Motor Vehicle Fuel Efficiency

DOT’s Proposed Fuel Economy Standards Not Quite ‘up to Speed’

Several Flaws in Analysis Deny Substantial Consumer Benefits

Washington, D.C. – Yesterday, Consumer Federation of America (CFA) submitted comments in response to the National Highway Traffic Safety Administration’s (NHTSA) proposed corporate average fuel economy (CAFE) standards for light-duty vehicles. NHTSA’s proposal is in keeping with President Biden’s commitment to revisit the previous administration’s rollback of clean car standards. While this proposal improves on the Trump Administration’s gutting of the Obama-era vehicle standards, it contains several flaws in its analysis of the most stringent option, referred to as Alternative 3. By correcting these flaws, CFA contends in its comments, consumers could save an additional $28 billion.[1]

“We are no longer stuck in reverse. The Environmental Protection Agency (EPA) and National Highway Traffic Safety Administration have proposed rulemakings that will once again strengthen clean car and fuel economy standards, but we have again urged the agencies to provide consumers with the strongest possible, loophole-free standards in order to save American families money. The EPA and NHTSA need to seize this moment by making up for lost time and savings with ambitious, forward-looking standards that will also serve to maintain a strong, competitive automotive manufacturing sector. Strong clean car standards will grow our economy and spur the burgeoning electric vehicle market. Ambitious clean car standards are central to the Administration’s stated promises to make bold investments in dealing with climate change, job creation and economic equity for all Americans, as well as in electrifying the transportation sector for all,” said Dr. Mark Cooper, CFA’s Director of Research and principal author of the CFA report: Trump’s $2 Trillion Mistake: The War On Energy Efficiency.

“Despite our concerns, we applaud the Administration for reversing Trump’s rollback of clean car standards. The current proposal will save financially strapped Americans money, increase the availability of electric vehicles, provide good-paying jobs, and move us to cleaner air. Fixing the flaws in the proposed rule will only increase the benefits,” said Jack Gillis, CFA’s Executive Director. “Our surveys over the past decade show that consumers want more efficient vehicles and support Federal standards that require improvements.  In addition, they understand that gas prices will continue to fluctuate, so future standards will protect their pocketbooks.”

CFA’s concerns about the proposed rule include the following:

  • High Rebound Rate Underestimates Benefits: NHTSA concludes that a reasonable rebound rate range was 5% to 15%. Using the best estimate as the midpoint of the range, or 10%, would have put NHTSA in agreement with EPA. However, NHTSA chose the high-end of 15%. CFA has long argued that the lower figure 5% is what is reasonable. In other words, NHTSA underestimates the pocketbook benefits and overestimates the social costs by 10%.
  • Gasoline Taxes and Other Macroeconomic Impacts Miss the Mark: NHTSA indicates that lost gasoline taxes are a cost of higher fuel efficiency which they believe has a negative impact. Unfortunately, it does not look at other macroeconomic impacts, such as the multiplier effect, which in this case means when consumers spend less on gasoline, they have more to spend on other goods and services that stimulate our economy. Throughout our past analyses, we have argued that macroeconomic benefits should be included in any analysis. Including them as we have here would add over $25 billion to the total benefits. The agency should fully recognize all of the macroeconomic benefits rather than pick one macroeconomic cost to subtract from the benefits.
  • Technology Costs are Overestimated: NHTSA has continued to disagree with the EPA over the anticipated/projected markup, which increases the cost to consumers by about 20%. It has also used a much slower (about 8%) learning rate (the process by which time and experience result in greater efficiencies and lower costs). In the NHTSA analysis of Alternative #3 the agency concluded that the costs are greater than the benefits, indicating that this option should not be pursued. By correcting the NHTSA analysis of Alternative #3, all three of the technology cost perspectives, private, social and total, have substantially greater benefits then their costs, indicating that the higher standard in Alternative #3 should be pursued.

Due to the shortcomings in the NHTSA proposal, CFA has generally supported EPA’s proposal to reboot the Obama standard setting process after the misguided and illegal attempt to undermine standard setting for automobiles by the previous administration. CFA noted that EPA had corrected many of the mistakes of the prior administration and demonstrated that the benefits far outweigh the costs.  Overall, CFA believes the EPA analysis is more appropriate, although there are a number of areas in which EPA could also improve its analysis.

CFA believes NHTSA has left substantial consumer benefits on the table because of its erroneous assumptions and concludes that EPA’s approach will provide consumers and the economy with greater benefits.  CFA recommends to NHTSA that before issuing a final rule, the agency should reexamine its analysis with regard to the rebound rate it has assumed, the macroeconomic benefits that should be considered as well as the markup costs and learning rate in order to ensure that consumers are provided the greatest savings possible.

[1] In NHTSA’s Notice of Proposed Rulemaking, the Agency put forward three Alternative rules, Alternative #3 calls for the highest annual increases in average fleet fuel economy.

Contact: Jack Gillis, 202-939-1018