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Trump's fuel fight

The administration wants to roll back proposed fuel efficiency standards, but rising consumption would mean fewer barrels available for export

The next major front in the Trump administration's fight to dismantle Obama-era environmental regulations will be to try to ease fuel-economy restrictions due to go into effect in 2022.

In early April, the Environmental Protection Agency (EPA) said the target set by the Obama administration, which would've roughly doubled car efficiency standards to an average of around 54.5 miles per gallon by 2025, was too stringent and was moving to make changes.

Car manufacturers had once supported the measures, but more recently lobbied the Trump presidency to make changes, on the grounds that they would be too costly. But they still fall short of standards in place in Europe and other parts of the world.

Lower gasoline prices have also taken the pressure off the Trump administration to push for higher fuel-efficiency standards. Americans were quick to move back into gas-guzzling light trucks and SUVs when prices at the pump fell, and fuel efficiency has dropped down the priority list for consumers. From 2008 to 2014, when oil prices were high, the weighted average fuel economy rating jumped by 25% to just over 25 miles per gallon. But since 2014, it has plateaued at that level—even as electric and hybrid vehicles have proliferated.

The EPA's decision sets off what will be a contentious and unpredictable fight. Many have assumed that the EPA intends to remove the standards altogether, although that's not necessarily the case, and the administration hasn't yet said what its end goal is.

54.5mpg—Obama-era rules for fuel efficiency by 2025

The EPA will first go through a lengthy regulatory review period. Most importantly, this will have to prove why a cost-benefit analysis carried out by the Obama administration justifying the regulations was wrong. It would also have to show how its own policy delivers a net benefit to the public. A full roll-back of the standards could prove impossible. The Trump government will also have to fend off lawsuits from environmentalists who will push to keep the standards in place.

The EPA will also have to break a longstanding arrangement in which California was granted a waiver to set its own stricter emissions standards, initially put in place to deal with the state's notorious air pollution. This standard has acted as a de-facto national policy because California is the nation's largest auto market by far, and carmakers haven't wanted to develop one model for it and another for the rest of the country. California lawmakers, which are feuding with the Trump administration on several fronts, have vowed to sue if the EPA moves to revoke its waiver.

The outcome of the fight, then, is highly uncertain. If the EPA can't clear the legal hurdles to overturn the new fuel-efficiency standards, they could remain essentially unchanged. More likely is that the standards will be tightened from current levels, but not by as much as the Obama-era rules would have put in place. It's also possible that the Trump administration will succeed in fully rolling back the regulations and fuel efficiency standards will remain where they are today.

The outcome has major ramifications for US energy markets. A 2016 analysis by the Energy Information Administration showed that although a change in the regulation would have a relatively muted impact on gasoline demand through 2030, the effect will be amplified over time. In 2025, the new stricter standards would mean the US was consuming around 250,000 barrels a day less gasoline than if the current rules remained in place—a roughly 3% difference. But by 2035 that gap will open up to a nearly 1m b/d difference, or 15% more gasoline.

Under the EIA's model at the time, the stricter fuel standards made the difference between the US becoming a net importer of oil and fuel products or not, though this also depends to a large degree on the course of future US oil production. The fuel savings from the stricter fuel economy standards, in other words, freed up more US production for export.

It's an instance where one of the Trump administration's priorities—rolling back Obama-era efforts to combat climate change—is coming into direct conflict with another: projecting energy dominance on the world.

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