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September 10, 2010

Control of Greenhouse Gases from Light-Duty Vehicles

Proposed Rule

Score: 48 / 60

RULE SUMMARY

EPA and NHTSA are issuing this joint proposal to establish a national program consisting of new standards for light-duty vehicles that will reduce greenhouse gas emissions and improve fuel economy. This joint proposed rulemaking is consistent with the National Fuel Efficiency Policy announced by President Obama on May 19, 2009, responding to the country’s critical need to address global climate change and to reduce oil consumption. EPA is proposing greenhouse gas emissions standards under the Clean Air Act, and NHTSA is proposing Corporate Average Fuel Economy standards under the Energy Policy and Conservation Act, as amended. These standards apply to passenger cars, light-duty trucks, and medium-duty passenger vehicles, covering model years 2012 through 2016, and represent a harmonized and consistent national program. Under the national program, automobile manufacturers would be able to build a single light-duty national fleet that satisfies all requirements under both programs while ensuring that consumers still have a full range of vehicle choices.

METHODOLOGY

There are twelve criteria within our evaluation within three broad categories: Openness, Analysis and Use. For each criterion, the evaluators assign a score ranging from 0 (no useful content) to 5 (comprehensive analysis with potential best practices). Thus, each analysis has the opportunity to earn between 0 and 60 points.

Criterion	Score
Openness
1. How easily were the RIA , the proposed rule, and any supplementary materials found online? This proposed rule can be found through a RIN search on regulations.gov. On the Environmental Protection Agency website, click on "laws and regulations." This leads to a section where you can view regulations. Click on the link and it refers you to regulations.gov. The preamble says the EPA RIA is available in the docket, but relations.gov lists approximately 11,000 documents with no easy way to find the RIA. DOT, on the other hand, has the proposed rule, its RIA, and the joint technical support document available on its web site, just three clicks from the DOT home page. As long as the reader knows NHTSA administers CAFE, the materials are easy to find.	3/5
2. How verifiable are the data used in the analysis? Extensive data are well documented and sourced. The preamble explicitly states that the analysis used publicly available information wherever possible, and source documents are in the docket. The baseline forecast is based on data that are either publicly available or can be purchased commercially. Some data are provided in tables.	5/5
3. How verifiable are the models and assumptions used in the analysis? Models used are well documented but extremely complex. Sources on climate change, social cost of carbon, and consumer behavior and demand are footnoted and sometimes linked; these are either government, intergovernmental, or scientific articles that are often peer-reviewed. Cost models appear to be based on technical studies conducted either by the government or by industry consultants. The Volpe model used by NHTSA to estimate automaker responses is publicly available via the DOT website.	4/5
4. Was the analysis comprehensible to an informed layperson? It is only understandable to a layperson after considerable effort. There is a lot of repetition, "as discussed above," "as discussed below," etc. Reading the Federal Register notice from beginning to end, topics are brought up multiple times and discussed in greater or less detail repeatedly. This makes the document tedious and difficult to follow. Even within the portions that seem to be written by EPA or by NHTSA, this reads like it was written by committee and had no overall editor to streamline it so it would read like a unified document. In general, NHTSA's part of the document is better-written, clearer, and more user-friendly. An economist or other specialist can understand the analysis, but it would be rough going for anyone else.	3/5
Analysis
5. How well does the analysis identify the desired outcomes and demonstrate that the regulation will achieve them?	5/5
Does the analysis clearly identify ultimate outcomes that affect citizens’ quality of life? It includes very careful analysis of all outcomes and impacts on the quaility of life. The "big picture" benefits are reduced greenhouse gas emissions and improved energy security from reduced fuel consumption. A section discusses how greenhouse gas emissions affect human welfare.	5/5
Does the analysis identify how these outcomes are to be measured? Considerable effort is put into quantification of outcomes. Principal measures are fuel savings and carbon emissions. The quantity of each is monetized. NHTSA also estimates the dollar value of some other benefits, such as reduced time spent refueling and improvements in energy security. EPA estimates the value of reductions in particulate emissions and reductions in global temperatures and sea levels. EPA plans to estimate and monetize the health effects of reduced PM and ozone emissions in the final rule.	5/5
Does the analysis provide a coherent and testable theory showing how the regulation will produce the desired outcomes? Theories of most impacts have been tested and validated. Manufacturer compliance with standards is presumed automatically to cause the good outcomes to occur. The benefit discussion does examine some possible perverse consequences that could undermine benefits (eg, rebound effect).	5/5
Does the analysis present credible empirical support for the theory? Extensive analysis shows how compliance with the standards will affect emissions. Given the extensive history and analysis of CAFÉ, effectiveness of past CAFÉ standards in reducing emissions or increasing fuel economy could have been addressed.	5/5
Does the analysis adequately assess uncertainty about the outcomes? There is both a full discussion of the impact of varying certain assumptions and a formal probability analysis. A range of estimates is used for the social cost of carbon, including both domestic and international figures and multiple discount rates. "Energy security" premium is presented as a range. NHTSA reports a Monte Carlo analysis included analysis of uncertainties that affect benefits.	5/5
6. How well does the analysis identify and demonstrate the existence of a market failure or other systemic problem the regulation is supposed to solve?	4/5
Does the analysis identify a market failure or other systemic problem? There is a full discussion of externalities, information problems and the energy efficiency paradox. The analysis notes external effects of emissions on climate change and human health. EPA notes the "conundrum" that private benefits of increased fuel efficiency appear to outweigh private costs, yet consumers do not purchase as many fuel-efficient cars voluntarily as these calculations would suggest. "Energy security" is also mentioned as a reason to be concerned about oil imports.	5/5
Does the analysis outline a coherent and testable theory that explains why the problem (associated with the outcome above) is systemic rather than anecdotal? Environmental externalities are asserted without much discussion. Energy security externality is asserted without much explanation of underlying theory. Although there is a full discussionof the energy efficiency paradox it is not resolved nor are steps outlined to resolve it. Various theories of consumer behavior regarding fuel savings are discussed extensively.	4/5
Does the analysis present credible empirical support for the theory? The RIA summary notes behavioral economics research suggesting reasons consumers place low value on fuel savings. Still, it seems strained to claim that consumers systematically undervalue fuel savings. Climate change literature is cited extensively, but this largely supports the claim that man-made climate change has bad effects, not specifically the externality point. Energy security literature is cited extensively.	4/5
Does the analysis adequately assess uncertainty about the existence or size of the problem? The analysis admits the conundrum in regard to consumer behavior but proceeds to count fuel savings as benefits and/or negative costs. A range of figures is used to represent the social cost of carbon, reflecting substantial uncertainty.	3/5
7. How well does the analysis assess the effectiveness of alternative approaches?	4/5
Does the analysis enumerate other alternatives to address the problem? EPA considers standards that would reduce CO2 emissions by 4 percent and 6 percent per year, in addition to the proposed 5 percent. NHTSA considers CAFÉ standards that improve mileage by 3,4,5,6,7 percent, a standard that maximizes net benefits, a standard that sets total costs equal to total benefits, plus a 4.3 percent standard that maps into the EPA's proposed GHG standards.	5/5
Is the range of alternatives considered narrow (e.g., some exemptions to a regulation) or broad (e.g., performance-based regulation vs. command and control, market mechanisms, nonbinding guidance, information disclosure, addressing any government failures that caused the original problem)? The range of alternatives (other than stringency levels) discussed is not as broad as it could have been. For both EPA and NHTSA, alternatives are standards of varying stringency, not fundamentally different approaches.	3/5
Does the analysis evaluate how alternative approaches would affect the amount of the outcome achieved? Total benefits and costs are examined for alternative stringency levels. Both agencies estimate how different levels of standards would affect emissions or fuel economy.	5/5
Does the analysis adequately address the baseline? That is, what the state of the world is likely to be in the absence of federal intervention not just now but in the future? The baseline fleet is projected from industry sales forecasts, with proportions of various models based on 2008 sales, and from Energy Information Administration forecasts. This appears to assume that, in the absence of new regulation, consumers would continue to buy the same proportions of various kinds of vehicles. This means the baseline assumes no significant change in fuel economy beyond what is necessary to meet the model year 2001 CAFE standards, but it also avoids building costs of CAFE compliance into the baseline.	4/5
8. How well does the analysis assess costs and benefits?	5/5
Does the analysis identify and quantify incremental costs of all alternatives considered? Incremental costs and benefits of alternative CAFE standards are examined. Cost estimates are based on detailed costs of various technologies plus indirect costs. They include product development costs and capital investments. Costs per vehicle are calculated for several alternative standards.	5/5
Does the analysis identify all expenditures likely to arise as a result of the regulation? The analysis of product development and capital costs seems exrremely thorough.	5/5
Does the analysis identify how the regulation would likely affect the prices of goods and services? NHTSA estimates the new CAFE standards will increase new vehicle prices by $476–$1091; EPA estimates its standards will increase prices by $368–1050.	5/5
Does the analysis examine costs that stem from changes in human behavior as consumers and producers respond to the regulation? NHTSA notes the "rebound effect" (consumers drive more when their cars are more fuel-efficient) and the safety effects of manufacturers' incentives to reduce vehicle weight. NHTSA also accounts for "disbenefits" like increased traffic congestion. The agencies note that they do not estimate the opportunity cost of the regualtions in terms of performance, carrying capacity, safety, etc. and seek comment on how to do so. They acknowledge that important costs in terms of consumer welfare are not measured. NHTSA's analysis includes a thorough discussion of the relationship between CAFE and safety.	5/5
If costs are uncertain, does the analysis present a range of estimates and/or perform a sensitivity analysis? NHTSA reports a Monte Carlo analysis assessed uncertainty associated with key cost assumptions.	5/5
Does the analysis identify the alternative that maximizes net benefits? NHTSA explicitly estimates which standard would maximize net benefits, and also calculates the standard that would equalize total costs and benefits.	5/5
Does the analysis identify the cost-effectiveness of each alternative considered? Both agencies consider the incremental cost of tighter standards. EPA considers the cost per ton of carbon.	3/5
Does the analysis identify all parties who would bear costs and assess the incidence of costs? Occasionally the analysis mentions that manufacturers may pass some or all costs through to consumers, and sometimes it assumes consumers bear the entire cost. The analysis also calculates how the standards will affect different manufacturers' per vehicle costs. There is no discussion of differential impact on different consumers.	4/5
Does the analysis identify all parties who would receive benefits and assess the incidence of benefits? EPA's analysis mentions that reduced pollutant emissions would sometimes have differential health effects for certain types of people. The analysis discusses which benefits are private and which ones are social. It includes an explicit discussion of domestic vs. global cost social cost of carbon.	4/5
Use
9. Does the proposed rule or the RIA present evidence that the agency used the analysis? The RIA states that the analysis was used to set the stringency level. The agencies appear to have considered both the estimated results (emissions, fuel economy) and the costs of achieving various amounts of results. "The proposed standards can be achieved within the lead time provided, based on a projected increased use of various technologies which in most cases are already in commercial application in the fleet to varying degrees. Detailed modeling of the technologies that could be employed by each manufacturer supports this initial conclusion. The agencies also carefully assessed the costs of the proposed rules, both for the industry as a whole and per manufacturer, as well as the costs per vehicle, and consider these costs to be reasonable and recoverable (from fuel savings)."	5/5
10. Did the agency maximize net benefits or explain why it chose another alternative? The RIA states that the analysis was used to set the stringency level that maximized net benefits. NHSTA must consider "economic practicability," including effects on both manufacturers and consumers, when setting CAFE standards. EPA can consider cost of compliance, effects on safety, and effects on consumers. "The agencies’ analyses to date indicate that the overall quantified benefits of the proposed standards far outweigh the projected costs." The agencies claim they rejected more stringent alternatives due to concerns over lead time and economic practicability. Less stringent standards were rejected because they would forego important emissions benefits and because California would not accept compliance with less stringent federal standards. EPA notes that its chosen 5 percent standard involves a low incremental cost (less than $100/vehicle) compared to the 4 percent standard.	5/5
11. Does the proposed rule establish measures and goals that can be used to track the regulation's results in the future? Both agencies plan detailed compliance programs. But this only measures manufacturer compliance with standards, not the outcomes produced by the regulation. Actual fleet sales for each manufacturer and consumer driving patterns could be tracked to measure actual effects on emissions and fuel economy.	2/5
12. Did the agency indicate what data it will use to assess the regulation's performance in the future and establish provisions for doing so? There is no explicit discussion, but the level of detail in the RIA suggests that the agencies could easily track actual results of the regulations.	3/5

Total	48 / 60

Additional details

Agency: Joint EPA/DOT
Regulatory Identification Number: 2060-AP58
Agency Name: Joint EPA/DOT
Rule Publication Date: 09/28/2009
Comment Closing Date: 11/27/2009