August 3, 2018, by Ari Natter and Jennifer A. Dlouhy
The Trump administration’s plan to relax fuel-economy and vehicle pollution standards could be a boon to U.S. oil producers who’ve quietly lobbied for the measure.
The proposal, released Thursday, would translate into an additional 500,000 barrels of U.S. oil demand per day by the early 2030s, about 2 to 3 percent of projected consumption, according to government calculations.
“It’s a meaningful increase in U.S. oil consumption” and one of the biggest steps the Trump administration could take to boost crude demand, said Trevor Houser, a partner with the Rhodium Group, a research firm that’s analyzed the proposal. “In terms of policy interventions that the U.S. government has taken or could take, this is certainly the most significant.”
The Environmental Protection Agency and National Highway Traffic Safety Administration proposed locking in U.S. fuel-economy and tailpipe greenhouse gas emissions requirements at 2020 levels of 37 miles per gallon. The existing standards the Trump administration wants to replace call for a steady increase to roughly 47 mpg by 2025.
Oil industry leaders have been supporting the move behind the scenes, and a handful of companies disclosed lobbying on the issue this year, including Marathon Petroleum Co., Koch Companies Public Sector LLC, and the refiner Andeavor.
The industry’s chief argument, mirrored by administration officials on Thursday, is that the Obama-era standards are a relic of a different time, when the U.S. was deeply reliant on foreign oil and gasoline to fuel its vehicles. U.S. exports of crude oil and petroleum products have more than doubled since then, and the U.S. is now on track to become the world’s biggest oil producer, surging ahead of both Saudi Arabia and Russia, according to government analysts.
It’s now less important to conserve energy and to curb oil demand given the dramatic rise in U.S. crude production, the Trump administration said in its proposal.
“The U.S. is currently producing enough oil to satisfy nearly all of its energy needs and is projected to continue to do so, or become a net energy exporter,” the administration wrote. “This has added new stable supply to the global oil market and reduced the urgency of the U.S. to conserve energy.”
Representatives of the American Fuel and Petrochemical Manufacturers refining trade group and member companies urged White House officials to ease the standards during a June meeting. The refining industry trade group told White House officials that changes were needed to drive down the cost of cars, and to give consumers more choice over the vehicles they drive.
“We come from a free-market perspective, where we believe consumers should have a choice in their vehicles, and they can weigh all the appropriate factors — be it size, horsepower, utility, or fuel economy,’’ said Derrick Morgan, senior vice president of the group. “We trust individual consumers to make the right decisions; we don’t think Washington or Sacramento should be making all those determinations.’’
The group issued a statement on Thursday praising the administration for offering a plan “that reflects market realities, industry progress and consumer preferences.”
‘All About Petroleum’
Senator Ed Markey, a Democrat from Massachusetts, maintains that the Trump plan is “really all about petroleum.”
“It is oil above all,” Markey said. “Freezing the standards would cost American drivers an additional $20 billion in 2025 alone on higher gas spending. That’s money transferred right out of consumers’ pockets into big oil coffers.”
The extra oil that would be consumed as a result of the proposed changes could cost consumers an additional $193 billion to $236 billion cumulatively between now and 2035, according to an analysis by the Rhodium Group.
There’s a limit to the effect any U.S. policy change could have on a global oil market thirsty for roughly 98.4 million barrels of crude per day. The Trump administration proposal to freeze average corporate fuel economy standards after 2020 is dwarfed by other factors, such as production increases from Saudi Arabia and Russia, said Katie Bays, an analyst at Height Securities LLC.
“Consumers are much more likely to be affected by OPEC decisions or trade decisions than they are by CAFE standards,” Bays said.
But even a modest increase is meaningful for the oil industry.
“I’m not aware of anybody in the oil and gas world who doesn’t think this is the right course of action, and hasn’t either volunteered that when asked or told administration officials that,” said Mike McKenna, a Republican energy strategist.
That doesn’t mean they’re eager to talk about it publicly. On Thursday, as automakers, refiners and environmentalists all rushed out statements on the plan, the oil industry’s top lobbying group, the American Petroleum Institute, kept quiet.
Asked about the organization’s view, an API spokeswoman said only: “We are reviewing it.”