Obama Administration “Can’t Wait” to introduce New Fuel Economy and GHG Pollution Standards

Today, November 17, 2011, The Environmental Protection Agency (EPA) and the Department of Energy (DOE) formally unveiled their joint proposal to set stronger fuel economy and greenhouse gas pollution standards. This plan for strengthening  Corporate Average Fuel Economy standards, is known as CAFE, and is in effect for model years 2017-2025. The 2025 target is 54.5 miles per gallon (mpg), which is almost double the current standard.

This proposal is not new. The CAFE plan has been introduced before but was placed on hold. Now, the Obama administration claims that it can no longer wait to implement these new fuel economy standards.

Under the new program, automakers need to increase the efficiency of cars by 5 percent annually from 2017 to 2025. Light trucks will have to become 3.5 percent more efficient for the first four years of the program, and then 5 percent annually for the remainder of the cycle. The new rules extend and broaden the existing CAFE rules, which require new cars and trucks to achieve an average of 34 miles per gallon by 2016. Currently, vehicle fleets average 27 miles per gallon.

The administration estimates that the standards will save consumers $1.7 trillion in fuel costs by the year 2025 and reduce oil consumption by 2.2 million barrels a day. The oil savings, consumer, and environmental benefits of this comprehensive program are detailed in a report released by the administration entitled Driving Efficiency:  Cutting Costs for Families at the Pump and Slashing Dependence on Oil. While the administration is quick to point out the cost savings, it has yet to release numbers detailing the projected costs of complying with the new standards or an estimation of how much the price of a typical car will increase in response.

The lack of information on the costs of the proposals is not due to lack of participation by automakers. The proposed standards represent a compromise between federal officials, carmakers, environmental groups, and California regulators. However, the relative balance of powers between these parties is skewed towards the regulators for two reasons.

The first factor impacting the rules is the involvement of California. Under the Clean Air Act, California is allowed to set stricter standards than the federal government, and other states can then choose to adopt California’s standards instead of the federal standards. Automakers have an incentive to support stricter federal standards if it means they will not have to comply with two different standards on a state by state basis or let California become a pseudo-EPA.

The second important factor tending to produce stricter standards is the administration’s relatively new ability to set standards without Congressional approval. Prior to the 2007 Supreme Court ruling in Massachusetts v. EPA the EPA and the National Highway Traffic Safety Administration (NHTSA) needed Congressional approval to increase fuel economy, today that is arguably unnecessary, giving the agencies greater negotiating power over the manufacturers.

Automakers were able to secure a recommended mid-term evaluation of the standards given the long time period covered by the rule, and it is likely that as with the current standards, mpg will be averaged over the fleet.

The agencies are also considering a number of incentive programs to encourage early adoption and introduction into the marketplace of advanced technologies that represent “game changing” performance improvements, including:
 
Incentives for electric vehicles, plug-in hybrid electric vehicles, and fuel cells vehicles;
Incentives for advanced technology packages for large pickups, such as hybridization and other performance-based strategies; and Credits for technologies with potential to achieve real-world CO2 reductions and fuel economy improvements that are not captured by the standards test procedures. 
 
In addition, the EPA plans to propose provisions for: Credits for improvements in air conditioning (A/C) systems, both for efficiency improvements and for use of alternative, lower global warming potential refrigerant; Treatment of compressed natural gas (CNG); and Continued credit banking and trading, including a one-time carry-forward of unused MY 2010-2016 credits through MY 2021.

The EPA and the NHTSA are developing a joint proposed rulemaking, which will include full details on the proposed program and supporting analyses, including the costs and benefits of the proposal and its effects on the economy, auto manufacturers, and consumers. After the proposed rules are published in the Federal Register, there will be an opportunity for public comment and public hearings.

Additional information about CAFÉ standards is located on GLLF’s Federal Fuel Economy and Vehicle Greenhouse Gas Emissions Standards for Cars and Light-Duty Trucks webpage.