Market, Policy and Technological Framework – United States

Federal

In the United States, CO2 emissions from vehicles have been regulated through Corporate Average Fuel Economy requirements for more than 30 years. In December 2007, Congress enacted new energy legislation restructuring the CAFE program and requiring the National Highway Transportation Safety Administration (NHTSA) to set new CAFE standards beginning with the 2011 model year. The law requires NHTSA to set car and truck standards such that the combined fleet of cars and trucks in the U.S. achieves a 35-mile-per-gallon fleet average by MY2020. In early 2008, NHTSA is expected to issue a proposed rule setting light truck CAFE standards for MY2012 and beyond, based on the provisions of the new law. A proposed rule setting new car CAFE standards is expected to follow. Ford participated actively in the development of the legislation and supported its final passage. The new regulations will be very challenging, but our product CO2 strategy is designed to help us meet the anticipated standards.

In 2007, Ford Motor Company joined USCAP, a group of 33 companies and NGOs that recommends the prompt enactment of national legislation in the United States to slow, stop and reverse the growth of greenhouse gas emissions over the shortest period of time reasonably achievable. Ford supports the USCAP call for U.S. legislation to achieve the goal of limiting global atmospheric GHG concentrations to a level that minimizes large-scale adverse climate change impacts to human populations and the natural environment, which will require global GHG concentrations to be stabilized over the long term at a carbon dioxide equivalent level of 450–550 ppm.

Specifically, Ford supports the call for short-, mid- and long-term targets of between 100 and 105 percent of today's levels within five years; between 90 and 100 percent of today's levels within 10 years; between 70 and 90 percent of today's levels within 15 years; and an emission target zone aimed at reducing emissions by 60 to 80 percent from current levels by 2050.

Ford supports the prompt enactment of legislation and regulations to facilitate the achievement of these goals. Ford also supports the USCAP recommendation of a cap-and-trade program complemented with U.S. energy policies that result in diverse and adequate supplies of low-GHG energy. Finally, Ford concurs that climate protection legislation must achieve substantial GHG emission reductions from all major emitting sectors of the economy, including the transportation sector, and supports the recommendation that Congress enact policies to reduce GHG emissions in the transportation sector.

State

The issue of state regulation of vehicle greenhouse gas emissions continues to be a controversial one, and there were a number of new developments in 2007 and early 2008.

In 2002, the California legislature passed a law directing the California Air Resources Board (CARB) to promulgate rules limiting GHG emissions from motor vehicles. In 2004, CARB voted to adopt a set of fleet average standards expressed in grams per mile of CO2. Final rules incorporating these standards were adopted in 2005. The standards are set to take effect beginning with the 2009 model year, and they become increasingly stringent through the 2016 model year. Several other states, including New York, Connecticut, Massachusetts, Vermont, New Jersey, Pennsylvania, Rhode Island, Oregon, Washington, Maryland, New Mexico and Florida, have either adopted parallel regulations or are in the process of doing so.

Under the federal Clean Air Act, states must receive a waiver from the Environmental Protection Agency (EPA) before they can enforce state-specific rules related to vehicle emissions. On March 6, 2008, the EPA issued a final denial of California's waiver request, and in early 2008, California initiated litigation challenging the waiver denial. It is expected that this litigation will continue throughout most of 2008, if not beyond. In addition to the waiver litigation, virtually the entire automobile industry is engaged in litigation seeking to overturn the state GHG rules on the grounds that they are preempted by the federal Corporate Average Fuel Economy law. It may be some time before the appeals in these cases are completed and the issue of federal preemption is finally resolved.

Ford supports the reduction of vehicle GHG emissions and is working aggressively toward the development and implementation of products that emit less CO2 on a per-mile basis. But Ford believes that a single set of national GHG/fuel economy standards is in the best interest of consumers, dealers, automotive suppliers and vehicle manufacturers alike.

The state GHG rules would impose fuel economy standards whose rapid rate of increase and extreme stringency are not workable within our business limitations. If the state GHG rules took effect, we would be forced to implement severe product restrictions in those states within two or three model years, and we would not be the only manufacturer in that situation. This, in turn, would lead to at least three adverse consequences. First, consumers in those states with the GHG rules would have fewer vehicles to choose from than consumers in neighboring states without the GHG rules. Second, states with the GHG regulations would experience a sharp decline in vehicle sales, affecting employment in those states dependent on automobile sales, most notably at dealerships. Third, to the extent they can, consumers in states with the GHG rules would go to other states to get vehicles they cannot buy at home.

We believe that Congress intended to prevent the adverse effects of state-specific standards when it included language in the CAFE law preempting state regulations "related to" fuel economy standards. We will continue advocating for the principle that the fuel economy standards in the U.S. should be set exclusively on a nationwide basis, as they have been since the CAFE law was passed in 1975. We supported passage of the 2007 Energy Bill, which significantly raises the fuel economy standard our vehicles must meet. National standards can achieve all of the environmental benefits of state standards, without the economic disruption and unintended local and regional effects of state standards.