President Obama Instructs EPA to Review Decision to Deny State Greenhouse-Gas Limit Waiver

By Chris Haak

01.26.2009

Fulfilling a campaign pledge, President Obama announced today that he has instructed the Environmental Protection Agency to reconsider its 2007 decision that denied California and the 13 states that have adopted California’s auto emissions rules a Clean Air Act waiver that would have allowed them to establish limits on CO2 emission from automobiles.

California and the other states (Arizona, Connecticut, Maine, Maryland, Massachusetts, New Jersey, New Mexico, New York, Oregon, Pennsylvania, Rhode Island, Vermont and Washington) wanted the EPA to allow them to restrict CO2 as it allows them to restrict other pollutants from internal combustion engines, but the EPA’s argument was that California’s rules at the time would result in actually higher greenhouse gas emissions (and fuel consumption).

Unlike the smog-forming pollution that California and its compatriot states are allowed to regulate, CO2 is not a smog-forming gas, but a greenhouse gas, that has been linked to an increase in global warming.  California argues that CO2 is something that it should be able to regulate; historically, California has been allowed to set its own pollution standards because it enacted the first of its emission standards prior to Federal regulations covering the same; however, the Federal government has historically held the authority to set fuel efficiency standards.  Basically, California’s regulation to reduce CO2 emissions is a de-facto fuel economy standard, because the only way to reduce CO2 emissions is to burn less fuel.  As fuel is burned, CO2 is released; that’s the simple science behind it.

It’s funny how certain news items just keep coming up year after year.  Last year, on February 26, we wrote about how California wanted to require a fleet average of 44 miles per gallon by 2020 under its proposed greenhouse gas limits.  The current California CO2 standards, however, cover model years 2009 through 2016, and would shorten the time for compliance from the 35 mpg by 2020 requirement that CAFE calls for by four years.

This move – which Senator McCain, then-Senator Clinton also proposed during their presidential campaigns – is probably the least prudent choice of all the ways to reduce dependence on imported oil and reduce greenhouse gas emissions.  The problems are numerous; first, allowing individual states (or even a block of states with a single unified regulation) to set CO2 limits – and therefore fuel economy standards – risks adding thousands of dollars to the cost of everyone’s new car or truck, or even more thousands of dollars to the cost of everyone’s new cars or trucks in those states, or restricting market choice in the California-mirroring states.

Second, automakers may complain about the cost of complying with higher CAFE standards, but having to maintain two separate fleets for different halves of the country would be an even bigger, and more expensive, problem.  They might need smaller, lighter pickup trucks for California and friends, while still offering larger pickup trucks to buyers in other states, because Texans, for example, probably have little interest in a 33-mpg California-spec pickup truck.  Automakers will be faced with the prospect of either abandoning half of the market (California and the states that adopt California standards), building vehicles that the other half of their market doesn’t want to buy, or producing the aforementioned two distinct fleets.

An obviously politically unpopular alternative (OK, one that might be considered political suicide) that we at Autosavant have advocated from time to time is simply increasing the gas tax.  Has there ever been a time in history like the summer of 2008 when automobile buyers altered their purchasing habits more dramatically because of the spike in gasoline prices (such as the Honda Civic outselling the Ford F-150)?  If you compare the fleet mileage of vehicles sold in July 2008 with the fleet mileage of vehicles sold in July 2007, it’s probably an even more dramatic improvement than what California is looking for over the next few years, and certainly more dramatic than California and the other states were hoping to see in a single year.   That situation was a perfect example of how higher gasoline prices will alter consumer behavior far more dramatically than would gradually offering a high-efficiency vehicle mix.  Californians still buy new pickup trucks and SUVs, and while the Toyota Prius may be a very popular car in California, not everyone drives a 40+ mile per gallon car in that state.

I see this move, if the EPA reverses course on its December 2007 decision as expected, as yet another nail in the coffin of the US domestic auto industry.  For his part, President Obama said his administration intends to consider the “unique challenges facing the American auto industry and the taxpayer dollars that now support it.” He also said, “Our goal is not to further burden an already-struggling industry. It is to help America’s auto makers prepare for the future.”

He’s saying the right things, but I have trouble seeing how this decision can do anything but hurt GM, Ford, Chrysler, and even the larger transplants such as Toyota.  I disagree with this decision, which seems to cater more toward the environmental fringe – or those with uninformed viewpoints – rather than to the political center, where I believe politicians should govern from in most cases.  When politicians – not just President Obama, but members of Congress and Governor Schwarzenegger of California – assume that they can legislate their way out of a problem, and that there will not be unintended consequences stemming from a move such as this one, they are showing that they apparently do not have a full grasp of the issues at hand.

Bob Lutz famously said [and I’m paraphrasing], CAFE is like trying to make people skinnier by mandating smaller pants sizes.  While I object to the concept of CAFE and have observed that over the past three decades, it’s not doing what it was intended to do.  The definition of insanity is trying the same thing that didn’t work the first time and expecting a different result the second time; if CAFE has failed over 30 years, why continue using it?  But if we’re stuck with CAFE, I’d sooner see some sort of compromise hashed out where there is a single standard for the entire country; if California wants 44 mpg by 2020 and Congress wants 35 mpg, and California and its ilk make up half of the vehicle market, why not use some simple mat, split the difference, and go for 39.5 mpg by 2020 nationwide?  The result would be the same overall, but the implementation would be much simpler.  I still think, however, that a $2 per gallon gas tax would do far more to reduce greenhouse gases and incent the purchase of more efficient vehicles than mandating the manufacture of small vehicles.

COPYRIGHT Autosavant – All Rights Reserved

Author: Chris Haak

Chris is Autosavant's Managing Editor. He has a lifelong love of everything automotive, having grown up as the son of a car dealer. A married father of two sons, Chris is also in the process of indoctrinating them into the world of cars and trucks.

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17 Comments

  1. I am not all that concerned with states being able to set their own standards, as long as it is reasonable. California’s 44 mpg by 2020 is achievable, IF the NOx standard is lowered so diesel-powered vehicles can make it to the states without modification.

    A higher gas tax would be much more effective than any law though.

  2. Gas tax? Just force the companies to make cars that get great gas mileage, people will buy them!

  3. Providing our children with a habitable world is far more important than paying a few thousand more for a car or than saving an already failing industry. To argue that this is bad because it might deny Texans their trucks, or cause layoffs in Michigan, or bankrupt GM is to argue that our own needs are more important than those of all future generations.

  4. Francis H, I hope you were joking. You can’t expect a Suburban to get 30 miles per gallon without spending a lot of money on advanced materials, interior space compromises, and expensive powertrain technology. The result would be a Suburban that nobody would want to buy, or could afford to buy.

    Chris K, I guess you missed the part where I suggested a compromise that would be to meet the California standard and the CAFE standard in the middle. The result would be EXACTLY THE SAME, assuming the California bloc and the non-California blocs each make up 50% of the new vehicle market. Since they’re slightly more/less than 50%, just adjust the weighting accordingly. The bottom line is that there will be market chaos if the states have the ability to mandate fuel economy standards. It’s annoying enough for the Federal government to tell people what they can drive, but exponentially more annoying to have some California bureaucrats telling people throughout the country what they can drive.

    And by the way, have the 33-year old CAFE standards actually reduced petroleum consumption or CO2 emissions? I didn’t think so.

  5. well, higher gas taxes certainly helped to reduce fuel consumption in europe where everybody drives smaller, more fuel efficient cars or diesels. from a political and social perspective, however, a lot of people would argue that increasing the cost of gasoline mostly penalizes less affluent, working class people who can’t afford to buy a newer, more efficient vehicle. a gas tax would help, but i think you could argue that a good way to slowly replace the current US fleet with more fuel-efficient vehicles is through more stringent mandatory fuel standards. using CO2 emissions caps might be a sideways way to go about it, but it’s also probably a more politically viable way to get that to happen. this also isn’t like the sudden smog emissions that popped up in the 70’s and forced automakers to meet them so fast that less than optimal solutions were raced into production. we’re talking about 7-11 years to do R&D here.

    “I guess you missed the part where I suggested a compromise that would be to meet the California standard and the CAFE standard in the middle. The result would be EXACTLY THE SAME, assuming the California bloc and the non-California blocs each make up 50% of the new vehicle market. Since they’re slightly more/less than 50%, just adjust the weighting accordingly.”

    a national standard would always be preferable, but where do you get the data that says 50% of the vehicle market is in the states not tying their emissions standards? Given that CA and several of the other states are amongst the most industrial, urban and populous states in the nation, i’m dubious.

    good post and very informative

  6. Inzane, you make some excellent points in your comment. Yes, a gas tax does hurt the working poor the most, but there are ways to mitigate that, such as helping them to purchase newer, more efficient (and less polluting) cars. Making new cars – already out of reach of the poor – thousands of dollars even more expensive certainly won’t encourage the working poor to trade in their gas guzzling clunker for a new Honda Fit.

    To answer your last question, I can’t find the exact stat right now, but this is from the Chicago Tribune:

    A Toyota spokesman earlier said states with California’s rules—including New York and Florida—represent about 40 percent of the U.S. population, and potentially even a greater slice of the vehicle market.

    http://www.chicagotribune.com/news/chi-epa-obamajan26,0,7295040.story

    I’ve heard that these states – Arizona, California, Colorado, Connecticut, Maine, Maryland, Massachusetts, New Jersey, New Mexico, Oregon, Pennsylvania, Rhode Island, Utah, Vermont and Washington – make up over 45% of the new vehicle market. There’s definitely a lot of money in stats like California, Connecticut, New Jersey, and New York, so I’d imagine that per-capita vehicle ownership is higher than the national average there. It’s not like we’re talking about Arkansas, Mississippi, Nebraska, the Dakotas, and Montana banding together to set the terms of vehicle emission standards. So basically, we’re nearly at 50/50.

  7. What you call a gas tax works in that it makes you more mindful of the potential economy of the vehicle you drive. But you have to bear in mind that gas taxes (or fuel excise – as we in Oz know it) tend to be a bit like income tax in that Governments come to rely on them as a steady income stream……which becomes as addictive as crack cocaine. If the gas tax comes with a proviso on reinvestment in public & private transport infrastructure and alternative energy then all is good…..but it never works that way.

    The ‘other’ obvious choice is a gas tax equivalent on the vehicle itself…based on the combined fuel economy figure…both at the time of purchase and annually at registration. Neither the up front nor the recurring fee need be a massive impost – few hundred to a thousand up front and a few tens to couple of hundred each year – but the knowledge that it is there and it is a cost that could be easily minimised……it would result in a higher fleet turnover, potentially cheaper cars (more = cheaper?) and a much more economical fleet….

  8. I support a gas tax, with some tweaks. First, it would require a tax credit for the poor. The main problem with that, however, would be figuring out how to keep track of the miles they drive, which would seemingly be necessary to keep it equitable. Second, it should guarantee a minimum $3.50-$4.00 per gallon price, setting a price floor which would encourage people to think long-term in matters of fuel economy. Thus, it would have to be on a sliding scale, capping off at, say, $1.00 or so per gallon.

    A gas tax solution would also allow large trucks and SUVs for commercial uses–or any other use, providing that the owner is willing to pay to gas it up. This would also put the onus for paying for the negative externalities created by inefficient vehicles where it belongs: on those who drive them.

    Don’t hold your breath, though. The last time a politician asked the American people to make a sacrifice for energy and environmental security was Jimmy Carter. Didn’t work out too well for him.

  9. Francis H said:

    “Gas tax? Just force the companies to make cars that get great gas mileage, people will buy them!”

    This comment typifies many in America who think fuel economy is a matter of will rather than a matter of physics and economics. They often subscribe to the consiracy theories that the auto engineers are hiding 100 mpg carburetors under their desks to protect the oil companies. Well I was an auto engineer and can tell you that I spent years on end trying to get small percents of fuel efficiency. I’m proud of that work and feel helpless to defend the truth against the ignorant masses under the spell of the left press.

    Further, one of the few vehicles that can meet even the average California MPG is a Prius, and people are NOT buying them because of their expense.

  10. Regarding a gas tax, this is an infinitely better solution if we believe there is a societal need to reduce fossile fuel use, for global warming, balanced trade, or to save non-renewable energy soources for our ancestors.

    People often say that the cars in Europe get better efficiency. Well first, it is not that much better, they use the same physics, engineers and the same engineers. And the extent to which it is better is do to higher cost widgets, smaller cars, and failure to meet US crash standards (several hundred pounds of car by the way). The higher costs are born by the public who get a payback because of massive gas taxes. Gas hit $9.00 US in England this summer…thus they demand small cars.

    CAFE is stupid. The biggest winners will be government bureacrats who will administer it, the lawyers who will litigate it, and th epoliticians who will be greased by lobbiests trying desperately to prevent entire industries from being killed off. The Calif law, for instance, says companies with less than 60,000 unit sales don’t need to meet the rules. Thus BMW, Suburu, VW and other non-US companies are favored over US companies; go figure? Hopefully this crime will be fixed, after litigation, but such crimes would not occur with a simple gas tax. No favorites.

    Also, a gas tax will reduce CO2 in a million ways that CAFE won’t including: reduced consumption of used cars as well as new, promote use of mass transit, carpooling, bicycles, lower acceleration rates, combined trips, on to infinity.

    Why won’t we do this: because it is easier for sleazy politicians to use US auto companies as their boogyman tax collectors via higher car prices then to face the voters directly via a tax, even though it would attain the goal of lower CO2 much more cost effectively. And oh, the left likes more bureaucrats and lawyers.

  11. Chris, you are right. the CAFE law is stupid. Bob Lutz is right, also. You can’t legislate smaller cars and just expect people to buy them. If that’s how it works, we could just legislate no fat no carb food and solve the obesity problem!

    The unintended consequence of these drastic fuel standards is that people will keep their old cars longer, knowing that an expensive and undesirable new car is the other option. This will keep these less efficient cars on the road longer, thus polluting more!

    It is amazing. If you legislate an undesirable product, people will shun it. If you legislate a negative consequence (higher fuel prices), people will suddenly find the same product desirable.

    We can look at the luxury tax on yachts as an example. The rich simply stopped buying new yachts and it killed the boat making industry.

  12. The proposal is to have a Calif CAFE standard, adopted optional by other states commonly referred in the industry as “green states”, and a US standard for the rest. The unintended, but predictable, consequences here are almost hilarious, if it were not for the effect on the economy and the jobs of real people. We can predict: 1) since there will most likely be two versions of many cars, say hybrid and $8000 cheaper non-hybrid, we can expect massive smuggling of cars across borders. I suggest you buy a dealership in New Hampshire.
    2) We can expect schemes to increase, yes increase, odometers to 7000 miles to make them exempt used cars.
    3) We may see some companies sell off parts of themselves to get under the 60,000 unit exclusion; look for a F150 company.
    4) It is still be determined if the green states adopt all or only a part of the Calif legislation; I predict cherry-picking, with the result of total chaos. After all that will require more bureaucrats and more lawyers.
    The reason a gas tax works is that it exploits the resource allocation efficiency of prices with the perceived societal need to limit the consumption of a resource, in this case CO2 generating fossil fuel. Such price modifications exist in many government programs including emissions trading and capping programs gathering favor throughout the world, the deductibility of mortgage interest is a form of this that promotes home ownership for social purposes, excise taxes on tobacco, and many, many more.

  13. It’s been identified that the main problem with a gas tax would be the impact on the working (and not-working) poor, but what’s devious about this is that it would force these people to use mass transit–except in areas which have sucky mass transit, or don’t have mass transit at all. I’m thinking of the rural South, or the spread-out Midwest.

    It could be said that the gas tax could go toward better mass transit systems, which even as a car guy I would enjoy greatly, except that leaves a large temporal gap between now (sucky mass transit!) until the tax money finds its merry way into the actual improvement (awesome mass transit!).

    How large? Gosh, knowing most modern public works projects–and remember, these would have to be locally run–that gap could be 10 years or more. IF the money gets there.

    I still think the gas tax is the most logical and common sense way to reduce dependence on foreign oil and CO2 emissions. We just need to remember the consequences before we happily vote to price gas right out of someone’s market.

  14. $4.00 total gas price did wonders for car choice and fuel consumption this Summer, so a $2.00 gas tax would be a start.

    If we use the “impact on the poor” argument we’d have to revisit almost every tax, subsidy and government program on the books. The poor, for instance, get little benefit from the tax subsidy of home mortgages, let alone vacation home mortgages.

    Milton Friedman once said that of all the government programs he examined the only one that helped the poor more than it hurt them was direct welfare payments.

    CAFE laws will result in huge cost increases in cars and especially used cars favored by the poor, as used cars will be the only ones left that can carry a family of five. This too will hurt the poor.

    As I have said before the gas tax will achieve the goal of lower CO2 much, much more effectively than CAFE, perhaps an order of magnitude more effectively. I suspect that for a given reduction of CO2 in the US, the impact on the poor will be less with a gas tax than with CAFE.

    If not convinced, then earmark some of the new tax revenue for the poor. Get an add on CO2 reduction by using it to insulate poor people’s homes.

  15. Perhaps “the poor” could stop buying lotto tickets and cigarettes so they could afford cars. The government gets the money either way..

  16. Lots of excellent comments on this article! They’re proving the intelligence and thoughtfulness of all of our readers, on both sides of the issue.

    I just noticed that CNNMoney had an editorial published the same day as mine above that pretty much had the same viewpoint, but the writer presented his argument differently (and perhaps better than I did). For your reading enjoyment:
    http://money.cnn.com/2009/01/26/autos/motor_world.fortune/index.htm?postversion=2009012611

  17. You people who talk about “The Left” as the problem when it comes to a gas tax are completely insane. Our last president was the one that im[plored consumers to buy a new S.U.V. after 9-11. The Republicans and their “tax cuts are the answer, no matter what the question is” are the reason we have a country filled with gas guzzlers.

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