Washington, DC — Today, the Consumer Federation of America (CFA) released a detailed analysis of the Administration’s failure to meet the mandate of the Energy Independence and Security Act (EISA), passed by Congress late last year.

“Never in the history of this country has it been more important, both domestically and globally, to reduce gasoline and oil consumption, which is why Congress mandated that automakers make cars and trucks that run on less gas,” said Jack Gillis, CFA Director of Public Affairs. “Somehow the Department of Transportation didn’t get the message. With gas at $4 a gallon, they use $2.45 in its analysis.  With our oil dollars filling the coffers of nations hostile to our interests, they assign no military cost to oil.  With used SUVs lining dealer lots, they claim fuel economy has no impact on vehicle resale value.  Each absurd assumption deprives consumers of the fuel economy they want and the nation the fuel savings it needs.”

Under the Energy Independence and Security Act, the Department of Transportation’s National Highway Traffic Safety Administration (NHTSA) is required to set fuel economy standards at the maximum feasible level.  CFA’s analysis provides a step-by-step explication of NHTSA’s analytical flaws, inaccurate assumptions, lack of data and unreasonable economic considerations that result in proposed fuel economy standards that are “unreasonably low, cover a period that is unreasonably long, and are inadequately documented, meeting neither the spirit nor the intent of the Energy Independence and Security Act.”

Combined, these overt flaws in NHTSA’s economic assumptions and modeling have led the Administration to value gasoline savings at less than half of what would be a reasonable estimate. Correcting these flaws will result in standards that are substantially higher and save the nation much more energy at a modest economic cost.  At a minimum, correcting these errors would increase gasoline savings by approximately 40 percent or just over 21 billion gallons in years 2011-2015.  The incremental consumer cost of those savings would be just over $53 billion or less than $2.50 per gallon.  With gasoline currently at $4 per gallon, these additional savings would be both a good deal for consumers and the nation.

“The proposed rule is a far cry from the maximum feasible fuel economy standards because NHTSA’s model and assumptions are hostile to the very energy conservation it is charged with providing,” said Mark Cooper, CFA Director of Research and principal author of the comments.

Based on a 68-page analysis of the proposed rule, CFA outlines three steps for NHTSA to take to bring the proposed standard in line with reality and the intent of Congress:

1. NHTSA should explicitly correct the analytical and empirical flaws in its model and establish clear tests and analytic approaches to evaluate standards, independent of the level at which they are set in any given proceeding.
2. NHTSA should raise the standard by 50% for 2011 and 2012. This level is justified when NHTSA corrects the empirical and conceptual flaws in its analytic framework. It is consistent with the level supported by NHTSA’s high fuel price sensitivity case. Even Guy Caruso, head of the Energy Information Administration (EIA) testified before Congress that he would use the higher price of fuel (of about $3.40 per gallon in 2015) if he were NHTSA.
3. NHTSA should rescind the standards for 2013-2015, complete the gathering of the critical information it needs to make an informed recommendation, and develop recommendations based on that information.

By relying on a flawed analytic framework and mistaken empirical specifications, this rulemaking undermines future rulemakings, CFA charges. Three aspects of the proposed rulemaking would, if not corrected, lock flawed assumptions and modeling into place creating an unrealistically low ceiling for fuel economy for years to come:

• First, once the analytical framework is set, it will be difficult to change. Inertia and judicial deference make it difficult to reverse agency decisions.
• Second, setting a low standard makes it far more difficult for the industry to meet higher future standards. Requiring large jumps in improvements is always more expensive than gradual improvements toward a goal, so fixing the mistakes later is harder because the industry is further behind.
• Finally, as written, there is no need for another proceeding until 2013, when standards for 2016-2020 will have to be written. If the new administration tries to revisit the order sooner, automakers will complain that NHTSA is switching rules in mid-stream and take it to court, as they have in the past.

“If the rule stands as written, fuel economy standards will be hamstrung for years to come, providing neither the fuel economy consumers demand, nor the oil savings our nation needs,” said Cooper.