As the Department of Transportation (DOT) prepares to finalize new fuel economy standards for passenger cars and light trucks, the Environmental Protection Agency (EPA), along with some members of Congress and other commenters, are questioning the cost-benefit methodology used in developing the target standard for 2015. 

DOT has proposed raising the corporate average fuel economy (CAFE) standards for cars from 27.5 miles per gallon (mpg) in 2010 to 35.7 mpg in 2015, and the standard for light trucks from 23.5 mpg in 2010 to 28.6 mpg in 2015.  According to the Associated Press, EPA has raised concerns regarding the factual assumptions DOT in developing these standards.  For example, DOT’s proposed fuel economy standard rulemaking assumes that in 2015, gasoline will cost between $2.24 and $2.56 per gallon - a range well below current gas prices and also on the optimistic side compared to the Energy Information Agency’s (EIA) estimates that the 2016 price per gallon could range from $2.04 and $3.37.  EPA has also raised concerns that DOT’s analysis of costs and benefits undervalues the benefits of reduced greenhouse gas emissions, an ironic claim given EPA’s recent decision to avoid regulating greenhouse gases under the Clean Air Act. 

While such issues of methodology may seem like inside baseball to many, they are important.   DOT develops its CAFE standards based, in part, on an analysis of the costs of increasing the standard (greater expense to manufacture automobiles, higher price for consumers) relative to the benefits (cleaner air, reduced health and environmental effects, lower fuel costs for car owners).  To the extent that DOT underestimates the projected price of gasoline, it underestimates the economic benefits of creating a more fuel-efficient domestic fleet, skewing the cost-benefit analysis toward a lower efficiency standard.  

DOT has committed, as it must, to reviewing EPA’s and other comments on the proposed standard (some automotive industry commenters believe the proposal is too stringent) as part of finalizing the standards later this year.  Regardless of what final decisions DOT makes in setting these standards, as a matter of policy, however, it is imperative that the Agency demonstrate that it has used sound and defensible data and assumptions in getting there.

For further information about this topic, please contact Akin Gump.