Trump Looks to Rewrite Fuel-Economy Rules—Now What? 

Trump, Pruitt, and automakers may think they've won. But California—and a warming globe—will still drive the market and call the regulatory shots.

President Trump Leads Listening Session On Health Care
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The lobbying worked. The White House chats with President Donald Trump worked. The pleading letters from Detroit and a coalition of 17 automakers asking for relief from Environmental Protection Agency rules that would nearly double fuel economy to 54 mpg by 2025—it all worked.

Yesterday in Ypsilanti, Michigan, Mr. Trump announced a review of current EPA emissions regulations that is expected to result in an unprecedented rollback of pollution and fuel-economy rules that represent one of Barack Obama’s signature legacies as president. When automakers signed onto that Obama plan to combat climate change, forging a compromise on model year 2025 standards and publicly affirming that they could achieve them, it was hailed as the most historic step in fuel conservation, energy security, and pollution controls since the original Clean Air Act of the 1970s.

Automakers have now convinced Trump and EPA head Scott Pruitt—neither requiring much convincing, considering their avowed opposition to climate-change plans, regulation, and the very mission of the EPA—that the rules were too expensive and technically challenging, especially with consumers racing to SUVs in another era of cheap gasoline. Automakers are actually ahead of schedule in meeting the standards, but the climb gets steeper after 2021, when cars and trucks faced annual boosts of about four percent in fuel mileage. Many automakers are actually ahead of schedule in meeting stricter rules for 2018. But according to the New York Times, only about 3.5 percent of today’s new cars would meet the 2025 standards. As part of a tag-team effort, Pruitt is also expected to seek to unwind the Clean Power Act that would force coal-burning power plants to limit greenhouse gas emissions.

Coming Changes

Even if the rules are torn up and rewritten, automakers may only enjoy temporary relief in their uphill slog toward 50-mpg cars, perhaps a boost in short-term profits. But in unlocking the rulebook, they may have opened a Pandora’s Box that will haunt them for years to come. First, a war of the century is shaping up between California—which for five decades has set its own stricter tailpipe pollution rules—and the EPA, which will seek to revoke the state’s waiver which allows them to do so. And for all its sweeping executive decrees, the Trump administration is largely powerless to stop the tide of greenhouse-gas regulations or zero-emissions mandates in Europe or Asia—standards that global automakers must design cars and develop technology to meet. Environmentalists and regulators are insisting that automakers have made great progress toward that goal, and shouldn’t reverse course now.

“Uncertainly is the worst thing for these companies, that have to invest in and plan for a global market," said Margo T. Oge, who helped craft the 2025 rules as the nation’s former top EPA emissions official. (Oge now sits on boards including the International Council on Clean Transportation, the National Academy of Sciences, DeltaWing Technologies, and Volkswagen’s International Sustainability Council.) “Do they want to wait two or three years for the courts to declare what will be done? Or do they want to be adults, sit down and make technical changes without throwing out the rules and making it a legal fight?”

The government never wanted a standard that undermines jobs and consumers. The standards will actually help the average Americans that Mr. Trump is worried about.

-Margo T. Oge

Oge agreed that the automakers’ recent moves seem straight out of the musty playbook of the olden days: Questioning the need for higher fuel economy and emissions controls; insisting that companies and consumers can’t afford them; attacking the legitimacy of regulators and their standards; and finally, offering doomsday scenarios of squandered billions and rampant unemployment.

“The (automakers) were short-sighted in the Seventies, in the Eighties, in the Nineties, just thinking about short-term profits,” Oge said.

1 Million Jobs Claim Is a Stretch at Best

Oge scoffed at the claim—emphasized in automakers’ letters to Pruitt—that up to 1 million jobs could be lost if automakers were compelled to dramatically boost fuel mileage. That 1-million-jobs figure comes from the Center for Automotive Research in Ann Arbor, Mich., whose worst-case analysis holds that meeting the standards could eliminate 122,000 direct jobs among automakers and suppliers, and over 1 million total jobs in a ripple effect on all employment supported by the industry. The study’s economists emphasize that, of nine possible outcomes, this is the worst-case scenario. It assumes consumers would have to pay a $6,000 premium for 2025 fuel-saving technology, and that fuel prices will stay so low that consumers see no financial upside to buying a new car—thus decimating industry sales and forcing widespread layoffs. 

Oge dismisses that $6,000 cost, and the associated job losses, as “not credible.” The EPA’s analysis shows costs technology costs falling rapidly, as they have done throughout the history of automotive advances, to the point that consumers would pay only about $1,500 up front for technology that brings them a 50-mpg car. The industry letter to Pruitt also underlines their claim that meeting 2025 rules would cost automakers $200 billion—but Oge counters that consumers would pocket $1.7 trillion in fuel savings, cut carbon-dioxide emissions in half, and save two million barrels of oil a day.

In the CARS study cited by the automakers, a best-case analysis in which fuel rockets above $4 a gallon by 2025 and consumers pay just a $2,000 premium for fuel-saving technology—shows a slight net increase in both industry sales and employment. 

Oge adds that the EPA spent $30 million to analyze and reverse-engineer the advanced technology portfolios of every major automaker; that analysis showed that the standards were not only eminently achievable even in the challenging time frame of between the years 2021-2025, but could be achieved with less-expensive technologies than originally proposed.

“The cost of batteries is coming down even faster than the EPA estimated, down 70 percent in the past seven years,” Oge said. GM, she adds, is planning its lineups with the assumption that electric cars will soon reach cost parity with internal-combustion models as early as 2022. (Oge's own car is a Chevrolet Volt plug-in hybrid, the second one she’s owned, a car that's already priced within reach of middle-class buyers.) 

“They’ve done an amazing job,” Oge says of GM.

Standards Are Already Flexible

Automakers have also complained that the 2025 CAFE rules hamstring their ability to sell what the market is buying, with more than six of 10 new cars in America now being SUVs and pickups. But Oge says the companies themselves helped craft the plan, including multiple categories and for vehicles based on their size “fooprint,” that would require each vehicle class to make roughly the same percentage increase.

“We worked with companies individually, and we knew exactly their capabilities,” Oge said. "The government never wanted a standard that undermines jobs and consumers. The standards will actually help the average Americans that Mr. Trump is worried about."

Automakers have always been free to seek modifications to EPA rules, which were designed to offer individual flexibility to companies such as Fiat Chrysler that rely most heavily on sales of pickups and SUVs.

GM and Chrysler, which received an $80 billion federal bailout, may want to hedge their bets and consider the chilly reception they’ll get from a new administration (and new EPA) if they spend the next few years battling its rules, or even its legitimacy.

Though California’s Zero-Emissions mandate does require increasing numbers of EVs or fuel-cell vehicles to be sold there, nothing about the rules forces automakers to create a certain type of car, or for consumers to buy them.

“The standards are flexible to allow for consumer choice,” Oge says. “If Chrysler decides they’re not going to produce any more small cars, nothing stops them from producing large trucks. And regardless of what the consumer buys, a large SUV or a small car, they’re still getting the benefits of better fuel economy.”

According to the EPA’s analysis, even if fuel prices stay historically low, consumers will enjoy a net $3,000 benefit in fuel savings over the life of a new car in 2025. And if fuel prices skyrocket, so do the savings.

An Unclear End Game

Oge and other experts say it’s unclear what exactly automakers will seek; it may be more time to meet the 2025 standards, technical changes to the rules, or a dramatic rewriting of the targets. Experts said that automakers’ strongest argument is that the EPA’s decision was premature, and that they need more time to lift the overall fuel economies of their fleets.

“What I’m hearing from some companies is that they’d like technical changes and more flexibility. Some companies don’t want to change the stringency, but the time frame,” Oge says.

Let’s recall that, before Obama administration pushed the industry to accept new targets, the fuel economy of the average American car had barely budged for 25 years. Automakers instead applied their brainpower and resources to more than double the horsepower of their fleets while larding cars with weight-boosting safety, convenience, and connectivity features. The rules were designed to balance the scales, to remind Detroit automakers especially—with their serial reliance on guzzling trucks and SUVs—that they were just another fuel crisis away from economic disaster.

For now, as the industry makes nice with Trump, it may be seeking competitive advantages and tit-for-tat arrangements—some leeway on fuel-economy rules, perhaps, in exchange for promised investment in American factories or jobs.

But as they polish their crystal balls and plan investment, automakers must also consider that the Trump administration won’t be around forever—and certainly not going forward from 2025, in any case. Automakers, especially GM and Chrysler, which received an $80 billion federal bailout, may want to hedge their bets and consider the chilly reception they’ll get from a new administration (and new EPA) if they spend the next few years battling its rules, or even its legitimacy.

And California and much of the industrialized world are determined to press on to battle climate change. California is in the midst of an ambitious plan to sharply reduce carbon-dioxide emissions from all sources by 2030, including from the transportation sector.

“The main reason we’ve made progress on clean cars was never the federal government. California has played a unique role to set the trends, not just in America but globally,” Oge said.

“California is already looking beyond 2025 and the industry knows that. It’s not just about energy security. This is about global climate change, and we can’t pretend it’s not happening. This industry can’t survive just operating in the U.S.”