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Energy / ANALYSIS

Obama Claims Connection Between Fuel Standards, Jobs, But Reality is Complicated

President Obama speaks Thursday on fuel efficiency and new jobs at Johnson Controls advanced battery facility in Holland, Mich.(JIM WATSON/AFP/Getty Images)

photo of Amy Harder
August 11, 2011

President Obama says his new automobile fuel economy standards will create jobs.

Not so fast.

What he doesn’t say is that those standards will lead to sustained job creation only if Americans choose to buy more fuel-efficient cars in the coming years. And if recent history is true, the driving decision behind that will be the price of gas.

 

Over the past two weeks, Obama has repeatedly touted his ambitious new fuel-economy standards as good for the environment and good for the economy. While the first part of that statement may be self-evident, the second is open to debate.

On Thursday, Obama again claimed a nexus between higher mileage vehicles and jobs, this time while touring the Holland, Mich., plant of Johnson Controls, which builds advanced batteries for hybrid and electric cars.

“I brought together the world’s largest auto companies who agreed, for the first time, to nearly double the distance their cars can go on a gallon of gas,” Obama said. “That’s going to save consumers thousands of dollars at the pump. It’s going to cut our dependence on foreign oil. It’s going to promote innovation and jobs, and it’s going to mean more groundbreakings and more job postings for companies like Johnson Controls.”

The new fuel-economy standards apply to cars and light trucks through 2025 and – for the first time – to heavy trucks through 2018. Cars and light trucks must reach an average of 54.5 miles per gallon by 2025 (up from the current 28 mpg). The truck standards require cuts of 7 to 20 percent in fuel consumption and greenhouse-gas emissions for trucks between 2014 and 2018.

But an underreported aspect of the standards is that they’re based on what automakers sell, not what they build. And Obama included a possible escape clause for automakers: A 2018 review of the car standards that could let automakers argue for reducing the miles-per-gallon targets if the most fuel-efficient cars aren’t selling.

“It all boils down to figuring out what the consumer is going to do,” said Dean Drake, president of the Defour Group, a consulting firm that advises the Alliance of Automobile Manufacturers. “They don’t value fuel economy the way the government values it.”

Experts say most car buyers don’t base their decision exclusively or even primarily on greater fuel economy – especially if the most fuel-efficient cars are more expensive.

“It would take an extraordinary combination of high gasoline prices and unexpectedly low cost of technology to even make this [new fuel economy standards] jobs-neutral,” Drake said. “It’s very, very difficult to imagine a circumstance in which you could add thousands of dollars to costs of new cars and create jobs.”

Consumer behavior changes when gas prices are consistently high.

In March, hybrid car sales jumped 46 percent above the same month in 2010, spurred by this spring’s soaring gasoline prices, according to auto market analysts Baum & Associates.

“When the price of fuel is high, it encourages consumers to demand more fuel-efficient cars and enables the use of more expensive technology to make cars more fuel-efficient,” said David Greene, an expert on this subject at the Energy Department’s Oak Ridge National Laboratory.

Still, the growth in hybrid sales is relative. The 30 gas-electric hybrids on the market combined accounted for 2.4 percent of all U.S. auto sales last year – and were outsold by the single best-selling pickup truck, the Ford F-150, said Gloria Bergquist of the Alliance, a coalition of most of the world’s biggest auto manufacturers.

Greene says that the one sure way to ensure high gas prices, and thus prompt sustained hybrid sales and job growth, is through a new federal gas tax.

Good luck getting that through Congress.

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