Congress confirmed former Representative Sean Duffy to the post of transportation secretary yesterday. In his first act, he signed an order directing employees to ease federal fuel economy standards.
What are CAFE Standards?
The federal government’s Corporate Average Fuel Economy (CAFE) standards measure the average fuel economy of the entire lineup each automaker sells in the U.S. The standards require each automaker to meet a minimum miles per gallon (mpg) average or pay a punishing fine for failing to do so.
The standards have changed regularly since they were enacted in 1975 in response to an oil crisis. Most new presidents have strengthened them, and the move has usually worked — average fuel economy has improved steadily since the rules were first enacted.
President Trump took the rare step of easing the rules during his first term. President Biden strengthened them late last year. But Trump, returning to office after a 4-year gap, seemed likely to ease them again.
Changing the Rules Takes About Two Months
The CAFE standards are regulations, not laws. Regulations are the specific rules federal agencies write to explain how they will enact laws.
Federal agencies can rewrite regulations without instructions from Congress, but they must follow a procedure to do so. It involves providing public notice that a change is coming, then publishing the proposed change and allowing a period for public comment before finalizing them.
The process, at its fastest, takes 60 days.
Unclear What New Rules Will Say
In a statement, Duffy instructed department employees to “immediately initiate a rulemaking to rescind or replace all existing CAFE standards.” He did not explain what should replace the Biden administration’s rules.
The department can’t set any mpg level it wants. Industry publication Automotive News notes, “Federal law requires NHTSA to set CAFE standards at the maximum feasible level.” A feasibility requirement gives the government some flexibility to set minimums below what is technically possible.
Past governments have set the standards in consultation with automakers.
Automakers Face Conflicting Pressures
Product planners in the automotive industry typically plot product strategy many years in advance. In recent years, they’ve focused their long-term efforts on shifting to build more electric vehicles (EVs).
Lighter CAFE requirements could enable them to build more gas-powered models in the short term. New standards might see moves like the return of the famed Hemi V8 engine at truckmaker Ram. However, any moves toward more gas-powered cars are likely to be temporary.
Many spent hundreds of millions of dollars over the past four years building new EV and battery factories. They’re unlikely to abandon those expensive assets over a policy change from an administration limited to four years in office.
Many automakers build trucks mostly for the U.S. market, but cars and SUVs sold worldwide. Even if one country eases its rules, automakers must comply with rules elsewhere that haven’t eased.
They must also compete with a growing threat from Chinese automakers. China’s auto industry is now larger than America’s, and the Chinese buy more cars than any other population. China is now the world’s largest exporter of cars.
With other countries moving quickly to embrace EVs, automakers focusing on gas-powered cars for the American market risk falling behind in growth markets outside the U.S.
Softer CAFE standards could allow automakers to sell more gas-powered cars in the U.S. But doing so could leave America’s auto industry uncompetitive globally.