CAFE 2025: Job Killer or Protector of Jobs, the Environment and Consumers?

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A key part of President Trump’s promise to make America great again is to strengthen America’s manufacturing sector by saving or adding manufacturing jobs. One of the main ways the Trump Administration wants to aid manufacturers and create manufacturing jobs is through relaxing or eliminating business regulations. The U.S. auto industry has long been an important sector of the manufacturing economy, both nationally and locally. Since it is such an important manufacturing industry, it is a key focus of the Trump Administration. Last year, on March 15, 2017, President Trump travelled to Michigan to make a speech about the auto industry, regulations and jobs. During his speech, President Trump announced that he was calling for a review of the 2025 CAFE standards set forth by the Obama administration in 2012. President Trump either wants to revise the CAFE regulations or completely do away with them. President Trump believes that the 2025 CAFE standards are too demanding on the automakers, drive up their costs, hurt their profitability, and ultimately reduce auto manufacturing jobs. In the speech, Trump stated: “My administration will work tirelessly to eliminate the industry-killing regulations…to ensure a level playing field for all American workers.” Specifically speaking about the CAFE standards he noted: “If the standards threatened auto jobs, then commonsense changes could and should be made.”

In 1975, Congress first enacted CAFE (Corporate Average Fuel Economy) Standards. CAFE standards set the average fuel economy standard required for new vehicles that an auto manufacturer must meet. The CAFE standard’s main purpose is to reduce energy consumption by increasing the fuel economy of cars and light trucks. Over the past several years, the National Highway Transportation Safety Administration has set standards to increase CAFE targets rapidly in the coming years. In 2012, the Obama administrations released new national CAFE standards. These new standards require automakers to raise the average fuel efficiency of new cars and light trucks to 54.5 miles per gallon by 2025 according to usnews.com. To put this number in perspective, the 2015 model year average fuel economy was 24.8 miles per gallon. This makes the 2025 requirement of 54.5 miles per gallon an aggressive target. The question the Trump Administration is asking, by ordering a review of the 2025 CAFE regulation, is whether or not the standard is too aggressive, and what impact does this regulation have on auto industry jobs. From the tone of the President’s language regarding regulations in general, many believe changes will indeed be made to CAFE.

In Donald Trump’s first year as President, he has put a lot of his focus and time into removing business regulations in an effort to help American workers, the U.S. economy and create jobs. It seems Trump has many allies when it comes to reviewing and possibly revising the CAFE standards. Commenting on the decision to review the CAFE standards, Transportation Secretary Elaine Chao said, “Today’s decision (to review CAFÉ) is a win for the American economy.” Likewise, Environmental Protection Agency Administrator Scott Pruitt noted, “These (CAFE) standards are costly for automakers and the American people.” Opponents of CAFE, such as Trump, Chao and Pruitt can point to a number of research efforts that support their position. For example the EPA has estimated that CAFE would cost the auto industry $33 billion. The Center for Automotive Research, which is not, affiliated with any specific political party, reported in a study, “that U.S. auto factories and parts operations could slash up to 137,900 jobs through 2025 if the federal government’s Corporate Average Fuel Economy (CAFÉ) standards remain in effect.” The auto industry itself seems to also be in favor of the Trump administration’s order to review the CAFÉ standards for 2025. Former Ford CEO Mark Fields told President Trump, “…that around 1 million jobs could be at risk if newly implemented fuel economy standards aren’t adjusted.” Also, shortly after he took office, President Trump received a letter from the CEO’s of Ford, General Motors, and Fiat Chrysler urging him to set a review of the CAFÉ standard requirement for 2025. In an effort to get a deeper understanding of the auto industry perspective, Nate Dickemann, a Ford engineer was interviewed for his perspective on the CAFE 2025 target, and it’s impact on automaker operations and jobs. Overall, Dickemann agrees with the actions taken by the Trump administration to review CAFE for a possible revision. He noted that, “…Trump should review the MPG target and make the target less aggressive.” His main argument backing a review and revision is that the government, rather than the market is driving the effort for fuel economy. He contends that the 54.5 MPG target by 2025 is “attainable”, but questions, “…is that what consumer’s desire?” He points to the fact that trucks and sport utility vehicles are still heavily purchased by consumers, rather than fuel efficient vehicles. He ultimately contends, “The (MPG) rate the government is trying to drive…is not aligned with consumer purchasing strategy.” The data appears to back Dickemann’s claim. According to JD Power and LMC Automotive, “trucks, including SUVs and pickups, were most in demand in the first half of 2017, accounting for 63.7% of new light-vehicle deliveries in the United States. On the flip side, passenger-car sales slumped to 36.3%. Dickemann ultimately believes that. “…relaxation of the (CAFE) standard will benefit all automakers and increase jobs.”

While it appears the Trump Administration, and many in the auto industry think that reviewing and revising the standards is a good thing, many others think that the aggressive 2025 CAFE standards have many benefits, are good for American consumers and are not convinced the regulation is a job killer. John Decicco summed up the feeling of many who are in favor of the CAFÉ 2025 standards in Yale Environment 360 when he noted: “there is no factual basis for the claim that stricter standards have killed jobs. There is, however, abundant evidence that these (CAFE) regulations have saved billions of dollars at the pump, bolstered U.S. energy independence, fostered automotive innovation, and led to major reductions in air pollution and greenhouse gas emissions.” The benefits and savings to consumers do appear to be significant. A recent Consumers Union report revealed that due to the CAFE 2025 Standards, “over the life of a vehicle, consumers can expect to save between $3,200-$4800” and the savings increase should gasoline prices climb higher than expected.

Likewise, the benefits to the environment also seem clear. The National Highway Transportation Safety Administration has admitted in the past that “the U.S. transportation sector is one of the largest contributors to total U.S. and global anthropogenic emissions of greenhouse gases.” And as noted by usatoday.com, “lower fuel economy translates into higher carbon emissions. That (higher emissions) contributes directly to climate change, which scientists blame for rising sea levels, extreme weather, harsher agricultural conditions, biodiversity loss and health concerns.” Reliance on foreign oil is another benefit touted by those in favor of CAFE 2025. They can point to a report from The Union of Concerned Scientists which estimated that if the standards stayed the same until 2030, the United States would save an approximate 3 million barrels of oil per day.

As noted, the Trump administration’s feels the main problem with CAFE 2025 is that it will reduce auto jobs. Interestingly, those in favor believe CAFE can actually help auto jobs. In order to reach the 2025 CAFE target, automakers will need to improve current technology. The thinking is that pursuing innovation will cause automakers to invest more in technology and hire more workers. As Decicco described in Yale Environment 360, developing the technology to meet the CAFE 2025 target, “…means jobs for engineers. Building the redesigned transmissions then creates jobs for assembly workers,…for steelworkers and others involved in supplying parts and materials to the auto industry.” So rather than killing jobs, CAFE is seen as growing auto jobs. I interviewed a Ford Purchasing Manager, Steve Faraci, who seemed to share the thoughts of Decicco. Faraci explained, “Transitioning to new technologies boosts jobs.” He further noted that “eliminating or lowering the (CAFE) MPG requirements would curtail new technology and job growth in the long term.” He also feels overturning the CAFE standards could ultimately put automakers who fail to pursue such technology at a disadvantage as other car makers, such as Tesla, are aggressively pursuing innovation by producing low emission, or no emission autos. In short he described that producing cars with better fuel economy is the direction the auto industry is heading. Millions of dollars have already been invested in the technology to comply with CAFE 2025. Completely eliminating the current standard would not be wise.

President Trump has made attacking “jobs killing regulations” a target for much of his domestic policy so far in his presidency. One of the regulations in his sights is CAFE 2025. Trump, some of his administration, and some in the automaker industry believe that CAFE 2025 is not necessary or at best too aggressive. They believe it threatens automaker profitability and autoworker jobs. Others, who are in favor of the CAFE 2025 requirement believe it benefits consumers, improves the environment, and may in fact help grow automaker jobs. With such a heavy reliance on auto jobs, this is an especially important topic locally. Based on Trump’s past actions, it appears likely he will at the very least modify the CAFE 2025 standard. Will loosening this regulation really improve auto industry job? Only time will tell.

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