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Now Is the Time for All Good Automakers to Come to Aid of the Environment

Several years ago, I argued that automakers should be temporarily freed from any kinds of environmental obligations so that they could make the profits they needed to get back on their feet after financial Armageddon. But now that the car market is recovering, it's time to get into the foresight thing. Unfortunately, car companies have gone back to their old political games.

Consider this report by the Detroit News' man in D.C., David Shepardson, about the changing legislative and regulatory climate in Washington:

Faced with the prospect of strict fuel efficiency standards demanded by California, the automakers agreed in 2009 to a fleetwide average of 34.1 mpg by 2016 -- a national standard higher than even Congress demanded [but not as high as California's] -- in exchange for a single standard [through 2016]. Federal rule-makers will proposal standards for the next time period, 2017-2025, this summer and finalize them by next year.

Automakers say they're willing to support better fuel economy, but they want to stick with a national, reasonable standard that would not allow each state to set its own.

Don't let California have its way
That careful wording -- "...each state" being able to set its own standard -- is just code for "California." (Not Shepardson's code, either; he's merely paraphrasing.) The Golden State has for years wanted a higher standard for emissions and fuel economy than the automakers have been willing to accept. In 2009, it looked as if the nation was either going to adopt California's standard as the national benchmark, or carve out an exception that would allow California to impose a higher standard on its own.

This obviously horrified the automakers, but in 2009, with the U.S. auto market in free-fall and General Motors (GM) and Chrysler in bankruptcy, they were in no position to argue. Now that Congress is divided, however, they see their lobbying power on the upswing and are ready to lock in a single standard legislatively for the years 2017-2025 that will effectively prevent states from imposing more aggressive requirements.

Forward-looking fuel economy has a macroeconomic role
You can see where the automakers are coming from. It's not that they can't make more fuel-efficient cars -- it's that they have a tough time selling them. Americans like horsepower. Americans like big trucks.

Of course, Americans also used to like, or were able to tolerate, leaded gas, horribly polluted air, and acid rain. Preferences can change, and Americans have been proactive when it comes to what I call our "environmental equity."

California has often led the way. And in this case, it goes beyond the state borders. As the right-leaning economist Peter Morici has been strenuously pointing out for what seems like years now, a big chunk of the massive U.S. trade deficit is made up of foreign oil imports. He argues, compellingly, that the deficit needs to come down in order for capital currently being sent abroad to be put to work bringing down unemployment at home. More fuel-efficient cars and trucks could make this happen.

We could have seen this coming
When the automakers were flat on their backs, giving them some breathing room on fuel efficiency was the right thing to do. But everyone knew that as soon as they headed back into the black, they'd take their historic case to Congress. To a degree, this defies economic common sense. Gas prices have become highly volatile over the past five years. This is going to make it extremely difficult for car companies to get their product cycles right. Cheap gas leads to SUVs. But expensive gas makes small cars necessary.

The automakers need some help, at this juncture. If trade-deficit hawks in Congress can get their act together, then they'll see the wisdom of beating back the car companies' urge to set a national standard now actually represents a strike against the imported-oil aspect of the trade deficit. This will require some complex thinking however. And going into a presidential election season, that may be too much to ask.

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Photo: Wikimedia Commons