US Fuel Consumption October Myke Komarnitsky

CAFE Standards Force fuel efficiency compliance… Unchanged under Bush Sr., Clinton, Bush Jr. Source:

SUV Market Share

Once in compliance, efficiency does not go any higher. Meanwhile, power goes up a lot… HP/100 pounds Time of big increase in actual fleet MPG % increase

Impact on US fuel consumption from rising CAFE fuel regulations New cars consume less fuel/mile thus People pay less $/mile (holding gas prices constant) HOWEVER… Miles driven increases when $/mile decreases –Key question: By How Much?

Price Elasticity of Demand E d =  Q/  P;  Q = E d *  P (Q 2- Q 1) /Q 1 =E d * (P 2 -P 1 )/P 1 Q 2 = Q 1 * (E d * (P 2 -P 1 )/P 1 ) + Q 1 Example with Gas GoodsDemand Elasticity Gasoline, short-run0.2 Gasoline, long-run0.7 Source: Mackinac Center for Public Policy

Price Elasticity of Demand Sources Consumer demand in the United States, : analyses and projections HS Houthakker, LD Taylor Cambridge: Harvard University Press Economics: Private and Public Choice, James D. Gwartney and Richard L. Stroup, 8th edition 1997.

Conclusion For a 10% increase in MPG –Miles increase by 9% –Total fuel use decreases by 6.36% Real Life Savings

So What? US Gas Consumption: 20.4M bbl/day –Automobiles: 9.0M bbl/day (44%) ANWR – M bbl/day, attained % increase in CAFE standards –500K bbl/day, attained 2025 Investment Costs to Attain –ANWR: Significant capital, operational costs –CAFE increase: technology already in use (limited production), but primary “cost” is customer enjoyment from HP sacrifices Source:

Final Thoughts America’s rising demand is outstripping supply –Unresolved consequence – extremely high fuel prices degrades economic performance Solution –Drill ANWR –Immediately increase CAFE fuel standards, but by a moderate amount to minimize capital investment shocks for automobile manufacturers To just drill ANWR is irresponsible.