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The EPA Wants to Roll Back Regulations on Car Makers. Here’s What That Means for the Auto Industry.

EPA Chief Scott Pruitt Testifies At House Hearing On Mission Of The EPAEPA Chief Scott Pruitt Testifies At House Hearing On Mission Of The EPA
Environmental Protection Agency Administrator Scott Pruitt testifies before the House Energy and Commerce Committee about the mission of the U.S. Environmental Protection Agency on December 7, 2017 in Washington, DC. Pete Marovich—Getty Images

The Environmental Protection Agency is considering a rollback of emissions regulations and fuel economy standards put in place during the Obama Administration, the New York Times reported Thursday.

Measures requiring auto makers to achieve an average fleet fuel efficiency of 50 miles per gallon by 2025 were created to reduce emissions that cause climate change, but car companies have protested them for years.

In late February 2017, the Alliance of Automobile Manufacturers, which represents General Motors, Toyota, Volkswagen, and nine other automakers, sent a letter to EPA head Scott Pruitt calling the fuel efficiency rules “the product of egregious procedural and substantive defects” that are “riddled with indefensible assumptions, inadequate analysis and a failure to engage with contrary evidence.”

In March 2017, the Trump Administration ordered a review of the Obama-era regulations.

Pruitt has already submitted a 16-page plan to the White House for approval, according to an EPA spokeswoman. He is expected to frame the deregulation as a move that will make larger vehicles, like trucks, vans, and sport utility vehicles, more affordable, say people familiar with the plan.

This poses a solution to a problem that doesn’t seem to exist, since trucks and SUVs are routinely top-selling vehicles in the U.S., with the mid-size SUVs and pickup trucks accounting for 55% of all vehicle sales in 2017, according to Kelly Blue Book. The Ford F-series was the best-selling vehicle in the world last year, and has been the top-seller in the U.S. for more than 30 years.

It’s a move that could actually damage the auto industry.

“Rolling back fuel-efficiency and emissions targets would make zero sense economically for anyone but oil companies,” says David Richardson, the executive director of business development at Impax Asset Management. “In fact, it would set back American car companies and those working for them because the global automotive market is moving the opposite direction, away from gas guzzlers and toward cleaner, more efficient cars and associated technology.”

Component suppliers would also take a hit. These companies employ twice as many Americans as the automakers they service and contribute nearly 2.4% of U.S. GDP. Weakened standards could cause losses of $3.3 billion a year between 2022 and 2025 due to lost sales of fuel-efficient technologies, according to analysis by Ceres, a sustainability nonprofit organization.

The rollback of Obama-era EPA regulations will set off yet another legal standoff between the federal government and the state of California.

California, which is already engaged in more than 25 court battles with the Trump Administration over issues including immigration, the 2020 census, transgender military service, healthcare, and environmental concerns, will sue to maintain the fuel efficiency standards the state has created.

California has a special waiver that allows it to impose stricter air pollution standards under the 1970 Clean Air Act.

This could lead to two separate sets of regulations — one for California and the 12 other states that will follow suit in challenging the EPA’s decision and one for the rest of the country — and therefore two separate markets of car buyers.

Economists and climate change scientists have said that even the fuel efficiency standards currently in place at the EPA are not effective enough.

“The current fuel economy standards do not create much incentive for people to move to smaller vehicles,”Lucas Davis, a professor of economic analysis at UC Berkeley told Fortune. “That’s a real limitation of the way the current fuel economy standards work.”