The flawed benefit-cost analysis behind proposed rollbacks of the U.S. light-duty vehicle efficiency standards
Summary of the Trump Administration’s fatally flawed U.S. light-duty vehicle efficiency standards
This briefing reviews the benefit-cost analysis developed by the National Highway Traffic Safety Administration (NHTSA) and the Environmental Protection Agency (EPA) to justify the Trump Administration’s April 2020 final rule rolling back the 2021–2026 U.S. light-duty vehicle efficiency standards. It assesses changes in the final 2020 rule as compared to the Trump administration’s August 2018 proposed rule, and details of the benefit-cost analysis that remain flawed.
The final 2020 regulatory analysis represents a continuation of the flawed benefit-cost analysis from the Trump administration’s 2018 proposal. The modeling performed by NHTSA on which the benefit-cost analysis relies, though improved in some respects from the 2018 proposal, continues to inflate technology costs and diminish associated benefits. The modeling also introduces new errors that do not reflect the research literature and realworld technology trends. Some of the flaws, such as regulation-induced sales decline or rebound-related deaths, are unprecedented in the history of vehicle regulation.
The agencies still manage only to justify the rolled-back standards by the thinnest of margins. They arrive at two final outcomes in their benefit-cost analysis, which “straddle zero” in terms of the estimated net benefit to society of keeping the 2025 fuel economy standards unchanged. In normal circumstances a decisive net-benefit analysis is a minimum threshold for finalizing or overturning major standards. In this case, the agencies arrive there by relying on a high 7% discount rate to valuate future costs and benefits, and then arbitrarily judging that the absolute costs “would have been too high.” Revising any single instance of numerous significant faulty or unsupported assumptions in the analysis flips the final benefit-cost ratio in favor of maintaining the original standards.