Insights at UBC Sauder

Make America Guzzle Gas Again

Posted 2018-09-05

At the beginning of August, the Trump Administration announced they will roll back the fuel-efficiency standards for cars that were brought in by Barack Obama's administration in 2012.

The 2012 revision to the Corporate Average Fuel Economy (CAFE) standard was intended to help reduce greenhouse gas emissions and local pollutants significantly, and was one of the few policies the U.S. took at the national level towards mitigating climate change.

In this Q&A, Associate Professor Werner Antweiler explores the issues related to CAFE, and its implications for both automakers and Canadians.

Why is the Trump administration rolling back CAFE?

In an August 1 Wall Street Journal article, representatives from the U.S. Environmental Protection Agency and the U.S. Transportation Department made five key claims about CAFE to support their reasoning for scaling back the standard.

They claim that:

  1. Improving fuel efficiency would prevent the vehicle fleet from becoming safer and ultimately lead to more deaths, because it would prevent people from buying newer, safer cars. This argument is closely linked to the next point.
  2. Requiring greater fuel economy would make new vehicles considerably more expensive.
  3. Fuel-efficient cars are lighter and therefore less safe than heavier cars.
  4. Fuel efficiency gains would not lower overall fuel use because people would end up driving more.
  5. California and 19 other states – which want to press ahead with their own stricter standards, independent of the Trump administration – have no right to exceed federal fuel efficiency standards.

The Trump Administration is strongly anti-regulation, and dislikes anything that constrains what they think of as "free enterprise." The President himself has made it clear that he thinks climate change is not real and is just a "hoax.” Therefore, in his view, using more gas is good for business, and nothing needs to be done to mitigate climate change and reduce fossil fuel use.

The 2012 CAFE standards are perhaps ambitious, but far from impossible. These standards are less efficient than raising gasoline taxes, which would be more effective economically but remain a political no-go in the United States. The CAFE rollback will leave the United States with more air pollution, but not with safer roads. Frankly, the claims in support of the rollback lack sound scientific basis, as research paints a different picture.

Not only does the rollback risk dividing the United States into two separate automotive markets – California and the 19 states versus everyone else – but reduced incentives for U.S. automakers to innovate may ultimately make them less competitive, not more.

What should automakers do?

If California and the group of 19 U.S. states win their court battle to set their own stricter standard, automakers will face a quagmire of their own making. Automakers should not rely on the Trump administration carrying the day. Political landscapes change, but climate change will be with us and thus the need to reduce greenhouse gases. And as cities grow, per-capita fuel consumption needs to decline to keep local air pollution in check.

Automakers balk at investing too heavily into fuel-efficient cars if they sense insufficient demand for them. The problem, ultimately, is that fuel prices in the U.S. are too low compared to other developed countries. Motorists need a stronger financial incentive to buy more fuel-efficient cars. Perhaps automakers should appreciate that higher gasoline taxes are actually good for business for them, and allow for more flexibility than standards.

How will the proposed roll-back impact Canada?

Historically, Canada has followed the U.S. lead on fuel economy standards because our automobile market is highly integrated across the border. Canada mirrors U.S. emission standards for vehicles to keep the auto industry aligned across the border. With the U.S. changing the rules, Canada faces a choice: follow the weaker federal U.S. standards, or join the group of states led by California with their stricter standards. If California and the group of 19 prevail in court and are allowed to set their own standards, Canada should join them and align their policies with these leaders, not the laggards. It would help tilt the balance in favour of this group.

The benefits for Canada outweigh the costs as automakers will essentially have to align with the stricter California rules, if they like it or not. In any case, the European Union is considering stricter post-2020 standards for new vehicles as well, and Canada should not fall behind. Even China is pressing ahead with new regulations because it allows the country to focus on innovation.