The Fuse

A Long, Litigious Road on Fuel Economy Is the Worst Outcome for All Stakeholders

by Matt Piotrowski | May 01, 2018

The EPA and NHTSA plan to submit their proposal on fuel economy regulations to the White House for review in the coming days. The proposal includes a number scenarios, but it is currently understood that the preferred plan from the two agencies calls for the administration to freeze fuel economy standards at 2020 levels rather than the gradual increase in stringency originally planned through 2025. The proposal also suggests that NHTSA is seeking to override California’s authority to implement its own rules based on the Clear Air Act. California officials have said they may challenge such a move with a lawsuit, questioning the federal government’s right to change the rules and the data it used in its decision.

The administration could avoid a showdown with California by changing the proposal—which is still in draft form—and reaching a compromise with the state.

We at SAFE believe it is in the interests of all sides to avoid a protracted dispute. “A long, litigious road is the worst outcome for all stakeholders, especially the auto industry and American consumers,” said SAFE’s CEO and President Robbie Diamond.

The auto industry is reportedly conveying to the administration that it wants to seek a compromise with California in order to avoid two different fuel economy standards.

The EPA has already said that it would ease standards for vehicle model years 2022-2025, citing concerns over safety, technology gaps, manufacturing costs, and shifting consumer preferences due to lower gasoline prices. EPA must harmonize its rules with NHTSA, which wants to further relax the rules. The proposed plan from both agencies would halt average fleetwide fuel economy at just under 42 miles per gallon (mpg), down from the 2025 target of 54.5 mpg under current law.

The auto industry is reportedly conveying to the administration that it wants to seek a compromise with California in order to avoid two different fuel economy standards—one set by California and the other set by the federal government, and a protracted legal battle. Two different standards would spur uncertainty throughout the auto industry, given that twelve states follow California’s rules. In total, those states make up a third of the United States’ car market.

A further easing of fuel standards would also negatively impact American consumers and the country’s economy. Consumers can save thousands of dollars in fuel costs from greater fuel economy. As the Department of Energy notes, a motorist with a 30-mpg vehicle would save almost $3,500 over a five-year span compared to using a less efficient 20-mpg vehicle. Stricter standards will also stimulate innovation with alternative fuel vehicles and new autonomous technology. As SAFE pointed out in a recent report, some 18–25 percent system-wide fuel economy savings could potentially be realized by using existing driver assist and autonomous vehicle technologies while saving thousands of lives.

“Oil price shocks and price manipulation by OPEC have cost our economy dearly—about $2 trillion from 2004 to 2008.”

Most critically, fuel economy standards play a pivotal role in reducing our dependence on petroleum and guarding against oil market manipulation and price shocks. According to the Department of Energy, “Oil price shocks and price manipulation by OPEC have cost our economy dearly—about $2 trillion from 2004 to 2008.” Higher costs for motorists and businesses is now becoming more pertinent with pump prices rising and the likelihood that they could continue to increase. The combination of geopolitical instability in the Middle East and Venezuela, OPEC supply reductions, and growing demand in emerging markets may cause another price spike. Despite shale’s growth, it is also in our longer-term economic and national security to have a strong national fuel economy standard to reduce consumption, given that most of the world’s oil reserves are located in the Middle East and close to 80 percent is controlled by OPEC.

A practical solution on fuel economy remains probable and crucial. The federal government, the auto industry, and California should continue to work together in good faith to enhance America’s economic and national security by buttressing against a continually volatile and unpredictable oil market.

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