U.S. Fuel Efficiency Standards Set to Double

by InvestorPlace Staff | August 29, 2012 11:28 am

[1]The Obama administration is continuing its “green” push, announcing new regulations today that will require automakers to almost double the fuel efficiency[2] of their vehicles by 2025.

By 2025, new cars and trucks will have to get an average of 54.5 miles per gallon. The current standard is 28.6 miles per gallon. Requirements will be gradually introduced, with fines for automakers that do not meet the standard.

The move is an attempt by the Obama administration to reduce greenhouse gas emissions and fuel consumption. Fully implemented, the new standard should cut emissions from vehicles in half by 2025. It will also save consumers $7,400 in fuel costs over the life of a vehicle.

One of the side effects of this move will be a likely increase in the cost of cars and trucks, as automakers introduce improved gasoline powered engines and alternative fuel vehicles to meet standards. Critics say any fuel savings with increased fuel efficiency will be wiped out by the cost of the new vehicles.

The higher efficiency standards probably won’t spell a end to pick-up trucks and SUVs, though. There will be breaks cut for automakers who sell more of those models, like GM (NYSE:GM[3]), Ford (NYSE:F[4]) and Chrysler. Standards can be lowered if consumers aren’t buying more efficient vehicles. The standard is an average, meaning a more efficient hybrid vehicle can offset a gas-guzzling truck or SUV. There are also credits available for automakers who sell natural gas or electric vehicles, use less-polluting air conditioning fluid, or add stop-start circuits that temporarily turn engines off at stop lights.

Still, it seems likely that if these standards stay in place, American cars will continue the trend of becoming more and more efficient. Government regulation and high gas prices have pushed many drivers toward more fuel efficient cars. In fact, the average new car sold today drives four miles more on a gallon of gas than one sold in 2007.

— Benjamin Nanamaker, InvestorPlace Money & Politics Editor

The opinions contained in this column are solely those of the writer.

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  1. [Image]: mailto:letters@investorplace.com
  2. almost double the fuel efficiency: http://hosted.ap.org/dynamic/stories/U/US_OBAMA_FUEL_ECONOMY?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT&CTIME=2012-08-28-19-23-01
  3. GM: http://studio-5.financialcontent.com/investplace/quote?Symbol=GM
  4. F: http://studio-5.financialcontent.com/investplace/quote?Symbol=F

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