Environment & Energy Report

INSIGHT: Clean Car Standards Rollback Is ‘Arbitrary and Capricious’

April 14, 2020, 8:00 AM

The Trump administration’s recent rollback of Clean Car Standards relies on a significant number of obvious analytical flaws and provides a textbook example of the type of “arbitrary and capricious” conduct prohibited by the Administrative Procedure Act.

The rollback of the standards, the Obama administration’s most significant accomplishment to combat climate change (which also provided enormous public health benefits and consumer savings), should be struck down by the courts, just as they have done with a large proportion of the Trump administration’s deregulatory measures.

To start, the Trump administration reveals that this rollback will impose net harms on the American people. This is made clear in the administration’s summary of the consequences of its action in the preamble accompanying the rule—the document that courts will scrutinize to determine the rule’s legality.

Its analysis, summarized in two tables, is performed using two discount rates—3% and 7%, respectively—to convert future consequences to a present value. Under the 3% discount rate, the rollback’s net costs (the extent to which the costs exceed the benefits) is $22 billion (Table II-21). Under the 7% discount rate, the rollback has net benefits, but they are much smaller—only $6.4 billion (Table II-23).

In recent years, there have been significant criticisms of the use of a 7% discount rate to evaluate public policy, including by the National Academy of Sciences and the Council of Economic Advisors, in part because long-term interest rates are now far lower than they were in 2003, when the Office of Management and Budget suggested the use of 3% and 7% discount rates.

But even overlooking those criticisms, the approach that puts the Trump administration’s action in the most favorable plausible light would be to average the impacts under the two rates. And the rollback fails under this standard. Indeed, when averaging the results under 3% and 7% discount rates, the rollback leads to net costs of $7.8 billion.

Just a few years ago, the U.S. Supreme Court, in an opinion by Justice Antonin Scalia, announced that a regulation is not appropriate if it does “significantly more harm than good.” That is the case here.

Grasping at Straws

In light of this determination that the rollback is harmful, the Trump administration is grasping at straws to tell a different story. In a letter to the New York Times that reveals a fundamental misunderstanding of both car markets and discount rates, administration officials defended the rule on the grounds that “you can’t pay for a new vehicle using fuel savings projected across several decades, and you can’t benefit from modern safety technologies if you can’t afford a newer vehicle.”

But approximately 85% of new car buyers finance their purchase with a loan or a lease, and reduced fuel costs that outweigh vehicle price changes can certainly help cover these payments, which are spread out over multiple years.

Furthermore, the standard way to compare the benefits of lower future payments against a higher present payment is through the discount rate. The preamble’s tables do just that, revealing that the rollback imposes net costs. The letter implicitly suggests that a higher discount rate would change the result, but there is no plausible justification for using an improperly high rate just in order to make a flawed policy look acceptable.

And making these claims without any limiting principle suggests that any current savings, no matter how small, would outweigh any future savings, no matter how large.

Aside from this argument’s obvious economic flaw, it is at odds with the justification of all U.S. energy savings programs—from appliances to vehicles—that have been in place for decades under administrations of both parties, which compare present and future consequences through discount rates. The administration’s public relations claims will ultimately fail because they are not supported by its own findings in the preamble and because they defy logic and economic principles.

Wheeler Falsely Claims Economic, Societal Benefits Outweigh Costs

Similarly, despite the clear evidence in the preamble, Andrew Wheeler, the administrator of the Environmental Protection Agency, claims that the economic and societal benefits of the rule would outweigh the costs. Given the summary tables in the rollback’s preamble, how can Wheeler make this assertion? The only plausible answer is that he is relying on factors that his agency did not consider sufficiently reliable for its primary analysis and relegated instead to a “sensitivity analysis” (and ignoring sensitivity analyses pointing strongly in the opposite direction).

For example, in one footnote in the preamble (note 10), the agency discusses supposed “opportunity costs” of more stringent standards, arguing that the investments that manufacturers make in emissions-reducing technology could otherwise be used for attributes that consumers might also value, like greater acceleration. The preamble claims that accounting for this factor would make the rule net beneficial.

But, quite unbelievably, it assumes that manufacturers would provide the substitute attributes without raising vehicles’ sticker prices, even though they would have charged for the technology needed to reduce emissions. Without this wholly implausible assumption, the supposed benefits vanish.

Lives Would Be Lost, Not Saved

Wheeler also argues that the rollback is beneficial because it will result in “thousands of lives saved” (a claim also repeated in the letter to the New York Times). This justification, too, is directly contradicted by the analysis in the rule’s preamble. This analysis shows that the increased pollution caused by the rollback will lead to hundreds of premature deaths, with a low estimate of 444 and a high estimate of 1000 (Table VII-142), for an average of 722 premature deaths.

The corresponding decrease in fatalities, resulting from changes in the scrappage of old vehicles and different vehicle weights is 685 (Table VII-113). Thus, the rollback produces more, not fewer, fatalities.

And, the negative consequences from increased pollution are in fact a great deal larger than the Trump administration predicts, because its analysis is based on the implausible assumption that the additional fuel consumed as a result of the rollback will be mostly extracted and refined overseas—an assumption inconsistent with current statistics and with the Trump administration’s own “energy dominance” policy.

The only way in which Wheeler can find savings of thousands of lives is by counting fatalities that would result from the “rebound” effect—the fact that cars with lower emissions would be more fuel efficient and cheaper to drive, and people would therefore drive them more miles and have more accidents.

But, as the preamble acknowledges elsewhere, if people drive more, they get corresponding benefits from doing so. It is irrational to count the negative consequences from driving more without also considering the positive ones. Otherwise, the correct social policy would be to ban all cars—a sure way to reduce fatalities. And, once one acknowledges the obvious flaw in looking at one side of the ledger and ignoring the other, this supposed benefit vanishes as well.

How could conceptual errors of this magnitude have crept into the preamble’s analysis (and they are only the tip of the iceberg)? Well, that’s what one has come to expect from the Trump administration’s deregulatory policies, and that’s why they are being defeated in the courts.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Richard L. Revesz is the Lawrence King Professor of Law and Dean Emeritus at New York University School of Law, where he directs the Institute for Policy Integrity.

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