Low-income Households Benefit Most from Improving Fuel Economy
By Jason Kuruvilla on Tuesday, April 18th, 2017
Filling up your car’s gas tank is a major monthly expense for a lot of households in the U.S. But new federal rules are hoping to lower the costs of those bills by encouraging automakers to development more fuel efficient cars and trucks.
A recent Consumers Union study found that owners can expect to save thousands of dollars over the life of a car or truck that meets the fuel economy standards for model year 2025. These savings take into account the estimated costs of the technologies required to meet the new fuel standards. But how do the standards impact low-income car buyers who may struggle with a higher initial purchase price? A new report takes a closer look and finds that low-income households are the ones likely to benefit the most from improving fuel efficiency in cars and trucks.
The report, prepared by University of Tennessee’s Howard Baker Center for Public Policy, finds that savings on fuel costs are greatest for lower income households, as these households spend a greater share of their income on fuel expenses than higher income households.
From 1980 to 2014, overall improvements in fuel economy helped households in the lowest income group reduce their fuel spending by $500 — or about 4.3% of annual income. For the highest income quintiles, households saved an average of $1,500. While the total amount is higher (since they are more likely to buy newer vehicles with new fuel savings technologies, and tend to drive more), these savings accounts for less than one percent (0.9%) of their annual income.
While new cars depreciate in value over time, their fuel efficiency remains relatively stable. Using data from the Energy Information Administration’s Residential Transportation Energy Consumption Surveys, the report found that fuel economy of vehicles decrease very slowly, if at all – 0.1 MPG per year or less.
And that’s the key benefit for lower income families.Fuel economy standards apply to new vehicles, which are more likely to be purchased by individuals in the higher income brackets. As time goes on, the vehicles are resold as used vehicles at a significantly lower price. They are then purchased by people with lower incomes, who can benefit from the savings associated with great fuel efficiency, but without the initial cost premium.
The report concludes that all income groups benefited substantially from fuel savings due to improving fuel efficiency, but that the greatest net savings relative to income accrue to households with the lowest incomes.
The Baker Center’s findings provide strong evidence that continuing to improve fuel economy standards across the vehicle fleet will benefit car buyers in both the new and used car markets and is especially helpful for low-income households, who spend a relatively high proportion of their income on fuel. Consumers Union will continue to participate in the rulemaking process on fuel economy and advocate for a strong standard that is a win-win for saving consumers money and reducing pollution.