At the end of August, the Obama Administration announced sweeping new rules dictating fuel efficiency standards for cars and light-duty trucks. The previous rules for the Corporate Average Fuel Economy program (CAFE) mandated an average of about 29 mpg, with gradual increases to 35.5 mpg by 2016. The new rules expand upon previous standards and now require American-made vehicles to average 54.5 mpg by 2025.

While the new rules have been met with criticism by some opposition, the announcement marked the culmination of a year's worth of compromise between the White House, the auto industry, environmentalists, labor unions and several different states. Given that so many different groups worked together to change the standards, odds are they will stick. So, what exactly do the new efficiency measures mean for the average American besides fewer trips to the gas station?

Big Savings
Despite the fact that higher efficiency standards will increase the average price of a car by $3,000, the long-term cost savings may be worth it. Citing a study by the Union of Concerned Scientists (UCS), transportation secretary Ray LaHood estimates the new rules will help Americans save roughly $1.7 trillion in fuel costs. That translates into individual consumers saving $8,000 over the lifespan of a 2025 car versus one on the road today. Those savings, according to the Obama administration, are the equivalent of lowering gas prices by $1 per gallon.

Consumers Union, the organization behind the popular Consumer Reports magazine, praised the new mileage requirements.

"These standards mean that consumers will be able to save thousands of dollars on gasoline over the life of their vehicle. Overall, those savings can be plowed back into the economy as additional consumer spending or retirement savings," said Shannon Baker-Branstetter, policy counsel for the organization.

More Jobs
Union leaders at the 13 major automakers, which account for more than 90% of all vehicles sold in the U.S., have another reason to smile. According to a study published in June by the Blue Green Alliance, the changes in mpg requirements will lead to the creation of roughly 50,000 new American jobs in light-duty vehicle manufacturing and assembly by 2030.

The group, which is made up of 14 different labor unions and environmental organizations, also found that the changes will help support the creation of 570,000 more jobs in the U.S. From retail to banking, the group found net gains across the board.

Cleaner Environment
With light-duty vehicles representing approximately 17% of the country's total greenhouse gas emissions, the new rules go a long way to help clean the environment. The new rules also establish an emissions standard of 144 grams of CO2per mile for passenger cars and 203 grams of CO2per mile for trucks. This standard will help cut greenhouse gas emissions in half by 2025 and eliminate roughly six billion tons of greenhouse gas over the course of the program. The Union of Concerned Scientists pegs these efforts to control CO2 as the equivalent of taking a third of today's cars and trucks off the road for a year.

Less Oil Imports
Perhaps the biggest savings could come from having to import less foreign oil each year. By 2025, the standards will cut U.S. oil consumption by 2.2 million barrels per day compared with 2010 levels, according to the Environmental Protection Agency. Extend that timeline out a little further to 2030, and the U.S. could cut crude consumption by 3.1 million barrels per day. That's roughly equivalent to what the U.S. imports from the Persian Gulf and Venezuela combined.

The Bottom Line
In the end, the higher cost per vehicle will be balanced out by huge cost savings, more jobs, a cleaner environment and less reliance on imported crude oil. Overall, the standard can be seen as a win for the American people.

Related Articles
  1. Stock Analysis

    The Biggest Oil Producers in Asia

    Learn which Asian countries deliver the most crude oil to market, and discover what companies are the biggest producers in each country.
  2. Stock Analysis

    The 5 Biggest Russian Oil Companies

    Discover the top Russian oil companies by production volume and find out more about their domestic and international business operations.
  3. Stock Analysis

    3 Solar Stocks to Add to Your Portfolio

    Understand the growth and challenges of the renewable energy market and its success in 2015. Learn about the top three energy stocks to add to a portfolio.
  4. Economics

    Explaining Manufacturer’s Suggested Retail Price

    The manufacturer’s suggested retail price (MSRP) is just what it describes – the price manufacturers recommend that retailers charge for their goods.
  5. Economics

    Calculating Cross Elasticity of Demand

    Cross elasticity of demand measures the quantity demanded of one good in response to a change in price of another.
  6. Personal Finance

    What to Collect: Apple Watch vs. Luxury Watches

    The "iWatch" is a new player in the luxury watch world. But will it stand the test of time? Some points for collectors to ponder.
  7. Stock Analysis

    The 5 Best Buy-and-Hold Energy Stocks

    Understand why energy companies' stock are volatile when oil prices are volatile. Learn about the top five energy companies to buy and hold.
  8. Investing

    Have Commodities Bottomed?

    Commodity prices have been heading lower for more than four years, being the worst performing asset class of 2015 with more losses in cyclical commodities.
  9. Investing

    Oil: Why Not to Put Faith in Forecasts

    West Texas Intermediate oil futures have recently made pronounced movements. What do they bode for the world market?
  10. Markets

    How Energy’s Debt Bubble Affects Your Portfolio

    Depressed crude oil prices are here to stay for the foreseeable future. Here's how it will affect an oil industry riddled with unsustainable debt.
  1. How much impact does government regulation have on the automotive sector?

    Government regulation in the automotive industry directly affects the way cars look, how their components are designed, the ... Read Full Answer >>
  2. What does marginal utility tell us about consumer choice?

    In microeconomics, utility represents a way to relate the amount of goods consumed to the amount of happiness or satisfaction ... Read Full Answer >>
  3. What are some common ways product differentiation is achieved?

    There are many ways to achieve product differentiation, some more common than others. Horizontal Differentiation Horizontal ... Read Full Answer >>
  4. What is the difference between an OEM (original equipment manufacturer) and a VAR ...

    An original equipment manufacturer (OEM) is a company that manufactures a basic product or a component product, such as a ... Read Full Answer >>
  5. Is the retail sector also affected by seasonal factors?

    Generally speaking, the retail sector is highly seasonal. Almost invariably, sales in the retail sector are highest in the ... Read Full Answer >>
  6. What has the retail sector evolved to its current structure?

    Retail is the catch-all phrase for the sale of final goods to consumers; a retail transaction is considered an "end" and ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  2. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  3. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  4. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  5. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  6. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!