In response to a directive from President Obama, and using their respective statutory authorities, the Environmental Protection Agency (EPA) and the Department of Transportation’s National Highway Traffic Safety Administration (NHTSA) have jointly proposed a set of standards to regulate greenhouse gas emissions and (almost equivalently) fuel efficiency for medium and heavy-duty engines and vehicles. In contrast to the Corporate Average Fuel Economy (CAFE) Standards that NHTSA has long administered, the vehicles covered by the current proposal are almost entirely commercial vehicles used by businesses – not by households.
The President said: “[I]mproving gas mileage for these trucks are [sic] going to drive down our oil imports even further. That reduces carbon pollution even more, cuts down on businesses’ fuel costs, which should pay off in lower prices for consumers. So it’s not just a win-win, it’s a win-win-win. You’ve got three wins. . . And businesses that buy these types of trucks have sent a clear message to the nearly 30,000 workers who build them: We want trucks that use less oil, save more money, cut pollution.”
Do the proposed standards create a win-win-win? And if they do, why must they be mandated? Isn’t the “clear message” sent by the businesses that buy these trucks sufficient? These are the kinds of questions that should be answered in the Draft Regulatory Impact Analysis (RIA) that accompanies the proposed standards. Unfortunately, while the RIA contains some good economic analysis, it ultimately makes claims about the standards’ fuel-saving benefits that are not plausible. The majority of the forecast benefits take the form of cost savings by the businesses that buy and use the regulated vehicles – businesses that are already well-informed about their own cost structure, and are well-positioned to make the optimum choices. Forcing businesses to make investments that they have thoroughly studied, and rejected, cannot create economic surplus.
There are, of course, other categories of benefits detailed in the RIA that are distinct from the private fuel savings. But the credibility of the overall analysis is undermined by the fact that it appears to be hard-wired to produce a “win-win-win” result. It is as if the analysis contains a “defeat device” designed allow the standards to pass the benefit-cost test; the RIA demonstrates that the standards will produce very large net benefits on paper – benefits that the standards cannot possibly achieve on the road.