President Donald Trump’s statement on Wednesday reopened the fuel economy and emissions midterm review through the next year, possibly up to the original deadline of April 2018. It’s expected that the Trump administration will weaken the mandate, which when set in 2012, was to double average fleetwide fuel economy to 54.5 mpg by 2025. That mandate was actually based on real-world window sticker average mpg in the high-30s when factoring in automakers’ ability to trade credits and other factors that go into the corporate average fuel economy numbers. The midterm review was included in the 2012 negotiations, with automakers pushing to take a look at how the 2022-25 phase-two period would be going.
The Obama administration and Environmental Protection Agency’s decision in January to finalize the rules before Trump took office intensified the conflict. Automakers had begun lobbying Trump right after he won the election to extend the review and soften the mandate; and organizations that had advocated for the fuel economy standard and its enforcement issued statements supporting the Obama administration’s move.
Here’s a look at the roles that several parties to the matter are expected to play:
Automakers: Ford, General Motors, Toyota, and Volkswagen have led the argument that the numbers aren’t there. Low gasoline prices have supported record demand for SUVs, crossovers, and pickups and dragged on demand for hybrids and small, fuel-efficient vehicles. Plug-in electrified vehicle sales have grown to about 1% of the total market, but the growth rate over the past year isn’t helping on the fuel economy front. In Michigan last week, Trump met with the CEOs of GM, Ford, Fiat Chrysler Automobiles, and top U.S. executives from Toyota, Nissan, Daimler, others.
Mitch Bainwol, chief executive of the Auto Alliance, which represents 12 major automakers, including GM, Ford and Toyota, applauded the Trump administration’s decision last week. “We applaud the Administration’s decision to reinstate the data-driven review of the 2022-2025 standards. By restarting this review, analysis rather than politics will produce a final decision consistent with the process we all agreed to under ‘One National Program’ for GHG and fuel economy standards,” Bainwol said.
He said the industry will work with the EPA, the National Highway Traffic Safety Administration and the California Air Resources Board “in carefully determining how we can improve mileage and reduce carbon emissions while preserving vehicle safety, auto jobs and affordable new cars and trucks.”
Truckmakers: In August, the EPA issued phase-two standards to reduce greenhouse gas emissions coming from commercial trucks, buses, and vans, in three phases by 2027. The regulation is intended to cut carbon emissions by about 25% compared to the current rules. The trucking industry has not asked the Trump administration to reverse those rules, according to Sean McNally, spokesman for the American Trucking Associations.
Legislators: As expected, this decision continues to be more of a Republicans vs. Democrats debate. Republicans support the Trump administration’s decision, and like his argument on supporting American automakers grow their companies and create more jobs here. “We’re going to work on the CAFE standards so you can make cars in America again,” Trump said. “We’re gonna help the companies and they’re gonna help you.”
U.S. Senator Edward Markey (D.-Mass.) has been a vocal critic of the move. The action will lead to needless uncertainly for the auto industry, and consumers will end up having to pay more at the fuel pump, he said. He and other Democratic senators criticized the EPA emissions review before it had been issued. Senator Jeff Merkley said that its bad for the economy, environment and middle class families.
Consumer groups: In late February, Consumers Union (which publishes Consumer Reports) and the Consumer Federation of America sent a letter to Trump asking the administration to maintain the strong fuel economy standards – to help to lower fuel costs for middle class families across the country, support job creation and innovation, and improve air quality. Consumers Union’s research shows that consumers will have net savings of $3,200 per car and $4,800 per truck, over the life of a vehicle that meet the 2025 standards, even at today’s low gas prices. If gas prices rise, which two organizations expect they will, the savings would be significantly higher. Consumers will have more money to spend in other parts of the economy.
The two consumer organizations also make the case that automakers are already ahead of the standards through developing innovative, fuel-efficient technologies. “Thanks to fuel economy standards, the automakers have invested in innovative technologies to improve fuel economy, and their efforts have paid off. Automakers have not only met today’s fuel economy standards, but they have exceeded the standards in many cases, all while enjoying record profits and record sales,” the letter said.
Environmental groups: These groups see the announcement as part of a larger move by the Trump administration to overturn the Obama administration’s policies on climate change, and disregard for long-term air pollution standards like the Clean Air Act. Environmentalists have vowed to sue if the Trump administration weakens the rules, which they expect to happen.
Natural Resources Defense Council thinks it makes no sense, since the mileage standards would save consumers money at the gas pump, make the U.S. less dependent on oil, reduce carbon pollution, and advance technology innovation. It was also one of the ways GM was able to go from bankruptcy and return to financial strength.
The American Council for an Energy-Efficient Economy said that the Trump administration’s move was a bad one. Best known for its “Greenest and Meanest” awards, the organization usually stays out of public policy. This time, the ACEEE released findings from its study: it would reduce fuel consumption more than two million barrels of oil by day by 2025; eliminate six billion tons of greenhouse gas emissions over the lifetimes of vehicles of model years 2012-2025; and would save consumers over $1 trillion at the gas pump.
California: Trump didn’t mention California’s role in the future of the national standards. He won’t seek to revoke California’s clean car rules and zero emission vehicle mandate, according to a White House official. However, the official didn’t rule out the administration seeking to withdraw California’s authority on the matter in the future. Nine states and the District of Columbia have adopted its zero-emissions vehicle mandate, which uses a credit system that will require automakers to sell about 1.5 million passenger by 2025. These include battery electric, plug-in hybrid, and fuel cell vehicles.
Governor Jerry Grown and California Air Resources Board chair Mary Nichols have made strong statements that California will move forward on ZEV mandates regardless of what the federal government decides to do. They are taking things seriously, though. The state has hired former Attorney General Eric Holder in anticipation of legal challenges, according to the Sacramento Bee.
Market dynamics: Automakers and advocates of clean vehicles have for years been debating the structure behind the federal mandates. Under the rules, automakers have to hit fuel economy standards for manufacturing fuel efficient vehicles, but will enough of them be sold to meet the fuel economy and emissions targets?
That debate brings up the commonly cited conundrum of which economic side has to lead the way: supply or demand? It could bring up the “If you build it, he will come” line to call in Shoeless Joe Jackson during the Field of Dreams movie. Or, what comes first, the chicken or the egg? Or, putting the cart before the horse.
On the consumer side, the U.S. has seen hybrid sales soften and stagnate, but PEV sales increase at a faster pace than hybrids did 15 years ago. That’s been driven by passionate Tesla fans, PEV advocates well represented by groups like Plug In America, and consumers who like to lead the way as one of the first to adopt new technologies, and others who like the deals they’re getting through incentives and fuel savings.
Fleets will be playing an increasing important part of the PEV sales drive. Beyond a few major fleets like UPS, most had taken a very hesitant approach to electrified cars and trucks. That will be getting a major boost by the campaign taken on by 30 U.S. cities, led by Los Angeles Mayor Eric Garcetti, to get good deals from automakers. They have about $10 billion in acquisition funds for about 114,000 PEVs for their city fleets. These could go to vehicles like police patrol cars, street sweepers, trash trucks, and other applications. Buying that many PEVs would increase the segments U.S. sales by about 72%.
Market forecasters see PEV and hybrid sales staying at about this level for now. However, that’s expected to increase dramatically in the near future, with one noted analyst expecting to see PEVs and hybrids making up 10% to 15% of total U.S. sales in the next 10 years. State incentives and federal tax credits play into it, along with extended range, improved performance PEVs coming to market. Ford said it will bring an all-electric SUV with 300-miles of range to market by 2020, GM started doing well selling the 238-mile range Chevy Bolt; Nissan has said a new generation Leaf with 200 mile range will be rolled out; and in January Tesla started making batteries at its Gigafactory for the Model 3 to roll out later this year.
China: That country has been another important market for global automakers to consider for its PEV sales strategy. The numbers have been huge in recent years as China beat out the U.S. as the leading global PEV market. Government policies are starting to change, which appear to be softening that lead. Sales of “new energy vehicles,” the term China uses to refer to battery-electric vehicles, plug-in hybrids and fuel-cell cars, dropped 74% in January from a year earlier to 5,682 units, according to China’s auto association. The government had cut subsidies more than a fight at the beginning of the year. Rules may be revised that had mandated automakers to produce and sell certain volumes of PEVs in the market.