Forced Vehicle Electrification Threatens Carbon Energy Projects and Assets
A recent Biden Administration Executive Order on electric vehicle adoption declares that "America must lead the world on clean and efficient cars and trucks. That means bolstering our domestic market by setting a goal that 50 percent of all new passenger cars and light trucks sold in 2030 be zero-emission vehicles, including battery electric, plug-in hybrid electric, or fuel cell electric vehicles."
That order and its goals are now the driving force behind new rules being imposed by the two primary responsible regulatory agencies.
The Environmental Protection Agency wants to increase tailpipe emissions standards to a degree that cannot be met without manufacturers reallocating a majority of their output from internal combustion engine (ICE) vehicles to electric vehicles (EVs). EPA's goals are for 70% of all new light-duty vehicles sold by 2032 to be fully electric.
The Department of Transportation's National Highway Traffic Safety Administration (NHTSA), through its newly-proposed Corporate Average Fuel Economy (CAFE) standards, is mandating fleet-average fuel consumption of 58 miles per gallon by 2032, a number arrived at by averaging together the liquid fuel consumption of EVs - which burn none - and ICE vehicles sold by each individual manufacturer.
Achieving these goals would decimate demand for liquid fuels - both petroleum-based and bio-fuels. It would reduce gasoline consumption from 135 billion gallons in 2022 to 70 million gallons annually by 2040. Such a reduction would severely depress the outlook for new fossil energy upstream and midstream infrastructure construction, while halving demand for agricultural commodities - corn and soybeans - now used for biofuels. It would strand countless billions worth of investments in existing infrastructure and the equipment and capacity to add new infrastructure such as pipelines.
Both of these proposed regulations are being challenged in court on the basis that neither EPA or NHTSA have the authority to impose such draconian new burdens on markets and consumers, because they are "major questions" that must be subject to Congressional, rather than administrative agency, action. This doctrine was recently enshrined by the Supreme Court in West Virginia vs. EPA when last year the court struck down the EPA's Clean Power Plan on that principle.
Recently, EEIA's Association Council and company members heard from Michael Buschbacher, Partner at the law firm Boyden Gray, who is quarterbacking parallel challenges to these action at the D.C. Circuit Court of Appeals. He argued the merits of the challengers' cases before the Court yesterday and today. While we do not know when they will rule, given the make-up of that Court, we believe it is likely that it will deny the challenges and allow the rules to stand. At that point, energy industry stakeholders will appeal the decision to the United States Supreme Court.
Given the very high stakes for energy infrastructure companies and workers if these proposals were to become law, EEIA is exploring engaging in support of the challenges if and when they are elevated to the Supreme Court. The first step will be to petition the high court to accept the case. If they do, we will consider submitting a brief arguing for reversal of the adverse D.C Circuit Court ruling.
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