Daily Finance, April 6, 2010, Tuesday

Daily Finance

April 6, 2010, Tuesday

Daily Finance

New Fuel Economy Standards Arrive Just as Oil Prices Spike

By DAVID SCHEPP

The cost of filling up at the pump has been edging up in recent weeks and is likely to get even more expensive. On Monday, crude oil futures rose to the highest levels in 18 months to about $86.60 a barrel, as investors reacted to more positive economic news. And with the summer driving season right around the corner, there's little reason to expect gasoline and diesel prices will ebb anytime soon.

The rally in crude oil prices means the national average price at the pump likely will exceed $3 a gallon during the coming spring and summer months, according to the U.S. Energy Information Administration's monthly short-term energy outlook (a new version of which will be released Tuesday). The potential for even higher prices at the pump will likely push drivers to once again revisit burning less fossil fuel by driving less or opting for more efficient vehicles.

Developing cars that get better gas mileage hasn't been a priority for the auto industry in recent years, which is why consumers who have been out of the car-buying market for a while may be surprised to learn today's vehicles don't use much less fuel than those built 10 or 20 years ago.

New Incentives to Pollute Less

Lucky for consumers, manufacturers now have incentive to design and sell cars and truck that not only get better gas mileage but pollute less, too, thanks to new regulations that went into effect last week.

Developed by the Department of Transportation and the Environmental Protection Agency, the new regulations, which take effect beginning with 2012 model year vehicles, require that manufacturers achieve the equivalent of 35.5 miles a gallon combined for cars and trucks by 2016, an increase of nearly 10 mpg above current standards set by the National Highway Traffic Safety Administration.

The new rules will result in higher vehicle prices in dealers' showrooms. But consumers are expected to recoup those costs through savings at the pump, an average $3,000 over the life of the vehicle. The standards go further, imposing novel limits on greenhouse gas emissions that by 2030 will reduce emissions 21% across automakers' fleets -- compared to expected levels in the absence of such regulation.

Creating One Nationwide Standard

Automakers, which in recent years fought hard against new fuel-economy rules, have backed the proposal, largely because it creates one nationwide standard. Current rules allow some states to adopt stricter rules on emissions than others, which has created a headache for automakers in manufacturing and selling cars.

The new regulations provide the certainty and clarity that manufacturers need to produce the next generation of automobiles, said Dave McCurdy, president and chief executive of the Alliance of Automobile Manufacturers. McCurdy spoke last week at the start the of New York International Auto Show, a day before the new rules were unveiled by the Obama administration Thursday. The new rules are a step that manufacturers support and worked hard to get, McCurdy said.

Improved efficiency standards are long overdue and necessary to bring stability and sustainability to the auto industry, says Art Wheaton, auto-industry expert at Cornell University. "If you can have one standard across the country, you don't need eight or 10 different standards for trying to sell different vehicles," he says.

Providing the auto industry some degree of certainty along with increased fuel efficiency and fewer greenhouse gas emissions makes the new rules a win-win for all involved, says Wheaton, "Having tougher standards will be good for everyone in the long term."


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