How Low Gas Prices Could Spike Obama’s Climate Plan

Automakers have to make clean cars, but drivers don’t have to buy them.

National Journal
Jason Plautz
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Jason Plautz
Jan. 25, 2015, 1 p.m.

Pres­id­ent Obama may have talked up the be­ne­fits of low gas prices in his State of the Uni­on ad­dress, but they could also spell trouble for a tent pole of his cli­mate plan.

When gas prices are low, car buy­ers have tra­di­tion­ally ditched small cars in fa­vor of trucks, which be­come less ex­pens­ive to fill up. Last year, when gas prices dipped down to just above $2 a gal­lon, was no ex­cep­tion.

And that’s a prob­lem for the ex­pec­ted emis­sion sav­ings from the Cor­por­ate Av­er­age Fuel Eco­nomy stand­ards set in 2012 that would double the fuel ef­fi­ciency of cars and light trucks by 2025. Obama boas­ted about the stand­ards in his State of the Uni­on for cut­ting Amer­ic­ans’ spend­ing on gas, and they’d also rep­res­ent ar­gu­ably the biggest chunk of the Obama ad­min­is­tra­tion’s cli­mate plan.

The stand­ards are pro­jec­ted to lead to cuts of 580 mil­lion met­ric tons of green­house gases by 2030, even more than than will be cut from stand­ards on ex­ist­ing power plants.

To get there, the ad­min­is­tra­tion needs auto­makers to make every car and truck they sell run with less fuel and spew less pol­lu­tion from the tailpipe, but they also need con­sumers to defy the cur­rent mar­ket­place and start buy­ing smal­ler, fuel-sip­ping cars.

But in ne­go­ti­ations with the White House, auto­makers built in a midterm re­view ex­pec­ted in 2017 and 2018, cre­at­ing a chance to dis­cuss the mar­ket and tech­no­logy forces im­pact­ing auto­makers’ abil­ity to meet the stand­ards, such as low gas prices and con­sumer pref­er­ences.

En­vir­on­ment­al­ists have long feared that this could be an “exit ramp” for car com­pan­ies to chip away at the tar­gets. A weak­er stand­ard may help auto­makers avoid costly non­com­pli­ance pen­al­ties, but would also mean few­er pol­lu­tion cuts.

In Decem­ber, when gas prices fell to an av­er­age of $2.26 by the end of the month, over­all car sales were huge, but SUVs and pickups reaped the greatest num­bers. The Chev­ro­let Sil­verado and the GMC Si­erra saw 35 per­cent in­creases in sales in Decem­ber, Ram Trucks were up 32 per­cent, and Jeep sales were up 40 per­cent.

Car sales were also up, but at a much slower pace than trucks. And hy­brids like the Toyota Pri­us were way down in 2014 — the Pri­us was down 12 per­cent com­pared with2013. The De­troit Free Press re­por­ted that gas-elec­tric hy­brids made up just 2.8 per­cent of car sales last year, down from 3.2 per­cent the pre­vi­ous year and well be­low ex­pect­a­tions of mar­ket growth.

Gen­er­al Mo­tors is even id­ling a plant that makes small cars for two weeks this spring, ac­cord­ing to the De­troit News.

And what does that mean for ef­fi­ciency? Ac­cord­ing to the Trans­port­a­tion Re­search In­sti­tute at the Uni­versity of Michigan, the av­er­age fuel eco­nomy for new vehicles sold in Decem­ber was 25.1 mpg, down 0.2 mpg from Decem­ber and 0.7 mpg from a peak in Au­gust.

Glob­al Auto­makers CEO John Bozzella, speak­ing at the Wash­ing­ton Auto Show Thursday, said there’s only so much car com­pan­ies can do when faced with an un­friendly mar­ket­place.

“You’ve got tre­mend­ous in­vest­ments in tech­no­logy, but you do have this ques­tion about what the cus­tom­er is do­ing,” said Bozella, whose group rep­res­ents 12 for­eign auto­makers. “These vehicles can be pro­duced, but low gas prices cre­ate a real chal­lenge for a reg­u­lat­ory tar­get that is a chal­lenge as it is.”

A “foot­print” ap­proach does al­low auto­makers to keep selling SUVs and pickups if they’re clean­er, but the fuel eco­nomy tar­gets — which also have an earli­er 2016 com­pli­ance date at a lower level — will be nearly im­possible to meet if con­sumers keep look­ing to big cars.

Of course, in the 13-year span between when the stand­ards were signed and when they kick in, a six-month oil dip is more likely a small ripple rather than a game-chan­ging tid­al wave. An EPA re­view found that auto­makers were on pace last year with a 24.1 mpg av­er­age, and there’s still a dec­ade to go be­fore the stand­ards goo in­to ef­fect.

EPA Ad­min­is­trat­or Gina Mc­Carthy told re­port­ers this month that she saw “no in­dic­a­tion, long term, that people are chan­ging their buy­ing habits,” and that EPA didn’t think “this small timeline, where there is this ex­treme fluc­tu­ation, is go­ing to con­tin­ue.”

At the Wash­ing­ton Auto Show, En­ergy Sec­ret­ary Ern­est Mon­iz said that while we should “en­joy this price of gas­ol­ine now, but let’s not count on it be­ing the new nor­mal as we go for­ward.”

Auto­makers aren’t ne­ces­sar­ily pulling the plug on their ad­vanced vehicles. Chevy is rolling out a second gen­er­a­tion gas-elec­tric Volt and an ex­ten­ded range elec­tric car called the Bolt, and the Nis­san Leaf has ac­tu­ally showed strong sales even amid low fuel prices (state in­cent­ives and in­fra­struc­ture pro­mo­tions helped boost the car). Com­pan­ies such as Hy­undai and Toyota are even look­ing to hy­dro­gen fuel cell cars to come on­line in the com­ing years, al­though that will be a slow rol­lout.

And gas prices aren’t likely to stay this low for long; the En­ergy In­form­a­tion Ad­min­is­tra­tion pro­jects they’ll av­er­age $2.33 a gal­lon in 2015 and $2.72 the fol­low­ing year, but pro­jec­tions that low were al­most out of the ques­tion a year ago.

“The only thing we can say about the oil mar­ket is that it’s volat­ile,” said John De­Cicco, a re­search pro­fess­or at Uni­versity of Michigan at the Wash­ing­ton Auto Show. “There’s no ex­pans­ive busi­ness story to make “¦ so to achieve the 2025 tar­gets, it’s go­ing to be largely evol­u­tion­ary.”

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