New study on impact of fuel efficiency on oil prices could change thinking

The report by the energy consultancy Enerdata says the European fuel efficiency standards for new vehicles due to come into effect in 2012 will lead to lower global oil prices.

Enerdata found that for every 1% reduction in global oil consumption, the price of oil drops by up to 2%.
Where this differs from previous thinking is that economic assessments of energy efficiency measures normally use fixed oil prices when accounting for economic benefits. By working out that the price of oil will fall when the EU’s mandatory fuel consumption legislation takes effect, it means the economic benefits of fuel efficiency measures have been underestimated, in general by up to 17%.

T&E director Jos Dings said: ‘There are two clear messages from this, one good, the other a little dangerous. The good news is that the economic benefits of reducing energy use in transport are greater than they were previously thought.’

‘The dangerous part is with the price of oil likely to drop, demand for fuel will go up. So if governments don’t want to see their greenhouse gas reduction targets go up in smoke, they have to take measures to dampen demand for transport. The obvious one is increased fuel taxes, but somehow governments need to make sure the benefits of better technology aren’t wiped out by increased demand for lower-priced fuel.’

The EU’s first-ever mandatory carbon dioxide requirements for car makers take effect from 2012. They will force car makers to ensure their average vehicle emits no more than 130 g/km of CO₂ by 2015 in a phased approach that begins in 2012. T&E criticised the standards as being too lenient and a weakening of several previous EU targets, but they will still have some effect in reducing overall fuel consumption.

The Enerdata study The impact of lower oil consumption in Europe on world oil prices, along with a two-page briefing on its key findings, can be downloaded from the T&E website.