The official biography of Scott Pruitt, administrator of the U.S. Environmental Protection Agency (EPA), stresses his commitment to curbing abuses of power by the federal government.
“He is recognized as a national leader in the cause to restore the proper balance between the states and federal government,” it says, adding that in his previous job, as attorney general of Oklahoma, Pruitt established the state’s first federalism unit, “to combat unwarranted regulation and over-reach by the federal government.”
In his present role, however, it is Pruitt who has the levers of federal power in his hands, and his enthusiasm for standing up for the states against Washington over-reach does not seem to be quite as heartfelt as it was.
The issue that is bringing that question to a head is the debate over emissions and fuel economy standards for cars and light trucks. In the dying days of the Obama administration, the EPA published a “midterm evaluation” of emissions standards that were planned to become increasingly stringent out to 2025. That review concluded that the proposed regulations would cut oil use and pollution, providing significant benefits for the public, and were achievable by the car industry. The manufacturers disagreed, arguing that the conclusion had been rushed. They warned of job losses as a result of the higher standards, and called for a longer review, and the Trump administration agreed.
In March the EPA reopened that midterm evaluation of the planned emissions limits for 2021-2025, and in August it invited comments from the public. The National Highway Traffic Safety Administration meanwhile has a linked process evaluating the planned Corporate Average Fuel Economy or Cafe standards for the same period.
The deadline for the EPA to come to a conclusion is April 1, but President Donald Trump has already dropped strong hints about his views.
“If the standards threatened auto jobs, then common-sense changes could have and should have been made,” he told a motor industry audience in Michigan last March. “We are going to ensure that any regulations we have protect and defend your jobs, your factories.” An analysis by the NHTSA, seen by Bloomberg, suggested what that might mean: one option being looked at would allow an average fuel economy standard for new cars of 35.7 miles per gallon by 2026, down from the 46.6 MPG under the Obama administration’s plan.
However, the decision is complicated by the 1970 Clean Air Act, which allows California to ask to set its own separate vehicle emissions standards that are stricter than federal rules, “to address the extraordinary circumstances of population, climate and topography that generated the worst air in the nation.”
Because no carmaker wants to have two versions of every model—one for California and the other states that also use its standards, and one for the rest of the country—the industry wants a national standard, and there is a tendency for California’s requirements to become the U.S. national rules.
To impose its own standards, however, California needs to be granted a waiver by the EPA, which has the right to decline the request if it sees the demand as “arbitrary and capricious,” or if the state does not face “compelling and extraordinary conditions” to justify it. The scope for differing interpretations of those criteria suggests that any irreconcilable disagreement between California and the federal government is likely ultimately to be fought out in court.
Pruitt told the Senate Environment and Public Works committee last month that, like the auto industry, he favored a national standard and made it clear that in the case of a disagreement between California and the federal government, he thought it should be the national authorities that prevailed.
“Federalism doesn’t mean that one state can dictate to the rest of the country,” he said. Reuters reported there had been intense discussions between California and the federal government over the issue, with the aim of avoiding a legal battle.
The Cafe and emissions standards have been widely criticized. The actual sales-weighted fuel economy of new cars sold in the U.S. has stagnated since oil prices started falling in the summer of 2014, despite the tightening standards. Economists generally argue that the regulations are a very expensive way to curb greenhouse gas emissions, and fuel taxes are much more cost-effective.
The federal gasoline tax has remained unchanged since 1993, however, and raising it has long been seen as politically impossible. There has been a recent swell of support for higher fuel taxes as a way to fund infrastructure spending, but the idea still faces significant opposition.
If it does turn out that higher fuel taxes lack sufficient support in Congress, it would leave the Cafe standards as really the only policy instrument the U.S. has to moderate oil consumption.
Fuel demand is an issue of immediate interest in the U.S. right now. U.S. net imports of crude oil and products dropped to just 2.5 million barrels a day (bbl/d) last October, the lowest monthly number since the series began in 1973. But in the recent weekly numbers it has been edging up, hitting 4.6 million bbl/d at the end of January.
Booming oil production and reduced imports bring the U.S. benefits in terms of national security and economic resilience to supply shocks, but those benefits will be eroded if consumption just keeps on rising. There will be close interest in the administration’s decision, not only in the auto industry but in the oil business, too.
Another issue that is likely to test the limits of the Trump administration’s support for states’ rights is its plan to open up most of the U.S. coastline for oil and gas development, The waters of the outer continental shelf are controlled by the federal government, but the coastlines that would be the locations for the infrastructure needed for oil development, and the beaches that would be at risk from any spills, are run by the states.
California again looks like being a key opponent of the federal government’s plans: state officials told Reuters that they would stop any proposed pipelines intended to bring oil to land from new offshore platforms.
The U.S. coal industry’s recent political contributions were broken down by S&P Global Market Intelligence. They have gone mostly to Republicans, as you would expect, but there is also some money going to Democratic senators such as Joe Manchin and Heidi Heitkamp who support carbon capture and storage. The budget deal agreed by Congress and signed into law by Trump last week included tax credits for carbon capture and nuclear power that “could create the next big technologies to fight climate change,” wrote Akshat Rathi of Quartz.
Both those technologies face challenges in reaching commercial viability, however, given the falling cost of renewable energy. The price of solar panels fell faster than expected last year, and at the right times and in the right places solar is increasingly becoming competitive against existing fossil fuel and nuclear power plants, never mind new ones.
China’s long-awaited crude futures contract is expected to start trading next month. The Shanghai Futures Exchange says the contract is not a challenge to the established crude benchmarks, which makes sense: China is the world’s largest oil importer, and benchmarks are typically set in producer regions, rather than consuming ones.