U.S. Greenhouse Gas and Fuel Economy Regulation

Over the last year or so, a number of significant developments have taken place in the United States with respect to regulatory programs that would set greenhouse gas emissions or fuel economy standards for motor vehicles.

• In July 2008, the U.S. Environmental Protection Agency (EPA) issued an Advance Notice of Proposed Rulemaking requesting comment on the potential regulation of GHGs from both mobile and stationary sources under the federal Clean Air Act (CAA). In April 2009, the EPA published a proposed "endangerment" finding for GHGs; if the EPA finalizes this finding, it would trigger a number of regulatory provisions under the CAA. The EPA has also issued a proposed set of regulations on the reporting of GHG emissions from mobile and stationary sources.
• In March 2009, the National Highway Traffic Safety Administration (NHTSA) promulgated final Corporate Average Fuel Economy (CAFE) standards for the 2011 model year. By April 2010, NHTSA is expected to issue standards for the 2012 through 2016 model years.
• In January 2009, President Obama requested the EPA to reconsider its earlier denial of a waiver for California's AB 1493 regulations, which would impose GHG standards on motor vehicles at the state level. Congress has directed EPA to complete its review by June 30, 2009.
• On May 19, President Obama announced a framework agreement among the federal government, the State of California and automobile manufacturers to develop a national standard for fuel economy/greenhouse gas emissions for model years 2012–2016.

With the announcement of a National Standard for fuel economy and greenhouse gas emissions, the EPA and NHTSA have agreed to work to produce harmonized standards, which are intended to allow manufacturers to build a single light-duty national fleet that would satisfy all requirements under both programs. This would avoid a situation in which three separate regulatory programs are established – two at the federal level and one at the state level – all regulating the same conduct. As we have discussed in previous reports, the vast majority of GHGs emitted by motor vehicles are in the form of CO2. Standards regulating tailpipe CO2 emissions are thus essentially fuel economy standards by another name, since the amount of tailpipe CO2 emitted is directly proportional to the amount of fuel consumed. This has been acknowledged by NHTSA.1

From an environmental standpoint, there is no need for three overlapping and competing programs to address motor vehicle GHGs. Multiple programs would create huge logistical problems and economic inefficiencies in exchange for little or no environmental benefit. As discussed in the European Policy section, the nations of Europe have recognized the need for one continent-wide regulatory program covering the European vehicle market, rather than a patchwork of programs administered by each individual nation.

The new, harmonized standards announced by the Obama Administration will employ an "attribute-based" structure in which a manufacturer's fuel economy standard is based on the fleet of vehicles it sells. The attribute-based approach was developed by NHTSA to mitigate competitive disparities caused by the old approach to fuel economy regulation, which imposed a one-size-fits-all standard on all manufacturers. The attribute-based approach is more effective in driving fleet-wide fuel economy improvements.

The harmonized federal program also allows for fleet averaging on a nationwide basis, which is critical to vehicle manufacturers. Since a manufacturer's fleet mix at the state level can vary considerably from its overall national fleet mix, state-specific standards would likely lead to product restrictions and reduced consumer choice in some states. Nationwide fleet averaging avoids this problem with no loss of environmental benefits.

We appreciate the efforts of the Obama Administration to develop a harmonized national program. We are committed to working with the EPA and NHTSA toward a challenging but feasible set of GHG and fuel economy standards that take into account the state of vehicle technology, and the practical ability of manufacturers to integrate such technology into their vehicle fleets, in light of economic realities and engineering lead-time requirements. Such a national program will enable the United States to move forward toward its environmental objectives in an efficient and effective manner. It will also be a useful complement to comprehensive, economy-wide cap-and-trade climate legislation.