Washington (Platts)--19May2009

The White House is set to unveil a major compromise on auto efficiency
Tuesday that would see fuel economy standards rise to 35.5 miles per gallon by
2016, four years before Congress had mandated, a senior administration
official told reporters Monday.
The compromise between struggling automakers, the Obama administration,
environmental groups and a band of states including California represents
the largest moves regulating the auto industry in more than three decades.
White House officials, including President Barack Obama and his energy
and climate adviser Carol Browner, have said they want a national standard but
have not articulated since taking office how that might function.
"The hope across the administration is that we will have a unified
national policy when it comes to cleaner vehicles," Browner told a group of
state governors in February.
The corporate average fuel economy standard for new cars and trucks, also
known as CAFE standards, for model year 2009 is 25 miles/gallon. The senior
administration official said that fuel economy standards would rise 5% on
average annually, ultimately reaching the 35.5 m/g in 2016.
The new rules will cost automakers $1,300 more to produce a vehicle
than if no standards were in place. Congress and former President George W.
Bush mandated in 2007 35 m/g by 2020 and the cost per vehicle when compared
with no standards was $700.
The Environmental Protection Agency has the ability to grant California a
federal Clean Air Act waiver to cut tailpipe greenhouse gas emissions from new
cars and trucks. The so-called California standard would reduce emissions 30%
from current levels to 2016, which would about equal the 35.5 m/g laid out
Monday when it comes to using gasoline.
However, if California were to get the waiver, other states could join
the program. Fifteen states, some of the most heavily populated like New York
and Massachusetts, intend to join California. These states represent over half
the country in terms of population, creating a challenge for automakers that
would have to contend with states following California and then states only
under CAFE.
The senior official said that if EPA were to grant the waiver, California
has agreed to defer to the agreement. This would represent a major political
victory for California Governor Arnold Schwarzenegger, a Republican, who has
made climate change a central part of his tenure in office.
The auto industry has said that a single national standard, even a
stringent one, was preferable to having two competing rules.
"What's significant about the announcement is it launches a new
beginning, an era of cooperation," said Dave McCurdy, president of the
Alliance of Automobile Manufacturers. "We want to finalize a national program
so we can move on to policy discussions on what the future of sustainable
mobility looks like and how we can get there faster."
Automakers came the table in a weak position as one of its own, Chrysler,
recently agreed to file for bankruptcy after negotiating with the
administration. Chrysler received billions in taxpayer dollars and agreed to
join Italian auto giant Fiat at the behest of the White House. General Motors,
also talking with the White House, has yet to make a decision on its future,
which could include bankruptcy and restructuring as well.
EPA also has the ability under the Clean Air Act to regulate tailpipe
greenhouse gas emissions on its own because of a 2007 Supreme Court decision,
Massachusetts v. EPA. Emissions reductions within this separate program will
be embodied in the new CAFE rules as EPA and DOT begin rulemaking Tuesday,
the senior administration official said.
Obama brought Transportation Secretary Ray LaHood and EPA Administrator
Lisa Jackson to the White House in his first week in office. The National
Highway Traffic Safety Administration, which is part of DOT, has
responsibility for regulating CAFE standards.
At a January ceremony, Obama directed LaHood to make model year 2011 CAFE
standards and Jackson to reconsider the Bush administration's decision to deny
California the waiver.
Bush EPA Administrator Stephen Johnson said that granting the waiver
would create a "patchwork quilt" of various state efforts meeting the
California standard, as well as states which need to comply with CAFE. Johnson
made the announcement the same day in December 2007 that Congress passed the
first CAFE increases in almost three decades.
If California were to have received the waiver without preconditions, the
California Air Resources Board would have regulated the program. However, CARB
chairman Mary Nichols has said in recent months that she would be fine with a
federal program that incorporates the California standard, even if her agency
would not be at the helm of enforcing it.
The senior administration official did not say how increased biofuels use
or the proliferation of plug-in electric vehicles, a priority for Obama, would
be incorporated.
The official added that car efficiency would be 39 m/g while light truck
efficiency would be 30 m/g in 2016. The efficiency would be slow in the first
years, but then jump in 2015.
"That was important to give the car companies the ability to make the
investments and adjustments," the official said, adding that since the
California standard would effectively encompass the whole country, it made for
a better environmental agreement as well. "We get to an even better place in
terms of greenhouse gas reductions."
The official said that consumers would still have their choice of
automobiles since auto efficiency would rise across the board. "We think the
companies can preserve the options that the consumer has," the official said.
The White House estimated that over 1.8 billion barrels of oil would be
saved and 900 million metric tons of carbon dioxide would be avoided over the
lifetime of the program out to 2016.
--Alexander Duncan, alexander_duncan@platts.com