President Obama announced last week that automakers must enhance the future performance of their cars and light trucks if they want to continue selling in the United States. The fleets for Model Years 2017 through 2025 will need to meet a combined highway/city performance equivalent to 54.5 miles per gallon (mpg) and 163 grams of carbon dioxide (CO2) emissions per mile according to EPA test procedures. The new standard extends one established in 2009 that requires a Corporate Average Fuel Economy (CAFE) of 35.5 mpg and 250 grams of CO2 per mile by Model Year 2016. For passenger vehicles, the standards increase by an average of five percent annually from 2017 through 2025.
The CAFE requirement includes a flexibility mechanism that provides credits allowing automakers to reduce their fleet-wide efficiency performance by designing a variety of systems including efficient air conditioning, flex fuel engines, and compressed natural gas treatment. These ‘accounting tricks’ combined with the possibility of a slight rebound effect in driving behavior may undermine fuel efficiency improvements. Meeting the higher fuel economy standards may not be so far out of reach for automakers even without flexible crediting, considering the efficiency levels achieved by cars on the road today, such as the Toyota Prius, which gets 50 mpg. Nonetheless, the new standard is leaps and bounds beyond the 27 mpg Corporate Average Fuel Economy (CAFE) standard for passenger cars that had been in place since 1985.
Fuel efficiency standards were first implemented in response to the 1970s oil crises, but from the 1980s on, opposition that emanated at times from the White House and at other times the Congress prevented the adoption of more ambitious standards. Since gasoline prices came down again in the 1980s, shares of vehicle sales categorized by mileage have stayed relatively unchanged since 1981 despite a CAFE upgrade in 1985.
For comparison, the European Union’s current fleet standard is 46.8 mpg by 2015 and a proposed standard of 64.8 mpg by 2020. Japan, meanwhile, achieved 210 grams of carbon dioxide emissions per mile in 2009, compared to the United States average of 397. The recent standard will more effectively guide the auto industry to ensure fuel savings for American consumers, improve economic stability from reduced oil dependence, and provide environmental benefits – but not enough to become a global fuel economy leader.
The compromise on the stringency of fuel economy targets can be seen as a centrist move by the Obama administration. Many environmental organizations originally pushed for a 62 mpg rating, while some conservatives see the standard increase as another example of inefficient and economically debilitating regulation. The key reason the new standard was passed was because of the support of 13 auto manufacturers that comprise over 90 percent of all auto sales in the United States, including Ford, General Motors, Chrysler, BMW, Honda, Toyota, Jaguar/Land Rover, and Volvo.
But how was the U.S. able to get automakers to place restrictions on their own fuel efficiency? President Obama’s “car czar,” Ron Bloom, was a key player in leading closed-door negotiations between the auto industry, environmental and labor groups, and the California Air Resources Board, California’s regulatory agency that has set more stringent standards for automakers within the state. A point of leverage that likely hushed any political quarrels was the $80 billion federal bailout of GM and Chrysler. In the past, Detroit automakers had challenged increased mileage standards by claiming that consumers would not pay higher prices for more efficient cars and that increased standards would cut jobs.
However, the United Auto Workers (UAW), the Center for American Progress, the Natural Resources Defense Council, and the Energy Information Administration estimate that the standard will actually create jobs, upwards of 150,000 by 2020 because of the greater labor input per vehicle. Similarly, a report published by the sustainability consulting firm CERES analyzed the potential employment impacts under different scenarios. It found that raising fuel efficiency by five percent annually could create a net of 603,000 jobs by 2030, of which 54,000 would be in the auto industry itself.
Such gains would be a balm to the woes of auto industry workers. Some 707,000 U.S. motor vehicle manufacturing jobs—53 percent of the industry’s total employment—were lost between February 2000 and June 2009, with a modest rebound of 72,000 jobs added in the last two years.
The conditions of these new jobs remain uncertain. In 2007, the UAW was compelled to agree that GM, Ford, and Chrysler could, within limits, hire new workers at half the normal wage (or about $14 an hour). After the 2009 bankruptcies of GM and Chrysler, conditions were added that offered the new-hires no path to full pay, no pension, and no raises for six years. Workers at the two companies also lost the right to strike as a further condition imposed by the federal government during the 2009 bailout. Factories owned by Mercedes, Toyota, and other foreign manufacturers are typically non-union despite controlling 44 percent of the U.S. vehicle market.
Another lingering question is whether new jobs created through higher fuel efficiency standards will stay in America. Japanese, European, Chinese, and South Korean automakers have long been better at producing cars with higher fuel efficiency, and the neglect that Detroit has historically given to producing high mileage vehicles may mean it is too far behind in the race to regain dominance. If the automakers abroad excel beyond Ford, GM, and Chrysler, the UAW report projects that the number of American jobs created by the new regulations could be as low as 50,000 by 2020.
There are several technologies automakers are employing to reach fuel efficiency standards around the world. Chevy is designing a clean-diesel engine, and BMW is using high performance twin-turbo four cylinder engines. Hyundai and Porsche are installing stop-start devices in cars, so that idling engines at stoplights temporarily shut off until the driver hits the gas pedal. Other technologies that may be implemented include 6 to 7 speed transmissions, turbochargers, parallel 2-clutch systems, and body construction that is lightweight yet high-strength.
The new standards will cut oil consumption by as much as 23 billion gallons of gas annually by 2030 – the equivalent of U.S. imports from Saudi Arabia and Iraq in 2010. That equates to cutting carbon emissions by 280 million metric tons every year, or shutting down 72 coal-fired power plants. Even if the number of jobs is not maximized in the United States, the standard is long overdue to maintain American competitiveness, protect our economy, and preserve our environment.