New Federal Fuel Economy Standards Wrongly Calculated, Says Petition

Based on a recent court ruling and the law, the Competitive Enterprise Institute (CEI) says updated nationwide corporate average fuel economy (CAFE) standards imposed by U.S Environmental Protection Agency (EPA) in December 2021 relied on an invalidated metric.

Because of this the CEI filed a formal request in February with Michael Regan, EPA administrator, to place the new standards on hold and reconsider them.

The new CAFE standards, which apply to vehicles from model years 2023 through 2026, restore and extend greenhouse gas and fuel economy rules for cars and light-duty trucks, requiring a 5 percent per year increase in fuel economy, first developed under President Barack Obama. Under President Donald Trump, EPA revised those standards downward, setting an annual increase for average fuel economy of 1.5 percent through 2026, rather than 2025 as Obama’s rules did. The EPA has now reversed course again, reinstituting the 5 percent annual increase through 2026.

No “social cost of carbon”

Four individuals joined CEI in challenging the new CAFE standards based on a ruling issued days earlier by U.S. District Judge James Cain that the “social cost of carbon” (SCC) evaluation relied upon by EPA to justify the final rule is likely unlawful and cannot be used by EPA officials in making policy.

The SCC evaluation was the product of the Interagency Working Group (IWG) on the Social Cost of Greenhouse Gases.

Specifically, Cain barred the EPA, the IWG, and other federal officials and agencies from relying not just on the work product of the IWG but also its methodology considering global effects, discount rates, and time horizons. Cain further required these officials and agencies to “return to the guidance of EPA’s 2003 Circular A-4 in conducting any regulatory analysis.”

Cain’s injunction also bars executive agencies from adopting, employing, treating as binding, or relying (in any way) upon any estimates of “social cost of greenhouse gases” based on global effects or that uses discount rates other than the 3 and 7 percent rates authorized by Circular A-4.

Cain also prohibited defendants from relying upon or implementing Section 5 of President Biden’s Executive Order 13990 “in any manner.” Section 5, entitled “Accounting for the Benefits of Reducing Climate Pollution,” states “[i]t is essential that agencies capture the full costs of greenhouse gas emissions as accurately as possible, including by taking global damages into account.”

The law requires reconsideration

CEI’s petition points to statutory language in the Clean Air Act requiring the EPA administrator to convene a proceeding for reconsideration of the rule “if the grounds for [objecting to a final rule] arose after the period for public comment (but within the time specified for judicial review) and if such objection is of central relevance to the outcome of the rule.”

CEI’s letter cites EPA’s own admission that its fuel economy standards rely on the IGW’s estimates of the “global social benefits of CO₂, CH₄, and N₂O emission reductions.”

Those improperly used calculations produced alleged global climate benefits that dwarf non-emission benefits.

If the EPA’s cost-benefit analysis were to be corrected in accordance with Cain’s order, using a 7 percent discount rate, CEI contends the result would show a net harm, not a benefit, from implementing the stricter fuel economy standards.

Moreover, CEI contends, as long as Cain’s order stands, the EPA cannot legally implement the new standards even if it ignores the IGW social cost of carbon assessments.

‘Estimates Are Too Speculative’

Cain was right to block the use of the SCC which was built on flawed assumptions and improper methodologies, says Marlo Lewis, Jr., a senior fellow at CEI.

“Whatever its value as an academic pursuit, the SCC estimates are too speculative and assumption-driven to inform policy decisions,” said Lewis. “Indeed, the SCC estimates are easily manipulated for political purposes.”

“The Obama, and now Biden, IWG’s process for estimating climate-related externalities is a case in point,” said Lewis. “All of the IWG’s methodological decisions have the effect of increasing SCC values, to name a few, the use of below-market discount rates, an analysis period extending far beyond the limits of reasonable speculation, outdated climate sensitivity assumptions, unscientific depreciation of CO₂ fertilization benefits, unjustified pessimism regarding human adaptive capabilities, implausible ‘return to coal’ baseline emission scenarios, and net-benefit calculations that misleadingly compare domestic costs to supposed global benefits.”

‘Fuel Economy Mandates Should End’

CAFE standards are obsolete and should be abolished, says Timothy Benson, a policy analyst at The Heartland Institute.

“CAFE  standards were created by the Energy Policy Conservation Act in 1975 in direct response to the oil embargo imposed by OPEC in 1973, a problem that is no longer a problem, and won’t be one again,” said Benson. “Moreover, car and light-truck emissions in the United States account for only roughly 1.5 percent of all human-caused greenhouse gas emissions, a fraction that will become even smaller as emissions from developing countries rise.

“These standards add thousands of dollars to the price of new cars and increase the price for used cars, for no significant environmental benefit,” said Benson. “The idea that consumers can be made better off by restricting their freedom to choose, the presumption that lies at the bottom of all proposals to impose or raise CAFE standards, is false—government enforced fuel economy mandates should end.”

Duggan Flanakin (dflanakin@gmail.com) writes from San Marcos, Texas.