Will Trump's Roll-Back of EPA Fuel Efficiency Standards Stifle Innovation?

 

In mid-March, President Trump along with Transportation Secretary Elaine Chao and CEO’s of Michigan-based automakers appeared in Ypsilanti, Michigan to announce an executive order that the EPA would be re-opening it’s “mid-term review” of fuel economy and ghg emission standards.  The review pertains to the standards affecting vehicles in model years 2022 through 2025, while current 2017 through 2021 standards are already in place. The Obama administration completed the required mid-term review some 15 months ahead of schedule, shortly before Trump took office, and decided to leave the original standards in place.  Auto makers had complained to the new administration, and petitioned to have the decision rescinded.  

In his remarks, Trump suggested that his goal was to make the United States the “car capital of the world again,” and that he hopes to do this by challenging the current CAFE emissions targets set by the Obama Administration. Trump added that by changing regulatory burdens, like CAFE targets, the auto industry would increase job growth.

While the reopened review will now take place over the coming months, many are already speculating whether loosening of the standards would actually create significant job growth in the automotive sector.  Green Car Reports notes that automakers may be hard-pressed to live up to such claims given recent record sales in an already saturated market. In fact, notes University of Michigan research professor John Decicco, the last major job losses in the U.S. auto industry began during the 2008 recession, which directly followed a period of stagnant ≈CAFE standards. Now that the industry has recovered (although and new standards are in place requiring fuel economy improvements, automakers have been experiencing record sales.

Detroit Free Press columnist John Gallagher, in a piece entitled “Why Trump's rollback of tailpipe emissions rules is a bad idea” agrees, arguing that this is not the time to ease up on innovation.  “It's ironic that Trump called for the rollback in the name of making American automakers more competitive by reducing regulations, as though one could advance competitive advantage by ceding the field to others more willing to reach the most ambitious fuel standards.”

While some observers note that there could potentially be some short-term benefits from delaying the standards, allowing some laggard automakers to catch up for example, in the long-term it could put them farther behind.  Anna Stefanopoulou, the director of the UM Automotive Research Center, stated that the smarter plan would be to “embrace new technology and become the leaders instead of complaining about the targets."

Others ask how a loosening of the standards could affect the advancement of EV’s.  The market has a lot going for it at this point, with new products like the Bolt and Tesla 3 coming soon, so it would not necessarily set EV’s back entirely.  But certainly the standards help drive more efficient product offerings, and give additional credit for advanced technologies like electric drive.

More important, however, may be the fact that California and a dozen other states have their own standards that would likely stay in place, so automakers would still be on the hook to provide more efficient vehicles for a significant portion of the U.S. market. Most of these states have also adopted specific zero emission vehicle (ZEV) requirements as part of those standards, which requires auto manufacturers to sell an increasing number of ZEV’s each year.  If automakers have to produce EV’s for those states, most would likely make those vehicles available nationally as well.  But, they also might sell EV’s less enthusiastically, especially if gas prices remain low.