When President Trump ordered a review of Obama-era vehicle fuel-efficiency standards earlier this year, climate and clean air advocates were quick to label it a “cynical ploy” to roll back the ambitious targets. And as critics feared, the regulations may soon be put on hold.
The Department of Transportation issued a notice last week that it is looking to revise the fuel economy requirements starting with the 2021 vehicle model year, and may lower the existing standards through 2025.
Trump’s order from March called for reassessing the corporate average fuel economy (CAFE) standards for model years 2022 through 2025. The DOT notice from last Tuesday moves the review up by one year, and states that regulators could freeze the standards at 2021 levels, instead of raising them each year, Reuters reports.
Automakers have been urging regulators to review the CAFE regulations for months. Industry leaders met with White House officials several times to discuss the standards, and cheered a new piece of legislation (S. 1273) that would boost the number of credits automakers receive for designing highly efficient vehicles. And the industry welcomed news that the DOT is considering a standards freeze.
The Alliance of Automobile Manufacturers, a lobby group representing the 12 largest carmakers — including General Motors, Toyota, Ford and Volkswagen — said in a statement last week that “facts need to drive public policy, including data on consumer sales, gas prices and costs of technology,” when it comes to determining the final standards.
As for whether or not the current fuel standards are achievable — it depends on which data you look at.
“They’re asking for a reconsideration to roll it back”
In 2011, the auto industry made a deal with the Obama administration to double the average U.S. fleetwide fuel economy to 54.5 miles per gallon in 2025, with a pause to review progress in 2017 and 2018. Last July, the EPA lowered the forecast fleet average to between 50.8 mpg and 52.6 mpg in 2025, because Americans were buying fewer cars and more SUVs and trucks. The agency went on to finalize its vehicle efficiency standards in January — shortly before President Obama left office, and months before the review period was supposed to end.
The DOT’s National Highway Transportation Administration did not finalize its rules before Obama left office, however, which allowed President Trump to resume the midterm review through April 2018 — as originally scheduled.
There is a reasonable case to be made for re-examining the CAFE standards to ensure they account for the latest technology advances (like autonomous vehicles) and effectively align auto industry stakeholders. The current controversy centers on whether the DOT is conducting an impartial review of the standards or intentionally orchestrating a rollback.
Meanwhile, policymakers in California, which has its own set of ambitious fuel economy standards, say they have no intention of easing up their on rules.
The auto lobby has been careful to say that it supports the overall transition to fuel-efficient and low-emitting vehicles, while also demanding a “data-driven” analysis of market realities. From the automaker perspective, the market future for fuel efficiency appears bleak.
Motor company CEOs have complained of potential job losses associated with the fuel economy standards in meetings with the president. They’ve argued that complying with the existing rules will cost much more than the Obama administration estimated. And the auto industry’s own electric vehicle (EV) projections are the lowest among other analysts and business groups — including the oil companies.
“[Automakers] don’t want reconsideration [of CAFE] in order to improve it or make it the same,” said Jack Gillis, who has served as director of public affairs for the Consumer Federation of America, on a recent call with reporters. “They’re asking for a reconsideration to roll it back.”
“And yet they’re well on their way to full compliance,” he added, citing a new CFA report that found 19 of the 27 new vehicle models introduced in 2017 meet this year’s efficiency target. Six of the new models are already compliant with the 2015 standard.
Red light, green light on fuel economy
It’s a strange time for the auto industry. On the one hand, some of the world’s biggest car brands are lobbying to stall fuel economy standards in the U.S. On the other, they’re competing to lead the global market for low-emissions mobility.
Car companies are investing heavily in fuel-efficient technologies, from lighter materials to advanced engines to electrification — to meet not only U.S. fuel economy standards, but also the standards set in China, Canada and across Europe. Just last week, Britain announced plans to ban all gasoline and diesel cars by 2040. Meanwhile, American cities from Santa Monica to New York City to Boca Raton are promoting EVs to help reduce smog and carbon pollution.
As these policy shifts take place, innovative companies are proving that fuel efficiency doesn’t have to mean sacrifice. Tesla continues to wow critics and crowds with its all-electric vehicle lineup, forcing virtually every new EV into the position of “Tesla competitor.” A recent report from Germany-based Berenberg Bank stated that Tesla will be “given a near-monopolistic opportunity” to gain market share from the incumbent automotive players due to their “complacency” with respect to EVs.
But while Berenberg Bank analyst Alexander Haissl puts Tesla solidly in the leadership position, estimating the company will invest $32.7 billion on EV over the next five years, other automakers are making serious plays in the EV space.
Earlier this month, Volvo announced every new vehicle model it releases starting in 2019 will be either a hybrid or electric. Audi is scaling up EV production at its Brussels plant. Volkswagen has committed to investing $10 billion over the next five years to bring 25 new EV models to the market by 2025. Daimler plans to invest $11 billion in EVs over the next five years. And Toyota, which popularized hybrid cars but has been slow to embrace pure EVs, recently announced plans to commercialize solid-state batteries in an attempt to capture EV market share.
Among American brands, Ford plans to invest $4.5 billion in electrification by 2020. General Motors was the first to release a long-range mass-market EV with the Chevy Bolt.
All of these initiatives help to boost fleetwide efficiency, but automakers don’t even have to sell a lot of EVs to meet the 2025 CAFE target. It’s estimated they can reach the 50-mpg threshold predominantly with upgrades to gasoline-powered vehicles, like improved aerodynamics, start-stop technology to reduce idling, and other upgrades.
So what gives? Why are automakers pushing back against policies that help support their long-term investments?
Automakers: Fuel-efficient cars just aren’t selling
“It’s important to remember that corporate average fuel economy (CAFE) doesn’t measure what we make — it measures what consumers choose to buy, meaning that no matter what technologies we offer, what the consumer chooses is crucial,” Wade Newton, director of communications at the Alliance of Automobile Manufacturers, wrote in an email.
A shopper’s decision to buy a fuel-efficient vehicle is often related to gasoline prices. A prolonged period of low gas prices has attracted buyers to crossovers, trucks and SUVs — and their popularity doesn’t seem to be waning. New U.S. sales figures for July show overall passenger vehicle sales are down, specifically because of a lag in sedan sales — GM and Ford were hit especially hard in the small-car segment, while larger vehicles were the bright spot.
Newton also noted there’s more to a purchasing decision than fuel economy. People also want trucks and SUVs for recreation, for bad weather, for carting kids around, or for a greater sense of safety.
All of these factors have led to a relatively weak market for fuel-efficient cars. According to the Auto Alliance, more than 95 models of hybrid-electric vehicles, plug-in electric vehicles and fully electric vehicles are in dealer showrooms, yet the combined sales of these vehicles in 2016 was 489,587 units, less than the sales of the single bestselling pickup truck alone at 763,907 units.
The issue isn’t limited to EVs, according to Newton. Sales of the most energy-efficient automobiles remain low even as the number of fuel-efficient models increases. In 2015, there were 76 models on sale that achieved 40 mpg or more, as stated on the new vehicle label. Sales of all these models combined accounted for about 1 percent of total new vehicle sales.
“Sales of the most energy-efficient models will need to grow substantially to meet projected government targets,” Newton said. “Government data is already telling us that in 2017 — the very first year of the program — the fleet will miss its target by 1.2 mpg.”
The CFA report from last week tells a different story, however.
Sales up for EVs and fuel-efficient trucks
According to a CFA commissioned survey, 79 percent of respondents, including 68 percent who identified as Republican, support increasing federal fuel economy standards for cars and light-duty trucks to 42 mpg by 2025 — the real-world equivalent of a 54.5-mpg target.
An accompanying report found that consumers are naturally gravitating toward more efficient cars. Comparing the sales figures for 2016 SUVs and light-duty trucks with the 2011 models, the report found those that increased the fuel efficiency by more than 10 percent sold nearly 20 percent more vehicles than those that boosted fuel efficiency by less than 10 percent.
A record 78 percent of the “all-new” light-duty trucks had a CAFE-compliant trim for 2017, according to the CFA.
The beauty of the existing standards is that they respect manufacturers’ various vehicle mixes by evaluating cars and trucks separately, and setting a fleetwide average so not every model has to hit a given year’s target, said Gillis.
“Everything is in place for manufacturers to meet the needs of their consumers,” he said. “Americans have always loved their pickups and SUVs, but they’ll love them even more with better fuel efficiency.”
Love for EVs is also growing. The U.S. electric car market grew 30 percent between 2015 and 2016. And in June of this year, despite a weaker environment for automobile sales overall, EV sales were up 16 percent year-over-over, according to Inside EVs.
Increased adoption of fuel-efficient vehicles is already having an impact on pocketbooks. A separate CFA analysis estimates that the fuel economy standards put in place between 2008 and 2016 have resulted in close to $500 billion in consumer savings. With a proven track record of consumer benefits, coupled with the need to curb tailpipe emissions, the Trump administration may have a tough time justifying a standards freeze in 2021, said Mark Cooper, CFA senior fellow.
“The more they try to do, the more likely they’ll end up in court,” he said.
So far consumer and environmental groups have focused their efforts on public outreach opposing S. 1273 and further action at the DOT. Days before the DOT notice, the Sierra Club launched a Facebook ad campaign urging users in Michigan, Ohio, Indiana and Nevada to tell their senators to stop attempts to backpedal on standards that “save money, cut pollution and create jobs.”
California, meanwhile, is not letting up on its fuel economy rules. Annette Hebert, a senior official with the California Air Resources Board, told Reuters yesterday that her agency does not plan to relax its 2025 standards. The Auto Alliance is hoping to create some kind of “three-way pact” between the car companies, the Trump administration and the Golden State. But instead of rolling back, California wants to start exploring standards that go beyond 2025.