Part I: The Safer Affordable Fuel-Efficient (SAFE) Vehicles Rule for Model Years 2021-2026—Setting the Stage for a Decision
On August 2, 2018, the US Environmental Protection Agency (EPA) and the National Highway Safety Administration (NHTSA) jointly published the Safer Affordable Fuel-Efficient (SAFE) Vehicles Rule for Model Years 2021-2026. The Joint Notice of Proposed Rulemaking (NPRM) gave much-awaited guidance for future emissions and fuel economy regulation. In this series, CAR presents a multi-part review of key elements of the proposal and puts the possible outcomes into context.
The NPRM included a 60-day comment period from the date entered into Federal Register (August 23, 2018),[1] and posted to the regulator’s docket on August 24, 2018. The comment period included three public hearings and closed on October 26, 2018.[2] EPA and NHTSA are to make a final ruling an “undetermined time” after the 60-day comment period ends.
Many of the findings contradict, or at least are very different than, the Final Determination released by the EPA in early January 2017 just days before the end of the Obama administration. Not surprisingly, this NPRM has been met with disparate reaction from the spectrum of industry stakeholders.
The agencies state the NPRM will benefit vehicle manufacturers and consumers alike. For example, according to Department of Transportation (DOT) Secretary Elaine L. Chao:
“There are compelling reasons for a new rulemaking on fuel economy standards for 2021-2026,”…“More realistic standards will promote a healthy economy by bringing newer, safer, cleaner and more fuel-efficient vehicles to U.S. roads and we look forward to receiving input from the public.” [3]
In a statement released shortly after the April 2018Proposed Determination, the Alliance of Automobile Manufacturers stated:
“Automakers support continued improvements in fuel economy and flexibilities that incentivize advanced technologies while balancing priorities like affordability, safety, jobs, and the environment. With today’s release of the Administration’s proposals, it’s time for substantive negotiations to begin.”[4]
However, other stakeholders saw the most recent NPRM as a major step backward. The State of California signaled its commitment to keep its ability to regulate vehicle emissions. Mary Nichols, Chairman, California Air Resource Board (CARB) stated:
“In case someone might think that the change in federal standards would make it easier to comply in California, it was very important for us to make clear that this is not the case,” [5]
As expected, the SAFE Vehicle Rule was met with disdain by environmentally focused organizations. The National Resource Defense Fund’s director of clean vehicles and fuels said in a published statement:
“Only the oil industry benefits from weaker standards. The public gets betrayed with more pollution and higher gasoline bills. Our nation increases its dependence on oil. Innovation by the U.S. auto industry stalls and carmakers cede automotive technology leadership to other countries and risk American jobs.”[6]
Finally, in a press release, the Motor Equipment Manufacturers Association MEMA provided perspective from the supplier’s side of the discussion:
“MEMA strongly supports forward progress in the fuel efficiency and vehicle emissions standards.” They further added, “It is important that the standards strike an appropriate balance between consumer choice, American technological leadership, and strengthening the U.S. manufacturing sector.”[7]
A Brief History of the 2017-2025 GHG/Fuel Economy Regulation
It is valuable to briefly review the history of this regulation—a regulation which got its genesis from a severe spike in gasoline prices, was influenced by a great recession and concomitant bankruptcies; and has been molded by two diametrically opposed administrations. The process may best be illustrated by two events, an uncomfortable gathering of automotive CEO in the White House Rose Garden in May 2009, and an equally awkward gathering of automotive CEOs and a newly elected president at the American Center for Mobility in Ypsilanti, MI in March 2017. Figure 1 shows key steps and dates in the creation of the fuel economy and greenhouse gas regulation:
Figure 1: Key Regulatory Steps in U.S. 2017-2025 Fuel Economy and Greenhouse Gas Regulations
As with nearly all recent regulatory activity, the 2017-2025 emissions and fuel economy regulation has been extremely, and seemingly increasingly, politically charged. Widening partisan politics has made the creation of an effective and feasible regulation ever-more challenging. For the automotive industry, this increased uncertainty provides a great challenge. For the consumer, it presents the likelihood for great confusion and potential market disruptions.
The effort to harmonize fuel economy and GHG emissions have further increased the challenge within the regulatory agencies. Under the previous administration, the EPA was closely aligned with California Air Resource Board (CARB), and likely had more power than NHTSA. There appears to be a significant shift of power from the EPA toward NHTSA under the Trump administrations.[8]
By way of the Energy Policy and Conservation Act (EPCA) of 1975, NHTSA is charged with determining the maximum feasible fuel economy through the Corporate Average Fuel Economy (CAFE). In deciding what may be feasible, the agency must consider technological feasibility, economic practicability, the effect of other motor vehicle standards of the Government on fuel economy, and the need of the nation to conserve energy.[9] However, the interpretation of feasibility can be dependent upon values placed on those variables. CAFE was developed in large part as a response to the 1973 Oil Embargo, as a means to reduced payments to foreign oil-producing countries (balance of payments) and subsequent shortages.[10]
As the current NPRM notes, the commodity and global dynamics that applied during the development of the EPCA and CAFE laws may not apply to current valuations.[11] Specifically, the relatively low and expected stable cost of energy, driven in part by “significant increases in U.S oil production and corresponding decreases in oil imports, the purchase of fuel by consumer’s…” now “…represents transfers between domestic consumers and domestic producers of petroleum, rather than gains or losses to foreign entities”.[12] By making this point, the regulators endeavor to justify the minimization of the external costs of international balance of payments and focus cost estimates on short-term economic practicalities. To emphasize their point, the NPRM states:
“…if gasoline price shocks are no longer as much of a threat as they were when EPCA was originally passed, it seems reasonable to reconsider the need of the United States to conserve oil today and going forward.”[13]
The NPRM spends very little time addressing the impact of the proposed regulation on climate change. However, noting that according to their analysis, the benefits of lower cost to the consumer clearly outweigh any environmntal costs, the NPRM states, “Notwithstanding the fact that GHG emissions reductions would be lower (sic) under today’s proposal than for the existing EPA standards, in light of the new assessment indicating higher vehicle costs and associated impacts on consumers, and safety impacts, the Administrator believes from a cost/benefit perspective that the foregone GHG emission reduction benefits from the proposed standards are warranted.[14]
In conclusion, the NPRM summarizes the impact of the regulation on climate change by saying, “NHTSA’s Environmental Impact Statement performed for this rulemaking shows that the preferred alternative would result in 3/1,000ths of a degree Celsius increase in global average temperatures by 2100, relative to the standards finalized in 2012.”[15] Further, the NPRM does not account for impact of GHG beyond the U.S. borders.
As expected, there were many comments submitted on the methods used to access the environmental impacts. The environmental non-government organizations (NGOs) commented strongly against the environmental impact assessment. However, there were also comments from the vehicle manufacturers regarding the importance of including a comprehensive and more global accounting of the costs of GHG. For example, Honda stated:
“As greenhouse gases are a global pollutant, we believe it is inappropriate to limit the agencies’ analysis to domestic impact alone. If the practices of a foreign nation resulted in pollution to the U.S., we would expect that country to be responsible for costs associated with the clean-up. The same principle applies here. Honda suggests the agencies use a social cost of carbon that reflects the full value of its impact, including incorporation of both domestic and global impacts.” [16]
The balance between consumer choice, market forces and the environment impact remains an important challenge for regulators. With the 2018 NPRM, the administration has taken a diametrically opposed stance than the previous administration. For vehicle manufacturers, this change may offer the possibility of relief in meeting regulation that many consumers do not appear to value. However, it also creates challenges in balancing global product strategies as other regions continue to tighten GHG regulation.
Brett Smith
Director, Propulsion Technologies & Energy Infrastructure
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[1] Federal Register/ Vol. 83, No. 165 / Friday, August 24, 2018 / Proposed Rules, pp 42817 and Federal Register/ Vol. 83, No. 165 / Friday, August 24, 2018 / Proposed Rules (https://www.transportation.gov/briefing-room/dot4818)
[2] https://www.nhtsa.gov/sites/nhtsa.dot.gov/files/documents/2021-2026_nprm_comment_period_extension_09212018.pdf
[3] https://www.transportation.gov/briefing-room/dot4818
[4] https://autoalliance.org/2018/08/02/automakers-respond-epa-dot-propose-fuel-economy-standards-2021-2026-vehicles/
[5] https://www.bloomberg.com/news/articles/2018-08-07/california-returns-fire-at-trump-s-call-to-rescind-its-authority
[6] https://www.nrdc.org/experts/nrdc/trump-administration-reverses-clean-car-standards-gutting-another-key-climate-policy
[7] https://www.mema.org/mema-responds-fuel-efficiency-proposal-released-trump-administration
[8] http://www.sciencemag.org/news/2018/08/trump-s-effort-roll-back-auto-efficiency-rules-could-hinge-debate-over-safety; and https://www.bloomberg.com/news/articles/2018-08-14/epa-doubted-car-fuel-economy-freeze-would-save-lives-as-claimed
[9] https://www.law.cornell.edu/uscode/text/49/32902
[10] https://www.ucsusa.org/clean-vehicles/fuel-efficiency/fuel-economy-basics.html#.W5FYL7gnaUk
[11] Section V of the NPRM describes the energy and environmental drivers considered for the NPRM. Including oil availability and environmental impacts.
[12] https://www.nhtsa.gov/sites/nhtsa.dot.gov/files/documents/ld-cafe-co2-nhtsa-2127-al76-epa-pria-180823.pdf, page 112
[13] Ibid, page 120
[14] Ibid, page 127
[15] Federal Register/ Vol. 83, No. 165 / Friday, August 24, 2018 / Proposed Rules, pp 42996 and Federal Register/ Vol. 83, No. 165 / Friday, August 24, 2018 / Proposed Rules
[16] Comments submitted by American Honda Motor Co., Inc. in response to Docket No. EPA-HQ-OAR-2018-0283 and NHTSA-2018-0067, dated October 25, 2018, page 20