At a time when political gridlock in Washington has blocked climate legislation, EPA and NHTSA have jointly come forward with a sensible proposal that will substantially reduce oil consumption and greenhouse gas (GHG) pollution from heavy-duty trucks. EPA and NHTSA’s proposed new rules build on their recent success in finalizing GHG and fuel efficiency standards for cars and light-duty trucks. Once again, the two agencies collaborated with industry to make sure their standards accomplish environmental and energy security goals in a practical manner.
The transportation sector is responsible for 27 percent of our nation’s GHG emissions. Within this sector, heavy-duty vehicles are the second largest source of emissions (after light-duty vehicles), accounting for 20 percent of the sector’s total. The new proposal covering heavy-duty vehicles (long-haul trucks, large pick-ups and vans, school and transit buses, and utility trucks) manufactured from 2014 through 2018 is estimated to reduce emissions by 7-20 percent from these vehicles (depending on the category of truck) from current levels, achieving an overall reduction of 250 million metric tons of carbon dioxide over the life of the vehicles sold during this five-year period. As a result, emissions in 2030 from this fast growing subsector will be 9 percent below what they would have been in the business as usual case. The proposed rule is also estimated to reduce oil consumption by 500 million barrels over this same period.
Cost and Benefits
To achieve the proposed standards, truck manufacturers will need to modify their vehicles drawing from a range of existing technologies including improvements in aerodynamic designs, lower rolling resistant tires, advanced transmissions, and reduced idling. The agencies report that the cost of meeting the standard for many trucks will be recouped in less than 2 years in the form of fuel savings. The regulatory impact analysis accompanying the proposed rule looks at both the costs and benefits of meeting the proposed standards. It shows the following:
Estimated Lifetime Discounted Costs and Benefits for 2014-2018 Model Year Heavy-Duty Vehicles
|3 percent discount rate||$ billions|
The bottom line is clear – with a net benefit to society of $41 billion, the proposed rule is a worthwhile investment in reducing both our reliance on foreign oil and our emissions of greenhouse gases.
Steve Seidel is Vice President for Policy Analysis
This post also appeared today in National Journal's Energy & Environment Experts blog.
As others have pointed out in the discussion of California’s Proposition 23, which would suspend the landmark climate law (AB32), passage would have wide-ranging implications for both the state itself and the national debate on comprehensive climate and energy policy in the U.S. These concerns for both California- and national-level climate action are valid – by creating a policy environment of extreme uncertainty, Prop 23 threatens to freeze the currently expanding investment in clean technology in the state. It is also arguably the new “battleground” on comprehensive climate legislation in the U.S., given the current state of affairs in the U.S. Congress.
But there’s an intermediate level of climate action that also is at stake with passage of Prop 23. Success for the fledgling cap-and-trade portion of the Western Climate Initiative (WCI) hinges on California continuing to be a leader in the development and implementation of the program. WCI states account for nearly 15% of U.S. greenhouse gas emissions and WCI would be the first emissions-trading scheme in the U.S. to cap emissions from economy-wide sources. While it may take some time for all WCI states to adopt cap-and-trade, all environmental programs have to start somewhere. And California’s leadership – not to mention the large quantity of emissions the state will add to the new market – is critical to the most comprehensive (in terms of emissions coverage), ambitious climate action initiative in the U.S. Perhaps this is something the backers of Prop 23 are acutely aware of?
While we’re on the topic of threats to this singularly unique climate law, let’s not forget Prop 23’s much less well-known cousin, Prop 26. This initiative seeks to tighten how the state constitution defines taxes and regulatory fees, and require a two-thirds supermajority vote in the state Legislature to enact new taxes and many fees. Perhaps seemingly harmless, lawyers from UCLA this week argued that Prop 26 is a threat to the state's ability to assess fees on polluters for the external costs they impose on the public and will affect a number of existing laws, including the state’s landmark climate law (as well as a green chemistry initiative, two laws blocking chemical products in landfills, and rules on lead). It’s ironic that Prop 23 could be defeated, while Prop 26, backed with multimillion-dollar contributions from the California Chamber of Commerce, Chevron Corporation, and Philip Morris USA Inc., might slide through and have the same effect on AB32, albeit via different means. Passage of either proposition would be a setback to California’s ability (and thus, the WCI’s ability) to move forward on climate.
Eileen Claussen is President
I will be the first to admit that I don’t really understand the California election process. Governors are recalled and propositions seem to proliferate at every election cycle. What I do understand is that these propositions can have dramatic consequences—after all, elections do matter. Most folks who are reading our blog have likely heard of Prop 23, which would effectively stop the implementation of California’s landmark climate change law, AB32. Environmental groups, clean energy entrepreneurs and big names such as Bill Gates and James Cameron have poured large amounts of attention and $25 million into the “No on 23” campaign, even as refiners Valero and Tesoro—and the now infamous Koch Brothers—fund the Yes campaign. Luckily the opponents have been getting the upper hand recently, with polls saying just over 50% of likely voters plan to vote against the prop—including both gubernatorial candidates.
On September 23, the California Air Resources Board (CARB) announced the adoption of ambitious, though aspirational, greenhouse gas (GHG) emission reduction targets associated with the total miles traveled by California drivers. This is the latest step in the process of implementing Senate Bill 375, signed by Governor Schwarzenegger in 2008. The significant increase in stringency of the CARB target levels over recommendations made by Metropolitan Planning Organizations (MPOs) last May was surprising and although praised by some, has received significant criticism.
The law provides incentives, not mandates, for MPOs to use regional transportation strategies that encourage smart growth. Incentives for MPOs, which meet the GHG targets, can include easier access to federal funding and exemption from certain environmental review requirements. Although called ‘precedent setting’ by the media, it establishes growth policies considered similar to others that have already been implemented in California, and this law would not have a strong impact without stringent GHG reduction targets. SB 375 required CARB to set the targets, giving it the power to determine how seriously MPOs would have to invest in new development plans if they wish to take advantage of the incentives. Using 2005 as a baseline, the GHG emissions per capita reduction targets set by CARB for 2020 and 2035 were, respectively:
|Region||2020 Target||2035 Target|
|San Diego Area||7%||13%|
|Bay Area Region||7%||15%|
|San Joaquin Valley (to be revisited in 2012)||5%||10%|
|Targets for the remaining six MPOs making up 5 percent of the population match or improve upon their current plans for 2020 and 2035|
The targets CARB defined were more ambitious than what the largest MPOs recommended in May. For example, recommendations for the Bay Area were 5 percent per capita for 2020 and 5 percent for 2035 (the same to account for projected population growth, which would make higher targets more difficult to achieve in 2035). Critics complained that these targets were “hijacked” by environmentalists, as CARB did not provide an explanation for the increase.
While more stringent targets are a victory for champions of climate change policy, some Californians have claimed CARB’s numbers as irresponsible because MPOs cannot afford to implement the plans needed to meet the targets. Given the state’s budget deficit and lingering impacts from the global economic recession in 2008 and 2009, budget crises for transit agencies have resulted in decreased service and increased fares. To combat expected costs, CARB has promised to help seek out more state and federal funding, although CARB member and San Diego County Supervisor Ron Roberts is pessimistic about their chances. Business groups angrily predict that such funding will have to come from increased transportation taxes such as vehicle miles traveled fees, parking fees, and congestion pricing. Critics (Example 1, Example 2) also cite the prediction by the Metropolitan Transportation Commission (MTC) of San Francisco that gas would reach a cost of $9.07 per gallon if there were a carbon or ‘vehicle miles traveled’ (VMT) tax.
CARB could address these concerns by clarifying the rationale for its decision and exposing half-truths propagated by some of its critics. For example, whether or not targets are too ambitious, SB 375 requires CARB to review them regularly and consider revisions based on economic and demographic conditions, as well as actual results achieved. The critics’ references to the MTC’s $9.07 per gallon gas are disingenuous warnings. The MTC’s gas price forecast is actually for 2035, not the immediate future, and the MTC considers a carbon or VMT tax as just one of multiple policy options. Only when this tax is added to the MTC’s unlikely forecast of gas prices (a linear extrapolation based on gas prices in 2008, the highest price ever, hitting $7.47 per gallon by 2035) does the cost of one gallon reach $9.07 in 2035. This forecast is significantly different from that of the U.S. Energy Information Administration, which, as of 2010, expects a national average of $3.91 per gallon gas in 2035. In addition, sustainable development experts Calthorpe Associates’ ‘Vision California’ study highlights attainable smart growth savings for Californians that would provide a significant boost to the economy. It quantifies savings, potentially achievable through SB 375, at $6,400 per year per household by 2050, among other significant opportunities.
While it is natural to be wary of the ambitious goals, California has previously defied naysayers and achieved ambitious policy goals at lower costs than initially predicted, as happened with Title 24 building energy efficiency standards in 1978. Furthermore, it is worth noting that SB 375 will remain intact no matter the fate of Proposition 23, which seeks to suspend the Global Warming Solutions Act, Assembly Bill 32, in the upcoming elections. By providing incentive-based aggressive targets, MPOs now have greater reason to invest significantly in future transportation and land use plans. With such an investment, Californians can look forward to a more comfortable life with shorter commutes, reduced air pollution, and long-term economic growth.
Sam Wurzelmann is the Innovative Solutions intern
Steve Seidel, vice president for policy analysis, co-wrote this post.
With the failure of the Senate to act on climate change legislation, the focus of attention now shifts to possible regulatory actions by EPA. The Supreme Court in 2007 made it clear that greenhouse gases (GHGs) are pollutants under the existing Clean Air Act (CAA), and the overwhelming scientific evidence (spelled out in great detail in the endangerment finding) demonstrates that such pollutants represent possible harm to public health and welfare.
Opposition to EPA action rests in part on concerns that any regulations will be excessively costly and burdensome to households and U.S. manufacturers. While it is certainly true that regulating GHGs will result in costs, it is also important to look at whether the economic benefits from those regulations will be greater than the costs they impose. In other words, will societal costs of allowing global GHG emissions to continue unabated (costs that will come in the form of impacts from rising sea levels, increased extreme weather including heat waves and droughts, among others) be greater than the costs of regulating those emissions responsibly?
This basic regulatory framework – that regulatory costs should be less than the resulting benefits – is codified in OMB review of all major federal regulations by both Republican and Democratic Administrations, has historically been applied to all EPA regulations, and would certainly be applied to any future regulations of GHGs.
So what have been the costs and benefits of past EPA regulations under the CAA historically? Congress required EPA to undertake a retrospective assessment of the costs and benefits of regulations under this statute. The conclusion of this retrospective review is that the CAA resulted in total benefits that are around $37 trillion, while total costs were $0.874 trillion (in 2010 dollars) – an astounding 40 to 1 benefit to cost ratio!
EPA has also produced a prospective assessment of the costs and benefits of the CAA – this time for the time period of 1990 through 2010. In this review, EPA estimated that the most likely benefit to cost ratio of the CAA for this period is 4 to 1. While a very strong and positive value, the ratio is substantially lower than the estimated benefits for the first 20 years of the CAA.
This is not unexpected – early gains are usually greater, and more cost effective, because simple or cheap remedies are the first to be applied in response to regulatory requirements. As those requirements become more stringent, creating additional benefits becomes more costly (from an economics perspective this is described as moving up the marginal cost curve).
How credible is EPA’s assessment of its regulations? Alan Krupnick, formerly of the President’s Council of Economic Advisors, has testified before Congress about the credibility of EPA’s analyses: “Under the auspices of the agency’s Science Advisory Board, both studies were scrutinized throughout the decade-long preparation by at least three expert committees of outside economists, air quality modelers, epidemiologists, and other health experts.”
In addition to these EPA assessments, there have been a handful of quality external analyses of the costs and benefits of the CAA. The Office of Management and Budget (OMB) found that the “major rules” from EPA’s Office of Air resulted in total benefits between $145 and $218 billion annually, for the years between 1992 and 2002. This is compared to costs of between $22 and $25 billion over that same period. A study by researchers at MIT found total annual benefits rising from $50 billion in 1975 to $400 billion in 2000. This report accounts for the monetary benefits of avoided premature death differently than the EPA studies, and as a result reports lower values for the total benefits. A sum of the total discounted benefits yields a total benefit of $6.85 trillion from 1975 through 2000 – a figure still substantially greater than the EPA estimate for the costs of the regulations.
So how might this play out in terms of future regulations of GHGs? EPA’s first GHG regulations were standards set for light duty vehicles (which it coordinated with the efficiency standards set by NHTSA). These standards are expected to lead to net benefits of between $0.5 and 1.2 billion dollars (discounted back to present values using 7 percent and 3 percent discount rates, respectively) without even including a social cost of carbon. If a value is assigned to the avoided GHG emissions associated with this regulation, the net present benefits are even greater!
If there is a lesson that can be drawn from these previous regulatory efforts it is that while regulations do impose real costs, EPA’s actions under the CAA have consistently led to positive environmental and economic outcomes. By not regulating, we would have foregone these positive net benefits and incurred the social costs imposed by unabated pollution.
So the next time someone tells you that the costs of reducing air pollution are too high, ask them what would be the costs to society of not reducing those emissions.
Russell Meyer is the Senior Fellow for Economics and Policy. Steve Seidel is Vice President for Policy Analysis.