2nd UPDATE: Obama Tells EPA: Review Calif Car Emissions Plan

U.S. President Barack Obama on Monday ordered the Environmental Protection Agency to consider allowing California to regulate greenhouse-gas emissions from automobiles, a policy that could spur the development of new vehicles.

"The federal government must work with, not against, states to reduce greenhouse-gas emissions," Obama said at a press conference filled with environmental activists and members of his cabinet. He ordered the EPA to "immediately review" a 2007 decision to deny California the waiver it needs to go forward.

The action marks a sharp reversal from the administration of President George W. Bush, which concluded that California wasn't entitled to its own standards as global warming wasn't unique to the state. In putting the U.S. on a different course, Obama was signaling a broader commitment to reshaping U.S. energy habits.

"America's dependence on oil is one of the most serious threats that our nation has faced," Obama said. "It puts the American people at the mercy of shifting gas prices, stifles innovation, and sets back our ability to compete."

It isn't clear how quickly the EPA will make its decision -- or how quickly the Obama administration can move the U.S. away from fossil fuels. The new administration already faces a severe economic recession, something that could make it harder for car companies to finance innovation. On Monday, General Motors Corp. (GM) said in a statement that while it was "ready to engage" with the Obama administration, any talks should take into account "economic factors" and the pace at which new technologies can development.

"We hold no illusion about the task that lies ahead," Obama said. "I cannot promise a quick fix. No single technology or set of regulations will get the job done. But we will commit ourselves to steady, focused, pragmatic pursuit of an America that is freed from our energy dependence and empowered by a new energy economy."

Obama acted with the backing of the environmental wing of his base, which rushed out press releases to praise his action. Environment America, an environmental group, estimated that applying the California standard in just 13 other states would save 50 billion gallons of gasoline by 2020, for a total savings of $93 billion, and reduce greenhouse-gas emissions by more than 450 million metric tons in total by 2020.

Obama separately ordered the U.S. Department of Transportation to finalize new automobile fuel-efficiency standards so that they will be in place for the 2011 model year. The Bush administration was supposed to implement the rules, mandated by a 2007 law, but left the issue to Obama.

EPA staff has already told Congress that allowing California to regulate greenhouse-gas emissions from vehicles could spur technological innovation not just in California, but across the country. That is because states are free to stick with federal standards or adopt the California standard. Fourteen other states have already adopted the California standard and four more are considering doing so.

The California rules apply to greenhouse-gas emissions, and aren't fuel-efficiency standards. But California regulators have said that their standard would result in vehicles that average 44 miles per gallon. That compares with a 35 mile-per-gallon standard established by Congress for 2020.

Among the possible new technologies to be developed: electric cars. As part of a broad rule-making on greenhouse-gas emissions last year, the EPA staff said that between 2020 and 2025, vehicle fuel-efficiency standards could be well above the 35-mile-per gallon mandated by Congress, based on technologies such as plug-in hybrid vehicles, which run partly on rechargeable batteries. As if to underscore the point, acting Federal Energy Regulatory Commission Chairman Jon Wellinghoff said Monday that regulators and the automobile industry must integrate electric vehicles into the national power grid.

"If you're an automobile company, you'd better get on the bandwagon, because if you don't, you're going to be left out of the band because there is definitely going to be a move toward electrification worldwide," Wellinghoff said.

-By Siobhan Hughes, Dow Jones Newswires; 202-862-6654; [e-mail]

(Ian Talley of Dow Jones Newswires contributed to this report.)

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