Can the U.S. and its automakers live with two major contradicting sets of emission legislations?

21 April 2017

In the European Union, China and United States, legislation on vehicle emissions has changed over time to meet a variety of policy objectives. While the European Union and China are moving towards tightening their emission regulations, the US on the other hand is shifting in the opposite direction.

On the other side of the world, President Trump announced last month a review by US Environmental Protection Agency (EPA) of tough Obama-era vehicle emissions and fuel-efficiency standards. He proclaimed that the "assault on the American auto industry is over." Trump's move is widely seen leading to a roll back or loosening of stringent targets.

What will be the consequences for US-based OEMs and on the US market if Trump undoes Obama’s climate regulations on the auto industry? Can the second largest auto market drift backwards, while the rest of the world push for tighter rules?

There are at least three issues that I can foresee, that will have implications to the American market and US based OEMS.

Firstly, new, lenient rules may take a backseat to consumers demanding vehicles that guzzle less gas and employ the latest technological developments in reducing emissions. 

Secondly, California and nine other states in the Zero Emission Vehicle program are expected to move ahead with their previously established targets. Those states account for nearly 30 per cent of U.S. auto sales. The potential divide with the rest of the country could create a two-tiered environment with two sets of regulations. This could drive costs higher if automakers have to build two versions of the same vehicle to meet the two different standards.

Thirdly, US automakers wanting to export cars overseas will have to meet tougher standards. That means that they will have to comply with the strict external market regulations anyway.

Therefore, if China, the world’s largest market, and Europe continue pushing electric vehicles while America backpedals, it could lead to some movement of investment from the U.S. to China, especially as the latter market continues to grow, according to AlixPartners.

In the end, U.S. carmakers may just gain a few more years to meet the more stringent emissions targets that former President Obama's administration negotiated in 2012.

In the longer term, the cutting of these regulations will make American OEMs vulnerable. If Europe and China continue to toughen their emissions standards, "the U.S. might become an outlier", in the words of American Axle President Mike Simonte.

What do you think? 

Teresa Lehovd is the Head of Market Intelligence at Höegh Autoliners. She holds over 30 years of experience in the RoRo shipping industry, whereof 20 years in various market research positions where she is specialised in the research of global automotive and heavy equipment industries. Teresa is also a guest lecturer at the Norwegian School of Management in the area of Competitive Intelligence and Shipping, and frequent speaker at various industry conferences.

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