The following comment was submitted by Kenneth Stein, Director of Policy, on behalf of the Institute for Energy Research regarding Docket No. NHTSA-2018-0067.

The Institute for Energy Research generally supports the path proposed by this Notice of Proposed Rulemaking (NPRM) for model years 2021-2026.  While IER questions the ongoing need for fuel economy and related regulations, it is important that if we are going to have such regulations they be the least economically destructive possible.  IER would argue for an actual roll back of the unnecessarily high Corporate Average Fuel Economy (CAFE) mandates from the previous administration.  However, in the absence of such full relief for American consumers, the proposed path of the NPRM is an acceptable partial relief.  IER strongly argues against taking any of the weaker paths provided in the list of alternative scenarios in this NPRM.  The proposed scenario of freezing CAFE mandates at the MY 2020 levels for the five-year period is the bare minimum relief needed.

General CAFE discussion:

CAFE rules are not and were never meant to be greenhouse gas regulations.  The intent of the law creating the CAFE program, the Energy Policy and Conservation Act (EPCA) was to reduce fuel consumption in the face of national security threats.  Over time, the pace of CAFE mandate rises appropriately fell off as the national security justifications also diminished.  Even when Congress mandated CAFE increases in 2007 with the Energy Independence and Security Act (EISA), the justification was again couched in moving toward greater energy independence and security.  Developments in the last 10 years in oil and gas production mean that this rationale is completely outdated.  The continued need for CAFE mandates is an open question.  While the 2007 law, which again was passed prior to the domestic energy renaissance, does require NHTSA to set CAFE standards at the “maximum feasible” level for 2021-2030, that feasibility must be considered in the context of the changed energy landscape.  In an era of declining US production, there might be a justification for forcing vehicle costs higher in an effort to reduce consumption.  But what is considered feasible must change when there are less benefits to reducing consumption.  Maximum feasible does not mean maximum technologically possible, it means the best that can be done given market behavior, consumer preference, and cost-benefit value.

During the last administration CAFE was seized upon as an alternate avenue for regulating carbon dioxide emissions, emissions which were only dubiously regulatable under the Clean Air Act (CAA).  The previous administration attempted to combine the two tenuous carbon dioxide regulatory authorities (CAA and CAFE) to try to create a sturdier carte blanche authority to regulate carbon dioxide tailpipe emissions.  The administration then took this questionably constructed authority and morphed it into an effective electric vehicle mandate.  The CAFE mandates created by the previous administration for 2021 to 2025 are only possible to meet by the aggressive expansion of the electric vehicle fleet.  Those standards were not about achieving the “maximum feasible” fuel efficiency, as called for in the EISA, they were an attempt to forcibly remake the US vehicle market to fit the preferences of the government of the day.  It is quite appropriate that NHTSA has proposed to abandon that costly and unnecessary intervention.

Inadequacy of the so-called midterm review:

The idea of the midterm review is a regulatory fiction created by the previous administration.  By statute, NHTSA may only set CAFE standards in 5-year increments in a given rulemaking. In 2012, the Obama administration sought to set standards beyond 5 years, but included this idea of a midterm review to get around the 5-year limitation.  But instead of using the midterm review to reevaluate the CAFE standards and undertake a new rulemaking for the next 5 years, as required by law, the previous administration rushed through a sham rulemaking essentially just restating their previous decision.  NHTSA has correctly identified this deficiency and undertaken this new rulemaking.  The additional year mandates included in the 2012 rulemaking beyond the statutory 5 years should have no bearing on the current rulemaking process as they were beyond the statutory authority of the agency to determine at that time.

Since 2012, the US vehicle market has changed.  Indeed, IER would argue that this is why Congress only allows CAFE standards to be set for 5 years at a time; conditions change.  The rushed midterm review ignored these changes in an effort to ram through the administration’s ideological view of what the vehicles market should look like, and to try to bind the next administration.

What the midterm review should have acknowledged is that American consumers as a whole are not purchasing electric vehicles or small fuel-efficient vehicles.  Thus, the technical feasibility of the 2021-2025 mandates come into question, or at least they would have in a legitimate process.  If consumers are buying 2/3rds or more of vehicles as trucks and SUVs, then the question of compliance becomes even more acute. By rushing through the midterm review and insisting that car companies still comply with calculations based on outdated projections, the previous administration short-circuited the regulatory process. A novel regulatory process that the Obama administration had created in the first place.

The midterm review process also deliberately limited the opportunity for public comment in a further effort to rush through regulations before the new administration took over.  The original timetable for the midterm review foresaw several years of discussion and evaluation, with ample opportunity for public input.  Instead, the Obama administration rapidly affirmed its previous positions just in time to finalize a rulemaking before its term expired.  This process made a mockery of the notice and comment process required under the Administrative Procedure Act.  IER proposes that this arguably illegal handling of the midterm review process (which itself was already a dubiously legal mechanism) means that the conclusions reached during that sham process should not be considered controlling or even influential in this new regulatory process.

Defining maximum feasible under the EISA:

The NPRM correctly notes that CAFE mandates can only be set at the “maximum feasible” levels.  With current consumer buying patterns, the “maximum feasible” is simply not what the Obama administration thought it could be back in 2012. Consumer preference and behaviors change what constitutes “maximum feasible” levels for CAFE purposes.  Just because a vehicle technology exists does not mean that consumers wish to purchase it. The CAFE law contains no authority for technology mandates, nor can it require consumers to purchase particular vehicles.  IER argues that much of the credit system designed by the Obama administration was in effect a backdoor technology mandate.  The credit benefits given to ideologically preferred vehicles, such as all-electrics, combined with the preposterously high fuel economy mandates for the 2021-2025 period in effect left car manufacturers facing a future with no choice but to manufacture electric vehicles, even if undesired by consumers and sold at a loss, just to comply with CAFE mandates.  That situation is fundamentally contradictory to the concept of “maximum feasible” as construed in the EISA.  The credit system created under the previous rulemaking structure that artificially weighted the credit system in favor of electric vehicles should be discarded in this new rulemaking.

Since the 2012 rulemaking, consumer buying patterns have tilted even further away from small vehicles toward light trucks and SUVs.  In May of 2018 more than 2/3rds of vehicles sold were light trucks and SUVs according to JD Power, a proportion that has been seen for the last several years. These vehicles are intrinsically less fuel efficient no matter what technologies are employed.  This preference for larger vehicles has persisted even as gas prices have begun to rise again in the last year to 18 months.  The NPRM correctly notes that the EISA requires that economic practicability be factored into the calculation of “maximum feasible.”  Consumers consistently choosing to buy less fuel-efficient vehicles is the clearest example of economic impracticability possible. These voluntary consumer buying patterns require a reevaluation of maximum feasible CAFE levels.

The proposed rule also correctly notes the diminishing returns to fuel efficiency improvements. While low hanging fruit technological add-ons can achieve efficiency gains at relatively low cost, every incremental efficiency improvement requires more (and more expensive) technology, increasing the cost of a vehicle and/or requiring tradeoffs in other aspects of performance.  The increased cost or diminished performance is likely to reduce sales as consumers reject the tradeoffs.  This is another example of the economic impracticability foreseen by the EISA, and the NPRM correctly seeks to factor this effect into its calculation of maximum feasibility, since again just because it is possible a car can be made with a given level of efficiency does not mean that car will be purchased.

The NPRM correctly notes that the EISA requires that in setting the “maximum feasible” levels that there are additional factors just beyond conserving energy.  One of these factors, which the NPRM does not address, is “the effect of other motor vehicle standards of the Government on fuel economy.” IER proposes that another motor vehicle standard of the federal government has a significant impact on CAFE maximum feasibility, namely the Renewable Fuel Standard (RFS).  Ethanol per unit of volume provides less energy than an equal unit of gasoline, thus ethanol reduces the fuel economy sought by CAFE regulations.  In the past, this effect has not been addressed in the regulatory process for the CAFE program, however the increasing share of the fuel supply made up of ethanol, nearly 10% at present with legislative and regulatory efforts to increase that share, requires that this fuel inefficiency must considered in calculation of maximum feasibility.  The RFS can affect CAFE compliance in additional ways as well.  Manufacturing cars that can handle higher blends of ethanol increases their cost, which as the NPRM notes (though regarding different context) reduces purchases of newer, more efficient cars.  Further, some of the technologies that might otherwise be deployed to increase fuel economy can end up having to be deployed to compensate for ethanol’s inefficiency in order to maintain the performance that consumers expect from modern vehicles.  IER calls for NHTSA and EPA to analyze the effect of the increasing percentage of ethanol has on maximum feasible fuel economy and consider downward revisions to compensate for that effect.

Legal grounds for revoking California waiver:

The enabling law which created the CAFE program very clearly states any law or regulation “related to” fuel efficiency is preempted by federal fuel efficiency law.  As the NPRM correctly notes, carbon dioxide emissions from vehicles are directly related to fuel efficiency because the only way to reduce carbon dioxide emissions from cars is to reduce fuel consumption.  There is no catalytic convertor for carbon dioxide. Fuel consumption has an almost one-to-one ratio with carbon dioxide emissions, to control one is to control the other.  Thus, the California waiver authority in the CAA does not and cannot apply to carbon dioxide vehicle tailpipe regulations.

Claims of state regulatory authority are irrelevant in the situation as presented currently. Whatever one thinks of its wisdom, the EPCA clearly preempted state authority regarding fuel economy or regulations related to fuel economy.  The only route to allowing California (or other states) to regulate fuel economy is to amend or repeal the provisions of the EPCA creating the CAFE program.  California may continue to seek waivers for pollutant regulations under the Clean Air Act, but it cannot seek waivers for fuel efficiency mandates such its tailpipe carbon dioxide regulations or its ZEV program. Put simply, waivers for such regulations are explicitly barred by statute.

EPA carbon dioxide endangerment finding:

IER is disappointed that EPA has chosen to ignore this opportunity to revisit the tenuous endangerment finding for tailpipe carbon dioxide emissions imposed by the previous administration.  The process by which that determination was made does not meet the requirements of the CAA and the APA.  EPA simply assumed the conclusions it wanted, ignoring the uncertainty of projections, alternate drivers of global warming, the benefits to plant life of carbon dioxide in the atmosphere, the benefits of possibly warmer temperatures to humans, and more.  The last 10 years have brought new research which should be considered in whether carbon dioxide should be considered a dangerous pollutant under the CAA.  A diffuse, trace gas which does not harm humans when inhaled at any ambient concentrations does not meet the CAA definition of a “dangerous pollutant.”

Ignoring the ideologically motivated labelling of carbon dioxide as a “dangerous pollutant” undermines the stated intent of this rulemaking, which is to maximize net benefits. The “appropriate” regulation of carbon dioxide tailpipe emissions should be no regulation.  IER calls on the EPA to reevaluate whether carbon dioxide even qualifies as a “dangerous pollutant” for the purposes of the CAA.

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