Posted by: David Welch on May 18, 2009
Environmental lobbyists scored a big victory on fuel economy rules. President Obama announced Tuesday that he will boost the nation’s average fuel economy for new models just north of 35 miles per gallon by 2016. That’s about four years earlier than the Bush Administration originally proposed and similar to new greenhouse gas rules that California wanted to put in place on its own.
Here’s where the green lobby showed some real savvy. They knew they couldn’t get the Bush Administration to pass tougher rules. But groups like the Sierra Club figured they could get California to bite. So in 2002, they got California Senator Fran Pavley to sponsor a bill that would put tougher rules in place to govern carbon dioxide emissions. California has long had its own rules to govern emissions and pollution. But carbon dioxide can’t be scrubbed or filtered like other pollutants. You can only cut emissions by burning less gasoline. So any rule restricting it is a de facto rule on fuel economy. The industry tied the California proposal up in court, hoping to keep the feds from granting California a waiver.
Even Toyota opposed it, saying they didn’t want two standards, one for California and the states in the Northeast who follow its lead, and one for the rest of the country. So the new rule is a compromise that adopts rules as stiff as California wanted for its carbon dioxide targets but lets the federal government enforce it. And it’s one rule for the U.S., which makes planning new models easier.
The problem for carmakers is that the “one standard” is the toughest Obama could have picked. And the green groups knew they would get their way. See, New York, New Jersey and the New England states often follow California’s lead. Add them all up and it’s not far from half the car market. No carmaker wants to engineer two cars for the same market, so the industry pushed for one standard. Since Obama owes California and the Northeast his election, he was bound to side with them. He said he would when he campaigned. Plus, two of Detroit’s Big Three-who have been the political foes of fuel economy rules—are getting loans from the government and can’t fight tougher regs. It all came into place for environmentalists.
Carmakers will find a way to meet the new rules. Some will use hybrids or direct-injection gasoline engines and turbo chargers. We’ll even see more diesel engines. The question is, how will carmakers make a buck on these new efficient models? Hybrids and clean diesel engines can add thousands of dollars in cost. With cheap gasoline, consumers won’t pay up for it. The industry will have to raise prices, but getting enough of a hike to make a profit on green technology has been elusive since hybrids first went on sale. Green profits will be tough to find until gasoline prices rise again.