Environment & Energy Report

EPA Fuel Economy Rollback Aims to ‘Strip Away’ Automaker Compromise (1)

Aug. 2, 2018, 2:47 PMUpdated: Aug. 2, 2018, 6:36 PM

The Trump administration’s long-awaited plans to soften Obama-era fuel economy standards aim to “strip away” an option nearly all parties agree on: requirements that increase each year but offer more compliance credits to automakers.

The Environmental Protection Agency and the National Highway Traffic Safety Administration released a proposal Aug. 2 that could sharply cut federal fuel economy standards and also targets California’s special authority under the Clean Air Act to set its own more stringent tailpipe rules.

The proposal goes further even than what many automakers had asked for and signals the agencies may have little interest in finding a compromise every party can tolerate.

The proposal is the agencies’ preferred option among eight that could become the final slate of fuel economy standards for vehicle model years 2021-2026.

“Our proposal aims to strike the right regulatory balance based on the most recent information and create a 50-state solution that will enable more Americans to afford newer, safer vehicles that pollute less,” EPA Acting Administrator Andrew Wheeler said in a statement.

Credits Too ‘Complicated’

Under the existing program, automakers can earn credits for certain advanced vehicle technologies, including electric vehicles, as well as fuel efficient or climate-friendly technologies not captured by agencies’ compliance testing. Those credits can be applied by companies to meet their own targets or sold to other automakers who fall short of the requirements.

Many of the eight options would severely hamper or eliminate altogether the program’s crediting mechanisms. Those include the off-cycle credits, which are awarded to automakers for technologies that achieve fuel efficiency or greenhouse gas emissions reductions but aren’t captured by agency compliance testing. One example of such a technology is using climate-friendly air conditioning refrigerants.

But the EPA and NHTSA view those credits as overly “complicated,” contributing to automakers being too “opaque” about how they achieve their fuel efficiency standards, Bill Wehrum, the EPA’s air chief, told reporters on a press call Aug. 2.

In the agencies’ preferred alternative, “we proposed to strip away a lot of this to make this a less complicated program,” Wehrum said. “We set out a range of possible outcomes when it comes to the final rule, and we’re anxious to get public comment to see what people think about that.”

But flexibility for automakers in terms of compliance credits was one of the most effective tools to make meeting the fuel efficiency standards affordable for automakers, Janet McCabe, who served as acting assistant administrator for the EPA Office of Air and Radiation at the end of the Obama administration, told Bloomberg Environment Aug. 2.

“I’m not sure I fully understand the rationale for why discontinuing flexibilities like that would ever be a good idea,” said McCabe, who is now a senior law fellow at the Environmental Law & Policy Center in Indianapolis. “They provide additional opportunities for automakers to have different routes to get to the endpoint.”

Disagreement Within Industry

Though ahead of the release, major automakers, auto parts suppliers, electric utilities, and advanced vehicle companies urged the Trump administration to enhance compliance flexibilities in the standards, some in the industry are happy to see them vanish.

“The credits were always a little bit of a shell game anyway, so I think it’s fair,” Carla Bailo, president and CEO of the auto industry-supported Center for Automotive Research, told Bloomberg Environment Aug. 2.

The credits were automakers’ hedge against the rising needs to meet fuel economy standards, she said.

“Most of the companies have almost used up all of their credits as we’ve moved forward in fuel economy standards,” she said, adding that the credits have “no meaning or no value” if the new standards aim to keep fuel efficiency flat.

Prior to the proposal’s release, California regulators signaled they would be open to revising the program’s crediting mechanisms, which help ease compliance for automakers.

California officials lashed out at the proposal. “At first glance, this proposal completely misrepresents costs and savings,” California Air Resources Board Chair Mary D. Nichols said in a news release. “It also relies on bizarre assumptions about consumer behavior to make its case on safety.”

Major automaker and utility industry trade groups argued in a May letter to former EPA head Scott Pruitt and Transportation Secretary Elaine Chao that augmenting compliance flexibility, including credits for manufacturing electric vehicles, could help prompt agreement on a single national program.

Auto companies—including Ford Motor Co., General Motors, and Fiat Chrysler Automobiles—have underscored their desire for one fuel economy program nationwide, as they say it will cost more for them to comply with separate standards.

Auto supplier groups had also advocated for flexibility, including urging the agencies to give suppliers a larger role in the off-cycle credit program.

McCabe said that, though she hadn’t read the nearly 1,000 page proposal released Aug. 2, she saw few fingerprints of EPA engineers and analysts in a leaked draft of the proposal, which appeared to be driven by NHTSA.

“It did not look like a joint EPA-NHTSA document to me,” McCabe said. “It looked like both in terms of NHTSA requirements and analysis and justification [NHTSA] dominated the explanations of why the rule was doing what it was going to do. It was very explicit that the NHTSA analytical tools were the ones being used here.”

—With assistance from Emily C. Dooley.

(Updates with comments from former EPA official Janet McCabe.)

To contact the reporters on this story: Bobby Magill at bmagill@bloombergenvironment.com; Abby Smith in Washington at asmith@bloombergenvironment.com

To contact the editor responsible for this story: Rachael Daigle at rdaigle@bloombergenvironment.com

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