EPA Administrator Pruitt’s announcement of the Agency’s intention to rollback the 2022 through 2025 Corporate Average Fuel Economy (CAFE) standards set by the Obama administration as they were walking out the White House door was hardly surprising. It would be hard to overstate the significance of the rollback in terms of combatting climate change. Although the transportation sector is made up of more than CAFE covered vehicles, it is estimated that the 54.5 mpg standard would cut oil consumption by 12 billion barrels over the lives of covered vehicles and reduce CO2 emissions by six billion tons.
Candidate Trump telegraphed his intention to rollback CAFE and other Obama era environmental regulations throughout his campaign for the presidency. In Pruitt, President Trump has a witting tool to carry out his orders.
Part 1 of CAFE OLÉ offered a brief history of the legislation leading up to the present time and reviewed the records of Pruitt and the President both before and since their arrival in Capital City. Their past will likely prove the prologue to a reductive process that sets the new standard well below the 54.5 mpg established by the Obama. It is also likely that California’s request to set stricter requirements than the EPA will be denied for only the second time since 1972.
Part 2 begins by addressing the California question and why the Administration would be willing to deny the 135 million residents of states following California’s lead the opportunity to breathe fewer automotive fumes than the rest of the nation. The commentary then continues with a discussion of the major stakeholders in the standards-setting debate and suggests ways to move the dialogue into more constructive territory.
California or bust?
The 1970 federal Clean Air Act (CAA) provided a means by which California can secure a waiver from federal fuel efficiency standards permitting it to set its own more strident mpg requirements. California’s efforts to regulate auto emissions date back to 1966 when it became the first in the nation to regulate tailpipe emissions.
The waiver provision is unique to California. Other states are ineligible to request the waiver, although they are permitted to adopt California’s standards in place of EPA’s. The Golden State has already put Trump and company on notice that they will challenge any decision denying the waiver and lowering the 2025 mpg standard in court.
The pending battle between the California Air Resources Board (CARB) and the Trump administration bears following. At a minimum, the conflict will determine whether the state or the administration ends up setting the defacto national 2025 fuel efficiency standard. The contest will undoubtedly end up testing existing case law. It has the potential to reset the balance between state and federal regulators.
California’s tailpipe standard governs vehicular emissions in a significant portion of the U.S. Fourteen jurisdictions[i] now follow California’s lead including Georgia, Pennsylvania, North Carolina, the District of Columbia and the entire New York metro area. In total these jurisdictions include more than 40 percent of the U.S. population.
From an auto industry perspective, the double standard is economically inefficient; it forces them either to manufacture two different versions of the same model or adopt the stricter standard. The issue of multiple standard-setting bodies, i.e., CARB, EPA and the National Highway Traffic Safety Administration (NHTSA), was discussed as part of industry’s negotiations with President Obama. A single standard is a promised priority of the Trump administration, much as it was a goal for Obama.
Any reduction of the Obama established standards will trigger a legal battle between the Administration and some number of states and environmental groups. To think otherwise is unrealistic. A failure to grant California a waiver, however, will increase the legal turbulence surrounding the standard by orders of magnitude—creating long-term uncertainty in the market.
California’s waiver has only been denied once and that towards the end of the G.W. Bush administration. Although the state took the administration to court, the issue was resolved by the election of President Obama. Granting the waiver is—or should be—pro forma unless EPA finds:
There is nothing “should be” about policy decisions of Trump and company. The dynamic duo of President and EPA Administrator have shown itself capable of dismissing logic and disregarding the law when it comes to climate-related issues.
The odds in favor of Pruitt’s recanting California’s waiver are quite high despite reports of on-going negotiations between CARB and the Administration. Following are just some of the reasons lending support to the possible denial of the waiver:
Should the Administration’s decisions in resetting the 2025 CAFE targets prove unpopular with core supporters, Trump has in Pruitt the perfect goat. He will have no qualms about throwing the Administrator under the first bus to come down Pennsylvania Avenue.
It is possible that chaos and uncertainty will be avoided. Some in the auto industry are amenable to compromise. An article by Martha Roberts and Erin Murphy at the Environmental Defense Fund (EDF) quote several industry execs:
There is an on-going discussion between the Administration and California concerning possible compromise scenarios. One such is a proposal to maintain the Obama standards but to create exceptions that gives manufacturers flexibility. Presumably, there are others as well. Time will tell.
In a blame-game, everyone loses.
Unless something changes, the current debate surrounding automotive fuel emission standards (CAFE) will not end well. Reaching anything approximating a positive outcome for all requires government, industry and the climate community to de-escalate the blame game, stop the bulls**t, and focus on areas of possible agreement.
Are there any areas of possible agreement? Likely, there are several or could be if rational minds can prevail.
First is the need to agree on reasonable targets, including the California waiver, without going to court. Although the standards being negotiated are for the period 2022-2025, there is little real time to meet them from a design and production perspective. It’s not as if manufacturers can just add a magical gizmo to an existing model. Fuel-efficiency is achieved with integrated technology and design.
Manufacturers that don’t already have plans to meet the 54.5 mpg target will undoubtedly be hard pressed by a market in limbo; do they, or don’t they? A challenged rollback today means the auto industry and the Trump administration will be in court for years to come. In the meantime, marketplace uncertainty reigns.
Uncertainty caused by delay may be considered a victory by Trump's troupe; it’s doubtful that industry, consumers, investors, and the environment see flux as a win for their side.
There is also likely agreement about the need to educate consumers. Although all the major stakeholders in the on-going negotiation cite consumers as motivation for their positions, they do so in very different ways. Manufacturers say we are only producing what consumers say they want. Currently, consumers do seem to want mostly crossover vehicles and pickup trucks. (Graph 2)
Environmental advocates and consumer groups, however, point to polls and surveys showing fuel efficiency scores highly in the minds of buyers—even above vehicle price and despite the relatively low-cost of gasoline.
According to a 2017 Consumer Reports survey:
Conflicts between what poll respondents say and do are not uncommon—particularly when it comes to climate change and the environment. Polls showing voters supporting a clean environment and public policies combatting global warming are similarly at odds with whom respondents support at the ballot box.
Notwithstanding the conflicts between attitudes and actions, there is truth in the claims of both industry and environmentalists/consumers. These conflicts should neither be ignored nor passed off as statistical anomalies. Governments, industry and the climate community need to motivate consumers as well as being motivated by them.
Doing so requires a multiplicity of responses including: marketing/educational campaigns; pairing the CAFE standards with public policies that encourage the development of new technologies; mass transportation; and, road use rules that show a preference for high mileage vehicles, e.g., permitting the use of high occupancy lanes and lower tolls.
I recognize that many of these motivators are on the books in various places; however, more needs to be done across federal, state and local jurisdictions and included as part of the CAFE negotiations.
The standards should also be accepting of certain of the conflicting realities. Not the least of these is consumer preference for larger, less efficient classes of vehicles. Although education programs and tax credits skewed towards electric and alternative fueled vehicles are currently in play, these measures have so far fallen short of expectations.
Consumers want choice. It makes no difference if the choosy purchaser is looking for a new car, a solar system for a house, or a pair of shoes. Education and financial credits are unlikely to cause the demand for larger vehicles to evaporate. Waiting around for smaller cars and electric and alternative fueled vehicles to catch-on, big time, defies current reality. In the meantime, consumers are buying vehicles that will be on the road for the next 12 to 15 years—given both the high cost and quality of many of today’s cars and trucks.
A single manufacturer is unlikely to stop making the models that sell. The risk of losing out to competitors is just too great. Although the future of EVs seems bright given all of the models being announced and on display at the 2018 auto shows, the present market is only slowly growing. Manufacturers are making them available today because they help when calculating fleet averages. It would perhaps be prudent, therefore, to use the current dialogue to craft the 2025 and 2030 CAFE standards in a manner giving outsized credit to design and development efforts focusing on the larger vehicles .
There are other options to consider. Strangely enough, two of them come courtesy of President Donald J. Trump. Although I hesitate to raise them given the flightiness of their source, they should at least be considered.
Trump has indicated a willingness to raise the gasoline tax in the context of his infrastructure proposals. Neither the tax nor the proposed program was well received. It’s the President’s having broached the gas tax at all that I am introducing it here.
With the price of gas at comparatively reasonable levels, a rise in the rate presented in a climate change context may prove politically palatable. Consumers and voters in recent polls show at least lip-service to the need to combat global warming and support for the development of new technologies to help the cause.
The Consumer’s Report poll referenced earlier showed a majority of respondents placing environmental concerns over the price of gasoline—a positive sign. Not as good is the decade’s long inclination of car buyers to purchase crossovers and pickup trucks. Still, a higher pump price will move some consumers to purchase smaller more efficient vehicles.
Surveys have also shown that consumers support the development of emission-reducing technologies. Investing a portion of the increased tax in research to expedite the development of new technologies and designs could further reduce consumer/voter/auto industry opposition.
The Donald added another dimension into the CAFE debate just days ago in the context of the new import tariffs he will be levying. Trump has now asked—via the tweetisphere—the Environmental Protection Agency and the Departments of Commerce and Transportation to devise a plan that would subject imported vehicles to higher fuel efficiency/emission standards. In his tweet, he specifically cited the authority of the Clean Air Act, which is the same foundation upon which domestic CAFE standards are set. If an environmental tariff were actually levied, it could lead to a whole series of intriguing possibilities.
Clearly what Trump wants is to raise the manufacturing costs incurred by foreign car companies. He appears to be using the CAA simply as an excuse to increase the retail price of foreign cars versus those made in the U.S.A. It will be interesting to see if his directive is carried out—after all, it was only a Tweet. I'm curious to hear how Trump would reconcile a rollback of the U.S. standards while imposing stricter ones on imports in the name of the environment.
China and other nations would undoubtedly retaliate in-kind. His using CAA as the basis of new import fees could actually cause other nations to vent their earlier displeasure over Trump's earlier Paris decision. I can envision EU, Asian and Latin American nations using the move to add charges on U.S. exports as a carbon tax.
If the Trump inspired emission requirements were actually imposed, it would conceivably force U.S. automakers to adopt the same strict standards for the reason they now build to the higher California standard.
One additional outcome might be for foreign manufacturers to construct plants in the U.S. A possibility Trump would undoubtedly tout. At least until the first U.S. company announced it was planning to increase its overseas manufacturing facilities.
A traditional handicapping of the outcome of the debate on 2022-2025 CAFE leads to the unfortunate conclusion that the courts will be the ultimate arbiter of both the California question and the actual standard. Unfortunate in the sense that long delays lead to uncertainty and uncertainty leads to both climate and economic inefficiencies.
It is hard to imagine any subsidence of the current chaos in Washington. Each passing day brings with it another crisis in governing. The approach of the 2018 mid-term elections and the rising hopes of the Democrats to capture one or both Congressional chambers increases the turbulence.
The better the odds of a blue wave in November are, the more Trump will campaign outside of Capital City, and the more motivated he will be to posture in the extreme to his core supporters.
Thirty years’ experience is telling me that the best hope for a timely and constructive outcome in the matter of the 2022-2025 CAFE standards is for the state, industry, consumer, and clean climate stakeholders to seek a compromise solution amongst themselves and to deliver to the administration a signed and sealed agreement. Even then, it would be anybody’s guess as to the final outcome.
In the meantime, the best advice I can offer readers is the same as I have given to clients: Buckle up, as the only thing for sure about the future is the bumpy road ahead that will take us there!
[i] Arizona stopped following the California standard when Doug Ducey (R) became governor.
Image credit: Attributed to Goya (Francisco de Goya y Lucientes) (Spanish, Fuendetodos 1746–1828 Bordeaux)/public domain courtesy of Catharine Lorillard Wolfe Collection, Wolfe Fund, 1922
Joel B. Stronberg
Joel Stronberg, Esq., of The JBS Group is a veteran clean energy policy analyst with over 30 years’ experience, based in Washington, DC.