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How Detroit Is Dealing With Cleaner Car Standards

June 27, 2016
Fuel economy standards will increase a projected 53% to 54.5 miles per gallon within the next decade, and tailpipe emissions will need to fall. What does Detroit think about the pending challenge? And how will they accomplish the lofty goals?

President Barack Obama’s most concrete environmental achievement might have come in 2011 when the auto industry agreed to stricter targets for fuel efficiency and carbon dioxide emissions. Now, automakers are worried about the costs — not to mention their profitable pickup trucks — and are pushing for a revision. Environmentalists are resisting.

1. What are the U.S. standards?

The targets call for average fuel economy of cars and trucks to rise from 35.5 miles per gallon in 2016 to a projected 54.5 in 2025. Tailpipe CO2 emissions are to fall 35% to 163 grams per mile, a level similar to targets set in the European Union, China and Japan. Under a complex system, automakers are assigned corporate averages to meet based on the production volumes and the sizes of the cars and trucks they sell. So, for example, a standard-beating hybrid can help a company that sells standard-breaking pickups still meet its overall target.

If automakers fall short of corporate mpg targets, they face stiff fines. If they miss CO2 standards, they could be barred from selling vehicles entirely. In addition, California and nine other states, accounting for about a third of the U.S. market, have said that by 2025, a projected 15.4% of new vehicles sold locally must be zero-emissions vehicles, meaning powered by batteries or fuel cells.

2. Why are U.S. automakers unhappy with future standards?

One key concession by Obama was to agree to backload many of the increases. That kept targets for light trucks relatively flat for a decade, but it means manufacturers are facing steep increases from 2021 to 2025. Automakers have endorsed the need for cleaner cars but say meeting ever-higher standards is proving a tricky task. General Motors’ redesigned Malibu sedan weighed 300 pounds less and had an engine 40% smaller but got just two more miles per gallon.

At the same time, cheaper gas has tilted sales away from fuel-efficient cars, with Toyota Prius sales down 24% this year in the U.S. That’s increasing the burden of compliance on big pickups, which at Ford account for one-half of its profit in North America. In 2014, the company spent more than $1 billion to retool factories to build aluminum bodies for its F-150 pickup and introduced turbo-charged V-6 engines. To keep pace with the standards, the company is planning a hybrid F-150, and may introduce diesel and four-cylinder versions.

3. What happens next?

In negotiations that led to the rules, Obama agreed to an industry request for a midterm evaluation in 2017, when regulators will examine whether the costs and benefits of the clean car rules are meeting expectations. In January, Fiat Chrysler Automobiles NV Chairman Sergio Marchionne called for more time to meet the targets. Automakers also want to change the rules to increase credits granted for eco-friendly technology like aerodynamic design that can help them meet their targets.

4. What’s the debate?

Automakers say that without revisions to the agreement, consumers will have to spend too much for fuel-saving innovations and consequently will be slow to embrace them. Environmentalists say that sounds like GM’s claim in 1973 that it would go bankrupt if California forced the installation of catalytic converters. Regulators have so far said that improvements to efficiency cost consumers much less than they can save on gasoline — and so benefit both the economy and the environment.

By John Lippert

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Licensed content from Bloomberg, copyright 2016.

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