Net Gas Cost Savings for U.S. Motorists Seen Through Combined Impact of Two Climate-Related Measures

November 3, 2009

Media Contact(s):

Therese Langer, 202-507-4013, Transportation Program Director

Washington, D.C. — Good news for American motorists:  Despite doomsday prediction from energy-industry-funded interest groups, U.S. consumers actually will see a net reduction of $13 billion in 2020 and $46 billion in 2030 in their gasoline expenditures ($100 and $326 in average net savings per household, respectively) if Congress moves ahead to impose a cap-and-trade system, according to a new analysis from the American Council for an Energy-Efficient Economy (ACEEE).

How is that possible?   What about the sky-is-falling warnings from energy companies?   A new ACEEE white paper explains that the lower gasoline expenditures for U.S. consumers will reflect a combination of two factors: a much lower cost per gallon of gasoline for the impact of cap and trade than is claimed by cap and trade critics plus major savings made possible through the federal government’s drive for higher vehicle miles per gallon (MPG) performance.

ACEEE Transportation Program Director Therese Langer said:  “You can’t talk about gas price implications of cap and trade without also factoring in the impact of higher MPG standards.  The petroleum industry and its allies are sounding the alarm about skyrocketing gasoline prices in the wake of the passage of a strong climate bill.  We could indeed see high gas prices again soon due to unrelated market circumstances.  But policies to save energy and reduce emissions are not going to be the cause.  In fact, they’re our best protection against that very scenario. The bottom line is that big increases in car and light truck fuel economy standards and new greenhouse gas emissions standards recently proposed jointly by the Department of Transportation and the Environmental Protection Agency will save consumers billions of dollars in fuel expenditures while reducing emissions.”  

As the new ACEEE paper notes, the petroleum industry and its allies are claiming that greenhouse gas reduction policies will hurt consumers by causing transportation fuel prices to soar. This assertion is incorrect on two counts:

  • First, the increase in the cost of a gallon of gasoline due to the carbon cap-and-trade program established in the climate bill will in fact be modest. The Environmental Protection Agency projects that, under the House bill H.R.2454, the cost of a carbon allowance will be $16 per ton CO2 in 2020 and $26 per ton CO2 in 2030. Given that it takes 110 gallons of gasoline to generate a ton of CO2, consumers might expect to pay an additional $0.15 per gallon in 2020 and $0.24 per gallon in 2030 due to the cap-and-trade program. These increases are dwarfed by run-ups in the price of gasoline in recent years and contrast with the American Petroleum Institute’s warnings of gasoline prices over $5 per gallon.
  • Second, while an increase of $0.15 to $0.24 per gallon could represent a material amount of money for a household over a year of driving, implementation of a climate bill will coincide with the phase-in of a dramatic and money-saving rise in the fuel economy of U.S. vehicles. The net effect of the tighter fuel economy (CAFE) standards for vehicles just proposed by the Department of Transportation and the cap-and-trade program in the climate bill will be lower average household transportation costs in 2020 and 2030 than we would experience under a business-as-usual scenario. 

ACEEE Policy Director Suzanne Watson noted: “This is another example of the importance of complementing a cap-and-trade program with strong energy efficiency measures. It keeps the cost of greenhouse gas reductions down and can in fact lead to sizeable net savings, as our analysis shows to be the case for vehicles.”  

The ACEEE paper takes into account the following factors: fuel savings due to more efficient vehicles; lower world oil price due to reduced demand; increased driving due to lower fuel cost per mile; higher vehicle purchase costs due to advanced efficiency technologies; and higher price per gallon due to the cap-and-trade program.

Assumptions for the ACEEE analysis are drawn from recent Department of Transportation and Environmental Protection Agency documents. 

The paper also notes that, to the extent that policies, technological advances, and market forces yield a sizeable population of electric-drive vehicles, a cap-and-trade program for greenhouse gases will prove essential to further reductions in transportation sector emissions. Other efficiency measures for the transportation sector, notably heavy truck fuel economy increases and policies to reduce the need for motor vehicle travel, can provide emissions reductions and fuel savings well beyond those discussed in this analysis.

ACEEE’s white paper on net savings from climate policies for light-duty vehicles is available on the Web for free download at aceee.org/energy/national/index.htm.

The American Council for an Energy-Efficient Economy is an independent and nonprofit organization dedicated to advancing energy efficiency as a means of promoting economic prosperity, energy security, and environmental protection. For information about ACEEE and its programs, publications, and conferences, visit aceee.org.