Letter to Obama Admin on Fuel Economy Standards

January 26, 2009

The Honorable Ray H. LaHood
Secretary, U.S. Department of Transportation
1200 New Jersey Ave, SE
Washington, DC 20590

Dear Secretary LaHood:

First let me congratulate you on taking on this important responsibility and I look to working with you. I am writing to express my strong support for President Obama’s decision to direct you to move quickly in finalizing higher fuel economy standards.  As you undertake this task, I would like to bring your attention to certain problems with the methodology used by the previous Administration.  I am concerned that the draft regulations may be based on flawed science and an undue reliance on unverified auto industry claims.  For this reason, if these assumptions are used to promulgate regulations - both for model year 2011 and the model years beyond - American consumers, national security and the environment will be shortchanged by fuel economy standards that are lower than a true assessment of available technology and an analysis of the costs and benefits would allow.

As you know, the 2007 energy act directed the Department of Transportation, through the National Highway Traffic Safety Administration (NHTSA), to raise fuel economy standards for both cars and light trucks to a fleet wide average of at least thirty-five miles per gallon (mpg) in 2020 starting with model year 2011 vehicles.  In each model year, NHTSA is additionally directed to require the maximum feasible fuel economy increase.

On April 22, 2008, NHTSA issued a Notice of Proposed Rulemaking (NPRM) that included proposed standards for model years 2011-15 which should result in a projected fleet-wide average of 31.6 mpg.  This past fall, NHTSA circulated a draft of its final regulations [hereinafter “as the fall 2008 draft”], which was obtained by my office that projected a 2015 fleet-wide average of 31.8 mpg. 

Both of these documents contain a systemic overestimation of the costs of implementing fuel efficient technologies and a systemic underestimation of its benefits.  The following is a summary of some of the most troubling elements contained in these documents:

Unrealistic gasoline prices

It its NPRM, NHTSA based its proposed regulations using Energy Information Administration (EIA) assumptions about gas prices that defy reality, using a range of $2.42/gallon in 2016 to $2.51/gallon in 2030.  Since using higher gasoline prices would have the largest impact of all the factors that could be considered on how high standards could be raised, NHTSA’s reliance on these highly unrealistic projections have the effect of artificially lowering the calculated “maximum feasible” fuel economy standards that NHTSA is directed by law to promulgate.  The effect is dramatic.  For modeling purposes only, NHTSA uses EIA’s higher gasoline price scenario: A range of $3.14/gallon in 2016 to $3.74/gallon in 2030 demonstrates that the technology is available to cost-effectively achieve a much higher fleet wide fuel economy of nearly 35 mpg in 2015.
On June 11, 2008, Guy Caruso, Administrator of EIA, testified before the House Select Committee on Energy Independence and Global Warming.  During questioning, Administrator Caruso agreed that NHTSA should use EIA’s high gas price scenario in setting fuel economy standards. On June 26, 2008, Representative Rahm Emanuel and I along with forty-two other Members wrote a letter urging the department to use more realistic gas price estimates.
I urge you to follow the recommendation that then-Representative Emanuel and I made back in June 26, 2008 and ensure that any standards promulgated by NHTSA use the most recent high gas price scenario developed by EIA, and to continue to revise these estimates as needed.

Undue reliance on auto industry estimates of technologies’ costs and benefits

Although the use of a higher gasoline price in the fall 2008 draft should have resulted in a considerably higher projected fuel economy average for model year 2015 than what was contained in the NPRM, the projected difference between the NPRM and the fall 2008 draft was only 0.2 mpg.  This is because as it adjusted gasoline prices upwards, the Bush Administration yielded to auto industry requests to also dramatically adjust upwards the costs of fuel efficient technologies, revise downwards the benefits these technologies would yield, and slow down the rates at which they should be incorporated into the automotive fleet.

As you know, to develop cost-effective fuel economy standards, NHTSA compares the costs of implementing fuel efficient technologies to the benefits reaped from them.  My office has been informed, however, that NHTSA relies too heavily on automakers’ claims of these costs without independently validating them.  For example, I have been informed that in determining the cost of a particular technology, NHTSA merely averages together the lowest estimate (generally provided by independent auto industry experts/consultants) with the highest estimate (generally provided by individual automakers) without attempting to validate the estimates. Any automaker could thus easily “game” the system by submitting inflated cost estimates.

Moreover, NHTSA has reportedly refused to share the auto industry’s product plans on which all of these estimates are premised with anyone – even with experts at EPA and the Department of Energy, with which Congress has directed NHTSA to consult. This results in a complete lack of transparency in the manner in which these standards are developed.

There are sound reasons why you should view the automakers’ claims with an arched eyebrow.  In the fall 2008 draft, estimates provided to NHTSA by Ford indicated that its 2012 fuel economy average in the absence of a new standard would be 28 mpg and that by 2015 it would reach 29.9 mpg.  Yet when it was attempting to convince Congress to provide it with billions of dollars in bailout funds, Ford claimed in its December 2, 2008 Congressional submission that its fleet would reach 29.1 mpg in 2012 and 31.4 mpg by 2015.  General Motors told NHTSA that by 2012, its cars would achieve a fuel economy average of 30.9 mpg and its light trucks would achieve 22.9 mpg.  It then told Congress on December 2, 2008 that by 2012, its cars would achieve a fuel economy average of 37.3 mpg and its light trucks would reach 27.5 mpg. Clearly, more must be done to assess these contradictory claims.

I urge you to carefully evaluate all claims made by automakers related to the costs, benefits and rate of introduction of fuel efficient technologies using the assistance of experts at the Environmental Protection Agency (EPA) and independent consultants and stakeholders. 

Inappropriate Stance on Global Warming

Today, President Obama announced that he has directed EPA to review the Bush Administration’s denial of California’s Clean Air Act waiver request to implement strong tailpipe emission standards. As you may know, both the NPRM and the fall 2008 draft contained extensive language that is in direct conflict with the Massachusetts v. EPA Supreme Court decision that carbon dioxide is a pollutant under the Clean Air Act and that thus EPA (and, by extension and assuming a waiver is granted, California) has the authority to regulate these emissions from automobiles. 

I urge you to remove all such language from any fuel economy regulations you promulgate.

Additionally, NHTSA revised the benefit projected to result from a lower emitting automobile fleet from $7/ton of carbon dioxide in the NPRM to $2/ton in the fall 2008 draft, although climate experts at EPA and elsewhere recommend that higher values than both these numbers be used.  I urge you to consult these experts as you move to finalize these standards.

Thank you for your consideration of these important matters. I look forward to discussing the enormous opportunity you have to enable the auto industry to move towards more efficient, climate-friendly and technologically advanced vehicles. 

Sincerely,
Edward J. Markey
Chairman
Subcommittee on Energy and Environment
Committee on Energy and Commerce

cc: Representative Fred Upton
      Ranking Member
      Subcommittee on Energy and Environment
      Committee on Energy and Commerce

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