Automakers Score a Win on Fuel-Efficiency Rules

On Monday, the Trump administration rejected an Obama-era plan to make automobiles more fuel efficient, setting into motion a lengthly process that threatens to weaken standards and pit California against the federal government over vehicle emissions. The Environmental Protection Agency's plan to roll back emissions standards marks a big win for traditional auto industry players who for years have indicated that they couldn't justify making more compact, less-profitable vehicles as gas prices declined and Americans' love for pickup trucks and SUVs remained on the upswing, as outlined by The Wall Street Journal. 

Auto industry leaders had argued that despite various incentives put in place to help them along, targets that exceed an industry-average fuel economy of 50 miles per gallon by 2025 were too ambitious for their bottom lines. Proponents say plans to roughly double the average fuel efficiency of new vehicles sold in the U.S. within seven years should help spur innovation in clean tech, create jobs and cut emissions of the greenhouse gas carbon dioxide.

To make it easier for the automakers, credits were given toward meeting the fuel-economy standards by either making electric cars or switching to green air-conditioning systems. Due to a loophole in the legislation known as the "footprint rule," in which vehicle emissions are graded on a curve by progressively lowering the fuel-economy standard as the car gets bigger, engineers have essentially been rewarded for redesigning cars to make them larger and less efficient.

Low Gas Prices Spur Demand for SUVs, Trucks

"Automakers have an incentive to make more SUVs and light trucks with less stringent standards than high-performance sedans," said Kate Whitefoot, a Carnegie Mellon professor of mechanical engineering and public policy. 

In January, the EPA estimated that only about 5% of current new vehicles could meet the 2025 emissions targets currently being contested. As low gasoline prices spur demand for bulkier, less efficient vehicles, automakers' have seen their pockets lined on higher new-car prices and profit margins. Reflective of this trend, new Ford Motor Co. (F) Chief Executive Officer Jim Hackett said in 2017 that the company would shift $7 billion to speed up the development of SUVs and trucks rather than sedans.

On Tuesday, Reuters reported that nearly a dozen U.S. states and Washington, D.C., promised to defend federal automobile efficiency standards against the proposed rollback by EPA chief Scott Pruitt.