In this earlier article on the new CAFE standards, I found that depending on the assumptions made for the number of future miles driven, restricting the speed limit to 55 miles per hour would be a more cost effective and more energy efficient solution than changing the CAFE standard. That analysis only considered the total amount of fuel consumed between the two options. Now, let's take that analysis a few steps further.
In this article, I am going to revise the estimates for miles driven as I do not believe it is realistic to have them increase at a constant rate for the next several decades as population and traffic congestion increase. Next, I am going to consider the cost of the fuel efficiency gains to be implemented. And, then we will evaluate the impact of the two options in terms of total expenditures for the economy. Please refer back to the earlier article for my initial assumptions.
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The chart below displays my correction from the previous analysis for miles driven. This updated prediction for miles driven assumes that miles driven will eventually reach a constant level by 2050. Until then, the rate of increase will decline until there is no increase in the year 2050. Under the speed limit restriction option, the rate of increase will decline each year, until the time spent driving under the two options is equalized in the year 2025. That means that when the speed limit is restricted drivers will in the year 2025 drive the same amount of time each day under either option. So, if the average commute is 1 hour long in 2025, it will cover 63 miles under the CAFE standard option and 55 miles under the restricted speed limit option.
Next, General Motors claims that implementation of the CAFE standards will add $6,000 to the price of the average new passenger vehicle. We will assume that other vehicle prices remain constant in terms of 2008 dollars. We will also assume with the 7.5M new vehicles purchased in the United States in 2004, the market for vehicles will increase at a rate of 1% per year through 2025. Additionally, I assumed that the price of gasoline, currently at $3.50 per gallon, would increase at a real rate of 4% per year. I did not include the price of the new speed limit signs in the analysis. Those calculations produced the following chart.
So, from this graph, one can see that the per year different in economic cost in the year 2025 between CAFE and speed limit restriction is approximately $38 billion per year. Whether that turns out to be true depends on the details, of course, but $38 billion will not be a small number even in 2025. And, we have not yet considered safety or other factors that may influence the outcome. But, we have produced considerable evidence to consider in how best to limit pollution from passenger vehicles in the future.