EPA Touts Overcompliance With Vehicle GHG Rule Amid Gas Price Doubts

Source: By Lee Logan, InsideEPA • Posted: Friday, March 27, 2015

EPA is reporting strong early compliance with its greenhouse gas (GHG) rules for light-duty vehicles, but as officials prepare for a mid-term review of the program, questions linger about future compliance as consumers are increasingly purchasing less-efficient vehicles due to slumping gas prices and industry braces for a loss of a key source of credits from the sale of flex-fuel vehicles.

Agency officials are downplaying such concerns. Acting EPA air chief Janet McCabe said on a March 26 press call that a recent EPA report on manufacturer compliance for model year (MY) 2013 vehicles shows automakers are “well on their way to meeting the program requirements.”

EPA’s report shows that overall industry compliance for MY13 was 12 grams of carbon dioxide (CO2) per mile (g/mile) lower than that year’s GHG emission standard, which translates into 1.4 miles per gallon (mpg) in fuel economy, if the GHG figure were achieved solely through fuel economy gains.

That over-compliance is slightly better than MY12, when the industry was 11 g/mile better than that year’s standard. Additionally, that year’s standard was 7 g/mile less stringent than the MY13 limit.

But despite the improvements, industry groups are increasingly concerned. The Alliance of Automobile Manufacturers said in a statement that while sales of more fuel-efficient vehicles are “headed in the right direction,” manufacturers “will need to sell these fuel-efficient technologies in even greater numbers to meet the government’s fuel economy targets.”

The auto alliance adds: “Looking forward, keeping up this pace of increasing fuel economy will be challenging,” in part because consumer demand for efficient vehicles rises and falls with gasoline prices.

The alliance urges states and other government entities to help support a market for low-emission vehicles by purchasing more of them for their fleets, “encouraging greater availability of diverse fuels like clean diesel,” and installing charging stations and other infrastructure needed for zero-emission vehicles.

Despite the industry caution, McCabe on the press call highlighted several “positive signs” in recent industry trends, including that fuel economy technology is “coming online even faster than anticipated,” and that there are three times as many 30 mpg or better vehicles on the market than five years ago. Also, she said, sport utility vehicles (SUVs) are improving their fuel economy “faster than other vehicle types.”

McCabe’s statement reiterates claims that she and EPA Administrator Gina McCarthy made earlier this year when they downplayed the effect of low gasoline prices on the flagship program, saying a few months of low prices will not force the agency to ease the light-duty rules as many top auto industry executives are seeking.

The recent report also helps EPA push back against critics who were concerned that preliminary MY14 data suggested that automakers have been slowing improvements in fuel economy, a trend that McCarthy attributed to shortened production from high-mpg firms Hyundai and Kia, which were forced to address charges that they overstated MY12 vehicles’ fuel economy.

Mid-Term Review

EPA and the National Highway Traffic Safety Administration (NHTSA) issued joint GHG and fuel economy standards in 2010 for MYs 12-16, and the agencies in 2012 finalized a second round covering MYs 17-25.

NHTSA’s fuel economy-only standards, established under its Corporate Average Fuel Economy (CAFE) program, set an mpg target for vehicle fleets while EPA’s rule translated that into a GHG emissions standard measured in grams of CO2 per mile.

But the agencies and stakeholders are increasingly focused on a pending mid-term review of the second round of standards, which was included in part because NHTSA’s legislative authority to issue CAFE rules only runs through MY21. That review is slated to begin in 2017, followed by a final determination by EPA on whether to retain or change its standards by April 2018.

In preparation for the review, the National Academy of Sciences announced March 25 that it is slated to issue technology recommendations in April that will inform how the agencies proceed.

But in the run up to the review, many automakers have signaled they will seek to ease long-term requirements because, as gas prices plummeted, consumers are increasingly purchasing less-efficient SUVs and light-duty trucks. For example, Fiat Chrysler CEO Sergio Marchionne suggested that he and other industry officials are seeking to ease the rate at which the standards are strengthened in the outer years of the program. “All of us are going to toward a relaxation of the timeline,” he told the Wall Street Journal .“The question is the rate of change you’re going to roll out [in the standards].”

Further undercutting future compliance is that EPA’s rules allow automakers to take credit for sale of flexible fuel vehicles (FFV) that can run on high-ethanol gasoline blends in the early years of the program, but such credits will become unavailable in the coming years and automakers will have to rely increasingly on improved tailpipe emissions to comply.

Asked about the recent trend toward consumers buying larger vehicles, McCabe noted that the program was created “to be respectful of choices that consumers make on the vehicles they buy. Whether its a smaller car or a larger car, they are all getting cleaner, they are all emitting fewer greenhouse gases over time, so we feel good about that.”

She said that the program “takes the long view. I think everybody is familiar with the fact that gas prices go up and down over time.” She added that the “best way to make sure you weather high gas prices . . . is to invest in a fuel-efficient vehicle, and I think we’re seeing people do that.”

And McCarthy in a March 26 blog post reiterated her earlier commitment to the program. It’s “not true” that lower gas prices will “stymie this policy,” she wrote.

“All vehicles, regardless of size, must improve each year, and manufacturers that sell larger vehicles have to improve their emissions rate incrementally just like those that sell smaller vehicles,” she said.

Long-Term Trend

Asked on the press call how the trend toward buying larger vehicles would impact the upcoming mid-term review, McCabe said EPA is “looking at all the data that’s available to us and will be available to us, and looking at all aspects of the program. Whatever information is available, everybody will take a look at.”

But she reiterated that “this is a long-term program, so a near-term trend [on gas prices] is just that. We’ll be looking at the long-term expectations and talking with the automakers and everybody about that as we do the mid-term review.”

The first round of rules — governing MYs 12-16 — requires manufacturers to produce fleets that achieve an average of 35.5 mpg by 2016, equivalent to 250 g/mile, if achieved solely through fuel economy.

The second round of standards, finalized in 2012, requires fleets to meet an average of 54.5 mpg in MY25, equal to 163 g/mile by 2025, though the second round of rules includes the mid-course review for MYs 22-25.

According to EPA’s new report, the combined car and truck compliance value for MY13 was 279 g/mile — which is broken down to 241 g/mile for cars and 339 g/mile for light trucks. The industry-wide compliance value for cars and trucks in MY12 was 288 g/mile, which was split between 249 g/mile for cars and 348 g/mile for light trucks.

During the call, Chris Grundler, director of EPA’s Office of Transportation and Air Quality, said roughly two-thirds of industry’s over-compliance in MY13 comes from reductions in tailpipe emissions. Roughly 14 percent is tied to automakers receiving credits for selling FFV, with much of the rest attributed to credits for improving the GHG emissions associated with air conditioning systems.

Grundler said that when EPA designed the standards, it anticipated that automakers would “take advantage of these different market mechanisms.”

Under the EPA program, automakers can only use the FFV credits through MY15. A March 26 blog post from the American Council for an Energy-Efficient Economy (ACEEE) notes that Detroit carmakers have used the FFV credits more than the industry overall, so “they’ll need increasingly to do without as the credits are phased out in the coming years.”

ACEEE also notes that the standards are crafted in a way such that mpg and GHG limits “depend on the size mix of vehicles sold that year.” That is illustrated by Ford, whose emissions increased from MY12 to MY13, due “primarily to a whopping 11 percent shift from cars to trucks in Ford’s sales mix.” Because of the larger average size, Ford faced a less stringent standard in MY13, and it easily met the standard in both years.

“This illustrates one reason that the ‘54.5 miles per gallon equivalent’ commonly used to describe the requirement of the 2025 standards is not quite what it seems — the actual value required in 2025 will depend upon the mix of vehicles sold in that year,” ACEEE says. —  (llogan@iwpnews.com)