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Government's 2025 fuel economy standard could cost nation a million jobs

Sep 22, 2016

Sales of the Toyota Prius, the most successful hybrid car in automotive history, have dramatically fallen because of low gas prices
Credit JBleeker / Creative Commons

The Center for Automotive Research says the federal government's plan to impose a 54.5 fuel economy standard by 2025 is likely to result in significant job losses, if gasoline prices remain roughly the same as they are today.

The standard will require automakers to install increasingly sophisticated and expensive technology in new cars.  CAR says consumers won't be able to offset that higher cost through lower prices at the pump.

So, car sales would decline, auto jobs would be cut.  And because the auto industry has such a significant ripple effect, a total of 1.13 million jobs could be lost in the worst-case scenario:  gas at $2.44 a gallon, and an increased cost per vehicle of $6,000.

The best case scenario would be gasoline at $4.64 a gallon, and only a $2,000 fuel economy mandate cost tacked onto each vehicle. In that scenario, consumers would see a slight cost savings, and the economy would gain a modest 144,020 jobs.

The report recommends a number of policy changes, including a gasoline/fuel tax or carbon tax; incentives for people to buy the most fuel-efficient cars, and extending the timeline to allow the industry additional time to reduce the cost of new technologies.

However, the report notes, "It is difficult to recommend the best public policies for accommodating the current fuel economy mandates for 2022-2025 in a moderate or low gasoline price future when some policies are considered politically infeasible."

The Obama administration says the standards are necessary to reduce carbon emissions and combat climate change. 

Environmentalists say the long-term damage to the economy from unchecked climate change will far outweigh any short-term and mid-term pain from costs associated with reducing emissions.

But automaker trade groups are arguing that the standards should be relaxed.