How Trump Might Make SUVs Pricier in Seattle than Omaha

by Camille von Kaenel (E&E News) ... The Trump administration's efforts to weaken vehicle pollution requirements could set up a split U.S. market, concentrating fuel-efficient cars in mostly Democratic states and gas guzzlers in the red states. President Trump's plans could drastically skew how much consumers pay for the same cars, depending on where they live.

For example, a person walking into a showroom in New York might see discounted electric vehicles and small cars; someone shopping in Ohio could get a cheaper truck or SUV. It's a divide that already partly exists: Manufacturers introduce EVs in California first because it has a zero-emission vehicles sales quota.

As Trump considers flatlining fuel economy standards and revoking California's ability to set its own, more stringent rules, states representing nearly half the country's population are fighting back to make manufacturers sell cleaner cars.

New York is one of the states that has adopted California's rules, which would bring average fuel economy in 2025 to 54.5 mpg, or 36 mpg in the real world. It can do so under a special Clean Air Act clause that allows California to set more stringent vehicle pollution rules because of its historical problems with smog and lets other states opt in to California's program over the federal program.

But now the federal rules are being lowered. And they're desperate to save California's ability to set its own rules.

At stake for the rest of the country is the type of vehicle consumers will have easy access to. If the Trump administration rolls back federal requirements and is unable to stop California and its allies from sticking with the higher targets, manufacturers will be faced with their ultimate nightmare: a patchwork of regulations. Under a draft Trump plan, manufacturers would have to sell cars that average 54.5 mpg in the coastal states in 2025 and 40 mpg in the rest of the country.

John DeCicco, a research professor at the University of Michigan Energy Institute, says they'll handle it by manipulating prices. Much of the technology is already in development, so it's unlikely they'll significantly change their designs in the next few years.

"There's going to be some shuffling," he said. "If they have to sell a more efficient mix of cars in California, they'll have to price the more fuel-consumptive cars higher, to suppress their sales. They'll have to put more incentives, discounts, dollars on the hood for more fuel-efficient vehicles, to press those, compared to Ohio and Nebraska." READ MORE

Until the Administration’s proposal becomes public, we will not know just how much it will set back progress on fuel economy. Much depends on whether California’s more stringent standards are allowed to stand. Future oil prices will also play a major role in determining the impact of a federal rollback on fleetwide fuel economy. Because CAFE standards are based on vehicle footprints, the ultimate impact of the standards depends in large part on which types of cars people buy. That, in turn, depends on prices at the pump.

Higher prices push consumers toward vehicles with a smaller footprint, increasing fleetwide average fuel economy. When prices are low, as they are today, Americans buy bigger cars and the fleetwide average declines. Last year, light trucks made up 65% of total vehicle sales. That is up from about 50% in 2012 when oil prices were at their peak. CAFE standards allow automakers to cater to these trends, producing more vehicles within the larger footprint category. Just last week, for example, Ford announced it would discontinue all but two of its sedan models, focusing instead on its more lucrative F-Series trucks, SUVs, and crossovers. When EPA and NHTSA set the current CAFE standards in 2012, they estimated fleetwide fuel economy would reach 54.5 mpg by 2025. The agency relied on oil price forecasts from 2011, a few years before the shale boom helped contributed to a sharp drop in global oil prices. In their Final Determination on the MY 2022-2025 rules, completed in January 2017 after oil prices had dropped to half their peak, the Obama Administration EPA revised its 2025 estimate downward to 51.4 mpg. EPA based this change largely on lower oil price projections by the U.S. Energy Information Agency (EIA) in its 2015 Annual Energy Outlook (AEO2015).

While fleetwide fuel economy improvements are slower when oil prices are lower, standards play a more important role in driving improvements than oil price-driven changes in vehicle purchase decisions and manufacturer investments alone.

Under Obama-era standards, fleetwide fuel economy rises from 32 mpg today to between 44 and 46 mpg in 2025, depending on the price of oil (Figure 1). Without updated standards after 2025, fuel economy improvements level off at lower oil prices and grow modestly at higher oil prices. If the Administration proceeds to freeze CAFE standards at 2020 levels, the fleetwide average reaches only about 38 mpg in 2025 under AEO 2018 reference oil prices, 36 mpg in a low oil price environment and 42 mpg under high oil prices.

Freezing CAFE standards at 2020 levels would increase US oil consumption by between 126,000 and 283,000 barrels per day in 2025, depending on oil prices. By 2030 the impact grows to 221,000-644,000, assuming no change in post-2025 standards, as more of the vehicle fleet has been sold under the MY 2020-2025 rules. By 2035 US oil consumption is between 252,000 and 881,000 barrels per day higher. The upper end of the range equates to more transportation oil consumption than currently occurs in any state other than California and Texas, and more than total annual oil production in Alaska. Purchasing this oil would cost drivers an additional $193 to $236 billion cumulatively between now and 2035, again depending on oil prices. READ MORE