The road to new fuel economy standards was not smooth


On an August morning in 2008, a handful of executives from the country’s top car companies, several environmentalists and two of California’s most powerful pollution regulators met in a windowless conference room in a hotel next to Los Angeles International Airport.

For 30 years, the car companies had been locked in battle with California and environmentalists over increasing vehicle fuel efficiency and cutting air pollution.

But that meeting at the Radisson Hotel brought together new government and industry leaders able to capitalize on new technologies in a market ready to adopt fundamental changes in cars.


The meeting created momentum that would result in the Obama administration’s announcement Wednesday that new fuel economy standards — backed by the automakers — would nearly double to an average of 54.5 miles per gallon for passenger vehicles by 2025.

Hammered out over three years in sometimes tense talks among federal and state officials, automakers and environmentalists, the fuel economy standards mark the single biggest environmental achievement in a generation, akin to the landmark 1970 Clean Air Act, analysts and participants in the talks said.

The standards “are more like a meteor hitting the Earth than a gradual evolution,” said Mary Nichols, head of the California Air Resources Board, which regulates tailpipe emissions.

“A new generation of leaders taking over both the U.S. government and the global auto industry coincided with dramatic shifts in public expectations for technology and the engineers’ ability to deliver multiple new kinds of engine-fuel combinations,” she said.

The 2008 meeting was spurred by a phone call from a Toyota Motor Corp. executive to Nichols, a sign of California’s key role in any emissions talks. Auto executives also contacted the transition teams being assembled for Obama and GOP presidential nominee Sen. John McCain.

The auto industry — especially General Motors Corp., Chrysler and Ford Motor Co. — had reason to make nice. The Detroit Three had lost considerable market share to foreign competitors, and the unfolding recession threatened their existence.

Obama, who was leading McCain in the polls, had challenged automakers during his campaign to build cars that got far better gas mileage. And the U.S. Supreme Court had ruled a year earlier that the Environmental Protection Agency had authority to set fuel-economy standards.

But most unnerving to the industry, California and 13 other states were poised to set their own standards for vehicle greenhouse gas emissions, a proxy for fuel economy that would plunge the automakers into the nightmare of making different cars for different parts of the country.

“The thought of having a patchwork set of fuel economy rules around the country — there was no way we could meet those state by state,” said one auto executive who didn’t want to be identified because he was involved in ongoing negotiations.

Or, as a former Obama transition team member said recently: “California had a gun to their heads.”

Besides Nichols, others at the meeting included her agency’s deputy chief executive, Tom Cackette; environmentalists from the Natural Resources Defense Council, the Sierra Club and the Union of Concerned Scientists; and executives from GM, Ford, Toyota and Honda Motor Co.

On the table suddenly was one of the most ambitious and elusive environmental goals: a single national fuel economy standard that would satisfy California’s ambitious air pollution goals and allow companies to build cars that still made money.

California’s role arguably created a unique set of pressures for automakers. It proposed the toughest rules in the nation, and they were likely to be adopted.

For some, the talks held lessons for how the administration, other industries and labor could work together to craft new environmental rules at a time when most businesses have pushed hard to dismantle regulations.

“The proposed rule is proof that a diverse group of stakeholders can find a solution by working together and relying on data to drive the process,” said Ziad Ojakli, head of government affairs for Ford.

“This approach can provide the kind of regulatory certainty we need to both help the environment while protecting jobs and providing customers with a full range of affordable vehicle choices,” Ojakli said.

By mid-2008, gasoline prices were high, and labor was convinced that fuel-efficient cars would preserve jobs. Obama had signaled his willingness, if elected president, to issue California a waiver from weaker federal rules to set its own standards for tailpipe emissions, reversing a decision by George W. Bush in 2008.

Soon after Obama’s inauguration, the administration granted California its waiver. By February 2009 the White House had launched formal negotiations with California and the automakers to broker a deal for a first set of standards, for model years 2012 through 2016.

The car companies still were wary of the new crowd in the White House, said Jody Freeman, a law professor and White House official who coordinated the talks.

“They didn’t know the administration, and they had just come out of the Bush administration where there wasn’t a lot of interest in resolving” the differences between industry and California, she said.

What brought industry around, executives said, was a government offer to devise so-called attribute-based standards. The standards let companies that make SUVs and trucks, mostly the American manufacturers, meet lower mileage targets as long as the passenger fleet hits the higher annual target.

Through the spring, carmakers began signing off on the first set, which would boost the fleetwide average to 35.5 mpg by 2016, five years ahead of the schedule set under Bush. The increases are projected to cut oil consumption by 1.8 billion barrels over five years.

Flush from that agreement, the car companies asked in 2009 for a second round of standards starting after 2016, again to stop California from adopting stiffer rules.

But by late 2010, the atmosphere had changed. Their finances better, thanks to federal bailouts of GM and Chrysler, the domestic automakers pushed back. The 2010 midterm elections swept Republicans to power in the House, and they were eager to halt environmental rule-making.

New standards for 2017 to 2025 looked imperiled by the old antagonisms. But White House officials said they shrugged off the saber-rattling.

“The issues were a lot more complex because the timeline was farther out” and much of the technology was uncertain, said one administration official who was not authorized to speak on the record. “It wasn’t the low-hanging fruit anymore.”

Serious, round-the-clock individual talks began again in mid-June.

The car companies asserted they might not have the technology to achieve average gas mileage above 55 mpg. They wanted SUVs and trucks to hit the standards at a slower pace. They wanted a midpoint review, in 2021, to make sure the goals were attainable.

But environmentalists and California officials worried that a midterm review would let automakers escape high standards.

Talks turned rocky when someone leaked that the White House was considering a 2025 fleetwide standard of 56.2 mpg. The auto lobby ran a radio ad predicting widespread job losses if stringent standards were passed; the United Auto Workers union and environmentalists rebutted the claims.

The White House made small concessions that one official, who was not authorized to speak on the record, said “would not take away from the greenhouse gas or oil savings but would give flexibility to companies.”

That meant car companies would get credit for certain technologies that would reduce emissions but would not necessarily be reflected on the miles-per-gallon sticker, the official said. For instance, if car companies found a way to reduce greenhouse gases from air conditioning systems, they would get fuel-economy credits for it.

The administration crafted a midterm review to satisfy automakers and environmentalists. Trucks and SUVs would not have to make big gains in gas mileage initially, but would after 2021.

“These standards will play a major role in reshaping the auto industry and the role it plays in our society,” said Bob King, president of the United Auto Workers. “The overall savings for consumers will actually make cars more affordable, and the addition of clean-car technology to each vehicle creates jobs.”

The deal was sealed with Wednesday’s formal announcement.