The Fuel Economy Fraud Pruitt is right to rewrite rules that are mostly honored in the breach.
https://www.wsj.com/articles/the-fuel-economy-fraud-1522795202
The Environmental Protection Agency on Monday took the Obama fuel economy rules off autopilot. This is good news for consumers, automakers and the U.S. economy, but the Trump Administration’s big test will be negotiating around the political potholes.
Corporate average fuel economy (Cafe) standards are a vestige of the 1970s gas shortages. Like the Nixon-era price controls, the fuel standards were intended to reduce gas consumption. But the environmental left long ago hijacked the rules to impose their vision of an electric-car future.
In 2012 the Obama EPA turned up the Cafe dial and mandated a fleetwide average of 54.5 miles a gallon by 2025 with a midpoint review in 2017. After President Trump won the election, Obama EPA chief Gina McCarthy blazed through the review and upheld the 2012 targets no matter the economic and technological obstacles.
Passenger cars were about half of U.S. vehicle sales in 2012 when gas averaged $3.60 a gallon. But last year they made up only about a third of the fleet mix, and their share has been declining amid lower gas prices. This will make it nearly impossible to hit future targets even with cleaner technologies. By the Obama EPA’s own projections, fewer than 1% of gas-burning vehicles would meet its 2022 target.
Many automakers have met EPA’s targets so far by selling small and electric cars at a loss, and some have shifted production to lower-cost Mexico. Fiat Chrysler CEO Sergio Marchionne has estimated that his company loses $14,000 on each Fiat 500e.
But in 2016 for the first time most manufacturers complied with the standards by using regulatory credits that the EPA provides for efficient air-conditioning systems, electric cars and flex-fuel vehicles that can run on ethanol. These green indulgences can be stored and traded. During the 2016 model year, Fiat Chrysler bought 21.9 million credits. Honda sold 20.7 million. The credit scheme is an income transfer that has SUV and truck consumers indirectly subsidizing electric and small cars—which typically means rural and suburban residents subsidizing city dwellers. This subsidy would grow as the targets rise.
EPA Administrator Scott Pruitt last year put the brakes on the Obama rules for the 2022-2025 model years and will now initiate a formal rule-making to revise the targets. Consumers should be allowed to buy the cars they want regardless of gas mileage. But if that’s politically infeasible, Mr. Pruitt should aim to fix Cafe’s biggest problems.
While U.S. automakers have wanted a review, they’ve been cagey about endorsing lower targets. “We support increasing clean car standards through 2025 and are not asking for a rollback” but merely “additional flexibility,” Ford Chairman Bill Ford and CEO Jim Hackett wrote on Medium last month.
Manufacturers have floated alternatives like not accounting for the carbon emissions generated in fueling electric cars. But battery-powered cars aren’t a carbon-free lunch since fossil fuels account for 63% of U.S. electric generation. Others ideas include awarding more credits for electric cars and other politically favored technologies. But credits distort business decision-making and raise costs.
Credits do allow manufacturers and regulators to signal their green virtue, however, and car makers don’t want to get on the wrong side of the politics. They may also figure that a future Democratic Administration would ratchet the targets back up. But the existing standards are a fraud that deserves to be exposed.
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Mr. Pruitt’s other challenge is California. The 1970 Clean Air Act prohibits states from adopting their own auto-emissions rules. But amid oppressive smog in the 1960s, California was allowed to request a waiver. The Obama EPA granted California a waiver in 2009, but then imposed stringent rules that were adopted by the Golden State. Mr. Pruitt says he wants to maintain one national standard. Under the law, Mr. Pruitt cannot reject the waiver unless he can demonstrate that California “does not need such standards to meet compelling and extraordinary conditions.”
This will require some legal and scientific finesse, but one important point is that carbon emissions don’t contribute to smog and were not considered a pollutant until the Supreme Court’s Massachusetts v. EPA (2007) decision. California’s earlier waivers for tailpipe pollutants like NOx were granted because its smog was worse than in the rest of the country. That’s not true of its carbon emissions. In any case, Congress never intended California to use the waiver to usurp federal regulatory control as it has done with its electric-car mandate, which nine other states have adopted.
California’s rules won’t even make a dent in global carbon emissions, though they erode Congress’s authority to regulate interstate commerce. Mr. Pruitt’s revision of emissions standards won’t help consumers or automakers nearly as much if California can impose its own.
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