Make no mistake, when gas prices are modest, or more accurately, appear modest to the American consumer, market research shows that we favor, big, fast, luxurious cars, trucks and SUVs. Neighborly banter in Anywhere, USA, proceeds as follows: “Sweet ride. That thing have the V-8 in it?” “Heck, yeah it does. 0-60 in 4 seconds while my seat gives me a massage and the kids watch movies in the back. It has a third-row seat that we don’t even use!”
However, there is a portion of the U.S. population voicing concern that those market forces must be weighed against public health concerns and environmental prosperity. Those energy conscious individuals are opening their wallets, absorbing higher up-front costs to purchase electric (EV) and hybrid cars and SUVs, which come with a certain “green” cachet. “Sweet ride. That thing have an electric motor in it?” “Heck, yeah it does. I’ve got a charging station powered by the solar panels on my house. It has a gasoline engine that I don’t even use!”
People are passionate on both sides of the automotive aisle and automakers have responded accordingly. But the reality is, in today’s America, electric and hybrid vehicle sales continue to take a “back seat” to large, luxurious trucks and SUVs. As a result, automakers now find themselves torn between current market demands and Federal mandates for a cleaner, greener future. As is so often the case, our state and Federal legislatures serve as the battleground between the market and the ubiquitous public good, attempting to balance our needs and desires.
Bring on the legislation: In 2012, the Obama administration, by and through the National Highway Traffic and Safety Administration (NHTSA), established final passenger car and light truck Corporate Average Fuel Economy (CAFE) standards for model years 2017-2021, which projected an average, combined fleet-wide fuel economy of 40.3-41.0 mpg by 2021. In addition, the CAFE standards, which were negotiated with automakers, sought to double the fleet-wide average fuel economy to 54.5 mpg by 2025. As part of the same rule-making action, the Environmental Protection Agency (EPA) also issued Greenhouse Gas (GHG) standards, that were to dramatically reduce carbon dioxide (CO2) output by model year 2025. Few would question that these new standards were admirable, even if they were a bit ambitious.
Shortly after the standards were established, the EPA took a step back. It revised the average fuel economy figure to 51.4 mpg, citing a rising number of trucks in automaker fleets. In addition, it indicated that the new standards would result in a real-world fuel average of closer to 36 mpg by 2025, due to certain credits issued to automakers and disparities in test procedures vs. real world driving. Were the EPA’s revisions an early concession in favor of the auto industry? Were the 2012 standards realistic back then? Are they right for us now?
A mid-term evaluation was built into the 2012 rules and required the EPA to determine no later than April 1, 2018, whether the standards established for model years 2022-2025 were appropriate, based on the best available information at the time. That review was getting underway when Donald Trump was elected president in 2016. However, in what can only be described as a preemptive maneuver, the Obama administration closed the review period and finalized the CAFE standards through 2025, dubbing them “feasible, practical and appropriate.”
Shockingly, the Trump administration did not share the prior regime’s optimism. Prior to taking office, President Trump met with major automakers to discuss revising the standards to comport with current market conditions. During those meetings, automakers pled that there is a misalignment between the increasing stringency of the CAFE standards and the decreasing demand for fuel efficiency. They expressed a desire for change that would make it easier for them to comply with fuel economy standards, including flexibility in the use of a credit system. The new administration vowed to take another look at the escalating standards.
Throwing a proverbial wrench into what has thus far been a fairly straightforward partisan disagreement on CAFE and emissions standards, is the state of California. California has special authority under the Federal Clean Air Act to set its own emissions and air pollution laws. This is important because California not only harbors approximately 13% of the registered vehicles in the U.S., its emissions standards are followed by over a dozen other states, including New York, Pennsylvania and Virginia. Therefore, California plays a unique and critical role in shaping the automobile industry in America.
Although California’s emissions standards and the national standards have historically been in alignment, there is risk for automakers that California will decline to follow the national standards if they are weakened. Such action would have the potential to fracture the automobile market in America. Not surprisingly, automakers warn that such fragmentation would be an unmitigated, untenable disaster. Whether California’s independence holds the auto industry accountable or hostage is a matter of opinion. However, the current administration doesn’t appear interested in pondering the question.
Citing low fuel costs and American vehicle buying habits, in August, 2018, the Trump administration indicated its intent to weaken the Obama-era CAFE and emissions standards and rescind the Clean Air Act waiver that permits California to set its own standards. The new program is called the Safer Affordable Fuel-Efficient Vehicles Rule for Model Years 2021-2026 Passenger Cars and Light Trucks (SAFE rule) and aims to freeze the current standards.
Ostensibly, such a freeze would provide automakers with the freedom to tailor their automotive lineups to meet market demands for larger, more powerful vehicles. However, there has been an abundance of political backlash to the SAFE rule. Naturally, the environmentalists and a good portion of the media slammed it, but in an interesting turn, even the automakers responded that a freeze on the current standards goes too far. While the automakers reaction to the SAFE rule may be a thinly veiled PR move, it nevertheless demonstrates a genuine commitment to fuel saving technology and a greener future. California, meanwhile, has been steadfast that it will not weaken its standards.
At the end of the day, just about the only thing that is abundantly clear is that the effects of the CAFE and GHG standards on consumers is highly controversial. Tighter standards compel automakers to invest in and apply fuel saving technology, even if the market doesn’t demand it. For consumers, the benefit comes from spending less on fuel over time, recovering sums in excess of the additional up-front cost incurred to purchase the fuel saving technology. The down side is that, as automakers are compelled to meet increased standards, performance suffers. While performance concessions in favor of environmental prosperity may be intellectually and emotionally appealing, when it comes time to purchase vehicles, Americans like big trucks (and SUVs) and they cannot lie.
We’ll continue to keep an eye on proposed changes to the CAFE and GHG standards and report them accordingly. If you have any questions in the interim, please feel free to contact me Ben Dill at email@example.com, or 804-377-1272, or contact Steve Setliff at 804-377-1261, or firstname.lastname@example.org.