The New White House Fuel Efficiency Rule: Count the Loopholes

The final fuel-efficiency rule released by the Obama administration this morning includes what some lobbyists have nicknamed "the German provision," giving automakers that sell less than 400,000 vehicles in the U.S. an exemption for 25 percent of their fleet.

462_general_motors_president_and_ceo_fritz_henderson.jpgGM CEO Fritz Henderson's company can earn fuel-efficiency "credits" for its Chevy Volt. (Photo: IB Times)
"[W]e recognize that we had to give a little bit," Environmental Protection Agency (EPA) chief Lisa Jackson told reporters today. "The good news is that, by 2016, we will have caught up, and all autos sold in this country are going to have to meet the one standard."

But the "German provision" isn't the only loophole that made it into today's new rule.

The Obama administration also would allow car companies to earn credits for achieving a lower CO2 emissions standard than the government requires in any specific year.

Those credits could be carried forward five years or back three years, used to make up for deficiencies in other vehicle fleets, and even earned this year, ahead of the new fuel-efficiency standard's phase-in period, which begins in 2012.

For instance, an automaker that beats the standard for its cars could use the credits it earns to safely produce more gas-guzzling trucks. That automaker could earn even more credits for any electric vehicles it produces, for improving its air-conditioning systems, or for making more "flex-fuel" autos that can run on ethanol-blended E85 gas -- which is available in fewer than 2,500 gas stations nationwide.

Today's rule even allows automakers to trade credits with other manufacturers, opening the door to a bit of horse-trading between Ford and Honda or Toyota and General Motors.

The concept of credit trading is not a new one; the EPA has employed it in other pollution regulations that were drafted under Clean Air Act authority. Still, the extent of the credits proposed today unsettled veteran fuel-efficiency advocate Dan Becker, director of the Safe Climate Campaign.

California and 13 other states have gotten the go-ahead to begin imposing stricter fuel standards on automakers before the national rule starts taking effect in 2012, Becker said in an interview.

That could create a perverse incentive for car companies to earn extra credits, he added, "by shuffling more efficient vehicles into those states, then com[ing] back in 2012 and say[ing] we over-complied with the national law by selling these cleaner cars."

For some domestic automakers, however, the "German provision" may sting most of all. The chairman of the Center for Automotive Research in Michigan told the Detroit News last week that the loophole amounted to a "subsidy" for foreign companies. 

The EPA states in today's fuel rule that it believes the "environmental impact of the ['German provision'] will be very small," resulting in 0.4 percent more greenhouse gas emissions if every eligible car company took advantage of the exemption.

In fact, not every company selling fewer than 400,000 vehicles is expected to avail themselves of the loophole. Becker, pointing out that most automakers are already meeting Japanese and European fuel-efficiency standards stronger than those in the U.S., urged the smaller companies to comply with the full extent of the law.

"BMW and Mercedes talk about the prowess of their engineers," he said. "One would think their engineers are good enough that they could comply with what GM and Honda have to comply with."

There is a 60-day window for public comments on the new fuel rule, after which time the White House could make changes. Given the intensity of industry lobbying in favor of the efficiency loopholes, however, Becker said environmental advocates would push for a "backstop" that forces automakers to meet higher fuel standards if they fail to comply with the previous year's limits.