Gutting fuel economy standards during a pandemic is peak Trump

From the petty motivations to the incompetent execution, a parable for our times.

It is difficult to focus on anything other than Covid-19 in our current news environment, but spare a moment for President Trump’s new fuel economy standards, announced in final form on Tuesday.

They replace the Obama administration’s standards, which would have pushed the US auto fleet to an average efficiency of 54.5 mpg by 2025, with standards that would reach only 40 mpg (a goal the industry expects to exceed even without a rule). By the Trump administration’s calculations, the change will result in almost a billion more tons of greenhouse gases emitted over the next five years. In one stroke, the best thing Obama ever did for climate change —addressing the most carbon-intensive sector of the US economy — has become the worst thing Trump has done for climate change.

The public overwhelmingly opposes the change. Consumer groups, environmental groups, business groups, and conservative groups oppose it. Even the auto industry is tepid. To a first approximation, the only people truly happy with the change are oil company executives, who will now be able to sell more gasoline.

There’s no need for it, no demand for it, and no justification for it. Yet somehow, even during a frantic, understaffed, and inadequate response to a pandemic, with so many other areas of governance and policy being neglected, Trump’s people found time to finalize this rule.

It’s tough to argue this is the worst thing Trump has done in office, especially when he’s in the midst of screwing up a virus response so badly that 200,000 Americans could die. But it definitely belongs in the top five.

I’m not going to get into a technical analysis of why this rule is a bad idea (though I’ll link to a few). Instead, I want to tell the story of how these standards came to be, because it is a quintessentially Trumpian tale, capturing his administration’s unique blend of malice and incompetence better than almost anything else that’s happened over these past three years.

The auto industry was chafing at fuel economy standards under Obama

Obama famously bailed out the auto companies during the 2008 recession, saving them from almost certain bankruptcy. He used that leverage to force them to the table to collaborate with the federal government (and California, which maintains its own standards) to develop updated national fuel economy standards. Published in 2012, those standards would have had efficiency rise each year through 2025, eventually reaching 54.5 mpg. It was a historic breakthrough for standards that had lagged for decades.

Obama’s corporate average fuel economy (CAFE) standards would have reduced emissions from cars and light trucks by 6 billion tons (cutting their emissions by half), reduced oil consumption by 2 million barrels a day, and saved Americans a cumulative $1.7 trillion in fuel costs.

To ease the nerves of automakers, Obama included a midterm review, whereby the administration would assess whether the standards remained appropriate and achievable, before the 2020-2025 period. When things began looking … uncertain in the 2016 election, the administration moved the review forward by two years, enraging critics. And when Trump won, it rushed the review to completion just weeks before Trump’s inauguration. The (1,200-page) review found that the standards remained economical and achievable, even in the face of lower gas prices.

Automakers, which had been chafing at the coming standards, said the rushed review used old data and rosy assumptions. They claimed the 5 percent annual improvement in fleet efficiency required to hit the 2025 target was impossible. Why? Because consumers were demanding and buying big SUVs. Automakers can make all the fuel-efficient cars they want, but they can’t force consumers to buy them — and CAFE compliance is measured by consumer purchases. So what can they do?

When making this argument, they often fail to mention that SUVs offer them their biggest profit margins, they relentlessly advertise SUVs and push them on car lots, they rarely advertise electric vehicles, and buying an EV on a car lot is inconvenient verging on impossible. They obviously have a dog in this fight, a reason to want to stick with SUVs.

Nonetheless, there was an arguable case that standards should be loosened slightly. When Trump was elected, automakers were delighted, certain he would be more sympathetic.

Like many groups courting Trump, they had no idea what they were getting into.

How the auto industry got more than it bargained for

At the Atlantic back in February, Rob Meyer had a richly reported story about what happened next: the Trump administration’s ill-fated development of a replacement rule. It is full of astonishing moments.

Technically the US has two separate rules governing cars. The National Highway Traffic Safety Administration (NHTSA) writes fuel economy standards, meant to increase efficiency. The Environmental Protection Agency (EPA) develops pollution rules (and in 2007, the Supreme Court ruled that carbon dioxide is a pollutant under the Clean Air Act). And then there’s the state of California, which under the Clean Air Act has a waiver that allows it to develop its own emissions standards. Somewhat miraculously, Obama herded all those cats, so that unified standards were released in 2010 and 2012.

From the beginning, Trump’s NHTSA boxed out the experts at EPA, at one point going a full year without any of the technical consultation meetings that used to be weekly or monthly. The NHTSA even found another agency to test engines, typically the EPA’s purview.

“I can tell you with certainty and personal experience that EPA career staff were completely locked out doing any technical work on these documents,” Jeff Alson, a leading engineer at EPA’s motor vehicles program, told the New York Times.

In January 2018, when the NHTSA finally unveiled it initial calculations to them, the experts at EPA were stunned. NHTSA’s cost-benefit analysis concluded that Obama’s standards — which earlier analysis had showed would net $88 billion in benefits — would in fact impose net costs of $230 billion. Somehow, a new analysis, which conventionally would have taken years of collaboration among agencies and drawn heavily on EPA’s data, had been completed almost in secret and found more than $300 billion in heretofore overlooked costs.

Previous cross-agency analysis had found that Obama’s standards would save lives by reducing the average weight of SUVs. The new analysis found that they kill 1,000 Americans a year, based on the notion that lighter, more fuel-efficient cars are less safe. At one point, NHTSA confused basic supply and demand, calculating that increased vehicle costs would result in more vehicles being bought and driven. (This boneheaded mistake came to be known as the “phantom vehicles.”)

The presentation was so full of math errors and distorted assumptions that the assembled EPA experts didn’t know what to say. Meyer reports:

“Oh my God,” Also said upon seeing the numbers. The other EPA engineers in the room gasped and started to point out other shocking claims on [NHTSA fuel-economy chief James] Tamm’s slide. (Their line was muted.) It seemed as if every estimated cost had ballooned, while every estimated benefit had shrunk. Something in the study had gone deeply wrong.

“Soon after unveiling the analysis, Tamm asked if anyone had questions,” Meyer writes. “No one spoke. The meeting, originally scheduled to last an hour, adjourned after 30 minutes.”

Over the coming months, EPA staff tried repeatedly to raise and explain the errors in the analysis, but the Trump administration rebuffed them and refused to change course. Eventually, the EPA’s motor vehicle office in Ann Arbor, Michigan, was so appalled that, in an unprecedented move, it asked EPA Administrator Andrew Wheeler to remove its name and logo from the rulemaking. (He agreed.)

In August 2018, the administration released its draft proposal. It is not exaggerating to say that it was the most extreme proposal it possibly could have written.

Rather than loosening the standards slightly, it proposed freezing them at their 2021 level through 2026 — no increase at all — which, according to an analysis by the research firm Rhodium Group, would yield up to $236 billion more in fuel costs through 2030. And it would rescind California’s waiver under the Clean Air Act, which would require that state, and the dozen other states that have joined it, to lower its fuel economy standards to the federal level.

It was a wrecking ball. But it was still based on the same flawed analysis.

Garbage in, garbage out

In December 2018, a group of 11 scientists published a brutal critique of the NHTSA’s analysis in the journal Science, concluding that it “has fundamental flaws and inconsistencies, is at odds with basic economic theory and empirical studies, is misleading, and does not improve estimates of costs and benefits of fuel economy standards beyond those in the 2016 analysis.” (Ouch.)

In a review of the proposal completed and released in February, EPA’s science advisory board (which contains multiple Trump appointees) found “significant weaknesses in the scientific analysis of the proposed rule.” It said that, as a result of the errors, “net benefits of the proposed revision may be substantially overstated.”

Incredibly, it even conceded that “the standards in the 2012 rule might provide a better outcome for society than the proposed revision.”

NHTSA revised its analysis to correct a few of the errors and ended up showing that the Trump rule would lead to the emission of a billion tons more carbon, cost consumers more in fuel costs than it saved them in cheaper vehicles, and lead to more deaths than no rule at all.

Again: The agency’s own analysis showed that its rule would cost US consumers more money and kill more of them. And on the basis of that analysis, they continued moving forward!

Automakers were the dog that caught the car

The automakers had wanted a little more time to catch up with standards, maybe a little more time to profit from SUVs. They did not want a wrecking ball. In June 2018, they pleaded with the administration to reconsider the freeze in standards, warning of market instability and lost profits. They noted that they have improved efficiency around 2.4 percent a year in recent years, easily exceeding the administration’s non-standard.

But the administration — staffed with oil and gas lobbyists, gripped by hatred of everything Obama built, and determined to, as Steve Bannon once put it, “deconstruct the administrative state” — pushed ahead with its draft proposal.

In July 2019, Ford, BMW, Honda, and Volkswagen announced they were entering into an agreement with California to voluntarily meet that state’s stricter standards. (House Democrats sent a letter to the other automakers calling on them to join; as of this week, only Volvo has.) Later, a trade group representing Toyota, Fiat Chrysler, and General Motors announced that it was siding with the administration. The auto industry has been at war with itself ever since.

Trump saw the automakers’ deal with California (his nemesis) as a personal betrayal, and it enraged him. In September 2019, his administration responded by launching an antitrust lawsuit against the companies involved, which was widely derided and abandoned without fanfare in February 2020.

The New York Times’s Coral Davenport and Hiroko Tabuchi even dug up this gem, which is vintage Trump:

At one White House meeting, Mr. Trump went so far as to propose scrapping his own rollback plan and keeping the Obama regulations, while still revoking California’s legal authority to set its own standards, according to the three people familiar with the meeting. The president framed it as a way to retaliate against both California and the four automakers in California’s camp, those people said.

As you can tell, Trump isn’t exactly operating from deeply held policy principles here. He has now allied himself with one half of the auto industry against the other.

The rules debut, still shoddy

Originally the standards were going to be released as a single package, but Trump’s EPA was too understaffed and underqualified to get the revised analysis done in time, so in September 2019, the administration released its final phase one rule.

The “One National Program” rule would revoke California’s waiver and preempt its standards (and thus the standards of 12 other states). In fact, it argued that there could be no waiver for fuel economy standards, now or ever.

The rule would also nullify the Zero Emission Vehicle (ZEV) programs in law in California and nine other states. ZEV programs require major auto manufacturers to produce a minimum number of zero-emission vehicles.

Another wrecking ball.

Later the same month, a group of 23 states filed a lawsuit against NHTSA over the preemption issue. Nine environmental groups also filed a lawsuit claiming NHTSA had overstepped its authority. And Minnesota and New Mexico announced they would join other states in meeting California’s standards, betting that the administration would lose in court. In November, California, leading a coalition of 22 states, filed a lawsuit over the waiver issue.

“In January [2020], administration staff members appointed by President Trump sent a draft of the scaled-back fuel economy standards to the White House,” Davenport reported, “but six people familiar with the documents described them as ‘Swiss cheese’, sprinkled with glaring numerical and spelling errors (such as ‘Massachusettes’), with 111 sections marked ‘text forthcoming’.”

Also in January, Sen. Tom Carper (D-DE) sent letter to the administration noting that its own analysis showed the rule would cost Americans money and lives. “This would seem to fly in the face of rational rulemaking,” he wrote, “which requires the benefits to exceed the costs, not the other way around.” (At this point, everyone who has ever been involved in federal rulemaking is beating their head on their desk.)

In February, the EPA science advisory board released its final, withering report on the scientific underpinning of the rule.

Clearly the rule was not ready, what with understaffing, endless turnover, and the arrival of other crises, including Covid-19. But there was a deadline. Sometime in the next month or two, the administration enters the window of time covered by the Congressional Review Act. The CRA says that Congress has a window of 60 legislative days from the time an administrative rule is passed to revoke it without an additional rulemaking. If Democrats take the presidency and Congress, they can quickly ax any of Trump’s last-minute rules.

So, undeterred by criticism or spelling errors, on March 31, the administration released phase two, the Safe Affordable Fuel-Efficient (SAFE) rule.

The administration’s new fuel economy rule would, according to the administration, hurt Americans

SAFE no longer freezes standards in place. Instead, it requires fuel efficiency to rise a mild 1.5 percent a year, reaching 40 mpg in 2025. That is almost certainly a slower pace of improvement than the industry will achieve on its own, with no prompting.

There is no explanation for why the original proposal was changed. And the text acknowledges that the target is “new for the final rule and was not expressly analyzed in the” notice of proposed rulemaking. There is a distinct last-minute-term-paper energy to the whole affair.

The rule acknowledges that circumstances have rather radically changed since the original cost-benefit analysis was done, but says no new analysis was required. It acknowledges that the rule would, relative to Obama’s 2012 rule, yield “1.9 to 2.0 additional billion barrels of fuel consumed and from 867 to 923 additional million metric tons of CO2.”

The rule argues that these extraordinary costs are offset by the benefits in terms of cheaper vehicles and consumer choice.

“But when we look at the numbers,” Caitlin McCoy, a staff attorney at Harvard’s Environmental & Energy Law Program, wrote in an analysis of the rule, “the vehicle purchase price would be reduced by $977 to $1,083 relative to the Obama rules, but the increased price at the pump of driving less fuel-efficient vehicles would be $1,423 to $1,461 (at 3% discount rate).” Even at a higher 7 percent discount rate, increased fuel costs outweigh vehicles savings in the most optimistic scenario.

So maybe the value is made up by the ineffable “consumer choice”?

It seems so. This account (again by Davenport) must be read to be believed. It’s about the months and weeks in the runup to the rule’s release:

The chief cause of the delay has been an internal economic analysis concluding that the rule would harm consumers more than helping them. …

The administration’s draft analysis concluded that the rule could actually cost the American economy between $13 billion and $22 billion.

As administration officials sought to rework those numbers to show that the rule would help consumers, automakers pushed the White House to complete the rule by March 30, the deadline needed to begin manufacturing vehicles under the new standard for the 2022 model year.

Over the weekend, White House officials looked at a new option for their cost-benefit analysis …

Yes, it seems that — literally on the last weekend before the rule was released — they finally tortured cost-benefit analysis until it said what they wanted it to say. Their hilariously ad hoc claim is that the cost of automakers’ violating of consumer choice, building cars that they do not prefer, is between $38 billion and $58 billion.

Even with these rectally extracted numbers supporting its analysis, the rule acknowledges that it will only produce net benefits at all based on a high (7 percent) discount rate, and that a lower (3 percent) discount rate would yield high net costs. (More here on why a lower discount rate makes more sense for environmental regulations.) “The net benefits,” it says, “straddle zero.”

That, in the end, seems to be the overarching goal of this rule: nothing. No auto company will be pushed by the federal government or any state to aggressively improve fuel economy. No oil company will sell less gasoline. Industries loyal to Trump will keep their cozy current arrangements; that is the strongman promise.

Trump’s fuel economy fiasco is likely to die in court like his other regulatory rollbacks

The oil industry is thrilled. The auto industry’s response has been muted. Just about everyone else is pissed. Even the normally reticent Obama spoke up to condemn the move.

Eventually, the administration must defend this unpopular rule in court. It must explain to judges why it made the decisions it did and what kind of data and analysis supported those decisions; otherwise, the court could rule it “arbitrary and capricious.”

But as Meyer details in another piece, the errors in the administration’s analysis are legion, and not subtle:

The mistakes range in scope from the comical to the bizarre, from the obviously accidental to the how-did-they-miss-that. In one case, federal employees have forgotten to divide a crucial figure by four. In another, officials have assumed that raising the cost of cars will lead more people to buy them, a violation of the principle of supply and demand. In a third case, the proposal asserts that freezing fuel-economy standards for new cars will lead the owners of old cars to drive their vehicles less.

“Every single error so far identified,” Meyer writes, “appears to tilt the analysis in Trump’s favor.”

Some of the more egregious errors were corrected in the final analysis, but not nearly all. A court will force the administration to justify or correct those errors. The problem is, when the bigger errors are corrected, the analysis will show that benefits do not “straddle zero” — in fact, there are large net costs, relative to Obama’s alternative rule, even relative to no rule at all.

The rule itself is almost comically frank about all this: “the agencies project that the revised final standards will have a negative impact on air quality health outcomes … EPA recognizes that the final standards are projected to increase CO2 emissions compared to the previous EPA standards. However … EPA has not chosen the standard that has the highest estimated net social benefits.”

Yeah, we coulda done better. But we chose not to.

No court with any dignity or professionalism is doing to let the obvious amateurish incompetence of this law stand. And despite McConnell’s court packing, there are still plenty of federal courts with those qualities. That’s why the administration has lost over 90 percent of the court battles it has fought over its rollbacks.

But this is an extremely important case and it’s going to end up in the Supreme Court. Chief Justice John Roberts has made noises about protecting the court’s reputation, but his history strongly suggests that he is hostile to climate and environmental laws. (Also, one reason the administration released the rule in the two phases is to keep the programs “severable,” so that even if the SAFE rule is struck down in court, the One National Program rule can still shiv California.)

That court showdown is still a ways away. What will happen now, in the near-term, is chaos. Multiple lawsuits are moving forward in multiple courts. The auto industry is internally divided and terrified at how the situation has spun out of control.

Most of all, it is absolutely swamped in uncertainty. The administration could lose the fight against California, leading to the industry’s worst nightmare: a national market with two separate sets of rules. The administration might lose the election in 2020, leading to rules lurching back in the other direction after a Democratic win in 2020. States might find some other way of regulating cars. And of course, looming around everything, are the unpredictable effects of Covid-19.

That is where things stand today: chaos. Trump could have simply eased fuel-economy standards. The industry would have been thrilled, the numbers would have been easy to fudge, and the public wouldn’t have cared much.

Even if he wanted to nuke the standards, he could have hired competent industry hacks and lobbyists to write his rule. There are plenty of people in DC who have devoted their lives to spinning plausible — or at least properly spelled — arguments for regulatory rollbacks.

But his thuggish populism and petty obsession with Obama left no room for subtlety, and the incompetence of his staff of loyalists left no room for professionalism. So instead it was another comedy of insults and errors, leaving behind yet more wreckage a future president will have to clean up.