• Fuel Economy Savings Show Diminishing Returns

    The financial incentive to improve fuel economy may be weakening, according to the U.S. Energy Information Administration.

    As part of its “Annual Energy Outlook” for 2014, the agency published a report by Nicholas Chase showing that as fuel efficiency increases, the potential for fuel savings decreases.

    For an average consumer who drives 12,000 miles per year and spends $3.50 per gallon for gasoline, increasing fuel efficiency from 10 mpg to 11 mpg saves $382 per year, while improving from 30 mpg to 31 mpg saves only $45 annually.

    These findings are particularly significant in the context of Corporate Average Fuel Economy (CAFE) standards, which are currently about 35 mpg for passenger cars but will rise to roughly 55 mpg by 2025. (RELATED: Obama Administration Suggests Fuel Economy Standard)

    Assuming CAFE standards are met, this 20 mpg increase in fuel efficiency will save the average driver about $437 per year in fuel costs. If average fuel economy were to improve still further, from 55 mpg to 56 mpg, the additional savings would only be $13 per year. In contrast, an improvement from 12 mpg to 14 mpg saves $500.

    Although the data apply only to gasoline-powered vehicles, Chase finds little reason to believe that the diminishing returns to improved fuel economy will make alternative-fuel vehicles a more financially attractive alternative. Diesel engines, for instance, may be more fuel-efficient than gasoline, but diesel fuel is also more expensive. Similarly, fuel savings from hybrids and plug-in vehicles are more than offset by the higher price of those vehicles.

    Many factors influence the desire to improve fuel economy, on the part of both individuals and government, including concerns about protecting the environment and preventing oil shortages. For most people, though, the motivation remains primarily financial.

    According to the results of this study, savings will need to be found elsewhere. (RELATED: Republicans Push for Fuel Economy Standards That Analysts Say Will Kill Jobs)

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