Senator Feinstein and Bipartisan Group of Senators urge NHTSA to Update Analysis Model for Setting Fuel Economy Increases to Reflect Current Gas Prices and Urgency of Reducing U.S. Greenhouse Gas Emissions
U.S. Senator Dianne Feinstein (D-Calif.) today joined with a bipartisan group of senators to call on the Department of Transportation to update the agency's analysis model for setting fuel economy increases to reflect current oil prices and the urgency of reducing U.S. greenhouse gas emissions. According to the Transportation Department's own analysis, fuel economy standards could be feasibly increased to above 35 miles per gallon by 2015, which is 5 years ahead of schedule.
The senators wrote a letter to Transportation Secretary Mary Peters as part of the public comment on the proposed rule-making on increasing the interim fleetwide fuel economy standards.
The group includes Senators Feinstein, Olympia Snowe (R-Maine), Bill Nelson (D-Fla.), Maria Cantwell (D-Wash.), Bernie Sanders (I-Vt.), John Kerry (D-Mass.), Richard Durbin (D-Ill.), Jack Reed (D-R.I.), Barbara Boxer (D-Calif.), and Benjamin Cardin (D-Md.).
In April 2008, the Administration announced a proposed rule-making to increase interim fuel economy standards to 31.6 miles per gallon by 2015. The interim rule-making is the first step towards full implementation of the new fuel economy law, which requires the National Highway Transportation Safety Administration (NHTSA) to increase fleetwide average standards to at least 35 miles per gallon by 2020, but also states that standards must be set higher if such standards are feasible. Senators Feinstein and Snowe were the lead sponsors of the fuel economy legislation, which was enacted by Congress and signed into law by the President in December 2007.
The price of gasoline used to calculate consumer benefit in the draft regulations issued in April is assumed to be $2.26 per gallon in 2016 and $2.51 per gallon in 2030 - which is far below current prices. The model also currently sets the price of carbon at $7 per ton, although new estimates place the price well above that, from $14 to $40 per ton.
Following is the text of the letter sent today by the Senators to Transportation Secretary Peters:
July 1, 2008
The Honorable Mary Peters
U.S. Department of Transportation
1200 New Jersey Ave, SE
Washington, DC 20590
Dear Madam Secretary:
We are writing to comment on the National Highway Traffic Safety Administration's (NHTSA) proposed regulation setting Corporate Average Fuel Economy (CAFE) standards for model years 2011 to 2015 (Docket No. NHTSA-2008 -0089). We appreciate that these regulations represent the first increase in fleetwide fuel economy in decades, but we believe that they have been proposed using outdated and incorrect assumptions regarding the price of transportation fuel and the societal value of reduced greenhouse gas emissions.
As you know, the Ten-in-Ten Fuel Economy Act, which we sponsored, requires NHTSA to set fuel economy standards at the maximum feasible level from model year 2011 to 2015, with the goal of raising fleetwide fuel economy to at least 35 miles per gallon by 2020. To determine the maximum feasible level, NHTSA considers the consumer savings of reduced fuel use and the societal benefit of reducing air pollution.
The price of gasoline used to calculate consumer benefit in the draft regulations is assumed to be $2.26 per gallon in 2016 and $2.51 per gallon in 2030 - far below what consumers are paying at the pump today. We do not believe it is reasonable to assume that the price of gasoline will drop precipitously in the coming years, as NHTSA has done.
Energy Information Administration (EIA) Administrator Guy Caruso recently told Congress that NHTSA should be using the EIA's high gas price scenario, which estimates prices will range from $3.06 in 2016 to $3.52 in 2030 (2006 dollars), when it sets its fuel economy standards.
NHTSA has also underestimated the societal value of reducing greenhouse gas emissions in the draft CAFE proposal. NHSTA has estimated the value of reducing pollution to be $7 per ton of carbon dioxide reduced, a value selected because it is the midpoint between an "upper bound" of $14 per ton and a "lower bound" of $0 per ton. In The Center for Biodiversity v. NHTSA (2007), the Ninth Circuit Court of Appeals found that NHTSA had been arbitrary and capricious in deciding not to monetize the benefit of reducing carbon dioxide emissions in its 2005 CAFE rulemaking. Unfortunately, NHTSA's proposed CAFE rule has selected a value that is also likely to be found to be arbitrary and capricious.
First, NHTSA has selected a "high bound" societal cost of carbon dioxide of $14 per ton based on a 2005 survey of the peer-reviewed literature conducted by Dr. Richard Tol. There are numerous problems with this selection as NHTSA's "high bound" estimate.
* NHTSA uses Tol's average estimate as a maximum instead of a midpoint, as an "average" would properly be used. The Intergovern-mental Panel on Climate Change (IPCC) concluded that these estimates are likely too low, not the upper bound. They wrote: "It is likely that integrated assessment models underestimate climate costs because they do not include significant impacts that have not yet been monetized." 
* The 2005 Tol study used by NHTSA calculated two estimates of the societal cost of carbon, but NHTSA selected the lower value without explanation or justification.
* In 2007, Dr. Tol updated his 2005 survey, considering roughly twice as many studies, and the resulting average price of carbon dioxide from peer reviewed studies increased to more than $19 per ton. 
* From 2007 forward, under requirements of Executive Order 13432, the U.S. Environmental Protection Agency (EPA) has worked with experts to develop more accurate, "state-of-the-art" estimates of the benefits of reducing greenhouse gas pollution. Although the EPA's estimates have not been finalized, the Agency used $40 per ton as the value of reducing carbon dioxide emissions. NHTSA's draft rule inexplicably makes no mention of EPA's extensive research and analysis in this area.
* NHTSA's rule inflates the value of reduced emissions by 2.4 percent annually, even though the IPCC report states that "it is very likely that the rate of increase will be 2% to 4% per year." 
Second, NHTSA's "low bound" estimate of $0 per ton is in direct violation of the Ninth Circuit Court of Appeals ruling in The Center for Biodiversity v. NHTSA, which states:
First, while the record shows that there is a range of values, the value of carbon emissions reduction is certainly not zero. NHTSA conceded as much during oral argument when, in response to questioning, counsel for NHTSA admitted that the range of values begins at $3 per ton carbon. 
NHTSA admitted in court that $0 per ton was unreasonable, performed no independent research to justify a $0 per ton low bound estimate, and cites no studies to explain this estimate. It concedes that the most authoritative study on this matter, by the IPCC, concludes that the global value of economic benefits from reducing carbon dioxide emissions is "unlikely to be zero."
NHTSA explains its $0 per ton low bound estimate solely on the assertion that IPCC "does not necessarily rule out low or zero values for the benefit to the U.S. itself from reducing emissions." NHTSA fails to mention that the IPCC report focused exclusively on global estimates and made no attempt to disaggregate monetized benefits at the national level. NHTSA also presents no evidence to explain how the United States could avoid the impact of global warming while the rest of the world suffers considerable hardship.
Based on the evidence presented by NHTSA, we can only conclude that the purpose of this "low bound" estimate is to cut the more accurate value in half in an arbitrary manner. We recommend NHTSA remove or justify this low bound estimate in its final CAFE regulation.
Finally, NHTSA proposes to ignore international benefits from reduced greenhouse gas emissions "in order to be consistent with NHTSA's use of exclusively domestic costs and benefits in prior CAFE rulemakings." However, NHTSA's past practice is not relevant because NHTSA has not previously valued the societal cost of a global pollutant. In fact, the Office of Management and Budget analytical guidance (Circular A-4) specifically allows for consideration of international effects when relevant.
The United States, which ratified the United Nations Framework Convention on Climate Change in 1992, is obliged to "protect the climate system for the benefit of present and future generations of humankind, on the basis of equity and in accordance with their common but differentiated responsibilities and respective capabilities." Upon signing this treaty, the United States committed itself to considering the global impact of its greenhouse gas emissions.
As a practical matter, the benefits of reducing emissions in any one country are felt on a global basis. If every nation were to dismiss the benefits of their own pollution reduction on people beyond their borders - as NHTSA proposes - each nation would adopt emissions reductions policies far short of the socially optimal level.
NHTSA's assumptions about the price of oil and the value of carbon dioxide have affected the proposed rate of increase for average fuel economy standards and would open up the new CAFE standards to significant litigation risk. We believe it is vitally important for NHTSA to revise its proposal using more accurate assumptions before issuing final regulations.
Again, thank you for working to implement the Ten-in-Ten Fuel Economy Act. After many years of stagnation, we are pleased to see our nation working to reduce our oil demand, save consumers at the pump, and reduce pollution. Please feel free to contact our offices if you have any questions or concerns.
Dianne Feinstein, United States Senator
Olympia Snowe, United States Senator
Bill Nelson, United States Senator
Maria Cantwell, United States Senator
Bernie Sanders, United States Senator
John Kerry, United States Senator
Richard Durbin, United States Senator
Jack Reed, United States Senator
Barbara Boxer, United States Senator
Benjamin Cardin, United States Senator
 IPCC, 2007: Climate Change 2007: Impacts, Adaptation and Vulnerability. Contribution of Working Group II to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change, M.L. Parry, O.F. Canziani, J.P. Palutikof, P.J. van der Linden and C.E. Hanson, Eds., Cambridge University Press, Cambridge, UK, 976pp.
 Richard S.J. Tol, "The Social Cost of Carbon: Trends, Outliers and Catastrophes," 2007.
 IPCC (2007), p. 813.
 The Center for Biodiversity v. NHTSA, F. 3d. 9th Circuit, November 15, 2007.