Investor Alert

March 31, 2020, 2:57 p.m. EDT

Trump’s mileage-standard rollback will cost consumers and the climate, say analysts

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By Rachel Koning Beals

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The fossil-fuel industry scored a regulatory win and traditional automakers earned a conditional boost with a Trump rollback of fuel-efficiency standards for new cars and trucks.

President Trump has passed the Corporate Average Fuel Economy, or CAFE, standards for new autos, a hard-fought regulatory battle that for now reduces targets on gas mileage and is expected to revive higher levels of emissions.

The rule change , softened from its initial language, had repeatedly been delayed and amended, in part due to a lukewarm response from an auto industry that had retooled for the tougher Obama-era regulations, adjusted to a mixed bag of state-by-state rules and was responding to a changing demographic of car and truck buyers who want a smaller carbon footprint. Both sides are bracing for expected court battles to challenge the rule change.

The Trump administration had long advocated for a reversal of the stance established during the Obama administration that had called for an unadjusted fleet average of 54.5 miles per gallon by 2025. Alternative-energy advocates believed the higher requirement would have helped promote a shift to electrified vehicles.

Trump wanted a full freeze on fuel-economy increases initially, but the final proposal reportedly settles on a 1.5% increase in efficiency for passenger cars and light trucks covering model years 2021 through 2026, pared from the current trajectory of 5%. Fuel efficiency in 2018 averaged 25.1 mpg in real-world driving (not just test driving), the Environmental Protection Agency said in a report issued in March . The fleet’s efficiency is preliminarily anticipated to have climbed to 25.5 mpg for the 2019 model year.

The Trump administration “is rolling back the biggest single step any nation has taken to fight global warming, cut oil use and save money at the pump,” said Dan Becker, director of the Safe Climate Campaign at the Washington-based Center for Auto Safety.

“He is rejecting cleaner, efficient cars in favor of pollution-spewing, gas-guzzling Trump-mobiles for urban cowboys hauling lattes home from Starbucks, costing Americans billions of dollars at the pump and causing tens of thousands of deaths from air pollution,” he said.

Some analysis of the possible rollback indicated less efficient cars than originally proposed would use more gas than expected and so raise driving costs for consumers by $300 billion in coming years at the pump, according to a Consumer Reports assessment of Energy Department data.

However, those in favor of the Trump change argued that the old rules were not uniformly followed, among other sticking points, including that lighter cars mean less-safe cars. The administration has named its efforts the “Safer Affordable Fuel-Efficient Vehicles Rule.”

The rule change also would revoke California’s five-year old “waiver” allowing the state to implement its own more-stringent greenhouse gas standards and offer promotions for low-emissions and zero-emissions vehicles. Finally, it will restrict programs in more than a dozen other states that have followed California’s lead.

Some of the concern about the relaxed rule has centered on political upheaval, including whether yet another change might come with a potential shift of party power after the 2020 election.

“The federal government should establish a predictable, year-over-year increase in fuel efficiency standards for the next decade,” Charles Hernick, director of policy and advocacy for the center-right Citizens for Responsible Energy Solutions, has written as the rollback took shape over the last couple of years. “Periodic course corrections will be necessary, but those corrections should be incremental and not include steep ‘ramp ups’ or ‘freezes’ in standards.”

Hernick said his group was opposed to Trump’s original proposal but is more aligned with the final version.

Competitive Enterprise Institute’s Marlo Lewis has commented that when Congress created the CAFE program in 1970s — when new cars were required to average all of 18 miles per gallon — it specially forbade states from adopting their own stronger rules because this would greatly increase the costs of compliance to manufacturers.

Large-market California has had a waiver under the Clean Air Act to set its own auto-emissions requirements separate from the federal mandates, and those rules are followed by 12 other states. Dave Cooke, senior vehicles analyst with the Union of Concerned Scientists said California will be among many interested parties that will challenge the federal change in court. The continued uncertainty could bring more aggravation for manufacturers and consumers.

Ford /zigman2/quotes/208911460/composite F +1.94%  , BMW, Honda and Volkswagen last year negotiated a deal with California to follow a slightly lower state target, in defiance of Trump at the time.

The Trump rule change was eventually backed by some manufacturers, including General Motors /zigman2/quotes/205226835/composite GM +1.56%  , Fiat Chrysler  and Toyota /zigman2/quotes/200537742/composite TM +1.11%  — all of whom have been responding to rising demand for ever-more-efficient cars from green-minded younger buyers and many developing their own EV responses.

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