President Trump with U.S. auto industry executives and EPA Administrator Scott Pruitt (second from left) in Ypsilanti, Michigan.

President Trump with U.S. auto industry executives and EPA Administrator Scott Pruitt (second from left) in Ypsilanti, Michigan. REUTERS/JONATHAN ERNST

opinion

The ‘Job-Killing’ Fiction Behind Trump’s Retreat on Fuel Economy Standards

The Trump administration is expected to roll back the fuel economy standards that were a signature achievement of the Obama administration. The move won’t save auto industry jobs, but it will increase air pollution and greenhouse gas emissions.

When President Trump traveled to Michigan last week to announce that his administration will reevaluate (and almost certainly weaken) a key environmental achievement of the past decade — new fuel economy and greenhouse gas standards for cars and light trucks — he alleged that “industry-killing regulations” had contributed to a loss of jobs in the U.S. automobile sector. The truth is, however, that there is no factual basis for the claim that stricter standards have killed jobs. There is, however, abundant evidence that these regulations have saved Americans billions of dollars at the pump, bolstered U.S. energy independence, fostered automotive innovation, and led to major reductions in air pollution and greenhouse gas emissions.

In taking this step, President Trump is following a prompt from the auto industry, whose two major trade associations have been angling to weaken the standards. Their complaints are among a slew of special pleadings sent to a new White House clearly sympathetic to big-league moneyed interests. In fact, when the EPA posted a notice on its web site last week announcing that it was reviewing the greenhouse gas emission standards, it prominently placed a link to the Auto Alliance’s request to reconsider the regulations. I, for one, can’t recall when a public agency prominently featured the opinions of lobbyists for an industry it regulates on an official federal webpage. 

Those of us who follow this issue were braced for this assault on environmental protection, one of many that are already underway, such as undermining the Obama administration’s Clean Power Plan, weakening rules to stop methane leaks during oil and gas production, and pulling out of the Paris climate accords. The list goes on. With transportation now the nation’s largest source of CO2 emissions (ahead of electricity generation), a steady clampdown on tailpipe CO2 is particularly important if our country is to do its part in slowing climate change. Weakening the greenhouse gas and fuel economy standards will undercut this crucial effort. Given the due diligence performed by the Obama administration when it developed the standards — in consultation with the auto industry — such a move cannot be justified either technically or economically. 

With transportation now the nation’s largest source of CO2, a steady clampdown on tailpipe emissions is particularly important.

We’ve seen this gambit before. In 1986, after gasoline prices fell from their energy-crisis highs, General Motors and Ford asked the Reagan administration to roll back the CAFE (Corporate Average Fuel Economy) standards, which the year before had reached their original target of 27.5 miles per gallon (mpg). Reagan’s appointees complied, lowering the standard to 26 mpg for several years. 

What we saw then, and are now seeing again, was a deliberate crippling of regulations that in reality — and in spite of much rhetoric to the contrary — carefully balance costs to industry with the need to address real public health, safety, and environmental concerns. After all, the original CAFE standards were signed by President Gerald Ford, a Michigan Republican, in 1975. The key Clean Air Act provisions that successfully slashed tailpipe pollution, and that provide the legal basis for the more recent motor vehicle greenhouse gas standards, were developed under the administration of Richard Nixon, who signed them into law in 1970. Those two bipartisan laws are the foundation for the synchronization of automotive greenhouse gas emissions and CAFE standards that President Obama brokered during his first term. Both Nixon and Ford were business-friendly Republicans, but ones who recognized that as national leaders they had many other legitimate public concerns to address. Well, times have changed. 

Trump’s speech at the Willow Run factory in Ypsilanti, Michigan, was mostly about jobs and how decades of bad trade policies had undermined U.S. employment. At least publicly, he didn’t actually say that much about the emission rules, although he did cast them as part of what was to blame for job losses. Like many other U.S. wage earners, autoworkers have suffered from years of anti-labor economic policies and unfair trade agreements. Both Donald Trump and Bernie Sanders tapped into this justifiable discontent. But it’s Trump who has embraced the deceitful lobbying lines about “job-killing regulations” that have been among Republican talking points for the past few decades. 

Trump has embraced the deceitful lobbying lines about ‘job killing regulations’ that have long been among Republican talking points.

In fact, fuel economy and emissions regulations have not harmed jobs. Auto efficiency standards have always been structured with American workers in mind. The current standards include multiple levels of flexibility that accommodate market shifts due to fluctuating fuel prices; the rules also defer to the dubious proposition that more lenient regulations for top-selling light trucks would help protect union jobs.

What the regulations do is shape how automakers allocate their budgets. Trimming a vehicle’s CO2 emission rate may involve, for example, developing a new transmission. (Transmissions have, in fact, seen a lot of innovation in recent years in response to the need for higher fuel efficiency.) Those development costs mean jobs for engineers. Building the redesigned transmissions then creates jobs for assembly workers. So whatever additional costs are incurred go right back into materials and labor, including jobs for steelworkers and others involved in supplying parts and materials to the auto industry. Studies that falsely claim job losses due to regulation assume that the cost of improved technology somehow falls into a “black hole” and disappears from the economy, taking jobs with it. But that’s just not true.

In reality, it’s not regulations that have harmed jobs, but often a lack of foresight on the part of management at the U.S.’s Big Three automakers. The latest market collapse, in 2008, triggered massive job losses — even though it followed two decades of declining vehicle efficiency tied to stagnant CAFE standards. Although the economic meltdown was caused by larger financial factors, autoworkers were among those who bore the brunt of the pain, and not for the first time.

But it wasn’t just the recession that pushed General Motors and Chrysler into bankruptcy, and Ford close to the brink. Having lobbied successfully to cripple the CAFE standards, the Big Three didn’t bother to improve the fuel efficiency of their pickup trucks and SUVs. They also failed to invest in competitive compact cars. Their sales then experienced the double whammy of a recession plus a shift away from gas guzzlers; GM and Chrysler could not survive without a federal bailout.

Since then, as the economy recovered, so did car and truck sales. At the same time, fuel efficiency continued to rise, at first in response to the high pump prices, but more recently guided by the tighter CAFE standards and greenhouse gas regulations. Each of the past two years saw record new vehicle sales, yet at the same time improved technology continued to trim fleet average CO2 emissions. In the past decade, the CO2 emission rate has declined by an average of 2.3 percent per year. It’s not nearly as steep a decline as seen during the 1970s oil crisis years, but nevertheless represents significant progress. 

Graph data derived from EPA Fuel Economy Trends Report (2016), assuming an average of 12,000 miles per year per vehicle.

Graph data derived from EPA Fuel Economy Trends Report (2016), assuming an average of 12,000 miles per year per vehicle. Courtesy of John DeCicco

That progress is slower than it could be reflects the breaks given to the industry when the rules were crafted. Just to name a few: The standards for both cars and trucks get weaker as the vehicles get larger. In addition, vans, minivans, pickups, and many SUVs are classified as light trucks and subject to weaker standards than cars. Then there’s a special provision for the largest light trucks, which are termed “work trucks,” but in reality are mostly luxurious macho fashion statements, many of which never see a construction site or farm. In short, the car companies — and especially the former Big Three — already cobbled many layers of regulatory relief into the complex structure of the standards.

Before the election, automakers had plans well underway to re-engineer their vehicles in line with tighter standards over the coming decade. Ample technology is in the pipeline for making steady gains in efficiency (and steady cuts in CO2 emission rates) for years to come. The feasibility of meeting the standards has been studied exhaustively for many years now. (I was an author of some early studies that helped make the case for the standards.) These studies all conclude that steady refinements of gasoline engines — cutting excess mass through high-strength steel and other advanced materials — and further streamlining would not only enable automakers to reach the standards now targeted for 2025, but also continue improving efficiency beyond that.  

Over the five-year phase-in leading up to the 2025 target, the incremental cost per vehicle will average only $240 per year. That’s less than one percent of the average sticker price and so well within the cost-savings automakers routinely achieve each year through productivity gains. That’s why new car and light truck prices may not increase as a result of the stronger federal standards, and why there is likely to be no observable impact on either vehicle sales or manufacturing jobs.

Automakers note that according to EPA’s own economic analysis, they will have to cumulatively spend $200 billion to comply with the standards over the 2012-2025 period. But to call that number “staggering,” as they do in their plea to EPA Administrator Scott Pruitt, takes it out of context. Over that same time period, the new car and light truck market will rack up at least $7 trillion in revenue. So the $200 billion cost estimate amounts to only 3 percent of gross sales.  

Environmental protection is not something that can be left to the ups and downs of oil prices and other market whims.

One of the arguments that automakers make against the standards is that, with pump prices lower than when the rules were set five years ago, consumers are no longer as interested in efficient vehicles. But that’s the very reason why we need standards. Environmental protection is not something that can be left to the ups and downs of oil prices and other market whims. This is also why the EPA is wise to set standards a decade in advance, providing automakers with plenty of lead time to redesign vehicles for better efficiency and lower CO2 emissions. Just as was the case for smog-causing pollutants, regulation is essential for success in solving the problem. And it clearly wasn’t something to leave up to consumers themselves — e.g., whether individuals would spend the extra few hundred dollars it costs to put a catalytic converter system on a car.

A generation ago, the oil embargo and other energy market issues provided the rationale for CAFE standards, which took auto efficiency a big step forward, saving consumers money and also helping reduce oil prices for a time. Then conceit set in, fostered by a special interest-driven Reagan administration that rolled back CAFE standards and ushered in two decades of backsliding on auto efficiency. That period of complacency came crashing down just over a decade ago; recall that the move to begin raising CAFE standards actually began under the George W. Bush Administration, which crafted the 2007 energy bill calling for much higher standards.

The Obama Administration took things a step further, rightly recognizing that global warming now provides an even-stronger rationale for auto efficiency and greenhouse gas standards. With the nation’s new-found oil reserves from hydraulic fracturing, fuel costs are no longer the main reason for car and truck standards. But lower energy costs are no excuse for lessening progress on climate, and in fact are all the more reason for holding fast to a strong, long-term target for limiting CO2 emissions from cars and trucks.

Although the Trump Administration is careful to say that revisiting the standards does not necessarily imply weakening them, everything else about their rhetoric — and that of the automakers — certainly suggests that is the intent. If weaker standards are indeed the outcome of the administration’s action, then the climate will suffer that much more. And if the autoworkers  bussed in by GM, Ford, and Chrysler to cheer for Trump at his Michigan rally think that gutting regulations is going to create jobs, well, they will have been fooled again.