A new report by the MIT Sloan School of Management has found that the Trump Administration’s analysis of fuel economy standards is flawed.
Analyzing cost-benefit analyses conducted by both the Obama and Trump administrations, MIT Sloan School of Management Prof. Christopher Knittel found that the Trump study contains “fundamental flaws” and discards at least $112 billion in benefits.
The Obama administration required that greenhouse gas emissions standards for passenger vehicles and light trucks reach 27 to 55 miles per gallon by 2025. An analysis conducted in 2016 concluded that those standards are technologically feasible and that the benefits far exceed costs. However, the current administration disagrees. A 2018 analysis challenged that conclusion and proposed freezing standards, finding that the costs of the prior standards now exceed the benefits.
Knittel and his colleagues from other leading universities reviewed the cost-benefit analyses to identify differences and determine if those differences are supported by research. They found that while both studies contain flaws, the Trump administration study is more flawed. Knittel points out four significant problems with the 2018 study.
First, the 2018 study doubles the “rebound effect,” which is the added miles that car owners drive when they purchase a more fuel-efficient vehicle. As a result, this leads to more traffic deaths, a claim that has been repeated a number of times by the current administration as support for pausing the standards. “This is flawed because there is no justification in the data for doubling the rebound effect, so this focus on the costs from increased accidents and deaths is artificial,” says Knittel.
The second major issue involves the social cost of greenhouse gas emission reductions. The 2018 study eliminates the prior study’s global focus, targeting only the US. “This is a major difference that reduces the social cost of carbon from $48 per ton globally to a cost of only $7 per ton in the US. By ignoring the rest of the world, the study reduces the benefits of fuel standards from $27.8 billion in 2016 to $4.3 billion in 2018, effectively announcing to the world that the US. does not care about climate impacts outside of its borders, even those faced by our strongest allies,” he notes.
Third, the 2018 study claims that eliminating the prior fuel standards shrinks the number of vehicles on the road by 6 million cars. He explains that this is inconsistent with economic theory, which predicts that tighter standards make vehicles more expensive. As fuel standards increase vehicle prices, total fleet size should decrease over time. In contrast, a rollback on regulations should lead to increased demand for vehicles, resulting in a larger fleet that will be on average newer.
“This is an important change because when you reduce the number of cars, assumptions about miles driven and fatalities from car crashes change too,” he says.
Fourth, Knittel points out that the 2018 study doubles the assumed costs of new technologies required to meet fuel standards with little supporting data.
“These differences in the 2018 study result in the government discarding $112 billion in benefits,” says Knittel. “Looking at the two studies, the 2016 one found $90 billion in net benefits, while the 2018 study found a net loss of $177 billion. If the 2016 study is correct, then we are leaving nearly $100 billion on the table by not capturing those net benefits. The flaws in the 2018 analysis should make us hit the pause button on the Trump administration’s analysis, not fuel economy standards.”
He adds, “It’s important to take a closer look at the data because this could have a lasting impact on climate change protections at the federal level.”
Knittel’s article, “Flawed analyses of US auto fuel economy standards” was published in the December issue of Science.
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