Energy law expert Professor Brandon Hofmeister of Wayne Law continues his guest post on the Obama Administration’s announced agreement on consensus fuel economy standards for U.S. cars and light trucks. For background on Professor Hofmeister and the first part of his analysis, see the prior post.
Some have suggested that the reason the auto industry agreed to a fairly high standard for fuel economy was that they didn’t want to aggressively pick a fight with the administration so soon after the taxpayer funded bailouts. I wasn’t privy to any of the negotiations, so all of this is pure speculation, but I’m not so sure that was the case. The auto industry clearly was willing to run attack ads and rile up the Michigan congressional delegation against a 56.2 mpg standard by 2025. But less than a week later, they agreed to a standard of 54.5 mpg by 2025.
What explains the politics of the deal? My guess it’s less the auto industry’s reluctance to lobby or fight the administration so soon after bailouts, and more the lack of leverage they had in the “negotiation.” The Obama administration and the State of California held most of the cards in this rulemaking process, and the auto industry really, really wants a uniform U.S. standard. The fact that California agreed to issue identical standards was crucial to the automakers. The inefficiency for their global production and delivery system of potentially having a patchwork of states around the country with different fuel economy standards is a bigger problem for their business than having slightly stricter standards. And the autos could likely use the Obama administration to talk the California regulators down a bit from even bigger fuel economy aspirations. The autos also got a potential offramp to the regulations if in another decade they truly prove to be “not feasible” – which was probably the concession that closed the deal.
The auto industry’s main leverage was political pressure and the threat of litigation. Ultimately, I think the auto industry, like many industries, ultimately preferred regulatory certainty to waging a political or legal fight – even if it meant agreeing to standards that were more aggressive than they’d otherwise prefer. The same is probably true of the electricity industry when it comes to greenhouse gas regulatory uncertainty. Maybe this desire for certainty could open the door to another sector-specific climate policy after the 2012 elections.
Note that the German automakers – Volkswagen and Daimler – didn’t sign on to the agreement. They are publicly claiming that the light truck standards disproportionately helped the U.S. automakers, but at least one industry watcher is suggesting that might not be their true motivation. I don’t buy the conspiracy theory that the Germans are carrying the water for foreign oil interests, but their opposition does raise a question. Will they consider litigation to enjoin the standards? Do they have a cause of action? I doubt they will sue, but if they do, their best chance might be a procedural suit. This could give a new administration the chance to rewrite the rules. Though it’s not clear those hypothetical standards would be any better for the Germans – they could be worse.
The Administrative Process
Darrell Issa, Chairman of the House Committee on Oversight and Reform, intends to hold hearings on the process leading to the deal. I doubt Issa is motivated by a desire to uphold the sanctity of the administrative process, but regardless, these hearings should be of interest to those who study administrative law. According to news reports, he has informed the major automakers to hold on to all of their documents related to fuel efficiency deal. Issa’s argument is that the deal is invalid because it was reached through a process that did not meet the requirements of the Administrative Procedure Act (not to mention NEPA – though Issa has not mentioned NEPA in the public statements I’ve seen). No doubt the Obama administration’s answer will be that no “final” rule has been issued and it will still be going through the traditional rulemaking requirements of notice and comment, NEPA environmental review, etc. That technical answer seems to be just that – a formalistic technicality. The President’s remarks on the deal on July 29th don’t include any lawyerly caveats about the deal being subject to the notice and comment process. His remarks imply heavily that the deal is done.
This process for reaching a “deal” seems to make notice and comment and the requirements of the APA an empty formality. Is this something we need to worry about? If you support the substance of the deal, do the ends justify the means?
Proponents of strong executive action, like Justice Elena Kagan, may argue that strong Presidential direction of agency policymaking serves fundamental administrative law values like accountability, transparency, and effectiveness. Others might believe that the procedural protections provided by the APA are both important in and of themselves and help make substantive procedures even stronger by ensuring they are subject to a thorough, transparent, public vetting before being enacted.
The statutory standard for CAFE standards in the 1975 Energy Policy Conservation Act is the “maximum feasible level,” considering four factors:
effect of other standards on fuel economy; and
need of the nation to conserve energy.
While there is certainly some technocratic expertise that is relevant to such factors as “technological feasibility,” maybe it’s good that the White House is weighing in directly on such other factors as “economic practicability” and the “need of the nation to conserve energy.” These seem to be broad level policy decisions that might be better determined by the more politically sensitive White House than agency staff.
I’m not sure how I come down here. I think this particular process probably led to decent public policy. For major rulemakings, I do think it’s appropriate and realistic that the White House will play a key role in guiding public policy in the White House’s conception of the public interest. But should they be cutting deals before the notice and comment even begins? I’m not so sure. It will be interesting to see what, if anything, OIRA administrator and regulatory scholar Cass Sunstein has to say about the process leading to the CAFE agreement.
Contrary to the overly simplistic notion that any regulatory interference with the free market is a “job killer,” the fuel economy standards are good news for the “knowledge economy” portion of the auto industry – designers and engineers. It was interesting to see the UAW refer to the new fuel economy standards as “job producers.” The union cosponsored a report with the NRDC which suggested that new standards could create almost 200,000 jobs by 2020. As the report points out, these jobs don’t necessarily need to be in the U.S. They could be in Europe or Asia or anywhere really. Given the EU’s slightly more aggressive fuel economy standards, it is possible that the fuel economy solutions may be engineered in Europe and exported to the U.S.
I don’t think that will ultimately be the case, however. The fuel economy standards are likely to be good news for the battered economy of Michigan. Despite the loss of thousands of manufacturing jobs in the last decade, Michigan remains the intellectual home of the global auto industry – whether it’s the U.S. automakers, foreign automakers like Nissan, Hynundai, Mitsubishi, and Toyota that have North American research and design facilities in Michigan, or the hundreds of automotive suppliers who develop a lot of the fuel saving technologies in Michigan. The American automakers are all making moves to consolidate their global production platforms to become more efficient, which is likely to result in more consolidations of engineering jobs around Detroit.
Thanks to the leadership of Governor Jennifer Granholm, Michigan is also home to a burgeoning advanced battery industry, which is critical for hybridizing and electrifying more of the automotive fleet to meet the 2025 fuel economy standards. Just this past week President Obama visited one of the over 30 companies that have recently made investments in the advanced battery value chain in Michigan to highlight this growing industry. Finally, Dow Chemical is becoming a leader in developing lower-cost carbon fiber composites, which may eventually play a role in light weight and fuel efficient vehicles.
Predicting that job creation will occur in any place because of one single factor is a risky proposition. The global economy moves too fast and reacts to too many variables to be simplified in that manner. But on the whole, I agree with the UAW/NRDC report that the fuel economy standards will make it more likely that we’ll see more automotive engineering jobs, particularly in Michigan.