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Carbon Emissions: To Reduce Or Not To Reduce

September 23, 2019

As world and business leaders are getting together in New York City for UN Climate Week (September 20-27), pressed by alarming scientific reports and determined to make this a force for change and innovation, carbon emissions are at the heart of a suspenseful soap opera in the US automotive industry.

In 2012, the Obama Administration put into place an updated vehicle pollution policy aimed primarily at reducing carbon dioxide emissions. The policy required automakers to achieve a fleet average of 54.6 miles per gallon for cars and light trucks. This target almost doubled the fuel efficiency of the vehicles on the road when the policy was signed, and was to be implemented gradually from 2012 to 2026.

In 2018, the Trump Administration has proposed rolling back the Obama era regulations by freezing the required fuel efficiency in its current state. This rollback has caused a significant uproar in congress, with automakers, and with the State of California.

California has historically had stricter emissions standards than the EPA required nationally. Culminating with the passage of the Obama-era regulations, the two sets of standards were finally in sync. The threat of a rollback saw California indicating that it would maintain the enhanced efficiency standards regardless of the federal outcome. In response, the Trump Administration is considering revoking California’s authority to set its own emissions standards while also pre-empting other states from doing the same.

The automakers consistently state that having multiple sets of state and federal standards can increase production costs and complicate the supply chain. Additionally, automakers already spent a substantial amount of research and development dollars to achieve the higher standards, given the long lead times between R&D and production.

On the other hand, gas prices are currently low, and sales of larger SUVs and light trucks, now representing 69% of U.S. auto sales, grew in market share compared to smaller SUVs and sedans. This change in consumer preference puts pressure on automakers to achieve more efficiency with a larger and heavier mix of vehicles.

In August 2019, Ford, BMW, Honda, and Volkswagen reached a voluntary agreement with California to maintain stricter emissions standards. This landmark agreement significantly lessens the environmental impact of the proposed rollback, as these four automakers represent 26% of U.S. automotive sales.

With additional automakers indicating an intention to join this voluntary agreement, the proposed rollback may be dead in the water.

The Trump administration is in the process of meeting with other automakers to encourage them to accept and support a rollback, but to date these automakers have not publicly declared their decisions.

In the latest development, on September 18, 2019, President Trump announced on Twitter that his administration was revoking California’s Federal Waiver on emissions, arguing that this would allow the production of far less expensive cars.

California officials said they would sue to block the move as soon as the plan was officially published. This crossfire has political weight far beyond the automotive industry, but automakers now seem stuck as a result. Their position in this can, however, point to a way forward.

Automakers’ support of California could simply show rational decision-making. After all, if inconsistent standards are complex and costly, and given that R&D is on track to meet the higher standards, why not settle for them regardless of the federal decision?

But it could also show environmental concern – automakers need the image boost, especially after the 2015 Volkswagen emission test scandal. Moreover, the automotive industry is currently undergoing major changes with the transition to electric vehicles, which are consistently showcased as a solution to climate change issues. Internal combustion vehicles are increasingly going to be phased out, and painted as the ‘bad guy’ in the meantime, contributing heavily to greenhouse gas emissions (cars and trucks collectively represent one fifth of all US emissions).

One recent example of this is Greenpeace’s September 2019 report “Crashing the climate: How the car industry is driving the climate crisis,” which discusses how the 12 largest global automakers represented 9% of global greenhouse gas emissions in 2018 – exceeding the European Union.

It also calls for the phasing out of diesel and gas cars, including hybrids, by 2028, and the transition to smaller and more energy-efficient electric vehicles, rather than SUVs, as the industry’s necessary part in meeting the Paris agreement goal of limiting global warming below 1.5 degrees Celsius. For US automakers, conforming to stricter emissions standards is a step in the right direction to show progress and goodwill.

Sustainability will require an overhaul of current production and consumption systems, and demands systemic change, such that single players can’t tackle the issue by themselves. Several industries are collectively inventing solutions. For example, the American Meat Institute recently declared sustainability a non-competitive issue to encourage collaboration between actors.

The fashion industry is currently rallying behind the Fashion Pact to reduce its impact on global warming, restore biodiversity and preserve the oceans by eliminating single-use plastics. It takes an industry to change an industry – will the auto sector be up to the challenge?

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