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Trump's bid to ease fuel efficiency rules will be tough and likely limited, experts say

The White House's attempts to alter the Obama administration's plan to raise federal automobile fuel standards could be a slog and ultimately yield little change, experts say.

The Department of Transportation and the Environmental Protection Agency will revisit rules finalized under President Barack Obama that would keep automakers on pace to manufacture vehicles that get more miles per gallon. But experts say it will be difficult for President Donald Trump to meaningfully relax the rules under the Corporate Average Fuel Economy standards, or CAFE.

Still, Trump said on Wednesday that the review would help boost the U.S. auto industry in short order.

"There is significant chance of judicial reversal if they're not careful on the review and economic analysis that supports the new rule-making." -John Graham, Indiana University School of Public and Environmental Affairs dean

"I'm sure you've all heard the big news that we're going to work on the CAFE standards so you can make cars in America again," Trump told auto workers during a rally in Detroit.

"We want to be the car capital of the world again. We will be, and it won't be long. Believe me."

The Obama administration finalized the CAFE standards for model year 2022-2025 cars and light trucks a week before Trump took office.

That was well ahead of the April 2018 deadline to complete a review of tougher tailpipe rules, which would move American car makers' fleets toward an average 49.7 miles per gallon. That assessment was intended to determine how the industry was adapting to new standards and whether it was feasible to continue ratcheting up the average fuel efficiency as planned.

Making the case for rollback

Former EPA liaison and Obama campaign staffer Dan Kanninen said any impact from Wednesday's reopening of the review would likely be limited.

"It's not rescinding the entire rule. It's not rescinding the standards. It would be quite difficult to do that, but it sends a signal that [Trump] is interested in going down that route," said Kanninen, now vice president for issues and advocacy at the Smoot Tewes Group, a lobbying firm.

Under the 2007 law that created the CAFE standards, the Trump administration and automakers must show that stricter tailpipe rules would be financially detrimental in order to revise the current schedule, Kanninen noted.

"They've got to prove real hardship on the cost, not just an inconvenience," Kanninen said.

An employee works on the assembly line at the General Motors Assembly Plant in Arlington, Texas.
Mike Stone | Reuters
An employee works on the assembly line at the General Motors Assembly Plant in Arlington, Texas.

Automakers worry they will have to produce small, fuel-efficient cars that are currently out of fashion in today's low oil price environment to offset the impact of gas guzzlers on their fleet's average efficiency.

Researchers at Indiana's University's School of Public and Environmental Affairs recently concluded the standards would have a negative impact on the economy for a few years to roughly a decade, depending on a number of market factors. However, higher fuel efficiency would be a net positive in the long term, the researchers concluded.

Complying with tougher standards would lead to declining new vehicle sales and higher auto prices that drain consumer cash from other parts of the economy, SPEA researchers found.

However, investments in fuel-saving technology would increase employment, output and disposable income, offsetting at least half of the negative impacts. Savings at the pump would ultimately allow consumers to spend money elsewhere in the economy.

Trump's options

That leaves room for interpretation of economic harm.

Any rollback of the rules is likely to be challenged in court by states or environmentalists, and there is a long legal and scientific record that supports the Obama-era standards, including a 2007 Supreme Court verdict on regulating heat-trapping emissions from autos, experts say.

Whether the Trump administration prevails will hinge on the judicial panel that hears the challenge, but some policy options are more likely to be overturned than others, said John Graham, a former senior official under George W. Bush who worked on fuel efficiency standards.

"There is significant chance of judicial reversal if they're not careful on the review and economic analysis that supports the new rule-making," said Graham, now dean of Indiana University's SPEA.

The option least likely to be reversed is extending the deadline for automakers to achieve an average 54.5 miles per gallon for their fleets to 2030, he said.

Trump could also provide more credits to car manufacturers for using fuel-saving technologies. That would give them more leeway to make gas guzzlers, but a judicial panel may view that as a bolder move, said Graham.

The riskiest move would be to freeze the standards at current levels until fuel prices rise to a level that typically incentivizes consumers to buy more efficient vehicles.

Jamie Albertine, auto analyst at Consumer Edge Research, told CNBC's "Closing Bell" he believes an extension is likely. On Wednesday, he noted automakers still face tough tailpipe regulations in California, as well as in Europe and Asia.

Morningstar analyst David Whiston told "Closing Bell" he doesn't expect automakers to shift away from fuel efficient cars in their product portfolios.

Trouble at the EPA

The EPA also faces administrative hurdles to tackling a substantive review of CAFE standards, according to Kanninen. The agency has yet to fill a number of political appointments and is facing deep budget cuts and potential layoffs under Trump's so-called skinny budget.

That leaves career officials to carry out much of the CAFE review. Many are probably not on board with Trump and EPA chief Scott Pruitt's de-regulation agenda, and therefore may not arrive at the conclusions on CAFE standards the White House would prefer, Kanninen said.

The EPA, Department of Transportation and California's Air Resources Board determined last year automakers would be able to meet 2022-2025 targets, though Kanninen said the average efficiency will likely come closer to 52 miles per gallon due to Americans' preference for trucks and SUVs.

"What the folks in the Trump administration don't necessarily appreciate or fully understand is these agencies are not ideological agencies. They're agencies based on law and science," he said.