Making sense of the EPA’s threat to ditch fuel economy standards
On April 2, the American Environmental Protection Agency’s administrator Scott Pruitt announced his organization intends to roll back Obama-era greenhouse gas and fuel emissions standards for cars and light trucks, fulfilling President Donald Trump’s campaign promises to rescind the previous administration “overreach” in environmental affairs.
For those not familiar with President Barack Obama’s ambitious plan to reduce automotive CO2 tailpipe emissions, it basically went like this: passenger cars (non-trucks) had to improve their fuel economy by five per cent year over year until 2025, while trucks (pickups and large SUVs) had to improve by 3.5 per cent annually. If the fleet composition (the number of cars versus trucks sold) remained the same, these annual improvements would have resulted in a national fleet average of 54.5 miles per gallon. Hence the common, though mistaken, conception Obama’s regulations mandated a 54.5-mpg fuel economy average.
THE PLAYERS
Before you can fully understand what Pruitt is proposing and what issues it may cause, you need to know the players in the game. Though it’s more complicated than this short explanation allows, basically the EPA is in charge of emissions and the American Department of Transportation (DOT) through the National Highway Traffic Safety Administration (NHTSA) has dibs on fuel economy. Finally, the California Air Resources Board (CARB), thanks to a waiver in the Clean Air Act, sets its own more stringent standards.
Complicating things further is CARB emissions regulations apply in 12 states that have decided to adopt California’s standards, which means that though the EPA ostensibly sets nationwide emissions standards, anywhere between 30 and 40 per cent of all the cars and trucks sold in the U.S. actually follow CARB’s strictures and not the EPA’s. Though seemingly at odds, the triumvirate seemed to at least peacefully coexist.
THE ANNOUNCEMENT
Nobody actually knows what the EPA’s plans are. What we do know is they plan to roll back some portion of Obama’s 2021-25 regulations. The reasoning — long trumpeted by automakers, especially the Detroit Three — is gas has become so cheap consumers are flocking to SUVs and pickups, making it unfair to hold automakers accountable for consumers purchasing vehicles with poorer fuel economy.
On the face of it, that makes sense, doesn’t it?
THE DECEPTION
Er, not quite. As Driving.ca has previously explained, the way the rules are written, consumers can swap their fuel-sipping econcars for gas-guzzling pickups and, as long as said pickups improve their fuel economy, the automakers would still be compliant. Ford, General Motors and Fiat Chrysler could all convert their entire fleets to F-150s, Silverados and Rams and face no penalties as long as those trucks increased their fuel economy.
WHAT THEY REALLY WANT
Without being party to Pruitt’s memorandum, it’s impossible to be certain, but the only thing that makes sense is they simply don’t want to improve their trucks’ fuel economy. With the average consumer not giving a fig for fuel economy, they feel their efforts are wasted. In 2011, when the Obama rules were written, fuel economy ranked second in importance for consumers’ purchase decisions; now it’s 10th.
FOLLOW THE MONEY
Trucks are, by far, the most profitable product domestic automakers sell. Morgan Stanley estimated in 2012 — before the recent surge in truck sales — that 90 per cent of Ford’s worldwide profit came from its F-series pickups. Individually, trucks are reckoned to each generate between US$8,000 and US$12,000 of gross profit. And with truck sales booming, maximizing profits is what this is really about.
A PESSIMIST’S OUTLOOK
The worry evinced by many analysts — and the reason for that seemingly convoluted explanation of jurisdictions at the beginning of this treatise — is if the three important governing bodies are no longer in harmony, the automakers the deregulation is supposed to help may instead suffer. If, for instance, California sticks to its tighter regulations, that might mean producing vehicles for the states that follow its strictures and different ones for the remaining states. Just as pertinent, if Pruitt truly eviscerates the current rules, America’s automakers would fall behind other manufacturers in the quest for cleaner tailpipes. With most other developed countries still committed to CO2 reduction, Europe and China would become the world’s leaders in emissionsreduction technology.
AN OPTIMIST’S VIEW
There is the possibility the EPA’s alterations could end up being reasonable. The EPA could, for instance, change the standards only for light trucks and leave the passenger-car portion of the regulations alone. That would boost profitability for Ford, FCA and GM — for whom trucks and SUVs account for more than 75 per cent of sales — while still forcing them to remain au courante in their development of passenger-car emissions-reduction technology. Since their truck sales are largely in North America, the automakers would not become irrelevant on the world stage.
A CANADIAN PERSPECTIVE
Canada currently follows American nationwide standards calling for continual fuel-economy improvements to 2025. If the EPA does indeed roll back its requirements, will the Trudeau government follow the now weaker U.S.-wide standards or adopt the stricter California rules?