Unless something major comes out of the investigations into the Trump campaign’s affiliation with Russia, it’s likely that Donald Trump’s first term will be judged primarily on his wins and losses. But while the effort to repeal and replace Obamacare went up in smoke, Trump has racked up wins on the job creation front, and he clearly has his eyes set on more.
To appeal to job creators, Trump has taken a buckshot approach, lobbying companies in various industries to grow their businesses in America while also promising favorable changes to tax policy (that he may not be able to deliver) and continuing to cut regulations. Specifically, environmental regulations that were put in place by President Obama. And it’s that last method that may align Trump with Detroit and the American automobile manufacturing sector.
While big auto just saw positive gains in sales, bringing in $17.55 million in 2016, the looming increases in CAFE standards [Corporate Average Fuel Economy, meaning the average MPG (miles per gallon) of a company’s cars and light trucks] could take a toll on future profits. At least that’s what industry forces are whispering in Trump’s ear to great effect as he considers cutting those standards.
How We Got Here
Protective regulatory efforts are designed to curb current behavior and repent for past sins. And we’ve got a whole lot of the latter. In part, it’s because we didn’t have the sense to know that widespread pollution and the industrial revolution were making the earth unwell, but there were a few telltale signs. The Cuyahoga River catching on fire was a clue, and shortly after that event in 1969, the EPA was established, kickstarting an era of reforms.
The CAFE standard was put in place in 1975 to tamp down carbon emissions by reigning in hungry gas guzzlers and spurring innovation. Is it a burden on car companies? Anything that slows profit could be considered a burden — regulations, diminished interest in the market, the pangs of a conscience — but sometimes it’s worth the hurt.
And let’s remember that those car companies have found a way to prosper in that CAFE standards have doubtlessly nudged car companies toward the future, and that fuel economy, as of a 2015 study, was the most important factor for people when they were buying a car. Because, of course, it all relates to how much people drop at the pump, which relates to how much money they have in their wallets. People like money, thus, they should like fuel economy. Especially since, as we’ve seen over the last 14 years, fuel prices can balloon and cause a crippling burden on people who don’t have a lot of disposable income.
President Obama was aware of this, which is why he battled to improve standards. Obama came to a 2011 agreement with automakers that would increase fuel efficiency to 54.5 MPG by model year 2025, which, if fully implemented (a massively big “if” at this point), could cut oil consumption by 12 billion barrels.
The goal was and still is big and maybe impossible. And with automakers now proclaiming that they would need to raise vehicle prices and cut manufacturing jobs (as many as one million) to make getting to 54.5 mpg economically feasible, environmentalists are concerned that no one is going to be a voice on their side in the halls of power. Especially with this review of the policy being done under the watch of anti-regulation zealot Trump and climate change denier and EPA head Scott Pruitt. The question is: will Trump propose new targets, and will they be reasonable or a reversal of years of progress in the effort to make America less dependent on fossil fuels?
The Danger Of A Rollback
Dr. John Axsen, a Professor in Sustainable Transportation at Simon Fraser University, told Uproxx about the benefits that come from keeping CAFE standards in place:
“The main environmental benefit of CAFE standards is to cut greenhouse gas emissions,” Axsen said. “According to the Union of Concerned Scientists, CAFE standards are set to slash emissions by 2030, equivalent to shutting down 140 coal-fired power plants. Boosting fuel economy also cuts down other air pollutants associated with the combustion of fossil fuels.”
Axsen also told us that “eliminating the CAFE standards would thus lead to an increase in greenhouse gas emissions and air pollution.” And that’s to say nothing of the impact on innovation.
Nissan CEO Carlos Ghosn has tried to put people’s minds at ease, telling NBC News, “No matter what happens in the U.S., we will not change any of our plans for electrified vehicles and more efficient vehicles.” But while that sentiment is better than someone in that position abandoning those efforts, there’s a difference between continuing to investigate environmentally sound alternatives and really committing to the process, which includes meeting CAFE standards. And without them (or with laughably low numbers), there are some that believe automakers may increase light truck model production which will lower corporate mileage numbers and impact the trajectory of more fuel conscious vehicles. But maybe that’s what people want.
Despite those numbers that put fuel economy atop the list of concerns for consumers, things are changing. Gas at $3 a gallon, like we were all seeing in 2014, isn’t something most people have to deal with now. Is it unwise to make a commitment like purchasing a vehicle based on the price of a volatile commodity? You betcha, but people do it all the time when they reject more fuel conscious vehicles in the name of cargo space. As they did for years before gas began to skyrocket in 2003.
In 2016, SUVs accounted for 63% of total sales. It’s fair to assume that the lower cost of gas had something to do with it, and automakers clearly want to enable a trend that pushes back against the love affair with high MPG in the post-Prius age.
But while those shifts matter to people with environmental concerns (and to those who don’t have those concerns but who are still going to suck up the same air), those job loss threats cause enough anxiety to make that secondary to some.
What About The Jobs?
Pointing a finger at regulations and holding a knife to the throat of the manufacturing sector with an “or else” message is a time-honored tradition that is in full swing right now. But while automakers may have a point — that fuel-efficient standards can be a challenge in a market that seems to be increasingly less concerned with buying smaller fuel efficient cars, those threats aren’t exactly universally accepted as fact. Especially when you take a broader view.
University of Michigan Energy Institute research professor John M. DeCicco spoke to that view in an article on the Yale Environment 360:
“What the regulations do is shape how automakers allocate their budgets. Trimming a vehicle’s CO2 emission rate may involve, for example, developing a new transmission. (Transmissions have, in fact, seen a lot of innovation in recent years in response to the need for higher fuel efficiency.) Those development costs mean jobs for engineers. Building the redesigned transmissions then creates jobs for assembly workers. So whatever additional costs are incurred go right back into materials and labor, including jobs for steelworkers and others involved in supplying parts and materials to the auto industry. Studies that falsely claim job losses due to regulation assume that the cost of improved technology somehow falls into a ‘black hole’ and disappears from the economy, taking jobs with it. But that’s just not true.”
While further innovation could lead to a far healthier jobs outlook than has been presented by industry and political rhetoric, there’s still some apprehension among autoworkers, and specifically, the United Automobile Workers (“UAW”).
Back in 2011, the union came out in favor of the CAFE standard deal but in a statement on their website, they now seem to be toeing the center line.
That’s not necessarily a win for those crusading against standards and the goals set by the Obama administration, though. It just means that the UAW wants a balanced approach. And there’s economic incentive for that too.
The Industrial Market And The Bigger Picture
If these regulations vanish tomorrow — and it promises to be a lengthy and possibly fruitless fight in the first place — the auto industry will pay a price, especially if they pump the brakes on continuing to strive for high MPG. One of the auto industry’s biggest customers is the industrial transportation sector, and they have a very practical reason for wanting higher fuel standards.
Take UPS. In 2014 alone, they spent nearly $4 billion on fuel for its trucks. The cost of fuel is very much on the mind of the wider trucking industry as well and it has little to do with the environment: every gallon of fuel saved is money that goes to the bottom line, and that’s hard to fight.
Similarly, the rest of the world has little interest in easing emissions standards, especially as the cost of gas is much higher elsewhere in the world. U.S.-made trucks would be at a disadvantage all over the world if they suddenly fell way behind international competitors. As the old adage says: you’ve gotta spend money to make money, and that’s sort of where the auto industry is with fuel economy standards whether they sell a few more SUVs or not.
Fuel efficiency, like many other issues, doesn’t have to be an all-or-nothing proposition. As hard as it is to remember, there is a fertile middle ground on most issues. Environmental concerns can be weighed, worries about job losses can be considered, the market and the need/positive impact of innovation can be factored in, and a compromise can be reached. But to turn “possible” into “probable” might take a miracle in this political climate.