Fuel efficiency rules keep U.S. competitive

Easing vehicle emission standards gives countries like China an advantage

On April 2, the Environmental Protection Agency moved to ease vehicle emissions standards, which would require average fleet-wide efficiency of new vehicles to be 54.5 miles per gallon (closer to 36 miles per gallon factoring in a complex credit system) by 2025. Like the Clean Power Plan, the Obama administration designed these standards, known as Corporate Average Fuel Economy (CAFE) standards, to reduce greenhouse gas emissions under the Paris Agreement. Much attention has been directed at the Clean Power Plan’s repeal, but weakening CAFE standards would be worse not only for the environment, but also for the broader U.S. economy and national security.

Environmentally speaking, CAFE standards are more important than the Clean Power Plan. Most states are still expected to hit their CPP targets because of increasingly cheaper wind, solar and natural gas. And some states such as California and New York are forging ahead with more ambitious campaigns to reduce power sector emissions. However, the transportation sector has been slower to slash emissions.

But CAFE standards are not just about climate change. When they were first introduced after the 1973 oil embargo, their primary purpose was to increasing America’s energy independence and reducing its exposure to foreign oil producers. America has since transformed itself into one of the world’s largest oil producers, but few other market dynamics have changed. As oil is traded globally, Americans are still vulnerable to the instability that occurs anywhere oil is produced.

In the near half century since the embargo, supply disruptions seem as likely as ever, as major oil producers face persistent turmoil — civil unrest in Venezuela, civil war in Libya and the Islamic State in Iraq. Iran still regularly threatens to shut down the Straits of Hormuz, through which 20 percent of the world’s oil passes. Coming elections in Iraq and Venezuela or the reimposition of sanctions on Iran could trigger price spikes.

These scenarios are not individually likely but collectively demonstrate the enduring need for safeguards against global oil price volatility.

There are only two surefire ways to minimize U.S. exposure to this volatility: keeping strategic petroleum reserves to smooth over disruptions and reducing oil consumption. In the second case, global price swings matter less if the economy needs less oil to function. CAFE standards work toward this goal and are all the more necessary at a time when Congress plans to sell off a substantial part of America’s emergency oil reserves. Without either safeguard, the U.S. economy is more vulnerable to market fluctuations at best and its adversaries’ intentions at worst.

And oil prices are cyclical — right now, they are relatively low at about $63 a barrel, but they have doubled from a 12-year low of below $30 a barrel in 2016. There are myriad indicators that prices will continue to rise. Among them are not only the geopolitical risks that major oil producers confront, but also OPEC’s discipline and Russia’s surprising willingness to cooperate in maintaining production quotas, which they might extend for a decade or more.

When oil prices do rise, American consumers will be on the hook for higher gasoline bills. If Americans pivot to more fuel-efficient cars in the eventual spike, they would likely send their dollars to European, Japanese and Chinese vehicle manufacturers, which must meet their own stringent domestic fuel economy standards.

These consumer preferences come with national security concerns. Beijing is positioning itself to dominate the global vehicles market as part of its national strategy to capture strategic, advanced technology industries. Considering recently enacted tariffs on solar panels are unlikely to erode China’s entrenched position in that market, the White House should not cede the vehicles sector while it still has the chance.

Softening CAFE standards also undercuts the administration’s energy dominance strategy, which would see America become a net energy exporter and use its energy resources as an engine for economic growth. Even without CAFE standards, the United States is projected to become a net energy exporter by 2022, net exporting 2,500 more barrels per day. But, with CAFE standards, that same goal would be achieved a year earlier with net exports reaching 1.45 million barrels per day. That disparity is staggering in the long-run. If America keeps CAFE standards, net exports would be as much as 4.2 million barrels a day by 2030. Without them, net exports drop to 1.47 million barrels a day. This difference represents foregone jobs growth, sacrificed trade gains, and missed opportunities to bolster ties with less energy-secure allies.

More so than any other EPA rule, CAFE standards align with the White House’s plan to lift the economy and usher in a new era of energy dominance. Even if the environmental benefits do not appeal to Administrator Pruitt and the Trump administration, the economic and geopolitical benefits should be enough to keep CAFE standards in place.