New research proposes tying vehicle fuel standards to gas prices

Volatile gasoline prices have caused regulators and carmakers alike to question the cost and effectiveness of fuel economy standards in the United States, with some arguing they are too stringent and others saying they should be even stricter. A new study by Ryan Kellogg, professor at the Harris School of Public Policy , responds to both sides of the debate by proposing a novel, market-based alternative that indexes the standard to rise and fall with the price of gasoline. 'Based on past fluctuations, gasoline prices over the next 10 years could be anywhere from more than twice what is expected to less than half what is expected,' said Kellogg, who's also affiliated with the Energy Policy Institute at UChicago. 'The reality is, we just don't know what the cost of gas is going to be, and the success of fuel economy standards hinges on that price signal. Indexing the standards to rise and fall with the price of gasoline provides a sensible approach to account for this large unknown.' The study details problems with current fuel standards. If gasoline prices are higher than expected, consumers will opt for vehicles that are even more efficient than the rules require, suggesting that the current fixed rules are too lenient and miss out on potentially greater fuel and emissions savings. If prices are lower than expected, consumers will demand less efficient vehicles, raising compliance costs for automakers who must reduce prices for their most efficient models.