Bush czar: Obama vehicle standards good for the economy

Source: Maxine Joselow, E&E News reporter • Posted: Thursday, March 21, 2019

Obama-era clean car standards help the economy and save consumers money in the long term, according to a new study by President George W. Bush’s regulatory czar.

It’s a somewhat surprising finding for John Graham, who sought to cut regulatory “red tape” while leading the White House Office of Information and Regulatory Affairs during the Bush administration.

And it comes as the Trump administration prepares to finalize its rollback of the car rules.

The study, which was published in the Journal of Policy Analysis and Management and released online today, looked at the macroeconomic effects of the car rules from 2017 to 2025. It found that the rules have negative economic consequences in the short term, including job losses and higher upfront costs of new vehicles.

But the rules have far greater positive effects in the long run, the study found. In particular, the rules save consumers money at the pump because they encourage automakers to produce more fuel-efficient vehicles that use less gasoline.

“The positive effects on the economy are ultimately much larger in magnitude than the negative impacts,” the study says, “primarily because the savings in expenditures on fuel are quite large relative to the vehicle price premium.”

The study also found that the impacts of the standards vary by region. Coastal states benefit the most overall, while oil-producing states in the Southwest and auto-manufacturing states in the Midwest see more negative consequences in the short term.

Graham, who now serves as dean of public and environmental affairs at Indiana University, said he and his colleagues were motivated to conduct the study by the collapse of global oil prices five years ago.

“We were thinking that 2012 Obama-era standards might be harmful to the economy in a low fuel-price environment,” he said in an email.

The findings therefore were unexpected.

“We were surprised by the finding, but notice that not all geographic areas of the U.S. are affected the same,” Graham said. “The oil-producing Southwest is hurt, the Midwest has delayed benefits, and the East and West coasts are boosted the most.”

The study also looked at the potential effects of rolling back the standards. The Trump administration is proposing to freeze corporate average fuel economy (CAFE) requirements at 2020 levels through 2026, rather than increasing their stringency each year as President Obama had mandated.

Such a freeze would be bad news for the economy, the study found.

“Our macroeconomic analysis suggests that a CAFE freeze may diminish the near-term hit to car sales, output, and employment,” the study says. “That near-term benefit, however, will be more than offset by foregone gains in technological innovation and fuel savings that would have boosted the economy to a greater extent in the long run.”

Graham said it remains to be seen whether the Trump administration will indeed freeze the CAFE requirements. EPA Administrator Andrew Wheeler said recently that the final rule’s release has been delayed to late spring or early summer (Greenwire, March 12).

“We don’t know what the final Trump rule will do,” Graham said. “A freeze of the federal standards at 2021 levels will offer only short-term economic relief at the expense of much larger gains in GDP, income and employment in the long run.”

The study was funded by the Alliance of Automobile Manufacturers, a powerful trade association whose members include Ford Motor Co., General Motors and Fiat Chrysler Automobiles.

The auto alliance has a complicated track record when it comes to the car rules. Its members met with President Trump four days after his inauguration to discuss softening the standards. But the group is now pressing for “year-over-year fuel economy increases that align with the marketplace and provide compliance flexibilities,” spokeswoman Gloria Bergquist recently told E&E News.

Asked whether the auto alliance swayed the results of the study, Graham said his team “defined and conducted the study independently from the funder.”

In an interesting twist, the study also reinforces the findings of environmental groups, some of which have criticized Graham for being too friendly to industry.

For instance, an analysis by the Union of Concerned Scientists found that the Obama-era car rules were projected to save consumers an average of $6,000 at the gas pump over the lifetimes of their vehicles.

In a 2017 blog post, UCS opposed Graham’s nomination for a seat on EPA’s Science Advisory Board. The environmental group pointed to his tenure from 1990 to 2001 leading the Harvard Center for Risk Analysis, which it said “notably skewed risk analyses in favor of industry.” Graham ultimately won a seat on the EPA board.