with fuel efficiency of 25 miles per gallon. The automaker can raise the average fuel efficiency by improving all their vehicles from 25 miles per gallon to 50 miles per gallon. At 25 miles per gallon, the ten vehicles could drive 10,000 miles each and they would use a total of 4,000 gallons of gasoline. At 50 miles per gallon, the ten vehicles would be able to make those same trips with a total of 2,000 gallons. What if, instead, the automaker decided raise the fuel efficiency of five vehicles to 75 miles per gallon and made no improvements to the other five vehicles? The average fuel efficiency would rise to 50 miles per gallon, but the total amount of gasoline used when the ten vehicles drive 10,000 miles each would be 2,667 gallons.

Allowing the lowest fuel efficiency vehicles to be produced with offsets from high efficiency vehicles is limiting the intended benefits from the CAFE requirements. This phenomenon will continue to limit progress, especially as buyers shift toward bigger SUVs. As Chart 2 shows, sales of the long wheelbase light duty vehicles has far surpassed short wheelbase ones over the past decade.

Shift to Hybrid for Now. It would be extremely costly to shift all vehicles to all-electric platforms. We simply do not have enough lithium available yet. So, if policymakers force automakers to compete for the existing lithium to build their cars, the price of lithium would become prohibitive, which would boost the cost of new vehicles. In addition, as seen in California, there isn’t enough electric power available at this time for the existing power grids plus all the new EVs. Moreover, the electric power is largely generated from fossil fuels anyway.

Hybrid technology – capturing the energy from braking – is available now. Until technology and resources are able to handle making a fleet of EVs, all vehicles should be made hybrid to get better gas mileage. Hybrid vehicles would lower gasoline usage dramatically and put most vehicles in the fuel efficiency range where there are only little gains from further progress. There is room for improvement among the larger light vehicles. Small light vehicles already get 25 miles per gallon and could be increased to 35-40 miles per gallon with existing technology. But long wheelbase light vehicles get 18 miles per gallon. These vehicles could achieve 25 miles per gallon with existing technology. So, it is especially important that light trucks should be hybrids, since these inefficient vehicles represent 80 percent of new sales. Once EV becomes more feasible, policymakers can take the next step toward zero emissions.

Heavy Trucks Are Low Hanging Fruit. Heavy trucks comprise less than 5 percent of the US vehicle fleet, but they drive more than 10 percent of total miles. The average combination truck drives six times the average passenger car in a year. Given their poor fuel efficiency performance, they represent 28 percent of fuel consumption. The average heavy combination truck consumes as much fuel in a year as 24 short wheelbase light vehicles with average fuel economy (see Chart 3).

While there are far fewer heavy trucks on the road, each one that can be shifted to better fuel efficiency performance would lower gasoline usage disproportionately. Single-unit heavy trucks get 7.6 miles per gallon on average and combination trucks get 6.1 miles per gallon. So, these vehicles are in a range where improvements in fuel efficiency would yield huge savings in terms of gallons of fuel used.

So, in addition to the improvements for light vehicles, policymakers should make rules to lower heavy truck gasoline consumption and emissions. For example, the country would save more gasoline over a year if one truck getting the average of 6.1 miles per gallon was replaced by a new truck that got 6.3 miles per gallon than if a passenger car shifted from the average fuel efficiency of 25 miles per gallon to 50 miles per gallon (see Table 1). If we could bring heavy truck fuel efficiency up to 10 miles per gallon, the replacement of one truck would save the equivalent amount of fuel as replacing 18 cars with ones getting 50 miles per gallon.

Conclusion. Diminishing returns set in for vehicles with high fuel efficiency. Any additional improvements would yield only small savings. Policymakers should concentrate on the higher emissions vehicles, where increases in fuel efficiency pay big dividends in terms of greenhouse gases.

Given current technology and resource availability, we have the ability today to remake our fleet into hybrids, which would raise fuel efficiency to the range where any further benefits would be less than the costs. Over time, as resources become available and technology improves, the fleet could be moved toward zero emissions.

  • Peter started working for Haver Analytics in 2016. He worked for nearly 30 years as an Economist on Wall Street, most recently as the Head of US Economic Forecasting at Citigroup, where he advised the trading and sales businesses in the Capital Markets. He built an extensive Excel system, which he used to forecast all major high-frequency statistics and a longer-term macroeconomic outlook. Peter also advised key clients, including hedge funds, pension funds, asset managers, Fortune 500 corporations, governments, and central banks, on US economic developments and markets. He wrote over 1,000 articles for Citigroup publications.   In recent years, Peter shifted his career focus to teaching. He teaches Economics and Business at the Molloy College School of Business in Rockville Centre, NY. He developed Molloy’s Economics Major and Minor and created many of the courses. Peter has written numerous peer-reviewed journal articles that focus on the accuracy and interpretation of economic data. He has also taught at the NYU Stern School of Business.   Peter was awarded the New York Forecasters Club Forecast Prize for most accurate economic forecast in 2007, 2018, and 2020.   Peter D’Antonio earned his BA in Economics from Princeton University and his MA and PhD from the University of Pennsylvania, where he specialized in Macroeconomics and Finance.

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