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The Senate’s reconciliation bill essentially repeals the Corporate Average Fuel Economy standards, abolishing fines for automakers that sell too many gas guzzlers.
A new provision in the Senate reconciliation bill would neuter the country’s fuel efficiency standards for automakers, gutting one of the federal government’s longest-running programs to manage gasoline prices and air pollution.
The new provision — which was released on Thursday by the Senate Commerce Committee — would essentially strip the government of its ability to enforce the Corporate Average Fuel Economy standards, or CAFE standards.
The CAFE rules are the government’s main program to improve the fuel economy of new cars and light-duty trucks sold in the United States. Over the past 20 years, the rules have helped push the fuel efficiency of new vehicles to record highs even as consumers have adopted crossovers and SUVs en masse.
But the Republican reconciliation bill would essentially end the program as a practical concern for automakers. It would set all fines issued under the program to zero, stripping the government of its ability to punish automakers that sell too many polluting vehicles.
“It would essentially eviscerate the standard without actually doing so directly,” Ann Carlson, a UCLA law professor who led the National Highway Traffic Safety Administration from 2022 to 2023, told me.
“It says that, ‘We have standards here, but we don’t care if you comply or not. If you don’t comply, we’re not going to hold you responsible,’” she said.
Representatives for the Senate Commerce Committee did not respond to an immediate request for comment. A talking points memo released by the committee on Thursday said that the new bill would “[bring] down automobile prices modestly by eliminating CAFE penalties on automakers that design cars to conform to the wishes of D.C. bureaucrats rather than consumers.”
Since 1975, Congress has required the National Highway Traffic Safety Administration (pronounced NIT-suh) to set annual fuel efficiency standards for new cars and light trucks sold in the United States. The rules generally require new vehicles sold nationwide to get a little more fuel efficient, on average, every year.
The rules have remained in effect — with varying levels of stringency — for 50 years, although they have generally encouraged automakers to get more efficient since Congress strengthened the law on a bipartisan basis in 2007.
In model-year 2023, the most recent period for which data is available, new cars and light trucks achieved a real-world fuel economy of 27.1 miles per gallon, an all-time high. The vehicle fleet was set to hit another record high in 2024, according to last year’s report.
Opponents of the fuel economy rules argue that the regulations increase the sticker price of new cars and trucks and push automakers to build less profitable vehicles. The Heritage Foundation, the conservative think tank that published Project 2025, has called the rules a “backdoor EV mandate.”
The rules’ supporters say that the standards are necessary because consumers don’t take fuel costs — or the environmental or public health costs of air pollution — into account when buying a vehicle. They say the rules keep gasoline prices low for all Americans by encouraging fuel efficiency across the board.
The strict Biden-era rules were projected to save consumers $23 billion in gasoline costs, according to an agency analysis. The American Lung Association said that the rules would prevent more than 2 million pediatric asthma attacks and save hundreds of infant lives by 2050.
Secretary of Transportation Sean Duffy has targeted the fuel economy rules as part of a wide-ranging effort to roll back Biden-era energy policy. On January 28, as his first official act, Duffy ordered NHTSA to retroactively weaken the rules for all cars and light trucks sold after model-year 2022.
On Friday, Duffy separately issued a legal opinion that would restrict NHTSA’s ability to include electric vehicles in its real-world estimates of the country’s fuel economy rules. The opinion sets up the next round of CAFE rules to be considerably weaker than existing law.
But the new Republican reconciliation bill, if adopted, would render those rules moot.
Under current law, automakers must pay a fine when the average fuel economy of the vehicles they sell exceeds the fuel economy standard set for that year. Automakers can avoid paying that penalty by buying “credits” from other car companies that have done better than the rules require.
The fine’s size is set by a formula written into the law. That calculation includes the number of cars sold above the fuel-economy threshold, how much those cars exceeded it, and a $5 multiplier. The GOP tax bill rewrites the law to set the multiplier to zero dollars.
In essence, no matter how much an automaker exceeds the fuel economy rules, the GOP reconciliation bill will now multiply their fine by zero.
The original CAFE law contains a second formula allowing the government to set even higher penalties if doing so would achieve “substantial energy conservation.” The new reconciliation bill sets the multiplier in this formula, too, to zero dollars.
The CAFE law’s penalties can be significant. The automaker Stellantis, which owns Fiat and Chrysler, recently paid more than $426 million in penalties for cars sold from model year 2018 to 2020. Last year, General Motors paid a $38 million fine for light trucks sold in model year 2020.
The CAFE provision in the GOP mega-bill seems designed to skirt past the Byrd rule, a Senate rule that policies in reconciliation bills must affect revenue, spending, or generally have more than a “merely incidental” effect on the federal budget.
But Carlson, the former NHTSA acting administrator, doubted whether the provision should really survive a Byrd bath.
Zeroing out the fines is “not really about revenue,” she said, but about compliance with the law. “This is a way to try to couch repeal of CAFE in revenue terms instead of doing it outright.”
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And more of the week’s top news about renewable energy conflicts.
1. Nassau County, New York – Opponents of Equinor’s offshore Empire Wind project are now suing to stop construction after the Trump administration quietly lifted its stop-work order.
2. Somerset County, Maryland – A referendum campaign in rural Maryland seeks to restrict solar development on farmland.
3. Tazewell County, Virginia – An Energix solar project is still in the works in this rural county bordering West Virginia, despite a restrictive ordinance.
4. Allan County, Indiana – This county, which includes portions of Fort Wayne, will be holding a hearing next week on changing its current solar zoning rules.
5. Madison County, Indiana – Elsewhere in Indiana, Invenergy has abandoned the Lone Oak solar project amidst fervent opposition and mounting legal hurdles.
6. Adair County, Missouri – This county may soon be home to the largest solar farm in Missouri and is in talks for another project, despite having a high opposition intensity index in the Heatmap Pro database.
7. Newtown County, Arkansas – A fifth county in Arkansas has now banned wind projects.
8. Oklahoma County, Oklahoma – A data center fight is gaining steam as activists on the ground push to block the center on grounds it would result in new renewable energy projects.
9. Bell County, Texas – Fox News is back in our newsletter, this time for platforming the campaign against solar on land suitable for agriculture.
10. Monterey County, California – The Moss Landing battery fire story continues to develop, as PG&E struggles to restart the remaining battery storage facility remaining on site.
A conversation with Biao Gong of Morningstar
This week’s conversation is with Biao Gong, an analyst with Morningstar who this week published an analysis looking at the credit risks associated with offshore wind projects. Obviously I wanted to talk to him about the situation in the U.S., whether it’s still a place investors consider open for business, and if our country’s actions impact the behavior of others.
The following conversation has been lightly edited for clarity.
What led you to write this analysis?
What prompted me was our experience in assigning [private] ratings to offshore wind projects in Europe and wanted to figure out what was different [for rating] with onshore and offshore wind. It was the result of our recent work, which is private, but we’ve seen the trend – a lot of the big players in the offshore wind space are kind of trying to partner up with private equity firms to sell their interests, their operating offshore wind assets. But to raise that they’ll need credit ratings and we’ve seen those transactions. This is a growing area in Europe, because Europe has to rely on offshore wind to achieve its climate goals and secure their energy independence.
The report goes through risks in many ways, including challenging conditions for construction. Tell me about the challenges that offshore wind faces specifically as an investment risk.
The principle behind offshore wind is so different than onshore wind. You’re converting wind energy to electricity but obviously there are a bunch of areas where we believe it is riskier. That doesn’t mean you can’t fund those projects but you need additional mitigants.
This includes construction risk. It can take three to five years to complete an offshore wind project. The marine condition, the climate condition, you can’t do that [work] throughout the year and you need specialized vehicles, helicopters, crews that are so labor intensive. That’s versus onshore, which is pre-fabricated where you have a foundation and assemble it. Once you have an idea of the geotechnical conditions, the risk is just less.
There’s also the permitting process, which can be very challenging. How do you not interrupt the marine ecosystem? That’s something the regulators pay attention to. It’s definitely more than an onshore project, which means you need other mitigants for the lender to feel comfortable.
With respect to the permitting risk, how much of that is the risk of opposition from vacation towns, environmentalists, fisheries?
To be honest, we usually come in after all the critical permitting is in place, before money is given by a lender, but I also think that on the government’s side, in Europe at least, they probably have to encourage the development. And to put out an auction for an area you can build an offshore wind project, they must’ve gone through their own assessment, right? They can’t put out something that they also think may hurt an ecosystem, but that’s my speculation.
A country that did examine the impacts and offer lots of ocean floor for offshore is the U.S. What’s your take on offshore wind development in our country?
Once again, because we’re a rating agency, we don’t have much insight into early stage projects. But with that, our view is pretty gloomy. It’s like, if you haven’t started a project in the U.S., no one is going to buy it. There’s a bunch of projects already under construction, and there was the Empire Wind stop order that was lifted. I think that’s positive, but only to a degree, right? It just means this project under construction can probably go ahead. Those things will go ahead and have really strong developers with strong balance sheets. But they’re going to face additional headwinds, too, because of tariffs – that’s a different story.
We don’t see anything else going ahead.
Does the U.S. behaving this way impact the view you have for offshore wind in other countries, or is this an isolated thing?
It’s very isolated. Europe is just going full-steam ahead because the advantage here is you can build a wind farm that provides 2 or 3 gigawatts – that’s just massive. China, too. The U.S. is very different – and not just offshore. The entire renewables sector. We could revisit the U.S. four or five years from today, but [the U.S.] is going to be pretty difficult for the renewables sector.
What I’m hearing from developers and CEOs about the renewable energy industry after the Inflation Reduction Act
As the Senate deliberates gutting the Inflation Reduction Act’s clean electricity tax credits, renewable energy developers and industry insiders are split about how bad things might get for the sector. But the consensus is that things will undoubtedly get worse.
Almost everyone I talked to insisted that solar and wind projects further along in construction would be insulated from an IRA repeal. Some even argued that spiking energy demand and other macro tailwinds might buffer the wind and solar industries from the demolition of the law.
But between the lines, and beneath the talking points and hopium, executives are fretting that lots of future investments are in jeopardy. And the most pessimistic take: almost all projects will have their balance sheets and time-tables impacted in some way that’ll at minimum increase their budget costs.
“It’s hard to imagine, if the legislation passes in its current form, that it wouldn’t impact all projects,” said Rob Collier, CEO of renewable energy transaction platform LevelTen.
Even industry analysts with the gloomiest views of the repeal say there’s plenty of projects that will keep chugging along and might even become more valuable to investors if they’re close enough to construction or operation. This aligns with recent analysis from BloombergNEF, which found the House bill would diminish our nation’s renewables build-out – but not entirely end its pace.
“The more useful way to break down which project may be hit the hardest is where the projects are going to fall in their development life-cycle,” Collier said. “Projects that have either started construction or have the ability to start construction … are going to very likely rise in terms of their appeal and attractiveness and those projects will be at a premium, if they’re able to skate through the legislative risk and qualify for tax credits.”
There is a more optimistic industry view that believes increased project costs will just be passed along to consumers via higher electricity prices. The American people will in essence have to pick up the tab where the federal tax code left it. Optimists also cite the increased use of power purchase agreements, or PPAs, between renewables developers and entities who need a lot of electricity, like big tech companies. By signing these PPAs, buyers are subsidizing the construction of projects but also insulating themselves from the risk of rising electricity prices.
The most bullish perspective I heard was from Nick Cohen, the CEO of Doral Renewables, who told me deals like these combined with rising premiums for quick energy on the grid may obviate lost credits in a “zero-incentive environment.”
“It’s not the end of the world,” Cohen told me. “If you’re in construction or you’re going to be in construction very soon, you’re fine.”
But Collier called Cohen’s prediction an “experiment” in customers’ willingness to pay for new energy: “If we’re talking about 40%, 50%, 60% of a project’s capital stack now being at risk because of tax credits, those are pretty large price increases.”
I spoke to multiple companies that have been inking massive deals as this legislation has progressed — although many were not nearly as sanguine about the industry’s future prospects as Doral. Like rPlus Energies, which disclosed last week that it closed a commitment for more than $500 million in tax equity investments for a solar and storage project in Utah. rPlus CEO Luigi Resta told me that the legislation “certainly has posed concern from our investors and from the organization” but the project was so far along that the tax equity investment market wasn’t phased by the bill.
“Many people in my company, myself included, have been doing this for more than 20 years. We’ve seen the starts and stops related to ITC and PTC in solar and wind, in multiple cycles, and this feels like another cycle,” Resta told me. “When the IRA passed, everybody was exuberant. And now the runway looks like it may have a cliff. But for us, our mantra since the beginning of the year has been ‘proceed with caution, preserve and protect.’”
However, crucially, it is important to focus on how that caution looks: Resta told me the company has completely paused new contracting while the company is completing the projects it is currently developing.
One government affairs representative for a large and prominent U.S. renewables developer, who spoke on the condition of anonymity to preserve relationships, told me that “whatever rollback occurs will just result in higher electricity prices over time.” In the near term, the only language that would truly gut projects in progress today would be “foreign entity of concern” restrictions that would broadly impact any component even remotely connected to Chinese industries. Similar language all but kneecapped the entire IRA electric vehicle consumer credit.
“It included definitions of what it means to be a foreign company that were really vague,” the government affairs representative said. “Anyone who does any business with China essentially can’t benefit from the credit. That was a really challenging outcome from the House that hopefully the Senate is going to fix.” If this definition became law, this source said, it would be the final straw that “freezes investment” in renewable energy projects.
Ultimately, after speaking to CEO after CEO this week, I’ve been left with an impression that business activity in renewables hasn’t really subsided after the House bill passed, and that it’ll be the Senate bill that undoubtedly defines the future of renewable energy for years to come.
Whether that chamber remains the “cooling saucer” it once was will be the decider.