Trump and Pruitt are right about Obama's MPG rules

Senior Columnist
Yahoo Finance
Tough mileage rules led Ford to make its iconic 2018 F-150 out of aluminum.
Tough mileage rules led Ford to make its iconic 2018 F-150 out of aluminum.

Environmental and consumer groups are howling about the Environmental Protection Agency’s plan to weaken fuel-economy standards President Barack Obama put in place in 2012. But Obama himself left his standards vulnerable to revision.

The original Obama plan was to set aggressive targets that would go progressively higher through model year 2025, when cars would have to average 54.5 miles per gallon. But a mid-term review was supposed to happen in 2018. Automakers and regulators would assess the technological progress needed to meet that goal, along with other factors, such as the types of vehicles consumers were actually buying. In theory, the 2025 target could be rolled back if it seemed technologically out of reach.

After Trump won the presidency in November 2016, Obama pulled a fast one. His EPA administrator, Gina McCarthy, declared that the 2012 targets were final, more than a year before the EPA and automakers were supposed to review the data and decide on future targets together. Obama essentially threw the automakers under the bus. McCarthy was peppered with questions about whether the EPA sped up the final rulemaking simply because Trump won and might not support the Obama rules. She denied what was obvious to everybody.

So, not surprisingly, the auto industry appealed to the Trump administration a few months later to reconsider the 2025 targets. And Scott Pruitt, Trump’s EPA administrator, seems likely to oblige. He hasn’t yet said what, exactly, the EPA will do, but in a statement he said Obama, “cut the midterm evaluation process short with politically charged expediency” and “set the standards too high.” The forthcoming Trump standards will presumably be lower.

Auto industry critics assume carmakers can hit just about any level of fuel efficiency, as long as they’re forced to. But the innovation required to make big gains in fuel economy is expensive, and somebody has to pay. Most car buyers aren’t keen to bear that cost. Nor do they want to be told they have to buy a tiny econobox that wheezes getting up to highway speeds just because Washington said to do so.

The current fuel-economy requirement is about 36 miles per gallon, which is an average among each automaker’s full range of offerings, from subcompacts to sedans to 8-passenger SUVs. Pushing that above 50 miles per gallon in seven years is a stretch goal that some automakers don’t think they can meet. (Real-world average MPG figures tend to be lower than the federal targets, for a number of technical reasons).

To meet the Obama 2025 standards, automakers would have to roll out lots of electric cars, which have promise, but still account for less than one-half of a percentage point of total industry market share. They’re still not suitable for most one-car families because of range limitations. And they remain considerably more expensive than ordinary cars, even with a $7,500 federal tax credit (which some Republicans want to kill). The technology will get better but only incrementally. Moore’s Law, the rapid compounding of capability that applies to transistors, doesn’t apply to battery chemistry.

Other types of technology might turn out to be more of a silver bullet, such as hydrogen-powered cars. But that technology is basically experimental at this point, because it can’t yet be produced at a cost ordinary people can afford.

Meanwhile, what are Americans buying? Lots of pickups and big SUVs. With average gas prices below $3 per gallon, and likely to stay there, gas guzzlers that seemed on their way out not so long ago are back in vogue. Those vehicles are getting more efficient, too, but still struggle to top 20 miles per gallon, on average.

If automakers get their way, and the Trump EPA lowers future mileage requirements, there’s consolation for environmentalists who support the tough Obama goals. Most automakers will still have good reason to aim for something close to the Obama targets. The main reason for that is California, which has stringent efficiency requirements of its own. Eleven other states follow the California rules, accounting for about one-third of total U.S. sales. For most automakers, it might be cheaper to build a single model that meets the California standards and sell it everywhere, rather than building a second, less efficient car for non-California states.

Automakers also increasingly design vehicles for sale in multiple markets, which helps them economize. So if standards are tougher in Europe—which they generally are—that could extend to models sold in the US market. It also pays to have high-mileage vehicles in the lineup, just in case gas prices do soar, the way they did in 2008, when they crested $4 per gallon. Consumers may have a dim memory of that, but automakers remember it well—and know consumer tastes can change in a flash, regardless of what the government demands.

Confidential tip line: rickjnewman@yahoo.com. Encrypted communication available.

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Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman

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