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44 Harv. Envtl. L. Rev. 1 (2020)

handle is hein.journals/helr44 and id is 1 raw text is: FUEL ECONOMY 2.0 Michael Greenstone, Cass R. Sunstein & Sam Ori* 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 green- house gas (GHG) emissions through 2025. In 2018, following a review of the standards, the Environmental Protection Agency and National Highway Traffic Safety Administration pro- posed 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 opportu- nity 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 lfetime consumption, and treats vehicle categories df'rentially, 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 lfetime 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 consump- tion and GHG emissions in transportation with greater certainty and do so at afar 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. TABLE OF CONTENTS Introduction ....................................................... 2 I. Fuel Economy Regulation: Form and Function ................... 8 A. A Critique of the National Program ......................... 11 1. The National Program Regulates Fuel Economy, Not Consumption or Emissions ............................. 12 2. The National Program Has Structural Loopholes .......... . 14 a. Credits and Bonuses ............................... 14 b. Dual Treatment for Cars and Light Trucks .......... . 16 c. Footprint-Based Standards ......................... 18 3. The National Program Misses Opportunities to Reduce Compliance Costs ..................................... 19 B. Lack of Guaranteed Improvements .......................... 21 1. The Fleet ............................................ 21 * The authors thank Cody Westphal, Andrew Heinrich, Harshil Sahai, Patrick Schwarz, Robin Smith, Catherine Che, and Nathan Bishop for excellent research assistance. We are also grateful to Ron Minsk, Pete Ogden, and Kate Whitefoot for their helpful comments. An earlier version of this Article was prepared as a working paper for the Hamilton Project, to which we are grateful for comments and financial support.

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