The NY Times is reporting that the Big Three US Automakers, humbled by their dismal performance over the past couple of years, have quietly capitulated to a new suite of federal mileage standards that will increase average mileage to 6.6 l/100 km (35.5 mpg) by 2016.
US President Barack Obama, reinforcing again the popular sense that he's the right president at the right time, managed to gather the CEOs of all ten major global automakers, plus environmental groups and state officials to the White House to announce the change without the conference dissolving into a riot.
In 2005, car companies were able to stop fuel economy legislation. By 2007, with the country awakened to the realization that global warming was a threat, they were forced to go along with higher standards but managed to water them down.
This time, they arrived at the table so debilitated they could extract only the barest of concessions. The primary gift carmakers received from Mr. Obama in Tuesday's proposal was the certainty of one fuel economy standard from California to Maine, rather than the patchwork that would have resulted from two sets of regulations, one by the 18 states that wanted tighter standards, and another for everywhere else.
By contrast, the former Clinton administration's abortive efforts to raise fuel efficiency standards were stymied by a decade of strong economic growth coupled with historically low global oil prices. Why incraese efficiency when everyone can afford a Ford F150 and gas is a buck-fifty a gallon?
This announcement follows a recent - but barely reported - interview with Ford Motor Company chairman Bill Ford in which he acknowledges that the US needs to raise the cost of gas to get people to consume less of it:
We clearly need - whether it's a gasoline tax or cap and trade, it's something we do need because with gasoline at $2 [a gallon], customer behaviour is not driving in the direction that the government would like.
This, of course, is the lunk-headedly obvious truth that dare not speak its name in polite society: if you want people to consume less of something, it needs to cost more.
It's why Canadian vehicles have a higher average fuel economy than American vehicles (our gas tax is higher than the American tax), and why European vehicles have an even higher average economy still (their gas taxes are higher than ours) - despite the fact that North Americans and Europeans drive roughly the same average distance a year.
In fact, I'd go so far as to say that if US gas taxes don't increase enough to create a strong domestic market for more fuel efficient cars, the increased CAFE standards will simply punish automakers by forcing them to manufacture cars that Americans don't want.
The good news is that it looks like such a change is on its way. In light of a recent Supreme Court ruling, the US Environmental Protection Agency is on the verge of ruling that greenhouse gases are a threat to the environment and hence fall under its regulatory jurisdiction. At the same time, a national greenhouse gas cap-and-trade program is proceeding through Congress.
A cap-and-trade system, if the total allowable carbon permits are held low enough, will indirectly raise the price of high-emitting products. While I prefer a straightforward carbon tax, a cap-and-trade is much better than nothing, and may be more politically palatable to US lawmakers enamored with the trappings of markets.
One reason the auto industry is going along - aside from the obvious fact that the only reason they're not already dead in the water is the massive public subsidies they've received - is that everyone saw firsthand last summer what happens when oil prices go up. NY Times again:
James C. Lentz, the president of Toyota Motor Sales USA, now the country's second-biggest seller behind Ford ... said consumers' swift reaction to record gasoline prices last summer was an important factor in the industry's embrace of higher fuel standards. "The industry woke up to the fact last year that when gas hit $4.50 a gallon, consumers were going to demand better fuel economy," he said.
Although the article predictably doesn't mention projected oil price volatility, let alone peak oil itself, this statement certainly indicates that the oil industry understands last summer was just the first taste of things to come.
Meanwhile, Canadian Prime Minister Stephen Harper is hoist on his own continentalist petard. The Financial Post reports that the Canadian government intends to adopt roughly equivalent standards in Canada.
Jim Prentice, the Environment Minister, told reporters in Calgary on Tuesday that Ottawa would ensure Canadian regulations closely mimic what Mr. Obama proposes.
"We will work together to ensure we have a single, dominant North American standard for carbon emissions and fuel economy," Mr. Prentice said. "The automotive industry in North America is deeply integrated -- therefore it doesn't profit any of us, either as consumers or manufacturers, to have competing standards."
Mr. Prentice said he would adjust current environmental legislation to ensure it is aligned with the new U.S. fuel economy standards. He said the Canadian standards will be expressed using a different metric -- grams of carbon dioxide per kilometre, instead of miles per gallon as in the United States - but will nevertheless be aligned with Washington's rules by amending environmental regulations on an annual basis.
Due to its higher fuel tax, the fleet of Canadian personal vehicles already has a higher average fuel economy than in the US. As a result, the new standards may be easier to achieve in Canada.
Three Canadian provinces - British Columbia, Manitoba and Quebec - had been developing their own in-house standards in the absence of a federal commitment to higher fuel efficiency. Since the US policy announcement, they have stated that they will wait and see whether the federal government follows through with its commitment to matching the new US standards.
In related news, GMC just announced that it will drop 264 dealerships across Canada as part of its bankruptcy restructuring.
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