Another big legal fight is looming for the US auto industry, adding to its policy woes under the Trump administration.
At the Washington Auto Show on Thursday, Environmental Protection Agency Administrator Andrew Wheeler said he’s going forward with a controversial plan to freeze vehicle fuel economy regulations that even some automakers say they don’t want. When it’s finalized later this spring, it would likely trigger a major legal spat between the federal government and the largest automotive market in the country: the state of California. Wheeler said the EPA is ready for the fight.
“What would happen if [California’s air regulator] sues the government over auto standards? We would go to court if they do that,” Wheeler said. “I believe we are on firm legal footing and I believe that our standards will be upheld by the courts.”
Sierra Club, others outside the auto show with a giant inflatable T-Rex to protest plan to soften fuel-economy rules pic.twitter.com/hILWs2e9Cq— Chris Knight (@chrispknight) April 4, 2019
A long, drawn-out courtroom dispute over environmental rules is the last thing US auto companies are seeking right now, industry officials said at the Washington Auto Show, given that the industry is already weathering the Trump administration’s trade policies that have contributed to plant closures and thousands of layoffs.
But fuel economy rules help govern what cars get built, how efficient they are, how much they’re allowed to pollute, and where they can be sold. So they’re integral to how automakers plan for the future.
That future is now increasingly uncertain. What’s clear is that automakers are getting more than they bargained for when they asked the Trump administration to revise fuel economy regulations in 2017.
A long legal fight between California and the federal government is looming
Let’s back up to look at just how we got here. California has been granted exemptions from federal emissions regulations for vehicles since 1968 because the state had its own rules in place when the federal Clean Air Act was passed. The state’s pollution rules have often been tougher than federal regulations.
While California is the only state allowed to set its own auto emissions standards, 12 states and the District of Columbia currently follow the Golden State’s lead.
Automakers have long griped that they now have to deal with a patchwork of environmental standards around the country. Every car for sale in the US either has to meet the most stringent emissions limit in the country, or carmakers have to design different models for different states. Since California is the largest market for cars, it has effectively pushed the rest of the country toward tougher air pollution rules than the federal government.
The Obama administration introduced new emissions and fuel economy rules for cars and trucks after Chrysler and General Motors were bailed out by Congress in the wake of the 2008 financial crisis. Known as Corporate Average Fuel Economy standards, the Obama EPA proposal was the biggest increase in fuel economy regulations in 30 years.
The standard called for car companies to cut their average greenhouse gas emissions from passenger cars and light trucks to 163 grams per mile by 2025. Companies can use a variety of tactics to hit this number, but if they do it solely with fuel economy improvements, they would need to average 54.5 miles per gallon across their entire product line. It would effectively create a national standard by raising the bar for everyone.
Automakers complained that complying with these rules would add an average of $1,836 to the cost of a new vehicle by 2025 and cost the industry up to 150,000 jobs by 2021, according to research from Indiana University funded by the Alliance of Automobile Manufacturers.
When the Trump Administration took office in 2017, carmakers seized an opportunity to gain a sympathetic ear for their complaints. In response to lobbying, the Trump administration announced in 2017 that it would undo the Obama-era fuel economy targets.
Auto companies wanted the targets relaxed and more ways to comply with the rules, like reducing leakages of refrigerants used in car air conditioning system. Instead, the industry got a complete rollback. The Trump administration now wants to freeze fuel economy standards in 2020 and revoke California’s exemption in order to get a uniform 50-state rule.
After the rollback announcement, California led 17 states in suing the EPA, challenging the agency’s authority to revoke the Obama-era car rules. The EPA then started negotiating with the California Air Resources Board to try to come up with a new national vehicle pollution rule that would satisfy state regulators.
But talks stalled, and last month the EPA broke off negotiations and charged ahead with its original plan.
“Federalism does not mean that one state can dictate the standard for the entire nation,” said the EPA’s Wheeler on Thursday at the Washington Auto Show. “I met with CARB three times since taking the helm of EPA last July, but despite our best efforts, we could not reach a solution and decided to end the discussions.”
The EPA has invoked some bizarre and flimsy justifications for this change. The agency argued that lower fuel economy standards would lower the price of new vehicles, reducing overall ownership costs by $2,300. This would make it easier for Americans to upgrade. Since new vehicles are safer than old ones, this would save lives, upward of 1,000 per year. But the EPA’s own internal communications showed the agency expected that the rules would increase fatalities.
“There is no justification in law or in fact for the current de-regulatory proposal as our extensive comments clearly demonstrate,” said CARB chair Mary Nichols last year.
Now CARB and the EPA are on a collision course. Wheeler said the fuel economy rules will be finalized this “spring or early summer.” California is likely to sue the federal government as soon as that happens. Both sides are entrenched and it’s likely to be a years-long courtroom battle.
Uncertainty is worse for automakers than tough fuel economy rules
Automakers say that a new car requires about three to five years of development, so car companies have to build for regulations as they’ll be in the future. That’s why no automakers have publicly supported the rollback of fuel economy rules, despite pressure from the Trump administration to do so.
Car companies are also facing pressure from other Trump administration policies, like tariffs on imported steel and the ongoing trade and border dispute with Mexico, a major supplier to the US auto industry. Trade was a factor in General Motors’ decision to layoff more than 14,000 US workers last year.
A drawn-out legal fight over what standards to build cars to will only make the situation more dicey for car manufacturers.
At the same time, the automotive sector is facing radical technology changes. Electric cars and trucks that produce zero tailpipe emissions are rapidly rolling out. There are already more than 1 million EVs on the road in the United States and industry groups anticipate that will increase to 18 million by 2030.
Electrification is also critical to the fight against climate change. In the United States, the transportation sector is the largest source of greenhouse gases. Cars and light trucks account for 60 percent of these emissions.
But the Trump administration has created uncertainty on this front as well by threatening to end subsidies for electric vehicles.
However, carmakers say they’re optimistic about electrics. For one thing, the cost of vehicle batteries is declining rapidly. Bloomberg New Energy Finance reported last month that the cost of vehicle batteries has declined 35 percent just since last year.
Another key factor is that the auto industry is a global market. Other countries are pushing ahead with aggressive fuel efficiency rules as well as policies to favor electric cars. In particular, China is hungry for new cars and its government wants most of them to be electric. The sheer size of the market is pulling the global auto industry toward electric cars, trucks, and buses.
“Approximately half of what the Volkswagen brand sells worldwide is in China,” said Pietro Zollino, executive vice president for communications for Volkswagen Group of America. “If you want to be a player in the market, you have to offer electric cars.”
So while the present runs on gasoline, future cars will roll on electrons. The question is how fast we will get there.