Trump’s new fuel-efficiency rule: The devil is in the details for electric cars

It’s well known that on March 31, the Trump administration gutted fuel-economy and greenhouse gas rules for model years 2021 to 2026. But what does it mean specifically for electric vehicles? Environmental law firm Beveridge & Diamond broke down the new rule, shedding light on provisions for EVs.

The most-reported item is the lowering of fuel-efficiency targets. Let’s focus on projected real-world MPG numbers so it aligns with what we experience on the road. Under Obama-era rules, automakers were required to achieve a fleet average of 39 miles per gallon through 2026. Instead, the target will be 33.2 MPG.

That’s about a 15% drop in the target. So instead of a 5% annual increase from now until 2026, the increase is 1.5% annually. (The Safer Affordable Fuel-Efficient Rule had first proposed a 0% gain.) The final rule becomes effective 60 days after publication in the Federal Register.

The lowered fuel-efficiency targets are the second of the one-two punch known as the Safer Affordable Fuel-Efficient (SAFE) Rule. The first blow was when the administration rescinded EPA-issued waivers authorizing California to set more stringent GHG standards and to enforce its Zero Emission Vehicles mandate.

You know how some automakers, like GM and Toyota, say that they want one national standard to bring clarity? The new SAFE Rule makes that even worse.

Beveridge & Diamond explains:

Because the rule inevitably will be challenged, OEMs face significant regulatory uncertainty as they must presently design vehicle models to satisfy the potentially applicable future standards.

Daniel B. Schulson, principal in Beveridge & Diamond’s Mobile Source Regulation practice, explained in an email to Electrek:

The bottom line is that, at this point, there is a significant amount of litigation-related uncertainty.

The law firm explains that the EPA is not changing the vast majority of existing compliance flexibilities, but there are important nuances. Here’s an important example.

• The new rule does not extend the credit multipliers for electric vehicles, plug-in hybrids, and fuel cell vehicles that are scheduled to phase out after MY 2021.

That’s major, although Schulson explained that those phase-outs were already scheduled under the Obama-era rule.

Remember, four automakers (Volkswagen, Ford, Honda, and BMW) now have a voluntary agreement with California. And that agreement has 2X credit for EVs through 2024. So those four automakers are building vehicles based on those credits.

What about other automakers not in that agreement? And the other states that follow California rules? Schulson writes:

The agreement in principle applies only to California, and it will be up to California how to go about negotiating deals with additional automakers. The deal with California does not automatically apply to the Section 177 ‘me too’ states that follow California standards.

Here are two other facets of the SAFE Rule worth considering:

• It extends the “0 grams/mile” assumption for electric vehicles through MY 2026. This means EPA will not count the upstream emissions caused by the electricity usage of electric vehicles.
• It ends credits for producing full-size pickup trucks that are hybrids or otherwise outperform their GHG targets starting in MY 2022.

California standards could become the de facto national standard

Beveridge & Diamond warns that automakers who immediately start disregarding California ZEV standards “do so at their own risk.” The lawsuits are only beginning, and if the administration changes next year, it will likely invalidate the rules.

Automakers may find themselves left scrambling to comply with stricter standards given the long lead times for vehicle development and production.

In other words, ZEVs need to keep ramping up. Even if courts uphold the gutted fuel-economy rules, the challenge to the California waiver could fail. That would allow California and the 13 states that have adopted the state’s standard to impose stricture GHG rules.

This would be an unfavorable outcome for automakers who have strived for years to ensure that California’s standards are harmonized with the federal standard to maintain one national standard.

As it stands, automakers now have to work out numerous litigation and rulemaking scenarios.

The uncertain future of the SAFE Rule and a desire for predictability in meeting California’s requirements have already spurred Volkswagen, Ford, Honda, and BMW to enter a voluntary agreement with California requiring GHG reductions at a compromise level of 3.7% per year through the model year 2026. (Volvo this week said it would also seek an agreement.)

That’s all that would be required from GM, Toyota, and Fiat-Chrysler to comply with California and thereby remove much of the uncertainty. Moreover, the California agreement, unlike the SAFE Rule, would continue to reward EVs with credit.

The agreement’s credit multipliers also differ from those in the SAFE Rule in that the agreement allows double credit for battery and fuel cell electric vehicles and 1.6x credit for plug-in hybrid electric vehicles through MY 2024.

The more likely scenario is continued “litigation-related uncertainty.” In other words, a stalemate. Schulson explains why this, in a roundabout way, puts California in the driver’s seat. He told us:

Automakers obviously prefer to avoid a split US market, wherein California and the states that follow California have one set of standards and the rest of the country has another set of standards. As a practical matter, automakers will likely find it uneconomic to double their model lines by creating one model that complies with California standards and one that complies only with the national standard. This scenario could mean that the more stringent California standard becomes the de facto national standard.