US vehicle emissions landscape still hazy

In recent months, the new presidential administration in the United States has generated a fair deal of emissions-related news. However, till date, no significant changes have actually taken place.

While headlines suggest corporate average fuel economy (CAFE) standards have been rolled back, it is important to note that only the midpoint review of the 2022 to 2025 fuel economy goals has been reopened. This period was closed prior to the original end date of April 2018, even before automakers were able to fully weigh in on the matter.

Though the reopening of the review is in the news, it isn’t necessarily noteworthy — at least, not yet.

With this, automakers now have more time to plead their case and lobby for either a pullback of fleet average targets or extend the target date — or potentially both.

With an administration that is perceived to be more sympathetic and likely to pull back, automakers may be doubling down on their efforts for relief.

Complicating the matters further, the California Air Resources Board (CARB) recently finalised its own vehicle emissions standards through 2025.

The State has been able to enact its own emissions rules through a waiver from the Environmental Protection Agency (EPA) in the Clean Air Act of 1967, and has effectively been the standard bearer in vehicle emissions. Twelve other States have elected to follow CARB’s mandates, thereby setting up an interesting clash between federal and CARB standards, as adhering to two sets of standards could be cumbersome.

Automakers have maintained that the stated fuel economy goals of 54.5 miles per gallon by 2025 will be costly and onerous. Additionally, the long-term shift of consumer preference toward light trucks, crossovers and SUVs creates a disparity between actual product mix and what would be necessary to reach the current targets for 2025.

When the initial 2025 guidance was introduced in 2011, regulators within the EPA assumed a 67:33 passenger car, light truck fleet mix. Yet, in 2016 vehicle sales, the inverse has occurred with an estimated 60:40 light truck, cars.

Sales of alternatively-propelled vehicles (hybrid, electric, hydrogen fuel cell, etc.) are also yet to reach mass penetration and hovering at 2.8 per cent in 2016. While their market share has fallen for three consecutive years, Autofacts forecasts a steady uptick starting in 2020 and beyond, going from 3.3 per cent in 2017 to 11.5 per cent by 2023, still below the 1.5 million mark.

Where does this leave the emissions landscape in the US? It is unlikely that automakers will halt investments in alternative propulsion technologies. The long-term strategy for higher fuel efficiency and lower emissions may be delayed, but will remain at the forefront.

Regardless of consumer appetite, or lack thereof, brands need to have alternative offerings for a complete portfolio. With the reopened review, the primary questions to be answered are: the extent to which these investments will be made and their timeframe. The outlook will not change even if the federal mandates for CAFE are scaled back and CARB regulations remain.

However, if the CARB waiver is ultimately revoked in conjunction with easing emissions and fuel economy requirements, the automakers can pull back their investments on the alternative propulsion and divert their focus to other areas. Needless to say, industry stakeholders will wait for the review results with bated breath.

In India, vehicle penetration levels are quite low but emissions still make headlines. Many policy decisions have been announced, such as early adoption of BS VI norms from April 2020, promotion of alternative fuel vehicles through FAME scheme and the upcoming CAFE norms to keep a check on emissions.

Low penetration and rising income levels will only increase vehicle population in the future. Additionally, India being a densely populated country poses a significant challenge and it is key for stakeholders to develop sustainable transportation in the country.

The writer is Partner, Price Waterhouse

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