‘Energy Independence’ Hawks Caricature Trump Auto Rule

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Securing America’s Energy Future (SAFE), a pro-regulatory “energy independence” advocacy group, this week released “The Military Cost of Defending Global Oil Supplies.” The report is intended to persuade the Environmental Protection Agency (EPA) and National Highway Traffic Safety Administration (NHTSA) to finalize tougher fuel economy standards than the agencies are proposing.

Under the agencies’ “preferred option,” combined passenger car and light truck fuel economy standards would increase to 37 miles per gallon in 2020 and remain there through 2026, whereas the Obama administration’s standards would increase to 46.7 mpg in 2025 (83 FR 43390).

SAFE complains that EPA and NHTSA estimate that “the cost to the United States of defending the global oil supply is zero”—an obviously indefensible calculation. Hence, SAFE contends, the benefit-cost analysis underpinning the proposed auto rule is deeply flawed.

SAFE reckons that the U.S. military spends at least $81 billion annually protecting global oil supplies, which supposedly works out to an implicit subsidy of $11.25 per barrel of crude oil, or $0.28 per gallon of motor fuel. Thus, SAFE recommends that EPA and NHTSA assume a military expenditure of at least $0.28 per gallon when estimating the foregone benefits of replacing the Obama administration fuel economy standards with the proposed Trump administration standards.

The first thing to notice is that SAFE’s subsidy calculation is incorrect. To estimate the implicit subsidy for “all oil consumers,” SAFE divides U.S. oil consumption (19.8 million barrels per day in 2017) by the estimated $81 billion in U.S. expenditure to protect “global oil supplies.” But “all oil consumers” benefitting from U.S. protection of “global oil supplies” include all oil consumers globally. Global petroleum consumption in 2017 was 98.1 million barrels per day. Thus, even assuming SAFE is correct about the size of the U.S. military investment to protect global oil supplies, the implicit subsidy is about $0.05 per gallon, not $0.28 per gallon.

The SAFE report misfires for a more fundamental reason—it knocks down a straw man, a caricature of the agencies’ position. As is abundantly evident from the proposed rule’s Preliminary Regulatory Impact Analysis (PRIA), EPA and NHTSA do not assume that the U.S. cost of defending global oil supplies is zero. Indeed, they even acknowledge that “If U.S. demand for imported petroleum increases, it is also possible that increased military spending to secure larger oil supplies from unstable regions of the globe will be necessary” (PRIA, p. 1066).

However, although such an effect is “possible,” it cannot be predicted or quantified. That is because “savings in military spending are unlikely to result from incremental reductions in U.S. consumption of petroleum products resulting from any of the CAFE [Corporate Average Fuel Economy] or CO2 [carbon dioxide] standards considered in this proposal,” including the current (Obama administration) standards. Accordingly, EPA and NHTSA decline to “assign a specific value to the military security benefits of reducing fuel consumption” (PRIA, p. 11).

That is eminently reasonable. Fuel economy standards make marginal adjustments in annual U.S. fuel consumption. Even over longer periods of time, there is no discernible relationship between fuel economy standards and the basic missions and roles of the U.S. armed forces. As the agencies put it, “the scale of oil consumption reductions associated with CAFE standards would be insufficient to alter any existing military missions focused on ensuring the safe and expedient production and transportation of oil around the globe” (PRIA, p. 114).

The PRIA devotes an entire section (pp. 1073-1077) to the potential relationship of fuel economy standards to military expenditures. The agencies again acknowledge that “If the increase in fuel consumption that results from reducing CAFE and CO2 standards leads to higher military spending to protect oil supplies, this might represent an additional external or social cost of the agencies’ proposal.” However, no relationship between fuel economy standards and military spending is discernible in the historical record, and any increases in oil consumption resulting from the Trump auto rule are too small to have any predictable or quantifiable effects on military spending.

In the agencies’ words: “Eliminating petroleum imports entirely might permit the nation to scale back its military presence in oil-supplying regions of the globe, but there is little evidence that U.S. military activity and spending in those regions have varied over history in response to fluctuations in the nation’s oil imports, or are likely to do so over the future period spanned by this analysis.”

Some recent studies have produced varying estimates of how much military spending might be reduced if the United States “no longer had any strategic interest” in protecting global oil supplies. “However, none [of those studies] has identified an estimate of spending that is likely to vary incrementally in response to changes in U.S. petroleum consumption or imports.”

Moreover, it will be even more daunting in the future to infer a relationship between fuel economy standards and military spending because “domestic production is projected to overtake U.S. consumption of fuel and other products refined from petroleum within the next decade.” Once that happens, “attributing any fraction of remaining military spending to protecting foreign sources of petroleum supply will be logically as well as analytically challenging.”

For all those reasons, “the analysis of alternative CAFE and CO2 emission standards for future model years applies no increase in government spending to support U.S. military activities as a potential cost of allowing new cars and light trucks to achieve lower fuel economy and thus increasing domestic petroleum use.”