5 Takeaway Points From the EPA’s TAR leading to CAFE Midterm Evaluation

On the heels of a U.S. EPA Technical Draft Assessment (TAR) report released today on how automakers are meeting federal fuel economy mandates, advocates weighed in urging the industry and regulators to stay the course.

The main question is should federal authorities adjust mpg and greenhouse gas targets for 2022-2025 that stand to save – or cost, depending on who you ask – billions, and fundamentally shape cars consumers can buy into next decade. The stated goal by the Obama administration is to cut carbon emissions radically with rules that tighten to a nominal “54.5 mpg” average by 2025.

The EPA’s TAR is required under Corporate Average Fuel Economy (CAFE) law as part of several-step process called the Midterm Evaluation.

TAR is a very detailed and long document for which those with skin in the game are expected to be contending on the way to an April 1, 2018 deadline for a final determination of 2022-2025 CAFE rules.

"Thanks to more stringent standards since 2011, new automobiles have reached record high levels," said Luke Tonachel, NRDC's Director, Clean Vehicles and Fuels Project, Energy & Transportation program. "Reduced fuel consumption has cut carbon pollution from vehicles, avoiding approximately 100 million metric tons of carbon dioxide from entering the atmosphere already." We’re making progress and we need to keep it up, not slip backward, as we did in the past. When standards stagnate—as they did from the late 1980’s through 2005—fuel economy of new vehicles can drop, as the graph below shows.

“Thanks to more stringent standards since 2011, new automobiles have reached record high levels,” said Luke Tonachel, NRDC’s Director, Clean Vehicles and Fuels Project, Energy & Transportation program. “Reduced fuel consumption has cut carbon pollution from vehicles, avoiding approximately 100 million metric tons of carbon dioxide from entering the atmosphere already. We’re making progress and we need to keep it up, not slip backward, as we did in the past. When standards stagnate — as they did from the late 1980’s through 2005 — fuel economy of new vehicles can drop, as the graph shows.”

Summing key findings, advocates for consumers – namely Consumers Union – and advocates for environment – the Natural Resources Defense Council – wasted no time in nailing home points in preparation for any pushback from the auto industry. Each offered statements, as have and will other interests who stand to gain or lose for their respective causes.

Not least of the “stakeholders” is of course the auto industry. Each carmaker can speak for itself, and the organization that represents them, the Auto Alliance, also issued the briefest of statements adding to a 25-page position paper previously published.

SEE ALSO: Federal Fines To Double For Automakers Who Miss MPG Targets

Its Communications Director, Wade Newton, today said not much more than today’s short comment could be offered yet as the organization is just now assimilating the TAR, must hear back from a dozen automakers, but the 25-page report for now represents its position.

So, the stage is now set to see whether the EPA’s ambitious program to reduce more carbon from the environment than any to date will move forward without much fuss.

Following are five general points arising from the TAR:

Automakers Already Outdoing Themselves

Perhaps first to anticipate any pushback from automakers was the EPA which has previously and today again reinforced a message that automakers are relatively within compliance with federal rules to date.

“We’re already seeing automakers beating today’s standards, which only underscores the potential for future progress in this space,” said said Shannon Baker-Branstetter, Energy Policy Counsel for Consumers Union.

“We’re already seeing automakers beating today’s standards, which only underscores the potential for future progress in this space,” said Shannon Baker-Branstetter, Energy Policy Counsel for Consumers Union.

The industry has nearly outdone itself with an a la carte menue of advanced technologies which each incrementally improve mpg and greenhouse gas emissions from light-duty passenger cars and trucks.

To be clear, CAFE technically does not mandate more than 1-3 percent of the cleanest plug-in electrified vehicles. The feds gave the industry an out and CAFE can be met with things like 48-volt electrical systems, 8-plus speed transmissions, Atkinson and Miller cycle engines, downsized turbos, cylinder deactivation, gasoline direct injection, light-weighting, and more.

Boiling it to the essence, Roland Hwang, the NRDC’s director of its Energy and Transportation program, said the handwriting is on the wall for automakers to pull out the stops.

“Automakers can meet 2025 carbon pollution and fuel economy standards with known technologies, on time, and at the same or lower cost than previously estimated,” he said.

The key finding for the second half of the program is that the incremental cost for the second half of the program is the same or even lower than agencies previous estimates," said Hwang. "The new study estimates the incremental cost compared to a model year 2021 baseline is $894 to $1,245 (in 2013 dollars), or an average of $1,070. The estimate from the 2012 final rule was $1,070 in 2010 dollars, which when adjusted to 2013 dollars, is $1,130."

The key finding for the second half of the program is that the incremental cost for the second half of the program is the same or even lower than agencies previous estimates,” said Hwang. “The new study estimates the incremental cost compared to a model year 2021 baseline is $894 to $1,245 (in 2013 dollars), or an average of $1,070. The estimate from the 2012 final rule was $1,070 in 2010 dollars, which when adjusted to 2013 dollars, is $1,130.”

But while pro-environment forces – including the feds – observe carmakers are making the grade, the Auto Alliance has called the feasibility of continuing to do so on budget and on time into question.

“Getting the midterm review analysis right is crucial for everyone. Given changes in the market landscape, it will be a daunting challenge to meet the very aggressive requirements of the 2022-2025 federal fuel economy and greenhouse gas rule,” said the Auto Alliance.

54.5 MPG a Myth

Reports criticizing the Obama administration’s purported heavy handed maneuvering have decried an almost impossibly high “54.5 mpg” standard that must be the average of all cars and trucks sold by 2025.

The average vehicle today gets close to 26 mpg, and high-volume selling pickups and SUVs might get high teens to low 20s. Why, even the pinnacle among non-plug-ins, the new 2016 Toyota Prius, only gets 52-56 mpg, so 54.5 mpg could sound draconian.

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And it might be, if it were not overstated. In reality, federal rules for model year 2025 call for a mere 10-14 mpg improvement from today’s 25.3 mpg fleet average. The EPA measures mpg in different ways, and on window stickers, the reality may look like 35-39 mpg in 2025 depending on the actual vehicle sales mix between cars under one standard and light duty trucks on a more lax one.

As mentioned, CAFE can be met without much more electrification than today – which stands to radically skew the average mpg upwards if automakers so choose. And, they may, as costs for things like batteries and other components are coming down, and the global plug-in sub market is gaining momentum.

Cheap Gas Throws a Monkey Wrench into The Works?

Another point of contention is the unexpected decline in petroleum prices following a resurgence of fracked oil and natural gas that have reversed the dire predictions of “peak oil,” at least in the minds of some.

Not only is this changing the buying behaviors of Americans who lean toward larger, more gas-consuming vehicles when given a choice, the Auto Alliance says this is a variable to consider.

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“The fuel economy/greenhouse gas targets for 2025 now reflect how the fleet mix has changed, largely due to low gas prices,” said a statement issued by Newton today. In question is whether more trucks will upset rules that were set based on assumptions several years ago. “The government is acknowledging the effect of factors like low gas prices on consumer sales, and the impact of consumer sales on the targets.”

In response, however the NRDC’s Hwang countered that the statement appears confusing.

“The standards automatically adjust to reflect different sales mix, so there is no need to weaken the standard to help automakers with compliance,” he said. “That is, low fuel prices and more SUVs and pickup sales do not create a compliance problem. However it is a pollution problem since we are losing some tons of pollution reductions.”

People Won’t Buy Eco Cars?

An underlying premise with the Auto Alliance’s position paper is American consumers don’t place the highest priority on high mpg cars – and these will of necessity cost more and be unprofitable money pits.

Consumer Reports however counters this saying eco cars make good economic sense.

“Consumers often rate fuel economy as a key factor in choosing their next vehicle,"  said Shannon Baker-Branstetter, Energy Policy Counsel for Consumers Union in stark contradiction to a statement by the Auto Alliance. “By meeting the existing CAFE standards for 2025, automakers will help save consumers money on operating costs and protect them against future gas price shocks.”

“Consumers often rate fuel economy as a key factor in choosing their next vehicle,” said Shannon Baker-Branstetter, Energy Policy Counsel for Consumers Union in stark contradiction to a statement by the Auto Alliance. “By meeting the existing CAFE standards for 2025, automakers will help save consumers money on operating costs and protect them against future gas price shocks.”

 

Most car buyers can expect immediate savings from cars and trucks that comply with the upcoming Corporate Average Fuel Economy (CAFE) standards for Model Year 2025, according to a new report published by Consumers Union, the policy and advocacy arm of Consumer Reports. The report finds that consumers will likely save approximately $3,000 per car and $4,200 per truck over the life of the vehicles. In the event gas prices rise again, the net savings will be even higher: $5,600 per car and $7,300 per truck. These findings reinforce the value of increasing fuel efficiency standards for new car buyers.

If that’s not enough, Hwang observes the numbers work out.

“The increased cost to meet the 2025 standards compared to a model year 2016 baseline is also the same or lower as estimated in the 2012 final rule,” he wrote. “The total increased cost from today’s levels (model year 2016) is $1,290 to $1,920 (in 2013 dollars), or an average of about $1,600. This is less then the inflation adjusted cost in the 2012 final rule of $1,940 ($1,836 in 2010 dollars used in the 2012 final rule).

“We estimate the net lifetime cost savings for the 2025 standards is $3,640 to $4,310, or about $3,970 using the average incremental cost, compared to the estimate of $5,340 (adjusted for inflation) in the 2012 final rule that used the higher fuel prices previously forecast.”

Strong Federal Regulations Are Necessary

While the auto industry has its positions lined up, and urges caution, Consumer Reports chides it for rehashing old arguments that hold less water than the last time they were refuted.

At issue are environmental considerations, energy/national security in reducing oil dependence, and economic security in positioning the U.S. as a leader in the emerging technology of the transportation sector.

Assuming the goals of the 2012 to 2025 program are met, CAFE is projected to reduce 600 million metric tons of carbon pollution in 2030 – twice that of the federal Clean Power Plan’s 2030 goal to cut CO2 from powerplant smokestacks.

But in spite of that – and despite the U.S. being an early frontrunner in advanced technologies like plug-in electrification – consumers making choices blurred by contradicting viewpoints saw its plug-in sales ranking fall to third place behind Europe and China in 2015.

In other words, whatever happens in the U.S., other markets are making choices to go beyond to the cleanest electrified vehicles and have now surpassed the U.S. from its head start.

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In back of U.S. clean car mandates however, coupled with the strong arm of California rules which do mandate zero emission vehicles, advocates are regardless hoping the industry is on the cusp of a turning point toward electrified cars. These do a far better job at meeting regs than tweaked conventional engines, but are included in the cautious outlook of automakers warning of costs and saying bureaucrats must not ignore “market realities.”

That said the Auto Alliance notes it is not against cleaner and greener, citing a record of improvements.

“More than 490 models are on sale that achieve high mileage (30+ MPG, highway) – up 700 percent from 2006 when there were 69 models. And, the number of models reaching 40 MPG is increasing as well, with 76 models on sale in 2015 versus just seven in 2006,” says its position paper.

SEE ALSO: CAFE’s Midterm Evaluation For 2022-2025 Could Electrify Automakers One Way Or The Other

Hwang and other advocates however want more, and says now should be the turning point where automakers kick their compliance plans into high gear.

“Overall, do stronger standards inhibit sales and profits? Empirically speaking, the answer is no,” he said. “Standards are as high as they ever been, and automakers are having near record sales and healthy profits. In fact, now is the time to keep strengthening the standards, to ensure they invest in clean car technology they need to remain competitive. Investing for a rainy day, if you will. I’m doubtful that the federal government will want to bail them out – again—if they head towards bankruptcy when the next oil price spike hits.”