fuel economy

Post image for Update on Legality of Obama’s 54.5 MPG Standard

On Monday, I noted that Team Obama plans to set new-car fuel-economy standards for model years (MYs) 2017-2025, a nine-year period, despite the fact that the authorizing statute, the Energy Policy Conservation Act, 49 U.S.C. 32902(b)(3)(B), restricts the setting of fuel-economy standards to “not more than 5 model years.” No matter how hard or long government lawyers squint at the text, 5 does not mean 9. In the words of House Oversight and Government Reform Committee Chairman Darrell Issa (R-Calif.), the standards proposed for MYs 2022-2025, which reach 54.5 mpg in 2025, are “outside the scope of law.”

Since writing that post, I have learned that Team Obama will try to finesse the legal problem by basing the MYs 2022-2025 fuel economy standards solely on EPA’s authority to set emission standards under CAA Sec. 202. This is Bizarro World jurisprudence.

EPA will be setting de-facto fuel-economy standards, pretending that GHG standards are not fuel-economy standards, but specifying CO2 reduction percentages that the agency avows, and everybody knows, convert directly into percentage increases in fuel economy.

Nobody but the judicial activists who gave us Massachusetts v. EPA can say with a straight face that when Congress enacted CAA Sec. 202, it meant to transfer the power of setting fuel-economy standards from the National Highway Traffic Safety Administration (NHTSA) to EPA. Nor would any non-Bizarro lawyer contend that CAA Sec. 202 authorizes EPA to set fuel economy standards as many years into the future as the agency sees fit, despite EPCA’s explicit limit of “not more than 5 model years.”

Post image for Issa: 54.5 MPG Fuel Economy Standard Negotiated Outside Scope of Law

In a sharply worded letter (August 11, 2011) to White House Counsel Kathryn Ruemmler, House Oversight and Government Reform Committee Chairman Darrel Issa (R-Calif.) contends that “the new Corporate Average Fuel Economy (CAFE) and EPA vehicle greenhouse gas (GHG) standards announced by President Obama and select automobile manufacturers on July 29, 2011, were negotiated in secret, outside the scope of law, and could generate significant negative impacts for consumers.”

Issa is also concerned “that the government’s ownership interest in General Motors and Chrysler at the time these negotiations were conducted creates a troublesome conflict-of-interest.”

Accordingly, Issa is launching “an investigation into the activities of the Administration leading up to the agreement for new CAFE standards for model years (MY) 2017-2025.”

I won’t try to summarize Issa’s 8-page letter, which among other things developes a detailed case that the 54.5 mpg fuel-economy deal will adversely affect vehicle prices, consumer choice, vehicle safety, and, hence, automotive sales and auto industry jobs. This post will only discuss the legal issues that Issa spotlights. My concern here — as in numerous previous columns — is with bureaucratic ‘lawmaking’: the trashing of the separation of powers and democratic accountability in the illusory pursuit of climate stability and energy independence. [click to continue…]

Post image for House Committee Opens New Front in Fuel Economy Battle

Yesterday, the House Appropriations Committee approved an amendment to the Fiscal Year 2012 Interior, Environment, and Related Agencies appropriations bill that would block EPA from using any funds to:

  • Develop greenhouse gas (GHG) emission standards for new motor vehicles and vehicle engines manufactured after the 2016 model year; and
  • Consider or grant a Clean Air Act waiver allowing the California Air Resources Board (CARB) to establish GHG emission standards for new motor vehicles and vehicle engines manufactured after the 2016 model year. 

Capital Alpha Partners, LLC, a firm providing political and policy risk analysis to institutional investors, rightly notes that the amendment, sponsored by Rep. Steve Austria (R-Ohio), could “shift the debate over fuel economy standards and pressure the administration to soften its 56.2 mpg target floated two weeks ago.” In addition, the measure “would slice two of the three currently-involved agencies [EPA and CARB] out of the rule-making loop,” leaving fuel economy regulation to the National Highway Traffic Safety Administration (NHTSA), “the one agency seen as ‘most reasonable’ by industry and other observers.” 

Capital Alpha reckons the measure “has a 25% chance of enactment into law this year.” If enacted as part of the one-year EPA funding bill, the measure would expire on September 30, 2012. “However,” says Capital Alpha, “should it make it into law, opponents would be hard-pressed to strip it out in future years.” An exciting prospect for liberty-loving Americans! [click to continue…]

Post image for Ethanol Policy Updates: E15 and Tax Credits

The EPA has finalized label requirements for E15, backing down a bit from initial proposal which included the word ‘caution.’ The new label, as you can see, is a slightly less alarmist ‘attention.’ I will note that the new label does not point out in any form that ethanol will provide fewer miles per gallon for your vehicle. Adjusted for energy content, ethanol is more expensive than gasoline. However, if you do not adjust for energy content, ethanol costs less than gasoline. Being that the label doesn’t point this out, it seems that consumers might fill up with E15 as it will be slightly cheaper than E10, as few are aware that they will be reducing their fuel economy when moving from E10 to E15. I suspect that the government would be taking action if a private company were to do this.

The Corn Grower’s Association has weighed in, and they are unsurprisingly less than thrilled despite the fact that the EPA kowtowed to their demands:

[click to continue…]

Post image for EPA Greenhouse Gas/NHTSA Fuel Economy Standards: ‘Harmonized and Consistent’?

This post updates my June 14 post on the mantra intoned by EPA, the California Air Resources Board (CARB), and the National Highway Traffic Safety Administration (NHTSA) that EPA/CARB’s greenhouse gas (GHG) motor vehicle emission standards are “harmonized and consistent” with NHTSA’s fuel economy standards.

EPA Associate Administrator David McIntosh recently sent written responses to questions from House Energy and Commerce Committee members following up on a May 5, 2011 hearing entitled “The American Energy Initiative.”

In a nutshell, EPA defines “harmonized and consistent” as “whatever we say it is.” [click to continue…]

Post image for What Should Drive Fuel Efficiency?

What should drive fuel efficiency? Select the answer you think is correct: 

(a) Government;

(b) Markets; or

(c) Please pass the sweet and sour shrimp.

If you chose (a), then go straight to www.allsp.com (Season 10) and watch my favorite South Park episode, “Smug Alert.”

If you chose (c), then you’re on your way to a promising career as a diplomat.

Today, on National Journal’s energy blog, I explain why the correct answer is (b).

Post image for How Many Agencies Does It Take to Regulate Fuel Economy?

How many agencies does it take to regulate fuel economy?

Only one — the National Highway Traffic Safety Administration (NHTSA) — if we follow the law (1975 Energy Policy and Conservation Act, 2007 Energy Independence and Security Act); three — NHTSA + EPA + the California Air Resources Board — if law is trumped by the backroom, “put nothing in writing,” Presidential Records Act-defying deal negotiated by former Obama Environment Czar Carol Browner.

Tomorrow, the Senate is expected to vote on S. 493, the McConnell amendment, which is identical to S. 482, the Inhofe-Upton Energy Tax Prevention Act. S. 493 would overturn all of EPA’s greenhouse gas (GHG) regulations except for the GHG/fuel economy standards EPA and NHTSA jointly issued for new motor vehicles covering model years 2012-2016, and the GHG/fuel economy standards the agencies have proposed for medium- and heavy-duty trucks covering model years 2014-2018. The legislation would leave intact NHTSA’s separate statutory authority to regulate fuel economy standards for automobiles after model year 2016 and trucks after model year 2018.

Bear in mind that GHG emission standards and fuel economy standards are largely duplicative. As EPA acknowledges, 94-95% of all GHG emissions from motor vehicles are carbon dioxide (CO2) from the combustion of motor fuels. And as EPA and NHTSA acknowledge, “there is a single pool of technologies for addressing these twin problems [climate change, oil dependence], i.e., those that reduce fuel consumption and thereby reduce CO2 emissions as well” (Joint GHG/Fuel Economy Rule, p. 25327).

The National Auto Dealers Association (NADA), whose members know a thing or two about what it takes to meet the needs of the car-buying public, sent a letter to the Senate today urging a “Yes” vote on S. 493. NADA stresses three points. S. 493 would:

  • End, after 2016, the current triple regulation of fuel economy by three different agencies (NHTSA, EPA, and California) under three different rules.
  • Restore a true single national fuel economy standard under the CAFE program, with rules set by Congress, not unelected officials. Ensure jobs, consumer choice, and highway safety are considered according to federal law when setting a fuel economy standard.
  • Save taxpayers millions of dollars by ending EPA’s duplicative fuel economy regime after 2016.

Let’s examine the first two points in a bit more detail. The NADA letter says: [click to continue…]

Recently on this site and at MasterResource.Org, I discussed the Obama Administration’s proposed rule to establish first-ever greenhouse gas (GHG) and fuel-economy standards for heavy duty (HD) vehicles. The rule, jointly proposed by the EPA and the National Highway Traffic Safety Administration (NHTSA), would set increasingly stringent GHG and fuel economy standards for HD vehicles manufactured during model years (MYs) 2014-2018. HD vehicles include “combination tractors” (semi-trucks), “vocational trucks” (dump trucks, delivery trucks, buses), large pickups and vans.

Do Consumers Undervalue Fuel Economy?

The agencies have long held that “consumers undervalue fuel economy,” as EPA puts it on p. 44413 of its July 2008 Advanced Notice of Proposed Rulemaking: Regulating Greenhouse Gases under the Clean Air Act).  Yes, EPA acknowledges, the addition of fuel saving technology increases the purchase price of a vehicle, but, the agency contends, “the lifetime discounted fuel savings will exceed the initial cost increase substantially” (ANPR, p. 44447).

EPA writes as if the only factors consumers need to weigh and balance when purchasing an automobile are the upfront purchase price and the lifetime fuel costs. Given that premise, consumers who do not spend more for a higher mpg-vehicle are short-sighted (“fuelish”). Like children, they either do not discern their own best interest or lack the self-discipline to pursue it. So the Nanny State must step in and restrict our choices for our own good. Such is the elistist pretension underpinning three-plus decades of fuel-economy regulation.

In reality, consumers are not two-dimensional beings trapped, like agency fuel-economy fetishists, within a two-factor decision framework. In addition to the tradeoff between upfront cost and long-term fuel expenditures, consumers also consider vehicle power, performance, utility, style, safety, comfort, and amenities. Some people, for example, are willing to pay more for gasoline in order to enjoy the panoramic views, cargo space, passenger space, off-road versatility, and towing capacity of a large SUV.

More importantly, when consumers purchase a car, they typically take into account costs that are completely unrelated to the vehicle itself. For example, Mrs. Smith may prefer a lower priced car because she needs more disposable income this year for new home-office equipment, for little Sallie’s music lessons, or for Bill Jr.’s orthodonture. Forcing her to spend more of her disposable income on a higher-mpg vehicle would not enhance her family’s welfare, even if she could recover the extra expense in five years. Each consumer’s welfare is subjective and involves a subtle weighing and balancing of many competing considerations. For EPA to claim that “consumers undervalue fuel economy” is tantamount to saying that Mrs. Smith “overvalues” music lessons.

Do Truckers Underinvest in Fuel Economy?

Okay, so the notion that consumers “undervalue” fuel economy is dubious. In their joint proposed rule, EPA and NHTSA do not claim that truckers undervalue fuel economy. That would not pass the laugh test. As the agencies acknowledge (p. 315), “Unlike in the light-duty vehicle market, the vast majority of vehicles in the medium- and heavy-duty truck market are purchased and operated by businesses with narrow profit margins, and for which fuel costs represent a substantial operating expense.” Indeed, for truckers, fuel is the single biggest operating expense.


Source: EPA-NHTSA, Draft Regulatory Impact Analysis: Proposed Rulemaking to Establish Greenhouse Gas Emission Standards and Fuel Economy Standards for Medium- and Heavy-Duty Engines and Vehicles, Figure 9-1, p. 9-4

Clearly, nobody has a keener incentive to reduce fuel expenditures than people who haul freight for a living.

Yet the agencies claim that truckers “underinvest” in fuel saving technology. According to their calculations, the proposed rule will compel the trucking industry to invest $7.7 billion in fuel-saving technologies (p. 36), which will cut fuel consumption by 500 million barrels, which will save truckers $28 billion (assuming a 7% discount rate) or $42 billion (assuming a 3% discount rate). In the agencies’ words (p. 315), “the application of fuel-saving technologies in response to the proposed standards would, on average, yield private returns to truck owners of 140% to 420%.”

Unexamined Hypothesis: Opportunity Cost of EPA Emission Control Standards

The agencies propose five “potential hypotheses” to explain why firms with narrow profit margins in a competitive industry where fuel is the chief operating expense are not seizing an opportunity to make billions in easy money. As discsussed in my MasterResource column, none of these explanations demonstrates a “market failure.” In fact, two of the hypotheses suggest that truckers are simply acting like prudent buyers (although, naturally, the agencies don’t put it that way). Specifically, truckers want to make purchasing decisions based on road-tested information, not just agency speculation. Prior to actual deployment of the technologies, nobody knows whether they will yield the promised fuel savings and how they will affect engine reliability and maintenance costs.

The Oak Ridge Laboratory publishes an annual Transportation Energy Data Book. The chapter on heavy vehicles (p. 5-2) reports that the fuel-economy of “single unit” trucks improved 2% annually during 1998-2008. No “underinvestment” there. In contrast, “combination tractor” (semi-truck) fuel economy declined 1.2% annually over that period (p. 5-3). Yet these are the long-haul guys who, according to EPA and NHTSA, will save 18 times as much on fuel as owners of vocational trucks once they comply with the proposed rule (p. 337).

I don’t know if prudent- buyer behavior accounts for the alleged investment “gap” or “energy paradox” (p. 315) in the semi-truck category, but the agencies should have at least mentioned one other obvious “hypothesis”: the opportunity cost of EPA’s emission control mandates.

Back in the year 2000, EPA adopted tough new emission control standards for HD vehicles.  EPA’s Regulatory Impact Analysis (RIA) estimated that the industry’s 11 major diesel manufacturers would have to make substantial commitments of time, money, and personnel to comply with the new standards:

We have therefore estimated that each of the 11 major diesel engine manufacturers will invest approximately $7 million per year on research and development over a period of five years to adapt their engine technology to the advanced emission control technologies described here. Seven million dollars represents the approximate cost for a team of more than 21 engineers and 28 technicians to carry out advanced engine research, including the cost for engine test cell time and prototype system fabrication. [RIA, Chapter V: Economic Impacts, p. V-20]

“In total,” EPA’s RIA continues, “we have estimated that the engine manufacturers will spend approximately $385 million on R&D.” Three hundred and eighty-five million dollars. Presumably, that could crowd out significant R&D on fuel saving technology. Every year for five years, an estimated 21 engineers and 28 technicians at each of 11 major diesel manufacturers would be working on emission control technology. They would likely work less (or not at all) on fuel-saving technology.

The RIA also estimated that, in the “near term” (MY 2007), the average semi would incur fixed, variable, and operating costs of $280, $2,946, $3,785, respectively (p. V-7). So in the near term, owners would have about $7,000 a year less per vehicle to spend on fuel saving technology. For perspective, EPA and NHTSA estimate that their proposed GHG/fuel economy standards will increase the cost of a “combination tractor” by $5,896 in MY 2014 (p. 7-3). Presumably, some truckers who spent $7000-plus for mandated emission control technologies did not have $5,896 to spend for new fuel saving technology.
Finally, EPA’s year 2000 RIA says that the diesel particulate filter will “negatively impact fuel economy by approximately one percent” but that this will be “more than offset through optimization of the engine-PM trap-NOx adsorber system” (p. V-32). Whether this forecast turned out to be accurate or not, I do not know. 
What does seem clear is that EPA’s own rules may be responsible for the alleged “paradox” that the freight goods industry is not making cost-effective investments in fuel-saving technology.

Request for Information

Unfortunately, the latest information I have found on the industry-wide R&D costs and per-vehicle costs of EPA’s HD vehicle emission standards, and whether the associated technologies enhance or reduce HD vehicle fuel economy, is EPA’s year 2000 RIA, which offers projections rather than a retrospective, real-world, assessment. I would be grateful to anyone who can point me to later information.