For auto industry, weaker fuel economy rules would mean a world of chaos
Posted August 2, 2018 5:31 p.m. EDT
(CNN Money) — The Trump administration's proposed rollback of auto fuel economy and emissions standards looks, on the surface, like a welcome gift to the auto industry. It's more like federal regulators just handed the auto industry a great big box of chaos.
The best outcome will be earnest negotiations to reach a new set of standards everyone can agree on. What's likely is a long period of uncertainty. And this at time when the auto industry is pouring billions of dollars into figuring out its future path — one that revolves around electric vehicles, autonomous driving and a big step back from fossil fuels.
Automobiles take years to conceive, design, create and test. The industry requires predictability and long time horizons. Requirements that could drastically change at unpredictable intervals can be far worse than rules that might be a little too demanding like the ones implemented under President Obama in 2012.
Rebecca Lindland is an industry analyst with Kelley Blue Book and was involved in an Obama-era review of the standards. She felt, even then, that some easing of standards was warranted, she said.
The problem with the increases in fuel economy envisioned under the Obama plan was that they were based on the expectation of greater consumer demand for hybrid and electric cars than actually materialized. Also, car buyers have shown an even greater demand for SUVs than anyone expected.
"I would like to see a more gradual, less disruptive easing of fuel economy standards," Lindland said. The new proposal, she said, will certainly engender bitter fights.
The Trump administration's proposal would essentially undo the Obama requirements. The proposed changes would freeze fuel economy and emissions standards at 2020 levels and change how emissions are regulated.
Automotive fuel economy and emissions requirements are a complex regulatory quilt. Fuel economy is regulated by the National Highway Traffic Safety Administration. Tailpipe emissions, however, are regulated, on the federal level, by the Environmental Protection Agency. The state of California also regulates tailpipe emissions in its state, and more than a dozen other states follow its lead.
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That awkward mix of regulations worked just fine, more or less, for years. That was until, in 2007, courts ruled that the EPA should regulate emissions of carbon dioxide. Carbon dioxide, which causes global warming, is different from other auto pollutants in that there is simply no way to reduce it beyond reducing the amount of fuel burned. That put the EPA into the position of, essentially, regulating fuel economy.
California also wanted to regulate C02 emissions. That created the nightmare possibility, for the auto industry, of three conflicting sets of fuel economy requirements. The answer, hammered out through negotiations among NHTSA, the EPA, California and the auto industry, was the auto emissions and fuel economy rules announced in 2012.
Besides halting future increases in fuel economy requirements, the Trump administration also wants to take away California's right to set its own vehicle emissions standards. This will be the biggest source of conflict.
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While individual automakers have yet to comment on the proposal, the largest industry groups, the Auto Alliance and the Association of Global Automakers, signaled their hope for a quick negotiated agreement.
"With today's release of the Administration's proposals, it's time for substantive negotiations to begin," the groups said in a joint statement. "We urge California and the federal government to find a common sense solution that sets continued increases in vehicle efficiency standards while also meeting the needs of America's drivers."
In the meantime, automakers will probably continue to increase fuel economy of their new vehicles, said Carla Bailo, head of the Michigan-based Center for Automotive Research.
For one thing, the companies have already invested time and money in designing more efficient vehicles. Consumers have been trained, through years of improving fuel economy, to expect better mileage with each new vehicle they buy.
Also, major automakers are global companies and, in other parts of the world, emissions rules are continuing to tighten. Carmakers don't dare stop in their tracks — no matter what the current administration in Washington says.