Report Series: the Flawed Analysis Underlying the Rollback of the Clean Car Standards
The federal Clean Car Standards were a signature achievement of the Obama administration, promising steadily increasing fuel-efficiency and lower vehicle emissions. The Trump administration rolled back those standards, however, and replaced them with the Safer Affordable Fuel Efficient (SAFE) Vehicles Rule. Weakened fuel-efficiency standards under the SAFE Rule eviscerate important public health benefits and fuel savings for consumers. Further, the Environmental Protection Agency and National Highway Traffic Safety Administration used several gimmicks and faulty assumptions to skew the analysis of the rule, obscuring just how harmful it is to the American public. We published a series of reports examining several of the flaws in the rule.
As a justification for the rollback, the agencies cite the possibility that the fuel savings of improved standards could be undermined by consumers missing out on features like higher horsepower and towing capacity. But for decades, agency practice has been to fully value the fuel savings from improved standards and, even in the SAFE rule, the agencies do not have enough confidence in the possibility of forgone performance attributes to devalue the fuel savings they estimate in their main analysis supporting the rule. Thus, this citation to the possibility of opportunity costs amounts to empty hand waving and does not justify the rule.
Through inflated assumptions about sales, the agencies conclude that improved standards would significantly increase the prices of cars so much that forgoing the improvements will lead to a big reduction in vehicle prices. In reality, this sales effect is far smaller than the agencies project. Our report explains this in detail.
In an analysis that abruptly appeared with the final rule, the agencies drastically increase their estimate of the “price elasticity” of vehicle prices, an econometric estimate for the impact of sticker price on vehicle sales. Because automobiles are essential goods in most areas of the United States (and lack any comparable substitute), both economic theory and observed behavior finds that vehicle sales are relatively inelastic—meaning that price fluctuations produce just modest changes in vehicle sales. But rather than adopt that assumption, the agencies chose a much higher elasticity that conflicts with the economic literature, the recommendations of solicited experts, and the agencies’ own analysis of other key inputs for assessing the rule’s impacts.