U.S. regulators say fuel efficiency pays, despite cheaper gas

Source: By David Shepardson, Reuters • Posted: Wednesday, July 20, 2016

A Chevron gas station is seen in Cardiff, California January 25, 2016. REUTERS/Mike Blake

Automakers have the technology to meet aggressive mandates to hike fuel efficiency by 2025, but the fleet-wide improvement will not be as great as the Obama administration once forecast because buyers are switching to pickup trucks and SUVs, federal regulators said Monday.

The report by the U.S. Environmental Protection Agency, the National Highway Traffic Safety Administration and the California Air Resources Board will frame a debate with the auto industry that will be decided in 2018 by the next president.

Administration officials on Monday said the key finding of their analysis is that automakers can comply with the mandates using known technology, and deliver benefits in terms of fuel savings and greenhouse emissions cuts that outweigh the estimated $894 to $1,245 per vehicle in costs, the 1,200-page document says.

Automakers are sounding alarms that low gas prices make the Obama administration’s mandates to cut vehicle greenhouse gas emissions untenable in their current form.

Trucks, which generate the bulk of the profits earned by Detroit’s three, unionized automakers, are the key.

When the president’s administration first outlined its goal of boosting average fleet fuel economy to 54.5 miles per gallon, regulators forecast that 67 percent of vehicles sold in 2025 would be cars.

Since then, gasoline prices have plummeted and truck sales have surged. The agencies on Monday forecast cars will be between 48 percent and 62 percent of the mix.

Regulators now estimate the fleet will average 50 to 52.6 mpg in 2025.

“Given changes in the market landscape, it will be a daunting challenge to meet the very aggressive requirements of the 2022-2025 federal fuel economy and greenhouse gas rule,” said Gloria Bergquist, a spokeswoman for the Alliance of Automobile Manufacturers.

The report may give automakers some ammunition to try to win changes to the rules.

Because of lower gas prices, the EPA now forecasts owners will need around 5 years for gas savings to match higher vehicle prices, compared with an earlier estimate of about 3.5 years.

However, the assessment also finds that battery costs are lower today than they were originally anticipated to be 10 years from now, suggesting hybrid or electric vehicles could be more affordable.

Dan Becker, director of the Safe Climate Campaign, on Monday urged regulators to toughen the rules to achieve the original 54.5 miles per gallon fleet-wide target.

“We can’t accept backsliding or loopholes that undermine their success just to put more gas-guzzlers on the road,” he said.

Automakers are not required to achieve the target average. Instead, the government’s complex scorekeeping system allows them to hit different targets for different sizes of vehicles — with larger trucks and SUVs allowed to achieve lower targets than small cars.

In addition, the NHTSA and EPA don’t agree on some key assumptions.

For example, the EPA assumes that California’s zero emission vehicle mandates will be in place. These require that 15 percent of the fleets automakers sell to have zero emissions in that state by 2025. The NHTSA analysis does not assume that automakers will comply with the California mandate.

The NHTSA assumes about 14 percent of vehicles sold in 2025 will need to be full hybrids – those with a significant battery pack – to meet the standards, while EPA thinks 3 percent would be sufficient.

Both forecasts expect improvements in gasoline engines will provide most of the increase in mileage, and compliance with 2025 fuel targets can be reached even if only 3 percent of vehicles are electric.

Cars and trucks account for 42 percent of total U.S. oil consumption, or about 8 million barrels a day. Regulators also plan to finalize rules to boost the fuel efficiency of medium and heavy duty trucks through 2027 later this year.

(Reporting by David Shepardson; Editing by Phil Berlowitz and Alan Crosby)