Vermont Law Top 10 Environmental Watch List for 2020

Wrecking Climate Policy and Auto Economics: Trump’s Legacy of Fuel Economy Litigation and Car Standard Uncertainty

The Trump administration appears dead set on both wrecking Obama-era climate policy and U.S. auto industry economics. Trump has induced protracted clean transportation litigation by proposing to repeal the Obama administration fuel economy standards and revoke California’s longstanding regulatory authority, and by attacking any auto industry attempts at reaching policy consensus with California. The Administration has somehow, achieved historic fuel economy policy disunity, among both auto companies and the states.

In 2012, the Obama administration forged a significant climate, as well as economic, policy agreement with the auto industry and the State of California, calling for uniform, tightened standards via the Corporate Average Fuel Economy (CAFE) program to double fuel economy standards to 54 mpg, while harmonizing CAFE standards nationally.  While, on paper, the progress sounds dramatic, the Union of Concerned Scientists (UCS) notes that since CAFE compliance tests overinflate fuel economy, the 54 mpg standard equates to a less dramatic 36-37 mpg of average on-road fuel economy.  According to UCS, today’s average is currently 21 mpg.

From a climate perspective, controlling transportation emissions is a critical component of state and federal climate policy. Without the benefits from the increased standards, more costly and disruptive requirements will be required of other sectors in order for us to make progress on climate goals and avoid the worst predictions of the National Climate Assessment.  Nationally, the transportation sector is the largest source of U.S. greenhouse gas (GHG) emissions with cars and light duty trucks accounting for about 60% of transportation emissions.

Obama’s leadership harmonized federal fuel economy standards with the standards in California (and the 13 states who opt to follow California’s state leadership), and, as a result, united the auto industry behind this federal agreement. Central to U.S. clean transportation policy is the avoidance of state specific standards. Under the U.S. Clean Air Act, states must either follow the federal standard or opt to follow California’s potentially tougher standards, which are subject to an EPA waiver.  Auto companies have strongly favored both uniform standards and regulatory certainty to allow them to efficiently plan for future fuel economy improvements, historically favoring policy consensus over the uncertainty of litigation.  With that in mind, California, along with sixteen other states and the District of Columbia, are suing the EPA to “preserve the nation’s single vehicle emission standard.” These states make up 43% of the new car market and 44% of the United States population. California has vowed to take this all the way to the Supreme Court.

In August 2018, the Trump administration, the Environmental Protection Agency, and the Department of Transportation announced that they were planning to freeze these standards at their 2020 levels indefinitely, effectively stalling the standards at 37 miles per gallon. Furthermore, they also seek to prevent California (along with 13 other states adopting California’s standards) from adopting more stringent fuel economy standards than the federal government.  According to William K. Reilly, former President George H.W. Bush’s EPA administrator, “I don’t think there is any precedent for a major industry to say, ‘We are prepared to have a stronger regulation,’ and to have the White House say, ‘No, we know better.’”

While the auto industry initially lobbied the Trump administration to review the Obama standards, a group of 17 automakers encouraged the Trump Administration to seek a negotiated solution with California’s governor fearing that Trump was going too far with the proposed rollback.  Revoking California’s authority to set its own tailpipe pollution rules reverses a policy that California has been allowed to do for almost half a century. In February, the White House ended talks with California for a potential solution, stating that there was no common ground.  Following this policy stalemate, four major automakers, Ford, Volkswagen, Honda, and BMW, expressed that they do not support the outright halting of these regulations and negotiated a compromise directly with California. According to multiple reports, President Trump was “enraged” while additional car manufacturers signaled that they would support the California pact. The compromise standards are slightly lower than the Obama administration’s plan but still represent significant improvement. The Department of Justice fired back accusing these companies of an illegal conspiracy because they agreed to comply with California’s rules with the Department of Justice sending California a “menacing letter… warning that the state’s agreement with the car companies appears to violate federal law.”  Any short-term hopes of a united state and federal policy were dashed when on October 28, 2019, following administration lobbying, General Motors, Toyota and Fiat Chrysler announced that they were breaking with their auto industry competitors and intervening on the side of the Trump Administration in opposing California, widening the rift within the auto industry.

Absent a new agreement among California, the Trump administration, and the auto industry, this epic car standard battle is speeding towards the Supreme Court. While Trump’s lackluster legal track record might suggest room for a negotiated settlement, one does not appear in sight.  No matter what the courts ultimately find on the Trump administration’s ability to freeze the CAFE standards or revoke California’s waiver authority, this regulatory uncertainty cannot be healthy for the auto industry.  Even in the less than likely consequence that the courts give the administration the checkered flag to both rollback the standards and revoke California’s authority, significant policy and economic challenges lay ahead for the U.S auto industry in 2020. California’s ability to set Zero Emission Vehicle standards with the added weight of the thirteen states who have adopted them, has been cited as the single most effective policy reason for the U.S. auto industry to invest in vehicle electrification. Without this pressure companies like General Motors and Ford would be further behind China’s impressive leadership in this area, and national experts warn that if successful the Trump administrations regulatory rollback will bring technological innovation in the U.S. auto industry to a grinding halt at perhaps the worst possible time in history.  If successful, Trump’s actions will wreck both U.S. climate policy and the economic health and future of the U.S. auto industry.