Strategy and Governance
North America Policy
U.S. Greenhouse Gas and Fuel Economy Policy
In the U.S., the U.S. Environmental Protection Agency (EPA) regulates greenhouse gas (GHG) emissions from mobile sources using their authority under the Clean Air Act, while the U.S. National Highway Traffic Safety Administration (NHTSA) regulates motor vehicle fuel economy.
In 2010, the EPA and NHTSA jointly promulgated regulations establishing the “One National Program” of corporate average fuel economy (CAFE) and GHG regulations for light-duty vehicles for the 2012–2016 model years. In 2012, the EPA and NHTSA jointly promulgated regulations extending the One National Program framework through the 2025 model year. These rules require manufacturers to achieve, across the industry, a light-duty fleet average fuel economy of approximately 45 mpg by the 2021 model year, and approximately 54.5 mpg by the 2025 model year. Each manufacturer’s specific task depends on the mix of vehicles it sells. The rules include the opportunity for manufacturers to earn credits for technologies that achieve real-world carbon dioxide (CO2) reductions, as well as for fuel economy improvements that are not captured by EPA fuel economy test procedures. Manufacturers also can earn credits for GHG reductions not specifically tied to fuel economy, such as improvements in air conditioning systems.
The rules specify a midterm evaluation process under which, by 2018, the EPA will reevaluate its standards for model years 2022 to 2025 to ensure that those standards are feasible and optimal in light of intervening events, taking into account previously assumed consumer and market conditions. In parallel, NHTSA will undertake a process to promulgate final CAFE standards for those model years. Ford plans to participate in the midterm evaluation process.
It is important to note that the One National Program standards become increasingly stringent over time, and they will be difficult to meet if fuel prices remain relatively low and market conditions do not drive consumers to purchase electric vehicles and other highly fuel-efficient vehicles in large numbers. We are particularly concerned about the commercial feasibility of the 2022–2025 model year GHG and CAFE standards, and therefore the midterm evaluation process is very important to Ford and the auto industry. Ford’s ability to comply with the 2022–2025 model year standards remains unclear because of the many unknowns regarding technology development, market conditions, and other factors so far into the future. If the agencies seek to impose and enforce fuel economy and GHG standards that are misaligned with market conditions, we likely would be forced to take various actions that could have substantial adverse effects on our sales volume and profits. Such actions likely would include restricting offerings of selected engines and popular options; and ultimately curtailing the production and sale of certain vehicles such as high-performance cars, utilities, and/or full-size light trucks, in order to maintain compliance.
Ford views the continuation of the One National Program agreement as a positive step for all stakeholders toward our common goals of energy security and reduced greenhouse gas emissions. A national program is essential for the efficient regulation of motor vehicle fuel economy and GHG emissions. It allows manufacturers to average the fuel economy and CO2 emissions of their vehicles based on nationwide sales, which in turn enables manufacturers to formulate their product plans on a national level to achieve the necessary scale for future technology introductions. In contrast, state-by-state or regional regulations could force manufacturers to restrict the sale of some products in certain parts of the country, harming both consumers and dealers in those areas. Since CO2 emissions do not create localized air-quality problems, state or regional standards are unnecessary and would create hurdles, added costs and market disruptions in our path toward achieving reductions. Should California or other states ever renew their efforts to enforce state-specific motor vehicle GHG rules, this would impose significant costs on automotive manufacturers.
We intend to work closely with the EPA, NHTSA and other key stakeholders, including California, throughout the midterm evaluation process to ensure continued alignment between our shared goals for the environment and market realities of consumer acceptance of new advanced technologies.
For the longer term, Ford supports a legislative solution codifying the One National Program approach beyond 2025, to head off the possibility that various agencies or individual states may promulgate and enforce multiple, inconsistent fuel economy and/or GHG regulations in the future.
U.S. Heavy-Duty Vehicle Fuel Economy Regulations
In 2011, the EPA and NHTSA promulgated final regulations imposing, for the first time, GHG and fuel economy standards on heavy-duty vehicles (generally, vehicles over 8,500 pounds gross vehicle weight rating). These initial regulations cover the 2014 to 2018 model years for heavy-duty trucks, buses and vans. The regulations cut emissions by improving the fleet’s fuel efficiency by 9 percent to 23 percent, depending on the size of the vehicle. In Ford’s case, the standards primarily affect our heavy-duty pickup trucks and vans, plus vocational vehicles such as shuttle buses and delivery trucks. Ford supports the agencies’ attribute-based approach to medium-duty pickup and van standards that acknowledges the physical demands placed on these work vehicles. The standards recognize that the various products offered have differing degrees of load-carrying, trailer-towing and off-road capability.
In February 2014, President Obama announced that the EPA and NHTSA will issue a new round of standards for these vehicles covering the 2019 model year and beyond. The draft regulations are expected by summer 2015. Ford is committed to working with the EPA, NHTSA and the California Air Resources Board (CARB) toward a feasible set of GHG requirements that takes into account our learnings from the implementation of the first round of requirements, the state of vehicle technology, the practical ability of manufacturers to integrate such technology into their vehicle fleets and engineering lead-time requirements. Such a national program will enable the U.S. to move forward toward its environmental objectives in an efficient and effective manner. These regulations are expected to be finalized by the spring of 2016. It is important to note that, as the heavy-duty standards increase in stringency, it may become more difficult to comply while continuing to offer a full lineup of heavy-duty trucks.
The Need for Broad Engagement on Climate Issues
The potential impacts of climate change create an urgent need to transform the U.S. economy into one with lower greenhouse gas emissions, higher energy efficiency, and less dependence on fossil fuels and foreign oil. This transformation will require changes in all sectors of the economy and society. A comprehensive framework is needed to spur these changes.
While Ford and the auto industry have led by supporting the rules proposed by the EPA and NHTSA (described above), regulations focusing on just one sector of the economy will not support overall CO2 stabilization. We believe we need a comprehensive, market-based approach to reducing GHG emissions if the U.S. is going to reduce emissions at the lowest cost per ton. An economy-wide program would provide flexibility to regulated entities while allowing market mechanisms to determine where GHG reductions can be achieved at the lowest cost. The environment doesn’t care where reductions occur, but the economy does, and given the potentially high cost of abatement, it is important to achieve the greatest reductions at the lowest cost possible.
Thoughtful and comprehensive national energy and climate policy that provides a price signal is needed to support the billions of dollars being invested in low-carbon and fuel-efficient vehicle technologies. In the absence of a cohesive policy that includes a price signal, regulations must be structured so as to ensure alignment with market realities and consumer behavior.
Ford will continue to lead in the development of advanced technologies and support comprehensive regulations that bring stakeholders together to help drive down GHG emissions and provide a framework for sound business and product planning.
Canadian Greenhouse Gas Policy
In September 2010, Environment Canada finalized a GHG emission regulation for 2011 to 2016 model year passenger automobiles and light trucks that aligned emission standards and test procedures with those of the U.S. The regulation provides companies with similar compliance flexibilities to those available under the EPA’s GHG regulation, including advanced technology credits, air conditioning leakage and efficiency credits, flexible-fuel vehicle credits and credit transfer among fleets. In October 2014, the Canadian government updated this regulation so that it would align with the EPA’s GHG standards for the 2017 to 2025 model years.
In February 2013, Environment Canada published a final regulation for heavy-duty vehicles for the 2014 to 2018 model years. This rule aligns with the U.S. federal heavy-duty vehicle GHG regulations, which began with the 2014 model year.
The Provinces of Quebec, Manitoba and British Columbia participate in the Western Climate Change Initiative and had committed to adopt GHG regulations based on California standards. Quebec actually promulgated a GHG regulation based on the California standards, but with fewer flexibility mechanisms. Now that the Canadian federal regulation is in place, the Quebec government has amended the Quebec regulation to recognize equivalency with the federal standards. Quebec still requires reporting of fleet performance, however.
Ford is hopeful that Quebec will see the benefit of a single standard for Canada, consistent with the One National Program effort in the U.S. We have participated in regulatory discussions on this issue, providing technical expertise and supporting a tough, aligned, national standard. British Columbia and Manitoba have both acknowledged the value of the new federal standards.
Environment Canada also regulates renewable fuel content in on-road gasoline. Effective September 2010, renewable levels in the national pool of gasoline must average 5 percent. Environment Canada has also implemented a regulation for renewable content in diesel fuel. As of July 2011, the regulation requires 2 percent renewable content in diesel fuels.
Mexican Greenhouse Gas Policy
Mexico has adopted fuel economy/CO2 standards based on the U.S. One National Program framework. These standards took effect in 2014.