President Donald Trump’s rollback of fuel-economy targets could hit Canadian drivers where it hurts: their wallets.
Experts in Canada warn the sticker price of cars could rise and the selection of cars offered for sale north of the border could shrink as a result. In 2018, Trump announced plans to freeze fuel-economy targets at 2020 levels, thereby canceling a policy introduced under the Obama administration that would have forced automakers to continue reducing vehicle emissions through 2025.
The White House still hasn’t announced details of its fuel-economy plan, so there are fears it will result in two different fuel-economy standards in America, which could raise costs for both auto manufacturers and for consumers, said Robert Karwel, senior manager of the automotive practice at market research firm J.D. Power Canada.
THE STORY SO FAR
Under regulations introduced by the Obama administration, automakers had to improve the fuel efficiency of vehicles by roughly 5 per cent annually through to 2025. In Canadian terms, that meant automakers’ fleet-wide average fuel economy would have to be 4.4 L/100 km by 2025.
When Trump proposed freezing fuel economy targets at 2020 levels, California responded by announcing it would set its own standard, similar to Obama’s. That “enraged” Trump, according to the New York Times. The U.S. Justice Department then launched an antitrust investigation into those automakers that agreed to voluntarily follow California’s standard. Another group of automakers sided with the White House.
Last year, Canada signed an agreement with California to collaborate on vehicle-emissions regulation. Combined, Canada, California and the 12 other states that would follow its lead, collectively make up about 40 per cent of the Canada-U.S. car market.
More recently, Reuters reported that Trump won’t freeze fuel economy targets at 2020 levels, but may instead require a modest 1.5-per-cent annual efficiency increase.
“Our members believe there should be one national and, ideally, North American standard,” said David Adams, president of industry association Global Automakers of Canada.
“The federal government seems to understand the need for a common North American standard on emissions. However they are challenged by the fact that they have a commitment to the Paris Agreement that the U.S. does not have, and a new, more stringent overall target to reduce GHG emissions by 2030,” Adams said.
WHAT WILL IT COST CANADIANS?
Under the Obama administration, the U.S. National Highway Traffic Safety Administration (NHTSA) found the more ambitious 2025 fuel economy targets to be a net gain. In other words, for average drivers, the higher purchase price of more efficient cars would more than offset by fuel savings.
Under the Trump administration, however, the NHTSA reversed its previous findings in a 2018 report that determined cars built to the higher fuel-economy standard would end up costing the public more money.
In a tweet, Trump said his proposed fuel economy freeze would save drivers money and produce safer cars.
However, California Governor Gavin Newsom quickly responded in a tweet saying the White House policy would ultimately cost consumers US$400-billion and hurt car companies’ ability to compete in the global market.
A 2025 car built to the Obama-era targets (GHG 2025) would cost, on average, $1,374 (Canadian) more than one built to Trump’s frozen 2020 target (GHG 2020), according to U.S. Environmental Protection Agency data analyzed by the independent research organization International Council on Clean Transportation (ICCT).
The owner of a 2025 car built to GHG 2025 standards would recoup the extra $1,374 sticker price in four years thanks to fuel savings. (Using its own data, the ICCT estimates only two years to recoup costs.) After that, the more fuel-efficient car becomes cheaper to own.
For the owner of that same fuel-efficient 2025 car who finances it over 72 months (instead of paying cash), it will become cheaper to own within the first year thanks to fuel savings, according to the ICCT study.
“Spending a little bit more up front on the sticker price for a more-efficient vehicle really pays dividends very quickly,” said Ben Sharpe, senior researcher and Canada lead for the ICCT. That’s true for every type of combustion-engine vehicle, from compacts to SUVs, he added.
UP IN THE AIR
However, if Trump’s government decides not to freeze targets at 2020 levels and instead enacts a modest 1.5-per-cent annual fuel efficiency increase, as has been reported, that would change these estimates.
Merely having two sets of fuel economy regulations – one set by the White House, the other set by California – would also end up costing consumers. Since the auto industry relies on economies of scale, having to make two engine variants for North America’s split market would be more expensive for car manufacturers. As a result, consumers would have to pay an additional $41-$67 for the average new car built to GHG 2025 targets, according to ICCT research. But, again, these higher purchase costs could be offset by fuel savings.
What drivers may care about more is a potential reduction in the number of niche vehicles on offer in Canada.
“With some low-volume vehicles, that perhaps don’t get built to the California emissions level, it means we might not be able to import those vehicles, if we are on that standard,” J.D. Power’s Robert Karwel said. “This could effectively remove some vehicle choice from our market, which is already highly dictated to us by the large U.S. market.”
A spokesperson for the minister of the Environment and Climate Change said no decision has been made and they are still reevaluating Canada’s existing policy.
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Matt Bubbers