Fuel Economy Standards – Getting Trickier As the Years Go By

Those of us old enough to remember can recall the day when cars sold in the U.S. – even new cars — didn’t require seat belts.  And the debate here was fierce; public safety advocates had their reports detailing how many lives would be saved each year, but the auto industry insisted that such legislation would ruin the industry: it would increase the cost of cars to an uncompetitive level, it would irritate customers who could feel “confined” by the devices themselves.  Eventually the industry gave in, lives were saved, and within a few years, it was hard to imagine getting in a car and not fastening our seat belt.  This scenario has played itself out in literally hundreds of places, from new safety devices like air bags and anti-lock braking, to environmental issues like catalytic converters; the industry has a long record of fighting advancements that would protect the health and safety of its customers.

Fast-forward to 2013, though, and the situation is a bit more complicated.  As Big Auto and Big Oil are no longer completely joined at the hip, we see the auto industry approving of initiatives that the oil companies want to block.  A case in point comes from my friend Jon Lesage’s newsletter “Green Auto Market.”

The US Environmental Protection Agency just proposed a package of rules to make gasoline cleaner, along with stricter limits from the tailpipes of cars. The rules are known as Tier 3, and are being supported by automakers since they would bring federal standards in line with those of California. In California, gasoline must have a lower sulfur content to reduce tailpipe emissions. Here are a few of my thoughts on the proposed rules after reading about it:

• The proposed rules are similar to the low sulfur, and later ultra-low sulfur, diesel standards that California mandated and that were later adopted nationally. That has gone pretty well, along with changes made to diesel powertrains, producing what’s now called “clean diesel.” It might be a good sign that adopting these standards for gasoline engines could reduce emissions and improve the technology.

• Oil companies are objecting. Going to low-sulfur gasoline could cost tens of millions of dollars for the upgrade. Oil industry lobbyists have warned that a few refineries would have to close down rather than going through such costly retooling. Gasoline prices are going to come up to pay for it, they warn. Supporters of the rule argue that such a price increase won’t make too much of a difference, especially since new engine technology will save consumers more money than added costs at the pump.

• The American Petroleum Institute and the American Lung Association have released opposing reports – API says EPA’s Tier 3 is wrong and ALA praises it. No surprises here, of course. API says the proposed rule would not provide measurable ozone air quality benefits but would measurably hurt commerce.  The ALA report says Americans would see major health benefits and save billions of dollars.

• The equipment would add an estimated $130 to the cost of a car but reduce certain emissions by 80% and, used nationwide, could prevent an estimated 2,400 premature deaths due to air pollution annually, the EPA said.

• Catalytic converters are a big part of the rule – automakers want to see the same rules implemented nationally that are going to be adopted in California in 2017 for advanced catalytic converters.

• The EPA says that reducing sulfur would extend the lifetime of a catalytic converter to 150,000 miles from 125,000, which would go over well with a lot of car owners who are tending to keep their cars 11 or more years these days. Catalytic converter makers like it too. Dow Corning and BASF have given the EPA the “high five” on the new rules.

• Low-sulfur fuel would also help existing cars run more cleanly, akin to taking 33 million older cars off the road, according to the Alliance of Automobile Manufacturers and Association of Global Automakers.

• The EPA’s proposal would reduce the sulfur content of gasoline from 30 parts per million to 10 parts per million by 2017, the same standard as in Europe, Japan and California.

• The New York Times took the EPA proposed rule to task for creating two potential problems: hurting alternative fuels and technologies (such as electric vehicles) from having a viable chance of surviving in the car market; and adding more complexities and puzzlement to the byzantine layer of federal standards on vehicle emissions. By the time you get from Tier 1 to Tier 2 to Tier 3, it gets pretty thick, according to the Times.

• If the federal government does adopt these standards, they’ll be similar to the 54.5 mpg by 2025 rule – there would be no favorite fuel or technology. Efficiency would be the buzzword.

All this raises some excellent questions about the adoption curve for electric vehicles.  Obviously alternate fuels are more attractive when you’re getting 20 MPG than 54.5 MPG.  But it sure is hard to blame the auto industry for making highly efficient cars, just because it renders non-competitive something that I happen to like.

As always, it comes down to a level playing field.  I advocate identifying all the externalities of what we’re doing in energy and transportation, and making sure we’re paying for each one, cash on the nail.  The big deal with EVs is the environmental horrors of electricity from coal.  The big deals with gasoline include the environmental issues as well, but global hostility to boot.  Let’s just make sure all this is fairly priced in, and then let the market decide.

I believe once we start ponying up the comprehensive costs of fossil fuels of all types, electric transportation powered by renewables will look pretty darned attractive.