oil pumpAt a glance, thisSan Francisco Chronicle article is a bit difficult to parse, but it points to exactly the reason why I’ve been ranting about lousy oil price forecasts churned out by federal US agencies (see here, here, and here). To wit:

The Environmental Protection Agency says another arm of the Bush administration may be lowballing the economic benefits of increasing fuel economy standards for cars and trucks.

…the EPA said in comments filed with the Transportation Department that the department would have been better off using higher estimates for future gasoline prices when it proposed increasing the average fuel economy of all vehicles to 31.6 miles per gallon by 2015.

The proposed fuel economy increase was based in part on estimates that gas would range from $2.04 a gallon to $3.37 a gallon, averaging $2.42 a gallon in 2016.

So, basically, when gasoline costs more than estimated, we end up with lowball savings from higher mileage standards. (Higher standards means burning less fuel and hence spending less money.) Those lowball estimates make it seem unimportant to upgrade the standards. And when we don’t upgrade the standards, then we waste money—and we send more carbon in the atmosphere too.

Needless to say, gasoline currently costs more than the Transportation Department is estimating, as it has for much of 2008. And sure, it’s perfectly possible that prices will go back down over the next 8 years—predicting prices is tricky—but it’s maybe worth noting that the futures market doesn’t think so. In other words, folks who have some skin in the game—who make or lose money based on what oil prices do—think that prices are headed gradually up between now and 2016. It seems it’s only the government analysts who think gasoline will drop to $2.42.   

The really frustrating thing is that almost no one benefits from crappy price forecasts. Consumers lose, businesses lose, the environment loses — and even oil companies lose.

Oh wait, check that. Oil companies don’t lose at all: they make a killing when we burn more fuel than makes economic sense.

Just saying.