CAFE chaos looms as Trump team finalizes rules

WASHINGTON — Instead of making life easier for automakers, the less-stringent fuel economy rules due from the Trump administration by March 31 are expected to be quickly challenged in court, leading to regulatory uncertainty and huge compliance headaches.

The wrong bet on which regulations ultimately win — Obama-era rules or the current administration's Safer Affordable Fuel Efficient standards — could prove costly for manufacturers.

"The pullback on corporate average fuel economy standards will affect certain fuel efficiency strategies of manufacturers, but they aren't going to abandon the battery-electric or other new-energy vehicles," said Scott Shepard, an analyst at Navigant Research, citing the need to compete in countries that are seeking to eliminate internal combustion engines.

"What's in jeopardy," he said, "are efficiency gains to conventional vehicle lines, like deploying start-stop systems or 48-volt mild hybrid systems into the conventional vehicle lineup. Those vehicles don't really benefit under [zero-emission vehicle] mandates or really move the needle for international vehicle development plans."

Courts are expected to block implementation of the Safer Affordable Fuel Efficient standards until they rule on its legality, forcing automakers to decide whether to comply with existing regulations, focus on meeting the more stringent California standards that apply in a dozen other states and sell less-fuel efficient vehicles elsewhere, or avoid the low-emission states.

Indeed, automakers aren't enamored with last year's NHTSA/EPA proposal to freeze tailpipe emission standards, even though they originally petitioned the White House to provide more leeway in meeting the aggressive Obama-era standards.

The Obama rules were designed to nearly double fleetwide fuel economy to about 47 mpg by requiring year-over-year efficiency gains of about 5 percent. Instead, industry officials say they prefer to maintain gradual fuel economy improvements for the 2022 to 2025 model years.

At confirmation hearings last month for Andrew Wheeler to head the EPA, Sen. Tom Carper, D-Del., said he believes the administration's final rule will call for a 0.5 percent annual increase in fuel economy. The senator received the information from industry insiders and people with ties to the administration, a congressional aide told Automotive News.

Other industry sources say they expect the administration's final proposal for mileage gains to be 0.5 percent to 1 percent per year. Critics say that range of increase won't seriously address global warming and mirrors efficiency gains already being achieved without regulation.

Wheeler, now acting EPA administrator, said the agencies intend to issue the revised CAFE standards by March 30 — an ambitious goal given the rules' complexity and the thousands of comments from September that must be reviewed.

Also, it is unclear how much they were slowed by the 35-day partial government shutdown that ended late last month.

The end-of-March deadline would meet NHTSA requirements that any new fuel economy standards be issued 18 months before the target model year, which the Trump administration wants to be 2021. But the agencies argue that the 18-month lead time doesn't apply to decisions relaxing a standard, giving them more time to write the rule and get it approved by the White House. But that argument also opens the door to lawsuits on procedural grounds, and that wouldn't be the only legal challenge.

Eighteen states, led by California, and public interest groups are gearing up to file suits against the Safer Affordable Fuel Efficient vehicles proposal on the premise that it is arbitrary, politically motivated and not based on substantive technical analysis as required by law.

California and other states that have adopted its rules, including programs mandating sales targets for ZEVs, are also poised to fight an expected attempt to revoke California's authority under the Clean Air Act to set more stringent standards. Meanwhile, a court is expected to rule this year on a multiparty claim that the Trump administration didn't properly follow administrative law when it reopened a midterm review of the Obama standards.

California agreed during the Obama administration that vehicles meeting federal standards would comply with its rules, allowing automakers to meet one set of fleetwide standards nationwide.

Margo Oge, who was instrumental in developing the Obama standards as head of the EPA's transportation and air quality office, expressed disappointment that automakers haven't done more to broker a deal between the White House and California. Only Ford Motor Co. and American Honda Motor Co. have openly supported keeping the existing standards. She urged companies to press for a compromise and make clear they will help defend California's regulatory authority against any preemption, if they truly want a single national program.

Jim Lentz, CEO of Toyota Motor North America, suggested last month that regulators agree on 2.5 percent efficiency gains to eliminate the uncertainty.

"That's better than staying silent," Oge said.

It's also smart policy, she added, in case a Democrat takes over the White House in 2021.

"I don't think a Democrat administration is going to be very favorable to these companies the way they have behaved."

Analysts say the Trump changes ultimately won't have much impact because of the steady march to tighter fuel economy standards in China and Europe. The global standards will force automakers to ramp up vehicle electrification plans, they say.

If automakers follow the lower standards "the market would divorce technologywise from the rest of the big markets in the world" and they couldn't amortize investments in expensive technologies, said Mark Wakefield, global co-head of the automotive and industrial practice at AlixPartners.

"You could find yourself behind the curve," he said, "making money for a short period but then finding yourself like the maker of the buggy whip."