CAFE standards could shift automakers’ priorities, experts warn

Source: Debra Kahn • E&E  • Posted: Thursday, January 26, 2012

SAN FRANCISCO — Auto experts this week warned that new fuel economy standards U.S. EPA is preparing could reduce consumers’ options because of their cost.

The last of three public hearings on the corporate average fuel economy program drew smaller companies like California-based Tesla Motors and Coulomb Technologies, as well as major automakers and state and national environmental groups. Most automakers and groups urged adoption of the targets, which EPA and the National Highway Traffic Safety Administration will finalize by July. The targets are intended to reach 54.5 mpg for each manufacturer’s fleet by 2025.

But Lacey Plache, chief economist with the car research website, warned that forcing automakers to invest in mileage improvements might lead them to underinvest in other areas that consumers value. “This focus on fuel economy for all automakers limits competition on other dimensions, such as safety, comfort, design and electronics,” she said. “In fact, the focus on fuel economy could limit innovation of these other features, especially for automakers that have fewer resources or that need to work relatively harder to meet their fuel economy targets.”

Margo Oge, director of EPA’s Office of Transportation and Air Quality, questioned Plache closely. “Is there anything in the proposal that would make you suggest that safety or other features would be sacrificed?” she asked.

“If we take the market in a direction that the primary thing focused on is fuel economy … and they don’t put the same amount into electronics or performance because they’re putting it into fuel economy, how does that affect the marketplace?” Plache replied. “At some point, there will be a constraint as to where they can throw those dollars.”

John Cabaniss, director of environment and energy at Global Automakers, which includes Honda, Hyundai, Maserati, Nissan and Toyota among its 15 members, was skeptical that manufacturers would neglect consumers’ other priorities. “I don’t think manufacturers are going to do trade-offs like that,” he said in an interview.

More dangerous, he said, is automakers’ tendency toward “horsepower creep” — increasing engines’ power as efficiency improvements allow. “They have to keep up with the Mazda ‘zoom zoom,'” he said.

The National Automobile Dealers Association, however, warned the rules could increase the price of new cars to the point that people who need a loan would be priced out of the market. “I am unaware of any banker who will fund auto loans based on the promise of fuel savings,” said Forrest McConnell, a Honda dealership owner and member of trade group’s board of directors.

The Consumer Federation of America’s Jack Gillis countered that the cost of gasoline is quickly surpassing the vehicle itself as the largest driving-related expenditure. “Consumers are desperate for more fuel-efficient vehicles,” he said.

And like they did during a previous hearing in Detroit, auto executives also urged officials to include a robust midterm review in the standards (E&ENews PM, Jan. 17).

Several witnesses cautioned against EPA’s proposed inclusion of life-cycle carbon emissions from electric vehicles starting in model year 2022. Tesla’s vice president of business development, Diarmuid O’Connell, said such an inclusion would regulate the same emissions twice — once as they come out of the power plant and once as they come out of the tailpipe. Even though electric vehicles have zero tailpipe emissions, regulating them “upstream” would effectively impose an extra control compared with other vehicles, he said.

Ronald Minsk, vice president of policy at Securing America’s Future Energy, said such a move might be legal but it would make point sources harder to regulate in the future. “It’ll make it infinitely more difficult to have a cap-and-trade program that controls emissions without engaging in double-counting,” he said.