Procedural Maze Continues for Vehicle Efficiency Regulation

Update: EPA and NHTSA have issued the Supplemental Notice of Intent.

The regulatory process is often complex: agencies must balance opportunities for public comment, complex scientific information, and economic analysis, all while trying to craft a program that fulfills a legal mandate. But when it comes to crafting proposals for vehicle fuel economy and greenhouse gas standards, the process has become an administrative nightmare.

In May, President Obama announced plans for the EPA and National Highway Traffic Safety Administration (NHTSA) to propose fuel economy standards for 2017-2025. Last week, EPA and NHTSA sent a supplemental notice of intent to propose fuel economy standards to OMB's Office of Information and Regulatory Affairs (OIRA) for review. OIRA has 90 days to review the document, but it is expected to be released  in the coming weeks.

The document is the third official statement of policy to come from the Obama administration in advance of a proposed rule for light duty (cars, minivans, SUVs, pickup trucks) vehicle efficiency standards expected in September 2011. EPA says the document, not publicly available, promises to make incremental steps toward proposing standards, including “narrowing the range of potential stringencies” for the upcoming proposed regulation. 

EPA and NHTSA’s supplemental notice of intent is expected to answer the question of what the expected pace of improvements will be. The agencies previously requested comments on proposed rates of improvement of 3, 4, 5 and 6 percent per year reductions in greenhouse gas emissions (which roughly correspond to commensurate increases in fuel economy). But the answer to that question is buried in a complicated process that is heavily dependent on economic analysis.

The Bush administration fundamentally restructured the fuel economy program, first for light trucks (pickup trucks and SUVs), and, in amendments to the fuel economy law enacted under the Energy Independence and Security Act of 2007, for passenger cars as well. Instead of setting a standard based on the old criteria of what was technologically feasible and economically practicable, the Bush administration made fuel economy standards based on a complex, manufacturer-specific mathematical model.

Setting the level of vehicle efficiency standards then became intensely dependent on specific inputs to the model. The expected price of gasoline, the social cost of carbon, the predicted costs of vehicle technology, and market forecasts of which specific vehicles consumers would purchase became the determinants of vehicle efficiency standards. 

The model is based on vehicle-specific information supplied by manufacturers and outside sources. Inputs include details not just about each type of vehicle, but each specific configuration – the combination of engine and transmission, even which lubricants are used. EPA and NHTSA determine what is technologically feasible by applying technological changes to a hypothetical “reference fleet” and stopping when the costs have just balanced the benefits.

The narrowed range of stringencies that the agencies will announce in the supplemental notice will rely on how the agencies, under the guidance of OIRA, value the costs and benefits. 

One of the most contentious of the benefit calculations hinges on the social cost of carbon. The Obama administration convened an interagency working group, which has endorsed a "central" estimate of $21 per ton, which falls far short of capturing the full range of likely (quantifiable) costs associated with damage from climate change. (See Frank Ackerman and Elizabeth Stanton’s report on the social cost of carbon). The disadvantage of the working group approach is that the agencies are effectively tied to a single, government-wide value. Since the stringency of standards is sensitive to the social cost of carbon, EPA may propose efficiency standards lower than it would otherwise in light of the potential harm associated with climate change.