Report on Proposed Weight-Based CAFE Standard by Crandall, Ingraham, and Singer

April 29, 2004

A study released by Robert Crandall of the Brookings Institution and Criterion Economics, Allan T. Ingraham of Criterion Auctions, and Hal J. Singer of Criterion Economics shows that the weight-based fuel economy standard for light trucks proposed by NHTSA in December 2003 would decrease social welfare after accounting for purported safety benefits. If automobile manufacturers react by eliminating light trucks in the currently regulated fleet with weights over 5,000 pounds that do not comply with the new standard ("Scenario 1"), forcing consumers to choose from only those vehicles of the same weight that achieve the standard today, the associated reduction in consumer welfare would likely be between $432 and $648 million per year. Alternatively, if manufacturers react by reducing the weight of the vehicles in that fleet to comply with the new standard ("Scenario 2A") for those models that do not require a significant change in the weight, the associated reduction in consumer welfare would be between $636 and $748 million per year. If instead manufacturers react by reducing the weight of the vehicles in that fleet to comply with the new standard ("Scenario 2B") regardless of the required change in the weight of the light truck, the associated reduction in consumer welfare would be $1.516 billion per year.

Crandall, Ingraham, and Singer also demonstrate that if each of the 36 models that failed the new standard were to comply with the standard solely through weight reduction ("Scenario 2B"), then roughly 6.0 lives per year would be saved according to a preliminary safety analysis published by NHTSA in September 2003. Assuming that society values a life saved between $3 and $4 million, the present discounted value of expected benefits under Scenario 2B is between $179 and $238 million in 2002. If only those models that did not require a significant reduction in weight were to reduce their weights (Scenario 2A), then roughly one-quarter of a life per year would be saved. The present discounted value of the associated safety benefits would be between $8 and $11 million. The authors find that the reduction in consumer welfare associated with each of these scenarios vastly exceeds the purported benefits of this reform to the structure of the light truck CAFE standards. The ratio of consumer welfare reductions to safety benefits is in the range of 6 to 95. Even in Scenarios 2A and 2B, in which the regulated firms react in a manner consistent with that envisioned by the NHTSA, the proposed reform would greatly decrease welfare. The authors conclude that consumer welfare considerations require the rejection of this CAFE reform.

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