Scott Pruitt Wants to Freeze Fuel Economy Standards. Here’s What that Would Do. - By David Roberts

Quantifying the damage to our air and pockets.

Last month, Environmental Protection Agency Administrator Scott Pruitt announced that the agency will abandon the long-term fuel economy standards developed by the Obama administration for 2022-2025, declaring, without evidence, that they are “too high.”

More recently, EPA announced that it plans to replace Obama’s standards with ... nothing.  Instead, it will simply freeze the standard at the 2020 level through 2026.

What’s more, it looks increasingly likely that the EPA will attempt to revoke the Clean Air Act waiver that allows California to set its own air quality standards (and thus its own fuel economy standards).  That would force California and the 13 states (and DC) that follow its lead on fuel economy to conform to a federal standard that is certain to be weaker than they’d like.

It is signature Pruitt:  a crude sledgehammer to regulations, with only desultory gestures at justification.

To be sure, many barriers stand between Pruitt and his vision of higher tailpipe emissions.  The EPA will have to do a whole new rulemaking process, which could take up to a year and be subject to legal challenge.  And California has already signaled that it is moving ahead with its own stricter standards, which means it’s headed for a legal showdown with the administration.

A coalition of 17 states and DC filed suit against the administration on Tuesday, charging that it acted arbitrarily and capriciously in tossing out Obama’s standards, which were the result of years of research, stakeholder meetings, and public engagement.

So everything’s up in the air.  As with all else he touches, Pruitt, a great lover of “regulatory certainty,” has cast the industry into doubt and chaos.

But let’s say Pruitt gets everything he wants — standards are frozen at 2020 levels and California loses its waiver.  What effect would it have?

The analysts at Rhodium Group just sent out a short research note on that very question.  While acknowledging that enormous uncertainty remains around the fate of the standards, they set out to model a world where Pruitt gets what he wants.

Corporate Average Fuel Economy (CAFE) standards regulate what kind of cars automakers must make.  An automaker must sell so many fuel-efficient cars per so many SUVs, to hit a fleet average target.

The cost of complying with the regulations depends crucially on the price of oil.  If oil (and thus gas) prices are high, consumers will naturally seek fuel-efficient vehicles anyway, so the standard will be easy and cheap to meet.  If oil (and thus gas) prices are low, consumers will naturally seek bigger vehicles, and the standards will start to bite.

So Rhodium modeled three scenarios:  low, reference, and high oil prices, drawn from International Energy Agency forecasts.

Here’s what the freeze would do to the average fuel economy of the fleet:

“Under Obama-era standards, fleetwide fuel economy rises from 32 mpg today to between 44 and 46 mpg in 2025, depending on the price of oil,” Rhodium writes (emphasis mine). “Without updated standards after 2025, fuel economy improvements level off at lower oil prices and grow modestly at higher oil prices. If the Administration proceeds to freeze CAFE standards at 2020 levels, the fleetwide average reaches only about 38 mpg in 2025 under AEO 2018 reference oil prices, 36 mpg in a low oil price environment and 42 mpg under high oil prices.”

What does that translate to in terms of demand for oil?

By 2025, the freeze would increase US oil consumption between 126,000 and 283,000 barrels a day; by 2030, assuming no change in standards, between 221,000 and 644,000 barrels a day.

“Purchasing this oil,” Rhodium writes, “would cost drivers an additional $193 to $236 billion cumulatively between now and 2035, again depending on oil prices.”

Read more at Scott Pruitt Wants to Freeze Fuel Economy Standards. Here’s What that Would Do.