Exploring Hydrocarbon Depletion
Page added on March 7, 2017
The Trump administration is set to undo one of former President Obama’s signature achievements. On Tuesday, the EPA and the Transportation Department are expected to jointly announce the rollback of fuel efficiency requirements for the nation’s auto fleet, a move that will not require the approval of Congress.
In the wake of the financial crisis and the crumbling of top U.S. automakers, the federal government bailed out General Motors and Chrysler, while other companies were severely damaged and barely survived the downturn. With their backs against the wall, the Obama administration was able to push through historic fuel efficiency requirements, known as corporate average fuel economy (CAFE) standards, the most stringent in decades. For cars made between 2012 and 2016, car companies had to achieve an average fuel economy of 35.5 miles per gallon, up from 25 mpg previously. For model years 2017-2025, fuel efficiency had to jump to 54.5 mpg.
The requirements have successfully boosted the efficiency of the nation’s auto fleet, with cars and trucks steadily achieving ever higher ratings on fuel efficiency. Car companies have ratcheted up efficiency on multiple fronts, introducing new electric vehicles and electric-hybrid models, while also boosting the fuel efficiency of traditional cars and trucks.
But at the behest of the auto industry, President Trump is set scrap those requirements. A coalition of 17 automakers sent letters to the EPA asking the agency to remove the CAFE standards, calling it “the single most important decision the EPA has made in recent history.” The car companies said the standards are unreachable, and that they would force the industry to spend $200 billion over the next decade in order to comply with them.
There is one other important element to watch. After the election of Donald Trump, many analysts speculated that such a move to scrap the fuel efficiency standards could be forthcoming, but the significance was downplayed due to one fact: the state of California has long been allowed to set its own standards. Because California typically implemented stricter standards than the federal government, the entire auto industry tended to adhere to the requirements because they couldn’t make different cars for different states. In effect, California could drag the rest of the country along with tighter fuel efficiency. This arrangement would prevent the Trump administration from backtracking on efficiency – the scrapping of the federal standards would be largely symbolic if California required carmakers to continue to tighten fuel efficiency.
However, there are reports that the Trump administration could target California’s ability to set its own standards, which would have far-reaching consequences if the federal government succeeds. California officials have already said that they would sue if Washington tries to take away their ability to implement their own fuel efficiency standards and they have retained the services of former U.S. Attorney General Eric Holder.
“If the Trump administration were to rely on facts and sound science, they would come to the same conclusion that the EPA staff and outside experts reached: The 2025 standards are achievable and in a way that will save consumers trillions in fuel costs,” Margo Oge, former head of the EPA’s office of transportation and air quality, told the LA Times.
The implications of this fight are potentially enormous. The Obama administration argued that while the CAFE standards would cost the auto industry $200 billion over 13 years, they would save consumers some $1.7 trillion in avoided fuel costs over the life of the vehicles. According to the Union of Concerned Scientists, the CAFE standards put in place by the Obama administration could cut U.S. oil demand by 3 million barrels per day by 2030.
Even if those figures are overly optimistic, the trend is clear. The CAFE standards are arguably one of the single most important policy achievements at cutting oil consumption. But they will be undone if the Trump administration is successful.
Meanwhile, oil analysts at Wood Mackenzie expect U.S. gasoline demand to hit a peak in 2018, and global gasoline demand could peak by 2021 even though vehicle sales will continue to grow. But the flattening of gasoline demand is largely the result of more efficient vehicles, a development that can be attributed to fuel efficiency standards around the world.