Making sense of EPA’s fuel economy threat
Easing rules may boomerang and drag Canada in
On April 2 — yes, one day after April Fool’s Day — the U.S. EPA’s administrator, Scott Pruitt, announced his organization intends to roll back Obamaera greenhouse-gas and fuel emissions standards for cars and light trucks, fulfilling President Trump’s campaign promises to rescind “overreach” in environmental affairs.
Obama’s ambitious plan to reduce automotive CO2 tailpipe emissions basically went like this: Passenger cars had to improve 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, perception that Obama’s regulations mandated a 54.5 mpg fuel economy average.
THE PLAYERS
Though it’s more complicated than this short explanation allows, basically the EPA is in charge of emissions and the 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, sets its own, more stringent, standards for the Golden State.
Complicating things further is that 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.
THE ANNOUNCEMENT
Nobody actually knows what the EPA’s plans are. What we do know is that they plan to roll back some portion of Obama’s 2021 to 2025 regulations. The reasoning — long trumpeted by automakers, especially the Detroit Three — is that gas has become so cheap that 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 econocars for gas-guzzling pickups and, as long as said pickups improve their fuel economy, the automakers would still be compliant. Indeed, Ford, GM and Fiat Chrysler could all convert their entire fleets to F-150s, Silverados and Rams and face no penalties as long as, again, those trucks increased their fuel economy.
WHAT THEY REALLY WANT
So, if they’re not being penalized because consumers are buying more trucks, what do automakers really want? It’s impossible to be certain, but the only thing that makes sense is that 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 purchase decisions; now, it’s tenth.
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 pickups. Trucks are reckoned to each generate between US$8,000 and US$12,000 of gross profit. And with truck sales booming, reducing manufacturing and development costs and maximizing profits is what this is about.
A PESSIMIST’S OUTLOOK
The worry evinced by many analysts is that, if the three 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 some vehicles for the state (and the states that follow its strictures) and different ones for the remaining states. Just as pertinent, America’s automakers would fall behind in the quest for cleaner tailpipes. With most other developed countries still committed to CO2 reduction — and unlikely to rescind their standards — Europe and (especially) China would become the world’s leaders in emissions reduction technology.
AN OPTIMIST’S VIEW
There is the possibility that the EPA’s alterations to the rules could end up being reasonable. The EPA could, for instance, change the standards only for light trucks and leave the car portion alone. That would boost profitability for Ford, FCA and GM while still forcing them to remain au courante in passenger-car emissions reduction technology (not to mention electric vehicles). 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 roll back its requirements, will the Trudeau government — notoriously anti-fossil fuel — follow the now weaker U.S.wide standards or adopt the stricter California rules?
If Canada were to adopt CARB’s tougher, that would place fully half of all the vehicles sold in North America under California’s rules, something unlikely to sit well with either Trump or Pruitt.