Seventeen automakers, including Ford, General Motors, and Toyota Motor North America sent a letter on June 6th to President Trump urging him not to challenge California’s authority to regulate fuel economy. Instead, the companies want Mr. Trump to negotiate a compromise with California over model year 2021-2026 fuel economy standards. To my knowledge, Fiat Chrysler is the only major auto company that did not sign the letter.
The Trump administration has proposed to freeze the standards at the 2020 level of 37 miles per gallon, whereas California demands that the Environmental Protection Agency (EPA) and National Highway Traffic Safety Administration (NHTSA) keep the Obama-era standards, which ratchet up to 54.5 mpg in model year 2025.
In their joint letter, the companies state:
We strongly believe the best path to preserve good auto jobs and keep new vehicles affordable for more Americans is a final rule supported by all parties—including California. Such a final rule would provide the necessary structure and compliance tools to achieve annual fuel economy improvements midway between the existing standards and the preferred path outlined by your Administration last summer.
Such behavior is bizarre. The auto companies literally ask to be hit with more burdensome fuel economy requirements than the administration proposes, and to be subject—in perpetuity—to three regulatory masters instead of two.
The best path to preserve good auto jobs and keep new vehicles affordable for more Americans would be a free market in which consumers, expressing their revealed preferences through their purchasing decisions, determine the mix of vehicles produced and, consequently, the average fuel economy of new motor vehicles. The Trump administration’s proposal is very far from that, but at least it expands the scope for auto companies to cater to consumer preferences.
What’s motivating the automakers? Their letter concludes: “For our companies, a broadly supported final rule would provide regulatory certainty and enhance our ability to invest and innovate by avoiding an extended period of litigation and instability, which could prove as untenable as the current program.” So, what they want most is “regulatory certainty.” But there can be no regulatory certainty as long as the California Air Resources Board (CARB) remains a regulatory decision maker, as the current controversy proves. Whenever CARB doesn’t get its way, it threatens to sue the federal government and, along with its 13 state allies, establish separate fuel economy requirements, subjecting automakers to the threat of a balkanized marketplace.
The solution is exactly what the Trump administration proposes: determine through a joint EPA-NHTSA rulemaking that California and its allies have no authority to regulate fuel economy. On what grounds? Federal law—the Energy Policy and Conservation Act—expressly prohibits states from adopting or enforcing laws or regulations “related to” fuel economy. The Trump administration’s legal argument is powerful, as the Competitive Enterprise Institute explains on pages 9-22 of this comment letter.
If the auto companies want to hedge their bets, they are free to continue building cars to meet the Obama standards until the D.C. Circuit Court of Appeals or the Supreme Court terminates CARB’s unlawful regulation of fuel economy. Their preemptive capitulation to CARB is unseemly (but predictable) after eight years of regulatory bullying during the previous administration.