EPA Moves the Goalposts on its Fuel Economy Mandate

When EPA was working on their fuel economy mandate for cars and trucks from the year 2017-2025, they promised American drivers and the auto industry that EPA, along with NHTSA, would produce mid-term evaluation to make sure that EPA’s aggressive fuel economy mandate for the years 2022-2025 could actually be met. After the election of Donald Trump, it looks like EPA threw their careful determination out the window and instead are quickly working to finalize the report before Trump’s inauguration.

Until earlier this month, EPA had a timeline on their website which showed that EPA planned to release their technical assessment of the fuel economy mandate mid-2016 (which they did), a proposed determination in mid-2017, and then a final determination before April 2018. Here is the timeline:

Source: http://www.nhtsa.gov/Laws-&-Regulations/CAFE-%E2%80%93-Fuel-Economy/ld%E2%80%93cafe%E2%80%93midterm%E2%80%93evaluation%E2%80%932022%E2%80%9325

The mandate calls for ramping up the current fleet-wide average fuel economy from about 34 miles per gallon for new cars and trucks that was required in 2016 to 54.5 miles per gallon by 2025. If the standard is not met, auto companies will be fined $5.50 for each tenth of a mile-per-gallon that their average fuel economy falls short of the standard multiplied by the number of vehicles that missed meeting the required standard.[i]

The emission standards for model years 2017 to 2021 have already been finalized.[ii] The standards require an average of over 35 miles per gallon for 2017 models and a fleet-wide average mileage rate of over 36 miles per gallon for cars and trucks in 2018. The standard then increases to more than 37 miles per gallon in 2019 and nearly 39 miles per gallon in 2020. By 2021, automakers will be required to hit a combined average of 41 miles per gallon for their cars and trucks.

If the rules for model years after 2021 are left in place (i.e. not modified by the Trump Administration), the emission mandate will increase to about 43 miles per gallon combined for cars and trucks in 2022, increasing to about 45 miles per gallon in 2023. The required average in 2024 is about 47 miles per gallon and in 2025, over 55 miles per gallon for cars and about 40 miles per gallon for trucks.

Issues with the High Fuel Economy Mandates

First, the cost of meeting the standard is increasing the price of vehicles. When the Obama Administration began implementing higher fuel economy mandate in 2009, analysts predicted that the standards would cost consumers at least $3,800 per vehicle. Prior to 2009, vehicle prices had been falling, but they reversed that trend due to the new mandate. The average vehicle now costs $6,200 more than if prices had followed their previous trend. Prices are expected to continue to increase, by at least $3,400 per car through 2025, under the proposed standards.[iii]

Source: http://www.heritage.org/~/media/infographics/2016/03/bg3096/bg-cafe-standards-chart-1.ashx

One estimate indicates that the vehicle cost increases are pricing nearly 7 million Americans out of the new automobile market.[iv] Another study estimated that 3.1 million to 14.9 million households would not have enough credit to purchase a new car under EPA’s 2025 mandate. Further, poorer households are disproportionally affected and are forced to use older cars with higher maintenance costs and with fuel economy that is generally lower than that of new cars.

The new fuel economy mandate would also favor foreign automobile manufacturers over domestic manufacturers (Ford, General Motors, and Chrysler) because foreign-headquartered firms tend to specialize in vehicles that are favored under the new standards. Projections show that after 10 years under the new standards, GM and Chrysler would each lose over 10 percent of their profits and Ford would lose 0.5 percent. European and Asian automakers, on the other hand, would increase their profits at least 3 percent. That is because the big three U.S. automobile manufacturers would need to reduce their production of “large, high-horsepower” vehicles to meet the standard while importers could increase their market share in that area. This could result in fewer American jobs.

Fuel economy mandates are also affected by the “rebound effect”—where more fuel-efficient vehicles lower the cost per mile of driving, resulting in consumers driving more, which partially offsets the fuel economy gain. It also adds to congestion and road repair costs.

Further, this mandate has a minimal impact on global warming—less than two hundredths of a degree Celsius in 2100. Thus, they fail a cost-benefit test by a huge margin.

Conclusion

The Obama Administration fuel economy mandate is yet another example of the regulatory burden the government imposes on American households. The quick finalization of model year 2022 to 2025 mandate shows that the Obama Administration is not much interested in what is best for the American public. Rather, it is increasing automobile costs, decreasing jobs, and hurting the poor. As this analysis shows, mandates imposed by the federal government increase consumer costs and reduce consumer choices.


[i] The Detroit News, EPA rushes to finish MPG regs before Trump takes office, November 30, 2016, http://www.detroitnews.com/story/business/autos/2016/11/30/cafe-standards/94670198/

[ii] The Detroit News, Car lobby fails to put the brakes on mpg rules, December 7, 2016, http://www.detroitnews.com/story/business/autos/2016/12/06/fuel-efficiency-rules/95062388/

[iii] Heritage, Fuel Economy Standards Are a Costly Mistake, March 4, 2016, http://www.heritage.org/research/reports/2016/03/fuel-economy-standards-are-a-costly-mistake

[iv] New York Times, U.S. Sets Higher Fuel Efficiency Standards. August 28, 2012, http://www.nytimes.com/2012/08/29/business/energy-environment/obama-unveils-tighter-fuel-efficiency-standards.html

The post EPA Moves the Goalposts on its Fuel Economy Mandate appeared first on IER.

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