Market News

 May 26, 2009
New Emission Standards Boon to Environment?

 U.S. President Barack Obama outlined Tuesday the country’s first auto fuel efficiency plan in an attempt to reduce vehicle emissions and reduce dependency on foreign oil.  

The CAFE (Corporate Average Fuel Economy) standards are expected to increase the cost to the consumer per vehicle purchased by $1,300 by 2016 when the plan is fully implemented. The savings that result from better fuel efficiency however, will serve to offset the higher prices of vehicles, said Mr. Obama.

 Under the new CAFE standards, the auto industry will be required to produce vehicles that average 35.5 miles per gallon, or 6.7 L/100 km, with the goal to reduce carbon dioxide-based vehicle emissions by about one-third.  

Given the integrated nature of the North American car industry, the new standards will naturally affect Canadian automakers and consumers. Canada’s Environment Minister Jim Prentice has confirmed that the Canadian government will match the new American standards.  

"We will continue to work with the United States toward a single, dominant standard that will provide both consumers in North America and as well manufacturers with the certainty that they need to be on the cutting edge," said Prentice in an interview with The Canadian Press.  

Michael Martin, Canada’s lead negotiator on international climate change talks, said the new auto standards will be one part of a "suite of policies" that Canada will be adopting before an international conference in Copenhagen in December.  

The national program will also align with automakers interests, according to industry analysts. It provides the single national standard on emissions that the industry has been seeking. Previous standards were developed by state legislatures often resulting in conflicts between federal and state governments, with the auto industry caught in the middle.  

"What’s significant about the announcement is it launches a new beginning, an era of cooperation."  said Dave McCurdy, president and CEO of the Alliance of Automobile Manufacturers, which represents 11 domestic and import automakers. "We’re all agreeing to work together on a national program,"  

Most importantly, the country’s cash-strapped automakers will drop long-standing litigations over California’s push for clean car standards. The new national standard roughly mirrors that proposed by California - cutting greenhouse gas emissions by approximately 30 per cent - but four years earlier than the state’s purposed deadline of 2020.  

The impact of the new U.S. plan is portrayed as the equivalent of removing 177 million cars from the roads over the next 6.5 years. Such savings are the equivalent to the amount spent on last year’s oil imports from Saudi Arabia, Venezuela, Libya, and Nigeria combined, said Mr. Obama, calling the initiative a historic turning point toward a "clean-energy economy". 

"As a result of this agreement, we will save 1.8 billion barrels of oil over the lifetime of the vehicles sold in the next five years." said President Obama. "This rule provides the clear certainty that will allow these companies to plan for a future in which they are building the cars of the 21st century." 

For More Information: The Globe and Mail