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Trump Takes Automakers for a Ride Around Capital City CAFE Anyone?

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Since Day 1 of the Trump presidency, the auto industry had been hoping to re-negotiate the deal it struck with the Obama administration on auto and light truck fuel efficiency standards (CAFE) for the period 2021 through 2026. On April 3, 2018, then EPA Administrator Scott Pruitt announced that the Agency was rolling back the previously agreed to targets—proving that in the age of Trump wishes can come true.

Now, nearly a year later, the auto industry is learning the meaning of the phrase be careful what you wish for; it just might come true. The bad news came to industry representatives in late February on a conference call with the White House. They were told that the Administration had cut-off any further conversations with California officials and was going ahead with its proposed Safer Affordable Fuel-Efficient (SAFE) Vehicles Rule that freezing the standards at 2020 levels.

The freeze has been called the Trump administration’s most environmentally significant regulatory rollback yet" by the Rhodium Group following its penetrating analysis of the rule’s impact on the environment. The call is not surprising. The transportation sector has surpassed electricity as the major contributor of greenhouse gases (GHGs) to the atmosphere; and, Trump’s efficiency 36.9 mpg is standard is 14.5 mpg more lenient than Obama’s 51.4 mpg. [1]

Before going into why the auto industry is unhappy about the freeze decision and the role played in all of this by California, a bit of background will help to set the stage.

A brief history of CAFE

The authority to set auto emission standards was initially granted to the federal government by the 1970 Clean Air Act (CAA). The standards themselves were established in 1975 as part of the Energy Policy and Conservation Act (EPCA). The move was motivated by the 1973 oil embargo with the intention of reducing reliance on foreign oil. The passage of EPCA had very little to do with reducing the climatic impacts of auto emissions.

As the CAA was being drafted and debated, California prevailed upon Congress to include a waiver provision allowing it to set more strident requirements than those established by the EPA. The request was based on the large number of autos in the state and the unique geographic circumstances responsible for its air quality problems, i.e., the frequent trapping of polluted air in the Los Angeles basin.

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 receive the waiver but are permitted to adopt California's standards in lieu of EPA’s.

EPCA set the goal at an average of 27.5 mpg by 1985—roughly twice the 1978 model year average. Auto/light truck fuel efficiencies stayed much the same as they were in 1978 until the Energy Independence and Security Act of 2007 (EISA) was signed by President G.W. Bush. Support for vehicle fuel efficiencies was again more a matter of supply security than environmental defense. (see Figure 1)

EISA raised the combined average of SUVs, cars and light trucks to 36.9 mpg by 2020. Between 2020 and 2030 expectations for further increases are phrased as the maximum possible rather than as a number.

In 2009, an agreement between the Obama administration, state regulators, and the auto industry established the 2025 goal of 51.4 mpg—the standard the Trump administration is now rolling back to the 2020 level.

The agreement came about because of the unfortunate position the auto industry found itself in during the Great Recession. The timing of all these events coincided with the decision in Massachusetts v EPA. The case cemented EPA’s authority to regulate auto emissions and set the stage for the 2009 endangerment finding that led to the Clean Power Plan.

The auto industry’s predicament gave President Obama leverage. He wanted the average fleet-wide fuel efficiency to reach over 50 mpg by 2025. The industry needed a handout.

Bailout today versus efficiency standards a decade down the road never presented much of a dilemma for the industry; it needed the money, and a lot could happen in ten years. Indeed, it has!

For the auto industry, the 2016 election was a second chance to make a first impression. In Trump, automakers thought they had a witting partner. What the industry has since come to find out that its partner has his own agenda.

Where the auto industry and the White House differ

The simple fact of the matter is that automakers never wanted the rollback. What they wanted was more time to reach the 51.4 mpg goal and some flexibility in how to achieve it.

Regulatory responsibility for establishing the auto emission standards is shared by three entities—EPA the National Highway Transportation and Safety Administration (NHTSA) and the California Air Resources Board (CARB). CARB is included because of the California waiver provision in the Clean Air Act.

It has long been the hope of the auto industry that the three offices would create a single rule to avoid balkanized markets. The late-February conference call between the White House and the automakers followed the announcement by EPA Administrator Wheeler that the Administration has called-off any further negotiations with California. The move guarantees the involvement of the courts.

California, along with 16 states and the District of Columbia, has already sued Trump and company over their announced intention to roll back the Obama era standard. Now that the rollback is a sure thing the existing case will continue to go forward, and new cases will be filed.

There are only two possible ways a single national fuel efficiency standard can become a reality. Either the federal government and the CARB agree on the same target(s) or, the Administration takes away California’s power to create its own. Trump has chosen Door Number 2.

Now the auto industry is faced with years of uncertainty about what the 2021-2026 standard(s) will be. I think it can be safely said that the only thing automakers like even less than the Obama rule is being placed in limbo by Trump.

There is a fair span of difference between a fleet efficiency of 36.9 mpg and 51.4 mpg. Lead times are needed to design and engineer in the needed systems. Based on other climate-related lawsuits the Trump administration is facing, a final court decision in the CAFE cases won’t be settled before 2021.

Technically there are two separate questions the courts will have to answer. Can the Administration rescind the California waiver and is it reasonable under the Clean Air Act for EPA to freeze the 2021-2026 standard at the 2020 level? The waiver has only been refused once before by the George W. Bush administration. The waiver was suspended weeks before President Obama was sworn into office. The waiver was re-issued within weeks of its rescission.

Even should the courts answer both questions within the next 12-14 months, EPA will likely have to amend or re-issue its rule.  Doing so would involve soliciting public input and conformance with other provisions of the Clean Air and Administrative Procedures Acts.

The White House has added years to the process. If you’re the auto industry what do you do? I think the answer to that is to do everything possible to meet the Obama era standard.

Unless the Administration changes its mind and returns to the bargaining table with California, automakers are going to find themselves in a much worse position than they would have been had they not asked Trump for help.

The manufacturers’ mistake was in thinking the Administration involved itself for their benefit. Trump is using the current conflict both to appeal to his core constituency and showing California who’s the boss. I wrote in June of 2017 and again in 2018  that this was going to play out exactly as it has. Luckily it didn’t take a genius to predict how this story would end.

Trump ran on a platform of environmental deregulation—almost anything he can do exercising his executive authority he does. When it comes to climate change, the Trump administration is doing everything it can to erase President Obama’s environmental legacy whether it’s pulling the US out of the Paris Climate Accord, slapping tariffs on photovoltaic panels and imported steel, putting climate deniers in charge of federal agencies, or rolling back auto emission standards.

CAFE is not the only case in which a fossil-fueled industry sees the rollback of environmental regulation as excessive and dangerous. Shell Oil Company is asking the Trump administration to do more not less about regulating methane emissions. Reuters reports:

Methane, the primary component of natural gas, leaks from oil and gas wells during drilling. It accounts for 10 percent of U.S. greenhouse gas emissions but has more than 80 times the heat-trapping potential of carbon dioxide in the first 20 years after it escapes into the atmosphere. 

Shell has internally set targets to maintain its methane emissions by 2025 to below 0.2 percent of production, far exceeding current EPA regulations.

Ironically, perhaps, the oil industry is probably the only one pleased about Trump’s freezing the CAFE standard at the 2020 levels. Fewer mpg’s means greater gas consumption.

What now?

Automakers have painted themselves into a corner. The conference call between the White House and automakers is said to have put the industry on notice—it is either with the Administration on this, or it’s with California and environmentalists. An uncomfortable position to be in, I would imagine.

Going forward it will be up to the courts to resolve the various issues involved. The Trump administration is unlikely to risk being called-out as wimps now that it’s drawn a line in the sand.

The next battle between the industry and the White House may well be over their differences in judging the future of electric vehicles (EVs). The industry is calling for an extension of the EV tax credit, while the Trump administration is on record opposing them.

Automakers are going to have to decide whether to take the high road or the low. They have the technology, and I think the desire, to continue making more efficient vehicles. How much more could be done if the Trump administration wasn’t so much about Trump?

That’s a discussion for another day. In the meantime, be careful what you wish for.

***********************

[1] Under the Obama rule, passenger cars and light trucks would see a real-world average of 37.4 miles per gallon by 2025, according to Mui’s calculations. Under the Trump administration’s preferred proposal, that would drop to 29.6 miles per gallon, a reduction in nationwide fuel efficiency of about 21 percent. (Source: Washington Post)

Joel Stronberg's picture

Thank Joel for the Post!

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