Given Biden's pledges to reform environmental policy what are the likely repercussions for the auto industry?
A pillar of president-elect Joe Biden’s bid for the keys to the White House was the radical reform of US environmental policy, something which will force change in the US automaker industry.
We think the Biden era Presidency is likely to impact the auto industry in two main ways:
In his election manifesto, Biden devoted considerable space to his priorities for the auto industry and how it dovetails with his broader intention to set the US on a path to achieve economy wide net-zero emissions by 2050. Furthermore, Biden has declared that he will re-commit the US to the Paris Agreement on his first day in office.
These policies and projected changes would reverse the direction taken by the Trump administration thus far, and would take the US auto industry far closer to the fuel economy standards envisaged during the Obama era.
We think these stricter regulations are unlikely to come into force before 2025 due to legal requirements for allowing automakers enough time to prepare for such changes.
However, automakers already see the writing on the wall, and have to speed up their fuel economy improvement and CO2 reduction efforts from next year (2021) itself to be in shape to face these tougher standards in 2025. Exceeding requirements now, while the regulations are still relaxed, would allow automakers to accumulate excess “credits” which they can use to cover up their shortfalls when the regulations become stricter in later years. Otherwise they run the risk of paying large fines.
Biden also might increase fines for failing to comply with fuel economy regulations. Fines are still relatively low at $5.50 per 0.1 mpg, after Trump overturned a proposed increase to $14 from 2019 onwards. Last heard, American courts had reversed Trump’s rollback and if Biden does not pursue the matter then the $14 rate will become a reality. This would suit Biden as the higher penalty rate would act as a stick for automakers to improve fuel economy faster.
Overall Biden’s increased focus on environmental policy and economy-wide net-zero emissions by 2050, are going to provide a tricky landscape for automakers to navigate. But this is not purely a challenge for the US, as other countries are already going down that path. The US will just have to catch up.
For more information read our full report on ‘Biden’s world: Implications for Auto Industry in the US’
US Auto sector analyst
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