Trump administration hacks away at the case for fuel economy

Chevron Corp.'s Jack/St. Malo deepwater oil platform in the Gulf of Mexico off the coast of Louisiana on May 18. Since 2008, domestic oil production has more than doubled to more than 14.2 million barrels a day thanks to technological advances in horizontal drilling and fracking that enable producers to extract oil embedded in shale rock formations. Photo credit: BLOOMBERG

WASHINGTON -- Energy conservation is so last century. Cheap oil is here to stay. So why worry about fuel economy?

That's a key subtext running through the Trump administration's recent proposal to weaken targets established under President Barack Obama for 2022-25 model-year passenger vehicles, flatlining them at the 2020 level.

Environmentalists, polluted California and the Obama EPA touted smog and greenhouse gas reductions as a prime reason for doubling fleet efficiency targets to about 47 mpg. Under the Trump plan, the target would drop to 37 mpg under test conditions -- less in real-world driving.

But the Environmental Policy and Conservation Act of 1975 that directed the Department of Transportation to establish fuel economy standards was mostly intended to address the U.S.'s growing dependence on imported oil, as domestic fields dried up. The environment is only one factor policymakers are supposed to consider -- consumer cost, national balance of payments and foreign policy are others -- in setting the standards. The Department of Energy was subsequently created to coordinate energy policy across government.

Now, the DOE is providing cover for NHTSA, the DOT arm responsible for fuel economy standards, to argue that domestic oil reserves are so plentiful that conserving energy is no longer a top priority.

Circumstances have flipped in the past 40 years, the DOE says in a July 9 memo included in the public docket for the corporate average fuel economy standards.

Since 2008, domestic oil production has more than doubled to more than 14.2 million barrels a day thanks to technological advances in horizontal drilling and fracking that enable producers to extract oil embedded in shale rock formations. Net oil imports have fallen from more than 60 percent of oil consumed in 2005 to 16 percent today.

Also, petroleum accounts for only 1 percent of total electricity generation -- compared with 15 percent in the 1970s -- and the U.S. economy is less susceptible to supply disruptions and severe price swings. The U.S. is now the world's largest oil producer and is expected to become a net petroleum exporter in the next decade.

The DOE's Energy Information Administration maintains that fuel savings diminish with every incremental improvement in fuel economy. Most of the reduction in fuel consumption comes from improvements at low end of the scale. A vehicle that achieves 20 mpg over 15,000 miles per year would annually save 250 gallons of gasoline, vs. one getting 15 mpg. But trading in a vehicle with a 30 mpg rating for one that gets 40 mpg would save only 125 gallons.

The CAFE proposal says the value of those gallons saved may be enough to offset the cost of fuel-saving technology if fuel prices are high, but the EIA projects low fuel prices through 2050.

The Trump administration's own analysis indicates that under its plan, the U.S. will consume 500,000 extra barrels of oil per day -- about 2 to 3 percent of projected consumption -- by the early 2030s.

Automakers pushed for rule changes that would provide some compliance flexibility, but the Trump administration's proposal and its intent to prevent California from maintaining stricter rules is so aggressive that automakers could lose the certainty and consistency in regulation that they sought in agreeing to stricter rules in the first place.

To many observers, the only big winner from looser restrictions is Big Oil.

The oil industry wasn't publicly involved in the debate over whether to review and revise the Obama-era standards, but Bloomberg recently reported that major oil industry players quietly lobbied the White House to ease the standards.

In addition to eliminating incentives for improved fuel economy, the administration is trying to undermine the argument for fuel efficiency targets by arguing that highly efficient vehicles effectively kill people: Their higher cost would force owners to hold onto older, less safe vehicles, their thinking goes.

Thus by chipping away at the case for higher fuel economy, the Trump administration is betting that consumers won't be so interested in protecting the environment to object to its proposal. Sales data may ultimately prove them right, if the courts don't intervene first.

It will be interesting to see in the coming months whether the auto industry follows through on the rhetoric of key leaders who profess the need to address climate change. Will they keep carrying the torch for higher fuel standards, regardless of the government's lower bar, or yield to what their customers want?

And on that note, will they also oppose the EPA's new proposal to loosen regulation of coal-fired power plants and keep them in operation longer? After all, if they don't, all those "clean," electric vehicles they're planning would end up being powered by coal.

You can reach Eric Kulisch at ekulisch@crain.com

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