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No, fuel economy standards do not put a million US jobs at risk

Published Fri, 2017.02.03 | By

Drew Kodjak

Ford Motor Company CEO Mark Fields told President Trump that one million jobs are at risk if “fuel-economy rules don’t align with market reality,” according to a report in Bloomberg.

There are only two problems with Fields's assertion. One is that the fuel-economy rules are already, quite deliberately, designed to adjust to changes in consumer preferences about what kind of car to buy, aka "market reality." The other is that Fields's one million number is, according to what he subsequently told Green Car Reports, based on a source that estimated the cost of building cars to meet the fuel-economy standard so high that it would pay for literally every car, truck and SUV to be turned into a hybrid vehicle -- an absurd idea (though it would sure blow the doors off the standards).

Fields, in his position, has to know that the fuel economy rules are explicitly designed so that the fuel economy target changes to “align with market reality.” Indeed, this is precisely what has happened. Low gasoline prices have led to a shift in consumer preferences from smaller to larger cars and pickup trucks. The result: EPA’s projected 2025 fuel economy target of 54.5 mpg was adjusted downward last summer to 51.4 mpg.

The fleet fuel-economy number for 2025 will undoubtedly change again, because the final number will be based on the mix of vehicles actually sold in 2025. The targets for large trucks are no more difficult to meet than the targets for small cars, so any changes in market share have no effect on the ability of manufacturers to meet the targets—or on jobs. In the interest of fact-based, well-informed, careful and deliberate policy making, more details on how this part of the regulation works can be found here.

Fields has to know this, because the automakers collaborated with the EPA, NHTSA, and California in writing the rule that way in 2012.

So much for that alignment problem. What about those million jobs?

What you need to do to get that number is to overstate the cost of the technology needed to comply with the standards and ignore the fuel savings. Which is precisely what the only study Fields has identified as a basis for his alarmism did.

That study was done by the Center for Automotive Research (CAR). In brief, it estimated the economic effects of fuel-economy standards under several scenarios reflecting different gas prices at the pump (low/medium/high) and different average costs per vehicle to meet the standard—$2000, $4000, and $6000. Assuming low gas prices, inclusion of only the first three years of fuel savings, and a cost of $6000 per car to make the vehicle efficient enough to comply, the study's authors found up to 1.13 million jobs could be at risk.

There's nothing wrong with this methodology, per se. But the costs, and most especially that $6000/vehicle cost that produces that magic million lost jobs number, are simply not credible. The CAR researchers didn't use any real-world cost data from automakers or suppliers, of which there's a lot. They didn't take any notice of the extensive analysis done by EPA, which hired auto industry consulting firms to tear down vehicles and independently estimate costs part by part, and which came up with cost estimates of between about $900 and $1600 per vehicle. Instead, they based the whole thing on a 25-year-old study that looked into how much it would cost a manufacturer to achieve less than a 1 mpg gain in the average fuel economy of its fleet if the only method it used was to adjust the retail sales prices of its cars and trucks, to tweak the final sales mix. No technology innovation, just a simple price manipulation. To boot, they ignored the economic benefits of putting more money into customers’ pockets thanks to reduced fuel consumption after the first three years of ownership.

My colleague Aaron Isenstadt has a detailed summary and critique of the CAR study here. Suffice it to say here that the million jobs Mr. Fields says are put at risk by fuel-economy standards are no more real than the five million illegal votes President Trump imagines were cast in the presidential election.