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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