Interesting Items

A few reports and articles on fuel economy have come out recently that might be of interest:


1) Jon Krosnick, a Stanford political psychologist and survey methodologist, summarizes recent surveys on attitudes toward climate change, efficiency, and efficiency costs in this New York Times Op-Ed column (The Climate Majority).

One pattern of findings: "Large majorities opposed taxes on electricity (78 percent) and gasoline (72 percent) to reduce consumption. But 84 percent favored the federal government offering tax breaks to encourage utilities to make more electricity from water, wind and solar power."

Electric utilities often find that when they offer customers the option of buying "green" energy at a premium, few people are willing to pay the premium. Using a tax break to subsidize lower prices on green energy could encourage greater participation.


2) A survey from the Consumer Federation of America finds that Americans greatly overestimate the oil reserves under US control. The mean response was 40%. The CFA reports that the true number is 3%.

In an interesting twist, the surveyors then randomly assigned half the participants to learning the true value of US reserves (3%) before asking the question:

"The federal government has recently required automobile manufacturers to increase the fuel economy of their motor vehicle fleets from an average of 25 miles per gallon to 35 miles per gallon by 2016. Do you think the government should increase this standard to an average of 50 miles per gallon by 2025?"

Understanding the true level of US reserves increased support for a 50 MPG standard from 65% to 73%.

Here's the full survey summary.


3) The National Academy of Sciences is releasing a long-awaited report on how to improve fuel economy. The full report can be read here. One of the first issues addressed in the report is the need to use a measure of gas consumption instead of MPG. The NAS summary (linked to this Truth about Cars review of the report) states:

"Fuel economy is a measure of how far a vehicle will travel with a gallon of fuel, whereas fuel consumption is the amount of fuel consumed in driving a given distance. Although each is simply the inverse of the other, fuel consumption is the fundamental metric by which to judge absolute improvements in fuel efficiency, because what is important is gallons of fuel saved in the vehicle fleet. The amount of fuel saved directly relates not only to dollars saved on fuel purchases but also to quantities of carbon dioxide emissions avoided. Fuel economy data cause consumers to undervalue small increases (1-4 mpg) in fuel economy for vehicles in the 15-30 mpg range, where large decreases in fuel consumption can be realized with small increases in fuel economy. The percent decrease in fuel consumption is approximately equal to the percent increase in fuel economy for values less than 10 percent (for example, a 9.1 percent decrease in fuel consumption equals a 10 percent increase in fuel economy), but the differences increase progressively: for example, a 33.3 percent decrease in fuel consumption equals a 50 percent increase in fuel economy.

Recommendation: Because differences in the fuel consumption of vehicles relate directly to fuel savings, the labeling on new cars and light-duty trucks should include information on the gallons of fuel consumed per 100 miles traveled in addition to the already-supplied data on fuel economy so that consumers can become familiar with fuel consumption as a fundamental metric for calculating fuel savings."

The report relies on fuel consumption as its main metric when evaluating improvements--this is critical because it evaluates improvements to vehicles that range from trucks on the low end (that get 3 MPG) to hybrid technologies that achieve 100 MPG. Calculating the fuel savings from new technologies is easy with fuel consumption but confusing, at best, with MPG. For example, improving a truck's MPG from 3 to 4 saves 8 times as much gas over the same distance of driving as improving a hybrid car's MPG from 50 to 100.

We have written before about the benefits of small MPG improvements on trucks. (See these posts at Green Car Congress, Next100, and Fast Company article.)

As an extension of focusing on fuel consumption, the report focuses on percentage decrease in fuel consumption (FC) in place of percentage increase in fuel economy (FE):

Finding 2-2. The relationship between the percent improvement in fuel economy (FE) and the percent reduction in fuel consumption (FC) is nonlinear, e.g., a 10 percent increase in FE (miles per gallon) corresponds to a 9.1 percent decrease in FC, whereas a 100 percent increase in FE corresponds to a 50 percent decrease in FC. This leads to widespread consumer confusion as to the fuel-savings potential of the various technologies, especially at low absolute values of FE.

Here's our formula for converting from MPG% to GPM%

A pdf or hard copy of the report costs some money, but you can read it online for free. Here's the free NAS summary.


4) The Obama administration has issued a memo directing "the government to set the first-ever mileage and pollution limits for big trucks".

The University of Michigan has a useful summary:

Section 1 of the "Presidential Memorandum Regarding Fuel Efficiency Standards" requests that the EPA and the National Highway Traffic Safety Administration immediately begin work on a joint rule-making under the Clean Air Act and the Energy Independence and Security Act of 2007 to establish fuel efficiency and greenhouse gas emissions standards for commercial medium- and heavy-duty vehicles beginning with model year 2014, with the aim of issuing a final rule by July 30, 2011.

This marks the first time that large commercial trucks will have to meet national fuel economy targets. In Section 1, the president specifically requests that the EPA and DOT consider the recommendations of the NAS report, as well as to take into account the market structure of the trucking industry and the unique demands of heavy-duty vehicle applications; job creation within the industry; and applicable state standards.

GPM bill passes New York State Senate

A bill sponsored by State Senator Daniel Squadron passed the New York State Senate last night by a 35 to 26 vote. It was part of a larger Earth Day legislation package.

The bill requires New York car dealers to post a chart converting MPG to gallons per 1,000 miles in 5 MPG increments (from 10 MPG to 50 MPG). Here is a copy of the bill.

Senator Squadron effectively argued for GPM as helping both consumers and the environment: It helps consumers recognize gas savings and it helps those concerned with the environment to reduce their environmental impact.

The opposition argued that GPM provides the same information as MPG (with a little more math) and that it puts New York car dealers at a competitive disadvantage and discourages car sales. How it is both redundant and harmful at the same time is quite a mystery!

(As we've argued, GPM is not redundant with MPG. Gas consumption is a highly non-linear function of MPG: The improvement from 15 to 20 MPG saves more gas over a given distance of driving than the improvement from 30 to 50 MPG. Will GPM discourage car purchases? No. It will call attention to the value of buying more efficient cars that save gas (and money and CO2), so it is likely to shift purchases from less efficient to more efficient cars. Will it make NY dealers less competitive? I can't see how GPM will lead car buyers to purchase otherwise identical cars in Connecticut rather than New York.)

The bill goes to the New York Assembly next.

The floor debate occurs around the 1:55 to 2:15 mark in this video.

Airplane MPG

In November, there was a nice post on R-Squared Energy Blog about airplane fuel efficiency.

Robert Rapier writes: "Often when I am flying, I think about the amount of fuel that the airplane is burning. Then when I am off the plane, I usually forget about it. I have heard mixed opinions on the overall efficiency of airline travel versus automobile travel, but just never got around to investigating the matter myself....."

After reviewing a bit of math he concludes that his per capita fuel economy on a recent 757 flight was 81 miles per gallon.

And then he notes, "Of course it is important to note that while the fuel economy looks pretty good, the miles traveled are very high relative to automotive transportation. I generally travel less than 5,000 miles per year with my car, so if I drive a car that gets 25 miles per gallon it would only take about 16,000 miles on an airplane to equate to an entire year's consumption in my car."

When comparing airplane and car fuel efficiency, there are a couple of allures of flying:

First, the MPG of flying is better than any car. But as Robert Rapier notes, many people fly much further than they drive. One could easily sweat the details of a car purchase--trading in a 30 MPG car for a Prius--to be green, but emit the equivalent annual CO2 savings on two round trip flights from the east coast to the west coast.

I created these graphs a couple of years ago to get a better appreciation of how distance and MPG tradeoff. (The maximum MPG in these graphs is 50.)

The second allure of flying is that the plane was going to fl;y anyway so my marginal CO2 contribution is zero. But this calculation ignores the cumulative effect of individual demand. Higher demand in period t leads to more scheduled flights in t+1. It is an interesting social dilemma where each individual can feel like he or she is flying for free, but the plane wouldn't be flying if there were no passengers. Somewhere between the average CO2 contribution and the marginal CO2 contribution is the "true value".

MPG, VW, and Honey Bees

An NPR story this week celebrated the incredible "fuel efficiency" of honey bees. They compared the energy efficiency of bee flight to a new VW vehicle called the L1.

The VW will purportedly get 170 miles per gallon.

The bee? 4,704,280 MILES PER GALLON!

What if we could magically convert the new VW to bee-level efficiency? How valuable would that be in gas savings? Let's look at gas consumption measured as gallons per 10,000 miles:

The VW L1= 58.823 gallons per 10,000 miles

The bee = .002 gallons per 10,000 miles

Replacing the VW with a bee would save 58 gallons over 10,000 miles.

Let's put this amount of gas savings in perspective. This same gas savings is achieved by the following trade ins (also over 10,000 miles of driving):

A 12 MPG vehicle for a 13 MPG vehicle
A 20 MPG vehicle for a 23 MPG vehicle
A 30 MPG vehicle for a 36 MPG vehicle

Here's another way to look at it:

The VW is about 7 times more efficient than an average car today that gets about 25 mpg. The bee is 200,000 times more efficient than today's average car! The efficiency of the bee seems to dwarf the efficiency of the VW.

And here's another way to look at it:

The ratio of the VW to the bee is miniscule. 170 MPG is less than .01% of 5 million MPG. It seems like nothing.

But let's put the 170 MPG in perspective. MPG misleads in this regard because it is gas consumption, not mileage, that matters.

If you drive today's average car 10,000 mile, you will use about 400 gallons of gas.

The VW will use 59 gallons of gas over the same distance. This saves roughly 340 gallons compared to today's car.

And the bee will use just 2/thousandths of a gallon and saves close to 400 gallons compared to today's car.

Surprisingly, although the VW MPG is less than .01% of the bee MPG, the VW MPG achieves 85% of the gas savings from Bee-level efficiency.

This is a lesson in why national policy needs to focus on gas consumption, not mileage: The important gas savings come from improving the efficiency of low MPG vehicles (e.g., trade ins of 14 MPG cars for 25 or 30 MPG cars). Replacing a 14 MPG car with a 27 MPG car saves more gas than replacing a 33 MPG car with a bee! Large MPG improvements on efficient cars do little to reduce gas consumption. Measures such as "gallons per 10,000 miles" makes this distinction clear.

Let's beware the obsession with large MPG numbers. Let's focus on improving low MPG vehicles.

Why GPM -- A Brief Review

Autobloggreen has a post on the New York State Senate bill that would require car dealers to describe fuel efficiency as "gallons per 1,000 miles". The post has prompted the familiar call for using the metric system (see this post on the connection between "GPM" and the metric system) and the familiar lament that people should understand the math.

A comment by "Throwback" on Autobloggreen reads:

Throwback 2:40PM (2/08/2010)

Another wasteful bill. What is the purpose? You don't think people understand that if they buy a car that gets 25 mpg vs 20 mpg they will be using less fuel? As a native New Yorker I am embarrassed by the (lack of) quality of the states politicians.

Here's a short answer to Throwback:

Yes, higher MPG is better than lower MPG, and people recognize this.

But people use the difference in MPG as the rough approximation of gas savings, which is misleading--often in a big way. Instead of subtracting MPG, car buyers need to first divide a given distance by each car's MPG, and then subtract. (See the last half of this post on the math.) That's what GPM does without effort--a standardized GPM measure can be subtracted to know actual gas savings.

Consider two trade ins:

A) 30 MPG to 45 MPG
B) 15 MPG to 20 MPG

Impressed by the 15 MPG improvement in option A? (A 50% improvement in MPG.)

Unimpressed by the 5 MPG improvement in option B? (A 33% improvement in MPG.)

Option A saves 11 gallons per 1000 miles; Option B saves 17 gallons per 1000 miles.

The New York bill is designed to highlight the gas savings available to people who are driving or considering cars in the teens. This is where the biggest savings are possible.

In fact, GPM may be most effective at keeping people who are currently driving more efficient cars from opting for less efficient ones. MPG tempts us to think that there is little harm in trading in a 20 MPG minivan for a 15 MPG SUV. What's 5 MPG? GPM makes clear the impact.

Compare MPG to "Gallons per 1000 miles" below:

MPG	Gallons per 1000 miles
10	100
11	91
12	83
13	77
14	71
15	67
16	63
17	59
18	56
19	53
20	50
21	48
22	45
23	43
24	42
25	40
26	38
27	37
28	36
29	34
30	33
31	32
32	31
33	30
34	29
35	29
36	28
37	27
38	26
39	26
40	25
41	24
42	24
43	23
44	23
45	22
46	22
47	21
48	21
49	20
50	20

Gallons per Mile Bill Clears New York Senate Committee

[Update April 21: The GPM bill passed the New York Senate yesterday as part of larger Earth Day legislative package. See this post for details. The original bill, described below, required that dealers provide "gallons per 1,000 miles" for each vehicle they sold. The new bill requires that dealership display a chart translating mpg to "gallon per 1,000 miles".]

The New York Senate Environmental Conservation Committee has passed a new fuel efficiency bill that includes a "gallons per mile" requirement. The bill requires that vehicle manufacturers list "gallons per 1,000 miles" for city, highway, and combined driving.

The bill was championed by Senator Daniel Squadron, who laid out his rationale in this December article, and received broad support from environmental groups:

"Urging the passage of Senator Squadron’s bill were the New York League of Conservation Voters, the Environmental Defense Fund, the Natural Resources Defense Council, the Sierra Club’s Atlantic Chapter, and Senator Antoine Thompson, the Chair of the Environmental Conservation Committee."

The blog All over Albany lays out the case in more detail.

We believe this low cost change for presenting fuel efficiency information is of great value to consumers and the environment. We applaud Senator Squadron for endorsing it.

Although we advocated for "gallons per 100 miles" and "gallons per 10,000 miles" as useful standards in the supplement to the Science article, we note the benefits of "gallons per 1,000 miles":

1. 1,000 miles is roughly what the average American drives in a month, so it is a meaningful number
2. It allows easy estimation of yearly consumption (multiply by 10, roughly)
   
3. It avoids the problem of seemingly small differences in efficiency that occurs when comparing "gallons per 100 miles"

Barry Nalebuff and Ian Ayres made the case for gallon per 1,000 miles in this Why Not? column for Forbes magazine.

Here is an excerpt from the bill (the full bill can be found here):

BILL NUMBER: S6141

TITLE OF BILL :
An act to amend the environmental conservation law, in relation to requiring automobile dealers display a fuel economy label on all new vehicles

PURPOSE :
To require that new passenger motor vehicles sold in New York State post a "gallons-per-mile fuel impact statement."

SUMMARY OF PROVISIONS :
Adds a new section 19-1104 to the environmental conservation law to require vehicle manufacturers to display a gallons per thousand miles fuel impact statement. Such statement shall set forth the average number of gallons the vehicle is expected to use when traveling a distance of one thousand miles of city mileage, highway mileage and combined city and highway mileage. The bill provides for a civil fine of not more than $100 per vehicle to be imposed on manufacturers for a violation of this section.


JUSTIFICATION :
Gallons per miles driven is a much more useful means of measuring fuel efficiency than the current miles per gallon standard. It enables a vehicle purchaser to more easily compare the fuel efficiency between various models of automobiles. This bill, which would require manufacturers to display the average gallons per one thousand city, highway and combined miles, will allow consumers to know accurately at a glance the cost of operating a vehicle over one thousand miles. Additionally, this allows environmentally conscious consumers to identify the relative environmental effect of different vehicles. Encouraging consumers to buy more fuel efficient vehicles can help save money, reduce greenhouse gas emissions, improve energy security and oil dependence costs, and increase energy sustainability.

The MPG Illusion among Transportation Professionals

Are transportation experts immune to the MPG Illusion?

In a presentation at the 2010 Transportation Research Board Conference entitled Mile-per-Gallon Illusions and CAFE Distortions: When Even Transport Experts Have Trouble, Dana Rowan, Alex Karner, and Debbie Niemeier of UC Davis report that transportation professionals make better judgments of fuel efficiency gains using "gallons per 100 miles" than using MPG.

The REAL Final Clash for Clunkers Numbers

Given the doubts I expressed in this earlier post, I downloaded the NHTSA data and calculated the harmonic mean for the old and new vehicles in the 2009 Cash for Clunkers program.

The harmonic mean prevents the MPG Illusion by first converting all car MPG values to gallons per mile (GPM), averaging GPM, and then converting it back to MPG.

Here are the results:

Old vehicles
Reported Average MPG = 15.8
Average GPM = 0.064082517
Actual Average MPG = 15.6049

New vehicles
Reported Average MPG = 24.9
Average GPM = 0.041966565
Actual Average MPG = 23.8285


Well, that final actual MPG figure is a full mile per gallon below the reported figure of 24.9.

That 1 MPG difference translates to 1.2 million tons of CO2 by the time those 677,000 new vehicles drive 100,000 miles.

The supplement to the 2008 Science article discusses an "averaging illusion" example.

Final Cash for Clunkers Numbers (But with Doubts)

The final Cash for Clunkers numbers are in:

Old vehicles: 15.8 MPG on average
New vehicles: 24.9 MPG on average

That saves about 2 gallons of gas every 100 miles of driving, or 2 tons of CO2 every 10,000 miles of driving.

There is an AP story ridiculing the fact that some pick up trucks were traded in for other pick up trucks with essentially the same MPG (a 15 MPG truck for a 16 MPG truck), but that loophole was obvious from the start. It was built in by design to support Detroit. The Feinstein/Schumer/Israel contingent tried to hold out for good size increases in MPG, but had to compromise with the Stabenow contingent. Bare minimum truck trade ins was the disappointing concession. The time to publicize this flaw was in May. (As we noted in June, "The final bill has decent MPG improvements for cars (4 MPG and 10 MPG)--enough to "payback" the carbon released in producing the car--but not for large light duty trucks. We believe a tiered system based on GPM and requiring larger gas savings would have been better for reducing CO2 emissions.")

It's a little late now to lament it.

However

The numbers on the NHTSA site inspire no confidence, so all of these conclusions, from my perspective, are in doubt. For example, the NHTSA reports an overall new MPG level of 24.9 based on the following data:

59% new vehicles with an average 27.9 mpg
34% new vehicles with an average 21.6 mpg
7% new vehicles with an average 16.2 mpg

Amazingly, they have averaged the mpgs to get their final figure. Of course, they need to take the harmonic mean, which requires converting the mpg figures to gpm before calculating the final average. The harmonic mean is 24.2 mpg. So which is the real final figure: 24.9? or 24.2?

Update: This post examines the data more closely and finds that the actual MPG of the new vehicles is 23.8.

Trucks and Low Hanging Fruit

MPG obscures the value of small MPG improvements on inefficient vehicles.

Long haul trucks are a perfect example of the benefits of small MPG improvements. As this Greenbiz article notes, long haul trucks are low hanging fruit. The average truck gets 6 miles to the gallon; according to the article, technology exists that can double this number. A 6 MPG improvement may not sound impressive. A little reflection makes it obvious that this cuts gas consumption in half for a given distance of driving. And a little more math quantifies the gain:

6 MPG = 16 Gallons per 100 miles
12 MPG = 8 Gallons per 100 miles

The improvement saves 8 gallons per 100 miles of driving.

Compare that gas savings to the amount saved under currently planned CAFE improvements. Between now and 2016, CAFE standards will be increased from 25 MPG to 36 MPG. This 11 MPG improvement saves a little over 1 gallon per 100 miles of driving.

Policy should focus on improving the most inefficient vehicles because that's where the big savings are ripe for the plucking.

Here is a short excerpt from the article:

For 50 years, long haul tractor-trailer designs have remained fundamentally unchanged. Basically a giant box hurtling down the highway at 55 miles per hour, most trucks average only six miles to the gallon.

Their ubiquity in America is undeniable. Today the trucking industry transports about 70 percent of all the goods in the county, moving nearly $24 billion in value in 2008, according to the U.S. Department of Transportation.

....

But the time is ripe for change. According to recent analysis by Rocky Mountain Institute the technology already exists to double the energy efficiency of long-haul trucks in the nation's fleet. Their size, speed and poor aerodynamics mean they are laden with "low-hanging fruit" in terms of cost-effective efficiency and retrofitting opportunities.

Proposed Rulemaking To Establish Light- Duty Vehicle Greenhouse Gas Emission Standards and Corporate Average Fuel Economy Standards

The Federal Register has posted a new document from the EPA and NHTSA entitled:

"Proposed Rulemaking To Establish Light-Duty Vehicle Greenhouse Gas Emission Standards and Corporate Average Fuel Economy Standards"

The document contains a very useful summary of past conversations about supplementing MPG with a measure of fuel consumption. I have cut and pasted three sections on how consumers think about MPG. Page numbers refer to the Federal Register numbering. The passages appear below.

If you support the idea of making a gas consumption figure more salient to car buyers, you can comment on this proposal. Here is how to comment:

Submit your comments, identified by Docket ID No. EPA–HQ–OAR–2009–0472 and/or NHTSA–2009–0059, by one of the following methods:

• Submit your comments on line at this link.
• E-mail your comments at this email and include one of the Docket IDs above: a-and-r-Docket@epa.gov

Pages 49577-49580

In 2006 EPA redesigned the window stickers to make them more informative for consumers. More particular, the redesigned stickers more prominently feature annual fuel cost information, to provide contemporary and easy-to-use graphics for comparing the fuel economy of different vehicles, to use clearer text, and to include a Web site reference to www.fueleconomy.gov which provides additional information. In addition, EPA updated how the city and highway fuel economy values were calculated, to reflect typical real-world driving patterns.¹⁸⁷ This rulemaking involved significant stakeholder outreach in determining how best to calculate and display this new information. The feedback EPA has received to date on the new label design and values has been generally very positive.

During the 2006 label rulemaking process EPA requested comments on how a fuel consumption metric (such as gallons per 100 miles) could be used and represented to the public, including presentation in the annual Fuel Economy Guide. EPA received a number of comments from both vehicle manufacturers and consumer organizations, suggesting that the MPG measures can be misleading and that a fuel consumption metric might be more meaningful to consumers than the established MPG metric found on fuel economy labels. The reason is that fuel consumption metric, directly measures the amount of fuel used and is thus directly related to cost that consumers incur when filling up.

The problem with the MPG metric is that it is inversely related to fuel consumption and cost. As higher MPG values are reached, the relative impact of these higher values on fuel consumption and fuel costs decreases. For example, a 25 percent increase in gallons per 100 miles will always lead to a 25 percent increase in the fuel cost, but a similar 25 percent increase in MPG will have varying impacts on actual fuel cost depending on whether the percent increase occurs to a low or high MPG value. Many consumers do not understand this nonlinear relationship between MPG and fuel costs. Evidence suggest that people tend to see the MPG as being linear with fuel cost, which will lead to erroneous decisions regarding vehicle purchases. Figure III.E.11–1 below illustrates the issue; one can see that changes in MPG at low MPG levels can result in large changes in the fuel cost, while changes in MPG values at high MPG levels result in small changes in the fuel cost. For example, a change from 10 to 15 MPG will reduce the 10-mile fuel cost from $2.50 to $1.60, but a similar increase in MPG from 20 to 25 MPG will only reduce the 10-mile fuel cost by less than $0.30.

Because of the potential for consumers to misunderstand this MPG/ cost relationship, commenters on the 2006 labeling rule universally agreed that any change to the label metric should involve a significant public education campaign directed toward both dealers and consumers.

In 2006, EPA did not include a consumption-based metric on the redesigned fuel economy label in 2006. It was concerned about potential confusion associated with introducing a second metric on the label (MPG is a required element, as noted above). EPA has developed an interactive feature on www.fueleconomy.gov which allows consumers, while viewing data on a specific vehicle, to switch units between the MPG and gallons per 100 miles metrics. The tool also displays the cost and the amount of fuel needed to drive 25 miles. As indicated above, however, EPA is alert to the problems with the MPG measure and the importance of providing consumers with a clear sense of the consequences of their purchasing decisions; a gallon-per mile measure would have significant advantages. EPA plans to seek comment and engage in extensive public debate about fuel consumption and other appropriate consumer information metrics as part of a new labeling rule initiative. EPA also welcomes comments on this topic in response to this GHG proposal.

Pages 49602-49603

The central conundrum has been referred to as the Energy Paradox in this setting (and in several others).³³¹ In short, the problem is that consumers appear not to purchase products that are in their economic self-interest. There are strong theoretical reasons why this might be so.³³² Consumers might be myopic and hence undervalue the long-term; they might lack information or a full appreciation of information even when it is presented; they might be especially averse to the short-term losses associated with energy efficient products (the behavioral phenomenon of ‘‘loss aversion’’); even if consumers have relevant knowledge, the benefits of energy efficient vehicles might not be sufficiently salient to them at the time of purchase. A great deal of work in behavioral economics identifies factors of this sort, which help account for the Energy Paradox.³³³ This point holds in the context of fuel savings (the main focus here), but it applies equally to the other private benefits, including reductions in refueling time and additional driving.³³⁴

Considerable research suggests that the Energy Paradox is real and significant due to consumers’ inability to value future fuel savings appropriately. For example, Sanstad and Howarth (1994) argue that consumers optimize behavior without full information by resorting to imprecise but convenient rules of thumb. Larrick and Soll (2008) find evidence that consumers do not understand how to translate changes in miles-per-gallon into fuel savings (a concern that EPA is continuing to attempt to address).³³⁵ If these arguments are valid, then there will be significant gains to consumers of the government mandating additional fuel economy.

The evidence from consumer vehicle choice models indicates a huge range of estimates for consumers’ willingness to pay for additional fuel economy. Because consumer surplus estimates from consumer vehicle choice models depend critically on this value, EPA would consider any consumer surplus estimates of the effect of our rule from such models to be unreliable.

Pages 49603-49604

Although EPA has not found an updated survey of these values, a few examples suggest that the existing consumer vehicle choice models still demonstrate wide variation in estimates of how much people are willing to pay for fuel savings. For instance, Espey and Nair (2005) and McManus (2006) find that consumers are willing to pay around $600 for one additional mile per gallon.339 In contrast, Gramlich (2008) finds that consumers’ willingness to pay for an increase from 25 mpg to 30 mpg varies between $4,100 (for luxury cars when gasoline costs $2/gallon) to $20,560 (for SUVs when gasoline costs $3.50/gallon).340

As noted, lack of information is one possible reason for the variation. Consumers face difficulty in predicting the fuel savings that they are likely to get from a vehicle, for a number of reasons. For instance, the calculation of fuel savings is complex, and consumers may not make it correctly.341 In addition, future fuel price (a major component of fuel savings) is highly uncertain. Consumer fuel savings also vary across individuals, who travel different amounts and have different driving styles. Studies regularly show that fuel economy plays a role in consumers’ vehicle purchases, but modeling that role may still be in development.342

If there is a difference between fuel savings and consumers’ willingness to pay for fuel savings, the next question is, which is the appropriate measure of consumer benefit? Fuel savings measure the actual monetary value that consumers will receive after purchasing a vehicle; the willingness to pay for fuel economy measures the value that, before a purchase, consumers place on additional fuel economy. As noted, there are a number of reasons that consumers may incorrectly estimate the benefits that they get from improved fuel economy, including risk or loss aversion, poor ability to estimate savings, and a lack of salience of fuel economy savings.

Considerable evidence suggests that consumers discount future benefits more than the government when evaluating energy efficiency gains. The Energy Information Agency (1996) has used discount rates as high as 111 percent for water heaters and 120 percent for electric clothes dryers.343 In the transportation sector, evidence also points to high private discount rates: Kubik (2006) conducts a representative survey that finds consumers are impatient or myopic (e.g., use a high discount rate) with regard to vehicle fuel savings.344 On average, consumers indicated that fuel savings would have to pay back the additional cost in only 2.9 years to persuade them to buy a higher fuel-economy vehicle. EPA also incorporate a relatively short ‘‘payback period’’ into OMEGA to evaluate and order technologies that can be used to increase fuel economy, assuming that buyers value the resulting fuel savings over the first five years of a new vehicle’s lifetime. This assumption is based on the current average term of consumer loans to finance the purchase of new vehicles. That said, there is no consensus in the literature on what the private discount rate is or should be in this context.

A detailed discussion of the state of the art of consumer choice modeling is provided in the DRIA. For this rulemaking, EPA is not able to estimate the consumer welfare loss which may accompany the actual fuel savings from the proposal, and so any such loss must remain unquantified. EPA seeks comments on how to assess these difficult questions in the future.