The last month witnessed an extraordinary level of regulatory activity by the Environmental Protection Agency under the Clean Air Act. These rules will have a significant impact on public health, manufacturing, product prices and consumer choices.
On July 29, the Obama administration announced that it had reached agreement with 13 auto manufacturers to reduce Greenhouse Gas (GHG) emissions to double fuel economy standards for cars to 54.5 mpg by 2025 and for pickup trucks to 35.5 mpg. To meet these demanding goals, manufacturers will not be able to rely on incremental improvements in existing technologies but will have to develop disruptive technologies, especially batteries that will allow the fleet to transition to electric-powered vehicles. The agreement reflects manufacturers’ understanding that major changes in their products are inevitable due to projected increases in fuel costs, and that future growth opportunities are located in developing countries that demand smaller, more fuel-efficient cars.
On August 9, the White House released a final, first-ever EPA rule, supported by the industry, that requires tractor-trailers and buses manufactured between 2014 and 2018 to reduce fuel consumption and GHG emissions by 20 percent. This rule also reflects the consequences of future fuel costs. With a 20 percent fuel savings from a tractor that currently gets 6 mpg and travels 200,000 per year, the new vehicle will repay the additional capital cost in relatively short order.
EPA soon will issue a new regulation to limit ground-level ozone emissions that cause smog. The draft submitted to the White House would save 12,000 deaths annually and cost $20 to $90 billion. If the Obama administration adopts the draft rule, a majority of the counties whose air quality EPA monitors would become “non-attainment” areas, and states would be required to modify their implementation plans to impose new pollution controls and reduce emissions over the next 20 years. Areas in the manufacturing states of Florida, Michigan, Missouri, North Carolina, Ohio and Pennsylvania will fall into non-compliance.
On July 7, EPA issued a final rule that requires coal-fired electric power plants in 27 eastern and midwestern states to reduce their emissions of sulfur dioxide and nitrogen oxide. This Clean Air Transport Rule is both more stringent than the proposed rule and broader in scope, as it imposed first-time SO2 emission standards on Texas generating plants.
While EPA was active, the House of Representatives adopted multiple riders to strip the agency of funds to enforce air pollution rules, provisions that would have died in the Senate. The situation may have changed, however, with the debt ceiling compromise. In late fall, Congress will consider an omnibus appropriations bill for all agencies and the spending reductions proposed by the Joint Special Committee on Deficit Reduction. The combination of these massive, must-pass bills may give holdouts in Congress substantial leverage in negotiations. Opponents of EPA’s rules may try to use this opportunity to block its initiatives.