Major automakers and the California Air Resources Board (CARB) have reached an agreement to increase fleet fuel efficiencies to nearly 50 miles per gallon on average by 2026. The companies–Ford, Honda, Volkswagen and BMW of North America—along with California regulators took matters into their own hands, after the Trump administration planned to freeze the standard at the 2020 level.
The companies—willing and able to achieve higher fuel efficiencies—had grown weary of the administration’s unwillingness to negotiate with California in good faith and worried legal challenges to the final federal rule would keep the auto market roiled for two to four more years.
The deal reached between California and the four auto companies is truly extraordinary both in terms of why the deal came about and what it means for the Trump administration. Since Day 1 of the Trump presidency, the auto industry had been hoping to re-negotiate the deal it struck with the Obama administration on auto and light truck fuel efficiency standards (CAFE) for the period 2021 through 2026.
Over the past two and a half years of the Trump administration, the auto industry has learned the meaning of the phrase be careful what you wish for; as it just might come true. The bad news came to industry representatives in late February on a conference call with the White House. They were told that the Administration had cut-off any further conversations with California officials and was going ahead with its proposed Safer Affordable Fuel-Efficient (SAFE) Vehicles Rule that freezing the standards at 2020 levels.
The freeze has been called the Trump administration’s most environmentally significant regulatory rollback yet by the Rhodium Group following its penetrating analysis of the rule’s impact on the environment. The call is not surprising. The transportation sector has surpassed electricity as the major contributor of greenhouse gases (GHGs) to the atmosphere; and, Trump’s efficiency 36.9 mpg is standard is 14.5 mpg more lenient than Obama’s 51.4 mpg.
According to the State Energy and Environmental Impact Center at the New York University School of Law, the Trump administration’s plan to freeze mileage standards between 2020 and 2026 would increase greenhouse-gas emissions by between 16 million and 37 million metric tons in that period. That is the equivalent of adding between 3.4 million and 7.8 million cars on the road.
The simple fact of the matter is that automakers never wanted the rollback. What they wanted was more time to reach the 51.4 mpg goal, some flexibility in how to achieve it, and a single national standard.
Regulatory responsibility for establishing the auto emission standards is shared by three entities—EPA the National Highway Transportation and Safety Administration (NHTSA) and the California Air Resources Board (CARB). CARB is included because of the California waiver provision in the Clean Air Act.
The deal reached by the automakers and CARB reflects what the industry had asked of the Trump administration. According to the agreement:
- The four companies have agreed to produce fleets averaging nearly 50 mpg by model year 2026–one year later than the target set under the Obama administration. The four companies account for around 30 percent of the US auto market.
- California, for its part of the agreement, pledged to certify vehicles from the four automakers and provide the companies additional flexibility in meeting each year’s emissions goal, which is to improve their fleet’s average efficiency by 3.7 percent a year, as opposed to 4.7 percent dictated under the Obama-era rules.
- Automakers will also be entitled to receive significant credits for adopting climate-friendly technologies, such as cooling cars more effectively through less polluting refrigerants and selling more electric vehicles.
Although it is unclear at this point whether the remaining auto manufacturers will sign on to the agreement, the chances seem good that they will. Why they would is a matter of market dynamics. First, California is a large auto market. Although the Trump administration wants to rescind the Clean Air Act waiver that allows California to set a more stringent standard than the federal government, the rescission will be challenged in court.
Unless the courts stay the waiver while the case is being decided, California will go ahead with the agreement’s schedule of increasing efficiency targets. The auto companies not currently on the agreement could as a practical matter find themselves forced to build to the higher standard or risk losing out to the four signatory companies. It is the same dynamic that prompted the industry to have a single national standard in the first place.
The auto market under the terms of the agreement is much larger than California. The CAA waiver is only available to California; however, other states are free to set their standards at the California mark. Currently, 13 states and the District of Columbia follow the California rule.
California along with 16 other states and the District of Columbia filed their first suit over the standard, and the waiver in 2018 after the Trump administration showed its hand by announcing its intention to freeze the standard and stopped talking to California regulators.
Early this month the Trump administration appeared to have abandoned its initial strategy for defending the rollback of Obama-era clean car rules from court challenges, according to three people with knowledge of the situation—as reported by E&E News. Whether the shock of the agreement will change that strategy is unknown at this point.
An EPA spokesman said the voluntary framework is a PR stunt that does nothing to further the one national standard that will provide certainty and relief for American consumers. The statement was ironic, given the fact that the four companies had grown frustrated with the refusal of the Trump administration actually to listen to their concerns and suggestions.
It had become clear to the companies—actually to the industry—that whatever the administration was proposing to do was not going to be settled for years. Markets hate uncertainty.
There is no reason to believe that the administration won’t just go ahead with what it was planning to do. Under the terms of the Clean Air Act and the decision in Massachusetts vs. EPA, the federal government is obligated to regulate tailpipe emissions. Should other auto manufacturers join the California agreement—and there’s some evidence suggesting they are at least considering it—it is possible that whatever the administration does end up doing will become irrelevant.
There are additional advantages to be gained by the auto industry’s agreeing to the California agreement. Should Trump lose his re-election bid, a Democratic administration would immediately rescind the lower rule. The higher standards and adoption of other climate-conscious technologies and designs will also position automakers to sell in the Canadian and European markets, which have shown a commitment to reducing the emissions of the transportation sector.
The deal itself is heartening. It is a clear case that Trump and his administration are daily becoming outliers in a world that recognizes the epochal threat of Earth’s warming and the increasing—if somewhat tardy—desire to rise to the challenge.