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

A pivotal moment in U.S. automotive history may be coming to a head.

At least, say electrified vehicle advocates, the potential is there if automakers swallow what their lobbyists see as a bitter pill, and pursue in earnest increasingly strict federal mpg and emission mandates under Corporate Average Fuel Economy (CAFE) law.

But first, there’s a scheduled Midterm Evaluation (MTE) for 2022-2025 regulations, and that is now upon us. Any day now U.S. regulators are expected to release their Draft Technical Assessment Report (TAR). This is the initial step in evaluating whether automakers must stay on track with already written emission and mpg laws for 2022 through 2025, or adjust up or down.

By 2025, a widely reported “54.5” mpg average is mandated under a program that is being called one of most potent initiatives yet to reduce CO2 emissions.

2016_Volt_HOV-668x409-668x409

Assuming its goals are met, 2012 to 2025 program standards are 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.

CAFE and its aggressive goals is alternately called the National Program, as it is a joint effort attempting to harmonize decisions under California law, and federal. The MTE is thus a coordinated effort between the National Highway Traffic Safety Administration (NHTSA) and the California Air Resources Board (CARB), and the EPA.

To clarify however, that 54.5 mpg number is quite bloated from the real-world mpg average for vehicles to be offered in 2025. The discrepancy has to do with how the EPA measures mpg for regulatory purposes, and how it’s reported to consumers. The arcane regulations use simplified and optimistic tests, and give mpg credit for innovations that save fuel to plump up the number. In reality, window stickers may average 36-39 mpg in 2025, this is variable and could go down if Americans continue their love affair with big gas-consuming trucks and SUVs, but it could still be a 10-13 mpg increase from today’s 25.3 mpg window sticker average.

In any event, the non-decisional TAR is step one in the Midterm Evaluation that leads to public hearings, a Proposed Determination before midway next year, and a Final Determination by April 1, 2018.

"EPA will examine a wide range of factors, such as developments in powertrain technology, vehicle electrification, light-weighting and vehicle safety impacts, the penetration of fuel efficient technologies in the marketplace, consumer acceptance of fuel efficient technologies, trends in fuel prices and the vehicle fleet, employment impacts, and many others."

“EPA will examine a wide range of factors, such as developments in powertrain technology, vehicle electrification, light-weighting and vehicle safety impacts, the penetration of fuel efficient technologies in the marketplace, consumer acceptance of fuel efficient technologies, trends in fuel prices and the vehicle fleet, employment impacts, and many others.”

The timeline is spread out because billions of dollars and the future shape of the U.S. light-duty passenger vehicle fleet are at stake, and federal law requires stakeholders from government, industry, and other concerns speak now, or hold their peace.

Rules set in 2011 under CAFE essentially locked in emission and mpg standards through 2021, and after extensive negotiations that knocked down initial proposals for “62 mpg,” automakers agreed to not contest these, but 2022-2025 is up for debate.

Advocates of electrified vehicles will want to keep their eyes open, as the auto industry lobby, the Auto Alliance looks as though it’s armed for bear against the TAR and regulatory guidelines. A 25-page position paper it put together based on studies raises many points from which objections may arise against regulatory guidelines.

An implication is an either/or proposition that if regulators dictate ultra efficient cars, something will give, and consumers don't care to forfeit other priorities. Other key findings of the Auto Alliance's paper:

An implication is an either/or proposition that if regulators dictate ultra-efficient cars, something will have to give, and consumers don’t care to forfeit other priorities. Source: Auto Alliance.

According to Roland Hwang, director of the Energy and Transportation Program for the Natural Resources Defense Council, all the technical data on the table now would indicate that the TAR will give a strong endorsement for existing rules, but nothing is yet set, as the EPA says

“EPA’s decision could go one of three ways: the standards remain appropriate, the standards should be less stringent, or the standards should be more stringent,” said the agency in a web page outlining the MTE process.

But Hwang contends that in light of global regulations, not least including California’s Zero Emission Vehicle (ZEV) regulations held by 10 states comprising about 30 percent of the U.S. market, now is the time for automakers to get serious, if they weren’t already.

“This is a defining moment for the future of the automotive industry,” said Hwang. “All signs point to the 2025 clean car standards remaining in place. It’s time for automakers to put their compliance plans into high gear.”

VW Bulli concept. Nice but the Auto Alliance has a counterpoint: "Automakers are not evaluated based on whether the products they offer consumers meet the government targets; rather, automakers are evaluated based on the products consumers choose to buy. So, low consumer interest in high-mileage vehicles presents a serious challenge to the government’s ambitious fuel economy and greenhouse gas targets."

VW Bulli concept. Nice but the Auto Alliance has a counterpoint: “Automakers are not evaluated based on whether the products they offer consumers meet the government targets; rather, automakers are evaluated based on the products consumers choose to buy. So, low consumer interest in high-mileage vehicles presents a serious challenge to the government’s ambitious fuel economy and greenhouse gas targets.”

As carbon reduction becomes a global priority, the world’s automotive markets are heading toward electrification, he observed, and factors including the Volkswagen diesel emission settlements point to a potential for any perceptive dam to break. If Volkswagen is wise, Hwang said, and follows through on a stated plan to introduce three new battery electric vehicles per year for the next 10 years – plus plug-in hybrids and regular hybrids – it could be the first legacy maker to go ”all in” with electrification.

Michigan-based automotive analyst Alan Baum expressed skepticism whether VW is as committed as a strident announcement by VW’s CEO Matthias Müller indicated, but the global automotive leader can’t be denied as a factor that could lead to a tipping point. Hwang said VW does not have money to waste on bad bets like more diesels, and he has hope for what may be a silver lining inside the dark clouds of Dieselgate.

Volkswagen Embraces EVs So You’ll Forget Dieselgate

Like Tesla, which is called “disruptive,” if VW means it and introduces many more competitive electrified vehicles into its global brands, it could force others to follow a path they are veering toward to one degree or another.

"Over the past 23 years, automakers have added new emission control and fuel-efficient technologies, safety features (electronic stability control, backup cameras, tire pressure monitors, automatic braking systems, etc.), connectivity and infotainment technologies and other features drivers increasingly demand. These new features, combined with the growing demand for SUVs and light trucks, caused average new car prices to increase by more than 60 percent since the early 90’s. In December 2015, the Kelly Blue Book reported the estimated average transaction price for light vehicles in the United States had reached an all-time high of $34,428," says the Auto Alliance. "As noted in the figure above, as new car prices increased, interest rates dropped dramatically and remained low, making it possible for consumers to continue buying new light-duty vehicles. As a result, the increased vehicle cost was offset by the low cost of capital. In addition, average loan terms have lengthened significantly, approaching seven year terms. While this trend allows consumers to keep their monthly payments affordable, the risk is that the vehicle could depreciate below the remaining loan amount before it is paid off, leaving the consumer 'under water.'”

“Over the past 23 years, automakers have added new emission control and fuel-efficient technologies, safety features, connectivity and infotainment technologies and other features drivers increasingly demand,” says the Auto Alliance. “These new features, combined with the growing demand for SUVs and light trucks, caused average new car prices to increase by more than 60 percent since the early 90’s. In December 2015, the Kelly Blue Book reported the estimated average transaction price for light vehicles in the United States had reached an all-time high of $34,428,” says the Auto Alliance. “As noted in the figure above, as new car prices increased, interest rates dropped dramatically and remained low, making it possible for consumers to continue buying new light-duty vehicles. As a result, the increased vehicle cost was offset by the low cost of capital. In addition, average loan terms have lengthened significantly, approaching seven year terms. While this trend allows consumers to keep their monthly payments affordable, the risk is that the vehicle could depreciate below the remaining loan amount before it is paid off, leaving the consumer ‘under water.’”

And of course, others are electrifying already. Every automaker has future product on the CAD-CAM screens, if not also real product in peoples’ hands.

SEE ALSO: It’s Not The Feds Who are Pushing the Plug-in Vehicle Agenda

This said, another point should be made to clarify CAFE. The federal plan does not mandate much in the way of plug-in vehicles which advocates view as a solution leading to a zero-emission goal by 2050 held by California and Europe. Despite rhetoric in the media and even by automakers about perceptibly needed plug-ins – and potentially hydrogen fuel cell vehicles – CAFE does not mandate electrification of more than 0-3 percent of vehicles sold, or in other words, not much more than what is available today.

Nope, in their wisdom U.S. regulators carved out rules with holes big enough to drive a diesel pickup through and still remain compliant.

Consumers ofetn choose other features over fuel economy to meet their needs in a vehicle," says the Auto Alliance. "For now, automakers are ahead in meeting fuel economy targets because they have introduced the affordable fuel-saving technology to consumers as soon as possible. But the challenge of meeting future requirements will require new technology or more costly technology as fuel economy targets become higher."

Consumers ofetn choose other features over fuel economy to meet their needs in a vehicle,” says the Auto Alliance. “For now, automakers are ahead in meeting fuel economy targets because they have introduced the affordable fuel-saving technology to consumers as soon as possible. But the challenge of meeting future requirements will require new technology or more costly technology as fuel economy targets become higher.”

Rather, it is California’s overlapping ZEV rules holding automakers’ feet to the fire, a point observed by the Auto Alliance, which expressed more objections in anticipation of the MTE than can be adequately outlined in a limited word space.

To partially sum, the Auto Alliance which represents all the brands mentioned, and then some, is postured to fight if it sees that it can the purportedly heavy handed move by regulators to force them to make cars they say don’t sell well, and cost too much.

Major automakers have a several decade-long history of opposing regulatory initiatives that they eventually got on board with. Aside from 1990s California rules successfully contested, carmakers have fought such cost-increasing innovations as mandatory seatbelts, airbags, 5-mph bumpers, catalytic converters and other emission controls.

Zero emission advocates like the NRDC see the posturing as par for the course. For their part, automakers – while often vilified by those who do not share their interests – are corporations with enormous liabilities and expenses, and they are already regulated to death by tens of thousands of pages of requirements around the world.

In many ways the Auto Alliance hints electrified cars are a tough sell. "Consumers overwhelmingly choose gas-powered engines over alternative powertrains. One reason may be that gas-powered engines have become more fuel-efficient. Another reason may be that gas prices have declined markedly since mid-2014, and consumer purchases of fuel-efficient vehicles fluctuate with the price of gasoline." On the flip side, advocates have decried for years automakers are half hearted in marketing the most cutting edge plug-in vehicles, For their lobby to turn around and say they can't sell would lead others to ask if they are really in it to win it or do they have conflicts of interest?

In many ways the Auto Alliance hints electrified cars are a tough sell. “Consumers overwhelmingly choose gas-powered engines over alternative powertrains. One reason may be that gas-powered engines have become more fuel-efficient. Another reason may be that gas prices have declined markedly since mid-2014, and consumer purchases of fuel-efficient vehicles fluctuate with the price of gasoline,” says its position paper. On the flip side, advocates have decried for years automakers are half hearted in marketing the most cutting-edge plug-in vehicles. For their lobbyists to turn around and say they can’t sell would lead others to ask if they are really in it to win it?

And in case there were any doubt, they are in the business to make money, and say they are enthusiastic about being cleaner and greener, but don’t want to lose as bureaucrats presume to tell them how to run their operations.

This said, if they choose to argue points including their statements of harmony yet lacking between aggressive California rules and the federal variety, or CAFE mandates that ignore “market realities,” advocates are lined up to take them to the mat on points.

Tesla Model 3 from Tesla website

And, says Hwang, who has worked on the scene for the past two decades, it does not look like there will be any technical or legal standing for automakers to really put up much of a fight. Indeed, more than a year ago, this said was by automakers, and the EPA recently reported automakers have outdone themselves and are ahead of the curve in meeting certain CAFE compliance goals.

In short, while they may utter protests, contest details, and posture as would any good car salesman worth his salt, after settling on negotiations, automakers will have to do what it takes to make their numbers, including the profit numbers.

Hwang observes they’ve so far nearly surprised themselves at how fast internal combustion technology improvements have come into the supply chain to enable them to make the grade on time, and in budget.

Whether this is fully true is a point of debate however. The Auto Alliance says regulations could be an ill-conceived, poorly coordinated money losing proposition, and even Bob Lutz has piped up about GM, for example, saying his former employer subsidizes loss-leading plug-in cars like the Volt and Bolt by fattening the sticker on cash-cow trucks and SUVs.

2017-chevrolet-bolt-01

Also notable is if anyone ever had doubts about the motivation pushing electrified vehicles, it is regulations – in the U.S., Europe, Asia, including the new overnight world-electric car leader, China. Even disruptive Tesla exists in large part under the blessing of regulations and laws, including previous funding when it was at a weaker position than it is now, incentives on 100-percent of its products, and it gets to sell green credits under California law to its competitors.

Yes, the root driver is laws enabling the whole push-pull interplay. So for all the alleged “greenwashing” out there, or glowing statements about commitments to sustainability, while there is truth to these, it’s a mixed bag as automakers are introducing cleaner cars primarily because they must.

SEE ALSO: Are Automakers Pushing Back Against US Fuel Economy Standards?

Over the next year and a half, it may be revealed who is intellectually honest, or perhaps at least some compromises will be worked out.

Lawmaking has sometimes been compared to sausage making: you don’t want to see all of what goes in there, but you my agree to the final product.

At least some will, and others will either toe the line, or not. We’ll see how it all goes very soon.

Further Reading:

EPA’s Midterm Evaluation of Light-duty Vehicle Standards for Model Years 2022-2025,
Auto Alliance position paper