Fuel Efficiency Back on the Agenda

By Mike Howe

July 1st, 2009

It seems that every two to three years there is a new proposal to increase fuel efficiency and reduce greenhouse gases. Almost like clockwork, President Obama announced a new national fuel efficiency policy in May. Though this policy is not directed toward the trucking industry, anytime such a policy proposal is made it is worth our industry’s time to look into it. After all, political gain is achieved incrementally, so how long can it be before we see new standards required for the trucking industry?

According to the White House’s May 19 press release, “The new standards, covering model years 2012-2016, and ultimately requiring an average fuel economy standard of 35.5 mpg in 2016, are projected to save 1.8 billion barrels of oil over the life of the program with a fuel economy gain averaging more than 5 percent per year and a reduction of approximately 900 million metric tons in greenhouse emissions.” This new policy surpasses the CAFE law requirements enacted by Congress in 2007.

Again, it is important to note that the new fuel efficiency standards are not for the large commercial trucks, but if the standards were met, trucking might benefit. Consider what 1.8 billion barrels of additional oil would mean for fuel prices. In July 2008 the U.S. Department of the Interior announced that there are 800 billion barrels of recoverable oil in the western United States in the form of oil shale. That same month, the U.S. Geological Survey announced that there is the equivalent of 112 billion barrels of oil in North America’s Arctic.

So, that is nearly 1 trillion barrels of oil available that was just announced last year, compared with the 1.8 billion barrels of oil the new fuel efficiency standards will save over the length of the program. In other words, there likely will be no appreciable financial savings with this program, though production of these other reserves probably would impact prices.

Let there be no doubt, this is about the environment. The common thought seems to be that a measured approach to improving standards must be balanced with consideration of financial impacts on individuals and businesses. The Obama administration touts this new policy as a partnership between auto manufacturers and government. “The president brought all stakeholders to the table and came up with a plan to help the auto industry, safeguard consumers and protect human health and the environment for all Americans,” says Environmental Protection Agency administrator Lisa P. Jackson. “A supposedly unsolvable problem was solved by unprecedented partnerships.”

General Motors warned this April in a government filing that the tightened standards as a result of the 2007 CAFE law could significantly disrupt its operations, leading it to cut sales of its more profitable models (the SUVs) and to ramp up production of hybrid and electric cars. Since then, we have seen the federal government become a major stakeholder in the American auto industry, we have seen plants close and we have seen many layoffs. Now we want to implement this new policy, too?

Again, though, this is really about the environment and harmful emissions. What about the trucking industry – is it on the radar of the Obama administration? That is difficult to discern. Two years after the CAFE law was enacted, the Obama administration announced an even more stringent policy. For the trucking industry, it was in January 2001 that the EPA finalized rules to reduce emissions with truck models 2007 and later. As a result, refiners began producing ultra-low-sulfur diesel (ULSD) in June 2006.

The same arguments that were made with the trucking standards have been made with the new policy. Jackson says, “As a result, we will keep Americans healthier, cut tons of pollution from the air we breathe, and make a lasting down payment on cutting our greenhouse gas emissions.”

Whether this proposed policy will lead to a revised, more stringent policy for the trucking industry remains to be seen, but based on the rhetoric of the current Congress and the commitment of the administration to strengthen environmental regulations, this could be just the beginning.