Barack Obama introduces tough new emissions rules for cars

May 19th 2009 From Economist.com AMONG classic-car buffs California is widely derided for its lead in setting pollution standards in America. Its tougher laws were at the root of the replacement in the early 1970s of the sleek and gorgeous early E-type Jaguars with an altogether less svelte model with fatter body and gaping grille. California’s elevated standards and President Barack Obama’s commitment to tackling climate change now look set to have a much more far-reaching effect on the car industry. On Tuesday May 19th America’s president announced plans to set strict new rules for fuel economy, to the acclaim of environmentalists and the acquiescence of Americas beleaguered car industry. Mr Obama’s new rules will bring together a jumble of efforts by various authorities to regulate vehicle emissions and fuel efficiency. The new regulations will require cars to average 35.5 miles per gallon (mpg) and light trucks 30mpg across a manufacturer’s range of vehicles, to be phased in by 2016. This looks like a tall order for carmakers. They already feared a law enacted in 2007 that had the same tight standards but a deadline of 2020. And the White House reckons average fuel efficiency is currently a measly 25mpg. Current corporate average fuel economy (CAFE) standards, introduced in 1985, require a fleet average of 27.5mpg from new cars. Alongside updated CAFE standards the Obama administration will impose for the first time nationwide limits on emissions of carbon dioxide and other pollutants. The greenhouse-gas emissions rules, overseen by the Environmental Protection Agency (EPA) will be harmonised with fuel-economy rules set by the Transportation Department, though the latter will, in effect, serve to restrict the former. In return for the stiff fuel-economy measures California will drop plans to impose its own stringent rules on greenhouse gases, the state’s attempt to introduce fuel-economy measures. A federal law passed in 1990 gave California the right to set its own standards for car emissions and allowed other states either to follow suit or stick to limits set by the EPA. California’s attempts to make cars less polluting had been bitterly resisted by both carmakers and President George Bush. In practice California’s rules tend to override milder national regulations, as it is cheaper to follow them than to produce different vehicles, despite the size and importance of the state’s car market. California originally proposed tough emissions targets in 2002 and passed a law in 2004 (and since then 13 states and the District of Columbia said that they planned to adopt the same rules). This was blocked by the Bush administration, which refused to grant California a waiver to federal laws, and was followed by a slew of lawsuits from car companies (which will also now probably be abandoned). But shortly after taking office in January, Mr Obama signalled his intentions to make America’s cars more fuel-efficient by instructing the EPA to reconsider California’s application for a waiver. By acting to make national rules himself Mr Obama hopes to please environmentalists by cutting exhaust gases, which account for 16.4% of America’s total emissions, by nearly a third. Car companies may also take some cheer that a potential patchwork of fuel economy and emission legislation will be replaced by one national standard. But the drastic cuts will force rapid changes to product line-ups for homegrown carmakers that are in deep trouble. Mr Obama is keen that America’s car industry, currently attempting to remodel in bankruptcy protection (Chrysler) or close to it (General Motors), quickly turns green. The generous federal bail-outs and restructuring plans that hand the government big stakes in both companies will give Mr Obama much leverage to make it happen. Car companies are also keen to reorganise their product lines to include electric, hybrid and smaller cars though they are less-profitable than gas-guzzlers. Doubts remain over whether American consumers are ready for a rapid switch to smaller, fuel-sipping cars. Soon they will not have much other choice.