Navigant Research Blog

New CAFE Rules Anger Just About Everyone

Dave Hurst — August 30, 2012

The Obama administration announced new fuel economy rules this week requiring that vehicles reach 54.5 miles per gallon by 2025.  Typical of the corporate average fuel economy (CAFE) rules, there are many credits offered for different types of vehicles based on their drivetrains, encouraging automakers to make and sell alternative drive and alternative fuel vehicles. The effort to tighten CAFE standards has been the epitome of government sausage making.  The process required not only getting Republicans and Democrats to agree on something, but also getting environmentalists and, more importantly, auto manufacturers to agree on something that no party really likes.  All of this makes for a very messy show, and it’s the biggest reason why from 1990 to 2009 fuel economy for cars remained unchanged.

Not surprisingly, automakers are not happy with the new rules.  Even less surprisingly, Republicans are eager to make that known.  Representative Darrell Issa (R-CA), who seems generally opposed to regulating the auto industry, leads the House Oversight and Government Reform Committee, which issued a report on August 10th showing that foreign automakers complained about the process.  The report quotes Toyota as claiming the rules “give preferential treatment to larger trucks [and are] ‘a second bailout for Detroit.’” There is likely some truth in here.  The credit system in the proposed rules do not provide credit for hybrid cars – Toyota and Honda’s alternative drivetrain bread and butter – but do provide credit for hybrid pickup trucks (only GM offers a hybrid pickup at the current time).  The report claims that German automakers are also unhappy, because diesels are not included for alternative drivetrain credit.  The final rules announced today did feature one change that will make Honda happy, a new credit was added for natural gas vehicles.

One big win for all the automakers in these new rules is getting California back into the national fold.  Earlier this year, California’s Air Resources Board (CARB) produced its own emissions and fuel economy standards, and a handful of other states jumped on board.  The new CAFE rules were negotiated in collaboration with CARB, which wanted a 5% annual rise fuel economy, but ultimately agreed to 3.5% increases for trucks in 2017–2021.  This brings California and the federal rules into alignment (mostly).

Upon the announcement of the new regulations, the Detroit Free Press reported that Rep. Issa issued a statement: “The rule finalized today by the Obama Administration will hurt American consumers by forcing them to drive more expensive and less safe automobiles.  I support the goal of higher fuel efficiency, but this rule will only add to the burdens American small businesses and middle class families face under the heavy hand of the Obama Administration.”

The rules do include a review period in 2021 to determine if the targets are technically feasible.  I’ve always thought this would ultimately prove to be the automakers’ way out from these requirements, and their responses to this week’s announcement seem to confirm that the review period and elimination of state-by-state regulations remain the industry’s two key objectives.  Depending on how the elections swing in November, the rules may not even make it that far before being shot down.

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