Let's Not Forget Where the Fuel Economy Rollback Leaves Oil Companies
The Trump administration’s ongoing endeavor to replace existing fuel economy mandates with something easier on automakers is a hot topic, but the issue has more angles than a rhombicosidodecahedron. One that took a backseat during much of our coverage is where the oil industry fits into all of this. We figured it was pretty obvious because, every time we heard the word “rollback,” our minds automatically added the cash register sound effect.
Car manufacturers aggressively lobbied for more lax corporate average fuel economy (CAFE) standards since Donald Trump took office. But so has the oil industry; it just wasn’t doing so quite as openly. So what exactly does the federal government’s fuel economy rollback mean for Big Oil? Don’t act as if you didn’t already know.
However, an onomatopoeia is insufficient in understanding the full scope of the issue. Let’s dive back into the EPA and NHTSA’s joint proposal, because it talks about oil extensively.
On page 21, the document states “the global petroleum market has shifted dramatically with the United States taking advantage of its own oil supplies through technological advances that allow for cost-effective extraction of shale oil. The U.S. is now the world’s largest oil producer and expected to become a net petroleum exporter in the next decade.”
It goes on to explain that lower fuel prices contributed to consumers moving into crossovers, sport utility vehicles, and pickup trucks much faster than anticipated at the time of the last efficiency rulemaking — when gas prices were much higher than they are today. Consumer preference was a large part of the the administration’s decision to rollback fuel economy mandates. We’ve repeatedly said that this shift in shopping habits has effectively put practical efficiency averages in the United States at 25 mpg since 2014, despite automakers continuing to build frugal vehicles.
The United States’ role as an oil exporter also evolved as the rest of the world became grew hungrier for it. During the 1970s, the U.S. consumed roughly one-third of the world’s oil, and had to import most of it. Today, it’s a very different story, and there is less danger of another foreign gas crisis. That being the case, domestic oil companies are very keen to ensure Americans keep using their product.
Bloomberg reports that representatives from the American Fuel and Petrochemical Manufacturers, an oil refining trade group, and executives from numerous member companies urged White House officials to ease the standards during a meeting in June. But oil industry leaders have supported the move for a while, with some admitting to lobbying government officials earlier this year — including Marathon Petroleum Co., Koch Companies Public Sector LLC, and Andeavor.
American Fuel and Petrochemical Manufacturers also issued a release this week praising the administration for delivering a plan “that reflects market realities, industry progress and consumer preferences.”
“We come from a free-market perspective, where we believe consumers should have a choice in their vehicles, and they can weigh all the appropriate factors — be it size, horsepower, utility, or fuel economy,’” said Derrick Morgan, senior vice president of the industry group. “We trust individual consumers to make the right decisions; we don’t think Washington or Sacramento should be making all those determinations.”
In terms of volume, government estimates show capping CAFE at 2020 levels yielding an additional 500,000 barrels of U.S. oil demand per day by the early 2030s. That’s about 3 percent more than previous projections. It also means automakers only have to meet fleet-wide averages of 37 miles per gallon, instead of preexisting rules that placed the average closer to 50 mpg.
If you’re wondering why the long-term oil demand estimates aren’t higher after accounting for the proposed rollback, most conservative projections presume consumers still won’t purchase extremely economical vehicles if fuel remains affordable.
These are, of course, estimates. If small, super-efficient vehicles suddenly became fashionable, it could be a very different situation. But that’s not currently the case, so projections don’t factor that as a possibility.
Either way, lowering the mandated efficiency averages is good for oil producers, and some have taken umbrage with that. “It is oil above all,” said Democratic Senator Ed Markey. “Freezing the standards would cost American drivers an additional $20 billion in 2025 alone on higher gas spending. That’s money transferred right out of consumers’ pockets into big oil coffers.”
Meanwhile, an analysis by Rhodium Group suggests the proposed changes could cost consumers an additional $193 billion to $236 billion, cumulatively, between now and 2035. Environmentalist groups spent the week denouncing the proposal as irresponsible while California prepped for a legal battle to keep to the Clean Air Act waiver allowing it to set its own limits — which ultimately affects the rest of the nation.
Again, while we can’t assure the public spending will be as high as claimed, it is safe to say the administration’s fueling proposal benefits the oil industry in a very meaningful way. But it’s only one piece of the puzzle, as leaving the standards under the Obama-era rulings would likewise reshape most automotive fleets and force companies to adopt smaller powerplants and alternative sources of energy — increasing development costs on products the average American might not want.
Meanwhile, the rollback may mean you get to keep your V8s a little longer. But there are costs associated with it, too. Neither route is without its share of pitfalls, so it’s no wonder why everyone’s up in arms.
Stingray65 on Aug 05, 2018
Anybody that thinks CAFE is required to save the planet needs to read this: https://www.manhattancontrarian.com/blog/2018-8-4-good-riddance-to-obamas-cafe-standards
Megaphone on Aug 05, 2018
Let me state my opinion in a different way then I have previously. I always take fuel consumption into account when I buy a car because I think it is the morally right thing to . I'll never buy a pickup because I don't like driving anything large (too difficult to use in a city)and because I have nothing larger to carry than my briefcase. I recycle and I personally think it is a worthy goal to use less oil. I don't want to dictate to anyone else what they should do but in democracy (yeah I know it's actually a republic) you don't always get your way. If you don't like the law on fuel standards then try to change it through the democratic process.
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