December 27, 2011

Greenhouse Gas & Fuel Efficiency for Medium/Heavy Duty Vehicles

Proposed Rule
Summary

Score: 40 / 60

Additional details
Agency
Joint EPA/DOT
Regulatory Identification Number
2060-AP61, 2127-AK74
Agency Name
Joint EPA/DOT
Rule Publication Date
11/30/2010
Comment Closing Date
01/31/2011

RULE SUMMARY

EPA and NHTSA, on behalf of the Department of Transportation, are each proposing rules to establish a comprehensive Heavy-Duty National Program that will reduce greenhouse gas emissions and increase fuel efficiency for on-road heavy-duty vehicles, responding to the President’s directive on May 21, 2010 to take coordinated steps to produce a new generation of clean vehicles.

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?
A RIN search turns up the NPRM and RIA readily on regulations.gov, but a keyword search is harder. Keyword searches on both the EPA and DOT home pages quickly reveal home pages for these regulations that include links to the NPRM and RIA.
5/5
2. How verifiable are the data used in the analysis?
The agencies could have done more with third parties to secure more verifiable data, or they should have done more to point the reader to original data sources. Input data to estimate emissions impacts are in the docket. Data source for rebound effect calculation is cited but not linked. It is not clear where the figures that went into the chapter analyzing alternatives came from. Indirect cost assumptions came from expert discussions whose results were peer-reviewed. Many cost and effectiveness figures for technologies are simply sourced to the analysis for the Light-Duty rule; maybe 15 percent cite external sources. A few figures come from confidential data or "non-GHG certification applications" with no further discussion.
2/5
3. How verifiable are the models and assumptions used in the analysis?
The EPA model used to project emissions is available on the web. Numerous assumptions that went into it are stated but not sourced. There were no links or references that would make it easy to confirm whether the research is reliable or accurate. Studies underlying benefit calculations are a mix of government and peer-reviewed publications, fully cited but rarely linked. Rebound effect assumptions reflect judgment but are supported by argument and some statistics. Source study for energy security premium is cited and was peer reviewed. The models and assumptions at times were complex, thus very difficult to fully verify.
3/5
4. Was the analysis comprehensible to an informed layperson?
The RIA is very long and somewhat tedious. There were parts of the RIA and the proposed rule that were very easy to understand, and the logic was well thought out. However, there were different areas (the more technical spots) where mathematical jargon and formulas made the analysis very difficult to understand. The RIA materials were helpful, but two or three of the ten chapters were very technical. For scientists and other specialists, the analysis was likely very helpful, but to the informed layperson, it was difficult to comprehend. One would probably have to be familiar with the RIA from the light-duty proceeding to fully comprehend everything that's being done here.
3/5

Analysis

5. How well does the analysis identify the desired outcomes and demonstrate that the regulation will achieve them?
4/5
Does the analysis clearly identify ultimate outcomes that affect citizens’ quality of life?
Cost savings due to reduced fuel consumption and shorter refueling times, environmental benefits due to reduction of greenhouse gas and other pollutant emissions, improvements in health due to reduced pollution, and improved energy security. "Energy security" is somewhat vague, but the chapter calculating its components clarifies what it means and why it matters to citizens.
5/5
Does the analysis identify how these outcomes are to be measured?
Most of the major benefits are quantified and monetized. One exception: only the effects of carbon emissions, not all greenhouse gases, are monetized. The NPRM says estimates of the health effects will be supplied in the final RIA. The RIA explicitly omits "monopsony" effect on oil prices because this is just a transfer.
3/5
Does the analysis provide a coherent and testable theory showing how the regulation will produce the desired outcomes?
The proposed rule has taken into consideration how to measure the fuel standards of new vehicles and differing vehicle classes. The regulation will give the desired outcomes based on the EPA models and simulations. The theory is testable and coherent—by changing the vehicles, fuel economy will increase and CO2 and other greenhouse gases will diminish. The RIA incorporates rebound effect.
4/5
Does the analysis present credible empirical support for the theory?
Much of the support comes from calculations by EPA and DOT. If the projections turn out to be true, the proposed rule will improve fuel efficiency and reduce emissions; however, there needs to be more evidence from past experience. It seems odd that the RIA did not consider the actual results of prior CAFE standards to demonstrate that this regulation is likely to have the predicted effects. Calculations of benefits include assumed rebound effects, which appear to be the most likely values that can be discerned from a small amount of literature and NHTSA's own analysis.
3/5
Does the analysis adequately assess uncertainty about the outcomes?
A range of values for the social cost of carbon are used. Peer review led to a range of estimates for energy security premium. The RIA acknowledges uncertainty about the size of the rebound effect but uses point values anyway. Value of fuel savings is assumed to be pretty certain, despite the likelihood of fluctuating fuel prices.
3/5
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?
NPRM characterizes greenhouse gas emissions and energy security effects as classic externalities. It also discusses the "energy paradox" that truck owners seem unwilling to make investments in fuel efficiency that pay for themselves. The RIA acknowledges that cost-minimizing businesses should be expected to adopt technologies whose fuel savings outweigh the cost. It suggests very briefly that this does not occur because of poor information (despite the SmartWay program), lack of trust in fuel efficiency information in the resale market, uncertainty about future fuel prices, and "incomplete coordination" (people who buy trucks are not the same as the people who operate them). So there are certainly some claims of systemic problems here.
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 externality issues are explained succinctly. Five explanations offered for the “energy paradox:” inadequate/unverified information in a form relevant to individual companies, inadequate information in the resale market, "split incentives" (different people make decisions about equipment and fuel purchases), uncertainty about future savings, and adjustment/transactions costs. But then NPRM also says the latter two explanations may not involve market failure, and forcing purchasers to buy fuel-efficient trucks might make them worse off. So, the theories explaining why profit-maximizing businesses fail to minimize costs are a bit muddled.
4/5
Does the analysis present credible empirical support for the theory?
The NPRM cites anecdotal evidence supporting the "energy paradox" in regard to truck owners, but says there is no published empirical evidence or data. The NPRM notes that for some discount rates and social costs of carbon, the size of the externality exceeds the increase in costs—so the regulation may do more good than harm even if the externality is the only problem. Heavy-duty vehicles account for 12 percent of U.S. oil use, suggesting this slice of the market is significant.
3/5
Does the analysis adequately assess uncertainty about the existence or size of the problem?
Environmental and energy security problems are assumed to exist with certainty. There is some relevant discussion about the size of the problem indirectly through the RIA and proposed rule. But the agencies never directly address the size of the problem. Ranges of estimates suggest uncertainty about the size. Discussion of energy paradox acknowledges substantial uncertainty but merely requests comments.
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?
The RIA lists eight alternatives including no action.
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)?
Seven of the alternatives involve setting standards for engines, for different classes of tractors or trucks, and in some cases for trailers. An additional pair of alternatives involve setting the standard 20 percent more stringent or 20 percent less stringent than the preferred alternative. So, the alternatives are different along several dimensions, though all are variants of standards.
2/5
Does the analysis evaluate how alternative approaches would affect the amount of the outcome achieved?
Carbon savings, fuel savings, and total value of benefits are calculated for each alternative in 2030 and 2050, but not for lifetime of model years 2014-18 or for a stream of years.
4/5
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 is clear and adjusts for fuel price changes but does not project how fuel efficiency will evolve in the absence of a new regulation. The baseline is model year 2010 fuel economy. Price projections from EIA's Annual Energy Outlook 2010 are used, and fuel supply assumptions altered to reflect the Renewable Fuels Standard. The NPRM acknowledges that some improvements in fuel economy may occur in the absence of the regulations and requests comment on how to estimate these to obtain a more accurate baseline.
3/5
8. How well does the analysis assess costs and benefits?
3/5
Does the analysis identify and quantify incremental costs of all alternatives considered?
There are a multitude of costs associated with the alternatives considered, and overall the analysis does a good job of monetizing the expenses. However, the DOT and EPA could have done a better job analyzing the full array of alternatives and some of the small costs. Analysis considers direct cost of each technology plus multipliers to account for effects on (firms') indirect costs. Costs are calculated for alternatives only for 2030 and 2050.
3/5
Does the analysis identify all expenditures likely to arise as a result of the regulation?
Costs include R&D, certification/compliance, cost of including the technology, and indirect costs. Fuel savings are counted as a negative cost rather than a benefit, so the total cost figure is negative.
4/5
Does the analysis identify how the regulation would likely affect the prices of goods and services?
The DOT and EPA do not fully consider market forces that will change due to the proposed rule. Little direct consideration of how costs would be passed through or deadweight loss from price increases. Since the analysis generated large fuel cost savings, it would suggest price decreases that could be passed through. The RIA uses a computable general equilibrium model to assess economy-wide effects, but all of the results are listed as blanks in tables.
2/5
Does the analysis examine costs that stem from changes in human behavior as consumers and producers respond to the regulation?
Rebound effect included. Costs of noise, accidents, and congestion from rebound effect are included as "negative benefits." Considers effects of vehicle mass reduction on safety; concludes these would be minimal.
5/5
If costs are uncertain, does the analysis present a range of estimates and/or perform a sensitivity analysis?
Costs are definitely uncertain, and the RIA acknowledges there may be a range of estimates. There is some econometric data given regarding costs, but the analysis never fully addresses the range of possible costs. Notes that indirect cost allocation involves uncertainty, so it calculated costs using "indirect cost multipliers" ($7.7 billion total) and "retail price equivalents" ($9.3 billion total). But costs are generally presented as point estimates rather than ranges.
2/5
Does the analysis identify the alternative that maximizes net benefits?
Net benefits are calculated for each alternative in 2030 and 2050. The alternative that maximizes net benefits is clear. Net benefits are positive under any scenario, since costs are always negative due to fuel savings. A separate table shows the fuel savings as a benefit rather than a negative cost.
5/5
Does the analysis identify the cost-effectiveness of each alternative considered?
A table shows cost per ton of reduced CO2 emissions for the chosen alternative. No similar calculations for the other alternatives, but this could have been done using the information in the RIA.
2/5
Does the analysis identify all parties who would bear costs and assess the incidence of costs?
The agencies certify that the proposed regulation would not have a substantial impact on small entities because they plan to defer the standards for small businesses. A few statements acknowledge possible cost passthroughs, but there is no significant analysis.
2/5
Does the analysis identify all parties who would receive benefits and assess the incidence of benefits?
The analysis does not identify all parties who would receive benefits in much detail. Calculates value of fuel savings both pre- and post-tax. Pre-tax shows value of fuel savings to society; post-tax shows value to truck owners. Notes that owners who drive more miles will receive greater savings, but does not offer any calculations. Benefits are presented annually and also over the lifetime of model year 2014-18 trucks. Benefits of fuel savings accrue to truckers; benefits of carbon reductions are global. No other discussion of benefit incidence.
3/5

Use

9. Does the proposed rule or the RIA present evidence that the agency used the analysis?
Legislation requires the CAFE standards to be the maximum technologically feasible, but they must also be cost-effective. EPA has discretion to consider cost, lead time, safety, and other effects on consumers. Agencies appear to have rejected hybrid powertrains because they would not be cost-effective in the time period under consideration. Thus, the standard selected appears to be based on the agencies' analysis of both costs and outcomes.
4/5
10. Did the agency maximize net benefits or explain why it chose another alternative?
The chosen alternative had the highest net benefits of all but one option, which had very slightly higher net benefits. Net benefits of that alternative appear to be more uncertain, because it includes regulation of trailers, which the agencies have limited experience with. The agencies solicit comments on including trailers and plan to address it in a future rulemaking.
4/5
11. Does the proposed rule establish measures and goals that can be used to track the regulation's results in the future?
No commitment to goals or measures, but the RIA's analysis could easily be used as a starting point to establish them. The agencies will monitor compliance, which will tell them something about how the regulation affects fuel efficiency.
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?
No commitment to future retrospective assessment. The RIA would provide a good template.
2/5
 
Total 40 / 60