Camille von Kaenel and Debra Kahn, E&E News reporters
Published: Wednesday, September 27, 2017
The Trump administration has kicked off negotiations with the auto industry and the state of California over tailpipe pollution rules.
The deal will require navigating complex political dynamics and legal requirements, with only a small margin for a clear Trump political victory.
To win, the White House will have to conciliate the demands of the auto manufacturing industry, whose home states gave Donald Trump his presidential victory, and manage the threats of a California that’s eager to prove its progressive values on transportation. The state’s decisions shape a third of the U.S. auto market.
The result could be years of regulatory uncertainty and protracted litigation.
Since Trump’s March trip to Michigan to announce that he would reconsider the vehicle standards, the White House has kept its cards close.
But U.S. EPA, the National Highway Traffic Safety Administration and the California Air Resources Board (ARB), which jointly set the clean car standards, have all started weighing different options for the fuel efficiency rules for model years 2021 to 2025.
And this month, for the first time, a White House aide reached out to California to start talks in a phone call with ARB Chairwoman Mary Nichols.
The state has a special waiver under the Clean Air Act to set vehicle standards for itself and a dozen other states. Regulators and politicians there have vowed to stick with their stricter standards if the Trump administration decides to weaken the EPA rules, splintering the uneasy national consensus that existed under President Obama.
Some Trump allies have suggested he might revoke the waiver, but EPA Administrator Scott Pruitt has said that is not under consideration “for now.”
Jim Connaughton, who led the White House Council on Environmental Quality under the George W. Bush administration, called the showdown between California and the Trump administration “the clash of the titans, the sequel.”
During his time in the Bush administration, EPA refused to grant California a waiver to pursue more stringent vehicle standards. That decision was overturned by the incoming Obama administration.
Which manufacturer will put forward a proposal?
During his March trip to Michigan to announce he would reconsider the standards, Trump told the CEOs of the major car companies and auto workers he was making the decision for them.
Gloria Bergquist, a spokeswoman for the Alliance of Automobile Manufacturers, said the alliance is “pleased” the White House is “fulfilling its commitment” to redo the review.
“We have been very open about our approach,” she wrote in an email. “We want the midterm [review] to continue, gathering the data expected to be obtained on the timeline laid out years ago.”
But the auto industry isn’t all on the same page regarding what the government should do at the end of the review.
Some automakers, particularly international companies that make more fuel-efficient cars, see a competitive advantage in maintaining the strict standards. That’s prevented the alliance from embracing an all-out rollback of the rules.
Volkswagen AG, for example, pulled out of a lawsuit by the alliance that sought to stop the final 2022-2025 standards in March. Manufacturers of automotive parts are starting to band together to back the standards because the advanced technology requirements create jobs for them.
Others think otherwise. Fiat Chrysler CEO Sergio Marchionne has said a rollback of the corporate average fuel average standards would benefit those making larger vehicles.
To some, the opposition to efficiency is seen as an effort to protect the least-ready of the auto clan.
“From my experience with this industry, when they hide behind the alliance, which is what they’re doing right now, they’re all looking for some relaxation, but at the end of the day, it’s an association that has to represent the weakest of its members, and they’re going to go for the lowest common denominator,” said Margo Oge, the former head of EPA’s transportation office who led talks with automakers to set the standards a decade ago.
The alliance, the de facto spokesperson for the industry, represents 12 of the largest domestic manufacturers.
“What we’re talking about here is the nature of the slope. We will get to the Obama numbers; we will get beyond the Obama numbers. The question is, when?” Mitch Bainwol, the CEO of the alliance, said in April.
He has launched a multi-pronged campaign to boost incentives and flexibilities in the existing program with petitions to EPA and NHTSA and a Senate bill introduced by Sens. Richard Burr (R-N.C.) and Debbie Stabenow (D-Mich.).
But he has not advocated for the revocation of California’s waiver out of fear it would throw the industry into uncertainty. He has not suggested any new numbers for the standards.
“Unless a company stands up, in trying to be the adult in the room, these negotiations are not going to go anywhere,” Oge said.
It was Ford Motor Co. that came up with a skeleton proposal that eventually led to the historic deal a decade ago, she added.
Representatives of General Motors Co. and Ford met with Pruitt on April 26 and May 23, respectively, according to his schedule. He and Transportation Secretary Elaine Chao have also met with the alliance and with Global Automakers, the lobbying arm for the U.S. operations of international automakers.
Calif., ready for a fight
California officials have been vocal since January about defending their turf, threatening to detach their standards at the first sign of federal weakening. But they also recognize the risk of reverting to Bush-era relations with the federal government.
“Let me make this absolutely clear: If EPA elects to break its commitment by revising the previously agreed-upon model year 2021 standards, or by ignoring the technical record that confirms the current standards are appropriate, California will need to revisit its continued participation in the national program,” Annette Hebert, chief of ARB’s Emissions Compliance, Automotive Regulations and Science Division, said in testimony earlier this month at an EPA hearing to reconsider the Obama administration’s “midterm” affirmation of the rules.
California sees some upside in engaging in talks about future standards. Nichols sent federal officials a message last week in an interview with Bloomberg. She said she is open to reconsidering some aspects of the rules if she could secure stricter targets for post-2025, which could require another Clean Air Act waiver.
“The price of getting us to the table is talking about post-2025,” she said in Friday’s interview. “California remains convinced that there was no need to initiate this new review of the review and that the technical work was fully adequate to justify going ahead with the existing program, but we’re willing to talk about specific areas if there were legitimate concerns the companies raised — in the context of a bigger discussion about where we’re going post-2025.”
In her most extensive comments on the negotiations to date, Nichols set out terms of engagement with the federal government and automakers. California is not open to reducing or pushing back the existing tailpipe emissions targets through 2025, or reducing the number of zero-emission vehicles that California and other states have pledged to sell, she said. But the state is open to adjusting part of the existing regulations that would require automakers to account for the emissions associated with battery-powered vehicles’ electricity use, which is currently scheduled to take effect starting in 2022.
But Nichols may face some in-state resistance from her fellow board members, who have previously pushed for more internal deliberation on state-federal issues. While EPA approved a spending plan in April for its share of money from Volkswagen’s emissions-cheating settlement, for example, ARB delayed approving its portion of the settlement until July in order to account for environmental groups that wanted to see more of the money spent on hydrogen infrastructure and in disadvantaged communities (Climatewire, July 28).
One board member expressed wariness of Nichols unilaterally setting out negotiating terms. “Given the Trump administration, we’re going to have to be agile on our feet, but at the same time, the board is going to have to be involved in these types of decisions,” said Dean Florez, a former state senator from the Central Valley.
California is already planning for the potential divergence of state and federal standards for greenhouse gases from trucks. That debate could be a test case for the more politicized deal over passenger cars. Last month, ARB set out tentative plans to tighten its rules for truck trailers starting as soon as next year, in case EPA decides to drop its end of the newly harmonized standards. The Truck Trailer Manufacturers Association sued in December 2016 to stop the rule, saying EPA does not have the authority to regulate trailers because they do not have a tailpipe.
To compensate for a possible federal relaxation, California is considering a new rulemaking that would essentially move up the Obama administration’s 2027 target for trailers, an efficiency improvement of 9 percent, to 2020. It could also decide to tighten its aerodynamic requirements for box trailers that are more than 53 feet long, starting in model year 2020. It could also require owners of long trailers from 2018 and 2019 to retrofit them by 2024.
“Depending on what happens with the federal rule, we may start with developing a much more stringent tractor-trailer rule,” ARB air pollution specialist Alex Santos said last month. “It all depends basically on what happens at the federal level.”
Trump to choose between slight or extreme rollback
The Trump administration is being pulled in two directions.
Conservatives want Trump to revoke California’s waiver to set more stringent standards and broadly roll back Obama’s environmental regulations. Trump has embraced that rhetoric when slamming Obama’s climate change policies.
But he’s also sought to please manufacturers, which fear uncertainty and turbulence.
“This is a case where getting a deal is very much in their political interest, but it’s unclear to me they have the finesse to pull it off,” said Paul Bledsoe, a former Clinton White House climate aide and a teaching adviser at the Progressive Policy Institute.
It took six months for Mike Catanzaro, a White House energy aide, to call Nichols, despite automaker requests to start negotiations immediately. But all the administration’s other moves so far have mainly focused on scratching the back of automakers who felt shortchanged by the Obama administration’s accelerated review of the standards (Climatewire, Sept. 21).
“The Trump Administration has been, and remains, open to engaging all relevant stakeholders in this process, with the goal of finding a solution that supports job creation, consumers, energy security, and manufacturing in the U.S.,” said a statement emailed by a White House spokesperson.
Pruitt has also said California’s waiver is not under reconsideration, at least not yet. That has soured some of his allies outside the administration.
“I’m a little disappointed that the Trump administration appears to have pre-emptively capitulated on this critical point,” said Marlo Lewis from the Competitive Enterprise Institute. “Donald Trump is not ideological, he just wants to help manufacturers compete, so I think that’s where the focus will be.”
Yet the threat of the “nuclear option” still hangs over the talks.
“I think it’s poor negotiating to go right to your strongest thing,” said Mike McKenna, a GOP operative who worked in Trump’s transition team on energy. “They’d rather negotiate an accommodation, because automakers would rather have an accommodation, but I doubt any of the Trump folks would hesitate to do something on waiver if it came to that.”
The Trump administration is coming to the table with at least one negotiating lever. In July, it expanded the review to include the rule for model year 2021 in a surprise move the automakers did not request (E&E News PM, July 25).
Dave Cooke, a vehicles analyst at the Union of Concerned Scientists, called the move “straight out of ‘The Art of the Deal.'”