Trump’s EPA to Freeze Fuel Economy Standards

David Fessler By David Fessler
Energy and Infrastructure Strategist

Alternative Energy

The Environmental Protection Agency is about to take a giant step backward in transportation technology.

President Trump has directed the EPA to roll back and freeze fuel efficiency standards. This will cost car owners hundreds of billions of dollars and could have huge implications for investors.

The loudest objections are, unsurprisingly, from the Golden State.

California is arguably the most progressive state in the union. Back in 1996, it was the very first state to legalize medical cannabis. And two decades before that, then-Governor Ronald Reagan signed legislation to create the California Air Resources Board (CARB).

For decades, Californians suffered from heavy air pollution in the state’s largest cities, like Los Angeles and San Francisco. CARB’s goal was simple enough: to attain – and then maintain – a healthy air quality throughout the state.

One of CARB’s primary initiatives was to set vehicle emissions standards far stricter than those imposed by the EPA.

It worked. California’s big-city skies are as clean as they’ve ever been.

But all that could quickly change for the worse with Trump’s request to roll back and freeze fuel efficiency standards.

These plans, if enacted, would nearly unravel the best way we have to fight climate change.

Frozen Rules, Melting Ice Caps

The new plan proposed by the EPA and National Highway Traffic Safety Administration would freeze fuel economy standards in 2020. They would remain flat for the next six years.

This has even some carmakers scratching their heads…

And here’s the kicker: The EPA wants to end California’s ability to set its own tighter emissions standards.

It also wants to put a stop to California’s electric vehicle mandate that requires automakers to sell a minimum number of EVs.

California immediately filed a preemptory lawsuit.

Governor Jerry Brown made his opinion clear on his Twitter feed…

Thirteen other states and the District of Columbia aren’t happy either. That’s because they follow California’s emissions rules.

According to the American Council for an Energy-Efficient Economy, the administration’s new rules will mean higher vehicle costs for owners of internal combustion engine vehicles purchased in 2025.

Those car owners will need 66 more tanks of gas and will fork over an additional $1,620 in repairs over their vehicles’ lives.

What’s more, U.S. drivers will be spewing another 158 million metric tons of carbon dioxide into our atmosphere every year by 2035.

Lastly, fuel consumption in America will increase by 13.9 billion gallons annually. That’s more than our annual imports from Venezuela or Iraq.

Fallacies Galore

In the EPA’s official press release, it stated the changes would save around 1,000 lives per year.

The justification goes something like this…

  1. New cars cost more than previous models.
  2. Adding features (like fuel economy and safety) makes them even more costly.
  3. So higher fuel economy means more expensive cars.
  4. Owners of older, less safe cars will hold on to them instead of purchasing newer and safer but more expensive vehicles.
  5. Therefore, lowering fuel economy standards will save lives.

Here’s the problem: The EPA is correlating advances in fuel economy with diminishing road safety.

In reality, not only do U.S. vehicles have higher average fuel economy than ever before, but the overall death rate from driving has steadily fallen over the past 40 years.

It now stands at 1.18 deaths per 100 million vehicle miles traveled (VMT). That’s a 65% decrease from 1975 when it was 3.35 deaths per 100 million VMT.

Most carmakers have engineering teams that work on fuel efficiency and safety at the same time. It’s not an either-or situation. Which puts the lie to the EPA’s specious argument.

It’s unfortunate that the EPA wants to take a giant step backward in transportation technology.

These weaker rules help dirty carmakers, like General Motors (NYSE: GM) and Chrysler (NYSE: FCAU), while hurting manufacturers, like Honda Motor Company (NYSE: HMC) and Tesla (Nasdaq: TSLA), that easily meet the old rules.

The worst part is the new rules could completely reverse the slow but steady progress the U.S. has made on climate change.

What are your thoughts on the EPA’s reversal? Let me know in the comments.

Good investing,

Dave