Why the California Waiver Matters
September 24, 2019
On September 19, the Trump administration took another step in an effort to stop California and other states from setting their own fuel economy and greenhouse gas emissions standards for light-duty vehicles. The decision drew an immediate reaction from California and 22 other states; they sued the administration to defend their right to set their own standards, in what is likely to be a protracted legal battle (for some background on the topic, see here).
The case involves important questions of law, and of politics, which will shape efforts to combat climate change at the state level, as well as the viability and competitiveness of the U.S. automotive sector. The energy backdrop here is that the gasoline market in the United States is essentially bifurcated: on one end is California and the 13 states (plus Washington, DC) that follow California’s standards—sometimes referred to as Section 177 states, after the provision in the Clean Air Act that allows California to set its own standards; and, on the other side, is the rest of the country.
Section 177 states consumed 13 percent less gasoline per capita in the years from 1983 to 2018. (If one excludes New York, which skews the data due to New York City, the number is 8 percent less. For context, Section 177 states include 31 percent of the U.S. population and generate about 43 percent of its gross domestic product.) More importantly, these states have seen gasoline use decline by almost 20 percent on a per capita basis since 2005, while it has declined by just 8 percent in the rest of the country. Fuel economy standards, of course, are one part of a complex interplay of factors driving gasoline consumption; but per capita gasoline use in Section 177 states has fallen 2.5 times faster than in the rest of the country.
These divergent trajectories impact nationwide gasoline demand, which was basically flat from 2005 to 2018 (down 1 percent if one includes ethanol). Demand in Section 177 states fell by almost 10 percent, while it rose by over 3 percent in the rest of the country, leaving overall demand down slightly. In short, Section 177 states, as a group, drive down gasoline use while the rest of the country pushes it higher—which is why the stakes in this conflict are so high not only for automakers but also for oil use and the environment more broadly.