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US Fuel Consumption October 6 2005 Myke Komarnitsky Source: http://www.fueleconomy.gov/feg/FEG2000.htm CAFE Standards Force fuel efficiency compliance… Unchanged under Bush Sr., Clinton, Bush Jr. SUV Market Share
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US Fuel Consumption October 6 2005 Myke Komarnitsky
Source: http://www.fueleconomy.gov/feg/FEG2000.htm CAFE Standards Force fuel efficiency compliance… Unchanged under Bush Sr., Clinton, Bush Jr.
Once in compliance, efficiency does not go any higher. Meanwhile, power goes up a lot… HP/100 pounds Time of big increase in actual fleet MPG 1985-200343% increase
Impact on US fuel consumption from rising CAFE fuel regulations • New cars consume less fuel/mile thus • People pay less $/mile (holding gas prices constant)HOWEVER… • Miles driven increases when $/mile decreases • Key question: By How Much?
Price Elasticity of Demand • Ed = DQ/DP; DQ = Ed*DP (Q2-Q1)/Q1=Ed* (P2-P1)/P1 Q2 = Q1 * (Ed * (P2-P1)/P1) + Q1 • Example with Gas Source: Mackinac Center for Public Policy
Price Elasticity of Demand Sources • Consumer demand in the United States, 1929-1970: analyses and projectionsHS Houthakker, LD Taylor - 1966 - Cambridge: Harvard University Press • Economics: Private and Public Choice, James D. Gwartney and Richard L. Stroup, 8th edition 1997.
Conclusion • For a 10% increase in MPG • Miles increase by 9% • Total fuel use decreases by 6.36% • Real Life Savings
So What? • US Gas Consumption: 20.4M bbl/day • Automobiles: 9.0M bbl/day (44%) • ANWR • 1.00-1.35M bbl/day, attained 2030-2040 • 20% increase in CAFE standards • 500K bbl/day, attained 2025 Investment Costs to Attain • ANWR: Significant capital, operational costs • CAFE increase: technology already in use (limited production), but primary “cost” is customer enjoyment from HP sacrifices Source: http://www.eia.doe.gov/emeu/cabs/usa.html
Final Thoughts • America’s rising demand is outstripping supply • Unresolved consequence – extremely high fuel prices degrades economic performance • Solution • Drill ANWR • Immediately increase CAFE fuel standards, but by a moderate amount to minimize capital investment shocks for automobile manufacturers To just drill ANWR is irresponsible.