September 8, 2009 at 1:22 pm

Obama fuel rules may tilt field

Washington -- The Obama administration's long-awaited proposed regulation setting fuel efficiency standards at 35.5 miles per gallon by the 2016 model year will be rolled out as early as this week.

But the rules may give some automakers a competitive advantage. The regulation is expected to mirror a California provision that gives less-stringent tailpipe emissions requirements to automakers with annual U.S. sales of no more than 400,000 vehicles, mainly German and Asian manufacturers. Reducing emissions is best achieved by increasing fuel economy.

Despite grumbling from domestic automakers, the provision was part of a deal reached in the spring and will be part of the final regulation, said Jody Freeman, a top White House climate adviser, in an interview last month.

In May, President Barack Obama announced the agreement with major automakers and the state of California to harmonize state emissions limits with federal fuel economy requirements and set one national standard. The goal was to quickly and substantially boost fuel efficiency rules over what Congress required as part of a broad energy bill in 2007.

The details of the agreement are still being finalized and could mean billions to automakers -- in costs or savings -- depending on how the companies have to meet the new stricter standards.

All that has been released so far is a 19-page summary of the government's intent to draft a joint regulation through the National Highway Traffic Safety Administration, which has been responsible for setting fuel economy standards, and the Environmental Protection Agency, which has jurisdiction over emissions.

It will be the first joint regulation by the two agencies, and will set the first federal government standard for tailpipe emissions, but many critical questions are still to be answered.

Based on 2008 sales, the 400,000-vehicle exemption would likely cover Germany's Daimler AG, BMW AG and Volkswagen AG, as well as Japan's Mazda Motor Corp. and Mitsubishi Motors Corp. and other Asian brands such as Kia, Suzuki and Subaru. The greatest advantage will go to makers of luxury vehicles, which are typically less fuel-efficient and built in lower volumes.

A 'subsidy' for luxury

Some luxury automakers have paid tens of million of dollars in fines for not meeting fuel efficiency standards.

But under the Clean Air Act, compliance is mandatory, and automakers can't pay fines for not meeting emissions requirements. The U.S. Supreme Court ruled in 2008 that the EPA has the right under the Clean Air Act to limit tailpipe emissions.

"This says if you are really rich and buying a luxury car you don't have to meet the same rules that everyone else does," said David Cole, chairman of the Center for Automotive Research in Ann Arbor. He called it a "subsidy" for smaller luxury automakers.

Automakers, California officials and environmentalists will be scrutinizing the proposal to ensure it is consistent with the agreement reached in May. The White House Office of Management and Budget is reviewing the language.

It's unlikely that automakers will try to reject the regulation, since they would face an uphill battle to stop national emissions limits. But they are likely to file public comments seeking changes to the proposal.

The Alliance of Automobile Manufacturers, a trade group representing Detroit's three automakers, Toyota Motor Corp. and six other manufacturers, is awaiting the details.

"We are hopeful that the soon to be released proposal will provide us with the consistency and certainty needed to make cost-effective future product planning decisions," spokesman Charles Territo said.

'Motivated to work together'

Frank O'Donnell, president of Clean Air Watch, a group that lobbies for tougher emissions regulations, said environmentalists want to make sure "there aren't too many loopholes, disguised as flexibility that could severely compromise the targets."

One issue is which agency will take the lead. Since 1975, NHTSA has had responsibility for setting fuel efficiency standards.

"From our standpoint, we want EPA in the driver's seat, as it were, to make sure we achieve the promised greenhouse gas limits," O'Donnell said. "Historically, EPA was subordinate to NHTSA. In this case, the roles should be reversed."

NHTSA and the EPA must allow for 90 days of public comment and finalize new rules by March 31, to allow time for automakers to meet the regulations, which would take effect in stages beginning with the 2012 model year.

Automakers will have to meet a fleetwide average of 35.5 mpg by 2016 -- four years ahead of what Congress required in 2007 when it mandated 35 mpg by 2020. The higher requirements will add $13 billion to $20 billion annually in total new car costs, according to administration estimates.

But the new regulations should give automakers some flexibility. For example, they could be allowed to use air conditioning improvements, which also reduce greenhouse gas emissions, to meet part of the requirements, which could mean the fleet average would be less than 35.5 mpg by 2016. The proposal, to be released as soon as this week, will shed light on how much flexibility automakers will get.

Roland Hwang, a senior transportation and energy policy analyst at the National Resources Defense Council, said a big difference in this rule-making is that "the government is not in conflict with the automakers. Everyone is motivated to work together.""> (202) 662-8735