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Trump reopens US fuel economy rules for 2022-25

Washington (Platts)--15 Mar 2017 504 pm EDT/2104 GMT


  • Scraps Obama administration decision upholding strict targets
  • Easing rules expected to have muted impact on gasoline demand
  • Low gasoline prices have discouraged electric vehicle adoption



Framing the issue as a solution to US automakers moving operations overseas, President Donald Trump said Wednesday he was reopening US fuel economy standards for 2022-2025 and may ease them after a year of study.

"We are going to restore the originally scheduled mid-term review and we are going to ensure that any regulations we have protect and defend your jobs, your factories," Trump told auto workers at the American Center for Mobility in Ypsilanti, Michigan.

Related: Find more content about Trump's administration in our news and analysis feature.

"We're going to be fair," he said. "This is an issue of deep importance to me -- for decades I've raised the alarm of unfair foreign trade practices. ... They've stolen our jobs, they've stolen our companies, and our politicians sat back and watched hopeless. Not anymore." Trump said he would also set up a task force in "every federal agency to identify and remove any regulation that undermines American auto production and any other kind of production."

The president traveled to the Detroit area to tour auto plants and meet with CEOs to highlight job creation and auto manufacturing.

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The rules for corporate average fuel economy and greenhouse gas emissions impact automakers' decisions about vehicle body weights, engine specifications, and promotion of hybrid and electric vehicles.

Smaller turbocharged engines used to boost fuel economy also increase demand for higher-octane gasoline. Premium gasoline accounted for 11.5% of total US motor gasoline sales in 2016, compared with 9.1% in 2009, the year the Obama administration proposed its first round of fuel economy targets, according to Energy Information Administration data.

However, analysts do not expect a major shift in 2022-2025 gasoline demand as a result of Trump potentially rolling back the regulations.

Related Capitol Crude podcast:Will Trump's energy policy erase Obama's climate legacy?


MUTED GASOLINE IMPACT


PIRA Energy Group, an analytics unit of S&P Global Platts, said any changes to the CAFE targets would have minor impacts on fuel consumption by 2025, with any impacts being diluted by the fact that it takes around 10 years to turn over the entire US fleet of light vehicles.

PIRA's current base case projects a secular decline in gasoline demand after 2020 of around 1% per year. Efficiency improvements in the gasoline-consuming fleet are part of the equation, and PIRA has also built in limited but growing electric vehicle penetration.

Growth in the fleet size and vehicle miles traveled per vehicle remain important drivers, PIRA said. Retail gasoline prices will also matter a great deal to whether consumers favor cars with higher or lower fuel efficiency.

Kevin Book, a managing director of ClearView Energy Partners, said freezing fuel economy standards at 2021 levels could increase US gasoline consumption by as much as 230,000 b/d -- which would only trim gasoline demand declines already expected for most of the next decade.


STARTING FROM SCRATCH


To start a new review of the 2022-2025 standards, the White House is scrapping a final determination made in January by the Obama administration to keep the 2011 policy on track.

A week before Trump's inauguration, the Environmental Protection Agency determined ahead of schedule that US automakers are meeting the targets quicker and at lower costs than expected, leaving the industry more than able to meet the 2025 goal of 54.5 mpg.

A senior White House official who spoke to reporters on background said Obama's EPA broke its agreement with automakers by accelerating the midterm review and concluding it more than a year before the April 2018 deadline.

He said the EPA also failed to consult with the National Highway Traffic Safety Administration and ignored a large volume of data submitted in comments during the review process.

"We're going to get this agreement back on track," he said. "We're going to pull back the EPA's determination, because we don't think it's right.

"And we're going to spend another year looking at the data, making sure everything is right so that we come to 2018 and we can set standards that are technological feasible, economically feasible and allow the auto industry to continue to grow and create jobs."


CONSUMER CHOICE


Automakers have argued that adoption of hybrid and plug-in electric vehicles is not keeping pace with the CAFE standards, due in large part to the prolonged period of low gasoline prices.

"Consumers just aren't buying those vehicles," the White House official said. "So that's a big problem. If that continues, we'll have to recalibrate" the fuel economy rules.

The White House does not plan to revoke California's existing waiver allowing it to set tougher tailpipe standards than the national limit for cars through model year 2025, but it would work with the state to determine how to go forward after the midterm review.

The California Air Resources Board said in January that it did not consider the waiver to be in jeopardy, despite reports of the Trump administration wanting to revoke it.

Mitch Bainwol, president and CEO of the Auto Alliance trade group, said 18 automakers that objected to the EPA's final determination in January are pleased Trump is starting the review over from scratch.

Automakers want to put the process back on track without pre-determining an outcome, using current data and "checking prior assumptions against new market realities," Bainwol said.

"Now we will get back to work with EPA, NHTSA, CARB and other stakeholders in carefully determining how we can improve mileage and reduce carbon emissions while preserving vehicle safety, auto jobs and affordable new cars and trucks," he said.

The Renewable Fuels Association, an ethanol trade group, called the first review rushed and cursory, saying it hopes the new one fully considers comments focusing on the role of fuels in enabling more efficient vehicle technologies.

"High octane, low carbon fuels can play a significant role in helping to meet fuel economy targets in the future," RFA President Bob Dinneen said in a statement. "That is an omission that must be addressed moving forward if future vehicles can in fact help us address climate change without backsliding on other critical air quality and public health priorities."

--Meghan Gordon, meghan.gordon@spglobal.com

--Edited by Richard Rubin, richard.rubin@spglobal.com

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