Trump's Fuel Efficiency Freeze Brings The U.S. Auto Industry To A Fork In The Road. Will It Take The Path Forward Or Go In Reverse?
- August 8, 2018
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By Margo Oge, director of the EPA’s Office of Transportation and Air Quality between 1994-2012 and a key architect of the 2025 CAFE federal fuel efficiency standards.
Only ten years have passed since the U.S. auto industry took the wrong fork in the road and effectively imploded during the 2008 economic crisis. Among the factors that contributed to the bankruptcies of Chrysler and GM were bank-breaking gasoline prices. No one wanted to buy the gas-guzzling SUVs that made up a disproportionate amount of their production.
Ten years later, the U.S. auto industry is once again at a crossroads that will not only chart their future, but also reshape the future for consumers and our planet.Today, amidst all of the White House’s political maelstroms, the federal government rolled out a dangerous proposal to freeze automotive fuel economy and greenhouse gas standards.
The current standards, known as the 2025 program, will double the fuel economy of vehicles to 51.5 miles per gallon and cut greenhouse gas emissions by half by 2025. The administration’s proposal seeks to freeze the standards at 2020 levels through 2026. In addition, the proposal also seeks to prevent California from adopting its own, stronger greenhouse gas standards, which it has had the authority to do since the inception of the EPA 46 years ago.
Although the auto industry had asked the Trump administration to relax these standards in 2017, Trump’s move goes much further than what they asked, and is not necessarily welcome for the industry. After all, auto companies worked closely with the federal government to develop these standards in the first place.
In helping to create the standards, the federal government and California believed –and the auto industry agreed – that this would help the industry become more competitive through advanced technologies that make today’s cars more like smartphones than rotary phones, save the consumer an average of $8,000 at the pump over the life of a vehicle, and save the planet the burden of another 6 billion tons of CO2.
A truly rare win-win.
But this proposal puts that win-win at serious risk. A recent analysis by Energy Innovation predicts that freezing the standards will cost the U.S. economy $457 billion by 2050, while increasing transportation sector emissions 11 percent to 1,432 million metric tons by 2035.
Since making their initial rollback request, the automakers have also repeatedly asked the federal agencies to work with California, which is a partner in the current national 2025 program, but has stated it will not be party to the freeze. In fact, a coalition of 18 U.S. states, including California, has already sued President Donald Trump‘s administration over plans to roll back vehicle emissions standards. The auto industry is aware that California has filed 10 lawsuits against against Trump’s EPA and the state has won every single one of them.
The industry is rightfully worried that the legal process with California and other states – and this will all have to go through the courts – will create massive chaos and legal fights on a number of fronts especially as the proposal is based on dubious technical, economic and legal analysis. The challenges created by the federal decision, including planning and investment uncertainty, is far from a win-win.
To illustrate this point, the typical 2022 model year vehicle will go into full scale production in September 2021, some 38 months from now. It takes between 24-36 months to engineer a new vehicle. By comparison, it may take several years before the court cases are even heard, much less settled.
In addition to threats of litigation, the auto industry is also concerned about global competitiveness. Automakers develop their core technologies in their core markets and then export them. GM’s electric vehicles in China use technology developed in Detroit. Relaxing standards in the U.S. may not only hurt the competitiveness of domestic automakers, but they may end up having to build “old tech” vehicles for their U.S. markets.
So will consumers buy a U.S. “old tech” car or will they want a foreign import with “advanced tech”? Try offering a smartphone customer a rotary phone.
The Trump administration’s move hurts jobs just as much as it threatens the planet. Much of the $76 billion in capital invested by the auto industry since 2008 went to technologies that help reduce fuel consumption. Looking into the future, a recent analysis found that the Clean Car Standards will create more than 100,000 U.S. jobs in 2025 and more than 250,000 U.S. jobs in 2035.
The best way to create jobs, remain globally competitive, tackle climate change, and avoid litigation is for car companies to now work with California to agree on a set of 2025 standards that, in turn, becomes the de-facto national program. California also has public willingness to work with car companies.
Mary Nichols, head of the California Air Resources Board, has publicly said that agreements with the federal government or automakers could be struck in the coming months as the state pursues their changes to their own GHG standards through 2025. “If the car companies want to come and talk to us, they will,” Nichols said.
The auto companies are clearly at a crossroads. So which fork will they take: the one with the innovative new smart phone, or the one with the old rotary?