By Romany Webb
On Thursday, August 2, the U.S. Environmental Protection Agency (EPA) and Department of Transportation (DOT) jointly issued the Safer Affordable Fuel-Efficient Vehicle Rule (SAFE Vehicle Rule). The SAFE Vehicle Rule proposes changes to EPA’s greenhouse gas emissions standards and DOT’s Corporate Average Fuel Economy (CAFE) standards for light duty vehicles in model years (MY) 2021 through 2025. In short, whereas both EPA and DOT had previously adopted standards that would become more stringent over time, they are now proposing to freeze their standards after MY2020. (Other proposals have also been put forward, but this is the agencies’ preferred approach).
The SAFE Vehicle Rule has, unsurprisingly, generated a lot of controversy. To inform the ongoing debate about the rule, this blog discusses five key points relating to its operation and likely effect.
1. The rule will substantially increase vehicle greenhouse gas emissions. If implemented, the SAFE Vehicle Rule will weaken fuel efficiency standards, leading to higher petroleum use, and associated greenhouse gas emissions. EPA and DOT estimate that, compared with retaining the existing standards, implementing the SAFE Vehicle Rule would increase vehicle carbon dioxide emissions by 713 million metric tons (MMT) (over the lifetime of the vehicles produced from MY1979 through MY2029). That is equivalent to nearly 40 percent of total carbon dioxide emissions from the entire U.S. transportation sector in 2016 (based on EPA data).
2. The rule will also increase upstream greenhouse gas emissions. According to EPA and DOT’s own analysis, adopting the SAFE Vehicle Rule will increase domestic petroleum consumption by 0.5 million barrels per day by 2030, compared to retaining the existing standards. While that increase may sound small, it is a major boon for the oil industry, particularly given projections that, absent the SAFE Vehicle Rule, petroleum consumption would decline by 4 percent through 2030. Adoption of the rule would offset more than three-quarters of that decline. This will result in higher levels of oil production than would otherwise occur, leading to an increase in greenhouse gas emissions. EPA and DOT estimate that “upstream” carbon dioxide emissions from oil production, transportation, refining, and distribution would increase by 159 MMT (over the lifetime of the vehicles produced from MY1979 through MY 2029). Notably, the agencies do not calculate the likely increase in other emissions, including methane, which is released throughout the oil production process.
3. The safety benefits of the rule may have been overestimated. EPA and DOT estimate that the SAFE Vehicle Rule will reduce highway fatalities by 12,700 (over the lifetime of vehicles through MY2029). The reduction is attributable, in part, to faster vehicle turnover. Broadly, EPA and DOT argue that, if the existing standards are retained, vehicle prices will increase, “keep[ing] consumers in older, dirtier, and less safe vehicles.” To support that argument, the agencies point to a study estimating that average vehicle prices could increase by up to $2,100 by 2025. The study makes clear, however, that much of this increase is attributable to the cost of complying with state regulations (i.e., California’s Zero Emission Vehicle Mandate). Compliance with the federal standards would, according to the study, only increase average prices by $1,500. The potential for prices increases of this magnitude ($1,500-$1,800) was considered by EPA and DOT in adopting the existing standards. Agency analysis showed that any increase in vehicle prices would be offset by reductions in fuel costs – i.e., because the standards increase fuel efficiency – meaning that vehicle affordability would actually improve.
EPA and DOT also claim that the SAFE Vehicle Rule will reduce highway fatalities due to the so-called “rebound effect.” The basic idea here is that, under existing standards, vehicle fuel economy would rise, making driving less expensive, and leading to an increase in the number of miles driven each year. EPA and DOT considered this possibility in setting the existing standards. At that time, the agencies estimated that the rebound effect would be 10%, but have now changed their view, and asserted that the effect is closer to 20%. While the agencies claim that this figure is supported by independent research, the studies they cite contain vastly different estimates, ranging from 6% up to 75%.
4. The costs of the rule may have been underestimated. As noted above, adoption of the SAFE Vehicle Rule will reduce fuel economy, leading to higher costs for consumers. While recognizing this, EPA and DOT downplay the potential cost impacts, in part by arguing that fuel prices are likely to remain low in the future. To support that view, the agencies rely on data published by the Energy Information Administration in 2017, which indicates that prices are likely to rise by just 16 percent through 2026. However, more recent EIA data has called these estimates into question, indicating that prices will likely rise by 41 percent, and could rise by up to 119 percent. Given this, EPA and DOT’s claim that prices will “remain low,” and not “rise significantly” appears flawed.
5. In calculating the net benefits of the rule, EPA and DOT have undervalued climate impacts. EPA and DOT estimate that implementing the SAFE Vehicles Rule would deliver total net benefits of up to $377 billion. In calculating this figure, the agencies have valued climate impacts using a discounted social cost of carbon (SCC), which “accounts only for domestic . . . impacts.” This represents a marked departure from the agencies’ previous approach, under which climate impacts were valued using global SCC, accounting for both domestic and international impacts. EPA has previously reasoned that use of the global SCC is appropriate because “[t]he impacts of climate change outside the United States . . . will also have relevant consequences on the United States and our citizens.” Despite this, however, EPA has recently switched to using a domestic-only SCC that focuses on climate impacts occurring within U.S. borders.
