Fuel economy is set to increase by 5% each year. The new standard will surpass the 35 mpg by 2020 set by Congress in 2007.
"In the past, an agreement such as this would have been considered impossible," said President Obama. "That is why this announcement is so important, for it represents not only a change in policy in Washington, but the harbinger of a change in the way business is done in Washington. As a result of this agreement, we will save 1.8 billion barrels of oil over the lifetime of the vehicles sold in the next five years. And at a time of historic crisis in our auto industry, this rule provides the clear certainty that will allow these companies to plan for a future in which they are building the cars of the 21st century."
Automakers Jumping on Board
Automakers are agreeing with the new standards because it will set a national standard, rather than a state-by-state regulation. California and other states will yield to the new federal policy, and automakers will drop the lawsuits surrounding the state's efforts to get a waiver from the EPA to set their own standard. Other states had been set to follow California's lead into setting their own rules (following the California guidelines).
According to the whitehouse press release, "The collaboration of federal agencies also allows for clearer rules for all automakers, instead of three standards (DOT, EPA and a state standard)."
The Auto Alliance, a trade association which represents 11 auto manufacturers including Ford, GM, and Toyota, points out the new standards are expected to include several other rules that they have been fighting for.
- Preserving Vehicle Diversity: Harmonized NHTSA and EPA standards would be attribute-based, or based on a vehicle’s "footprint." This approach allows for a range of sizes of vehicles to meet consumer needs for passenger and cargo room.
- Providing Certainty for Long-term Planning: Automakers would know what standards will be through 2016, which is critical in an industry where bringing a product to market typically takes 5-7 years. The National Program is intended to give automakers sufficient lead-time to incorporate technology as part of existing vehicle design schedules, so manufacturers would not have to incur added costs from redesigning all their models at one time.
- Providing Flexibility in Achieving CO2-Reduction Goals: EPA and NHTSA would consider a range of compliance flexibility measures, such as earned credits, credit trading, air conditioning credits, and credits for using additional technologies that reduce carbon dioxide (CO2).
"President Obama is uniting federal and state governments, the auto industry, labor unions and the environmental community behind a program that will provide for the biggest leap in history to make automobiles more fuel efficient," said Department of Transportation Secretary Ray LaHood. "This program lessens our dependence on oil and is good for America and the planet.
Good and Bad
Probably the most unsettling part of the new rules is how few cars meet the standard today.
According to the president's fact sheet, the new standards are good for everyone.
Good for Consumers:
- Consumer Savings: This will save American consumers money over the long term in increased fuel efficiency.
- Consumer Choice: The proposed new national policy will preserve consumer choice. The new rules will not dictate the size of cars, trucks and SUVs that manufacturers can produce; rather it will require that all sizes of vehicles become more energy efficient.
- A Cleaner Environment: New policy will produce environmental benefits that will reduce air pollution from the reduction of greenhouse gas emissions and other conventional pollutants.
Good for the Economy:
- Clear Rules: One national policy for all automakers, instead of three standards: a DOT standard, an EPA standard and a California standard that would apply to 13 other states.
- Lower Costs: This national policy has the potential to lower compliance costs for automakers by avoiding a patchwork of fuel efficiency and pollution rules.
- Flexibility: The new national policy provides the industry what any business wants: clarity, predictability and certainty concerning the rules. As importantly, it gives them flexibility on how to meet the expected outcomes and the lead time they need to innovate.
Good for the Country:
- Energy Independence: The new policy will result in yearly 5% increases in efficiency from 2012 through 2016. The end product - - cleaner cars and reduced dependence on oil (1.8 Billion barrels of oil cumulatively, over the lifetime of the program) and significant reductions in greenhouse gas emissions (savings equivalent to taking 177 million of today's cars off the road).
- Effective Government: Historic collaboration between two agencies; breaking down silos and working towards a common goal and outcomes.
- Bringing People Together: The national policy has the support of CEOs, Governors, the UAW, the environmental community and others around this first, comprehensive national policy.
Ford President and CEO Alan Mulally
“We are pleased President Obama is taking decisive and positive action as we work together toward one national standard for vehicle fuel economy and greenhouse gas emissions that will benefit the environment and the economy. Today’s announcement signals the achievement of a crucial milestone – an agreement in principle on a national program for increased fuel economy and reduced greenhouse gases.
This national program will allow us to move forward toward final regulations that all stakeholders can support. We salute the cooperative efforts of the Obama Administration, the state of California, environmental groups and others that played a constructive role in this process.
The framework of the national program will give us greater clarity, certainty and flexibility to achieve the nation’s goals. We will continue to work with the federal agencies to finalize the standards that we are committed to meeting.”
General Motors commends President Obama's leadership to establish a harmonized National Program to improve vehicle fuel economy and lower greenhouse gas emissions.
Energy security and climate change are national priorities that require federal leadership and the President's direction makes sense for the country and the industry. Harmonizing a variety of regulations will benefit consumers across America by getting cleaner, more efficient vehicles on the road quicker and more affordably. In turn, GM and the auto industry benefit by having more consistency and certainty to guide our product plans.
GM is fully committed to this new approach. As the President has previously said, all stakeholders must come together and act with a common purpose and sense of urgency to address the nation's energy and environmental priorities. We agree and this collaborative spirit is reflected in our viability plan. Delivering innovation and solutions that will strengthen America's energy security, economy and competitiveness are a central part of GM's reinvention.
"We welcome the Administration’s leadership in developing a coordinated fuel efficiency and greenhouse gas standard. This is something we have encouraged and sought for a very long time," says Jim Lentz, President, Toyota Motor Sales, USA, Inc."The big winner is customers. A unified national program ensures American consumers will have the choice of vehicles they want and need, as well as the fuel efficiency and low emissions they expect, without the potential confusion of multiple standards."
Dave McCurdy, president and CEO, Alliance of Automobile Manufacturers
The Alliance of Automobile Manufacturers is an association of 11 vehicle manufacturers including BMW Group, Chrysler LLC, Ford Motor Company, General Motors, Jaguar Land Rover, Mazda, Mercedes-Benz USA, Mitsubishi Motors, Porsche, Toyota and Volkswagen.
"For seven long years, there has been a debate over whether states or the federal government should regulate autos. President Obama’s announcement ends that old debate by starting a federal rulemaking to set a National Program," said Dave McCurdy, president and CEO, Alliance of Automobile Manufacturers. "Automakers are committed to working with the President to develop a National Program administered by the federal government."
"What’s significant about the announcement is it launches a new beginning, an era of cooperation. The President has succeeded in bringing three regulatory bodies, 15 states, a dozen automakers and many environmental groups to the table," said McCurdy. "We’re all agreeing to work together on a National Program."