November 3, 2017

Ideas for Regulatory Review at the US Department of Transportation

Key materials

This comment is in response to DOT-OST-2017-0069. Specifically, two Department of Transportation rules—the Corporate Average Fuel Economy (CAFE) Standards of the National Highway Traffic Safety Administration (NHTSA) and the Train Crew Staffing Rule of the Federal Railroad Administration (FRA)—should be reviewed as opportunities for deregulation.

The Program for Economic Research on Regulation (PERR) at the Mercatus Center at George Mason University is dedicated to advancing knowledge of the impact of regulation on society. As part of its mission, PERR conducts analyses on the regulatory process from the perspective of the public interest. This comment, therefore, does not represent the views of any particular affected party or special interest group but is meant to assist the US Department of Transportation in reviewing its body of regulations.

Review of these two rules represents an opportunity for the department to reevaluate the burdens imposed by regulation and the distortionary effect of these burdens on the development of the industries they regulate. Both rules create a countervailing risk—a consequence that results from a regulatory action and is not already accounted for in the direct cost of the action. For CAFE and railroad staffing rules, countervailing risk takes the form of inappropriate safety measures and investment diverted from precautionary safety.

Corporate Average Fuel Economy Standards – RIN: 2127-AK29

Originally proposed to reduce emissions through improved fuel economy, the CAFE rule adds to traffic congestion and causes technological lock-in from frontloading standards implementation. The assumptions used in the final benefit-cost analysis should be reviewed retrospectively to see if external changes in fuel costs used in the original estimation have lowered the achieved benefits, or if the expected behavioral changes in consumers have occurred in any degree. While one option, if the costs outweigh the benefits, might be complete withdrawal of the rule, therefore relying on market forces to set performance standards as demand for fuel efficiency increases naturally, the rule could be modified to use alternative implementation plans that encourage technological diversity.

An alternative to the current rule could be a system of voluntary CAFE goals in which vehicle models that exceed CAFE standards bear a “CAFE compliant” emblem similar to that of the Energy Star program for electronics and household appliances. Consumers who desire a visual confirmation of fuel economy the most would seek out models with such emblems, allowing manufacturers of high-fuel-economy vehicles to easily match those vehicles with consumers. The department could also allow a grace period for manufacturers to invest in alternative fuel vehicle technology: manufacturers could demonstrate to DOT that, rather than complying with an increased CAFE standard, they instead invested in alternative fuel vehicle technology the amount that compliance would have cost.

Currently, this poorly implemented rule disproportionately burdens consumers, the actual users of the cars whose designs are altered to comply with efficiency standards. Changes to vehicle weight, structure, and material composition change the handling of the vehicle and may lead to higher death and injury rates. The engineering costs manufacturers face to comply with the rule were considered in the original analysis of the rule, but costs to consumers were forgotten.

Train Crew Staffing Rule – 49 CFR 218, RIN: 2130-AC48

Significantly, the staffing rule increases the cost of operating trains by requiring a minimum crew size of two unless a specific exception is made. This burden, however, is not the largest cost of the rule—the countervailing risk generated by diverted investment is much larger. By requiring a greater expenditure on personnel, railroads are forced to reallocate scarce resources away from those activities that are historically associated with improved safety, such as track and equipment maintenance or other infrastructure investments. The additional safety that the new rule creates by having more staff available must be weighed against the losses in safety caused by this deferred investment. In particular, two offsetting effects deserve consideration: deferred investment in infrastructure, including track and equipment maintenance, and deferred investment in safety-enhancing technology and innovation.

The regulatory impact analysis that accompanied the rule did not sufficiently show that the alternative to the rule—allowing single-member crews—was inherently less safe than multimember crews; the analysis also did not consider the cost of diverted investment described above. Without such proof, the alternative of allowing single member crews should be pursued, allowing investment dollars to find their highest-valued use.

The burdens of complying with this rule fall directly onto railroad operators, but the costs of countervailing risk and reduced safety affect all individuals who interact with trains, crewmembers, passengers, and automobile drivers. The dispersed costs to individuals outside of the operating industry were not considered in the original analysis, making this rule ripe for retrospective review and possibly repeal.