CAFE (Corporate Average Fuel Economy) standards have long been a contentious issue between the automobile manufacturers and us progressives. They have fought them tooth and nail. Well, today, with the demand for a bailout of these same manufacturers from the American taxpayer, we need to revisit this issue and take a lesson that is staring us in the face.
To sum up what I document below, we now have strong compelling evidence that CAFE standards bring about lower oil prices.
Just what has happened to oil prices? Before the election it appeared that they were being manipulated lower just in time for the Presidential election, but they have continued to fall since then, showing that argument to be false. Something more fundamental was in play, namely, the law of supply and demand.
As the recession has deepened, the impact on oil and future oil consumption have steadily brought the price down. As of today it stands at $42.49 per barrel (benchmark crude ...). So, just how big a decline in oil consumption was required to cut the price which topped out over $145 per barrel in July of this year?
According to this source (http://www.msnbc.msn.com/...) the answer is about .6%. Yes, that is 6 tenths of one percent. A decrease of less than one percent in demand lowered the price of oil about a hundred dollars a barrel.
Now, I understand that this analysis is way too simplistic to say that this would always be the case. In fact, today's low prices are the product of the prices we had in July, both on the consumption and production side of the price equation. Prices certainly will not stay here for long.
However, supply and demand principles do dictate that lower consumption will produce lower prices, and that is my point. IF we had a CAFE standard that was 20% higher, we would consume 17% less oil in our transportation system. Since two thirds of our consumption is in transportation, and we are about 25% of the world's consumption of oil, this would directly result in a 2.8% reduction in daily world oil consumption.
What we should realize, and point out to those that oppose higher CAFE standards, it that a 2.8% reduction in world oil consumption would obviously have a strong effect on the price of oil. The current economic recession and the oil price collapse are ample evidence of that.
So, when someone claims that it is their (God-given) right to drive a Hummer and use the precious gift of oil since they are paying for it, remind them that they are also affecting the ability of everyone to buy oil for the things they need just to live. It is in everyone's best interest to see significantly increased CAFE standards (well maybe not the oil companies').