Our Mileage Standards Are a Joke

So how do all the issues below regarding the quid pro quo for a bailout relate to Contracarbon?

If the CAFÉ standards were high enough, and the economics worked, the need for oil from other countries (except maybe Canada) would ultimately go away. The 2008 CAFÉ standard for combined light trucks and passenger cars was 22.5 miles per gallon, up from 17.5 mpg in 1982 (!). For passenger cars only, we have gone from 24 mpg in 1982 to 27.5 in 2008. We have said we are going to 35 mpg by 2020. The California rules would push that to 37. Of course Europe, Japan and China are at 44, 46 and 36 already with objectives in the 50’s in the time frames we are discussing below. If we instituted serious standards and supported the new car companies that already can get us to 100 mpg or better, we could get to 55 or 60 mpg for the whole fleet by 2030. And the cost per mile could be significantly less than it is today. I can take you through the calculations, but, trust me; at least half the 10 million barrels of oil we currently import every day could be eliminated. That would happen through a combination of conventional fuel efficiency and alternative power trains.

The sooner we get to higher mpg the sooner this will happen. The US auto fleet of about 240 million vehicles takes about 20 years to turn over at the historical rate of scrappage—about 4.5% of the car fleet goes to the scrap pile each year. Currently, that is about the level of new car sales. That level is logical. In this economic environment and with some belief that fuel economies may improve significantly in the next few years, why would anyone buy a car unless her current car fell apart or was just uneconomical to operate? That doesn’t mean the person scrapping the 20+ year-old car would buy a new one. But as he traded up, ultimately, at the end of the food chain, someone would buy a new car.

The modest improvement in efficiency from older to newer cars does, by itself, reduce emissions. If we could quickly get to higher CAFÉ levels and keep the new car purchases at the scrappage level for a few years (and keep miles traveled flat), we could become significantly less oil dependent in 20 years and reduce CO2 emissions by close to 1 Gigaton per year. 20 years seems like a long time, and the goal of 60 miles per gallon for the fleet seems problematic—at least in the States. But, in the scheme of things, both objectives are reachable. However, they aren’t reachable unless we set them as objectives. In 40 years, if we can’t get to double those objectives, shame on us. The truth is, if we don’t develop the technology to do it, someone else will. That would be a big loss for the US economy. I take full responsibility for these calculations and conclusions, but the early work on this was done by Saurin Shah when he was at Sanford Bernstein and which he continued at Neuberger Berman. He has a chapter coming out in a book on transportation electrification very soon.

Trains and Planes, or more generically, public mass transportation becomes important as well. Reducing or stabilizing VMT (Vehicle Miles Traveled) by substituting mass transit can be a significant factor. Up until recently we were car-traveling about 3 trillion miles a year in the US. Currently, the average vehicle produces about 1.1 pounds of CO2 (or equivalent) per mile. (SUVs are at 1.6. A Prius is at .55.) In the last 12 months, for the first time in a long time, we dropped 30 billion miles. That’s 33 billion pounds or 16.5 million tons of CO2. I hope it doesn’t take a depression to keep those mileage numbers dropping. It does take a commitment to mass transit. More on that later.

This entry was posted in Automobile Industry, United States by Jack Rivkin. Bookmark the permalink.

About Jack Rivkin

Jack Rivkin retired in 2008 as EVP, CIO, Head of Private Asset Management of Neuberger Berman(NB) and from NB's Executive Management Committee. He was also on the Lehman(LB) Council on Climate Change(CC) and the NB CC Fund Advisory Board. He has been engaged with the United Nations and other entities on policy issues related to Private Capital and CC. He is an Associate Fellow of the Asia Society. He has continued on the NB Mutual Fund Board and with his CC responsibilities. He began his investment career in 68 as an analyst at Mitchell Hutchins(MH), and became Director of Research(DOR) there. After Paine Webber(PW) acquired MH, he served as DOR; CFO of PW; CEO of PWMH-the equity trading and investment arm of PW; Chmn of MH Asset Management and President of PW Capital. 87-92 he was DOR and, subsequently, Head of the Worldwide Equities Division of LB. 93-95, he served as a Vice Chairman and DOR at Smith Barney (now Citigroup). He was an EVP with Citigroup Investments 94-01, responsible for private equity investments. He was also an adjunct professor at Columbia University teaching a course in Security Analysis. He joined NB in 2002. He is the co-author of “Risk & Reward—Venture Capital and the Making of America’s Great Industries,” Random House, 1987. He is a regular guest on various media. He is the principal subject in a series of Harvard Business School cases describing his experience as DOR and Equity Head at LB. He has served as a director of a number of private companies and the NYSSA. He is currently a director of Idealab, Dale Carnegie, Operative, World Policy Institute and other private companies. He is a member of the Economic Club of NY, the Anglers Club, Theodore Gordon Fly Fishers, and a lifetime member of Trout Unlimited. He continues to be an active private equity investor when he isn’t fly fishing. Mr. Rivkin earned his Professional Engineering degree from the Colorado School of Mines and his MBA from the Harvard Business School

3 thoughts on “Our Mileage Standards Are a Joke

  1. Car gas consumption and therefore CO2 emission is very clearly a major and urgent issue. To make people aware of it, manufacturers in Europe are obliged to show g CO2/km in all their car advertising and in their showrooms. To give people a financial incentive to buy less polluting cars, France has introduced a government-funded rebate in 2008 on cars emitting less than 130g CO2/km – around 5 liters/100km or 45 mpg – and a surcharge for those above 160g. In addition, the EU has mandatory standards for all cars to be below 130g by 2102 with a penalty to manufacturers for each car above that ceiling. No R&D whatsoever is necessary to reach these objectives as current technology enables car manufacturers to do much better today even for powerful engines. As an example, BMW has a 2.0 liter diesel engine delivering around 150hp and emitting 119g CO2/km (around 43 mpg)…
    Pierre Perbos
    Climate Action Network – France 

    • Pierre,
      Europe is ahead of the game on this one. i do think we need to drive the mileage standards significantly higher sooner with a specific measure of CO2 emissions as a part of the standards. Given the number of cars already on the road, the higher the standards on new cars, the sooner we get the whole fleet to a lower emission level. An incentive system of some sort, either a rebate to the buyer or credit to the manufacturer, should be a part of the structure as well. Do you know if the scrappage rates in Europe ae similar to US scrappage rates? My suspicion would be that it would take longer to turn over the fleet in Europe than the US.

  2. Jack,

    The average age of the private car population in France is 8.2 years. I would guess it would be of the same order for EU-15 but longer for EU-27 given that the latest members of the EU are less affluent than the earlier ones.

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