Lower Standards for Gas May Get a Pass

Lower Standards for Gas May Get a Pass

In August 2018, the Environmental Protection Agency (EPA) and the National Highway Traffic Safety Administration (NHTSA) announced a plan to freeze the Corporate Average Fuel Economy (CAFE) standards. While freezing the standards would likely stall the climb in fuel efficiency among the US motor vehicle park, ultimately increasing demand for motor vehicle fuel, the sharp legal resistance to the proposed changes will tie up the rulemaking for several years, ensuring that such rules are unlikely to take effect until the legal challenges are resolved. As a result, automakers will conform to previously established 2020 targets that make automobiles more fuel efficient, likely reducing demand for motor vehicle fuel for the next 2-4 years.

Overview of the CAFE Standards

In 2012, the EPA and Department of Transportation’s (DOT) National Highway Traffic Safety Administration (NHTSA) reached an agreement with automakers to raise the corporate average fuel economy (CAFE) and greenhouse gas (GHG) emissions standards through the 2025 model year. The rules of the agreement required the industry to achieve a light-duty fleet average fuel economy of 35.5 miles per gallon (mpg) by the 2016 model year, 45.0 mpg by the 2021 model year, and 54.5 mpg by the 2025 model year. While the EPA announced in 2016 that the 54.5 mpg goal is off the table for 2025 due to a higher ratio of light-duty trucks in the US light vehicle fleet, suppliers are still expected to work towards that goal.

In addition, the Clean Air Act grants the state of California a waiver that permits the state to set its own rules on tailpipe emissions. These emissions are measured through the amount of GHGs emitted per mile; more stringent standards require lower amounts of carbon dioxide emitted per mile driven. Automakers have little choice but to make their vehicles more fuel efficient to comply with California’s tailpipe emissions standards, which are traditionally tougher than the federal standard. In addition, 12 other states link their standards to California’s fuel economy standards, and together these 13 states make up about one-third of the national car market. As a result, many (though not all) car manufacturers create cars that meet California’s standards regardless of location of sale, rather than splitting the US market into two by creating different cars for different areas of the country.

The Trump Administration’s Proposed Rollback

In March 2018, the EPA and the NHTSA announced an intent to modify the CAFE standards. After several months, the agencies unveiled their plan to freeze the CAFE standards at 2020 levels – about 37 mpg. In addition, the agencies announced the revocation of California’s waiver in a bid to allow standardized car manufacturing across the country, rather than automakers being forced to produce cars for Californian and non-Californian markets. The announcement kicks off a 60-day public comment period, after which the agencies will release their final ruling. If the standards are lowered, the US motor vehicle park will no longer increase in fuel efficiency and consumers may use more fuel (especially with the purchase of larger cars and light-duty trucks), increasing demand for fuel.

Backlash to the Proposed EPA Plan

This move has provoked ire among multiple public officials and some consumer advocacy groups. The California Air Resources Board (CARB) released a rebuttal of the EPA’s plan shortly after the August rulemaking announcement. In addition, Xavier Becerra (California’s attorney general) promised to fight the EPA and NHTSA’s move in court after the intent to revise the standards was announced in March. Becerra reiterated this promise and announced an intent to sue the agencies after the release of the proposed changes in August; 18 other states also announced that they would sue. Due to the considerable amount of controversy and legal action the EPA’s proposed ruling has caused, any concrete policy changes are unlikely to occur anytime soon. Automakers will likely continue to manufacture cars to meet the old Obama-era policy standards. As a result, for the 2018-2022 period, the US is likely to see a drop in fuel consumption caused by rising fuel efficiency, regardless of the outcome of the CAFE standards.

Want to Learn More?

Don’t worry, we have you covered! For additional information and analysis of US industry trends, see Motor Vehicle Biofuels: United States, a report published by the Freedonia Focus Reports division of The Freedonia Group. This report forecasts US biofuel demand and production in gallons. Total demand and production are segmented by type in terms of:

  • fuel ethanol
  • biodiesel
  • other biofuels, such as renewable diesel

To illustrate historical trends, total demand, production, and the various segments are provided in annual series from 2007 to 2017.

While you’re there, check out our related reports, which include:

About the Author

Owen Stuart is a Market Research Analyst with Freedonia Focus Reports. He conducts research and writes a variety of Focus Reports, and his experience as an analyst covers multiple industries.