The New White House Fuel Efficiency Rule: Count the Loopholes

The final fuel-efficiency rule released by the Obama administration
this morning includes what some lobbyists have nicknamed "the German
provision," giving automakers that sell less than 400,000 vehicles in
the U.S. an exemption for 25 percent of their fleet.

462_general_motors_president_and_ceo_fritz_henderson.jpgGM CEO Fritz Henderson’s company can earn fuel-efficiency "credits" for its Chevy Volt. (Photo: IB Times)

"[W]e
recognize that we had to give a little bit," Environmental Protection
Agency (EPA) chief Lisa Jackson told reporters today. "The good
news is that, by 2016, we will have caught up, and all
autos sold in this country are going to have to meet the one standard."

But the "German provision" isn’t the only loophole that made it into today’s new rule.

The
Obama administration also would allow car companies to earn credits for
achieving a lower CO2 emissions standard than the government requires
in any specific year.

Those credits could be carried
forward five years or back three years, used to make up for
deficiencies in other vehicle fleets, and even earned this year, ahead
of the new fuel-efficiency standard’s phase-in period, which begins in
2012.

For instance, an automaker that beats the standard
for its cars could use the credits it earns to safely produce more
gas-guzzling trucks. That automaker could earn even more credits for
any electric vehicles it produces, for improving its air-conditioning
systems, or for making more "flex-fuel" autos that can run on
ethanol-blended E85 gas — which is available in fewer than 2,500 gas stations nationwide.

Today’s
rule even allows automakers to trade credits with other manufacturers,
opening the door to a bit of horse-trading between Ford and Honda or
Toyota and General Motors.

The concept of credit trading
is not a new one; the EPA has employed it in other pollution
regulations that were drafted under Clean Air Act authority. Still, the
extent of the credits proposed today unsettled veteran fuel-efficiency
advocate Dan Becker, director of the Safe Climate Campaign.

California
and 13 other states have gotten the go-ahead to begin imposing stricter
fuel standards on automakers before the national rule starts taking
effect in 2012, Becker said in an interview.

That could
create a perverse incentive for car companies to earn extra credits, he
added, "by shuffling more efficient vehicles into those states, then
com[ing] back
in 2012 and say[ing] we over-complied with the national law by selling
these cleaner cars."

For some domestic automakers, however, the "German provision" may sting most of all. The chairman of the Center for Automotive Research in Michigan told the Detroit News last week that the loophole amounted to a "subsidy" for foreign companies. 

The EPA states in today’s fuel rule that it believes the "environmental
impact of the ['German provision'] will be very small," resulting in
0.4 percent more greenhouse gas emissions if every eligible car company
took advantage of the exemption.

In
fact, not every company selling fewer than 400,000 vehicles is expected
to avail themselves of the loophole. Becker, pointing out that most
automakers are already meeting Japanese and European fuel-efficiency
standards stronger than those in the U.S., urged the smaller companies
to comply with the full extent of the law.

"BMW and Mercedes talk about
the prowess of their engineers," he said. "One would think their engineers are good enough that they could comply with what
GM and Honda have to comply with."

There
is a 60-day window for public comments on the new fuel rule, after
which time the White House could make changes. Given the intensity of
industry lobbying in favor of the efficiency loopholes, however, Becker
said environmental advocates would push for a "backstop" that forces
automakers to meet higher fuel standards if they fail to comply with
the previous year’s limits.