EPA Rushes to Lock in Obama Administration Fuel Economy Standards

The Environmental Protection Agency last Wednesday released its proposed Mid-Term Evaluation (MTE) of greenhouse gas (GHG) emission standards for model year (MY) 2022-2025 passenger vehicles. The standards function as de-facto fuel economy mandates. EPA had the option to adjust (tighten or relax) the standards, but decided to leave them in place, despite automakers’ pleas that high mileage requirements significantly raise the cost of new vehicles, making them hard to sell in an era of low fuel prices. EPA’s decision to propose the MTE last week clearly aims to limit the Trump administration’s options to relax fuel economy mandates for MYs 2022-2025.

The MTE, which covers both EPA’s GHG standards and the National Highway Traffic Safety Administration’s (NHTSA’s) explicit fuel economy standards, is required under the agencies’ 2012 joint rulemaking for MYs 2017 and later. That rule was Phase 2 of the so-called National Vehicle Program—a product of closed door negotiations led by former Obama climate czar Carol Browner in May 2009.

Parties to the so-called historic agreement included EPA, NHTSA, California Air Resources Board, major automakers, United Auto Workers, and major environmental groups. In essence, the auto companies agreed never to challenge the Obama administration’s GHG/fuel economy mandates in return for protection from the market chaos EPA threatened to unleash by authorizing California, and thus other states, to establish their own de-facto fuel economy standards. It is a tale of stealth, coercion, and the trashing of the separation of powers, but there is not space to retell here. If you’re curious, check out these two reports.

Here is what’s germane for present purposes. In July 2016, NHTSA told automakers and other stakeholders the agencies would propose their MTE in mid-2017 and finalize it in April 2018. Similarly, in a letter to House Energy and Commerce Chairman Fred Upton, EPA air administrator Janet McCabe stated EPA anticipated issuing its proposed MTE “in 2017” and “make a Final Determination, no later than April 1, 2018.” Yet, as noted above, EPA proposed its portion of the MTE last week—four months ahead of schedule.

EPA’s rush to judgment reveals the “National” program is not the coordinated and consistent scheme automakers were promised in the “historic agreement.” It may be some time before NHTSA proposes an MTE for fuel economy standards. Even if NHTSA wants to adjust the MY 2022-2025 standards, it cannot now do so without subjecting automakers to conflicting requirements.

An article in Automotive News explains how EPA’s action “significantly reduces the latitude for automakers to seek changes to the grand bargain they struck with federal and California regulators in 2011 to advance President Obama’s energy and environmental agenda,” and “also limits the options for the incoming administration of Donald Trump to reconcile the rules with his deregulatory campaign rhetoric.”

The EPA ruling compresses the promised midterm evaluation of the government's ambitious fuel economy program.

The midterm evaluation, which formally began in July, was a big reason that auto CEOs stood in support of Obama in 2011 when he announced what has come to be known as the One National Program of aligned greenhouse-gas and fuel-economy regulations.

Automakers knew they'd be expected to meet ever-stricter standards in exchange for regulatory clarity. But they were counting on an extended period of data analysis and discussions as an opportunity to vie for changes to the standards to reflect technological hurdles and marketplace realities.

Just weeks ago, industry leaders were seizing on the surprise election of Donald Trump to appeal for even more time to deliberate the feasibility and economic costs of the program, in light of low gasoline prices, booming light-truck sales and tepid demand for hybrids and electric cars.

Instead, the EPA hit the fast-forward button with its proposal to keep the standards as they are, subject to a 30-day comment period. A final ruling, whose original deadline was April 2018, could now come within a month.

The new timeline makes it possible for Obama's appointee, EPA Administrator Gina McCarthy, to be the one who issues the final ruling. If that happens, it would be much tougher for the incoming administration to change the 2025 model year standards, said Dave Cooke, senior vehicles analyst at the Union of Concerned Scientists.

"They would have to do a new rulemaking," Cooke said. "That's a large undertaking. This is years' worth of data and pretty rigorous analytic work justifying this conclusion. You can't just snap your fingers and say, "I don't like what the data concludes.'"

The truncated process also helps keep the broader goals of the One National Program on track with more work still to do. The National Highway Traffic Safety Administration must still set Corporate Average Fuel Economy standards for 2022-2025.

Another point to keep in mind—because the MTE is not a regulation but an assessment of a regulation, it is not subject to quick repeal via the Congressional Review Act.  

However the MTE plays out over the next two months, EPA’s GHG standards may add hundreds to thousands of dollars to the cost of new motor vehicles during 2022-2025. Consequently, the standards could destroy auto industry jobs and undermine U.S. competitiveness if gasoline prices remain low and millions of households don’t want to pay hefty price premiums for high mpg vehicles.