August 21, 2012

Oversight Leaders Ask OIRA to Reevaluate Pending Auto Rules Negotiated in Secret

From: House Committee on Oversight and Government Reform

Committee and Subcommittee Chairmen tell Obama Administration OIRA is Duty-bound to Return Rule for Further Consideration

(WASHINGTON)—Committee on Oversight and Government Reform Chairman Darrell Issa (R-CA) and Regulatory Affairs, Stimulus Oversight and Government Spending Subcommittee Chairman Jim Jordan (R-OH) today wrote to the Obama Administration’s top regulatory review official saying the agency is obligated to further review the rules and the transparency of enactment.  They said the consequences of the Administration’s rulemaking will be reduced consumer choice—with higher costs—and serious concerns about vehicle and passenger safety in order to meet the new requirements.

The Obama Administration announced last week it was temporarily delaying implementation of the rule.  A recent Committee report detailed the flawed process used by the Environmental Protection Agency (EPA), National Highway Traffic Safety Administration (NHTSA), California Air Resources Board (CARB) and Obama Administration officials in developing both the MY 2012-2016 and the MY 2017-2025 fuel economy and greenhouse gas emission standards.  Evidence produced by the Committee appears to indicate the process violated the spirit and possibly the letter of transparency and notice requirements in federal law.

The Committee staff report also documented how the Obama Administration selectively favored domestic automakers over foreign automakers, providing domestic firms with preferred access to information and Administration officials—in the wake of taxpayer-funded bailouts of General Motors and Chrysler.

“Higher fuel efficiency standards is a goal I share—but not at the expense of consumer safety and not when those rules are implemented under a cloak of secrecy in a manner outside the law.  The process followed by Obama Administration officials to develop these standards was politicized, not rooted in sound science and was a political end-run around seasoned experts who are required by law to lead the process,” Chairman Issa said.

Subcommittee Chairman Jordan said, “Back in October, our subcommittee took a look at the way the Obama Administration was imposing its green energy agenda on a process reserved for NHTSA officials. Our predictions were correct – safety concerns were pushed aside, consumer choice was reduced and the future of auto manufacturing changed. We now have proof of this failed process and of the power-grab that has become a trademark of this administration.”

Rep. Mike Kelly (R-PA), owner of Mike Kelly Automotive in Butler, Pa., concluded: “There is an old saying that if you are not at the table you are on the menu. When the Obama Administration negotiated the new CAFE standards, they sidelined the statutory rulemaking process that had been in place for decades in favor of a political process whereby special interest groups and “czars” helped shape an industry standard that will adversely affect consumers on a sweeping scale. The new CAFE standards will limit choice, compromise safety, and increase costs for millions of Americans who are already struggling to get by in the Obama Economy. The American consumer was not given fair representation at the CAFE negotiation table, and they have since been put on the menu.”

Text of the letter follows:

    August 21, 2012

Mr. Boris Bershteyn Acting Administrator Office of Information and Regulatory Affairs Office of Management and Budget 725 17th Street, NW Washington, DC  20503

Dear Mr. Bershteyn:

The Committee on Oversight and Government Reform recently issued the enclosed staff report detailing deficiencies in the Administration’s development of federal fuel economy and greenhouse gas (GHG) emissions standards.[1]  The Administration’s final rule for the Model Year (MY) 2017 to 2025 standards is currently under regulatory review by the Office of Information and Regulatory Affairs (OIRA).[2]  In light of the Administration’s recent decision to delay issuance of the final rule,[3] we urge you to return the rule to the agencies for further consideration of its adverse consequences to consumers and the economy.

The Committee’s staff report details the flawed process used by the Environmental Protection Agency (EPA), the National Highway Traffic Safety Administration (NHTSA), the California Air Resources Board (CARB), and White House officials in developing both the MY 2012 to 2016 and the MY 2017 to 2025 fuel economy and GHG emissions standards.  From documentation available to the Committee, it appears that the rulemaking process violated the spirit – and possibly the letter – of transparency and notice requirements in federal law.[4]  Early in the process, the Administration sought to “quietly” reach an agreement with a few automakers, “holding no group meetings and taking care to not leak updates to the press.”[5]  CARB Chairman Mary Nichols proudly explained that the negotiations were founded on a mutual commitment to “put nothing in writing, ever.”[6]  An automaker confirmed this account, telling the Committee that an Administration official asked a representative from that company to stop taking notes at a meeting in May 2009.[7]  By initiating public comment only after the secret deliberations had produced an agreement, the Administration effectively predetermined the outcome of the rulemaking.

In addition, the report illustrates how the Administration selectively favored the domestic automakers over foreign automakers, providing the domestic companies with preferred access to information and to Administration officials.[8]  The Administration, according to one auto executive, took a “divide and conquer” approached to automaker outreach, engaging the companies individually and providing differing information to each company.[9]  As explained by another automaker, “The gov’t is playing we [automakers] off of each other.  They are telling us lies (we know cause we [automakers] talk amongst ourselves) to trick us into caving or giving us points [of] information.”[10]  By proceeding in this manner, the rulemaking yielded proposed standards that were described as “not balanced and fair” but were instead skewed in favor of the domestic automakers.[11]

Overall, the process of developing these standards was politicized, and not rooted in sound science or objectivity.  White House adviser Carol Browner expressly told one auto executive that the Administration sought to fundamentally rewrite the applicable Corporate Average Fuel Economy (CAFE) statute, saying: “We need to get rid of that thing – CAFE.”[12]  As another official recounted, “The left, along with the states, is waging a serious campaign.  We cannot assume anything and shouldn’t believe EPA will base the decision on credible data – they will justify any range.  It is becoming increasingly political and EPA is aligning with CA.  Meanwhile, the Secretary of Transportation has abandoned the fuel economy playing field.”[13]  Further, it appears that the Administration rushed to finalize an agreement on an arbitrary timeline because, in the words of one EPA official, “Obama wants to secure his legacy.”[14]

These procedural deficiencies will have real and lasting consequences for consumers and the economy.  As the Committee’s report demonstrates, EPA and CARB effectively sidelined NHTSA – the lone agency statutorily charged with regulatory authority in this area – from the rulemaking process.  EPA officials openly questioned NHTSA’s regulatory expertise on vehicle safety, telling colleagues that EPA “still disagree[s] with the basic conclusions . . . that taking mass out of passenger cars will inherently result in higher fatalities.”[15]  This assertion contradicts substantial NHTSA research that there is a high correlation between vehicle size and fatality rates and that “fatality rates will go up as a result of downsizing.”[16]  Because EPA and CARB sought aggressive vehicle mass reduction targets,[17] estimates that the proposed standards will cause as many as 240 more automotive fatalities each year.[18]

The proposed standards did not adequately consider vehicle cost and consumer choice.  The auto industry repeatedly told the Administration that the proposal’s costs were understated: “EPA needs to be careful about the cost required to comply with the standards to achieve the goal otherwise too expensive vehicles may be left at dealerships unpurchased.”[19]  Another manufacturer warned that the proposed cost “does not recognize capital investment required to move to advanced materials” and “[e]economic viability is at risk because the pathways are not market driven.”[20]  In fact, as some companies told the regulators: “Data shows high fuel economy standards kills jobs, presents doomsday scenario for automakers, and delivers insufficient pay-offs to consumers.”  They argued that the proposal “is out of line with the available data and is not realistic” because “the market will not bear 55 mpg.”[21]  As a result, according to one automaker, the regulation “will force manufacturers to limit vehicle choices and will force auto companies to sell expensive technology that customers will not want or accept.”[22]

Moreover, a recent working paper published by scholars at the Brookings Institution and Vanderbilt Law School calls into question the agencies’ cost-benefit analysis for the proposed rule.[23]  The paper asserts that the analysis exaggerates the proposal’s benefits by including climate-change benefits to other countries from reduced emissions in the United States.[24]  According to the scholars, “this procedure of including benefits to other countries overstates the estimated benefits and lacks economic justification.”[25]  When the analysis is restricted to domestic benefits, the proposal’s GHG emissions benefits only account for about two percent of total benefits.[26]  “If the purpose of the standards is to reduce greenhouse-gas emissions,” the scholars conclude, “these regulations are very inefficient.”[27]

The Administration reportedly expected to issue the final rule on the MY 2017 to 2025 standards on August 15, 2012.[28]  The Administration has now indicated that it will delay the release of the rule for interagency review.[29]  While we are pleased by this additional review, we believe that this regulatory process remains a far cry from the President’s promise to make his Administration “the most open and transparent in history.”[30]  OIRA is charged by Executive Order 12866, section 6(b), with “provid[ing] meaningful guidance and oversight so that each agency’s regulatory actions are consistent with applicable law, the President’s priorities, and the principles set forth in this executive order.”[31]  These principles, as outlined in section 1(b) of the Executive Order, include designing the rule in “the most cost-effective manner to achieve the regulatory objective”; assessing “the costs and benefits of the intended regulation”; and tailoring “its regulations to impose the least burden on society.”[32]  Where a regulation does not meet these standards, section 6(b)(3) of the Executive Order allows OIRA to return the regulation for further consideration.[33]

As the Committee’s staff report and independent analyses demonstrate,[34] the rushed and politicized nature of this rulemaking will have real consequences for vehicle safety, vehicle cost, and consumer choice.  Accordingly, we strongly urge you to utilize your authority to return the proposed rule to EPA and NHTSA for further consideration in a transparent and balanced manner that adequately addresses these issues.

Thank you for your attention to this matter.



Darrell Issa, Chairman


Jim Jordan,  Chairman, Subcommittee on Regulatory Affairs, Stimulus Oversight, and Government Spending


Mike Kelly,  Member of Congress


cc:    The Honorable Elijah E. Cummings, Ranking Minority Member

The Honorable Dennis Kucinich, Ranking Minority Member

Subcommittee on Regulatory Affairs, Stimulus Oversight, and Government Spending

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