On June 25, 2019, the California Air Resources Board (CARB) announced an agreement with four major automakers—Ford, Volkswagen, Honda, and BMW—on corporate average fuel economy (CAFE) standards for the vehicle model years 2022-2026. Not a legally binding document, the Terms for Light-Duty Greenhouse Gas Emissions Standards agreement nonetheless offers regulatory stability in the form of a single set of fuel efficiency standards around which the automakers can plan future product development.
Uncertainty has reigned over what CAFE standards would functionally govern the US auto market since the Trump administration came to power in 2017. After taking office, President Trump immediately signaled his intent to roll back Obama-era CAFE standards, set in 2012, under which corporate average fuel economy was to reach 54 mpg by 2025. California, which was granted a waiver under the Clean Air Act to set its own fuel economy standards, indicated after the Trump administration's announcement that it would nonetheless follow the Obama standards. Over a dozen other states have signaled their intent to continue to follow California.
The Trump administration moved ahead with a proposed rule rolling back the Obama standards in August 2018, in which the Environmental Protection Agency (EPA) and National Highway Traffic Safety Administration (NHTSA) proposed to both lower the CAFE standards and withdraw California’s Clean Air Act waiver. The proposed rule would hold model year 2020 standards of just 37 mpg in place through 2026. Notably, in June 2019, 17 automakers asked the Trump administration to reconsider this proposed rollback. The automakers cited the need for regulatory certainty, and concerns that the EPA and NHTSA rules would cause years of litigation and split the US auto market into two separate markets: States that adhere to California standards and those that adhere to federal standards.
While the Trump administration has yet to finalize the lower fuel economy standards, it has issued a final rule withdrawing California’s waiver, in an attempt to quash the alternative national standard. California immediately mounted a legal challenge to the withdrawal of its waiver, which means that whether the California standards can go into effect is now up to the courts. And, as the automakers warned in their June 2019 letter, when the Trump administration does finalize its rule enshrining new lower CAFE standards, they, too, will be subject to immediate court challenge, rendering when or if they will take effect uncertain.
By signing onto this agreement with California, Ford, Volkswagen, Honda and BMW have sidestepped this uncertainty. The terms of the agreement require the signatory automakers to achieve a corporate average fuel economy of 50 mpg by 2026. While these voluntary standards exceed the proposed Trump CAFE standards, they do provide the automakers with one clear standard around which to plan future product development.
In September 2019, the federal Justice Department began an anti-trust investigation into whether the agreement was an anti-competitive abuse of market power. Some legal experts say the investigation is not meant to enforce anti-trust law, but rather to pressure the automakers to back away from the agreement. While the automakers have scheduled a meeting with the Justice Department, results of the investigation have yet to be announced.