Barack Obama

Barack Obama

As we previewed yesterday, President Barack Obama announced uniform national standards for gas mileage and emissions limits on cars and light trucks.

As expected, the new rules adopt the stricter limits on greenhouse gas emissions enacted several years ago for vehicles sold in California. Thirteen states and the District of Columbia had subsequently adopted the stricter California regulations as well.

Under the new rules, cars must average 42 mpg by the 2016 model year and light trucks must achieve 26 mpg, for a combined average of 35.5 mpg across all light-duty vehicles.

Today's CAFE standards are 27.5 mpg for cars and approximately 24 mpg for light trucks. The new standard imposes the steepest increases in later model years, reflecting the reality that automakers have already tooled up to build cars for 2010, 2011, and 2012.

The new standards apply to model years 2012 through 2016; in March, the CAFE requirement for 2011 was set at 30.2 mpg for cars and 24.1 mpg for trucks.

Harmonizing fuel economy and carbon limits

Three points are worth noting. First, President Obama is directing the agencies that set emissions standards and gas-mileage regulations to work together to draft the actual regulations with which automakers will have to comply.

The US Environmental Protection Agency (EPA) sets emissions limits, while the Transportation Department is charged with regulating fleet average gas mileage. The new joint standard removes the legal quandry in which the EPA was setting de facto mileage standards by regulating carbon emissions, which are directly proportional to gasoline consumption.

The new rules give the auto industry something it fought hard for--a single national standard--while imposing higher requirements for gasoline mileage than carmakers wanted.

"Because the Department of Transportation and EPA will adopt the same rule," Obama said in prepared remarks, "we will avoid an inefficient and ineffective system of regulations that separately govern the fuel economy of autos and the carbon emissions they produce."

California signs off, for now

Second, while the state of California has agreed to support the new standard, it still retains the right--established by almost 40 years of legal precedent--to set its own emissions standards when the regulations for 2012-2016 expire.

That concerns some observers, who worry that the industry could again face the threat of "patchwork" regulations later on.

Given the compliments lavished on House Speaker Nancy Pelosi (D-CA) by the President at the start of his remarks, we suspect that California has struck a deal to play well with others. At least for the duration of administration.

But will gasoline cost more?

Finally, the gas mileage standards need to be viewed as part of the Obama Administration's larger climate change and energy policy. That shoe has yet to drop.

Obama explicitly addressed this effort, noting that, "on the other end of Pennsylvania Avenue, Henry Waxman is chairing a meeting of the Energy and Commerce Committee, which is working on an equally historic energy bill that will not only help our dependence on foreign oil, prevent the worst consequences of climate change, and build a clean energy economy, but will provide more than $15 billion to help build the cars and trucks of the future right here in America."

The real test of the administration's grasp of the industry will come when it decides whether gasoline will become more expensive, to encourage consumers to buy more fuel-efficient cars.

As Mike Jackson, CEO of mega-dealer Auto Nation, has said in many venues: "Cheap gasoline combined with fuel efficiency mandated by the government is an economic disaster for America.”

Whether through higher gas taxes, a tax on carbon emissions, or a carbon cap-and-trade system, Jackson's nightmare threatens to become reality if tougher fuel economy standards aren't accompanied by incentives that move the market toward more efficient cars.

creative commons -

creative commons -

[SOURCE: The New York Times, Text of President's Remarks]