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The Implications of Changing Fuel Efficiency Standards

November 15, 2018
Following a trend of deregulation advanced by the Trump administration, the Environmental Protection Agency is proposing a change to fuel efficiency standards.  In 2012, President Obama established a new fuel efficiency standard that required vehicles to meet roughly 54 miles per gallon by 2025. [1] The administration stated that such strict rules would decrease about 6 billion tons of greenhouse gas emissions by 2026, and save $1.7 trillion in fuel costs.[2]  Further predictions suggested that 12 billion barrels of oil would be saved by the regulations.[3]

Image: Changes in Fuel Efficiency with New Rule Source: Washington Post
Image: Changes in Fuel Efficiency with New Rule Source: Washington Post
However, with this new proposal, standards would be locked in at the 2020 level of 37 mpg. [4] The Trump administration states that this freeze benefits both consumers and industry; arguing that the Obama-era fuel efficiency standards would place these groups under unnecessary economic stress. Additionally, the administration claims that stringent standards compromises safety, for lighter-efficient cars place passengers at higher risk in the case of an accident. [5] The Department of Transportation and the Environmental Protection Agency support these statements, praising the new standards for their pragmatism. [6] Andrew Wheeler, the currently acting administrator of the EPA, states, “Our proposal aims to strike the right regulatory balance based on the most recent information and create a 50-state solution that will enable more Americans to afford newer, safer vehicles that pollute less. More realistic standards can save lives while continuing to improve the environment”. [7]

Fuel efficiency is no new concept. The first Corporate Average Fuel Economy (CAFE) standards were introduced by Congress in 1975 as a result of the 1973 oil embargo. [8] Standards continued to call for increased efficiency over the years as a result of oil consumption, annual mileage, and competitive markets. [9] It is estimated that fuel efficiency standards have saved Americans over $2 trillion in fuel costs since their establishment. [10]

These new standards also change how California regulates air pollution within the state. With the establishment of the Clean Air Act in 1970, California was granted a waiver to exceed national fuel efficiency standards by requiring vehicles to be even more efficient. [11] While it may seem strange that California is afforded such a luxury, the wavier was created with good reason. The geography of the state places it in a difficult position to regulate air pollution. With some of the country’s largest car-dependent cities, and large mountains and an ocean on either side of the Los Angeles Basin, conventional air pollution gets trapped. [12] This pollution, which in some parts of the state is in “extreme nonattainment” with federal standards, can lead to public health problems such as asthma.”[13] With the waiver granted by the Clean Air Act, California is able to pursue alternative solutions such as its Zero Emission Vehicle Program, which provides incentives to residents and businesses to purchase electric and hydrogen-powered vehicles. [14] Efforts such as these allow California to regulate its air quality. However, the EPA’s new proposal would revoke this waiver, stating a desire for a “50-state fuel economy” which will have “negligible environmental impacts on air quality”.[15] In response, California and several other states are preparing for a lengthy legal battle to defend its right to regulation. [16]
The fuel efficiency proposal has been met with mixed reactions. According to a poll by Politico-Morning Consult between August 2nd-6th, 49% of voters were either strongly against or somewhat against rolling back the Obama-era national standards. [17] Automakers also appear torn on whether to support the proposal. With Trump’s election, many in the auto industry pleaded for relaxed standards.[18] However, with the EPA’s proposal, some have had a change of heart. In a letter to the Office of Management and Budget, David Schwietert, Executive Vice President of Federal Government Relations and Public Policy at the Alliance of Automobile Manufacturers wrote “automakers remain committed to increasing fuel efficiency requirements, which yield everyday fuel savings for consumers, while also reducing emissions – because climate change is real, and we have a continuing role in reducing greenhouse gases and improving fuel efficiency”.[19] Another huge concern for automakers stems from the brewing lawsuit between the states and the federal government. Depending on the outcome, automakers may need to make two types of cars—one for California, and one for the rest of the country. [20] Such effort would take more time and money, likely raising costs for consumers. [21] In the meantime, automakers will face great uncertainty waiting for the result of the lawsuit. In his letter, Mr. Schwiertert “urged the Administration and California to work together to increase standards year over year and keep new vehicles affordable to more Americans”, striving to maintain a single national program of increasing vehicle efficiency standards. [22]

Image: Fuel Economy Standards for Passenger Cars Source: NYTimes

Image: Fuel Economy Standards for Passenger Cars Source: NYTimes
The new fuel efficiency standards not only provide uncertainty for consumers within the United States, but also for the global market. Several countries model their vehicles standards based on the United States, indicating that relaxed regulations could also potentially relax regulations in other nations as well. [23] Furthermore, the United States has recently been a leader in technology designed to improve vehicle efficiency. Weaker standards could slow this research, placing the United States at a competitive disadvantage. [24] European and Australian regulators are currently looking to implement stricter fuel efficiency standards, which potentially could be challenged by lobbyists if the United States rolls back their regulations. [25] However, if countries remain dedicated to reduce emissions, cars sold within the United States may no longer meet the standards of other nations. [26] Already, American-produced cars are falling behind in the world market, with the percentage of American vehicles in the global marketing dropping from 70% in the 1960s, to an anticipated 15% by 2025. [27] With Europe and Japan holding higher fuel economy standards, and China taking a strategic role in leading the switch to electric vehicles, the United States is at risk of falling behind in a world of increased competition. [28]
While the EPA’s proposal is not final, its potential implications demand attention by both consumers and industry officials. But only time will tell the impacts of such a change.


Student Blog Disclaimer
  • The views expressed on the Student Blog are the author’s opinions and don’t necessarily represent the Wharton Public Policy Initiative’s strategies, recommendations, or opinions.



  [1] https://www.washingtonpost.com/national/health-science/2018/08/01/90c818ac-9125-11e8-8322-b5482bf5e0f5_story.html?noredirect=on&utm_term=.ac6b12d26959
  [2] https://www.theguardian.com/environment/2018/aug/02/epa-trump-vehicle-emissions-clean-car-rules
  [3] https://www.bbc.co.uk/news/business-45048994
  [4] https://www.forbes.com/sites/oliverwyman/2018/08/08/why-lower-fuel-economy-standards-may-end-up-hurting-u-s-automakers/#2e16b4912d18
  [5] https://www.npr.org/2018/08/02/634882047/trump-administration-proposes-freezing-fuel-economy-standards
  [6] https://www.bbc.co.uk/news/business-45048994
  [7] https://www.theguardian.com/environment/2018/aug/02/epa-trump-vehicle-emissions-clean-car-rules
  [8] https://www.ucsusa.org/clean-vehicles/fuel-efficiency/fuel-economy-basics.html#.W24BP9JKjic
  [9] https://www.ucsusa.org/clean-vehicles/fuel-efficiency/fuel-economy-basics.html#.W24BP9JKjic
  [10] https://www.theguardian.com/environment/2018/aug/02/epa-trump-vehicle-emissions-clean-car-rules
  [11] https://www.theguardian.com/environment/2018/aug/02/epa-trump-vehicle-emissions-clean-car-rules
  [12] https://www.theatlantic.com/science/archive/2018/08/fuel-efficiency-rollback-trump-epa/566615/
  [13] https://www.theatlantic.com/science/archive/2018/08/fuel-efficiency-rollback-trump-epa/566615/
  [14] https://www.theatlantic.com/science/archive/2018/08/fuel-efficiency-rollback-trump-epa/566615/
  [15] https://www.theguardian.com/environment/2018/aug/02/epa-trump-vehicle-emissions-clean-car-rules
  [16] https://www.washingtonpost.com/national/health-science/2018/08/01/90c818ac-9125-11e8-8322-b5482bf5e0f5_story.html?noredirect=on&utm_term=.ac6b12d26959
  [17] http://thehill.com/policy/energy-environment/401101-almost-half-of-voters-oppose-trumps-vehicle-emissions-plan-poll
  [18] https://www.nytimes.com/interactive/2018/04/03/climate/us-fuel-economy.html
  [19] file:///C:/Users/Ashley/Downloads/EPA-HQ-OAR-2015-0827-11419%20(1).pdf
  [20] https://www.npr.org/2018/08/02/634882047/trump-administration-proposes-freezing-fuel-economy-standards
  [21] https://www.brookings.edu/blog/the-avenue/2018/07/02/why-undermining-fuel-efficiency-standards-would-harm-the-us-auto-industry/
  [22] file:///C:/Users/Ashley/Downloads/EPA-HQ-OAR-2015-0827-11419%20(1).pdf
  [23] https://www.nytimes.com/interactive/2018/04/03/climate/us-fuel-economy.html
  [24] https://www.nytimes.com/interactive/2018/04/03/climate/us-fuel-economy.html
  [25] https://www.nytimes.com/interactive/2018/04/03/climate/us-fuel-economy.html
  [26] https://www.forbes.com/sites/oliverwyman/2018/08/08/why-lower-fuel-economy-standards-may-end-up-hurting-u-s-automakers/#2e16b4912d18
  [27] https://www.forbes.com/sites/oliverwyman/2018/08/08/why-lower-fuel-economy-standards-may-end-up-hurting-u-s-automakers/#2e16b4912d18
  [28] https://www.forbes.com/sites/oliverwyman/2018/08/08/why-lower-fuel-economy-standards-may-end-up-hurting-u-s-automakers/#2e16b4912d18


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  • <h3>Federal Reserve Economic Data (FRED®)</h3><p><strong><img width="180" height="79" alt="" src="/live/image/gid/4/width/180/height/79/481_fred-logo.rev.1407788243.jpg" class="lw_image lw_image481 lw_align_right" data-max-w="222" data-max-h="97"/>An online database consisting of more than 72,000 economic data time series from 54 national, international, public, and private sources.</strong> FRED®, created and maintained by Research Department at the Federal Reserve Bank of St. Louis, goes far beyond simply providing data: It combines data with a powerful mix of tools that help the user understand, interact with, display, and disseminate the data.</p><p> Quick link to data page: <a href="http://research.stlouisfed.org/fred2/tags/series" target="_blank">http://research.stlouisfed.org/fred2/tags/series</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
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