The fuel efficiency standards changes since 2000 are summarized in the graph attached to this post. The first Corporate Average Fuel Economy (CAFE) standards were introduced by Congress in 1975 as a result of the 1973 oil embargo. It is estimated that fuel efficiency standards have saved Americans over $2 trillion in fuel costs since their establishment (Public Policy Initiative 2018). However, the graph shows CAFE led to a very minimal miles per gallon (MPG) increase from 2000-2018 relative to the goal set for the next ten years. Before the end of the Obama Administration’s term, his team already had created a plan designed to reach a 54.5 MPG standard by 2025. Under Obama’s proposal for 2017-2025, emissions standards would tighten by 3.5 percent every year for the first five model years, and by 5 percent every year for the last four years. In April 2017, Scott Pruitt, the EPA administrator at the time, officially cancelled the goal. He argued the standards were “based on outdated information, and that more recent information suggests that the current standards may be too stringent” (McDonald 2019). The National Highway Traffic Safety Administration and the Environmental Protection Agency (EPA) released a new plan to freeze the requirement at 35 MPG.

The final Safer Affordable Fuel Efficient Vehicles (SAFE) rule is a dialed-down version of the one depicted in the graph. Instead of proposing zero improvements in fuel efficiency in coming years, it would require automakers to increase fuel economy across their fleets by 1.5% a year, with a goal of achieving an average of about 40 MPG by 2026 (McDonald 2019). While Trump initially announced the new freeze standards would impact vehicles in model year 2020, those cars were built under the Obama-era stringent fuel efficiency standards and are already on the road. Unless the administration finalized its rollback by April 1 2020, it was in danger of missing the deadline to apply the new standards to the 2022 model year. Additionally, under the Congressional Review Act, new rules issued after May 19 could be invalidated by the next Congress (Phillips and Mitchell 2020). Still, the administration concluded the rollback would lead the U.S. to use about 500,000 more barrels of oil every day. It’s a 2-3 percent increase from the track our country was on before Trump walked in. Overall, it would result in an extra 7.4 billion metric tons of carbon dioxide being released by 2100 (McDonald 2019). The 7.4 billion number is modest compared to the situation’s actual reality.

In order to push for the rollback, the Trump administration inaccurately cited Mark Jacobsen, an economist at the University of California San Diego. The academic said his work was misapplied, resulting in misleading conclusions about fatalities and pollution. For example, Jacobsen said the administration implausibly assumes that the U.S. will have about 6 million fewer cars on the road by 2029 if the rollback happens (McDonald 2019). This particular error, Jacobsen said, is a result of a faulty fleet turnover model that attempts to incorporate how often people choose to scrap their cars. The smaller fleet size under the rollback is significant because it changes all of the subsequent calculations. It impacts miles travelled, then gas consumed, subsequently traffic congestion, noise and pollution. The Trump Administration failing to account for 6 million cars makes the rollback appear less detrimental than it is.

Analysis from senior EPA and National Highway Traffic Safety Administration officials showed weakening fuel-economy standards would be a net financial loss to individual consumers. Sure, lowering the cost of a new car would allow more Americans to replace aging vehicles with newer, safer ones. That turnover in the nation’s fleet would prevent more than 3,300 traffic fatalities, according to the government’s projections, as well as 46,000 post-crash injuries. However, while the price of a new car would be cut by about $1,000, the drivers would have to buy more gas than they would have under the current rule. David Friedman, vice president of advocacy for Consumer Reports, said his group’s projections show that each vehicle sold under the Trump rule will cost its owner on average $2,100 more, even if gas prices continue to fall (Phillips and Mitchell 2020). It’s interesting to consider how the car companies are going to respond.

Under the SAFE rule, manufacturers can sell underperforming cars and compensate the difference by selling other cars that outperform their targets. While the standards are often summarized by a single number, such as Obama’s 2025 goal of 54.5 MPG as an average across all vehicles, “the 54.5 number is not a requirement for every — or for any specific — vehicle or manufacturer” (McDonald 2019). Each vehicle has a specified fuel economy target, which is based on its size and class. However, the number that truly matters is the average target across all of the cars that are sold in a given fleet. Even though companies face financial penalties if their vehicle fleets do not meet their individually calculated standards, there are built-in flexibilities so that automakers still have ways of avoiding penalties if they miss their marks in a given year (McDonald 2019). Automakers can also transfer credits between their fleets or trade credits to other manufacturers. As a result, even a company that fails to meet its standard one year could be in compliance because of previous good performance or by credit swapping within the industry. Still, many of the powerhouses in the auto industry are calling for legislation to make the MPG standard a higher number.

Automakers are working their way into the political conversation. Mary Nichols, chairwoman of the California Air Resources Board, disclosed that Volvo is collaborating with the state of California to reach a voluntary emissions agreement. Four other automakers — Ford, Honda, Volkswagen and BMW — have already made a deal with the state that would preserve emissions standards that are not as tough as the Obama standards but are significantly more ambitious than Trump’s proposal (Phillips and Mitchell 2020). John Bozzella is leading the charge as president of the Appliance for Automotive Innovation, a trade group that represents the world’s largest car companies as lobbyists. According to Bozzella, the initiative started way before the SAFE rules as “the auto industry has consistently called for year-over-year increases in fuel efficiency” (Phillips and Mitchell 2020). The industry professionals see the issue as a strategy to “support a customer-friendly shift toward these electrified and other highly efficient technologies” (Phillips and Mitchell 2020). While a car company’s reputation is also a reason to support progressive legislation, I am still surprised the major players are not pulling for the lowest MPG standard possible. However, perhaps it has to do with strengthening the corporation’s position in the international playing field.

The United States has recently been a leader in technology designed to improve vehicle efficiency. Weaker standards could slow this research, placing the United States at a competitive disadvantage. If countries remain dedicated to reduce emissions, cars sold within the United States may no longer meet the standards of other nations. Already, American-produced cars are falling behind in the world market, with the percentage of American vehicles in the global marketing dropping from 70% in the 1960s, to an anticipated 15% by 2025 (Public Policy Initiative 2018). At the end of the day, it may be other nations setting the U.S. standards because our country cannot afford to lose its status at the top of the international auto industry. Perhaps, this is a unique opportunity for economic competition to support the environment.

I don’t agree with the Trump Administration’s SAFE rule. The Obama administration outlined a plan that gradually guides the auto industry to a tighter standard so that the industry won’t be shocked. Prioritizing oil sales as more important than the transition to electric vehicles halts the industry’s natural progression towards a solution that is environmentally sound and cheaper for the American people. The SAFE rule highlights a major problem with the government seeing protecting big business as more important than actually helping the majority of the nation’s population. It leads to America falling behind relative to the rest of the world.

Sources:

McDonald, Jessica. 2019. “The Facts on Fuel Economy Standards” The Annenberg Public Policy Center. Accessed May 18 2020. https://www.factcheck.org/2019/05/the-facts-on-fuel-economy-standards/

Phillips, Anna and Russ Mitchell. 2020. “Trump Weakens Fuel Economy Standards, Rolling Back Key U.S. Effort Against Climate Change” Los Angeles Times. Accessed May 18 2020. https://www.latimes.com/politics/story/2020-03-31/trump-rolls-back-fuel-economy-standards

Public Policy Initiative. 2018. “The Implications of Changing Fuel Efficiency Standards” Wharton University of Pennsylvania. Accessed May 18 2020. https://publicpolicy.wharton.upenn.edu/live/news/2731-the-implications-of-changing-fuel-efficiency/for-students/blog/news#_edn3

Comment from Professor Dr. Aaron Ray:

Mary – Thanks for analyzing the CAFE issue. One of the fascinating elements of fuel economy standards is the assumed rebound effect. A rebound effect occurs when something becomes cheaper (e.g., fuel economy improvements make each mile driven less expensive) which encourages more consumption (e.g., more driving). In this case, some of the fuel saved from more efficient vehicles in lost due to more miles driven. There is significant debate about the size of this effect (See survey below).

Aaron

Gillingham, K. 2018. “The Rebound Effect of Fuel Economy Standards: Comment on the Safer Affordable Fuel-Efficient (SAFE) Vehicles Proposed Rule for Model Years 2021-2026 Passenger Cars and Light Trucks. Yale University. Available: https://environment.yale.edu/gillingham/Gillingham%20-%20Rebound%20Effect.pdf

My Comment Replying to Ray:

Dr. Ray-

It is interesting to consider the rebound effect would lead to efficient cars causing additional miles driven which does not mitigate climate change. It makes sense in terms of budget because many people allocate a certain dollar amount per month to use for gas. At the same time, there is the alternative circumstance of someone who has a regular 45-minute commute to work everyday and gets a new efficient vehicle to simply pay less for the actions one is anyways obligated to take. That being said, I see areas of discrepancy and investigated the points of debate mentioned in the survey.

The comment written by Gillingham was informed by conversation with Mark Jacobsen, the economist I referenced in my post above. Gillingham attested to Jacobsen’s argument claiming inaccuracy in the SAFE rule proposal. Specifically, the Trump administration assumed a 20% rebound effect that is a non-comprehensive justification based upon “old evidence, evidence from Europe, a selective review of literature that is missing several key papers, and an interpretation of several papers that is at odds with the authors’ own interpretation” (Gillingham 2018). Inconsistent population characteristics amongst various regions definitely skew truth in terms of the rebound effect. For example, in Europe there is consistently more practical public transportation across subsets of the region and fuel prices are higher (Gillingham 2018). On the other hand, Gillingham’s literature review discusses the rebound effect specifically in the United States with data only from the past decade and uses multiple odometer readings as opposed to only self-reported surveys. While the surveys showed the largest rebound effect percentage estimates (34%, 11-19%, 40%, 10%, 20-40%), the two studies using odometers had relatively small estimates (0%, 1%, 10%, 11%, 14.7%, 7.5-15.9% ). The average for all non-odometer studies was 14.1%, and the average for all odometer readings was 8.1%. Either way, 14.1% is still significantly less than the 20% from the SAFE rule proposal.

Question for all- Are there issues with studies completed in regards to the Clean Power Plan or Methane Rules that are needing improved experimental design to achieve greater accuracy? How much do the studies actually play a part in arriving at a certain conclusion?

Even though his conclusions says otherwise, I appreciate the way Gillingham brings in potential factors which may escalate the rebound effect estimate in the fuel efficiency standard changes debate so he thoroughly addresses possible points of contention. While his own studies focus on the direct relationship between cost of driving and miles travelled, he recognized there are additional factors to consider.

However, the accumulation of the other variables seemed to have a net zero impact because some overestimate the rebound effect’s reach, and others underestimate the rebound effect’s impact. He even declared “the money saved by fuel economy standards at the gasoline pump may be diverted to other uses that may lead to additional fuel use, but more costly vehicles will imply less is available for other uses” as ground to both underestimate and overestimate the rebound effect in the given context (Gillingham 2018). Crucially, the largest issue with determining the true rebound effect in the SAFE rule is there is no certainty of which factors hold the most power. Nonetheless, Gillingham concluded the strongest evidence suggests the rebound effect in the fuel efficiency standard changes issue is a maximum of 10%.

Gillingham arrived at his conclusion after also conversing with David Rapson, professor at University of California-Davis. Another article cited Rapson overriding the confusion we face as we analyze problems at the consumer level. Rapson said “a more promising solution is to put a price on carbon, such as what California is doing with cap and trade. It produces economic incentives that evidence shows will reduce carbon emissions” (Kerlin 2017). At the end of the day, sometimes confounding variables are just too limitless to deal with. Further, while the factors Gillingham outlines in the rebound effect analysis still bring insight, Rapson presents a clear, insurmountable outlook. Here is information about the Cap-and-Trade Program: https://ww3.arb.ca.gov/cc/capandtrade/capandtrade.htm

Sources:

Gillingham, K. 2018. “The Rebound Effect of Fuel Economy Standards: Comment on the Safer Affordable Fuel-Efficient (SAFE) Vehicles Proposed Rule for Model Years 2021-2026 Passenger Cars and Light Trucks. Yale University. Available: https://environment.yale.edu/gillingham/Gillingham%20-%20Rebound%20Effect.pdf

Kerlin, Kat. 2017. “The Diet Soda Effect of Buying a Fuel-Efficient Vehicle”. University of California-Davis. Available: https://www.ucdavis.edu/news/diet-soda-effect-buying-fuel-efficient-vehicle/