Oilgram News (01-Aug-11)
By Keith Chu
Standards would save 12 billion barrels over lifetime of program
Washington-President Barack Obama celebrated a rare compromise between regulators and industry July 29, announcing that major automakers agreed to ramp up Corporate Average Fuel Economy standards to nearly 55 miles per gallon by 2025.
Obama used the agreement as an opportunity to distract from the ugly partisan battle over the federal debt ceiling. He touted the pact as a way to boost US competitiveness, cut gasoline bills for consumers and reduce dependence on oil imports.
"This agreement on fuel standards represents the single most important step we've ever taken as a nation to reduce our dependence on foreign oil," Obama said. "We've set an aggressive target and the companies here are stepping up to the plate."
The agreement would include 5% per year fuel efficiency increases for cars. Light trucks would face 3.5% annual efficiency increases from 2017-2021 and 5% increases beginning in 2022, for a fleet-wide average of 54.5 mpg by 2025.
The agreement would include a variety of "credits" that give extra weight to advanced technology vehicles and trucks, including electric vehicles, according to senior White House officials who spoke on the condition they not be identified. "The incentives in this package are for new technologies, innovative technologies that are not penetrating the market at this point," one administration official said.
The administration has not created an estimate of the standards' impact on auto costs, the officials said.
Obama said the new fuel economy rules would save an average family more than $8,000 in fuel costs, totaling more than $2 trillion nationwide over the lifetime of vehicles sold between 2017 and 2025, the period the standards would run. Moreover, the proposal would reduce US oil consumption by 2.2 million b/d by 2025, Obama said.
According to a White House briefing paper, the rules would save a total of 12 billion barrels of oil over the lifetime of the program, and cut greenhouse gas emissions to an average of 163 grams per mile.
Obama also lauded the deal as a way to boost the competitiveness of US automakers and investment in new technologies. "They're going to spur growth in clean energy," Obama said. "And that means new jobs in cutting-edge industries all across America."
Mike Stanton, president of the Association of Global Automakers, which represents overseas auto companies, called the agreement "very aggressive" but fair. Stanton said all of the "major" members of his group had signed on to the deal, which was more than a year in the making.
A key to the agreement, he said, was the inclusion of a mid-term review of the efficiency standards for the 2021 model year to make sure automakers can reach the ambitious targets for 2025.
Automakers believe they can achieve the targets up to 2021 with improvements in conventional engines and manufacturing. After that, "you're going to have to generate higher penetration of alternative vehicles," including hybrids and electric cars, Stanton said.
He said the administration appears to have lowered fuel efficiency targets for sport utility vehicles and other trucks as a concession to US automakers, who have dominated that segment of the market. "Clearly they were making some accommodations for those manufacturers," Stanton said. He said his group had not analyzed the deal's potential impact on automobile costs.
The Transportation Department and the Environmental Protection Agency negotiated the new CAFE standards, with the next round of CAFE standards also to report on tailpipe GHG emissions associated with various mpg targets.
Senator Carl Levin, a Michigan Democrat, said in an interview the proposal was more to his liking than a plan the White House floated earlier this month, which would have raised the standard to 56 mpg. "There's a number of improvements over where it was," Levin said. "The truck number is better, the mid-term review is stronger, more honest."
Representative Edward Markey, the top Democrat on the House Natural Resources Committee, praised the proposal, saying it would cut US oil imports. "Because of these ambitious standards, for the next decade and a half consumers will pay less to go farther on every tank of gas in the new cars and trucks they choose, cutting oil imports and pollution along the way," Markey said.
Senator Dianne Feinstein, a California Democrat who has led the push for aggressive fuel economy increases, said the agreement will make major strides in reducing US oil dependence.
"Passenger vehicles account for a significant proportion of greenhouse-gas emissions in the United States and the vast majority of our dependence on oil, so it is vitally important that the administration continue to forcefully advocate for maximum feasible fuel economy standards as we move forward in this process," Feinstein said in a statement.
The current standards are 30.2 mpg for cars and 24.4 mpg for light trucks. Last year, DOT's National Highway Traffic Safety Administration approved a set of CAFE standards beginning in 2012 that require average fuel economy of 35.5 mpg by 2016 for cars and light trucks, the equivalent of an average emissions level of 250 grams of CO2 per mile.
The Obama administration has projected that the 2012-2016 CAFE standards will cut US oil consumption by 1.8 billion barrels over five years.
Daniel Weiss, director of climate strategy at the Center for American Progress, a left-leaning Washington think tank, called the agreement a major step toward cutting US oil imports. But Weiss said the clause in the agreement that allows for a mid-stream review could provide a loophole for automakers to avoid meeting the final rules.
"This review is a self-destruct button that could enable auto companies to escape the most efficient standards, dramatically reducing relief for families," Weiss said. "It creates a perverse disincentive for automakers to innovate and improve efficiency because the less they achieve, the stronger their argument that the 2025 standard is technologically unachievable."
Paul Bledsoe, a senior advisor to the Bipartisan Policy Center, a centrist Washington think tank, agreed that the new rules will almost certainly deliver less than 54.5 mpg in practice. "Nonetheless this is a historic standard," Bledsoe said. "It moves the US from a laggard to a world leader on automotive technology."
He said market forces are driving automakers to increase fuel efficiency, making it unlikely the mid-term review will cause the rules to be revised significantly downward. "The fundamental dynamics of long-term high oil prices, profound foreign competition and technology advancement are going to drive the product line more than an attempt to obviate the rule," Bledsoe said.
The agreement, which lacked the vicious back-and-forth that has characterized nearly every other environmental regulation Obama has proposed, could provide a model for other federal standards, especially on energy efficiency, Bledsoe said. "The key is to present the case for efficiency on economic, not environmental grounds," he said.
Copyright© 2010 Platts, All Rights Reserved.