U.S. CO2/CAFE Regulations: Trump administration plans significant relaxation of current standards

California vows to fight back, automakers voice support for a single national standard



Chevrolet Bolt
Second generation Chevrolet Bolt EV/Autonomous drive (exhibited at the WCX18: SAE World Congress Experience held in April 2018)

This report presents the latest moves by the Trump administration to relax the current standards for U.S. CO2 and Corporate Average Fuel Economy (CAFE) regulations, and the current state of the Zero Emission Vehicle (ZEV) regulations that California is driving to further tighten from 2018.

The MY2017-2025 CO2 and CAFE standards for light vehicles were created as national unified standards during the Obama administration by the Environmental Protection Agency (EPA) and the National Highway Traffic Safety Administration (NHTSA) in cooperation with the state of California. The Trump administration announced its direction to relax the standards as the current ones are said to be excessively stringent, inhibiting the growth of the automotive industry.

On the other hand, according to the U.S. Clean Air Act regulations amended in 1970, the state of California was granted a waiver to establish its own environmental regulations (i.e. CARB, California Air Resources Board) more stringent than the federal standards. Since there are other 13 states that have adopted the same stringent CARB standards, the total sales volume for these states account for 1/3 of the total vehicle sales volume in the U.S.

In the case the Trump administration relaxes the federal standards, the state of California intends to maintain its own standards (which are aligned with the current federal standards), but the final decision will be left to the courts and are not expected to be resolved in the near future. Until the case is resolved by the courts, two separate standards would exist in the U.S. market.

In the spring of 2017, U.S. automakers lobbied the Trump administration to reassess the current emissions standards due to the slow sales of electric vehicles and a significant increase in the sales demand for light trucks in the U.S. market in recent years. However, with the significant relaxation of the standards recently proposed by the Trump administration automakers are not expecting two separate standards to exist for both CO2 and CAFE regulations. Automakers though are appealing for minor adjustments to government regulation of the industry be made such as a reduction of fines in the case of non-compliance to the standards and the inclusion of incentives (preferential treatment) for adoption of technologies associated with the latest trends like car sharing and autonomous driving. GM and Ford continue to develop electric vehicles as originally planned and are also working to improve the fuel economy of internal combustion engines.

Furthermore, California regulations associated with its Zero Emission Vehicle (ZEV) program requires automakers to sell a certain number of FCVs, EVs, and PHVs, the same regulations of which are also followed by 9 other states. These ZEV regulations will be tightened further from 2018 and are expected to result in annual increase in the sales volumes of the requisite number of FCVs, EVs, and PHV models.

Until 2017, in these other 9 states the "Travel Provision" of the ZEV program allowed automakers to receive credits for the sales of ZEVs in California even if they don't sell ZEVs in any of the other 9 states, resulting in a lower number of FCVs, EVs, and PHV sold. However, from 2018 this travel provision will be removed so that automakers are required to sell ZEVs also in these other 9 states. Automakers are expected to increase their lineup of EVs and PHVs sold in these 9 states going forward, with plans to expand policies for promoting the sales of ZEVs and the development of charging infrastructure in each state, resulting in an increase in the sales of FCVs, EVs, and PHVs in these 9 states.

Related reports:
2021-2030 CO2 regulations in Europe, backlash against diesel, and electrification (May 2018)
OEM Electrification Strategies: Strengthening HVs and diversifying into EVs, PHVs, and FCVs (May 2018)
OEM Electrification Strategies: Acceleration of EV and PHV Lineup Expansion (Apr. 2018)


Trump administration announces plans to weaken CO2 emissions and CAFE standards

The U.S. standards for CO2 emissions and CAFE for light-duty vehicles were drafted by the EPA and NHTSA and implemented from MY2012-to 2016. Subsequently, the MY2017-to 2025 standards currently in effect are aligned with those of California's standards (i.e., CO2 emissions for MY2025 is 163g/mi and the equivalent CAFE requirement is 54.5mpg. Refer to the table below.)

For standards in MY2022-to 2025, a Midterm Evaluation for determining whether the targets are technologically achievable was required to be implemented by April 2018. The EPA and NHTSA conducted the Midterm Evaluation from late 2016 to January 2017 during the final term of the Obama administration. Automakers have produced evidence showing they've exceeded the standards of the MY2012-to 2015 program and expect to meet the standards at a lower cost than originally predicted, concluding that there is no need to change the targets set forth in the original plan.

CO2 emissions and CAFE targets for MY2017-2025 Light Vehicles

MY 2016
2017 2018 2019 2020 2021 2022 2023 2024 2025
CO2 (g/mi) Passenger Cars 225 212 202 191 182 172 164 157 150 143
Light Trucks 298 295 285 277 269 249 237 225 214 203
Cars & Trucks total 250 243 232 222 213 199 190 180 171 163
CAFE (mpg) Cars & Trucks total 35.5 36.6 38.3 40.0 41.7 44.7 46.8 49.4 52.0 54.5

Source: EPA + NHTSA

However, in March 2017, President Trump directed the EPA to reassess the MY2022-to 2025 CO2 emissions and CAFE standards formulated by the previous Obama administration with the aim of relaxing the standards. As a result, the EPA and NHTSA will reopen the Midterm Evaluation that had already been implemented at the end of Obama administration.

The new EPA administrator Scott Pruitt said that the previous Midterm Evaluation of the cost of technologies required to reduce fuel consumption and improve customer acceptance were overly optimistic, so there is the need for a more rigorous study that includes the impact on employment and profitability in the automotive industry. As of May 2018, the EPA and NHTSA are currently studying a proposal to freeze the MY2020 standards until MY2026.

President Trump has publicly announced the U.S.'s withdrawal from the Paris Agreement that was aimed at preventing global warming and has abolished regulations restricting the use and production of coal. EPA Administrator Scott Pruitt also refuses to admit that climate changes caused by the increase in CO2 is the result of human activity.

According to a group supporting the weaker regulations, "small electric vehicles may be appropriate for driving around Los Angeles, but not in rural areas".



California vows to fight back

California is the largest car market in the U.S. (accounting for approximately 12% or 2.05 million cars out of the 17.25 million cars sold in 2017). Because of severe smog problems, with approval from EPA the state was granted the authority to adopt its own environmental regulations more stringent than those set by the federal government, based on amendments to the "Clean Air Act" of 1970. There are also 13 other states that have adopted California's environmental standards. These states can adopt California's standards under Section 177 of the Clean Air Act, so that they are called the "Section 177 States". These 13 states and California account for a third of the U.S. total vehicle sales volume.

Even if a new federal standard is created, California plans to continue to maintain its own standards (aligned with the current federal standards) in accordance with the "Clean Air Act" provisions. In this case, two standards will coexist in the U.S., with California and other states adopting the California standards and the rest following the new federal standards.

Trump administration and California on a lenghty collision course

The EPA until now has approved California's adoption of its own set of standards with few exceptions. California was the pioneer in environmental standards and has been seen as a test lab for innovative technologies.

The EPA intends to implement the new standards nationwide, but California and the other states that have adopted the same standards are in opposition and prepared to fight the federal government claiming that there is no precedence for rejecting California's standards once approved by the EPA, and that the move deprives each state the right to adopt their own standards. California and 17 other states have filed a lawsuit against the EPA in opposition to the Trump administration's decision to eliminate federal fuel efficiency standards for MY2022-to 2025.

The EPA under the Trump administration aims to restrict or revoke California's waiver rights to set its own environmental standards. However, even if the administration invokes the power of the law, it is expected that California will appeal the court's decision, which will result in a lengthy legal battle. Until the final decision is made, automakers would be forced to comply with two different set of standards, the federal emissions rules, and California's stricter ones.



Automakers seeks a single national standard

With low and stable gasoline prices in recent years, the sales ratio of light trucks has been increasing every year (from 60.7% in 2016 to 64.5% in 2017) and the growth in the demand for EVs and PHVs has been lackluster. As a result, automakers lobbied the Trump administration in the spring of 2017 for a reassessment of the CO2 emissions and CAFE standards.

With the Trump administration set to weaken the current CO2 and CAFE standards, automakers are on a collision course with California, but automakers would like to avoid having two separate standards being followed in the country. Instead, automakers are seeking a more flexible enforcement of the compliance standards and consideration for changes in the market to include lower fines in the case emissions standards are not met, and the addition of incentives for the adoption of autonomous driving technologies and car-sharing. Furthermore, automakers are also seeking policies and incentives to promote EV purchases.

GM and Ford maintain that their plans to improve the fuel economy of internal combustion engines and to introduce more EVs and PHVs remain unchanged, and that it is important to maintain a single national emissions standard. GM, in a public letter to its employees, has indicated that climate change due to global warming is a fact. Automakers in the European and China markets, where stringent emissions regulations are enforced, have no intention of change their development plans for electrified vehicles and internal combustion engines with improved fuel economy.

In May 2018, 10 automakers from the U.S., Europe, Japan, and Korea met with President Trump. The president expressed that the administration is prepared to discuss the CO2 and CAFE regulations with the state of California. Also, he declared to the leaders of the 10 automakers that he wants automakers to build more vehicles in the United States and to export more vehicles. He also proposed to increase the tariff on car imports to the U.S. from the present 2.5% to 20% and could impose more stringent CO2 standards for imported cars compared to U.S.-made cars. (Source: Wall Street Journal, etc)



California tightens ZEV regulations from 2018, removes hybrids from the credit eligibility list

One of the environmental regulations authorized by the EPA to California concerns the Zero Emission Vehicles (ZEV) regulations which requires automakers to sell a fixed number of environmentally compliant vehicles. California is strengthening its ZEV regulations from 2018 by:
(1) lowering the limit to apply to automakers with annual sales volume of 20,000 units instead of 60,000 units as originally established (for Japanese OEMs, Subaru and Mazda are now required to comply) , and
(2) HV and CNG vehicles were removed from the ZEV credit eligibility; now only ZEV (FCVs and EVs) and TZEV (Transitional ZEV: PHV) are eligible.

Credits are calculated based on the number of cars sold as specified by the ZEV regulations, which is approximately proportional to the Zero Emission Range (ZER) of the vehicle. For example, for a ZEV (FCV/EV), the credit for 1 vehicle with ZER of 50 miles is 1 point and will get 4 points credits for ZER of 350 miles (the limit is 4 points) (please see the chart below on the left).

The chart below on the right shows the required credits to be met in California in during the MY2018-to 2025 period and is shown as the percentage of the total vehicle sales volume. The required credits for 2018 is 4.5% of the total vehicle sales volume (the ZEV vehicle sales is calculated as 2.5% of the total sales volume), and for 2025 it is 22% (8% of sales). If not met, automakers can either buy credits from other automakers which may have excess credits (like Tesla) or pay the fine (1 point = $5,000).

ZEV Credits 2018 and Beyond ZEV Requirement
Credit calculation for ZEV(FCV/EV) and TZEV(PHV) for MY2018-to MY2025. A ZEV with a ZER (Zero emissions range) of 50 miles will earn 1 point (max 4 points) for ZER above 350 miles. TZEVs with ZER of 80 miles will earn a maximum of 1.1 points.
(Source: California Air Resources Board (CARB))
The graph shows the total ZEV credit requirement to be met in California for each MY. The value is in percentage terms with respect to the total sales volume (Source: CARB)


California: Aiming for 1.5 million ZEV cars in 2025 and 4.2 million in 2030

To meet the California ZEV regulations target would require an estimated cumulative sales volume of 1.2 million units of EVs and PHVs from MY2018-to 2025, which is considered the minimum for regulatory compliance. In addition to enforcing the regulations, California aims to expand the quantity of EVs and PHVs to 1.5 million units in 2025 and 4.2 million units in 2030 through measures such as ZEV purchase incentives and additional investment in charging infrastructure.

In California, there is a traffic management strategy used on major highways called the "HOV (High Occupancy Vehicle) lane". In this lane, driving of cars with less than 2 occupants (3 in some highways) is prohibited, with the aim of regulating traffic and effectively utilizing roads. Vehicles that are compliant to the ZEV regulations are given special privileges to drive in the lane even with only one occupant, a major reason to buy a ZEV.

In addition, vehicles used for car-sharing or ridesharing that are electrified and/or feature autonomous driving technologies are easier to accept because of their high operating capacity and initial cost lower compared to privately owned cars.


Nine U.S. states to adopt California's ZEV regulations

Cumulative FCV/EV/PHV sales volume forecast by MY. The upper graph is for California. The lower graph is for all 10 states. (Source: CARB)

California's ZEV program has been adopted by 9 additional states such as Oregon and Connecticut. In 2015, California accounted for 12% of the U.S. total ZEV sales volume, the rest of the 9 states accounted for 16%, totaling 28% for all 10 states.

The right graph shows the forecast by CARB for ZEV sales volume in the 10 states, including California. In California alone (upper graph), it is forecasted that ZEV sales of around 150,000 (8% of the total) units will meet the MY2025 targets. In the total for the 10 states (lower graph), ZEV sales of around 330,000 units is expected for MY2025.

When the ZEV regulations were created in 2012, it was calculated that almost twice as many units would be required. The targets could be met with a lower number of vehicles sold because the initial targets were low and the sales of ZEVs grew more than expected, allowing automakers to save credits, and advances in technologies resulted to longer EV ranges that resulted in additional credits. Assuming this new scenario, the average EV range (pure-electric range) is expected to be extended from 150 miles (MY2018) to 211 miles (MY2025), for PHV from 40 miles to 56 miles.

Based on reports from automakers CARB is forecasting that PHVs will account for approximately 60% of ZEV sales (the rest would be FCVs and EVs).


"Travel Provision" abolished, ZEV sales in the other 9 ZEV-Program states expected to increase

Until now, the sales of ZEVs were low in the 9 states outside California. This was due to a rule in effect until the end of 2017 called the "Travel Provision", wherein automakers could receive ZEV credits within any of the 9 states even if they did not sell ZEVs in any of these states, for ZEVs sold in California.

Because of the travel provision rule, automakers concentrated on selling ZEVs in California, limited the sales in the other 9 states to EVs and PHVs. Furthermore, the governments of the other 9 states did not sufficiently push for policies supporting the promotion of ZEV sales or expanding the charging infrastructure.

However, the "Travel Provision" will be abolished from 2018 (but will continue to apply to FCVs), so that actual sales of ZEVs within the other 9 states will be required. Currently, each state is evaluating the targets to be set for ZEV sales, the purchase of ZEVs by state governmental agencies, and development plans for the charging infrastructure. Also, automakers are expected to introduce more ZEV models for the mass market. Since the Travel Provision rule remains in effect for FCVs in the other 9 states, CARB estimates that 5% of all vehicle sales will need to be ZEVs (8% for California) to meet the MY2025 targets. ZEV sales are expected to account for 7.5% of all vehicles sold in the 10 states, which includes California.


California aims for long-term and drastic CO2 reduction, mulls to abolish internal combustion engine cars

California has a smog problem and is acutely conscious of the environment as a result of abnormal weather in recent years causing droughts and the outbreak of wildfires. CARB is implementing a comprehensive Climate Change Scoping Plan that includes the improvement of its public transport systems and bolsters the utilization of renewable sources of energy. The plan was created and decided in 2008, and after a number of revisions the 2017 version was released in December 2017.

The Paris Agreement ratified in 2015 (from which the Trump administration has withdrawn) is a comprehensive CO2 emissions reduction plan, which aims for a 40% reduction of GHG (Greenhouse Gas) emissions by 2030 from 1990 levels, with the objective of limiting the increase in global average temperatures in this century to below 2°C, and if possible to 1.5°C". Furthermore, the agreement's long-term target is to reduce CO2 emissions 80% by 2050.

CARB, in its "2017 Climate Change Scoping Plan", declared that it will add those policies necessary to achieve its objective of requiring that 100% of all light vehicles be EVs. It is also considering banning the sale of internal combustion engine-powered cars by 2040. The proposal was submitted in January 2018 by Phil Ting, the state representative from San Francisco. California governor Brown also seems to be in favor of supporting legislation towards a ban on internal combustion engine cars.

U.S., The Trump administration, CAFE, EPA, NHTSA, California

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