As the debate over fuel-economy standards escalates, automakers are desperately trying to forge a compromise between the goals of the Trump administration, which wants to weaken current rules, and California, which favors growing stringency.
The big picture: It's rare for companies to beg for regulation, but nothing could be worse for the auto industry than a split market, where some states have stricter rules than others. A drawn-out court battle would be just as bad, creating regulatory uncertainty.
- A predictable 50-state solution would let them focus on other concerns, like a slowing global economy, trade disputes, U.S. labor negotiations and new mobility initiatives.
- On Thursday, the U.S. Chamber of Commerce's Global Energy Institute called for a nationwide compromise.
The intrigue: While pushing for a solution, carmakers are tiptoeing around political land mines, fearful of angering President Trump, who has already lashed out on Twitter.
- Some automakers would rather watch from the sidelines, especially because Trump is still weighing big tariffs on auto imports that could wreak havoc on their business, according to multiple industry sources.
Yes, but: Consumers are the wild card. They have shown little interest in hybrids or electric vehicles to date. Tougher fuel economy standards won't reduce greenhouse gas emissions unless people choose to buy cleaner vehicles.
- "Regulation forces everyone to jump into the pool," says IHS Markit analyst Devin Lindsay. "Right now, if you commit to a certain amount of electrification and your competitor does not, and consumers are still choosing internal combustion engines, you will lose business."
Where it stands: The Trump administration is planning to freeze annual emissions standards starting in 2020, rather than letting them grow stricter as envisioned under Obama-era rules that almost everyone — even California — now agrees are not achievable.
- The EPA, as part of that plan, would seek to strip California's special permission under the Clean Air Act to set its own emissions standards, which 13 states and the District of Columbia follow.
- Sensing a showdown, 4 automakers — Ford, Volkswagen, Honda and BMW —last month signed a voluntary agreement with California that set standards in between Obama's lofty targets and Trump's 2020-level freeze.
- The California deal would increase greenhouse gas standards 3.7% a year (compared to Obama's 5% targets) for 2022-2026, with as much as 1% of that coming from credit allowances for plug-in hybrids, EVs and other advanced technologies. Trump's plan would eliminate the use of credits — a sore point for automakers.
The context: With smaller, turbocharged engines, lighter body materials and other fuel-efficient technologies, automakers have been improving fuel economy and reducing CO2 tailpipe emissions by about 2% per year, according to the EPA.
- Adding more hybrids and electric vehicles to the mix should increase the rate of improvement.
But, but, but: Trump argues that if fuel efficient technologies are too expensive, consumers won't trade in their older cars and will miss out on the life-saving benefits of new safety features like automatic emergency braking.
- In fact, safety ranks much higher than fuel economy on shoppers' lists of considerations, according to virtually every consumer survey.
What to watch: Although industry forces are lining up against the president's policy proposal, Trump's ire against California could be stronger. If so, the fight will no doubt wind up in court — exactly what automakers fear.