My knee jerk reaction was faux anger -- everything Pruitt seems to reek and the 2012 standards were supported by benefit-cost analysis (1, 2). But for some reason I decided to wait and see what someone who know more about this issue (i.e., someone at RFF) had to say. I'm glad I did as Virginia McConnell and Alan Krupnick wrote this on Friday (We Need to Take a Longer View of Fuel Economy Standards):
The announcement this week that the Trump administration is reopening the CAFE/GHG rules for light-duty vehicles was expected. The widely known stance of the administration on climate change, Environmental Protection Agency (EPA) Administrator Scott Pruitt's criticism of the Obama policy, and the dramatic reductions in oil imports (thereby diminishing the energy security rationale for fuel economy standards) all contributed to the reconsideration of the 2022-2025 model year standards. But what happens next is key for whether the Trump administration and the auto companies can be part of the solution for addressing long-term climate policy. ...
And if you want balance and benefit of the doubt that last sentence is it since it seems clear that the Trump administration does not want to be part of the solution for addressing long-term climate policy. They go on to describe problems with fuel economy standards and how they can be improved (more flexibility). A balanced view suggests that the current fuel economy standards can be improved.
Yet, I'm a little disappointed because they start from the presumption that technological standards are inevitable in the automobile sector. Maybe so but it is never a bad time to point out that, even with the built in flexibility, a higher gas tax would efficiently solve many of the problems with imposing fuel economy standards on the auto industry. Here is what I wrote back in 2011:
Note that fuel economy standards are not the most cost-effective way to cut emissions and reduce oil imports. Cap and trade and carbon tax policies could achieve the exact same environmental and national security goals at a lower cost. The reason is that economic incentive-based policies provide the signal (in the form of higher energy prices) to improve fuel economy and pursue other ways of reducing emissions. If the other ways are cheaper, consumers and firms will have incentives to go down those paths. It is a shame that the political system makes higher fuel economy standards more feasible to achieve.
Of course, my initial reaction was correct. The current EPA does not deserve the benefit of the doubt and this move is simply designed to weaken environmental regulations because there are regulatory costs that industry doesn't like (even if the costs are less than the benefits). There is no economic analysis involved this decision. This is a business decision.
(1) Here is the EPA announcement: GHG Emissions Standards for Cars and Light Trucks Should Be Revised.
(2) Background: Here is Joshua Linn and Alan Krupnik commenting after Pruitt's Congressional testimony before the inauguration: Fuel Economy Standards: Take the Time to Get It Right.
