Cost Effectiveness
THE ECONOMICS OF FUEL EFFICIENCY

miles / $  (mp$)

I am an engineer, so efficiency is a byword -- everything I engineer, I make as efficiently as possible. And the most common denominator for efficiency is cost.  In the case of vehicles fuel efficiency, it would be "How many miles per dollar does my vehicle get?"  And, over the years, "Have all these "efficient” mechanical improvements on my successive vehicles resulted in more miles to that proverbial dollar?" 

THEN (1994 historical dollars)

Twenty year ago I drove a 3,000 pound pick-up that carried 2-1/2 persons, with a 3-liter V6 gasoline engine.  My best mileage then was 19 mpg, with fuel costing around $1.00/gallon. 

That is 19 miles to the dollar (19mpg ¸ 1$pg = 19mp$).

 If I want to go visit my relatives 1,000 miles away, it would cost me $52.63 (1000m ¸ 19mp$ = $53.63).  That was one-way.  Round-trip would double that, or $105.26.

Adjusting for Inflation

Inflation is a way to measure and compare the buying power of the currency over time – in this case, the US dollar.  When we compare costs across years, we must first convert all costs to a common base.  In the example above, I am going to convert 1994 dollars to 2014 dollars.  Because 2014 is the current year (at the time of this writing) it is also called current dollars.  We make this conversion using the Consumer Price Index (CPI) published by the US Bureau of Labor Statistics.

THEN (in equivalent 2014 dollars)

Restating the 1994 costs in 2014 dollars --
 
Twenty year ago I drove a 3,000 pound pick-up that carried 2-1/2 persons, with a 3-liter V6 gasoline engine.  My best mileage then was 19 mpg, with fuel costing around $1.36/gallon (in 2014 dollars.) 

That is 14 miles to the dollar (19mpg ¸ 1.36$pg = 14mp$).

 If I want to go visit my relatives 1,000 miles away, it would cost me $71.43 (1000m ¸ 14mp$ = $71.43).  That was one-way.  Round-trip would double that, or $142.86.

Converting 1994 dollars to 2014 dollars

Twenty years ago (in 1994), the US consumer price index (CPI) was 174.4.  Today (in 2014) it is 237.07.  The inflation from then to now is a factor of 1.36 (237.07/174.4=1.36).  Adjusting THEN (twenty years ago) for inflation (restating everything in 2014 dollars), we multiply the 1994 costs by 1.36, which yields a gasoline price of $1.00 in 1994 dollars to be $1.36 in 2014 dollars. 

Often we use subscripts to denote the different dollar bases ($₁₉₉₄1.00 = $₂₀₁₄1.36)

NOW (2014 dollars)

Currently I drive a 4,000 pound pickup that carries five full-sized adults with a 4-liter V6 gasoline engine. My best mileage is 21+ mpg, with fuel costing around $3.50/gallon. 

That is 6 miles to the dollar (21mpg ¸ 3.50$pg = 6mp$).  

 If I want to go visit my relatives 1,000 miles away, it would cost me $167 (1000m ¸ 6mp$ = $167).  That is one-way.  Round-trip would be double that, or $333.  

THEN versus NOW (Mechanical  Improvement)

My present vehicle in 2014 is mechanically more efficient, being bigger, more powerful, faster, carries twice as many passengers, pulls a much heavier load, and at the same time gets better mileage than my prior vehicle did in 1994. 

I could argue that mechanically, my present vehicle is at least 25% more efficient as its predecessor twenty years ago, if not 50%.  I pay for that increased mechanical efficiency in the price of the vehicle.

Twenty years ago my old vehicle cost about $20,000 in 1994 dollars, or $27,200 in 2014 dollars.  Add on another 25% for increased efficiency (greater capability), and equivalent price rises to $34,000.  The actual price of my 2014 vehicle is only $30,000.  So, mechanically, the newer vehicle has been very cost effective to buy. 

However, while my present vehicle in 2014 is mechanically more efficient than its 1994 predecessor, it is not more economically efficient to operate.

I am worse off financially than twenty years ago, because it costs me more than twice as much (in current dollars) to make that 1000 mile trip – in fact, by a factor of 2.3 ($167 ¸ $71.43 = 2.3.)

In fact, I am so much more worse off that I now seldom contemplate that 1,000 mile drive, where as twenty years before I would just jump in the vehicle and go, without any hesitation

WHY?

While my vehicles have gotten much more efficient mechanically, the fuel has gotten so much more expensive that it nullifies all the mechanical improvements. 

That is why is it that you and I are worse off economically than we were twenty years ago (as far as fuel efficiency goes.)

CAUSE
It can all be laid to government policy. 

More than twenty years ago the claims by environmentalist were that oil was a non-renewable energy form, and that we were running out of it.  And, by the way, we were polluting the earth with all those engine emissions, and destroying the environment, and all those CO2 emissions were melting the polar ice caps, and we were all going to drown in rising seas.

So the government (being run by know-nothing idiots) mandated higher mechanical fuel efficiency, and began issuing regulations (mostly EPA regulations) that were deliberately designed to drive up the price of gasoline, diesel, and fuel oils – to make alternate (renewable) fuels more cost competitive. 

Part of that regulatory process was discouraging drilling for oil at home, and increasing reliance on foreign oil sources. 

Almost immediately after those policies were put in place, our new foreign-based oil masters arbitrarily doubled the price of a barrel of oil, and an artificial shortage was created. 

Over the ensuing years the price of a barrel of oil has continued to rise far more than the inflation of our currency.  And that (government policy), my friends, is near 100% why we are not enjoying the cost efficiency that we should be.

SOLUTION

The solution is rather simple – get rid of all those (largely) EPA rules and regulations that are arbitrarily chocking off the supply of oil, and unnecessarily driving up the price per barrel -- so the price per barrel can drop down to real free-market driven prices. 

What about all those environmental claims about running out of oil, polluting the environment, melting the polar ice caps, and all of us drowning in rising seas?

Well, none of that is true.   In reality, we are nearly drowning in oil.

Twenty years later on, we have more proven oil reserves than ever before. 

And despite all the environmentalist claims that carbon emissions are catastrophically increasing the mean temperature of the earth, the polar ice caps are melting, and the sea levels are rising – none of that has actually materialized. 

That is a song the environmentalist have been singing for twenty years and more – and none of it has rung true. 

Oh, it is true that the polar ice caps melt around the edges in their summer season.  But they refreeze in their winter season.  And when one polar ice cap is in summer melt, the other is in winter re-freeze.  And the polar ice that does melt is sea ice – already floating on the sea -- so no net increase in sea levels.