The flawed benefit-cost analysis behind proposed rollbacks of the U.S. light-duty vehicle efficiency standards

This briefing paper reviews the benefit-cost estimate developed by the National Highway Traffic Safety Administration (NHTSA) and the U.S. Environmental Protection Agency (EPA) to justify the Trump administration’s August 2018 proposal to roll back the U.S. light-duty vehicle efficiency standards for 2020–2025. 

A benefit-cost analysis is required for any significant federal regulatory proposal. The agencies’ proposal, in this instance, would eliminate the need to improve vehicle fuel efficiency after 2020. This proposal reverses a regulation finalized by the outgoing Obama administration less than two years earlier, by the same agencies, with the same expertise, data, research, and tools at their disposal. Justifying such a reversal depends on reversing the conclusions of the previous benefit-cost analysis. The proposal achieved this by changing underlying assumptions, data inputs, and models used to make projections. 

The NHTSA-led 2018 regulatory re-analysis represents a departure from previous benefit-cost analyses done by that agency, as well as the EPA. Incorrect assumptions—such as restricting technology availability, increasing the cost of existing technologies, assuming vehicle sales decline due to efficiency improvements, increasing fatalities from greater use of older vehicles, and removing energy and emission-reduction benefits—inflate costs by $300 billion and devalue benefits by $100 billion. The effect is to reverse the benefit-cost ratio from more than 3-to-1 to less than 1-to-1.