EV Makers Oppose Delay of Automotive Emissions Penalties

Automakers Clash Over Delayed Fuel Efficiency Penalties

Manufacturers of electric vehicles (EVs) are contesting a decision to postpone increases in penalties for automakers that do not meet established fuel efficiency standards.

Industry Concerns and Incentives

A lobbying organization representing established automotive companies – many of which are now significantly investing in zero-emission vehicles – argues that the penalty increase would create substantial economic challenges amidst the ongoing disruptions caused by the COVID-19 pandemic.

However, newer EV manufacturers contend that the penalty system serves as a crucial incentive for reducing tailpipe emissions and fostering investment in technologies with lower or no emissions.

NHTSA’s Decision and Tesla’s Response

The decision, released in January by the National Highway Traffic Safety Administration (NHTSA), defers the implementation of a penalty increase from the 2019 model year to the 2022 model year.

Tesla is appealing this ruling to the Second Circuit U.S. Court of Appeals, asserting that the delay causes “ongoing, irreparable injury” to the company and establishes an “uneven playing field” by diminishing the consequences of non-compliance.

History of the CAFE Penalty

The Corporate Average Fuel Economy (CAFE) penalty has only been raised once – from $5 to $5.50 per 0.1 mile per gallon shortfall – since its introduction in 1975.

Congress acted to adjust the penalty for inflation in 2015, increasing it to $14, but NHTSA and the courts have debated its implementation ever since.

A Second Circuit decision last August appeared to resolve the issue in favor of the higher penalty for the 2019 model year, but automakers successfully petitioned for a delay last October.

The Value of Regulatory Credits

The CAFE penalty can significantly benefit zero-emission automakers, who earn credits that can be sold to other OEMs failing to meet fuel efficiency targets.

In a recent report, Tesla reported earning $1.58 billion from selling regulatory credits in 2020, a rise from $594 million in 2019.

Tesla argues that delaying the increase negatively impacts companies that have made financial decisions based on the expectation of increased credit value.

Support from EV Startups

EV startups Rivian and Lucid Motors have also voiced opposition to any delay in increasing the CAFE penalty.

Kevin Vincent, Lucid Motor’s Associate General Counsel, explained to TechCrunch that a robust credit market is advantageous for the entire EV industry, benefiting both startups and established manufacturers investing in EVs.

James Chen, Rivian’s VP of Public Policy and Chief Regulatory Counsel, stated that any weakening of CAFE or other emission standards would hinder U.S. progress in reducing emissions, improving fuel efficiency, and promoting EV adoption.

NHTSA’s Justification for the Delay

NHTSA justified the postponement by stating that the penalty should not be applied retroactively to model years already manufactured.

Since manufacturers cannot improve the fuel economy of these vehicles, applying the adjustment would be “inappropriate” and would not encourage further compliance.

Economic Hardship and Pandemic Concerns

Automakers, through the Alliance for Automotive Innovation, cited economic hardship due to the COVID-19 pandemic in their petition.

Mercedes-Benz informed NHTSA that the pandemic caused disruptions to its supply chain, workforce, and production.

The automaker argued that retroactively applying an increased penalty during such a challenging financial period would be “unconscionable” and inconsistent with the administration’s efforts to provide regulatory relief.

Tesla’s Rebuttal and Wider Opposition

Tesla countered in its court filing that relying on the COVID-19 pandemic as justification “falls flat” without specific evidence supporting the need for a delay.

Attorney generals from 16 states, including California and New York, along with environmental organizations like the Sierra Club and the Natural Resources Defense Council, have also expressed objections to the delay.

The NHTSA decision was documented in docket no. NHTSA-2021-0001, and Tesla’s appeal is under case no. 21-593 with the Second Circuit.