On Thursday morning, the Environmental Protection Agency (EPA) proposed freezing fuel economy standards for passenger vehicles at 2020 levels, erasing the gradual fuel economy increases that were signed into law by the Obama administration just before Trump took office.
Former EPA Administrator Scott Pruitt deemed the fuel economy standards too high in April and opened a formal rule-making process to revise the standards.
The proposed rule published today (PDF) was issued in cooperation with the National Highway Traffic Safety Administration (NHTSA), which maintains a parallel set of fuel economy standards. The rule also challenges California’s authority to set fuel economy standards that are more aggressive than federal standards, setting up a legal battle between the Golden State and the federal government.
The justification for weaker standards
The EPA and NHTSA are arguing that fuel economy standards would adversely affect American safety. Specifically, the NHTSA claims that halting fuel economy improvements would “reduce highway fatalities by 12,700 lives (over the lifetimes of vehicles through MY [Model Year] 2029).”
The crux of the argument suggests that, stricter fuel economy standards will require car companies to spend more to make these new cars. That spending will be passed on to consumers, and consumers will have to choose whether to buy a new car or not. The EPA says that fuel economy standards would increase the cost of a new vehicle by $2,340.
The administration then points to a 2018 study from the NHTSA saying that new cars are safer, resulting in fewer deaths and injuries compared to older vehicle models.
Therefore, the EPA argues, the US government should not make cars more expensive, because then people will buy fewer new cars, and the US public will incur more fatalities and injuries than they would otherwise.
In a phone call with Ars, John DeCicco, a research professor at the University of Michigan Energy Institute, explained that there are problems with this line of logic. DeCicco says that thus far, researchers have not been able to show “a statistically rigorous association between traffic fatalities and fuel economy.”
“To establish a statistical relationship you have to show it beyond a reasonable doubt that higher fuel economy impacts safety,” and in the absence of hard data, the EPA has had to “contrive these things through modeling,” DeCicco said. Additionally, he says, the US has regulated fuel economy for decades. Every new regulation has been costly, and yet fuel economy standards have not been shown to affect safety.
DeCicco also added that he was skeptical of the claim that implementing fuel economy standards would be passed on to the consumer directly. “This is kind of an Econ 101 thing, that price is not the same as cost,” DeCicco said. Fuel economy standards are “almost always a cost that [automakers] can’t pass on to the consumer, that’s the nature of the regulation.”
That is, if customers are willing to pay more for a vehicle, automakers will make their vehicles more expensive to capture more of that profit. If customers won’t pay more for a vehicle, automakers will have to cut costs elsewhere to be able to price their cars at a reasonable level.
What consumers want to spend money on
The proposed rule argues that moving further and further out to the technological boundary of fuel efficiency is bad for consumers, especially when prices are low, because each incremental step toward fuel economy is more costly. The EPA’s proposed rule states: “if gas is cheap and each additional improvement saves less gas anyway, most consumers would rather spend their money on attributes other than fuel economy when they are considering a new vehicle purchase, whether that is more safety technology, a better infotainment package, a more powerful powertrain, or other features (or, indeed, they may prefer to spend the savings on something other than automobiles).”
In other words, the EPA is saying it shouldn’t be in the business of telling consumers to value fuel economy, because they can already choose to value fuel economy: “information regarding the benefits of higher fuel economy has never been made more readily available than today,” the rule claims.
However, environmental regulation exists to deal with the fact that carbon emissions are an external cost that affects people outside of the driver in a way that a new infotainment system doesn’t.
There’s also some evidence that automakers would be able to meet the fuel economy standards more cheaply than the EPA originally estimated under the Obama administration. In 2017, the International Council on Clean Transportation (ICCT) released a study showing that, in some cases, the cost of implementing the 2025 fuel economy standards had been overstated by 40 percent.
Spend less on gas, drive more?
In its proposed rule, the EPA also argues that halting fuel economy standards increases would actually not make air quality worse. “[R]educing fuel economy (relative to levels that would occur under previously-issued standards) would increase the marginal cost of driving newer vehicles, reducing mileage accumulated by those vehicles, and reducing corresponding emissions.”
In other words, better fuel economy standards make it cheaper to drive because people have to buy less gas, leading people to drive more.
This, DeCicco says, has an element of truth to it, but the magnitude of that effect has been shown to be relatively small (PDF). That is, a person might drive a little more but not enough to completely mitigate the effect of their new car’s fuel efficiency. Instead, people save that extra money that isn’t spent on fuel.
This argument is a small one among the lengthy text of the proposed rule, however. Ultimately, the EPA and the NHTSA seem to be focusing on safety. “If the NHTSA… were truly concerned about safety, they would have been doing a lot better job for several years now,” DeCicco said, citing research on vehicle-to-infrastructure communication that could save lives. Instead, the agency is “freezing fuel economy standards, while they’re neglecting huge and well researched avenues to improve safety.”
Automakers, for their part, maintain that they’re still open to increasing fuel efficiency but stopped short of decrying the EPA’s move to halt standards at 2020 levels. “Automakers support continued improvements in fuel economy and flexibilities that incentivize advanced technologies while balancing priorities like affordability, safety, jobs, and the environment,” a statement from the Auto Alliance said.
Withdrawing California’s waiver
For decades, California has been allowed to set its own auto efficiency standards through the California Air Resource Board (CARB). This situation arose to help the state fight significant smog events as its population grew and highways were built. Since then, 16 other states have committed to following California’s lead.
But automakers have complained about the waiver, saying it creates a fragmented situation where they are forced to comply with CARB’s stricter standards.
The EPA moved to revoke California’s waiver on Thursday, and the state responded to the challenge of its authority. In a statement, Governor Jerry Brown (D) said: “For Trump to now destroy a law first enacted at the request of Ronald Reagan five decades ago is a betrayal and an assault on the health of Americans everywhere. Under his reckless scheme, motorists will pay more at the pump, get worse gas mileage and breathe dirtier air. California will fight this stupidity in every conceivable way possible.”
The American Energy Alliance issued a statement applauding the EPA’s action, saying, “The proposed rule establishes and confirms true federalism by removing California’s ability to dictate to consumers in other States what kinds of cars they should buy. No State should have the ability to dictate what kinds of cars citizens of other States can or should own.”
Mary Nichols, CARB’s chairwoman, saved her criticism for the meat of the EPA’s proposal, rather than commenting on the challenge to CARB’s authority. “At first glance, this proposal completely misrepresents costs and savings. It also relies on bizarre assumptions about consumer behavior to make its case on safety,” the chairwoman said. “CARB will examine all 978 pages of fine print to figure out how the Administration can possibly justify its absurd conclusion that weakening standards to allow dirtier, less efficient vehicles will actually save lives and money. Stay tuned for further comment. Meantime, California remains fully committed to a rigorous 50-state program with a full range of vehicle choices. That program is in effect right now and will remain so for the foreseeable future.”