Federal 
Proposed New Fuel Economy Standards:
A test for benefit-cost analysis
23 Apr 2008 in Regulatory Economics, Regulatory Policy
The Department of Transportation's National Highway Traffic Safety Administration proposed on April 22 to significantly increase the fleet average fuel economy standards motor vehicle manufacturers must meet beginning in the 2001 model year.
We have posted copies of the proposed rule and the preliminary Regulatory Impact Analysis. Executive Order 12866 requires agencies to prepare RIAs for any proposed or final regulation with likely impacts of $100 million or more in any one year.
The Department says it examined an array of alternatives and has proposed the one that "sets the proposed mpg levels where marginal costs equal marginal benefits." This makes the proposed rule an excellent test of the proper application of benefit-cost analysis in regulatory decision making.
Equally important, the Department has committed in advance to a specific decision rule. If public commenters can show that the Department erred in its economic analysis, it is reasonable to infer that final rule will be changed accordingly. A decision to ignore credible evidence of error would put the final rule at risk if it were challenged in court.
Comments must be submitted within 60 days of publication in the Federal Register.
