Credit Trading Would Reduce Fuel Economy Compliance Costs

This summer, the Trump administration laid out its plan to roll back fuel efficiency standards for passenger vehicles sold between 2021 and 2025. In short, the administration is proposing to freeze the standards at 2020 levels instead of maintaining the more ambitious schedule of improvements through 2025 set forth by the Obama Administration. But EPIC Executive Director Sam Ori argues in Forbes that the administration should also consider improvements to the credit trading system as a way to reduce compliance costs.

When automakers produce vehicles whose performance exceeds fuel economy standards, they generate credits that can be sold or used to cover future shortfalls. Until recently, automakers were largely banking credits. But with low gasoline prices driving up sales of trucks and SUVs, several automakers became major credit consumers in 2016. Significantly, the big three U.S. auto companies led the industry in consuming credits, with GM, Ford, and Chrysler accounting for 75 percent of the total. Moreover, some of the big three will soon likely be out of banked credits. Not all companies are the same though–some of the most efficient, like Honda and Nissan, are still generating credits.

In theory, this should create the ideal conditions for trading. But without some key reforms to the system, that may not happen.

READ MORE: One Reform EPA Should Make To Fuel Economy Rules That No One Is Talking About