Trump's Clean Car Rollback Could Cost Up To $400 Billion, Increase Transport Emissions 10%

The Trump administration’s push to freeze existing federal fuel economy and greenhouse gas (GHG) emissions standards could deal a major blow to the United States’ economy and climate change goals. If successful, Trump’s clean cars rollback will cost U.S. consumers up to $400 billion through 2050 and increase transportation emissions up to 10% in 2035, according to new modeling using the Energy Policy Simulator.

The Trump administration is also attempting to strip California of its authority to set its own emissions standards, which 13 states plus Washington D.C. have also adopted, but ongoing and threatened litigation make the economic and emissions outcomes unclear. This unprecedented move would split the nation’s vehicle market, causing regulatory and financial headaches for automakers.

In fact, automakers and workers have broadly opposed the Trump administration’s proposal, which would reduce the competitiveness of American auto manufacturing and threaten up to 500,000 jobs. Most recently, four major automakers struck a deal on emissions standards with California, recognizing the state’s authority and circumventing the Trump administration’s proposal.

And the damage won’t be contained to the U.S. – Canada and other countries who have historically modeled their vehicle standards on U.S. standards would see their fuel economy similarly stall. Though Canada has indicated it may adopt California’s standards in the case of a split U.S. vehicle market, it’s not clear that future would hold if California loses its authority to set its own standards. If Canada continued following U.S. federal standards after a freeze, the spillover effects could cost Canadian consumers $70 billion through 2050.

But no matter how you calculate the damages, the winners and losers are clear. The proposed freeze would cost consumers, businesses, and the climate, all to the benefit of oil companies.

Growing controversy as proposed Trump clean cars rollback nears finalization

The Trump administration’s proposal would freeze federal fuel economy and GHG emissions standards at 2020 levels for model year 2021-2026 cars, SUVs, and light-duty trucks. Under the proposal, light-duty vehicle fuel economy would stagnate at 37 mpg rather than increasing to 51.4 mpg.

One of the most controversial aspects of the proposal is its intent to undermine clean car policies in multiple states. Under the Clean Air Act, California can set more stringent vehicle emissions standards than the federal government, and other states can adopt these stronger standards (California’s current standards are harmonized with the national standards).

Fourteen states plus D.C., also known as the “Section 177” states, have adopted California’s standards under Section 177 of the Clean Air Act, totaling more than 35% of the U.S. automobile market. But in an unprecedented move that is already being fought in court, the Trump administration threatened to revoke California’s waiver, granted more than five years ago, and argues it has authority to prevent California and any other state from ever setting stronger GHG pollution standards.

The technical, economic and legal basis of the Trump administration’s proposal have been critiqued and will also be subject to extensive litigation. California and numerous other states have filed lawsuits against the Trump administration’s threshold determination that U.S. GHG emissions standards must be weakened, with the case set for argument on September 6, 2019, and its decision to reduce automaker penalties for violating standards. California is also working with a large coalition of state Attorneys General who are prepared to litigate should the Trump administration finalize its rollbacks and its attack on long-standing state authority to mandate cleaner cars.

Should California and the Section 177 states prevail, as Clean Air Act legal experts expect, the GHG emissions standards freeze would only affect 65% of automobile sales, creating a split market catering to two different standards and setting up regulatory and financial hurdles for automakers.

It’s difficult to predict how automakers would respond to such a fractured market, but automakers could opt to design their product lines to meet California’s standard, therefore over-complying with the federal standard. Alternatively, they may opt to sell their more efficient vehicles in California and the Section 177 states while continuing to sell their inefficient vehicles in the rest of the country, so their average fleet emissions meet the federal target while also complying with state-level standards.

Adding to this uncertainty, four major automakers recognized California’s authority to set its own standards by announcing a voluntary agreement with the state on vehicle emissions rules, in an attempt to avoid separate state and federal standards. This move isolates and weakens the Trump administration’s efforts to attack state authority, but the administration seems unlikely to reverse its plans.

Because of the way fuel economy and GHG emissions standards are structured to use tradable credits, a scenario where the four automakers in the agreement comply with stricter standards would allow other companies to buy their excess credits and produce even more inefficient vehicles, greatly reducing the agreement’s impact. Alternatively, the other automakers could end up complying or even over-complying with federal standards.

As the Trump administration’s decision draws closer, additional states and foreign governments are voicing opposition to the proposed freeze. Recently, 23 state governors representing 170 million people and 50% of U.S. automobile sales jointly issued the “Nation’s Clean Car Promise” to support California’s vehicle standard as the single “strong, science-based national standard.”

And while Canada has historically aligned itself with U.S. federal standards, it recently signaled it will side with California in the case of two separate standards, following California’s requirements should the waiver remain in place.

To project the impacts of freezing fuel economy and GHG emissions standards, Energy Innovation utilized the U.S. and Canada versions of the Energy Policy Simulator (EPS). This open-source and peer reviewed computer model uses non-partisan, public data from government sources to project the effects of policy changes on pollution, financial costs and savings, premature deaths, vehicle deployment and fleet turnover, and more.

Freezing standards would only create financial losses and increase emissions

Freezing fuel economy and GHG emissions standards would create small financial gains in the first few years, because less efficient cars are cheaper to build (although research shows consumers who buy cars with loans would see net savings immediately, as the incremental vehicle price is spread out over the loan term and the payback for cash purchases is roughly five years).

But these gains would be quickly outweighed by fuel costs – if standards were frozen, U.S. consumers could consume up to 7.6 billion additional barrels of gasoline. By 2050, net costs would swell to $400 billion (cumulative, in real 2018 U.S. dollars, discounted at 3% annually). In more tangible terms, if this loss were represented as a gasoline tax, it would add 35 to 50 cents per gallon from 2030 through 2050, depending on the year.

But in the case of split standards – where California retains the ability to set its own, more stringent vehicle emissions standards while federal standards are frozen – the economic impacts are more uncertain.

If automakers meet state standards in California and the Section 177 states but opt to sell inefficient vehicles everywhere else, they may only narrowly meet the federal standard. In this case, net consumer costs may look similar to a total freeze. On the other hand, if automakers design their product lines around more efficient vehicles that meet California standards, net consumer costs would be closer to $240 billion.

Freezing fuel economy and GHG emission standards would also take a serious toll on the climate, increasing transportation-sector GHG emissions and worsening climate change. The greatest emissions increases due to the freeze would occur in the 2030s due to the growing market share of electric vehicles, which reduces the relative importance of gasoline-powered vehicles’ emissions.

With the GHG emissions standards frozen across the country, 2035 transportation emissions would climb to more than 1,500 million metric tons (MMT) – a 10% increase. Assuming California retains the authority to set its own standards, 2035 emissions would total between 1,460 and 1,510 MMT.

Global reach of Trump’s clean cars rollback: Canada economic and emissions impacts

In addition to hurting U.S. consumers, freezing vehicle standards would have global implications. Many other countries have used U.S. fuel economy and GHG emissions standards as a model, including Canada, which has an automobile market roughly the size of California’s. Because Canada’s market is heavily linked to the U.S., it has historically adhered to U.S. fuel economy and GHG emissions standards.

But it recently broke with tradition by signaling it would side with California if the U.S. freezes its standards and divides its vehicle market, ensuring Canada won’t increase emissions and fuel costs like the non-Section 177 states.

However, if the Trump administration revokes California’s authority to set its own standards, Canada may continue to mirror federal U.S. standards, as it does not intend to announce any official course of action until after the Trump administration finalizes its plan. If the Trump administration’s decision does reach across borders and impact Canada’s standards, it would cost Canadian consumers $67 billion through 2050.

The decision would also have significant climate impacts. Gasoline use would rise by 19%, and transportation GHG emissions would increase 11% by 2035.

Freezing clean car standards hurts American consumers and businesses

Freezing federal fuel economy and GHG emissions standards will harm U.S. consumers, who will pay more money to drive their cars the same distance. It will harm businesses that rely on light-duty vehicles, such as taxi, food delivery, and ride-sharing services. It will worsen climate change and reduce U.S. energy security. It will lead to court battles with California and the Section 177 states and fragment the North American automobile market, increasing costs for automakers.

The Trump administration says that the freeze will help sell more cars, but as the United Auto Workers union and 17 major automakers have told the Trump administration, it will reduce the competitiveness of U.S. vehicle manufacturing – U.S. companies will be left behind as foreign manufacturers produce increasingly efficient vehicles to meet fuel efficiency and GHG emissions standards in other global markets. And according to the Trump administration’s own analysis, it will cost Americans 60,000 jobs, although industry experts predict higher job losses.

The only winners are the oil companies, who stand to sell more gasoline at the expense of American consumers, American manufacturers, and the environment.