When Donald Trump was elected President on a platform to deregulate businesses, you could almost hear the joy in Detroit.
The auto industry is one of the most heavily regulated industries in the US, which is appropriate considering these companies build machines weighing thousands of pounds that can go 100 mph.
Since the election, carmakers and their lobbying group, the Alliance of Automobile Manufacturers (made up of 12 companies), have been pressing the new administration to reopen a midterm review of the EPA’s Corporate Average Fuel Economy (CAFE) standards. At the end of 2016, the Obama administration EPA, as well as the National Highway Traffic Safety Administration, locked in fuel-economy and greehouse-gas emission targets for the automakers, compelling them to achieve an average of 54.5 mpg by 2025.
The Alliance wants to see a revisitation of the so-called Final Determination, the review of which auto-industry executives have argued was “short circuited” without sufficient carmaker input. In a letter sent to new EPA Administrator Scott Pruitt, the group argued that the midterm review should be revived so that carmakers could present information based on their compliance records. They also want the administration to consider whether standards mutually agreed upon in 2009 continue to make sense.
In the letter, the Alliance wrote that the “standards threaten to depress an industry that can ill afford spiraling regulatory costs” and maintained that 1.1 million jobs could be lost due to the regulations.
So with the battle lines drawn, and with the automakers looking to get their rollback from Trump, what are CAFE standards all about and where did they come from?
Blame the 1970s
The oil crisis of the early 1970s provoked Congress to pass laws requiring higher fuel economy numbers for passenger cars and light trucks (which later prompted automakers to create SUVs, which fell into the truck category and had lower mpg standards than cars). The MPGs rose steadily over the years, but from the early 1990s onward, the standards were essentially unchanged.
In 2009, the new Obama administration, following earlier efforts by the George W. Bush administration, sought to raise the standards. The difference between the 1970s legislation and the directives that emerged around the financial crisis was that in the ’70s, oil shortages were the driving factor, whereas in the 2000s, climate change and greenhouse-gas emissions were at the forefront.
The midterm review
By 2011, the Obama EPA and NHTSA had cooperated with the auto industry to improve standards by 2025. A midterm review was scheduled for 2016, at which point progress on the standards could be assessed and the automakers could argue their case for being able to sell more pickups and SUVs and fewer money-losing small cars, hybrids, and electric cars.
The automakers also aren’t pleased that California has a waiver that allows the state to set its own rules, which require higher standards than the rest of the country. Ford CEO Mark Fields has repeatedly insisted that there should be a single national standard, not two.
It’s now likely that the Trump EPA and Department of Transportation, which contains NHTSA, will re-open the review process.
It’s a safe bet that the automakers will not only get to present their case, but they will also have a chance to adjust the timetable. This assertion is based on the argument that US consumers favour trucks and SUVs over hybrid and electric vehicles, so car companies should be able to sell as many low-mpg vehicles as possible before a sales downturn hits.
Supporters of the 2025 CAFE goals won’t like that outcome because they argue that the automakers are already meeting their obligations under the timetable and don’t need a break. Furthermore, higher fuel-economy and emissions standards will potentially alleviate global warming.
The automakers have an advantage here because although they can and have improved the fuel-economy and emissions of their SUVs and pickups, they don’t want to be forced to build and market small cars and electric vehicles that are expensive to develop but haven’t yet caught on with consumers.
Depending on how things go, the automakers could be poised to get their first big win from the Trump administration.