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Major Automakers and California Agree to New Framework on GHG Standards

Aug 02, 2019

EVs 3

In July 2019, the California Air Resources Board (CARB) and four automakers—Ford, Honda, BMW, and Volkswagen—agreed to a new voluntary framework to maintain a single 50-state framework for the regulation of vehicle emissions. This comes as a response to the Trump administration’s efforts to freeze fuel efficiency standards at the 2020 set levels.

Details of the New Agreement
  • Revised greenhouse gas standards: For vehicle model years (MY) 2022 through 2026, greenhouse gas reductions will have increasing stringency at a nationwide annual average rate of 3.7% year-over-year, of which 1% can be achieved through advanced technology multiplier credits. This is a decrease from CAFE’s current 4.6% rate.
  • Extension of technology multipliers: Manufacturers have been provided a sales multiplier under the current CAFE standards, which allows them to count the sale of each battery electric, fuel cell, plug-in hybrid, and natural gas vehicle as more than one vehicle when calculating manufacturer compliance—a temporary incentive for the development of alternative fuel technologies. Under this new agreement, these alternative fuel vehicles will retain their sales multiplier through MY 2024 and taper off from MY 2025–MY 2026. Under the current CAFE standards, this incentive is set to begin tapering in MY 2020 and expire after MY 2021. 
  • Reduced accounting requirements: OEMs are no longer required to account for upstream emissions of fuels. 
  • Raised cap on off-cycle credits and streamlined approval process: This change allows manufacturers to claim a larger amount of emissions reductions (now 15 gallons per mile, up from 10 gallons per mile) from technology changes that improve fuel efficiency in ways that are not considered during the test procedures used by the US Environmental Protection Agency. These technologies include: engine start-stop, active aerodynamics, gearshift indicators, and tire-pressure monitoring. The agreement also streamlines approval of new eligible off-cycle credit improvements. 
New Agreement Creates Certainty for OEMs

Though this new agreement is weaker than CAFE standards, it is stronger than what has been proposed by the Trump administration. Additionally, the agreement between the manufacturer group and CARB not only represents a continued commitment to increasing fuel efficiency for the nationwide vehicle fleet, but also creates certainty around fuel efficiency standards for which the OEMs can plan.

Although CARB’s initiative with industry leadership from Ford, Honda, BMW, and Volkswagen rebuffs attempts by the federal government to stagnate improvements to fuel efficiency standards, these manufacturers make up roughly 30% of the vehicles sold in the US each year. California Governor Gavin Newsom announced he was confident other automakers would follow suit, though Fiat Chrysler Automobiles is waiting until the federal government comes out with its plan before making a commitment.

This agreement may negatively affect the sales of EVs through 2026. Overall, loosening the requirements reduces the value of credits generated from the sale of EVs. Lowering the required fuel efficiency numbers year-over-year while simultaneously increasing the cap and availability of off-cycle credits makes it easier for manufacturers to meet near-term goals without transitioning away from fossil fuels. Additionally, the extended timeline of alternative fuel multipliers enables OEMs to achieve targets later with fewer EVs.