U.S. Policy

Climate Change Legislation

In the U.S., the policy debate surrounding climate change has been overshadowed by other issues, including concerns over budget deficits. Nevertheless, the U.S. Environmental Protection Agency (EPA) has continued to pursue greenhouse gas (GHG) emissions regulations for mobile sources using their authority under the Clean Air Act, while the U.S. National Highway Transportation Safety Administration (NHTSA) has continued to pursue fuel economy regulations. In 2012, the EPA and NHTSA finalized joint greenhouse gas emission and fuel economy regulations for 2017–2025 model year light-duty vehicles. These regulations, which continue the “One National Program” approach, are discussed below under Greenhouse Gas and Fuel Economy Regulation.

Ford has participated in the public discourse on broad-based, national climate policy for some time. In 1999, for example, we discussed greenhouse gases in our first corporate citizenship report. In late 2005, we published a special report on the Business Impact of Climate Change, and in 2007 we joined the U.S. Climate Action Partnership (USCAP) to support the prompt enactment of national climate legislation. Because the USCAP organization has been dormant for nearly a year, and this policy issue is now not expected to be taken up legislatively in the U.S., we asked to be delisted as a member of USCAP. We nonetheless remain committed to improving fuel economy and reducing greenhouse gas emissions, as evidenced by our support for the One National Program approach to fuel economy regulations discussed below.

These experiences, as well as our participation in carbon markets globally, have helped to shape Ford’s position on climate policy. The linked issues of climate change and energy security create an urgent need to transform the country’s economy into one with lower greenhouse gas emissions, higher energy efficiency and less dependence on fossil fuels and foreign oil. This transformation will require changes in all sectors of the economy and society. A comprehensive legislative framework is needed to spur these changes.

The auto industry has supported the rules proposed by EPA and NHTSA, but regulations focusing on just one sector of the economy will not enable us to achieve the necessary level of GHG reductions. We believe we need a comprehensive, market-based approach to reducing GHG emissions if the U.S. is going to reduce emissions at the lowest cost per ton. An economy-wide program would provide flexibility to regulated entities while allowing market mechanisms to determine where GHG reductions can be achieved at the lowest cost. The environment doesn’t care where reductions occur, but the economy does, and given the potentially high cost of abatement, it is important to achieve the greatest reductions at the lowest cost possible.

As part of an integrated approach to addressing energy security and climate change, Ford supports comprehensive legislation that will create a price signal to encourage consumers to purchase more fuel-efficient vehicles and engage in other climate-friendly behaviors. Thoughtful and comprehensive national energy and climate policy that provides a price signal is needed to support the billions of dollars being invested in low-carbon and fuel-efficient vehicle technologies. Without a cohesive policy that includes a price signal, we could be caught in an endless cycle wherein development of the advanced technologies needed to help address climate change and energy security is sporadic and not aligned with fuel providers or consumer demand.

Ford will continue to advocate for effective climate change policies that drive down GHG emissions and provide a framework for sound business and product planning.

Greenhouse Gas and Fuel Economy Regulation

In July 2011, the Obama Administration announced that the state of California, the auto industry and other stakeholders had committed to support a single national program for motor vehicle fuel economy and greenhouse gas standards covering the 2017 to 2025 model years. This is an extension of the “One National Program” regulations that have already been put in place for the 2012–2016 model years. Ford views the continuation of the One National Program agreement as a positive step for all stakeholders toward our common goals of energy security and reduced greenhouse gas emissions.

In 2012, the EPA and NHTSA finalized regulations extending the One National Program framework through the 2025 model year. The new rules require manufacturers to achieve, across the industry, a light-duty fleet average fuel economy of approximately 45 mpg by the 2021 model year, and approximately 54.5 mpg by the 2025 model year, assuming all of the carbon dioxide (CO₂) emissions reductions are achieved through the deployment of fuel economy technology. This represents a reduction of roughly 5 percent per year in CO₂ emissions from passenger cars for the 2017–2025 model years. For light trucks, the proposed standards represent a reduction in CO₂ emissions of about 3.5 percent per year for model years 2017–2021, and about 5 percent per year for model years 2022–2025.

It is important to note that the EPA’s 2022–2025 GHG standards are final rules; in contrast, NHTSA’s 2022–2025 Corporate Average Fuel Economy (CAFE) standards are conditional because, by statute, NHTSA may only set CAFE standards for up to five model years at a time.

Under the rules, each manufacturer’s specific task would depend on the mix of vehicles it sells. The rules include the opportunity for manufacturers to earn credits for technologies that achieve real-world CO₂ reductions, and for fuel-economy improvements that are not captured by EPA fuel-economy test procedures. Manufacturers also can earn credits for GHG reductions not specifically tied to fuel economy, such as improvements in air conditioning systems. The rules specify a midterm evaluation process under which, by 2018, the EPA will reevaluate its standards for model years 2022–2025 in order to ensure that those standards are feasible and optimal in light of intervening events. In parallel, NHTSA will undertake a process to promulgate final CAFE standards for those model years. In California, the California Air Resources Board has modified its GHG regulations so that complying with the federal program also satisfies compliance with California’s requirements for the 2017–2025 model years.

Ford plans to participate in the mid-term evaluation process. For the longer term, Ford supports a legislative solution codifying the One National Program approach beyond 2025, in order to head off the possibility that various agencies may promulgate and enforce multiple, inconsistent fuel economy and/or GHG regulations in the future.

A national program is essential for the efficient regulation of motor vehicle fuel economy and GHG emissions. It allows manufacturers to average the fuel economy and CO₂ emissions of their vehicles based on nationwide sales, which in turn enables manufacturers to formulate their product plans on a national level to achieve the necessary scale for future technology introductions. In contrast, state-by-state or regional regulations could force manufacturers to restrict the sale of some products in certain parts of the country, harming both consumers and dealers in those areas. Since CO₂ emissions do not create localized air-quality problems, state or regional standards are unnecessary, and would create hurdles, added costs and market disruptions in our path toward achieving reductions.

As with the 2012–2016 rules, the 2017–2025 rules have been challenged in federal court by entities whose primary concern appears to be the ramifications of the vehicle rules on stationary source regulation. The automotive industry has intervened in the litigation with the goal of avoiding adverse changes to the One National Program rules.

While the new rules are challenging, we believe they are feasible in light of our product plans and projected market conditions for the time period covered by our product planning process. We intend to work closely with the EPA, NHTSA and other key stakeholders, including California, throughout the mid-term evaluation process to ensure continued alignment between regulatory goals and market realities for the 2022 through 2025 model years.

In October 2011, the EPA and NHTSA also finalized a single national program for greenhouse gas and fuel economy standards for heavy-duty vehicles. The CO₂ and fuel-consumption requirements for the 2014 through 2018 model years target combination tractors, heavy-duty pickup trucks and vans, and vocational vehicles. The agencies estimate that the combined proposed standards have the potential to reduce GHG emissions by nearly 270 million metric tons and save approximately 530 million barrels of oil over the life of these vehicle types sold during the program. A second phase of regulations is planned for model years beyond 2018.