- The major automakers and the big oil companies have long been thought to have shared interests.
- But when it comes to California’s waiver to set its own mileage and emissions standards under the 1970 Clean Air Act, those interests could diverge.
- The Trump administration’s Environmental Protection Agency has taken on California in a looming battle that oil giants want but big auto companies do not.
Oh, what a fine mess we’ve found ourselves in!
The auto industry and the Detroit carmakers, in particular, thought President Donald Trump was in the bag. General Motors, Ford, and Fiat Chrysler Automobiles moved quickly to forge a deal soon after the 2016 election, asking for a reopening of a review of fuel-economy standards that had been locked in late in the Obama administration.
The automakers had a fair case and had been pleading it for months, with Ford taking the lead. Trump wanted a deal. There may even have been a sort of weak quid pro quo for Trump, who might have thought Detroit would do some hiring or invest in factories, providing headlines that would please the president’s supporters in the Midwest.
But Trump wanted another deal – or, more accurately, he wanted to punish California, which for decades has held a waiver to set its own standards. Thanks to the language of the 1970 Clean Air Act, California can ask the Environmental Protection Agency for a waiver whenever it wants, as The Atlantic noted:
“This power is reserved alone for California, and it only covers pollution from cars. No other state can ask for a waiver. (In all of federal law, this might be the only time that a specific state is given special authority under such a major statute.)
“Under the same provision, any other state can choose to adopt California’s more stringent standards. Fifteen states currently opt for the tougher rules, including Georgia, Pennsylvania, North Carolina, and the entire New York metro area. This means that California’s rules actually cover 135 million people, more than 40 per cent of the US population.”
Despite being something of a purple state, California’s government is bright blue – and the state is a constant challenge for Trump, with a retiring governor in Jerry Brown who has been a leftist combatant since he took on the oil companies as a lawyer back in the early 1970s, leading to his first stint as governor.
With just a few months left in his final term, Brown is preparing to pass the baton to a successor, most likely Gavin Newsom, the Democratic frontrunner who previously served as mayor of San Francisco. At stake is the leadership of state whose $US2.7 trillion economy is larger than Britain’s.
Car companies want a single national standard
California is no-how, no-way backing down from its EPA exception – and the automakers don’t want it to. The language they typically use is “one national standard,” by which they mean California’s standard. If compelled to choose, the car companies would go with the Golden State and not look back, given the nightmare of meeting two national standards or trying to figure out what to do in terms of future product planning if a protracted legal battle were to throw California’s waiver into doubt.
The situation highlights an undermentioned misalignment between big auto and big oil. The two are routinely assumed to be in cahoots, and in some ways they are conjoined. The oil business makes a vast fuelling infrastructure possible and over time has managed to hold down the price of gas in the US, which can be both good and bad for business (too cheap is clearly a negative for profits, but too expensive raises existential questions).
Automakers are also deeply invested in technological innovation, however, much of it to improve the fuel-efficiency of internal-combustion engines both to satisfy regulators and to please customers. As much as the oil business wouldn’t mind going back to a world in which big V8 engines got 12 miles a gallon and produced the kind of power we now associate with fuel-sipping turbocharged four-cylinder motors, car companies much prefer the new normal, not least because it generates new patents and prevents consumers from demanding a wholesale shift to new propulsion technologies.
This split between big auto and big oil has been under the radar for some time, but the competing priorities of each industry are being pushed to the forefront by Trump’s moves. Big-oil companies are jumping for joy over the looming California battle, while big auto is losing sleep.
Big auto’s long-term prospects used to be better
Long term, big auto was in a better position (though it’s a mistake to assume the big oil exists in a technological vacuum; the whole “peak oil” thesis was undermined by oil companies getting better and finding and extracting reserves once thought too difficult to reach).
The Trump White House is now making a bad situation worse. “Under so-called ‘flexibilities’ in the government’s current fuel-economy program, companies have the freedom to average fuel economy across their entire fleet,” Bloomberg reported. “This enables them to offset gas-guzzlers by selling electric vehicles and other super-efficient autos.”
Keep building large, highly profitable SUVs in exchange for developing EVs, hybrids, fuel-cell vehicles, and so on. Big auto may not sell that many of the latter – EVs make up just 1% of the global market – but it builds them anyway and has the technology in reserve should gas prices spike as they did after the financial crisis, wrecking the SUV and big pickup-truck market.
The tech also assists carmakers in meeting multimarket regulatory expectations; Europe, for example, doesn’t have the same dynamics as the US, and China is destined to be a land of smaller gas engines and electric cars.
But as Bloomberg has pointed out, for big oil a rollback on standards and an end to the California exception would translate into a basic, even blunt advantage. Demand for oil would rise – not massively, but by a few percentage points. And every little bit counts in a world where catastrophes related to global warming are leading to headlines about Miami being underwater and Northern California burning to the ground every summer.
When it comes to technology, the auto industry has no choice but to innovate
Big auto has a much greater incentive to steadily oppose a revoking of California’s waiver. In the US, the industry is heading into the early days of an overdue sales downturn after years of record results. The major automakers are under pressure from ride-hailing services and have seen Tesla create a market cap higher than that of Ford or FCA. Volkswagen’s diesel strategy to comply with European regulation is in a scandal-induced shambles.
All they wanted was for the Obama standards to be slowed, and that’s what they got with their early dealmaking. They didn’t even want to consider that the California waiver would come under attack in the bargain, given that they have no good way to build vehicles for multiple standards.
We’re just at the beginning of this war, but there’s a strong possibility that big auto and big oil, which haven’t truly been on the same side for decades, could witness their shadowy opposition burst into the daylight, forcing the auto industry to overtly oppose Trump rather than simply work to manipulate his inexperience and his lust for deals behind the scenes.
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