Earlier this month, the House Oversight and Government Reform Committee issued a staff report on the Obama Administration’s fuel economy/greenhouse gas (GHG) regulatory program. The report, A Dismissal of Safety, Choice, and Cost, is the product of a “multi-year Committee investigation” that includes three hearings, a transcribed interview of EPA Assistant Administrator Gina McCarthy, and a review of more than 15,000 documents obtained by the Committee from the EPA, the National Highway Traffic Safety Administration (NHTSA), the California Air Resources Board (CARB), and 15 automobile manufacturers.

Some key findings:

• The Administration performed an end-run around the law and ran a White House-based political negotiation, led by “czars” who marginalized NHTSA, the federal agency charged in statute with setting fuel economy standards.
• Contrary to the statutory scheme Congress created, the EPA became the lead agency in fuel economy regulation and NHTSA was sidelined. Contrary to Congress’s preemption of State laws or regulations “related to” fuel economy, CARB became a “major player” and an “aggressive participant in the process,” allowing unelected state regulators in Sacramento to set national policy outside the federal rulemaking process.
• The Administration violated the spirit – and possibly the letter – of the Administrative Procedure Act, Presidential Records Act, and Federal Advisory Committee Act by negotiating agreements on both the Model Year (MY) 2012-2016 and MY 2017-2025 standards behind closed doors with only a select group of stakeholders.
• The new fuel-economy/GHG standards will add thousands of dollars to the cost of new vehicles. Consumers are likely to incur net financial losses unless annual gasoline prices reach $5-$6 per gallon.
• Compliance with the new standards will require mass reductions that will, in turn, compromise vehicle safety. EPA and CARB officials mocked and belittled safety concerns raised by NHTSA.

In a law journal article and regulatory comment letter, I also make the case that the administration’s fuel-economy agenda trashes the separation of powers and administrative procedures. But the Committee’s report provides the first, detailed behind-the-scenes chronology of Team Obama’s fuel economy machinations, confirming what other critics suspected but could not document.

Some secrets of the sausage factory, though, may never come to light: “Despite multiple requests, the Executive Office of the President refused to provide any information on its involvement in developing the fuel economy and GHG emissions standards.”

In related news, House Oversight and Government Reform Chairmain Darrell Issa (R-Calif.), Rep. Jim Jordan (R-Ohio), who chairs the regulatory affairs subcommittee, and Rep. Mike Kelly (R-Pa.), an auto dealer, yesterday requested the White House Office of Information and Regulatory Affairs (OIRA) ”to return the [MY 2017-2025 fuel-economy/GHG] rule to the agencies for further consideration of its adverse consequences to consumers and the economy” (Detroit News, Aug. 22, 2012).

It’s doubtful OIRA will grant the request, and not only because NHTSA administrator David Strickland said the rule would be published “in days, not weeks,” and Department of Transportation Secretary Ray LaHood said, “It is going to happen . . . there’s no backing away.”

Team Obama wants to lock in the fuel-economy/GHG rule before the November elections. As the Committee’s report notes, “The Administration rushed to set the second round of fuel economy standards before the 2012 presidential election because, according to one EPA official, the President ‘wants to secure his legacy.’”

Particularly revealing in this regard is the November 2011 joint press release that LaHood and EPA Administrator Lisa Jackson issued when they proposed the new fuel-economy/GHG rule. The two agency heads actually boasted they were bypassing Congress: ”Today‘s announcement is the latest in a series of executive actions the Obama Administration is taking to strengthen the economy and move the country forward because we can’t wait for Congressional Republicans to act” [emphasis added].

A legislative proposal boosting average fuel economy to 54.5 mpg would not pass in the 112th Congress. Note also that NHTSA need not propose fuel economy standards for MYs 2017 and later until 2014. “We can’t wait” really means: We won’t let the people’s representatives decide — not now, not after the 2012 elections.

So don’t hold your breath waiting for EPA and NHTSA to reconsider their handiwork. In the meantime, check out this informative YouTube video by the National Automobile Dealers Association (NADA).

The EPA and NHTSA estimate the fuel-economy/GHG rule will add $3,000 to the average cost of a new motor vehicle in 2025. According to NADA, the $3,000 higher price tag means that 7 million drivers who can now afford to buy a new vehicle, won’t in 2025. The rule will also regulate out of existence the most affordable new vehicles, i.e. those costing $15,000 or less.

As noted here last week, the sparks flew at a Jan. 25 House Oversight and Government Reform Committee hearing titled “The Volt Fire: What Did NHTSA Know and When Did They Know It?“ Three witnesses testified: National Highway Traffic Safety Administration (NHTSA) Administrator David Strickland, General Motors (GM) CEO Daniel Akerson, and John German of the International Council on Clean Transportation. My earlier post was based on newspaper accounts of the hearing. Over the weekend, I watched the archived video of the proceeding and read the testimonies and Committee Staff Report. Here are the key facts and conclusions as I see them:

• The Volt battery fire occurred on June 2, 2011 in the parking lot of a Wisconsin crash test facility. The car caught fire three weeks after the vehicle had been totaled, on May 12, in a side-pole collision. The fire caused an explosion that destroyed not only the Volt but three other vehicles. The blast hurled one of the Volt’s components (a strut) a distance of nearly 80 feet.
• The fire was caused by the leaking of coolant into the Volt’s powerful 300-volt battery, which had been punctured by the crash.
• NHTSA could have avoided the fire had it run down (“drained,” “depowered,” “discharged”) the battery after the crash. This raises obvious questions: Was NHTSA responsible for the fire? Was the agency’s six-month silence partly an attempt to hide regulatory incompetence?
• The Volt is a safe car; consumers should not fear to drive it. Gasoline-powered vehicles are more likely than battery-powered vehicles to burn after a crash. The post-crash explosion from a damaged gas tank can occur in seconds as opposed to weeks. Electric vehicle batteries are harder to puncture than gas tanks. NHTSA tried and failed to replicate the fire by crashing other Volt test vehicles. To induce another battery fire, NHTSA had to impale the battery with a steel rod and rotate it in coolant with special laboratory equipment.
• GM is retrofitting Volt batteries to make them stronger and more leak proof, and is updating safety protocols to ensure batteries are depowered after crashes.
• NHTSA kept silent about the fire for six months, acknowledging it only after Bloomberg News broke the story on November 11, 2011.
• GOP Committee members produced no smoking gun evidence of collusion to cover up the Volt battery fire, such as an email saying ‘We’ve got to keep this under wraps or it will depress Volt sales, jeopardize EPA’s fuel economy negotiations with automakers, and make President Obama look bad.’
• Nonetheless, the Obama administration’s heavy investment (financial and political) in GM in general and the Volt in particular creates an undeniable conflict of interest.
• NHTSA determined the cause of the fire in August 2011, yet waited until November 25 to advise emergency responders, salvage yard managers, and Volt owners how to avoid, and reduce the safety risks associated with, post-crash fires.
• Administrator Strickland’s protestations to the contrary notwithstanding, it is difficult to explain the agency’s secretiveness apart from political considerations that should not influence NHTSA’s regulatory deliberations.

Conflict of Interest

The Committee’s Staff Report makes a strong case that the Obama administration has invested too much financial and political capital in GM and the Volt to be an honest broker of potentially damaging information about the vehicle. Consider the business side of the relationship:

• President Obama made the unilateral decision to use $50 billion in Troubled Asset Recovery Program (TARP) funds to bailout GM. Through the bailout, the government acquired a 60% equity stake in GM plus $8.8 billion in debt and preferred stock; it still owns 26.5% of GM stock.
• The Administration spent $2.4 billion of Stimulus funds on the development of technologies for the Volt and other electric vehicles. Such funds include ”$105.9 million directly to GM for production of high-volume battery packs for the Volt, $105 million to GM to construct facilities for electric drive systems, and $89.3 million to Delphi Automotive Systems, a former division of GM, to expand manufacturing facilities for electric drive power components,” the Staff Report notes.
• The U.S. Treasury picked four of five new GM board members in July 2009, including Mr. Akerson, who became CEO in January 2011.
• Volt buyers already qualify for a $7,500 federal tax credit but President Obama thinks they shouldn’t have to wait until after filing their taxes to get the rebate. The President’s FY 2012 Budget (p. 36) proposes to “transform the existing $7,500 tax credit for electric vehicles into a rebate that will be available to all consumers immediately at the point of sale.”

They don’t call it “Government Motors” for nothing. Although the company is paying off its debt to taxpayers, “ward of the state” is not a completely unfair description. In effect, when NHTSA investigated the Volt battery fire, the government was investigating a partly-owned subsidiary of — itself.

On the political side, President Obama has tied his reputation (hence his re-election prospects) to GM and the Volt:

• Obama claims the GM/Chrysler bailout saved one million auto industry jobs.
• He touts the Volt as “the car of the future.”
• The Volt’s success is critical to his goal, announced in the 2011 State of the Union speech, of putting “a million electric vehicles on the road by 2015.”
• Consumer acceptance of electric vehicles like the Volt may also be critical to the economic practicability of EPA and NHTSA’s proposed carbon dioxide (CO2)/fuel economy standards for model years (MYs) 2017-2025, which the White House considers one of the administration’s “hallmark achievements.”

At the hearing, Mr. German testified that plug-in hybrid and battery-electric vehicles are not needed to meet the new fuel economy standards, because improvements in turbochargers and other technologies are rapidly increasing the fuel efficiency of internal combustion engines. That may be so.

Nonetheless, the administration wants and expects the standards to expand the market for electric vehicles. As the Staff Report points out, according to EPA and NHTSA’s proposed rule (p. 75085), “After MY 2020, the only current vehicles that continue to meet the proposed footprint-based CO2 targets (assuming improvements in air conditioning) are hybrid-electric, plug-in hybrid-electric, and fully electric vehicles.” Accordingly, the proposal provides ”regulatory incentives” to encourage manufacture of electric vehicles during MYs 2017-2021 (pp. 75012-75013).†

Also relevent in this connection, the California Air Resources Board (CARB) — EPA and NHTSA’s partner in developing the CO2/fuel economy standards — projects that, under the standards, plug-in hybrids, battery-electric vehicles, and fuel cell vehicles will account for 15.4% of all new cars sold in California by 2025.

It just so happens that the Volt battery fire and NHTSA’s “preliminary” (off-the-record) investigation occurred while EPA, NHTSA, CARB, automakers, union labor, and environmental groups were negotiating the MY 2017-2025 fuel economy standards. Adverse publicity sparked by the battery fire could have complicated the “optics” of the negotiations, recharging the old debate over the safety risks of fuel economy regulation.

In short, the auto bailout, the Stimulus subsidies, the fuel economy rulemaking, and President Obama’s high-profile endorsement of the Volt created incentives for NHTSA to keep the Volt fire incident under wraps. A NHTSA Administrator would have to be a saint not to be tempted. Saints don’t lie. At a previous hearing before the Committee, Strickland denied under oath plain facts that he must know to be true.‡

The Timeline

The Staff Report also lays out a timeline that suggests a plan to keep Congress and the public in the dark until NHTSA and GM figured out how to eliminate the safety concern that the fire and explosion undeniably created.

The Wisconsin testing facility performed the crash test on May 12, 2011. NHSTA first learned of the fire on June 6. The agency retained a fire investigation firm to determine the cause of the explosion, because one of the other vehicles — or even an arsonist — might have started the fire. On July 5, the firm notified NHTSA that the Volt caused the fire. According to Strickland’s testimony, NHTSA determined in August that coolant leaking into the damaged battery was the source of the fire, although a second side-pole test in September did not damage the battery, leak coolant, or start a fire.

Bloomberg broke the story of the June fire on November 11, 2011. Not until November 25, the day after the previously described laboratory test caused a Volt battery to catch on fire, did NHTSA open a formal safety defect investigation. The formal inquiry took eight weeks. On January 20, 2012, NHTSA announced it was officially closing the safety probe following GM’s announcement that it would strengthen the structure around the battery and make other modifications to prevent and detect coolant leaks. But, on December 6, 2011, only two weeks into the investigation, and months in advance of the modifications GM is now implementing, Transportation Secretary Ray LaHood declared the Volt to be safe to drive.

During the formal investigation the agency evaded Committee requests for information:

Upon learning of the vehicle fire through press reports, Chairman [Darrell] Issa, Chairman Jordan, and Rep. [Mike] Kelly wrote to NHTSA Administrator Strickland on December 7, 2011, asking for answers about the Volt fires and NHTSA’s investigation of the matter. After failing to respond before a December 21, 2011 deadline, NHTSA promised to respond in full by January 6, 2012. However, NHTSA once again failed to respond to the new deadline, providing the Committee with no response and no explanation for the delay. . . .Only after a second letter sent on January 10, 2012, reiterating the Committee’s request for cooperation, did the Committee finally receive an incomplete response to the narrative questions posed in the latter on January 12, 2012, followed by a staff briefing on January 17, 2012. After six weeks of stonewalling, NHTSA provided the Committee with some documents on Thursday, January 19, 2012.

More troubling, though, is NHTSA’s long silence between June 6, when the agency learned of the fire, and November 11, when Bloomberg reported the incident. The Staff Report comments:

NHTSA’s six month silence on the Volt’s fire risks has baffled safety advocates. Joan Claybrook, a former Administrator of NHTSA and well-known auto safety expert, told the industry newspaper Automotive News that “not to tell [the public] anything for six months makes no sense to me. NHTSA could have put out a consumer alert and I think they should have done so.” She went on to say, “I believe they delayed it because of the fragility of sales.”

During the Q&A portion of the hearing, Administrator Strickland asserted it would be “irresponsible and frankly illegal” for NHTSA to “disclose anything” or say there was “something wrong” with the Volt while still engaged in “fact finding.” He did not cite the statutory provision that supposedly imposes such restraint. Although no fan of the risk-averse Precautionary Principle, I am at a loss to understand how a car fire and explosion could be serious enough to warrant ongoing tests over six months but not serious enough to mention to Congress, Volt owners, emergency responders, or potential customers.

On November 25, when NHTSA launched its formal investigation, the agency issued several safety guidelines such as keep damaged vehicles in open areas rather than inside garages or enclosed buildings, contact experts at the vehicle’s manufacturer who can discharge the propulsion system, and do not store damaged vehicles near other vehicles. Those precautions made practical sense the moment NHTSA figured out what caused the fire, in August 2011. Yet NHTSA waited another three months, and only after Bloomberg spilled the beans, to communicate important safety information to emergency responders, salvage yard managers, and Volt owners.

Concern about the “fragility of sales” may account for the delay. As noted earlier, another factor may have been negotiations over MY 2017-2025 fuel economy standards. From the Staff Report:

The fire occured on June 2, 2011. NHTSA’s investigation and response to that fire proceeded concurrently as the agency finalized negotiations on fuel economy and emissions regulation for model years 2017-2025. Bloomberg News broke the story on the Volt fires on November 11, 2011. NHTSA and EPA formally proposed the joint rulemaking for fuel economy on November 16, 2011, and nine days after the joint proposal was official, on November 25, 2011, NHTSA officially addressed the questions raised by the Volt fire and announced a formal defect investigation. Clearly, it would be inappropriate if NHTSA had stayed silent on the Volt battery’s safety risks in exchange for GM’s cooperation in the rulemaking.

Agency Error?

Another plausible motive for keeping mum may simply be embarrassment. The fire would not have occurred had NHTSA depowered the battery after the May 12 test crash. According to the Staff Report:

After news of the June Fire became public in November, GM Spokesman Greg Martin insisted that GM had long since established a set of safety protocols to prevent a fire after the Volt’s battery had been damaged. “The engineers tested the Volt’s battery pack for more than 300,000 hours to come up with the procedures, which include discharge and disposal of the battery pack,” he said. Mr. Martin went so far as to claim that “had those protocols been followed after [the May 12th test], this incident would not have occurred.” Clarence Ditlow, executive director of the Center for Auto Safety, stated he was “surprised NHTSA didn’t depower the battery after the first test in May, since it is standard procedure to drain fuel out of a conventional gasoline powered vehicle.”

German testified that, “All junkyards know to discharge the battery pack before storing, just as they remove fuel from the gas tank.” Implication: NHTSA, or its test facility, was incompetent or careless. When pressed on this point by Subcommittee Chair Jim Jordan (R-Ohio), German responded that he wrote his testimony in haste and meant to say “disconnect” rather than “discharge.” However, in the follow up, German did not challenge Jordan’s argument, based on German’s written testimony, that NHTSA should have done what junkyards know to do — depower, not merely disconnect, the battery. Asked why NHTSA did not do that, German replied: ”Again, those questions are better directed to NHTSA. The one thing I can say is there has not been a recorded case of a battery pack catching on fire. So it may have just been oversight. I don’t know.”

Conclusion

In the Q&A, Administrator Strickland said that “it took every second” for NHTSA’s technical team to determine what went wrong and how to fix it, and that is why NHTSA did not notify the public about the Volt battery fire and explosion until six months after the incident. That is not credible.

NHTSA understood the cause of the fire in August 2011, and the practical steps required to minimize safety risk – don’t keep a crashed electric vehicle in enclosed spaces or near other vehicles, arrange for experts to depower the battery — did not take another three months to figure out.

The administration’s heavy political and financial investment in GM and the Volt created a conflict of interest. The government’s ownership stake in GM and President Obama’s cheerleading for the Volt gave NHTSA an improper incentive to balance its safety mission against the administration’s political goal of boosting Volt sales. The perceived importance of electric vehicle sales to NHTSA, EPA, and CARB’s fuel economy agenda created an additional incentive to hide information that might depress Volt sales. Finally, agencies are not immune to the all-too-human desire to avoid blame for mistakes, and some experts say NHTSA should have known to drain the Volt battery after the crash test.

Absent smoking gun evidence, it is not possible to prove that political considerations account for NHTSA’s six-month silence. On the other hand, there is a simple way for Administrator Strickland to prove that political considerations were not a factor: Produce documents dated well prior to the Bloomberg story discussing when and how NHTSA planned to share the information with the public. If such documents exist, Strickland did not mention them at the hearing.

† During MYs 2017-2021, emissions from grid-based power used to recharge an electric vehicle will not be counted when assessing its compliance with EPA’s CO2 standards, and each plug-in vehicle sold will count as more than one car when calculating the manufacturer’s fleet-wide average fuel economy.

‡ Strickland, along with EPA officials Gina McCarthy and Margo Oge, denied that motor vehicle greenhouse gas (GHG) emission standards are ”related to” fuel economy standards. They surely know better. CO2 constitutes 94.9% of all GHGs emitted by motor vehicles, and “there is a single pool of technologies . . . that reduce fuel consumption and thereby CO2 emissions as well” (EPA/NHTSA Tailpipe Rule, pp. pp. 25424, 25327). Motor vehicle GHG standards are, thus, strongly “related to” fuel economy standards. Strickland, McCarthy, and Oge had to deny this because otherwise they would have to admit (1) that EPA’s grant of a waiver allowing California to regulate motor vehicle GHG emissions conflicts with the Energy Policy Conservation Act’s express preemption of state laws or regulations “related to” fuel economy, and (2) that EPA is implicitly prescribing fuel economy standards, even though the Clean Air Act grants the agency no such power. 

Last week the Consumer Federation of America issued another of those consumer “surveys” supposedly showing that the public solidly supports higher energy efficiency standards.  The previous one in this series was a Federation survey in March of alleged consumer demand for more stringent home appliance standards.  Even though affordable top-loading washers have pretty much been ruined by existing federal regulations, the March survey “found” that consumers wanted even tougher regs. The Federation’s trick: just ask pie-in-the-sky questions that portray these mandates as win-win situations.  Never suggest that the mandates mess up appliance performance, even when the evidence is staring you in the face.

The topic of last week’s survey was autos and fuel economy standards.  The Federation dressed its report up in the usual language of “ending our addiction to oil”.  But if you think oil is addictive, are you really fighting that addiction by squeezing more miles out of every gallon? Doesn’t that make oil even more addictive?

But let’s leave that question aside for the time being, and get back to the Federation’s surveying expertise.  Only one question in the survey hints at any downside to higher efficiency regs.  That downside is the possibility these regs will raise new car prices.  But aha—not to worry!  The question then has us imagine that these higher prices will be offset by lower gas costs over 3, 5 or 10 years.  In this fairytale land, support wavers only slightly as the payback period grows.

I wonder how people would have responded if the Federation had admitted that the higher car prices might never be recouped?  Or that the cars would perform worse, or be less safe (as a National Academy of Sciences concluded in 2002)?

Or let’s take a fuel economy measure reported just yesterday—that some carmakers are planning to eliminate spare tires from new cars in order to boost fuel economy? Will this milestone in the regulatory history of the car be mentioned in the Consumer Federation’s next survey?

Don’t hold your breath.

(And by the way, a major government announcement on fuel economy regs is reportedly scheduled for this morning, so you may want to watch your wallet as well.)