Vehicles on a highway

Update: On Oct. 28, three key automakers sided with the Trump administration in a legal case that could overturn California’s ability to set its own fuel-economy standards—which could make the BMW-Ford-Honda-Volkswagen deal with the California Air Resources Board moot. GM, Toyota, Fiat Chrysler, and the Association of Global Automakers joined the case to advocate for a single, national set of rules, to avoid “overlapping and inconsistent standards that drive up costs and penalize consumers,” the coalition said in a statement. Spokesmen for GM, Toyota, and Fiat Chrysler declined to comment beyond the statement.

“These automakers are trying to have it both ways,” says Shannon Baker-Branstetter, manager of cars and energy policy at Consumer Reports. “By supporting a federal attack on the Clean Air Act, they are contradicting their promises to lower emissions and address climate change.” 

This article was originally published July 25, 2019. 

California’s agreement with four automakers over new car-emission standards through 2026 presents a way out for the rest of the auto industry—if they’re willing to take it.

The deal strikes a middle path between higher requirements put in place by the Obama administration and less-stringent standards being considered by the Trump administration.

For months, automakers have been signaling that they were ready to make a deal on greenhouse-gas emissions, despite indications from the Trump administration that it would freeze standards after 2020. They were worried that they’d be stuck trying to comply with two very different sets of standards—one for California and the states that follow its lead, and a set of federal regulations for the rest of the country.

more on fuel economy

This move by the four automakers—BMW, Ford, Honda, and Volkswagen—to strike a separate deal with California could change the political dynamic. But there’s no certainty the remaining automakers will join them, and some clean-air advocates object to the loosening of the Obama-era rules. 

A White House spokesman, meanwhile, says the Trump administration will move forward with a single national standard for auto emissions, according to the Associated Press.

Here’s the background: Under a deal adopted in 2012, automakers were required to improve their fleetwide efficiency to an average of 48 mpg in 2025, through annual improvements of about 5 percent. The Trump administration has signaled its preference to freeze the standards after 2020, with no fleetwide improvements required through 2026. That would leave the fleetwide averages at around 37 mpg. (Those values are calculated in lab tests, and the mileage consumers would experience in their real-world vehicles would be about 20 to 25 percent less.)

In the deal announced Thursday, BMW, Ford, Honda, and Volkswagen proposed annual 3.7 percent improvements in emission standards beginning with the 2022 model year and continuing through 2026, according to a summary provided by the automakers. That’s less than the 5 percent annual improvements sought by the Obama administration but certainly higher than the levels the Trump administration was likely to seek.

Mary Nichols, the California Air Resources Board chairperson, told Reuters that the four automakers that agreed to the deal didn’t want “the expense, distraction, and the bad publicity that comes from being part of a big rollback on clean cars.”

Other companies are in discussions with CARB and are expected to join the agreement, the agency said in a statement to CR. The deal delivers the same environmental benefits as the original Obama rules, but spread over five years instead of four, the agency said.

If the Trump administration moves forward with its own plan, California will continue to enforce its regulations and challenge the federal government in court, Nichols said in a statement Thursday. 

The four automakers proposed these new terms to CARB, and the agency accepted them, Honda said in a company statement. 

“The proposed regulatory framework results in a simple, national greenhouse-gas program and avoids the patchwork of overlapping federal and state regulations that exists now,” the Honda statement says. “The framework provides regulatory stability, greater environmental benefits, and reduced compliance costs.”

For its part, Volkswagen will continue to push for a single set of greenhouse-gas rules for all 50 states and the federal government, said spokesman Mark Clothier.

“We believe as a company in protecting the environment, bringing innovative technology to the market, and protecting American jobs,” Clothier said. “We’ve bet our future on that belief, including plans to invest $800 million in Tennessee for a new factory to build electric vehicles.”

Ford and BMW, in statements to CR, emphasized that the deal provides more certainty about regulation, enabling them to more easily plan for future products.  

The Battle Over Emissions

This deal comes as the federal government and California continue to battle over who gets to set emissions standards. California has long employed authority it was given under the federal Clean Air Act to set more stringent air-quality regulations because of severe pollution in the state.

The automakers’ deal with California—if adopted by the entire industry—threatens to erase about $100 billion in fuel savings for consumers in the coming decades, says David Friedman, vice president of advocacy at CR, compared with what they would have seen under the Obama-era regulations. The extra credits and much lower targets are what the automakers originally asked for before the National Highway Traffic Safety Administration and the Environmental Protection Agency proposed to freeze the standards. Together they amount to more than a 40 percent reduction to the requirements that are currently on the books.

“It’s surprising to see California agree to preemptively roll back emissions standards,” Friedman said. “This risks California’s leadership on cutting vehicle emissions.”

California’s deal with the automakers reaffirms the state’s authority to set “eminently achievable” vehicle emissions standards, said Luke Tonachel, director of clean vehicles and fuels at the Natural Resources Defense Council.

“The agreement clearly demonstrates that the Trump administration’s rollback, which has no technical or legal rationale, is doomed,” Tonachel said. “The administration should drop its senseless and harmful plan that would make cars pollute more and cost drivers more at the pump.”  

Where Other Automakers Stand

GM, Toyota, and Nissan said in statements to CR that they’re still committed to a combined national program that covers all 50 states, and they’ll continue to negotiate with all of the parties involved.

Fiat Chrysler Automobiles and Hyundai said they’re committed to continuing to improve their fleet fuel efficiency. FCA said it will review the agreement as well as the federal rules when they’re finalized.

“We have been clear throughout the federal rule-making process that the current standards need to be adjusted to reflect changing conditions in the marketplace, and today’s announcement acknowledges that is true,” FCA said in a statement to CR.

Why did these four automakers agree to this deal? Because they’ve already planned their products through 2025, said Mike Ramsey, senior research director for automotive and smart mobility at Gartner, a global research and advising firm. They’re already invested in the technology needed to meet the targets. Ford and VW in particular have made big commitments on electric vehicles and sharing technology to get those models to market sooner, he said.

“A big deviation from the rules in place only serve to give an advantage to companies that have made less of an effort,” Ramsey said. “Undoing the rules could effectively lower the value of the investments they already have made.”

Other automakers could sign on to the deal, Ramsey said. It could become a template for a larger national deal with a couple of key automakers, like GM and Toyota. But other automakers could disproportionately benefit from a loosening of the rules, and they may skip the deal, he said.  

Before long, most of the industry can be expected to sign on to the deal because it avoids both “a fractured regulatory environment” and the uncertainty of court rulings and future elections, said Sam Abuelsamid, an automotive analyst with Navigant, a research and consulting firm. 

But that doesn’t mean the deal will be the breakthrough that settles the political dispute between California and the Trump White House, Abuelsamid said.

“The Trump administration seems pretty set on doing whatever it wants regardless of what anyone else thinks,” Abuelsamid said. “The court battle will likely drag on for some time, but those [in the auto industry] that actually matter have already made up their minds what they are going to do—making the administration effectively irrelevant.”