From: "Achanta, Chandana L." <Chandana_L._Achanta@omb.eop.gov> 

To: <rebecca.yoon@dot.gov>, William Charmley/AA/USEPA/US@EPA, 

<james.tamm@dot.gov>, Robin Moran/AA/USEPA/US@EPA 

Date: 03/31/2010 09:34 AM 

Subjec

t: 

Summary of Interagency working comments on draft rule under EO 12866 

  

Please find attached a summary of interagency working comments on the draft rule under EO

12866 review. They are for your consideation and subject to further policy review. [attachment

"Summary of Interagency Working Comments on draft rule under EO 12866.pdf" deleted by Tad

Wysor/AA/USEPA/US]
Summary of Interagency Working Comments on Draft rule under EO 12866 review. Subject to 

further policy review. 

1 

Below is a summary of interagency comments received during EO 12866 review of the draft rule 

“Joint Rulemaking to Establish Light-Duty Vehicle Greenhouse Gas Emission Standards and 

Corporate Average Fuel Economy Standards”. They are for your consideration and subject to 

further policy review. 

Please find suggested edits below. 

DOT Preamble Discussion: 

6. Potential Unquantified Consumer Welfare Impacts of The Final Standards

 The underlying goal of the CAFE and GHG standards is to increase social welfare, in the 

broadest sense, and as shown in earlier sections, NHTSA projects that the MY 2012-2016 CAFE 

standards will yield large net social benefits. In its net benefits analysis, NHTSA made every 

attempt to include all of the costs and benefits that could be identified and quantified. 

 It is important to highlight several features of the rulemaking analysis that NHTSA 

believes gives high confidence to its conclusion that there are large net social benefits from these 

standards. First, the agencies adopted footprint-based standards in large part so that the full 

range of vehicle choices in the marketplace could be maintained. Second, the agencies 

performed a rigorous technological feasibility, cost, and leadtime analysis that showed that the 

standards could be met while maintaining current levels of other vehicle attributes such as safety, 

utility, and performance. Third, widespread automaker support for the standards, in conjunction 

with the future product plans that have been provided by automakers to the agencies and recent 

industry announcements on new product offerings, provides further indication that the standards 

can be met while retaining the full spectrum of vehicle choices. 

 

Notwithstanding these points, and its high degree of confidence that the benefits amply 

justify the costs, NHTSA recognizes the possibility of consumer welfare impacts that are not 

accounted for in its analysis of benefits and costs from higher CAFE standards. The agencies 

received public comments expressing diverging views on this issue. The majority of 

commenters suggested that potential losses in welfare from requiring higher fuel economy were 

unlikely to be a significant concern, because of the many imperfections in the market for fuel 

economy. In contrast, other comments suggested that potential unidentified and unquantified 

consumer welfare losses could be large. Acknowledging the comments, the FRIA provides a 

sensitivity analysis showing how various levels of unidentified consumer welfare losses would 

affect the projected net social benefits from the CAFE standards established by this final rule. 

There are two viewpoints for evaluating the costs and benefits of the proposed increase in 

CAFE standards: the private perspective of vehicle buyers themselves on the higher fuel 

economy levels that the proposed rule would require, and the economy-wide or “social” 

perspective on the costs and benefits of requiring higher fuel economy. It is important, in short, 

to distinguish between costs and benefits that are “private” and costs and benefits that are 

“social.” The agency’s analysis of benefits and costs from requiring higher fuel efficiency, 
Summary of Interagency Working Comments on Draft rule under EO 12866 review. Subject to 

further policy review. 

2 

presented above, includes several categories of benefits (“social benefits”) that are not limited to 

automobile purchasers and that extend throughout the U.S. economy, such as reductions in the 

energy security costs associated with U.S. petroleum imports and in the economic damages 

expected to result from climate change. In contrast, other categories of benefits – principally the 

economic value of future fuel savings projected to result from higher fuel economy – will be 

experienced exclusively by the initial purchasers and subsequent owners of vehicle models 

whose fuel economy manufacturers elect to improve as part of their strategies for complying 

with higher CAFE standards (“private benefits”). 

Although the economy-wide or “social” benefits from requiring higher fuel economy 

represent an important share of the total economic benefits from raising CAFE standards, 

NHTSA estimates that benefits to vehicle buyers themselves will significantly exceed the costs of 

complying with the stricter fuel economy standards this rule establishes, as shown above. Since 

the agency also assumes that the costs of new technologies manufacturers will employ to 

improve fuel economy will ultimately be shifted to vehicle buyers in the form of higher purchase 

prices, NHTSA concludes that the benefits to vehicle buyers from requiring higher fuel 

efficiency will far outweigh the costs they will be required to pay to obtain it. However, this 

raises the question of why current purchasing patterns do not already result in higher average 

fuel economy, and why stricter fuel efficiency standards should be necessary to achieve that 

goal. 

 

As an illustration, Table IV.G.6-1 reports the agency’s estimates of the average lifetime 

values of fuel savings for MY 2012-2016 passenger cars and light trucks calculated using future 

retail fuel prices, which are those likely to be used by vehicle buyers to project the value of fuel 

savings they expect from higher fuel economy. The table compares NHTSA’s estimates of the 

average lifetime value of fuel savings for cars and light trucks to the price increases it projects to 

result as manufacturers attempt to recover their costs for complying with increased CAFE 

standards for those model years by increasing vehicle sales prices. As the table shows, the 

agency’s estimates of the present value of lifetime fuel savings (discounted using the OMBrecommended 3% rate) substantially outweigh projected vehicle price increases for both cars and 

light trucks in every model year, even under the assumption that all of manufacturers’ 

technology outlays are passed on to buyers in the form of higher selling prices for new cars and 

light trucks. By model year 2016, NHTSA projects that average lifetime fuel savings will 

exceed the average price increase by more than $2,000 for cars, and by more than $2,700 for 

light trucks. 

Table IV.G.6-1 

Value of Lifetime Fuel Savings vs. Vehicle Price Increases 

 

Fleet Measure Model year 

2012 2013 2014 2015 2016 

Passenger 

Cars 

Value of Fuel Savings $759 $1,349 $1,914 $2,480 $2,932 

Average Price Increase $505 $573 $690 $799 $907 
Summary of Interagency Working Comments on Draft rule under EO 12866 review. Subject to 

further policy review. 

3 

Difference $255 $897 $1,264 $1,680 $2,025 

 

Light 

Trucks 

Value of Fuel Savings $828 $1,634 $2,277 $2,887 $3,700 

Average Price Increase $322 $416 $621 $752 $961 

Difference $506 $1,218 $1,656 $2,135 $2,739 

The comparisons above immediately raise the question of why current vehicle purchasing 

patterns do not already result in average fuel economy levels approaching those that this rule 

would require, and why stricter CAFE standards should be necessary to increase the fuel 

economy of new cars and light trucks. They also raise the question of why manufacturers do not 

elect to provide higher fuel economy even in the absence of increases in CAFE standards, since 

the comparisons in Table IV.G.6-1 suggest that doing so would increase the value of many new 

vehicle models by far more than it would raise the cost of producing them (and thus raise their 

purchase prices), thus presumably increasing sales of new vehicles. More specifically, why 

would potential buyers of new vehicles hesitate to make investments in higher fuel economy that 

would produce the substantial economic returns illustrated by the comparisons presented in 

Table IV.G.6-1? And why would manufacturers voluntarily forego opportunities to increase the 

attractiveness, value, and competitive positioning of their car and light truck models by 

improving their fuel economy? 

The majority of comments received on this topic answered these questions by pointing 

out many reasons why the market for vehicle fuel economy does not appear to work perfectly, 

and accordingly, that properly designed CAFE standards would be expected to increase 

consumer welfare. Some of these imperfections might stem from standard market failures (such 

as an absence of adequate information on the part of consumers); some of them might involve 

findings in behavioral economics (including, for example, a lack of sufficient consumer attention 

to long-term savings, or a lack of salience, to consumers at the time of purchase, of relevant 

benefits, including fuel and time savings). Both theoretical and empirical research suggests that 

many consumers do not make energy-efficient investments even when those investments would 

pay off in the relatively short-term.1

 This research is in line with related findings that consumers 

may underweight benefits and costs that are less salient or that will be realized only in the 

future.2

 

Existing work provides support for the agency’s conclusion that the benefits buyers will 

receive from requiring manufacturers to increase fuel economy far outweigh the costs they will 

pay to acquire those benefits, by identifying aspects of normal behavior that may explain buyers’ 

current reluctance to purchase vehicles whose higher fuel economy appears to offer an attractive 

 

1

 Jaffe, A. B., and Stavins, R. N. (1994). The Energy Paradox and the Diffusion of Conservation Technology. 

Resource and Energy Economics, 16(2); see Hunt Alcott and Nathan Wozny, Gasoline Prices, Fuel Economy, and 

the Energy Paradox (2010, available at http://web.mit.edu/allcott/www/Allcott%20and%20Wozny%202010%20-

%20Gasoline%20Prices,%20Fuel%20Economy,%20and%20the%20Energy%20Paradox.pdf 

2

 Hossain, Janjim, and John Morgan (2009). “. . . Plus Shipping and Handling: Revenue (Non)Equivalence in Field 

Experiments on eBay,” Advances in Economic Analysis and Policy vol. 6; Barber, Brad, Terrence Odean, and Lu 

Zheng (2005). “Out of Sight, Out of Mind: The Effectsof Expenses on Mutual Fund Flows,” Journal of Business 

vol. 78, no. 6, pp. 2095-2020. 
Summary of Interagency Working Comments on Draft rule under EO 12866 review. Subject to 

further policy review. 

4 

economic return. For example, consumers’ understandable aversion to the prospect of losses 

(“loss aversion”) may produce an exaggerated sense of uncertainty about the value of future fuel 

savings, making consumers reluctant to purchase a more fuel-efficient vehicle seem unattractive, 

even when doing so is likely to be a sound economic decision. Compare the finding in Greene et 

al. (2009) to the effect that the expected net present value of increasing the fuel economy of a 

passenger car from 28 to 35 miles per gallon falls from $405 when calculated using standard net 

present value calculations, to nearly zero when uncertainty regarding future cost savings is taken 

into account.3

 

The well-known finding that as gas prices rise, consumers show more willingness to pay 

for fuel-efficient vehicles is not inconsistent with the possibility that many consumers undervalue 

gasoline costs and fuel economy at the time of purchase. In ordinary circumstances, such costs 

may be a relatively “shrouded” attribute in consumers’ decisions, in part because the savings are 

cumulative and extend over a significant period of time. This claim fits well with recent findings 

to the effect that many consumers are willing to pay less than $1 upfront to obtain a $1 benefit 

reduction in discounted gasoline costs.4

Some research suggests that the consumers’ apparent unwillingness to purchase more 

fuel efficient vehicles stems from their inability to value future fuel savings correctly. For 

example, Larrick and Soll (2008) find evidence that consumers do not understand how to 

translate changes in fuel economy, which is denominated in miles per gallon, into resulting 

changes in fuel consumption, measured in gallons per time period.5

 Sanstad and Howarth (1994) 

argue that consumers resort to imprecise but convenient rules of thumb to compare vehicles that 

offer different fuel economy ratings, and that this behavior can cause many buyers to 

underestimate the value of fuel savings, particularly from significant increases in fuel economy.6

 

If the behavior identified in these studies is widespread, then the agency’s estimates -- suggesting 

that the benefits to vehicle owners from requiring higher fuel economy significantly exceeds the 

costs of providing it -- are indeed likely to be correct. 

Another possible reconciliation of the agency’s claim that the average vehicle buyer will 

experience large fuel savings from the higher CAFE standards this rule establishes with the fact 

that the average fuel economy of vehicles currently purchased falls well short of the new 

standards is that the values of future savings from higher fuel economy vary widely across 

consumers. As an illustration, one recent review of consumers’ willingness to pay for improved 

fuel economy found estimates that varied from less than 1% to almost ten times the present value 

of the resulting fuel savings when those are discounted at 7% over the vehicle’s expected 

 

3

 Greene, D., J. German, and M. Delucchi (2009). “Fuel Economy: The Case for Market Failure” in Reducing 

Climate Impacts in the Transportation Sector, Sperling, D., and J. Cannon, eds. Springer Science. Surprisingly, the 

authors find that uncertainty regarding the future price of gasoline appears to be less important than uncertainty 

surrounding the expected lifetimes of new vehicles. (Docket NHTSA-2009-0059-0154)

4

 See Alcott and Wozny. 

5

 Larrick, R. P., and J.B. Soll (2008). “The MPG illusion.” Science 320: 1593-1594. 6

 Sanstad, A., and R. Howarth (1994). “’Normal’ Markets, Market Imperfections, and Energy Efficiency.” Energy 

Policy 22(10): 811-818. 
Summary of Interagency Working Comments on Draft rule under EO 12866 review. Subject to 

further policy review. 

5 

lifetime.7

 The wide variation in these estimates undoubtedly reflects methodological and 

measurement differences among the studies surveyed. However, it may also reveal that the 

expected savings from purchasing a vehicle with higher fuel economy vary widely among 

individuals, because they travel different amounts, have different driving styles, or simply have 

varying expectations about future fuel prices. 

These differences reflect the possibility that many buyers with high valuations of 

increased fuel economy already purchase vehicle models that offer it, while those with lower 

values of fuel economy emphasize other vehicle attributes in their purchasing decisions. A 

related possibility is that because the effects of differing fuel economy levels are relatively 

modest when compared to those provided by other, more prominent features of new vehicles – 

passenger and cargo-carrying capacity, performance, safety, etc. – it is simply not in many 

shoppers’ interest to spend the time and effort necessary to determine the economic value of 

higher fuel economy, attempt to isolate the component of a new vehicle’s selling price that is 

related to its fuel economy, and compare these two. (This possibility is consistent with the view 

that fuel economy is a relatively “shrouded” attribute.) In either case, the agency’s estimates of 

the average value of fuel savings that will result from requiring cars and light trucks to achieve 

higher fuel economy may be correct, but those savings may not be large enough to lead a 

sufficient number of buyers to push for vehicles with higher fuel economy to increase average 

fuel economy from its current levels. 

Defects in the market for cars and light trucks could also lead manufacturers to 

undersupply fuel economy, even in cases where many buyers were willing to pay the increased 

prices necessary to provide it. To be sure, the relevant market, taken as a whole, has a great deal 

of competition. But even in those circumstances, there may not such competition with respect to 

all vehicle attributes. Incomplete or “asymmetric” access to information on vehicle attributes 

such as fuel economy – whereby manufacturers of new vehicles or sellers of used cars and light 

trucks have more complete knowledge of the value of purchasing higher fuel economy than do 

potential buyers – may also prevents sellers of new or used vehicles from capturing its full value. 

In this situation, the level of fuel efficiency provided in the markets for new or used vehicles 

might remain persistently lower than that demanded by potential buyers (at least if they are wellinformed). 

It is also possible that deliberate decisions by manufacturers of cars and light trucks, 

rather than constraints on the combinations of fuel economy, carrying capacity, and performance 

that manufacturers can offer using current technologies, limit the range of fuel economy 

available to buyers within individual vehicle market segments, such as full-size automobiles, 

small SUVs, or minivans. As an illustration, once a potential buyer has decided to purchase a 

 

7

 Greene, David L., “How Consumers Value Fuel Economy: A Literature Review,” Draft report to U.S. 

Environmental Protection Agency, Oak Ridge National Laboratory, December 29, 2009; see Table 10, p. 37. 

See also David Greene and Jin-Tan Liu (1988). “Automotive Fuel Economy Improvements and Consumers’ 

Surplus.” Transportation Research Part A 22A(3): 203-218 (Docket EPA-HQ-OAR-2009-0472-0045). The study 

actually calculated the willingness to pay for reduced vehicle operating costs, of which vehicle fuel economy is a 

major component.
Summary of Interagency Working Comments on Draft rule under EO 12866 review. Subject to 

further policy review. 

6 

minivan, the range of fuel economy among current models extends only from 18 to 24 mpg.8

 

Manufacturers might make such decisions if they underestimate the premiums that shoppers in 

certain market segments are willing to pay for more fuel-efficient versions of the vehicle models 

thy currently offer to prospective buyers within those segments. If this occurs, manufacturers 

may fail to supply levels of fuel efficiency as high as those buyers are willing to pay for, and the 

average fuel efficiency of their entire new vehicle fleets could remain below the levels that 

potential buyers demand and are willing to pay for. (Of course this possibility is most realistic if 

it is also assumed that buyers are imperfectly informed or if fuel economy savings are not 

sufficiently salient.) 

However, other commenters suggested that, if one assumes a perfectly functioning 

market, there must be unidentified consumer welfare losses that could offset the private fuel 

savings that consumers are currently foregoing. 

One explanation for this apparent paradox is that NHTSA’s estimates of benefits and 

costs from requiring manufacturers to improve the fuel efficiency of their vehicle models do not 

match potential vehicle buyers’ assessment of the likely benefits and costs from requiring higher 

fuel efficiency. This could occur because the agency’s underlying assumptions about some of 

the factors that affect the value of fuel savings differ from those made by potential buyers, 

because NHTSA has used different estimates for some components of the benefits from saving 

fuel than do buyers, or because the agency has failed to account for some potential costs of 

achieving higher fuel economy. 

For example, buyers may not value increased fuel economy as highly as the agencies’ 

calculations suggest, because they have shorter time horizons than the full vehicle lifetimes 

assumed by NHTSA and EPA, or because, when buying vehicles, they discount future fuel 

future savings using higher rates than those prescribed by OMB for evaluating federal 

regulations. Potential buyers may also anticipate lower fuel prices in the future than those 

forecast by the Energy Information Administration, or may expect larger differences between 

vehicles’ rated and actual on-road mpg MPG levels than the agencies estimate. 

To illustrate the first of these possibilities, Table IV.G.6-2 shows the effect of differing 

assumptions about vehicle buyers’ time horizons for assessing the value of future fuel savings. 

Specifically, the table compares the average value of fuel savings from purchasing a MY 2016 

car or light truck when fuel savings are evaluated over different time horizons to the estimated 

increase in its price. This table shows that as reported previously in Table IV.G.6-2, when fuel 

savings are evaluated over the entire expected lifetime of a MY 2016 car (approximately 14 

years) or light truck (about 16 years), their discounted present value (using the OMBrecommended 3% discount rate) lifetime fuel savings exceeds the estimated average price 

increase by more than $2,000 for cars and by more than $2,700 for light trucks. 

 

8

 This is the range of combined city and highway fuel economy levels from lowest (Toyota Siena 4WD) to highest 

(Mazda 5) available for model year 2010; http://www.fueleconomy.gov/feg/bestworstEPAtrucks.htm (last accessed 

February 15, 2010). 
Summary of Interagency Working Comments on Draft rule under EO 12866 review. Subject to 

further policy review. 

7 

If buyers are instead assumed to consider fuel savings over a 10-year time horizon, 

however, the present value of fuel savings exceeds the projected price increase for a MY 2016 

car by about $1,300, and by somewhat more than $1,500 for a MY 2016 light truck. Finally, 

Table VI.G.6-2 shows that under the assumption that buyers consider fuel savings only over the 

length of time for which they typically finance new car purchases (slightly more than 5 years 

during 2009), the value of fuel savings exceeds the estimated increase in the price of a MY 2016 

car by only about $350, and the corresponding difference is reduced to slightly more than $500 

for a MY 2016 light truck. 

Table IV.G.6-2 

Value of Fuel Savings vs. Vehicle Price Increases 

with Alternative Assumptions about Vehicle Buyer Time Horizons 

Vehicle Measure 

Value over Alternative Time Horizons 

Expected 

Lifetime9 10 Years Average Loan 

Term10

MY 2016 

Passenger 

Car 

Fuel Savings $2,932 $2,180 $1,254 

Price Increase $907 $907 $907 

Difference $2,025 $1,273 $347 

MY 2016 

Light Truck 

Fuel Savings $3,700 $2,508 $1,484 

Price Increase $961 $961 $961 

Difference $2,739 $1,547 $523 

Potential vehicle buyers may also discount future fuel future savings using higher rates 

than those typically used to evaluate federal regulations. OMB guidance prescribes that future 

benefits and costs of regulations that mainly affect private consumption decisions, as will be the 

case if manufacturers’ costs for complying with higher fuel economy standards are passed on to 

vehicle buyers, should be discounted using a consumption rate of time preference.11 OMB 

estimates that savers currently discount future consumption at an average real or inflationadjusted rate of about 3 percent when they face little risk about its likely level, which makes it a 

reasonable estimate of the consumption rate of time preference. However, vehicle buyers may 

view the value of future fuel savings that results from purchasing a vehicle with higher fuel 

economy as risky or uncertain, or they may instead discount future consumption at rates 

reflecting their costs for financing the higher capital outlays required to purchase more fuelefficient models. In either case, they may discount future fuel savings at rates well above the 3% 

assumed in NHTSA’s evaluation in their purchase decisions. 

 

9

 Expected lifetimes are approximately 14 years for cars and 16 years for light trucks. 

10 Average term on new vehicle loans made by auto finance companies during 2009 was 62 months; see Board of 

Governors of the Federal Reserve System, Federal Reserve Statistical Release G.19, Consumer Credit. Available at

http://www.federalreserve.gov/releases/g19/Current (last accessed March 1, 2010). 11 Office of Management and Budget, Circular A-4, “Regulatory Analysis,” September 17, 2003, 33. Available at

http://www.whitehouse.gov/omb/assets/regulatory_matters_pdf/a-4.pdf (last accessed March 1, 2010). 
Summary of Interagency Working Comments on Draft rule under EO 12866 review. Subject to 

further policy review. 

8 

Table IV.G.6-3 shows the effect of higher discount rates on vehicle buyers’ evaluation of 

the fuel savings projected to result from the CAFE standards established by this rule, again using 

MY 2016 passenger cars and light trucks as an example. As Table IV.G.6-1 showed previously, 

average future fuel savings discounted at the OMB 3% consumer rate exceed the agency’s 

estimated price increases by more than $2,000 for MY 2016 passenger cars and by more than 

$2,700 for MY 2016 light trucks. If vehicle buyers instead discount future fuel savings at the 

average new-car loan rate during 2009 (6.7%), however, these differences decline to slightly 

more than $1,400 for cars and $1,900 for light trucks, as Table IV.G.6-3 illustrates. 

This is a potentially plausible alternative assumption, because buyers are likely to finance 

the increases in purchase prices resulting from compliance with higher CAFE standards as part 

of the process financing the vehicle purchase itself. Finally, as the table also shows, discounting 

future fuel savings using a consumer credit card rate (which averaged 13.4% during 2009) 

reduces these differences to less than $800 for a MY 2016 passenger car and less than $1,100 for 

the typical MY 2016 light truck. Note, however, that even at these higher discount rates, the 

table shows that the private net benefits from purchasing a vehicle with the average level of fuel 

economy this rule requires remain large. 

Table IV.G.6-3

Value of Fuel Savings vs. Vehicle Price Increases 

with Alternative Assumptions about Consumer Discount Rates 

Vehicle Measure 

Value over Alternative Time Horizons 

OMB 

Consumer 

Rate (3%) 

New Car 

Loan Rate 

(6.7%)12

OMB 

Investment 

Rate (7%) 

Consumer 

Credit Card 

Rate 

(13.4%)13

MY 2016 

Passenger 

Car 

Fuel Savings $2,932 $2,336 $2,300 $1,669 

Price Increase $907 $907 $907 $907 

Difference $2,025 $1,429 $1,393 $762 

MY 2016 

Light Truck 

Fuel Savings $3,700 $2,884 $2,836 $2,030 

Price Increase $961 $961 $961 $961 

Difference $2,739 $1,923 $1,875 $1,069 

Combinations of a shorter time horizon and a higher discount rate could further reduce or 

even eliminate the difference between the value of fuel savings and the agency’s estimates of 

 

12 Average rate on 48-month new vehicle loans made by commercial banks during 2009 was 6.72%; see Board of 

Governors of the Federal Reserve System, Federal Reserve Statistical Release G.19, Consumer Credit. Available at

http://www.federalreserve.gov/releases/g19/Current (last accessed March 1, 2010). 13 Average rate on consumer credit card accounts at commercial banks during 2009 was 13.4%; see Board of 

Governors of the Federal Reserve System, Federal Reserve Statistical Release G.19, Consumer Credit. Available at

http://www.federalreserve.gov/releases/g19/Current (last accessed March 1, 2010). 
Summary of Interagency Working Comments on Draft rule under EO 12866 review. Subject to 

further policy review. 

9 

increases in vehicle prices. One plausible combination would be for buyers to discount fuel 

savings over the term of a new car loan, using the interest rate on that loan as a discount rate. 

Doing so would reduce the amount by which future fuel savings exceed the estimated increase in 

the prices of MY 2016 vehicles to about $340 for passenger cars and $570 for light trucks. Some 

evidence also suggests directly that vehicle buyers may employ combinations of higher discount 

rates and shorter time horizons for their purchase decisions; for example, consumers surveyed by 

Kubik (2006) reported that fuel savings would have to be adequate to pay back the additional 

purchase price of a more fuel-efficient vehicle in less than 3 years to persuade a typical buyer to 

purchase it. 14 As these comparisons and evidence illustrate, reasonable alternative assumptions 

about how consumers might evaluate the major benefit from requiring higher fuel economy can 

significantly affect the benefits they expect to receive when they decide to purchase a new 

vehicle. 

Imaginable combinations of shorter time horizons, higher discount rates, and lower 

expectations about future fuel prices or annual vehicle use and fuel savings could make potential 

buyers hesitant or even unwilling to purchase vehicles offering the increased fuel economy levels 

this rule will require manufacturers to produce. At the same time, they might cause vehicle 

buyers’ collective assessment of the aggregate benefits and costs of this rule to differ from 

NHTSA’s estimates. If consumers’ views about critical variables such as future fuel prices or 

the appropriate discount rate differ sufficiently from the assumptions used by the agency, some 

or perhaps many potential vehicle buyers might conclude that the value of fuel savings and other 

benefits they will experience from higher fuel economy are not sufficient to justify the increase 

in purchase prices they expect to pay. This would explain why their current choices among 

available models do not result in average fuel economy levels approaching those this rule would 

require. 

Another possibility is that achieving the fuel economy improvements required by stricter 

fuel economy standards might mean that manufacturers will forego planned future improvements 

in performance, carrying capacity, safety, or other features of their vehicle models that represent 

important sources of utility to vehicle owners. Although the specific economic values that 

vehicle buyers attach to individual vehicle attributes such as fuel economy, performance, 

passenger- and cargo-carrying capacity, and other sources of vehicles’ utility are difficult to infer 

from their purchasing decisions and vehicle prices, changes in vehicle attributes can significantly 

affect the overall utility that vehicles offer to potential buyers. Foregoing future improvements 

in these or other highly-valued attributes could be viewed by potential buyers as an additional 

cost of improving fuel economy. 

As indicated in its previous discussion of technology costs, NHTSA has approached this 

potential problem by developing cost estimates for fuel economy-improving technologies that 

include allowances for any additional manufacturing costs that would be necessary to maintain 

the reference fleet (or baseline) levels of performance, comfort, capacity, or safety of light-duty 

vehicle models to which those technologies are applied. In doing so, the agency followed the 

 

14 Kubik, M. (2006). Consumer Views on Transportation and Energy. Second Edition. Technical Report: National 

Renewable Energy Laboratory. Available at Docket No. NHTSA-2009-0059-0038.
Summary of Interagency Working Comments on Draft rule under EO 12866 review. Subject to 

further policy review. 

10 

precedent established by the 2002 NAS Report on improving fuel economy, which estimated 

“constant performance and utility” costs for technologies that manufacturers could employ to 

increase the fuel efficiency of cars or light trucks. Although NHTSA has revised its estimates of 

manufacturers’ costs for some technologies significantly for use in this rulemaking, these revised 

estimates are still intended to represent costs that would allow manufacturers to maintain the 

performance, safety, carrying capacity, and utility of vehicle models while improving their fuel 

economy. The adoption of the footprint-based standards also addresses this concern. 

Finally, vehicle buyers may simply prefer the choices of vehicle models they now have 

available to the combinations of price, fuel economy, and other attributes that manufacturers are 

likely to offer when required to achieve higher overall fuel economy. If this is the case, their 

choices among models – and even some buyers’ decisions about whether to purchase a new 

vehicle – will respond accordingly, and their responses to these new choices will reduce their 

overall welfare. Some may buy models with combinations of price, fuel efficiency, and other 

attributes that they consider less desirable than those they would otherwise have purchased, 

while others may simply postpone buying a new vehicle. The use of the footprint-based 

standards, the level of stringency, and the lead time this rule allows manufacturers are all 

intended to ensure that this does not occur. Although the potential losses in buyers’ welfare 

associated with these responses cannot be large enough to offset the estimated value of fuel 

savings reported in the agencies’ analyses, they might reduce the benefits from requiring 

manufacturers to achieve higher fuel efficiency, particularly in combination with the other 

possibilities outlined previously. 

 As the foregoing discussion suggests, the agency does not have a complete answer to the 

question of why the apparently large differences between its estimates of benefits from requiring 

higher fuel economy and the costs of supplying it do not result in higher average fuel economy 

for new cars and light trucks in the absence of this rule. One explanation is that NHTSA’s 

estimates are reasonable, and that for the reasons outlined above, the market for fuel economy is 

not operating efficiently. NHTSA believes that the existing literature gives support for the view 

that because of various market failures (including behavioral factors, such as emphasis on the 

short-term and a lack of salience), there are likely to be substantial private gains, on net, from the 

rule, but it will continue to investigate new empirical literature as it become available. 

NHTSA acknowledges the possibility that it has incorrectly characterized the impact of 

the CAFE standards this rule establishes on consumers. To recognize this possibility, this 

section presents an alternative accounting of the benefits and costs of CAFE standards for MYs 

2012-2016 passenger cars and light trucks and discusses its implications. Table IV.G.6-4 

displays the economic impacts of the rule as viewed from the perspective of potential buyers, and 

also reconciles the estimated net benefits of the rule as they are likely to be viewed by vehicle 

buyers with its net benefits to the economy as a whole. 

As the table shows, the total benefits to vehicle buyers (line 4) consist of the value of fuel 

savings at retail fuel prices (line 1), the economic value of vehicle occupants’ savings in 

refueling time (line 2), and the economic benefits from added rebound-effect driving (line 3). As 

the zero entries in line 5 of the table suggest, the agency’s estimate of the retail value of fuel 
Summary of Interagency Working Comments on Draft rule under EO 12866 review. Subject to 

further policy review. 

11 

savings reported in line 1 is assumed to be correct, and no losses in consumer welfare from 

changes in vehicle attributes (other than those from increases in vehicle prices) are assumed to 

occur. Thus there is no reduction in the total private benefits to vehicle owners, so that net 

private benefits to vehicle buyers (line 6) are equal to total private benefits (reported previously 

in line 4). 

As Table IV.G.6-4 also shows, the decline in fuel tax revenues (line 7) that results from 

reduced fuel purchases is in effect a social cost that offsets part of the benefits of fuel savings to 

vehicle buyers (line 1).15 Thus the sum of lines 1 and 7 is the savings in fuel production costs 

that was reported previously as the value of fuel savings at pre-tax prices in the agency’s usual 

accounting of benefits and costs. Lines 8 and 9 of Table IV.G.6-4 report the value of reductions 

in air pollution and climate-related externalities resulting from lower emissions during fuel 

production and consumption, while line 10 reports the savings in energy security externalities to 

the U.S. economy from reduced consumption and imports of crude petroleum and refined fuel. 

Line 12 reports the costs of increased congestion delays, accidents, and noise that result from 

additional driving due to the fuel economy rebound effect; net social benefits (line 13) is thus the 

sum of the change in fuel tax revenues, the reduction in environmental and energy security 

externalities, and increased costs from added driving. 

Line 14 of Table IV.G.6-4 shows manufacturers’ technology outlays for meeting higher 

CAFE standards for passenger cars and light trucks, which represent the principal cost of 

requiring higher fuel economy. The net total benefits (line 15 of the table) resulting from the 

rule consist of the sum of private (line 6) and external (line 13) benefits, minus technology costs 

(line 14); as expected, the figures reported in line 15 of the table are identical to those reported 

previously in the agency’s customary format. 

Table IV.G.6-4 highlights several important features of this rule’s economic impacts. 

First, comparing the rule’s net private (line 6) and external (line 13) benefits makes it clear that s 

substantial majority of the benefits from requiring higher fuel economy are experienced by 

vehicle buyers, with only a small share distributed throughout the remainder of the U.S. 

economy. In turn, the vast majority of private benefits stem from fuel savings. External benefits 

are small because the value of reductions in environmental and energy security externalities is 

almost exactly offset by the decline in fuel tax revenues and the increased costs associated with 

added vehicle use via the rebound effect of higher fuel economy. As a consequence, the net 

economic benefits of the rule mirror closely its benefits to private vehicle buyers and the 

technology costs for achieving higher fuel economy, again highlighting the importance of 

accounting for any other effects of the rule on the economic welfare of vehicle buyers. 

 

15 Strictly speaking, fuel taxes represent a transfer of resources from consumers of fuel to government agencies and 

not a use of economic resources. Reducing the volume of fuel purchases simply reduces the value of this transfer, 

and thus cannot produce a real economic cost or benefit. Representing the change in fuel tax revenues in effect as 

an economy-wide cost is necessary to offset the portion of fuel savings included in line 1 that represents savings in 

fuel tax payments by consumers. This prevents the savings in tax revenues from being counted as a benefit from the 

economy-wide perspective. 
Summary of Interagency Working Comments on Draft rule under EO 12866 review. Subject to 

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12 

Table IV.G.6-4 

Private, Social, and Total Benefits and Costs of MY 2012-16 CAFE Standards: 

Passenger Cars plus Light Trucks 

Entry 

Model Year Total, 

2012-

2016 2012 2013 2014 2015 2016 

1. Value of Fuel Savings (at Retail Fuel Prices) $10.5 $22.9 $32.9 $42.5 $52.7 $161.6 

2. Savings in Refueling Time $0.7 $1.4 $1.9 $2.5 $3.0 $9.4 

3. Consumer Surplus from Added Driving $0.7 $1.5 $2.2 $2.8 $3.4 $10.5 

4. Total Private Benefits (=1+2+3) $11.9 $25.8 $37.0 $47.8 $59.0 $181.5 

5. Reduction in Private Benefits $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 

6. Net Private Benefits (=1+2) $11.9 $25.8 $37.0 $47.8 $59.0 $181.5 

7. Change in Fuel Tax Revenues -$1.3 -$2.7 -$3.8 -$4.8 -$5.9 -$18.5 

8. Reduced Health Damages from Criteria Emissions $0.5 $0.9 $1.3 $1.6 $2.0 $6.4 

9. Reduced Climate Damages from CO2 Emissions $0.9 $2.0 $2.9 $3.8 $4.8 $14.5 

10. Reduced Energy Security Externalities $0.5 $1.2 $1.6 $2.1 $2.5 $8.0 

11. Reduction in Externalities (=8+9+10) $1.9 $4.1 $5.9 $7.6 $9.3 $28.8 

12. Increased Costs of Congestion, etc. -$0.7 -$1.3 -$1.9 -$2.4 -$3.0 -$9.4 

13. Net Social Benefits (=7+11+12) $0.0 $0.1 $0.1 $0.3 $0.5 $1.0 

14. Technology Costs $5.9 $7.9 $10.5 $12.5 $14.9 $51.7 

15. Net Social Benefits (=6+12-14) $6.0 $17.9 $26.6 $35.5 $44.6 $130.7 

 As discussed in detail previously, NHTSA believes that the aggregate benefits from this 

rule amply justify its aggregate costs, but it remains possible that the agency has overestimated 

the value of fuel savings to buyers and subsequent owners of the cars and light trucks to which 

higher CAFE standards will apply. It is also possible that the agency has failed to identify and 

value reductions in consumer welfare that could result from buyers’ responses to changes in 

vehicle attributes that manufacturers make as part of their efforts to achieve higher fuel 

economy. To acknowledge these possibilities, NHTSA examines their potential impact on the 

rule’s benefits and costs, showing the rule’s economic impacts for MY 2012-16 passenger cars 

and light trucks under varying theoretical assumptions about the agency’s potential 

overestimation of private benefits from higher fuel economy and the value of potential changes 

in other vehicle attributes. See Chapter VIII of the FRIA. 

DOT RIA discussion: 

H. Potential Impacts of the Final Standards on Consumer Welfare

There are two reasonable viewpoints for evaluating the costs and benefits of the increase in 

CAFE standards: the private perspective of vehicle buyers themselves on the higher fuel 

economy levels the final rule would require, and the economy-wide or “social” perspective on 
Summary of Interagency Working Comments on Draft rule under EO 12866 review. Subject to 

further policy review. 

13 

the costs and benefits of requiring higher fuel economy. The agency’s analysis of benefits from 

requiring higher fuel efficiency, presented previously in this Chapter, includes some categories 

that extend throughout the U.S. economy, such as reductions in the energy security costs 

associated with U.S. petroleum imports and in the economic damages expected to result from 

climate change. In contrast, other categories of benefits – principally the economic value of 

future fuel savings projected to result from higher fuel economy, and including savings in 

refueling time – will be experienced exclusively by the initial purchasers and subsequent owners 

of vehicle models whose fuel economy manufacturers elect to improve as part of their strategies 

for complying with higher CAFE standards. In short, it is important to distinguish between the 

“private” and “social” benefits and costs. 

Although the economy-wide or “social” benefits from requiring higher fuel economy represent 

an important share of the total economic benefits from raising CAFE standards, NHTSA 

estimates that benefits to vehicle buyers themselves will significantly exceed the costs of 

complying with the stricter fuel economy standards this rule establishes, as Chapter X [need 

number] shows. Since the agency also assumes that the costs of new technologies manufacturers 

will employ to improve fuel economy will ultimately be shifted to vehicle buyers in the form of 

higher purchase prices, NHTSA concludes that the benefits to vehicle buyers from requiring 

higher fuel efficiency will far outweigh the costs they will be required to pay to obtain it. 

However, this raises the question of why current purchasing patterns do not result in higher 

average fuel economy, and why stricter fuel efficiency standards should be necessary to achieve 

that goal. 

As an illustration, Table VIII-14 reports the agency’s estimates of the average lifetime values of 

fuel savings for MY 2012-2016 passenger cars and light trucks calculated using future retail fuel 

prices, which are those likely to be used by vehicle buyers to project the value of fuel savings 

they expect from higher fuel economy. The table compares NHTSA’s estimates of the average 

lifetime value of fuel savings for cars and light trucks to the price increases it projects to result as 

manufacturers attempt to recover their costs for complying with increased CAFE standards for 

those model years by increasing vehicle sales prices. As the table shows, the agency’s estimates 

of the present value of lifetime fuel savings (discounted using the OMB-prescribed 3% rate) 

outweigh projected vehicle price increases for both cars and light trucks in every model year, 

even under the assumption that all of manufacturers’ technology outlays are passed on to buyers 

in the form of higher selling prices for new cars and light trucks. By model year 2016, NHTSA 

projects that average lifetime fuel savings will exceed the average price increase by more than 

$2,000 for cars, and by more than $2,700 for light trucks. 

Table VIII-14 

Value of Lifetime Fuel Savings vs. Average Technology Cost Increase/Vehicle 
Summary of Interagency Working Comments on Draft rule under EO 12866 review. Subject to 

further policy review. 

14 

2012 2013 2014 2015 2016

Value of Fuel Savings $759 $1,469 $1,954 $2,480 $2,932

Average Price Increase $505 $573 $690 $799 $907

Difference $255 $897 $1,264 $1,680 $2,025

Value of Fuel Savings $828 $1,634 $2,277 $2,887 $3,700

Average Price Increase $322 $416 $621 $752 $961

Difference $506 $1,218 $1,656 $2,135 $2,739

Model Year Fleet Measure

Light Trucks

Passsenger 

Cars

Assuming these comparisons are accurate, they raise the question of why current vehicle 

purchasing patterns do not result in average fuel economy levels approaching those that this rule 

would require, and why stricter CAFE standards should be necessary to increase the fuel 

economy of new cars and light trucks. They also raise the question of why manufacturers do not 

elect to provide higher fuel economy even in the absence of increases in CAFE standards, since 

the comparisons in Table VIII-14 suggest that doing so would reduce the effective price of 

purchasing many new vehicle models, and thus to increase sales of new vehicles. More 

specifically, why would potential buyers of new vehicles hesitate to make investments in higher 

fuel economy that would produce the substantial economic returns illustrated by the comparisons 

presented in Table VIII-14? And why would manufacturers voluntarily forego opportunities to 

increase the attractiveness, value, and competitive positioning of their car and light truck models 

by improving their fuel economy? 

One explanation for this apparent paradox involves imperfections in the relevant market. Some 

of these imperfections might stem from standard market failures (such as an absence of adequate 

information); some of them involve behavioral findings (including, for example, a lack of 

sufficient attention to long-term savings, or a lack of salience, at the time of purchase, of relevant 

benefits, including fuel and time savings). A subset of the theoretical and empirical research 

suggests that many consumers do not make energy-efficient investments even when those 

investments would pay off in the relatively short-term,16 in line with related findings that 

consumers may underweight benefits and costs that are less salient or that will be realized only in 

the future.17

Another explanation is that NHTSA’s estimates of benefits and costs from requiring 

manufacturers to improve the fuel efficiency of their vehicle models do not match potential 

vehicle buyers’ ex ante assessment of the likely benefits and costs from requiring higher fuel 

efficiency. This could occur because the agency’s underlying assumptions about some of the 

 

16 Jaffe, A. B., and Stavins, R. N. (1994). The Energy Paradox and the Diffusion of Conservation Technology. 

Resource and Energy Economics, 16(2); see Hunt Alcott and Nathan Wozny, Gasoline Prices, Fuel Economy, and 

the Energy Paradox (2010, available at http://web.mit.edu/allcott/www/Allcott%20and%20Wozny%202010%20-

%20Gasoline%20Prices,%20Fuel%20Economy,%20and%20the%20Energy%20Paradox.pdf 

17 Hossain, Janjim, and John Morgan (2009). “. . . Plus Shipping and Handling: Revenue (Non)Equivalence in Field 

Experiments on eBay,” Advances in Economic Analysis and Policy vol. 6; Barber, Brad, Terrence Odean, and Lu 

Zheng (2005). “Out of Sight, Out of Mind: The Effectsof Expenses on Mutual Fund Flows,” Journal of Business 

vol. 78, no. 6, pp. 2095-2020. 
Summary of Interagency Working Comments on Draft rule under EO 12866 review. Subject to 

further policy review. 

15 

factors that affect the value of fuel savings differ from those made by potential buyers at the time 

of purchase, because NHTSA has incorrectly estimated some components of the benefits from 

saving fuel, or because the agency has failed to account for some potential costs of achieving 

higher fuel economy. 

For example, buyers may not value increased fuel economy as highly as the agencies’ 

calculations suggest, because they have shorter time horizons than the full vehicle lifetimes 

assumed by NHTSA and EPA, or because they discount future fuel future savings using higher 

rates than those prescribed by OMB for evaluating federal regulations. Potential buyers may 

also anticipate lower fuel prices in the future than those forecast by the Energy Information 

Administration, or may expect larger differences between vehicles’ rated and actual on-road 

MPG levels than the agencies estimate. 

To illustrate the first of these possibilities, Table VIII-15 shows the effect of differing 

assumptions about vehicle buyers’ time horizons for assessing the value of future fuel savings. 

Specifically, the table compares the average value of fuel savings from purchasing a MY 2016 

car or light truck when fuel savings are evaluated over different time horizons to the estimated 

increase in its price. This table shows that as reported previously in Table VIII-15, when fuel 

savings are evaluated over the entire expected lifetime of a MY 2016 car (approximately 14 

years) or light truck (about 16 years), their discounted present value (using the OMB-prescribed 

3% discount rate) lifetime fuel savings exceeds the estimated average price increase by more 

than $2,000 for cars and by more than $2,700 for light trucks. 

If buyers are instead assumed to evaluate fuel savings over a 10-year time horizon, however, the 

present value of fuel savings exceeds the projected price increase for a MY 2016 car by about 

$1,300, and by somewhat more than $1,500 for a MY 2016 light truck. Finally, Table VIII-15 

shows that under the assumption that buyers value fuel savings only over the length of time for 

which they typically finance new car purchases (slightly more than 5 years during 2009), the 

value of fuel savings exceeds the estimated increase in the price of a MY 2016 car by only about 

$350, and the corresponding difference is reduced to slightly more than $500 for a MY 2016 

light truck. 
Summary of Interagency Working Comments on Draft rule under EO 12866 review. Subject to 

further policy review. 

16 

Table VIII-15 

Value of Fuel Savings vs. Vehicle Price Increases 

with Alternative Assumptions about Vehicle Buyer Time Horizons 

Expected 

Lifetime (1) 10 Years Average Loan 

Term (2)

Fuel Savings $2,932 $2,180 $1,254

Price Increase $907 $907 $907

Difference $2,025 $1,273 $347

Fuel Savings $3,700 $2,508 $1,484

Price Increase $961 $961 $961

Difference $2,739 $1,547 $523

(1) Expected lifetimes are approximately 14 years for cars and 16 years for light trucks. 

(2) Average term on new-vehicle loans made by auto finance companies during 2009 

was 62 months; see Board of Governors of the Federal Reserve System, Federal Reserve 

Statistical Release G. 19, Consumer Credit, 

http://www.federalreserve.gov/releases/g19/Current/ last accessed March 1, 2010.

MY 2016 

Passenger 

Car

MY 2016 

Light Truck

Value over Alternative Time Horizons

Vehicle Measure

Potential vehicle buyers may also discount future fuel future savings using higher rates than 

those typically used to evaluate federal regulations. (For some consumers, these high discount 

rates might reflect rational behavior; for others, they might reflect an excessive focus on the 

short-term and a neglect of the future.) OMB guidance prescribes that future benefits and costs 

of regulations that mainly affect private consumption decisions, as will be the case if 

manufacturers’ costs for complying with higher fuel economy standards are passed on to vehicle 

buyers, should be discounted using a consumption rate of time preference.18 OMB estimates that 

savers currently discount future consumption at an average real or inflation-adjusted rate of 

about 3 percent when they face little risk about its likely level, which makes it a reasonable 

estimate of the consumption rate of time preference. However, vehicle buyers may view the 

value of future fuel savings that results from purchasing a vehicle with higher fuel economy as 

risky or uncertain, or they may instead discount future consumption at rates reflecting their costs 

for financing the higher capital outlays required to purchase more fuel-efficient models. In either 

case, they may discount future fuel savings at rates well above the 3% assumed in NHTSA’s 

evaluation. 

Table VIII-16 shows the effect of higher discount rates on vehicle buyers’ evaluation of the fuel 

savings projected to result from the CAFE standards established by this rule, again using MY 

2016 passenger cars and light trucks as an example. As Table VIII-14 showed previously, 

 

18 Office of Management and Budget, Circular A-4, “Regulatory Analysis,” September 17, 2003, 33. Available at

http://www.whitehouse.gov/omb/assets/regulatory_matters_pdf/a-4.pdf (last accessed March 1, 2009). 
Summary of Interagency Working Comments on Draft rule under EO 12866 review. Subject to 

further policy review. 

17 

average future fuel savings discounted at the OMB 3% consumer rate exceed the agency’s 

estimated price increases by more than $2,000 for MY 2016 passenger cars and by more than 

$2,700 for MY 2016 light trucks. If vehicle buyers instead discount future fuel savings at the 

average new-car loan rate during 2009 (6.7%), however, these differences decline to slightly 

more than $1,400 for cars and $1,900 for light trucks, as Table VIII-16 illustrates. This is a 

particularly plausible alternative assumption, because buyers are likely to finance the increases in 

purchase prices resulting from compliance with higher CAFE standards as part of the process 

financing the vehicle purchase itself. Finally, as the table also shows, discounting future fuel 

savings using a consumer credit card rate (which averaged 13.4% during 2009) reduces these 

differences to less than $800 for a MY 2016 passenger car and less than $1,100 for the typical 

MY 2016 light truck. Thus even at relatively high discount rates, the higher fuel economy levels 

required by this final rule would generate significant net benefits to vehicle buyers. 

Table VIII-16

Value of Fuel Savings vs. Vehicle Price Increases 

with Alternative Assumptions about Consumer Discount Rates 

OMB 

Consumer 

Rate (3%)

New Car 

Loan Rate 

(6.7%; 1)

OMB 

Investment 

Rate (7%)

Consumer 

Credit Card 

Rate 

(13.4%; 2)

Fuel Savings $2,932 $2,336 $2,300 $1,669

Price Increase $907 $907 $907 $907

Difference $2,025 $1,429 $1,393 $762

Fuel Savings $3,700 $2,884 $2,836 $2,030

Price Increase $961 $961 $961 $961

Difference $2,739 $1,923 $1,875 $1,069

(1) Average rate on 48-month new-vehicle loans made by commercial banks during 2009 was 6.72%; 

see Board of Governors of the Federal Reserve System, Federal Reserve Statistical Release G. 19, 

Consumer Credit, http://www.federalreserve.gov/releases/g19/Current/ last accessed March 1, 2010.

(2) Average rate on consumer credit card accounts at commercial banks during 2009 was13.4%; see 

Board of Governors of the Federal Reserve System, Federal Reserve Statistical Release G. 19, 

Consumer Credit, http://www.federalreserve.gov/releases/g19/Current/ last accessed March 1, 2010.

Value at Alternative Discount Rates

Vehicle Measure

MY 2016 

Passenger 

Car

MY 2016 

Light Truck

Combinations of a shorter time horizon and a higher discount rate could further reduce or even 

eliminate the difference between the value of fuel savings and the agency’s estimates of 

increases in vehicle prices. One plausible combination would be for buyers to discount fuel 

savings over the term of a new car loan, using the interest rate on that loan as a discount rate. 

Doing so would reduce the amount by which future fuel savings exceed the estimated increase in 
Summary of Interagency Working Comments on Draft rule under EO 12866 review. Subject to 

further policy review. 

18 

the prices of MY 2016 vehicles to about $340 for passenger cars and $570 for light trucks. Some 

evidence suggests directly that vehicle buyers may employ combinations of higher discount rates 

and shorter time horizons than the agency assumes; for example, consumers surveyed by Kubik 

(2006) reported that fuel savings would have to be adequate to pay back the additional purchase 

price of a more fuel-efficient vehicle in less than 3 years to persuade a typical buyer to purchase 

it. 19 As these comparisons and evidence illustrate, reasonable alternative assumptions about how 

consumers might evaluate the major benefit from requiring higher fuel economy can 

significantly reduce its magnitude from the agency’s estimate. 

Imaginable combinations of shorter time horizons, higher discount rates, and lower expectations 

about future fuel prices or annual vehicle use and fuel savings could make potential buyers 

hesitant or even unwilling to purchase vehicles offering the fuel economy levels this rule will 

require. At the same time, they would also cause vehicle buyers’ collective assessment of how 

the benefits from requiring higher fuel economy compare to the costs they will be required to pay 

for it to differ significantly from NHTSA’s assessment of the aggr4egate benefits and costs of 

this rule. If consumers’ views about critical variables such as future fuel prices or the 

appropriate discount rate differ sufficiently from the assumptions used by the agency, potential 

vehicle buyers might conclude that the value of fuel savings and other benefits they will 

experience from higher fuel economy are not sufficient to justify the increase in purchase prices 

they expect to pay. This would not only explain why their current choices among available 

models do not result in average fuel economy levels approaching those this rule would require, 

but, under what we believe to be unlikely assumptions, might also raise questions about

NHTSA’s conclusion that the total – that is, private plus economy-wide – economic benefits 

from raising CAFE standards exceed the costs of complying with higher fuel economy 

requirements.

Another possibility is that achieving the fuel economy improvements required by stricter fuel 

economy standards might require manufacturers to forego planned future improvements in 

performance, carrying capacity, safety, or other features of their vehicle models that represent 

important sources of utility to vehicle owners. In extreme cases, manufacturers might even find 

it necessary to change the levels of these attributes that some currently available models offer. 

Although the specific economic values that vehicle buyers attach to individual vehicle attributes 

such as fuel economy, performance, passenger- and cargo-carrying capacity, and other sources of 

vehicles’ utility are difficult to infer from their purchasing decisions and vehicle prices, changes 

in vehicle attributes can significantly affect the overall utility that vehicles offer to potential 

buyers. Compromises in these or other highly-valued attributes would be viewed by potential 

buyers as an additional cost of improving fuel economy that the agency has failed to 

acknowledge or include in its estimates of the costs of complying with stricter CAFE standards. 

As indicated in its previous discussion of technology costs, NHTSA has approached this 

potential problem by developing cost estimates for fuel economy-improving technologies that 

include allowances for any additional manufacturing costs that would be necessary to maintain 

 

19 Kubik, M. (2006). Consumer Views on Transportation and Energy. Second Edition. Technical Report: National 

Renewable Energy Laboratory. Docket NHTSA-2009-0050-0038.
Summary of Interagency Working Comments on Draft rule under EO 12866 review. Subject to 

further policy review. 

19 

the reference fleet (or baseline) levels of performance, comfort, capacity, or safety of light-duty 

vehicle models to which those technologies are applied. In doing so, the agency followed the 

precedent established by the 2002 NAS Report on improving fuel economy, which estimated 

“constant performance and utility” costs for technologies that manufacturers could employ to 

increase the fuel efficiency of cars or light trucks. Although NHTSA has revised its estimates of 

manufacturers’ costs for some technologies significantly for use in this rulemaking, these revised 

estimates are still intended to represent costs that would allow manufacturers to maintain the 

performance, carrying capacity, and utility of vehicle models while improving their fuel 

economy. 

The agency readily acknowledges the difficulty of estimating technology costs that include 

adequate provision for the accompanying changes in vehicle design that are necessary to 

maintain performance, capacity, and utility. While NHTSA believe that its cost estimates for 

fuel economy-improving technologies are sufficient to prevent significant compromises in other 

attributes of the vehicle models to which manufacturers apply them, it is possible that these costs 

do not include adequate allowance for the necessary investments by manufacturers to maintain 

baseline levels of these critical vehicle attributes. If this is the case, the true economic costs of 

achieving higher fuel economy would include the opportunity costs to vehicle owners of any 

sacrifices in vehicles’ performance, carrying capacity, and utility that accompanied increases in 

their fuel economy. In that event, the agencies’ estimated technology costs would underestimate 

the true economic costs of complying with stricter fuel economy emission standards. 

Finally, it is possible that vehicle buyers may simply prefer the choices of vehicle models they 

now have available to the combinations of price, fuel economy, and other attributes that 

manufacturers are likely to offer when required to achieve higher overall fuel economy. If this is 

the case, their choices among models – and even some buyers’ decisions about whether to 

purchase a new vehicle – will respond accordingly, and their responses to these new choices will 

reduce their overall welfare. Some may buy models with combinations of price, fuel efficiency, 

and other attributes that they consider less desirable than those they would otherwise have 

purchased, while others may simply postpone buying a new vehicle. It is also possible that 

manufacturers may discontinue some currently popular vehicle models or styles as part of their 

efforts to comply with requirements for higher fuel efficiency. Although the losses in buyers’ 

welfare associated with these responses cannot be large enough to offset the estimated value of 

fuel savings reported in the agencies’ analyses, they could significantly reduce the benefits from 

requiring manufacturers to achieve higher fuel efficiency, particularly in combination with the 

other possibilities outlined previously. (Recall, however, that, NHTSA has attempted to respond 

to the potential problem by developing cost estimates that include allowances for any additional 

manufacturing expenses that would be necessary to maintain the reference fleet levels of 

performance, comfort, capacity, or safety of light-duty vehicle models to which those 

technologies are applied.) 

An entirely different explanation for buyers’ reluctance to invest in higher fuel economy despite 

the large economic return it appears to promise is that the agency’s assertion that the benefits 

buyers will experience from higher fuel economy far outweigh the costs they will pay to acquire 

it is indeed correct, yet certain plausible – if short-sighted – aspects of normal behavior 
Summary of Interagency Working Comments on Draft rule under EO 12866 review. Subject to 

further policy review. 

20 

nevertheless make buyers reluctant to purchase vehicles whose higher fuel economy offers an 

attractive return. For example, consumers’ understandable aversion to the prospect of losses (the 

behavioral phenomenon of “loss aversion”) from making investments that do not produce their 

expected returns may exaggerate their uncertainty about the value of future fuel savings 

sufficiently to make purchasing a more fuel-efficient vehicle seem unattractive even when doing 

so is likely to be a sound economic decision. Compare the finding in Greene et al. (2009), to the 

effect that the expected net present value of increasing the fuel economy of a passenger car from 

28 to 35 miles per gallon falls from $405 when calculated using standard net present value 

calculations, to nearly zero when uncertainty regarding future cost savings is taken into 

account.20 

Another possible reconciliation of the agency’s claim that the average vehicle buyer will 

experience large fuel savings from the higher CAFE standards this rule establishes with the fact 

that the average fuel economy of vehicles currently purchased falls well short of the new 

standards is that the values consumers place on the future savings they expect to obtain from 

higher fuel economy vary widely. As an illustration, one recent review of consumers’ 

willingness to pay for improved fuel economy found estimates that varied from less than 1% to 

almost ten times the present value of the resulting fuel savings when those are discounted at 7% 

over the vehicle’s expected lifetime.21 Although the wide variation in these estimates partly 

undoubtedly reflects methodological and measurement differences among the studies surveyed, 

it probably also reflects the fact that the expected savings from purchasing a vehicle with higher 

fuel economy vary widely among individuals, because they travel different amounts, have 

different driving styles, or have different expectations about future fuel prices. 

This is likely to be reflected in the fact that many buyers with high valuations of increased fuel 

economy already purchase vehicle models that offer it, while those with lower values of fuel 

economy emphasize other vehicle attributes in their purchasing decisions. A related possibility 

is that because the effects of differing fuel economy levels are relatively modest when compared 

to those provided by other, more prominent features of new vehicles – passenger and cargocarrying capacity, performance, safety, etc. – it is simply not in many shoppers’ interest to spend 

the time and effort necessary to determine the economic value of higher fuel economy, attempt to 

isolate the component of a new vehicle’s selling price that is related to its fuel economy, and 

compare these two. (This may be so even though more fuel-efficient choices might ultimately be 

in consumers’ economic self-interest.) In either case, although the agency’s estimates of the 

average value of fuel savings that will result from requiring cars and light trucks to achieve 

higher fuel economy may be correct, they are not likely to be large enough to lead a sufficient 

 

20 Greene, D., J. German, and M. Delucchi (2009). “Fuel Economy: The Case for Market Failure” in Reducing 

Climate Impacts in the Transportation Sector, Sperling, D., and J. Cannon, eds. Springer Science. Surprisingly, the 

authors find that uncertainty regarding the future price of gasoline appears to be less important than uncertainty 

surrounding the expected lifetimes of new vehicles. 

21 Greene, David L., “How Consumers Value Fuel Economy: A Literature Review,” Draft report to U.S. 

Environmental Protection Agency, Oak Ridge National Laboratory, December 29, 2009; see Table 10, p. 37. 

(Docket NHTSA-2009-0059-0155) and Jin-Tan Liu (1988). “Automotive Fuel Economy Improvements and 

Consumers’ Surplus.” Transportation Research Part A 22A(3): 203-218 (Docket EPA-HQ-OAR-2009-0472-0045). 

The study actually calculated the willingness to pay for reduced vehicle operating costs, of which vehicle fuel 

economy is a major component. 
Summary of Interagency Working Comments on Draft rule under EO 12866 review. Subject to 

further policy review. 

21 

number of buyers to purchase vehicles with higher fuel economy to increase average fuel 

economy from its current levels. 

Defects in the market for cars and light trucks could also lead manufacturers to undersupply fuel 

economy, even in cases where many (informed) buyers would be willing to pay the increased 

prices necessary to provide it. Most obviously, an absence of vigorous competition among 

producers of cars and light trucks may lead manufacturers to undersupply attributes that 

contribute to the overall quality of new vehicles, including fuel economy, because such 

“imperfect” competition reduces producers’ profit incentive to supply the level of fuel economy 

that buyers are willing to pay for. Incomplete or “asymmetric” access to information on vehicle 

attributes such as fuel economy – whereby manufacturers of new vehicles or sellers of used cars 

and light trucks have more complete knowledge of vehicles’ actual fuel economy levels, or of the 

value of purchasing higher fuel economy, than do potential buyers – may also prevents sellers of 

new or used vehicles from capturing its full value. In this situation, the level of fuel efficiency 

provided in the markets for new or used vehicles might remain persistently lower than that 

demanded by potential buyers. 

It is also possible that deliberate decisions by manufacturers of cars and light trucks, rather than 

constraints on the combinations of fuel economy, carrying capacity, and performance that 

manufacturers can offer using current technologies, limit the range of fuel economy available to 

buyers within individual vehicle market segments, such as full-size automobiles, small SUVs, or 

minivans. As an illustration, once a potential buyer has decided to purchase a minivan, the range 

of fuel economy among current models extends only from 18 to 24 MPG.22 Manufacturers 

might make such decisions if they underestimate the premiums that shoppers in certain market 

segments are willing to pay for more fuel-efficient versions of the vehicle models thy currently 

offer to prospective buyers within those segments. If this occurs, manufacturers may fail to 

supply levels of fuel efficiency as high as those buyers are willing to pay for, and the average 

fuel efficiency of their entire new vehicle fleets could remain below the levels that potential 

buyers demand and are willing to pay for. 

Finally, some research suggests that the consumers’ apparent unwillingness to purchase more 

fuel efficient vehicles stems from their inability to value future fuel savings correctly. For 

example, Larrick and Soll (2008) find evidence that consumers do not understand how to 

translate changes in fuel economy, which is denominated in miles per gallon, into resulting 

changes in fuel consumption, measured in gallons per time period.23 Sanstad and Howarth 

(1994) argue that consumers appear optimize behavior without full information by resorting to 

imprecise but convenient rules of thumb, which can cause many buyers to underestimate the 

value of fuel savings, particularly from significant increases in fuel economy.24 If the behavior 

 

22 This is the range of combined city and highway fuel economy levels from lowest (Toyota Siena 4WD) to highest 

(Mazda 5) available for model year 2010; http://www.fueleconomy.gov/feg/bestworstEPAtrucks.htm (last accessed 

February 15, 2010). 

23 Larrick, R. P., and J.B. Soll (2008). “The MPG illusion.” Science 320: 1593-1594. Docket EPA-HQ-OAR-2009-

0472-0043. 

24 Sanstad, A., and R. Howarth (1994). “’Normal’ Markets, Market Imperfections, and Energy Efficiency.” Energy 

Policy 22(10): 811-818. Docket EPA-HQ-OAR-2009-0472-11289.
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further policy review. 

22 

identified in these studies is indeed widespread, then the agency’s calculations suggesting that 

the benefits to vehicle owners from requiring higher fuel economy significantly exceeds the costs 

of providing it may indeed be correct, yet the resulting difference is still insufficient to motivate 

buyers to purchase a mix of car or light truck vehicle models whose average fuel economy 

approaches those required by this rule. 

 

The agency has been unable to reach a conclusive answer to the question of why the apparently 

large differences between its estimates of benefits from requiring higher fuel economy and the 

costs of supplying it do not result in higher average fuel economy for new cars and light trucks. 

One explanation is that NHTSA’s estimates are reasonable, and the market for fuel economy is 

simply not operating efficiently. For reasons stated above, NHTSA believes that a number of 

imperfections in the relevant market (including the lack of salience of fuel economy benefits and 

an emphasis on the short-term) likely play a key role, thus justifying the conclusion that the 

private benefits are substantial. However, the agency acknowledges that this situation may also 

reflect the fact that some combination of overestimating the value of fuel savings and omitting 

potential reductions in the welfare of vehicle buyers means that it has not fully characterized the 

impact of the CAFE standards this rule establishes on consumers. To recognize this possibility, 

and as part of a sensitivity analysis, this section presents an alternative accounting of the benefits 

and costs of CAFE standards for MY 2012-2016 passenger cars and light trucks and discusses its 

implications. 

Table VIII-17 displays the economic impacts of the rule from the perspective of potential buyers, 

and also reconciles the estimated net benefits of the rule as they are likely to be viewed by 

vehicle buyers with its net benefits to the economy as a whole. As the table shows, the total 

benefits to vehicle buyers (line 4) consist of the value of fuel savings at retail fuel prices (line 1), 

the economic value of vehicle occupants’ savings in refueling time (line 2), and the economic 

benefits from added rebound-effect driving (line 3). As the zero entries in line 5 of the table 

suggest, the agency’s estimate of the retail value of fuel savings reported in line 1 is assumed to 

be correct, and no losses in consumer welfare from changes in vehicle attributes (other than those 

from increases in vehicle prices) are assumed to occur. Thus there is no reduction in the total 

private benefits to vehicle owners, so that net private benefits to vehicle buyers (line 6) are equal 

to total private benefits (reported previously in line 4). 

As Table VIII-17 also shows, the decline in fuel tax revenues (line 7) that results from reduced 

fuel purchases is in effect an external cost from the viewpoint of vehicle buyers, which offsets 

part of the benefits of fuel savings when those are viewed from the economy-wide or “social” 

perspective.25 Thus the sum of lines 1 and 7 is the savings in fuel production costs that was 

reported previously as the value of fuel savings at pre-tax prices in the agency’s usual accounting 

of benefits and costs (see Chapter X). Lines 8 and 9 of Table VIII-17 report the value of 

 

25 Strictly speaking, fuel taxes represent a transfer of resources from consumers of fuel to government agencies and 

not a use of economic resources. Reducing the volume of fuel purchases simply reduces the value of this transfer, 

and thus cannot produce a real economic cost or benefit. Representing the change in fuel tax revenues in effect as 

an economy-wide cost is necessary to offset the portion of fuel savings included in line 1 that represents savings in 

fuel tax payments by consumers. This prevents the savings in tax revenues from being counted as a benefit from the 

economy-wide perspective. 
Summary of Interagency Working Comments on Draft rule under EO 12866 review. Subject to 

further policy review. 

23 

reductions in air pollution and climate-related externalities resulting from lower emissions during 

fuel production and consumption, while line 10 reports the savings in energy security 

externalities to the U.S. economy from reduced consumption and imports of crude petroleum and 

refined fuel. Line 12 reports the costs of increased congestion delays, accidents, and noise that 

result from additional driving due to the fuel economy rebound effect; net social benefits (line 

13) is thus the sum of the change in fuel tax revenues, the reduction in environmental and energy 

security externalities, and increased costs from added driving. 

Line 14 of Table VIII-17 shows manufacturers’ technology outlays for meeting higher CAFE 

standards for passenger cars and light trucks, which represent the principal cost of requiring 

higher fuel economy. The net total benefits (line 15 of the table) resulting from the rule consist 

of the sum of private (line 6) and social (line 13) benefits, minus technology costs (line 14); as 

expected, the figures reported in line 15 of the table are identical to those reported previously in 

the agency’s customary format (see Chapter X). 

Table VIII-17 highlights several important features of this rule’s economic impacts. First, 

comparing the rule’s net private (line 6) and external (line 13) benefits makes it clear that a 

substantial majority of the benefits from requiring higher fuel economy are experienced by 

vehicle buyers, with only a small share distributed throughout the remainder of the U.S. 

economy. In turn, the vast majority of private benefits stem from fuel savings, which highlights 

the importance of the many assumptions the agency uses to estimate and value future fuel 

savings resulting from higher fuel economy, as well as of the assumption that the rule has no 

adverse impacts on vehicle buyers. The aggregate external benefits are small because the 

substantial value of reductions in environmental and energy security externalities is almost 

exactly offset by the decline in fuel tax revenues and the increased costs associated with added 

vehicle use via the rebound effect of higher fuel economy. 

As a consequence, the net economic benefits of the rule mirror closely its benefits to private 

vehicle buyers and the technology costs for achieving higher fuel economy, again highlighting 

the importance of correctly valuing fuel savings from the perspective of those who experience 

them and accounting for any other effects of the rule on the economic welfare of vehicle buyers. 

Table VIII-17 

Private, Social, and Total Benefits and Costs of MY 2012-16 CAFE Standards: 

Passenger Cars plus Light Trucks 
Summary of Interagency Working Comments on Draft rule under EO 12866 review. Subject to 

further policy review. 

24 

2012 2013 2014 2015 2016

1 Value of Fuel Savings (at Retail Fuel Prices) $10.5 $22.9 $32.9 $42.5 $52.7 $161.6

2 Savings in Refueling Time $0.7 $1.4 $1.9 $2.5 $3.0 $9.4

3 Consumer Surplus from Added Driving $0.7 $1.5 $2.2 $2.8 $3.4 $10.5

4 Total Private Benefits (=1+2+3) $11.9 $25.8 $37.0 $47.8 $59.0 $181.5

5 Reduction in Private Benefits $0.0 $0.0 $0.0 $0.0 $0.0 $0.0

6 Net Private Benefits (=1+2) $11.9 $25.8 $37.0 $47.8 $59.0 $181.5

7 Change in Fuel Tax Revenues -$1.3 -$2.7 -$3.8 -$4.8 -$5.9 -$18.5

8 Reduced Health Damages from Criteria Emissions $0.5 $0.9 $1.3 $1.6 $2.0 $6.4

9 Reduced Climate Damages from CO2 Emissions $0.9 $2.0 $2.9 $3.8 $4.8 $14.5

10 Reduced Energy Security Externalities $0.5 $1.2 $1.6 $2.1 $2.5 $8.0

11 Reduction in Externalities (=8+9+10) $1.9 $4.1 $5.9 $7.6 $9.3 $28.8

12 Increased Costs of Congestion, etc. -$0.7 -$1.3 -$1.9 -$2.4 -$3.0 -$9.4

13 Net Social Benefits (=7+11+12) $0.0 $0.1 $0.1 $0.3 $0.5 $1.0

14 Technology Costs $5.9 $7.9 $10.5 $12.5 $14.9 $51.7

15 Net Total Benefits (=6+12-14) $6.0 $17.9 $26.6 $35.5 $44.6 $130.7

Entry Model Year Total, 2012-

2016

As discussed in detail previously, it is possible that NHTSA has overestimated the value of fuel 

savings to buyers and subsequent owners of the cars and light trucks to which higher CAFE 

standards will apply. It is also possible that the agency has failed to identify and value 

reductions in consumer welfare that could result from buyers’ responses to higher vehicle prices 

or changes in vehicle attributes that manufacturers make as part of their efforts to achieve higher 

fuel economy. To acknowledge these possibilities and examine their potential impact on the 

rule’s benefits and costs, and in order to provide a sensitivity analysis, Table IV.G.6-5 shows the 

rule’s cumulative economic impacts for MY 2012-16 passenger cars and light trucks under 

varying assumptions about the agency’s potential overestimation of fuel savings and the value of 

potential changes in vehicle attributes such as performance, carrying capacity, or safety. 

Table VIII-18 accounts for both potential overestimation of the value of fuel savings to vehicle 

buyers and the possible omission of welfare losses from changes in other vehicle attributes in the 

entry labeled “Reduction in Private Benefits” (line 5). Although the examples reported 

previously in Tables VIII-15 and VIII-16 illustrated sources of possible overestimation of fuel 

savings using specific alternatives to the agency’s assumptions, NHTSA has been unable to 

determine exactly how buyers’ time horizons or discount rates might differ from those assumed 

in its analysis. Nor has NHTSA analyzed how vehicle buyers’ expectations about future fuel 

prices or differences between fuel economy ratings and actual on-road fuel economy might differ 

from those it employs to estimate the value of fuel savings. Finally, NHTSA has not attempted 

to project changes in vehicle attributes other than fuel economy, or to estimate the economic 

value of resulting losses in vehicle utility. 

Instead Table VIII-18 illustrates the effect of these possibilities using different assumptions 

about the fraction of total private benefits to vehicle buyers that might be offset by some 

combination of these factors. It is important to see that these assumptions are used merely for 

the sake of analysis and illustration; there is no claim here that they have an empirical basis, or 
Summary of Interagency Working Comments on Draft rule under EO 12866 review. Subject to 

further policy review. 

25 

that they are founded in any existing estimates, theoretical or empirical, of actual offsets.26 As 

Table VIII-18 shows, if there is no offset to private benefits, the rule’s total and net private and 

social benefits are exactly as shown in the last column of Table IV.G.6-4 above. If, however, 

these factors combine to offset as much as 25% of the agency’s estimate of total private benefits 

(line 5), the rule’s net private (line 6) and net total (line 15) benefits remain substantially 

positive. If the private savings turn out to be 25% less than projected, the benefits of the rule 

continue to justify the costs by a large measure. If the offset is assumed to be as much as 50%, 

the net total benefits (line 15) would significantly decline, but would remain positive, and the 

benefits would continue to justify the costs by a large measure. 

 

26 While some empirical evidence suggests that consumers are largely making rational decisions, other evidence 

suggests this is not the case. Since there is not agreement in the literature on this point, it is not possible to estimate 

the potential degree of consumer loss in welfare. 
Summary of Interagency Working Comments on Draft rule under EO 12866 review. Subject to 

further policy review. 

26 

Table VIII-18 

Effect of Overestimation of Fuel Savings or Omission of Welfare Losses on Net Private and 

Total Benefits of MY 2012-2016 CAFE Standards 

Entry 

Fraction of Private Benefits 

Offset by Overestimation of 

Fuel Savings or Omission of 

Welfare Losses to Vehicle 

Buyers 

None 25% 50% 

1 Value of Fuel Savings (at Retail Fuel Prices) $161.6 $161.6 $161.6 

2 Savings in Refueling Time $9.4 $9.4 $9.4 

3 Consumer Surplus from Added Driving $10.5 $10.5 $10.5 

4 Total Private Benefits (=1+2+3) $181.5 $181.5 $181.5 

5 Reduction in Private Benefits $0.0 -$45.4 -$90.7 

6 Net Private Benefits (=1+2) $181.5 $136.1 $90.7 

 

7 Change in Fuel Tax Revenues -$18.5 -$18.5 -$18.5 

8 Reduced Health Damages from Criteria Emissions $6.4 $6.4 $6.4 

9 Reduced Climate Damages from CO2 Emissions $14.5 $14.5 $14.5 

1

0 Reduced Energy Security Externalities $8.0 $8.0 $8.0 

1

1 Reduction in Externalities (=8+9+10) $28.8 $28.8 $28.8 

1

2 Increased Costs of Congestion, etc. -$9.4 -$9.4 -$9.4 

1

3 Net Social Benefits (=7+11+12) $1.0 $1.0 $1.0 

 

1

4 Technology Costs $51.7 $51.7 $51.7 

 

1

5 Net Total Benefits (=6+12-14) $130.7 $85.3 $40.0 

It is important to reemphasize that NHTSA views the alternative estimates of this rule’s 

economic impacts presented in Table VIII-18 as illustrative only. The agency has attempted to 

develop the most accurate estimates of the value of fuel savings that are possible. The design of 

the CAFE standards (e.g., the footprint curves), the stringency of the standards, and the lead time 

provided to manufacturers for complying with the new standards have all been tailored to ensure 

that desirable vehicle attributes other than fuel economy will not be compromised. NHTSA has 
Summary of Interagency Working Comments on Draft rule under EO 12866 review. Subject to 

further policy review. 

27 

also attempted to ensure that its estimates of technology costs include adequate provisions to 

prevent the degradation of performance, safety, or other valuable attributes as consequences of 

manufacturers’ efforts to comply with higher CAFE standards. 

A major lesson is that the benefits of the rule justify the costs even on the assumption that the 

private savings are significantly offset (an assumption that the agency believes to be highly 

unlikely). Nevertheless, the agency believes that it is important to acknowledge a degree of 

uncertainty in its estimates of how buyers are likely to value fuel savings, as well as in its 

conclusion that no losses in the performance, utility, or safety of cars and light trucks subject to 

this rule will occur. NHTSA is committed to developing improved methods for estimating the 

value of improvements in fuel economy, as well as the magnitude and economic consequences of 

accompanying changes in other vehicle attributes, as part of its future CAFE rulemaking 

activities 

Formatted: Indent: First line: 

0"