Do Obama’s rules fuel production of bigger cars?

Source: Camille von Kaenel, E&E News reporter • Posted: Wednesday, May 16, 2018

Most agree American vehicles are getting bigger, undermining overall improvements in mileage. That could be partly due to the fuel economy requirements themselves.

It’s important to understand the forces shaping the size of vehicles because it’s a key factor in the Trump administration’s review of the clean car rules. Automakers have argued that people are buying heavier, larger and more gas-guzzling vehicles because of cheap gas prices and changing consumer preferences. They say that makes it difficult to meet the ambitious targets projected by the Obama administration, and they want relief from Trump.

But a new analysis suggests that there may be an additional reason behind the trend: The design of the rules actually encourages manufacturers to make larger vehicles. The Review of Economics and Statistics published the study by Koichiro Ito of the University of Chicago and James Sallee of the University of California, Berkeley, this month.

The study found that the design of fuel economy rules in Japan incentivized manufacturers to build larger vehicles to get away with lower fuel economy increases at lower cost.

That lends credence to the argument of some that consumer trends aren’t the only forces shaping the American market.

EPA and the National Highway Traffic Safety Administration fundamentally changed their joint greenhouse gas emissions and fuel economy rules for light-duty vehicles 10 years ago.

Before then, automakers had to meet a single fleetwide target. That meant they invested money, at a loss, into building smaller, fuel-efficient vehicles called “compliance cars” just to get their average down.

The Bush and Obama administrations wanted to change that and reformed the rules. Now, automakers have to meet a target for each size category, or “footprint.” The targets for larger vehicles are less steep than those for smaller vehicles.

That means automakers can meet the requirements by selling trucks and SUVs, as long as those trucks and SUVs are slightly more fuel-efficient than those of the past. Case in point: Ford Motor Co.’s decision to essentially abandon cars for trucks and SUVs doesn’t mean it won’t comply with the strict targets. It just found the larger vehicles more profitable.

Ito and Sallee found that Japanese manufacturers would strategically add some bulk to their models to bump them into a lower fuel-economy bucket.

American automakers have boosted production of crossovers — cars built on an SUV frame — and decreased production of cars.

Unpacking exactly why will be key to administration officials as they rewrite the American targets.