Congress should allow NHTSA to consider electric vehicles and credit transactions when setting fuel standards.
Thanks to the National Highway Transportation Safety Administration (NHTSA), vehicles now run more efficiently than ever before. This agency sets standards for average miles per gallon for auto manufacturers, known as CAFE (Corporate Average Fuel Economy) standards. Over its 40-year history, the CAFE program has saved consumers $5. sunshine It’s fuel cost. It can be very important to continue setting smart standards for future model years.
But it’s no surprise that optimizing fuel economy is incredibly complex. Economists and engineers spend years analyzing all the nuances that need to be considered, including vehicle size and safety, health and climate impacts, and future gasoline prices. So it stands to reason that NHTSA should use the best available information to set CAFE standards. But in NHTSA’s authorizing statute, Congress prohibited NHTSA from doing so. This statute is fooling the agency in two major ways.
First, Congress forces NHTSA to set standards by pretending that manufacturers can’t make more electric vehicles (EVs) that will comply. However, with the Inflation Reduction Act, the bipartisan infrastructure bill, and related Biden administration actions, EVs will likely continue to become more affordable and more common. And that’s important. This vehicle consumes no gasoline and produces no emissions. To fully analyze fuel economy, you need to consider how EVs will impact manufacturers’ compliance plans. But Congress forces NHTSA to ignore it.
Second, Congress forces NHTSA to set CAFE standards while ignoring a key compliance option: credit transactions. Simply put, some car companies are better at increasing fuel efficiency than others. These efficient companies can “overcomply” and take credit for above-standard profits. Less efficient businesses can purchase these credits from other businesses instead of making costly investments. These credit arrangements are important for businesses to understand how to meet CAFE standards. But Congress tells NHTSA to look away.
Instead, Congress forces NHTSA to create regulations in a hypothetical fantasyland where no manufacturer builds new EVs or buys credits to comply with CAFE standards. In Fantasyland, NHTSA is forced to ignore cheap compliance methods and introduce weaker standards as a result. Under these constraints, even small adjustments to fuel economy can result in increases in vehicle price that may sound scary but are downright illusory.
But few people understand the constraints of Fantasyland. This has sparked confusion and misleading claims about NHTSA’s recently proposed CAFE standards. Consider the warning from lawyers for two companies that one part of the standard would cost drivers billions of dollars, or the comments from an automaker captured by the energy media warning of a $3,000 price increase across new vehicles. These numbers sound scary, but most of all, they are completely fake. This comes from Fantasyland modeling where some of the cheapest methods of compliance do not exist. NHTSA may have to operate in Fantasyland, but the people evaluating its standards do not. Instead, public comments should reflect reality.
That said, NHTSA itself is not completely off the hook.
Even within Fantasyland, NHTSA’s analysis of the proposed standards is skewed in several ways. For example, the agency assumes that people won’t buy other brands if prices go up. But if one automaker becomes thousands of dollars more expensive, basic economics and common sense dictate that buyers will switch companies.
NHTSA is also considering several alternative standards, including ones that are significantly more stringent than the preferred option. However, if the agency discovers that the vehicle’s price is significantly higher, it stops its analysis and rejects that alternative. This one-sided assessment ignores the fact that gas savings can offset higher prices alongside other social benefits, such as reduced carbon pollution. My colleagues and I described these issues and more in a comment letter we submitted to NHTSA.
These Fantasyland constraints, combined with NHTSA’s illogical approach, mire the CAFE program in a messy and unrealistic quagmire. And oil and gas companies, along with Republican-led states, have filed lawsuits challenging the old standards to further complicate things. According to them, NHTSA should not ignore the possibility of automakers using EVs to comply with CAFE standards. This means that we should also ignore electric vehicles that will exist in the market anyway.
My colleagues explained to the U.S. Court of Appeals for the District of Columbia why that was legally wrong. But if the court agrees with these challengers, NHTSA will be left with a Fantasyland Deluxe so unrealistic that the CAFE program and all its gas-saving benefits could soon become obsolete.
Neither of these are good policies. NHTSA’s Fantasyland constraints maintain artificially lax standards for politically favored gas-powered car companies and fossil fuel interests. Congress has the power to bring NHTSA back to reality. This should be done especially if the DC Circuit Challenge is successful.
When it comes to optimizing gas savings, the country is realistically better off living.
