Obama Memos on California Waiver and CAFE Create Opportunity for Harmonization of Federal and State Fuel Economy/GHG Standards in US
On Monday, US President Barack Obama issued two memoranda, one, to Lisa Jackson, the new Administrator of the Environmental Protection Agency (EPA); the other, to Roy LaHood, the new Secretary of the Department of Transportation (DOT).
The resulting activity will create an opportunity to harmonize fuel economy and greenhouse gas emissions standards in the US not just between two different sets of tailpipe or fuel economy numbers (California Pavley versus federal CAFE), but also between the two currently differing approaches to implementing and managing the regulations.
In his memo to Jackson, Obama requested a review of the EPA’s earlier denial of the waiver to California to implement its greenhouse gas reduction standards for vehicles sold in the state. Granting of the waiver opens the way for implementation of the state standards in California and 13 other adopting states (in total representing about 40% of the US market).
In his memo to LaHood, the President requested very precisely a final order for federal fuel economy standards for only model year 2011, with further consideration and analysis to occur prior to issuing rules for subsequent model years. The original intention of the DOT’s National Highway Traffic Safety Administration (NHTSA) had been to issue rules for model years 2011-2105. (Earlier post.)
In the absence of harmonization, the downside scenario for the auto industry is two sets of regulations, based on different metrics, applied to 15 different—at current count—fleets: the California fleet under the Pavley regulations; the different fleets of each of the 13 other states currently queued up to implement the California standard; and the remaining national fleet under federal CAFE.
...the federal government must work with, not against, states to reduce greenhouse gas emissions. California has shown bold and bipartisan leadership through its effort to forge 21st century standards, and over a dozen states have followed its lead. But instead of serving as a partner, Washington stood in their way. This refusal to lead risks the creation of a confusing and patchwork set of standards that hurts the environment and the auto industry.
The days of Washington dragging its heels are over. My administration will not deny facts, we will be guided by them. We cannot afford to pass the buck or push the burden onto the states. And that’s why I’m directing the Environmental Protection Agency to immediately review the denial of the California waiver request and determine the best way forward. This will help us create incentives to develop new energy that will make us less dependent on oil that endangers our security, our economy, and our planet.
As we move forward, we will fully take into account the unique challenges facing the American auto industry and the taxpayer dollars that now support it. And let me be clear: Our goal is not to further burden an already struggling industry. It is to help America’s automakers prepare for the future. This commitment must extend beyond the short-term assistance for businesses and workers. We must help them thrive by building the cars of tomorrow, and galvanizing a dynamic and viable industry for decades to come.—President Obama
Federal CAFE. The Energy Independence and Security Act (EISA) passed in 2007 mandates that the Secretary of Transportation prescribe annual fuel economy increases for light duty vehicles, beginning with model year 2011, resulting in a combined fuel economy national fleet average of at least 35 mpg US (6.72 L/100km) by model year 2020—about a 40% increase over current levels. The wording of the statute leaves open the possibility of a standard higher than 35 mpg in 2020.
In April 2008, NHTSA published a Notice of Proposed Rulemaking (NPRM) for model years 2011-2015—the maximum period for a single rulemaking permitted under EISA 2007. NHTSA decided to front-end load the standards; in other words, the increase in the first five years of CAFE would be more aggressive. Under the NPRM, national fleet average fuel economy would have increased to 31.6 mpg (7.44 L/100km) in MY 2015.
In October, 2008, NHTSA published a Final Environmental Impact Statement, which, as required by law, detailed a number of alternative rulemaking scenarios, some resulting in lower fleet fuel economy by 2015, but some resulting in much higher fuel economy, with the most extreme achieving 42 mpg (5.6 L/100km) by MY2015. Primary elements driving the varied results were different cost-benefit assessments, and underlying assumptions such as the price of fuel. (Earlier post.)
By statute, a fuel economy rulemaking must precede the beginning of the affected model year by at least 18 months. In order to have a viable MY2011 fuel economy standard, in other words, the rule needs to be published by 30 March 2009. NHTSA had originally intended to issue the final rulemaking at the end of 2008; however, the outgoing Bush Administration left the issuance of the rules to the incoming Obama Administration. (Earlier post.)
In a final rulemaking which was developed, although not issued (although it was leaked), NHTSA moved closer to one of its alternative scenarios, with a resulting increase in national fleet average fuel economy of 31.8 mpg (7.4 L/100km) by 2015.
By requesting a rulemaking only for MY 2011, President Obama opens up a window for further revision of the emerging rulemaking. From the Obama memo:
(b) before promulgating a final rule concerning model years after model year 2011, [I request that] you consider the appropriate legal factors under the EISA, the comments filed in response to the Notice of Proposed Rulemaking, the relevant technological and scientific considerations, and to the extent feasible, the forthcoming report by the National Academy of Sciences mandated under section 107 of EISA; and
(c) in adopting the final rules in paragraphs (a) and (b) above, you consider whether any provisions regarding preemption are consistent with the EISA, the Supreme Court’s decision in Massachusetts v. EPA and other relevant provisions of law and the policies underlying them.
In Massachusetts v. EPA, the Supreme Court held that carbon dioxide and greenhouse gases are pollutants can be regulated under the Clean Air Act, and that as such the Environmental Protection Agency has the authority to set regulatory standards for greenhouse gas emissions from motor vehicles. (Earlier post.)
Attribute-based standards. The new CAFE rules radically change the older CAFE structure by moving to an attribute-based standard based on each OEM’s fleet mix. With the new structure, there is no longer any inherent advantage in selling small cars; as you move to larger-sized vehicles, the fuel economy requirements decline.
In a briefing on the impending new CAFE last year, John German, American Honda’s Manager, Environmental Policy Analysis noted that as there is no inherent advantage in downsizing under these rules, vehicles are likely to remain similar in size while increasing fuel efficiency through advanced technology, weight reduction and aerodynamics. There is no advantage to companies that produce smaller vehicles, and no penalty to companies making more larger vehicles. (Earlier post.)
California Pavley. Under the Federal Clean Air Act, California has the right to set its own tougher-than-federal emission standards, as long as it obtains a waiver from US EPA. Other states can choose to adopt the California standards, or stick with the federal standards.
Enacted in 2004, California’s AB 1493 (Pavley) established for the first time standards for CO2 emissions for new light-duty vehicles sold in the state. The Pavley regulations are not per se fuel economy regulations; because the vast majority of greenhouse gas emissions from the operation of a vehicle stem from combustion of the fuel, they serve as a very close proxy for fuel economy regulations, however.
Since enactment, the Pavley regulations have been in limbo as the EPA under the Bush Administration first took no action on the waiver request, and then ultimately denied it in 2007. (Earlier post.)
At the same time, various legislative efforts were mounted to preclude states from setting individual vehicle emissions standards, and the rules themselves were contested in a series of court cases by the auto industry and dealers. California won in the courts, but the denial of the waiver pushed it back into the courts as California sued to overturn the decision.
Pavley standards. Unlike the vehicle attribute-based approach of the new CAFE, the Pavley regulations use the older model of a manufacturer’s entire fleet, divided into two main categories: Passenger cars/Light duty trucks 1 (PC/LDT1) and Light duty trucks 2 and 3 (LDT2/3). PC/LDT1 includes vehicles of less than 3,751 lbs GVW; LDT2 includes light duty trucks with test weights between 3,751 lbs. and 8,500 lbs. gross; LDT 3 incudes non-commercial medium duty vehicles ranging between 8,500 and 10,000 lbs.
These are slightly different than the federal government’s distinction between cars and light trucks, the former which consists only of passenger cars, the latter which comprises LDT1/2/3. For example, under California categories, the state will have a fleet that is 70% PC/LDT1 and 30% LDT2/3 in MY 2016, according to the Air Resources Board (ARB). Under federal categories, according to ARB, California’s fleet at the same time will be 59% cars and 41% light-duty trucks.
|Pavley applied to the federal fleet. Source: ARB. Click to enlarge.|
In an analysis published in February 2008, ARB mapped the federal fleet to the California categories (PC/LDT1 and LDT2/3), assuming a 50:50 ratio, and then applied the Pavley emission standards, with an accompanying conversion of g CO2/mile to mpg fuel economy. The outcome, according to ARB, would yield a combined national fleet fuel economy of 31.3 mpg (7.52 L/100km) in MY 2015—or .5 mpg lower than the 31.8 mpg US fleet average in the NHTSA final rule that was not published.
However, the Pavley standards are much more exacting on the passenger car side than the federal requirements. For the PC/LDT1 category, the average fuel economy resulting under Pavley is an estimated 40.6 mpg (5.79 L/100km) in MY 2015. The NHTSA rule applied to passenger cars (which would not have included the LDT1 trucks) would have resulted in average fuel economy of about 37.1 mpg (6.34 L/100km).
|MY2011-2015 national fleet fuel economy under CAFE and Pavley scenarios. Click to enlarge.|
For the LDT2/3 category (without the lighter LDT1 vehicles), Pavley would result in an average 25.5 mpg (9.22 L/100km). The NHTSA rule applied to light trucks (equivalent to LDT1, LDT2 and LDT3) would result in an average of 27.1 mpg US (8.68 L/100km).
The ARB analysis concludes that continuing with Pavley and anticipated Pavley 2 rules will result an average fuel economy in the state of 42.5 mpg (5.53 L/100km) by 2020. If applied to the national fleet, the Pavley standards would result in average fleet fuel economy of 39.2 mpg (6.0 L/100km), compared to the EISA 2007 minimum of 35 mpg (6.72 L/100km).
The “patchwork”. The patchwork of standards adduced constantly by the auto industry and dealers, and referenced by President Obama in his remarks prior to signing the two memos, results more from the structural implementation of the two systems, rather than the basic difference in fuel economy numbers (which, for the initial years, are relatively small and in some cases are more aggressive on the CAFE side.)
The Pavley regulations apply to a manufacturer’s fleet as delivered for sale within a state; new CAFE applies to vehicles on an attribute basis. Although the target fleet number for the Pavley standards will remain the same across the different implementing states, the vehicle mixes sold in those states vary.
In a report published in January, the National Automobile Dealers Association noted that:
...each CARB state will pose a different regulatory challenge for automakers, because consumer appetites vary from state to state, and therefore no two state fleets are alike. Accordingly, the mix of vehicles automakers “deliver for sale” in California differs from what they “deliver for sale” in other states. These differences mean that being in compliance in California, and offering the exact same choice of vehicles nationwide will not guarantee compliance in any other CARB state. Thus, the more states that opt into the CARB regime, the more cumbersome the patchwork would become.
...Generally, CARB’s regime would pressure automakers to “deliver for sale” small vehicles in each CARB state (irrespective of consumer demand) to offset the sale of larger vehicles.—“Patchwork Proven”
In an interview with GCC, Charles Territo, the director of communications for the Alliance of Automobile Manufacturers, which had participated in the lawsuits against the California regulations, said:
It’s really important to get beyond the rhetoric of “California good”, “California bad”. Doing this on a state-by state basis won’t work. From a compliance and regulatory standpoint it won’t work.
There is great wisdom in a single national standard, and the ability of manufacturers to average sales in one area versus another area. You can do that and still get significant CO2 reductions. That’s where we want to be. We understand it, we get it. We all are looking forward to working with the new administration and figuring out a way to get beyond this debate.
The ultimate goal should be a plan that enhances energy security, reduces CO2 emissions, gives manufacturers the flexibility they need to comply, and gives consumers access to a wide range of vehicles that are very fuel efficient at an affordable price.