New Fuel Economy Standards

On August 28, 2012, the Obama Administration finalized new fuel standards for the 2025 model year that nearly double those currently in place for 2016 vehicles[1]. The standards strive for historic fuel efficiency by requiring vehicles to achieve an average rating of 54.5 miles per gallon of fuel by 2025 for new passenger cars, light-duty trucks, and medium-duty passenger cars. Without a method of achieving increased efficiency specified, the rules are designed to encourage manufacturers to develop technology to improve mileage.

The projected effects of the new standards are reported to be significant. Transportation Secretary Ray LaHood explained that the new rule would save Americans $1.7 trillion in fuel costs for an average per vehicle savings of eight thousand dollars. This, LaHood says, will easily make up for the increased cost of the more efficient models. Moreover, LaHood also maintains that the switch to new technology will create jobs and reduce America’s dependence on foreign oil.[2]

The Environmental Protection Agency (EPA) and the Department of Transportation’s National Highway Traffic Safety Administration (NHTSA) initially proposed the regulations[3] in November of 2011 as part of a Joint Proposal, which is the result of the National Program to improve overall fuel economy and reduce Greenhouse Gas (GHG) Emissions. In May of 2010, President Obama requested that the EPA and the NHTSA work in conjunction to establish the emissions and fuel standards. Under the Clean Air Act (CAA), the EPA is responsible developing GHG emissions standards, and the NHTSA is responsible for setting fuel economy standards[4]. The first rulemaking of the National Program occurred in May 2010 when GHG and fuel economy standards were set for model years 2012-2016.

The 2025 standards for CO2 emissions vary by the model of vehicle model, and the agency claims the new rules do not dictate the increased manufacture of any one kind of car. The larger the vehicle, the higher its permitted CO2 emissions, and carmakers are free to determine the combination of vehicle sizes they wish to manufacture. Thus, the EPA contends, the burden of decreasing emissions is spread throughout all firms in the market[5]

Despite the many benefits touted by the Administration, some members of the automotive industry have vigorously criticized the proposed standards. The National Automobile Dealers Association claims that the proposal will increase the price of the average vehicle by three thousand dollars, which will make it more difficult for Americans to afford. Further, the Association argues that the new rules will make larger cars less available, which they claim is contrary to current consumer preferences as exhibited by recent buying trends.[6] Critics further claim that the overall result will be an enormous loss of jobs in automobile manufacturing and related industries[7].

These contentions are rebutted not only by environmentalists, but also by the United Auto Workers union. In addition to controlling a significant environmental problem, namely global warming, groups in favor of the proposed standards assert that the savings to consumers will outweigh the increased sticker price of new vehicles[8].  The EPA projects a net savings of as much as $4,400 for consumers that purchase a model year 2025 vehicle without a loan when that car is used for the entire duration of its useful life[9]. Further, the legislation incorporates multiple provisions to allow manufacturers some flexibility in compliance, including credits banking and trading, air conditioning improvement credits, off-cycle credits, and credits for hybrid, electric, and fuel cell vehicles. According to the EPA, these flexibility programs will make compliance possible while still encouraging manufacturers to achieve the goal of lowering GHGs[10].

There is little doubt that the new standard, if successful, would be environmentally beneficial and would have the additional advantage of decreasing American dependence on foreign oil. However, as the National Automobile Alliance (Auto Alliance) pointed out in their reaction[11] to the proposed rule, given the national economic downtown and the precarious position of the American automobile industry, it is important that the new fuel standards be carefully tailored for success. The goal of the pending legislation is that the emissions standards will be technology-forcing, a common policy objective in environmental legislation. New technology is “forced” because the stringent regulations cannot be fully achieved, or achieved efficiently, with currently available technology. However, other such statutes, particularly the Clean Water Act (CWA), have set goals so ambitious that little progress is made, even decades after promulgation. If the implementation of these standards results in sticker prices so high that consumers delay purchasing new vehicles, the effects could devastate the already fragile automotive sector. Further, environmental improvements would be thwarted if consumers continue to drive old and inefficient vehicles. While no ideal fuel efficiency standards have been offered from industry, the Auto Alliance and other groups implore the Administration to remember that the success of the legislation and of the automotive sector is predicated on the sale of the new vehicles[12].

Megan Anderson is an editor with MJEAL.


The views and opinions expressed in this blog are those of the authors only and do not reflect the official policy or position of the Michigan Journal of Environmental and Administrative Law or the University of Michigan.

[2] NY Times http://www.nytimes.com/2012/08/29/business/energy-environment/obama-unveils-tighter-fuel-efficiency-standards.html

[3] 2017 and Later Model Year Light-Duty Vehicle Greenhouse Gas Emissions and Corporate Average Fuel Economy Standards, 76 Fed. Reg. 74854 (proposed Dec. 1, 2011) (to be codified at 49 C.F.R. pts. 523, 531, 533, 536, and 537).

[4] EPA Regulatory Announcement: http://www.epa.gov/fueleconomy/regulations.htm

[5] EPA Fact Sheet, EPA and NHTSA Propose to Extend the National Program to Reduce Greenhouse Gases and Improve Fuel Economy for Cars and Trucks, available at http://www.epa.gov/otaq/climate/regulations.htm .

[8] Id.

[9] Supra n. 6. Note that these projections assume that the price of gasoline will be similar to what it is today. Additionally, the EPA finds that consumers who purchase vehicles with a traditional 5-year loan will save about $140 a year.

[10] EPA Fact Sheet, EPA and NHTSA Propose to Extend the National Program to Reduce Greenhouse Gases and Improve Fuel Economy for Cars and Trucks, available at http://www.epa.gov/otaq/climate/regulations.htm .

[11] National Automobile Alliance, Statement Of The Alliance Of Automobile Manufacturers In Response To Nhtsa And Epa’s Release Of The Nprm On Fuel Economy/Co2 Standards For 2017-2025, November 16, 2011, Available At: Http://Www.Autoalliance.Org/Index.Cfm?Objectid=9d11fa36-1098-11e1-A783000c296ba163.

[12] Id.

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