Starting next month, the National Highway Transportation Safety Administration says it will more than double the fines is assess against automakers who do not meet their annual corporate average fuel economy standards. Industry sources say the companies have been blindsided by the announcement.
“The most disturbing thing about it is that essentially no notice was given,” said one auto executive with responsibility for fuel economy strategy. “You make your regulatory plans based on a certain set of assumptions. To have it change suddenly without notice and without the ability to respond is really troubling.” The Alliance of Automobile Manufacturers blasted what it called a “draconian” increase, saying it will make it harder for automakers to make progress toward the Obama administration’s call for a fleetwide average of 54.5 mpg by the 2025 model year.
The change was first announced in the Federal Register on July 5. It was prompted by a mandate last year that directed all federal agencies to update their civil penalties in order to maintain their effect as a deterrent and keep up with inflation. For NHTSA, that meant raising the rate used for calculating CAFE penalties to $5.50 to $14.00 That difference of $8.50 will amount to a lot of money. It is applied to each 0.1 mpg by which an automaker misses its fuel economy target. It is then multiplied by the number of vehicles from that fleet sold in a given model year.
“This is a badly needed reform,” said Roland Hwang, transportation director at the Natural Resources Defense Council, who said the $5.50 rate made it cheaper for automakers to miss the target than to try to achieve it. The fines are levied against automakers that don’t make up for their shortfalls by buying offsetting credits, which are privately traded among automakers. Those credits could become more expensive now. That’s good news for Tesla Motors but few other companies.
NHTSA tells Automotive News the steeper penalties will apply to 2015 model year vehicles. The agency has not issued compliance reports for those vehicles yet. That means automakers who miss their targets still don’t know how much more the increased fines may cost them.
Industry advocates are already asking NHTSA and the EPA to harmonize their regulatory programs to create one set of national standards for automakers. “Some manufacturers are projecting that, despite being able to comply with the numerically more stringent greenhouse gas standards, they are likely to be in a position to pay CAFE fines,” the advocacy groups allege.
The sharp increase in fines will be phased in over a number of years. In a statement, a NHTSA spokesman said “automakers are already proving they can meet the administration’s fuel efficiency and [greenhouse gas] reduction standards,” adding that the multiyear program gives automakers time and “regulatory certainty” to plan for compliance.
The new schedule of fines may upset negotiations that are ongoing between the manufacturers and federal regulators about upcoming changes to fuel economy standards. The industry is asking the government to tap the brakes on the proposed changes, giving car makers a chance to catch their breaths. So far, the government has shown little inclination to relax the proposed rules changes.
Since 2010, the company that has paid the most in CAFE fines is Jaguar Land Rover at $46.2 million. Daimler is next at $28.2 million. Regulations are a torturous way of accomplishing policy objectives. A simple adjustment to the price of fossil fuels to make them bear their true cost to society would accomplish the same thing without a massive layer of bureaucracy. The pressure for higher fuel economy would then come from consumers rather than the government.
Automakers are often accused of “slow walking” compliance with regulations, something they have been doing with considerable success since the 50’s when they complained that “safety doesn’t sell” when the federal government began mandating safer cars. Unfortunately, the simpler solution of a carbon fee is unpalatable to entrenched fossil fuel industries which have the money to buy the votes they need in Congress to quash any such ideas.
That’s a shame, as it leaves car makers in the unenviable position of having to market cars that meet the regulations but the public has little interest in buying.