Ari Weitzman (20:02)
All right, that's it for what the left and right are saying. Which leads me to my take right at the jump. I'll admit to being a bit of a greenie. I don't personally begrudge people who need extra towing or passenger capacity their choice of vehicle. But I think it's reasonable that the federal government institute policies that lead people who don't need these features towards choices that are better at protecting common goods. By which I mean clean air, public safety, and stable climate. Personally, I have a truck. It can handle a muddy, rutted New England road. It can tow a small car and it seats five. But it's also a hybrid and gets about 30 miles per gallon. My bias coming into this story is that I want people who don't really need large vehicles to be nudged towards decisions that are like the one I made, and away from unnecessary gas guzzlers that have poor sight lines. I was prepared coming into this piece to talk about the tension between regulation and and consumer choice, but after diving more into the story, I think that's kind of a false framing. The practical effects of the EPA's latest move won't really be felt, most particularly by the auto industry, but it takes a long time to explain why that isn't the right place to focus. Let's get started with what Lee Zaudin actually did on Thursday when Zheldin rescinded the endangerment finding. He didn't bring all emissions regulations down with it. Instead, he did three separate things. First, he repealed the agency's endangerment finding. Second, he rescinded the EPA's greenhouse gas, or GHG, regulatory framework. He could have left the EPA's emission standards in place temporarily while the administration reconsidered the scientific backing for regulations. But he decided to bundle those actions together before even getting to Zeldin's third action. I have to pause here to explain our entire regulatory framework for vehicles, and as best I can, of which the endangerment finding is only a small part. The first meaningful federal tailpipe emission standards were codified in the Motor Vehicle Air Pollution control Act of 1965 that authorized the federal government to set exhaust emission standards for new cars. The 1970 Clean Air act handed the government enforcement power, ultimately creating what's called today a certificate of conformity. These certificates limit the amounts of hydrocarbons, nitrogen oxides, carbon monoxide, fine particulate matter, and fuel vapor that are allowed to exit a car's tailpipe. After reaching its endangerment finding in 2009, the EPA added in GHGS as part of those emission standards, every car in the United States has to hit a set of emission standards to get the certificate. And if it doesn't, then it can't be sold. Period. These standards took shape over time, and they applied differently to different weights and classes of vehicles. For instance, Ford's F150 is going to produce more exhaust than the Ford Focus, and the standards take that into account. However, at the same time as the EPA was developing its emission standards, the Department of Transportation's National Highway Traffic Safety Administration, or nhtsa, developed an entirely separate set of efficiency standards. Those were based on the Energy Policy and conservation act of 1975. That law was passed in direct response to the 1973 oil embargo. And these efficiency standards came out of Congress's concern over foreign oil dependence, not air quality and not climate. The NHTSA developed a set of standards to enforce this law called cafe, which stands for Corporate Average Fuel Economy. These are very different from certificates of conformity, which apply to individual vehicles. Instead, CAFE standards apply to a manufacturer's entire fleet, weighted by popularity. That means a carmaker like Stellantis can offset the more inefficient Dodge Ram with a very efficient Fiat 500e. But since the Ram is so much more popular, Stellantis needs to find a way to make sure their more popular Rams and Jeep Wranglers are efficient enough to remain fleet compliant. With me so far, two sets of standards. One from The EPA that measures tailpipe emissions. And then there's one from the NHTSA called cafe and that measures fleet wide efficiency standards. Those are related but different. That can be confusing. It was confusing to the New York Times, which published an article last week that said with the endangerment finding gone, the United States will essentially have no laws on the books that enforce how efficient America's passenger cars and trucks should be. That quote is almost exactly wrong. The NHTSA deals with efficiency standards. Those will remain in place. EPA tailpipe standards are completely separate. Zeldin's second action, the one wiping out EPA's GHG emission standards, removed GHG emissions as a requirement for a certificate of conformity. However, the EPA's emission standards in general, they remain. They just don't take GHGs into account. Furthermore, the entire set of fleetwide CAFE standards also remain intact. All of that is still here. And none of that even touches how California standards fit in the regulatory framework, which we'll get into in a bit. Finally, that brings us to Zeldin's third action repealing all off cycle consumption credits. Off cycle credits are extra points the EPA gives to automakers for applying efficiency benefits that take effect when the engine isn't driving the car. Like that Start Stop feature that automatically stops an engine to save on fuel when the car isn't in motion. Other off cycle credit features include grille shutters that close at highway speeds to reduce drag, high efficiency air conditioning and solar reflecting coatings to reduce heat. Zonen's third action removed the EPA's crediting system for these features. But the EPA doesn't apply these credits. The nhtsa, which oversees cafe, which is still in existence, that's what applies them. As Hyundai made clear in a statement, repealing EPA credits won't make features like the Auto Start Stop extinct. Here's what Hyundai Start Stop technology has never been federally mandated, and the EPA's recent action removes regulatory incentives associated with it rather than prohibiting its use. But more importantly, these credits are actually still in effect since they're applied to an enforcement overseen by a totally different federal department. It's all confusing, but this is basically how the regulatory structure with off cycle credits works. The EPA calculates what an off cycle feature might provide as an emissions benefit in terms of grams per mile. Then it converts that benefit into an efficiency credit for the nhtsa. Manufacturers can then apply those credits against CAFE requirements so they can keep their entire fleet compliant with the NHTSA's efficiency standards. That means Stellantis gets extra credit for installing Start Stop features. On all its Wranglers and Rams to keep its fleet compliant. That entire regulatory structure is still there. Zonden only removed the basis for the calculations, essentially leaving these regulations intact, but based on a logic that technically no longer exists, creating uncertainty for how they might change in the future. All of which is bad news for manufacturers. They want certainty and they want consistency and they want to be able to apply these credits in the future. Now they're not entirely sure if they'll be able to. What's more, they definitely won't be gaining $1.3 trillion in savings from deregulation. This claim is only the benefit half of a cost benefit analysis that the EPA ran on the effects of removing the endange. To calculate this benefit, they claim the industry will save $1.1 trillion over the next 28 years and reduce costs for new vehicles estimated at over $2,400 per vehicle. They also claimed $200 billion of savings from avoiding purchasing electric vehicles and charging infrastructure. But in the same analysis, the EPA also found that leaving the endangerment finding would benefit consumers to the tune of $1.5 trillion in maintenance SA efficient cars. We can argue over any of those numbers, but the point remains, based on the EPA's own accounting, that's actually a net $200 billion industry wide cost for removing the endangerment finding. But to back up here for a sec, the largest effect of rescinding the endangerment finding likely won't be felt by the auto industry at all. Remember, the CAFE standards will remain in place and those were built in tandem with GHG emission standards, which means we're going to get some emissions protections for free with the NHTSA's efficiency stand standards being enforced. And ironically, if the NHTSA decides that it won't apply off cycle credits without the EPA calculating them, then cars may actually become more fuel efficient. If they aren't able to apply these credits, then carmakers will have to become more fuel efficient to become fleet compliant in the future. Really, the biggest impacts of the EPA removing the endangerment finding have nothing to do with the auto industry. They have to do with the aviation industry, whose GHG emission standards are also justified by the finding. They have to do with manufacturing facilities and refineries whose GHG thresholds were subject to permitting requirements under the finding. And most importantly, they have to do with power plants. Those are regulated by Obama's Clean Power Plan and its successor rules using the finding to target coal and gas fired plant emissions. Those regulations weren't explicitly repealed by Zaldin's actions. The Thursday moves were technically finalized only to apply to vehicle emissions under section 202 of the Clean Air Act. But the endangerment finding has served as the foundation for these other regulations, meaning the legal basis for enforcing those rules is now seriously weakened. As someone who is convinced by the evidence showing the negative impacts of GHGS on climate and health, this is obviously very concerning for me. And that all brings us back to where we're going to end discussion today, which is the courts. Since that larger concern about enforcement would be moot if the endangerment finding gets upheld, that makes these rulings really, really important. And like Isaac said when we covered this issue in July, I think it's likely that the courts ruled to uphold the endangerment finding for two reasons. First, the EPA didn't ultimately advance a scientific argument for ascending the endangerment findings. When Zeldin announced the proposal to rescind the finding in July, he used a controversial report from a handpicked group of climate skeptics at the Department of Energy to justify the decision. In January, a U.S. district Court ruled that the DOE acted illegally by keeping that group's existence and meanings a secret. By the time it issued its final rule, the EPA had lost its scientific backing, and it did not invoke the controversial group's report to justify its change. That matters because of point two. The Supreme Court has already upheld the legal basis for this finding in its 2007 Massachusetts rolling based on some scientific consensus from the court and from the epa, and that precedent still stands today. What's even more interesting is that the court's recent removal of Chevron deference actually hurts the EPA. Here. With its landmark loper bright ruling, the Supreme Court found that any federal court doesn't have to rely on an agency's expert interpretations when making its ruling. That means that the court won't give deference to the EPA's viewpoint in interpreting any legal challenge, leaving the Supreme Court's prior determination to support the endangerment finding likely to stand. Moving forward, I won't be watching the legal challenges to the endangerment finding to gauge how much the auto industry will change. Other legal challenges, policy changes, and even market forces will have a much larger impact on that sector moving forward. However, I will be watching this challenge very closely for its broader impact on the energy and manufacturing sectors.
