Carmakers’ ‘Harmonization’ Push Could Soften Fuel Efficiency Gains

Source: By Bloomberg News • Posted: Friday, February 23, 2018

Automakers may already get what they want this spring as the Trump administration eyes lower fuel economy targets—but the industry is also seeking smaller, technical changes to the program that could lead to fewer fuel efficiency improvements down the road.

Automakers seek “harmonization” to secure the “one national program” sketched out in an agreement they made with the Obama administration to reduce greenhouse gas emissions and improve fuel efficiency under the umbrella of consistent programs at the Environmental Protection Agency, the National Highway Traffic Safety Administration, and the California Air Resources Board.

The automakers’ request, which could make it easier for them to meet the standards, comes as the Trump administration weighs the future of fuel efficiency and greenhouse gas standards for passenger cars—and considers options that would soften limits. Environmentalists say even subtle changes to “harmonize” EPA standards and the NHTSA’s fuel economy program could risk putting millions of more tons of greenhouse gases into the atmosphere. Currently, car makers need to comply with both standards.

Generally, automakers use the term “harmonization” to refer to changes that would sync the way agencies offer flexibility in how industry meets standards.

“Harmonization relief is long overdue,” Wade Newton, a spokesman with the Alliance of Automobile Manufacturers, told Bloomberg Environment. The alliance represents a dozen major automakers, including the Ford Motor Co., General Motors, Fiat Chrysler Automobiles, BMW Group, Toyota Motor Corp., Volkswagen AG, and Volvo Car Corp.

Tensions over the issue mirror broader divisions over the vehicles program’s future—and they’re likely to come to a head in the coming months.

Automakers’ “goal is not harmonization,” Dave Cooke, senior vehicles analyst in the Clean Vehicles Program of the Union of Concerned Scientists, told Bloomberg Environment. “Their goal is providing flexibilities and effectively weakening the stringency of the rules.”

Decisions Approaching

Last year, the EPA, at the request of automakers, re-opened a mid-term review of standards for model year 2022-2025 vehicles, reversing an Obama-era decision to maintain the program’s stringency for those years.

The EPA must decide whether it will alter its standards by April 1. NHTSA intends to release its proposed fuel economy standards March 30, the agency’s deputy administrator Heidi King has said.

EPA Administrator Scott Pruitt during a Senate environment committee hearing last month pointed to the importance of “harmonization” with NHTSA’s program.

“As you know, there are joint equities there between [NHTSA, which is part of the Department of Transportation] and EPA. And we’re working diligently with them to harmonize these efforts, again, to provide clarity on these issues,” Pruitt said.

But he didn’t say specifically whether the EPA would address automakers’ concerns.

California’s role adds another complicating factor to the debate over the standards—separate from “harmonization” between the EPA and NHTSA regulations.

The Golden State has the ability under the Clean Air Act to set limits stricter than federal levels, and a dozen states have adopted California’s standards. California has pledged to move forward with those stronger standards, even if the Trump administration weakens the federal program.

Automakers’ Petition

Two auto industry trade groups—the Alliance of Automobile Manufacturers and the Association of Global Automakers—jointly petitioned the EPA and NHTSA in 2016, detailing a number of technical requests they said would match up the programs.

While NHTSA in late 2016 partially granted the petition and pledged to address automakers’ concerns when it sets fuel efficiency standards for model year 2022-2025 vehicles, the EPA still hasn’t responded to automakers’ requests.

The EPA had indicated it would publish a direct final rule that “would correct minor technical errors” consistent with the automakers’ petition in November 2017. The agency is working on that rulemaking but doesn’t have further information to share at this time, an EPA spokesperson told Bloomberg Environment.

Automakers argue that without harmonization changes, a manufacturer can find its fleet in compliance with EPA controls but falling short of NHTSA fuel efficiency levels.

“Compliance with one doesn’t guarantee” compliance with another, Newton said.

But it’s unclear how often auto manufacturers find themselves such in a situation, Steve Silverman, who was a staff attorney at the EPA for 37 years, told Bloomberg Environment. He noted the 2016 petition from auto industry trade groups doesn’t point to specific examples of it.

“I think it’s exaggerated,” Silverman, now a consultant with the Environmental Defense Fund, said. The harmonization push “is partially a Trojan horse for weakening the standards.”

Statutory Differences

At the crux of automakers’ requests are changes to match up the EPA’s and NHTSA’s approaches to offering compliance credits.

Under the current program, NHTSA rewards automakers that over-comply with fuel economy limits with credits that have a five-year lifespan. The EPA’s program offers “off-cycle” credits, awarded to automakers for technologies that achieve fuel efficiency improvements but aren’t captured by the agency’s compliance testing.

Automakers have greater opportunity to earn and trade credits under EPA regulations, and they’re seeking similar flexibility from the NHTSA side of the program. The transportation agency, however, is constrained by statute in what it’s able to allow.

“There’s a dual desire between the industry and the government agencies to have a program that you can call, under a general rulebook, harmonized,” John Hannon, a former assistant general counsel in the EPA’s Air and Radiation law office, told Bloomberg Environment.

“But that does not mean identical,” Hannon said, adding the programs won’t ever be identical because of statutory differences.

The underlying goal was to set both programs at a reasonable and comparable stringency “where manufacturers can readily comply with both,” Hannon, who retired from the agency in 2014, said.

Agency Action Not Enough

Automakers want harmonization changes as quickly as possible because they’re already facing challenges with the current program, Newton said.

Global Automakers wasn’t immediately available to comment.

Some changes could stem from the mid-term review process and be dealt with at the agencies, but there are “three harmonization gaps that must be addressed statutorily,” Newton said.

Legislation (S. 1273) introduced last year by Sens. Roy Blunt (R-Mo.) and Debbie Stabenow (D-Mich.) would address those three requests. Reps. Fred Upton (R-Mich.) and Debbie Dingell (D-Mich.) introduced a companion bill in the House.

The legislation would increase the lifespan of credits under NHTSA’s program, allow a greater number of credits to be transferred between manufacturers’ car and light truck fleets, and allow manufacturers to retroactively earn off-cycle credits under NHTSA’s program.

The alliance is urging swift action on the bills, Newton said. Thus far, neither bill has moved out of committee.

Environmentalists say the legislation would extend compliance flexibilities beyond their intended purpose. The bills would also result in 350 million more barrels of oil consumed and 155 million metric tons more greenhouse gas emissions from the transportation sector, according to an analysis by the Union of Concerned Scientists.

Each of those “tweaks” would add “flexibility that bumps up [automakers’] credit banks a little higher,” making it easier to meet near-term limits and setting up slower progress down the road, Union of Concerned Scientists’ Cooke said.

‘Extra Cookies’

Environmentalists question whether the auto industry will still push for “harmonization” if the Trump administration weakens the overall program, and they see no need for both administrative and legislative efforts addressing automakers’ concerns.

“It’s like the kid who wants the cookies and goes to one parent and the parent says no, so they go to the other parent and ask for the cookies,” Ann Mesnikoff, federal legislative director for the Environment Law and Policy Center, told Bloomberg Environment. “That’s what the auto industry is doing.”

“They have an administration perfectly happy to give them all the dessert they want, and they’re going to Congress and asking for that, too. Certainly Congress doesn’t need to dole out extra cookies,” she said.

“From a perspective of, are we going to get the strongest program that gets the most emissions, helps consumers save at the pump, [and] helps the auto industry stay competitive in an increasingly competitive global marketplace—that’s the question,” Mesnikoff added. “Weaker standards don’t do that.”

Automakers, though, argue harmonization is separate from the fight over the program’s future stringency.

“This isn’t looking at changing a target or a number. This is purely about how three different bodies are measuring the exact same thing,” Newton said.