On a visit to Michigan yesterday, President Trump pledged to launch a review of vehicle fuel-efficiency standards set by the Obama administration, which was framed as an effort to protect American manufacturing jobs.
The announcement instantly incited blowback. Senator Ed Markey (D-Mass.) said the review will “lead to costly litigation and create needless uncertainty for the auto industry.” Tom Steyer, president of NextGen Climate, said Trump is “choosing to poison our air and threaten the economic security of American families, just to boost the fossil fuel industry’s bottom line.” And Rhea Suh, president of the Natural Resources Defense Council, said the change “makes no sense.”
“Mileage standards save consumers money at the gas pump, make Americans less dependent on oil, reduce carbon pollution and advance innovation,” Suh said in a statement. “The current standards helped the auto companies move from bankruptcy to profitability, and there is no reason they cannot be met.”
California political leaders also blasted the decision, calling it a “cynical ploy” by automakers and the Trump administration to roll back vehicle pollution standards finalized earlier this year. The California Air Resources Board currently holds a waiver to enforce even more stringent fuel economy standards, which EPA Administrator Scott Pruitt may try to revoke, although Trump did not address the waiver on Wednesday.
On the surface of it, the fuel efficiency review looks like major setback for efforts to clean up the transportation sector -- which recently became the largest source of carbon dioxide emissions in America. However, it’s possible that taking more time to evaluate the measures could lead to more effective set of rules down the line.
Hear me out.
A review, not a rollback (yet)
The Corporate Average Fuel Economy (CAFE) and carbon emissions standards were developed by the National Highway Traffic Safety Administration and the EPA in 2011, and finalized in 2012 with the support of more than a dozen major automakers. The rules required that all new vehicles meet an average fleetwide fuel economy level of 54.5 mpg by 2025.
Stakeholders also agreed to reassess the standards in 2017 and 2018 to determine whether they’re technically and economically viable -- which was key to getting automakers on board. Trump’s Michigan announcement was specifically related to this midterm review.
The EPA issued a technical report last year that determined the auto industry was still on track to meet the fuel economy standards. After Trump was elected, the Obama administration rushed to lock in the fuel economy standards from 2022-2025, which had yet to be finalized. The EPA gave automakers just 30 days to comment, then issued a final determination in January that set the mandate at 51.4 mpg by 2025, which equates to real-world fuel economy of 36 mpg.
The Trump administration formally rescinded that decision yesterday, claiming the EPA ignored important data in making its determination. "If the standards threaten auto jobs, then common sense changes could have -- and should have -- been made,” said Trump.
The EPA will now work with the National Highway Traffic Safety Administration to complete a new review by April 2018 -- marking a return to the original schedule established in 2012.
Reopening the midterm review corrects the regulation timeline, which the Obama administration wrongly expedited, a senior White House official said on a press call Tuesday. He downplayed the likelihood of rolling back or reversing the standards: “Because we are putting the midterm review back on track, people think we are going to roll the standards back. That’s not what we’re saying.”
So, assuming CAFE rules aren’t about to disappear altogether, there’s arguably some value in taking more time to fully assess the marketplace.
An opportunity for new technologies and business models
Securing America’s Future Energy, a nonpartisan organization dedicated to reducing U.S. dependence on foreign oil and an advocate for fuel-efficient cars, noted that a review could improve the existing regulations by accounting for new technologies and business models.
The organization said in a statement that it welcomes the Trump administration’s re-examination of the fuel economy rules “provided that the opportunity is taken for federal regulators, auto manufacturers, the state of California, and the environmental community to collaborate toward producing a more effective regulatory framework.”
One improvement would be to get all states on board with one national fuel efficiency program to avoid competing regulations at the federal and state level. Led by California, 10 states currently have zero-emissions vehicle (ZEV) mandates, which represents nearly a third of the overall U.S. vehicle market. Because these mandates require automakers to sell a certain number of ZEVs, such as plug-in cars, they’re even more stringent than the federal CAFE rules. The review could help get all stakeholders aligned, which would give automakers more certainty.
“We are hoping that as we go through this process, California will be a partner and we can figure this out -- but that’s a long way down the road,” said the senior White House official, noting stakeholders now have a year to reevaluate where the ZEV market stands.
Another potential positive outcome of the review is that the federal standards could be updated to incorporate new technologies, such as autonomous vehicles, and new business models, such as ridesharing. “Moving toward regulating the entire mobility system over individual vehicles will increase reductions in oil demand while placing a lower regulatory burden on companies,” according to SAFE, which laid out a proposal for how that could be achieved.
SAFE also recommended instituting regular five-year reviews as part of the CAFE standards to ensure that regulations keep pace with the latest technologies. The group added that incorporating additional flexibility in the final years of the fuel economy standards, but at the same time extending the standards through 2035, could allow the U.S. to meet its environmental and energy security goals while granting longer-term regulatory certainty for the automotive industry.
"How much can we afford and how fast can we afford it?"
Flexibility is the key concept for automakers. Executives from General Motors, Ford and Fiat Chrysler did not ask to eliminate the fuel economy standards in a meeting with Trump earlier this year, but they did ask for consistency across agencies and rules that “take into account consumer demand,” according to Bloomberg.
It’s true that U.S. consumers haven’t been able to kick their SUV addiction. Meanwhile, electric vehicles simply haven’t been able to win people over at mass scale, which some analysts say is necessary to meet the 2025 standards. Part of the problem is that there aren’t enough compelling EVs on the market today, and a wider variety of models likely won't make it to market for another few years.
At the end of 2016, there were 30 EV models available and a total of 159,000 EV sales. By 2021, at least 19 new long-range EVs will be on the market, which will help to accelerate sales. Delaying the midterm review period to 2018 will allow more time for these new models to come to market.
“I think we’re all trying to move in the direction of meeting the CAFE standards. I can brag that we have the best CAFE [performance metrics] out there as a company,” said Kevin Butt, regional environmental sustainability director for Toyota, in a recent interview. “It goes back to question of fair and balanced and in a timely manner. [...] I think that’s really the question: How much can we afford, and how fast can we afford to do it?”
There are some practical considerations here, especially when it comes to EVs. Many automakers have already poured millions, if not billions, into advancing clean vehicle technologies, but they need more time for their products to come to market and for consumer interest to catch up.
General Motors, for instance, recently launched the long-range, all-electric Chevy Bolt, and sales have been strong so far -- for an EV. Yet the company is reportedly losing nearly $10,000 per vehicle.
Under California’s ZEV mandate, plug-in cars and fuel-cell vehicle sales are required rise to an estimated 15.4 percent of all vehicle sales by 2025. To meet Gov. Jerry Brown’s target to reduce greenhouse-gas emissions 40 percent below 1990 levels by 2030, the California Air Resources Board projects that ZEVs will have to make up 40 percent of sales, up from about 3 percent now.
It’s difficult to see how automakers can meet these targets while selling vehicles at a loss. Customer education efforts and charging infrastructure buildout need to catch up -- and fast.
Speaking at the Consumer Electronics Show in January, Nissan CEO Carlos Ghosn expressed frustration that public charging infrastructure was rolling out so slowly. Nissan first released the Leaf EV in 2010 and continues to see strong sales, compared to other plug-in cars. The company has also invested in charging stations, but carmakers “are not going to develop the infrastructure for this,” said Ghosn. “It’s like asking a car company to build gas stations.”
“What we can do is lobby, explain and try to develop tools [to deploy] charging,” he said. “Communities are doing that…but not going as fast as we’d like.”
So much winning?
So it’s possible to see pragmatic reasons why taking more time to complete a review of the fuel economy standards makes sense. Then again, it could be a total disaster for the Obama-era rules.
As carbon emissions reach record levels, there’s a case to be made that aggressive fuel economy mandates are essential. At the same time, Trump’s pro-fossil fuels position and attacks on other clean air and water rules seem to justify Democrats' and environmentalists’ concerns that the review is just a precursor to rolling the CAFE regulations back. And liberals aren’t the only ones who see it this way.
“The review and subsequent pullback from EPA’s CAFE standards is a big win for automakers and workers,” said Bette Grande, energy research fellow at the Heartland Institute. “It’s also a big win for consumers, who will be able to choose the vehicles they want to drive. Finally, it is a win for oil producers and mineral owners, because when consumers are free to choose the vehicles of their choice, domestic oil demand will increase.”
“So much winning, I think I’ll take my truck for a spin to celebrate,” she said.