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Michael Greenstone, Cass R. Sunstein & Sam Ori, Fuel Economy 2.0, 44 Harv. Envtl. L. Rev. 1 (2020).

Abstract: Motor vehicle fuel-economy standards have long been a cornerstone of U.S. policy to reduce fuel consumption in the light-duty vehicle fleet. In 2010 and 2012, these standards were significantly expanded in an effort to achieve steep reductions in oil demand and greenhouse gas (“GHG”) emissions through 2025. In 2018, following a review of the standards, the Environmental Protection Agency and National Highway Traffic Safety Administration proposed instead to freeze the standards at 2020 levels, citing high program costs (and potential safety issues). The current debate over the future of U.S. fuel economy standards provides an opportunity to consider whether the existing approach could be improved to achieve environmental and other goals at a lower cost. The current policy prescribes standards that focus on fuel economy alone, as opposed to lifetime consumption, and treats vehicle categories differentially, meaning that it imposes unnecessarily high costs and does not deliver guaranteed GHG savings. On the basis of a commitment to cost-benefit analysis, which has defined U.S. regulatory policy for more than thirty years, we propose novel reforms with three main features: (1) the direct regulation of expected fuel consumption and GHG emissions without consideration of the type or size of the vehicle; (2) use of existing data to assign lifetime fuel consumption and GHG emissions to each model; and (3) creation of a robust cap-and-trade market for automakers to reduce compliance costs. We show that these reforms would reduce fuel consumption and GHG emissions in transportation with greater certainty and do so at a far lower cost per ton of GHG emissions avoided. We also show that the the Environmental Protection Agency and the Department of Transportation could implement such an approach within their existing statutory authority.