Impact of emission caps: costlier cars that will be cheaper to drive

New emission caps on greenhouse gases will add $950 to car prices but save $4,000 in fuel over the life of the car, the government says.

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    Kia showed off its new 2011 Optima at the New York International Auto Show in New York Thursday. By 2016, new emission caps on greenhouse gases will add $950 to the price of the average new car but save $4,000 in fuel costs.
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The US government's new limits on cars' greenhouse-gas emissions represent a landmark for the environment. For consumers, they're more of a mixed bag financially.

Cars and light trucks will cost more starting in 2012. But what consumers pay up front, they'll more than make up in fuel efficiency, according to the government.

Here's how it adds up: Suppose you buy the average 2016 model, when the strictest emissions standards kick in. The extra technology needed to meet those standards will cost an average $869 for a car or $1,098 for a light truck. So your new vehicle will cost about $1,000 more than it otherwise would.

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But that vehicle will be cheaper to drive. So at at average 35.5 miles per gallon, you would save enough in fuel over the first three years to make up for the extra upfront cost, according to calculations by the US Department of Transportation (DOT) and the Environmental Protection Agency (EPA).

Even if you finance a car or truck on a five-year, 60-month loan, you would still save $130 to $180 more in fuel per year than you would pay out in monthly payments to finance the extra $950 cost, the DOT and the EPA figure.

Over the life of the vehicle, you should save $4,000 in fuel. So even with the extra $1,000 in cost, the average driver comes out $3,000 ahead.

To supporters of the legislation, this is a great deal.

"You will be saving more money on gas the day you drive off the lot," says David Friedman, research director of the vehicles program at the Union of Concerned Scientists in Washington.

"It's true that these vehicles cost more up front," he adds. But it's better to spend that money on technology that employs American workers than on oil that comes from foreign nations.

The challenge is that consumers may not see it that way, counters Douglas Greenhaus, director of environment, health, and safety for the National Automobile Dealers Association in McLean, Va.

"Payment borrowers are sensitive to the monthly payment of the car," he says. "They don't think in terms of payback."

So if an extra $1,000 convinces a wide swath of consumers not to buy a new car, then the financial and environmental benefits of the new greenhouse-gas standards will be trimmed -- or at least delayed.

"Unless people buy these vehicles, none of the policy benefits will be achieved," Mr. Greenhaus says.

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