EPA Institutes Cap-and-Trade for the Auto Industry

The buzz so far this week has been about the new EPA (Ever Pretending Aristocrats)  and NHTSA  (The Roadblockers) standards, which were signed into being Monday.  The new rules set emissions standards for both vehicle engine emissions and for the emissions of a manufacturer’s entire fleet (called the CAFE standard).  The new rules also set up a cap and trade scheme for CO2 credits within the total fleet of each manufacturer in the U.S.

The new CAFE (Corporate Average Fuel Economy) standard will be raised, in stages, to 35.5mpg by 2016.  With one big change.  Instead of measuring this in miles per gallon, as has been the norm, the EPA will instead be measuring this new standard in the miles per gallon “equivalent” of carbon dioxide emissions.

That’s right, instead of just measuring each vehicle in an automaker’s fleet by the usual MPG standard and then averaging that over the entire company’s fleet to get the CAFE number, the EPA will now be measuring CO2 emissions from the vehicles and using that.  35.5mpg works out to 250g CO2/mile, which will be required as the CAFE standard for light passenger vehicles by model year 2016.

Usually, here on EVMeme, I just make fun of things that are, well, generally laughable in the electric vehicle and automotive industry.  This, however, isn’t all that funny.  When I began writing this piece, I was going to just have my way with the EPA (hey, that rhymes!) and come up with some jokes about bureaucrats and scientists who can’t get a real job (so they work for the government).  That kind of fell apart after I’d read through much of the 800-odd pages of this new standards setup the EPA has signed into bureaucratic, regulatory being.

The Cap and Trade Style Scheme – The Cap

The new cap-and-trade style scheme is being called ABT for “Averaging, Banking, and Trading” of credits based on fleet average CO2 numbers.  OK, so it’s not a cap-and-trade “style” scheme, it’s just a CnT scheme outright.

The program is footprint-based, meaning the CO2 emissions compliance number for a vehicle is based on its total overall size and weight.  The size of the vehicle fits into a scale so that passenger cars will have a sliding scale of CO2 requirements starting with MY 2012 and getting stricter up to MY 2016.  Light trucks have a different scale along the same timeline and combined fleet vehicles are on a third scale, also on a timeline.  The combined economy is basically the halfway point between the passenger and light truck scales, so the 2016 CO2 allowance for a small car is 225g/mile while for a light truck it’s 298g/mile with the combined being 250g/mile.

That defines the “cap” in this scheme.

The “trade” bit comes later.  Before that, let me explain the points system.

The Cap and Trade Style Scheme – The “and”

Auto manufacturers are allowed to earn credits that can be applied towards fleet-wide average CO2 standards.  These can come from improved A/C systems – by lowering their HFC (hydrofluorocarbon) refrigerant losses.  They can also come from lowering indirect CO2 emissions from things like electric power steering (which reduces engine load), advanced transmissions, start-stop technology, and so forth.

Of course, if a brand new innovation comes along that isn’t included in the EPA’s list, it won’t qualify.  Thus giving automakers less incentive to use the new tech – a byproduct of nearly all regulation, come to think of it.

These points are added up and applied to the CAFE number to lower the overall emissions (and its equivalent MPG).  Automakers can “bank” these points to use them on their own numbers or sell/trade them to other automakers.

The Cap and Trade Style Scheme – The Trade

The ABT system allows for the banking (read: hoarding) and trading of these CO2 credits between auto manufacturers or between vehicles in the fleet.  So if Company A has a surplus of credits and has met CAFE standards for CO2, but has one vehicle struggling to keep on target, then those extra credits can be applied to that vehicle.

Like with previous CAFE standards, total sales or manufacturing volume of any one vehicle is not counted, so if Company A is making 2,000,000 of the SUV that can’t quite cut the mustard with CO2 emissions, but makes 500 of a compact city car that has extra CO2 credits in spades, then it all evens out.  According to the EPA, anyway.

Likewise, if Company A has a surplus and needs some bargaining chips when dealing with Company B, they could throw in some CO2 credits as extra incentive.  If Company B is having a rough time with one of their vehicles or the entire fleet-wide standard.. Bingo!  Problem solved.

Cap and Trade Scheme Finalized, and It Will Spread

Now that the EPA has put this in place for auto manufacturers, expect the idea to spread.  The auto industry is their easiest target, so it follows that they would aim this at them first.  Most of the American automotive sector is struggling and already under the EPA and NHTSA’s thumbs, so forcing this now will be easy.  In fact, so far there’s been little outcry from anyone in the business.

Now you can expect that over the next couple of years, similar schemes will be cooked up for other industries under the EPA’s watchful gaze.

Some Thoughts

Without getting too political, I just want to say that I’ve noticed that people generally mistrust their government.  At the same time, most Americans will still put their faith in bureaucrats in some “untouchable” agencies like the EPA.  People seem to assume that the Environmental Protection Agency (like the FDA and others) is incapable of doing wrong and only exists for our benefit.  This amazes me and baffles logic.

Having been writing about some of the new, up-and-coming and truly innovative new technologies in the automotive industry, I have a different perspective, I guess.  These regulatory agencies are nothing but roadblocks (and pretty costly, serious ones at that) to clean fuel and alternative technologies.

Do you wonder why we don’t have more electric vehicles and alt-fuel cars on the road?  Look no further than the EPA and the NHTSA.  It takes years and millions of dollars to get approval from these Kings of the Road to put your car or truck onto our nation’s highways.  That’s why most “new” cars aren’t so new – they’re just remakes of other models.

Welcome to the real problem.. Government. Again.

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