The Fuse

Maintaining CAFE Standards and EV Tax Credit Consistent with Trump’s Plan to End Dependence on OPEC Oil

by Matt Piotrowski | November 09, 2016

As the dust settles from the stunning 2016 election, it’s too soon to tell how energy policy will take shape under a Donald Trump administration. Trump and his cabinet, however, will have to deal with a number of pressing oil and transportation issues. With a Republican Congress to back him, it’s highly likely that he will champion a number of conservative strategies and foreign policy goals that will have broad implications for energy. After two terms of Democrat Barack Obama in the White House, national policy on energy and the environment could wind up on a significantly different path.

According to Washington-based ClearView Energy Partners, Trump’s victory is, for the most part, “positive” for fossil fuel production, midstream infrastructure and downstream companies; “generally neutral” for renewables; “negative” for electric vehicles; and “disruptive” for climate goals and dealings with Iran.

The election could turn out to be a big win for the oil and gas industry, as Trump has championed deregulation and a rollback of a number of environmental measures.

The election could turn out to be a big win for the oil and gas industry, as Trump has championed deregulation and a rollback of a number of environmental measures. Furthermore, he has also touted opening more public lands to drilling in an effort to create jobs, keep prices stable, and lessen reliance on Middle East crude oil imports.

Even though Trump has articulated his pro-fossil fuel stances, he has not given as many clues on issues such as electric vehicles, fuel-efficiency standards, and renewables, all key factors in energy security. It’s vital that the incoming administration and Congress understand the importance of keeping electric vehicles tax credits and fuel economy standards intact given that they are necessary in holding oil demand in check.

CAFE standards & EV tax credit

“The Trump Administration could potentially offer automakers greater compliance flexibility that results in weaker fuel economy standards.”

With CAFE standards for model years 2022-25 up for mid-term review next year, it’s likely that the Trump administration will not tighten targets or provide fresh incentives for EVs. “The Trump Administration could potentially offer automakers greater compliance flexibility that results in weaker fuel economy standards,” wrote analysts at ClearView Energy. The importance of fuel efficiency standards has been highlighted this year as gasoline consumption has risen only slightly above 2007 record levels even though vehicle miles traveled (VMT) has soared. Without CAFE, gasoline consumption would be higher. Another issue is that there are currently no regulations for car models after 2025. Whether any new rules are put in place beyond the middle of next decade will be determined in the next four years.

Trump administration officials have made note of the fact that fuel economy standards are not purely for environmental goals. “It is important to remember that this particular program was first put in place as a way to reduce our nation’s dependence on foreign oil, not for purposes of global warming regulation,” John Mashburn said today in the Wall Street Journal, adding Mr. Trump will focus on bringing jobs and car manufacturing back to the U.S.

With EVs still a niche market and sticker prices for new cars remain high, the extension of tax credits for EVs is crucial.

With EVs still a niche market and sticker prices for new cars remain high, the extension of tax credits for EVs is crucial. With gasoline consumption rising and oil prices remaining low, the tax credit is the strongest tool in order to help the penetration of alternative fuels. As of now, there’s a $7,500 purchase tax credit for EVs in the U.S., but the credit only applies to the first 200,000 vehicles sold per manufacturer. Given Trump’s and the Republican party’s focus on fossil fuels and supply-side solutions, the credit could be at risk. At the same time, however, both Trump and House Speaker Paul Ryan have discussed the need for tax reform. This could provide an opening for keeping the EV tax credit intact, since electric and efficient vehicles will be necessary to meet some of Trump’s energy security goals, discussed below.

Trump to open more federal land to drilling?

Speaking in May in North Dakota, a main center of the U.S. fracking boom, Trump said, “I want to be energy independent,” adding that the plentiful oil and gas resources in the U.S. could help the country achieve this goal. In his speech to the oil-friendly crowd, Trump emphasized that he fully supported fracking and opening public lands to drilling and said didn’t want to head “back into the Middle East begging for oil again.” His “America First Energy Plan” seeks for the U.S. to “become, and stay, totally independent of any need to import energy from the OPEC cartel or any nations hostile to our interests.”

Trump’s “America First Energy Plan” seeks for the U.S. to “become, and stay, totally independent of any need to import energy from the OPEC cartel or any nations hostile to our interests.”

He will likely have plenty of opportunities to back up his drilling goals by using presidential authority. For instance, as ClearView analysts note, he can resume episodic oil and gas lease sales, limit the enforcement of the Bureau of Land Management’s hydraulic fracturing rule, and allow for the construction of the Dakota Access pipeline. But it’s unclear how much appetite industry has to drill more since oil prices have remained depressed and range-bound. For this reason, demand-side solutions are critical. As the United States still imports 45 percent of its oil, domestic production is unlikely to be enough to close the gap. Policies to reduce oil demand will be necessary to truly sever our dependence on OPEC oil.

Uncertainty reigns

The Trump administration will face numerous challenges, but it’s uncertain what its main priorities will be when he enters office in January, and how he will work with Republicans on Capitol Hill. Furthermore, the Democrats could use the filibuster in the Senate to try and block his agenda as much as possible or use the threat of the filibuster to gain concessions. The outlook appears mixed for energy security, but as the 2016 election has shown, a number of surprises could be in store.

 

 

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