Issue Brief

Do Low Oil Prices Undermine US Passenger Vehicle Fuel Economy Standards?

Summary

The recent drop in fuel prices could potentially reduce the average fuel economy of the vehicles consumers choose and undermine the fuel savings of US passenger vehicle fuel economy standards. However, this analysis suggests that the effects are modest.

Key Findings

  • Under new US passenger vehicle fuel economy standards, the level of fuel economy required for a particular vehicle depends on its size and whether it is a car or light truck.
  • Fuel prices can affect the new vehicles sales mix, as well as the average level of fuel economy the standards require.
  • The decrease in fuel prices between June 2014 and August 2015 reduced new vehicle fuel economy 0.3 miles per gallon, and reduced the level of fuel economy the standards require by 0.1 miles per gallon.
  • Manufacturers will have to make up the difference between the fuel economy requirement and the level consumers choose, raising the costs of complying with the regulations.