Fuel Economy Standards Can't Save The Climate - We Need Better Policy

Last week, the Trump administration laid out its long-anticipated plan to roll back fuel efficiency standards for passenger vehicles sold between 2021 and 2025. In short, the administration is proposing to freeze the standards at 2020 levels instead of maintaining the more ambitious schedule of improvements through 2025 set forth by the Obama Administration. It is also planning to revoke California’s Clean Air Act Preemption Waiver, thereby prohibiting the state from setting its own greenhouse gas emission standards and maintaining other related policies such as zero emissions vehicle mandates.

Without question, the proposal represents an important shift in U.S. energy and climate policy. Some have even suggested that this rollback is likely the Trump Administration’s most significant climate policy rollback to date. The impending court battle over California’s waiver is perhaps the most consequential element—if the Trump administration prevails in the now more right-leaning Supreme Court, the state could lose its current authority to set independent vehicle greenhouse gas emission standards.

But as opponents of the proposal gear up for a fight, it is worth asking what specifically they hope to gain. The truth is that nothing we have done so far as a society has cracked the code on addressing carbon emissions in transportation, even as the case for doing so has become radically stronger. Rather than engage in a heated battle over the final phase of the Obama-era standards, the timing may be right to begin exploring alternative policies.

First, how much will the administration’s proposal actually affect oil use? My back-of-the-napkin analysis suggests that freezing the standards at 2020 levels will result in U.S. oil demand that is 0.7 million barrels per day (mbd) higher in 2035 than would have been the case under the original Obama rules. That lines up closely with this analysis by the consulting firm the Rhodium Group, which finds that the increase could be slightly higher or much lower depending on oil prices.

But, as I have written before, large portions of the benefits of the Obama standards were captured in the early years due to the relative inefficiency of the fleet back in 2011. Therefore, while 0.7 mbd sounds substantial, it is less so when you consider that the rules were projected to save roughly 4.0 mbd by 2035. Thus, the Trump rollback could realistically leave 80 percent of the originally-projected savings in place nearly two decades from now.

Some may counter that the later year standards were important, because they contained bonus incentives for automakers to invest in electric vehicles—forcing the U.S. auto industry to develop the technology needed to be competitive in the future, while also addressing climate change. But is it really the federal government’s job to ensure that the U.S. auto industry makes the necessary investments to be competitive? It’s hard to imagine why that would be the case. As others have noted, market and policy dynamics in other countries will almost certainly ensure that the technology is ultimately developed, with or without U.S. manufacturer investments.

Others have argued that the rollback will lead to dirtier air and should be opposed in part on those grounds. But the U.S. Environmental Protection Agency (EPA) has an entirely separate regime for regulating conventional air pollution from vehicles, and those levels have been falling for decades. The Obama EPA itself noted in the original rule analysis that, “our modeling indicates that there will be very small changes in ambient ozone and PM2.5 concentrations across most of the country.”

Could California save the day by ultimately prevailing in court and setting extremely aggressive standards that would apply there and in more than a dozen other states? Even that notion is dubious, as there is good reason to believe such a bifurcated system would ultimately provide no carbon benefits.

Rather than dig in farther to save the tighter Obama standards for minimal gain, it is time to begin working to demonstrate and implement more efficient policies. Such a shift would start with the recognition that top down mandates like fuel-economy standards are not capable of delivering the carbon reductions we need. Because they only affect the efficiency of new vehicle purchases instead of total consumption, their ability to cut fuel use is inherently limited, and their fuel savings and emissions reductions come at a relatively high cost—three to six times higher than the cost of gasoline tax.

Future transportation-energy policy must instead be far more focused on transparently incorporating the costs of our carbon use into economic decisions and letting the market work to deliver the most cost-effective emissions reductions. Importantly, scientific and economic analysis have greatly advanced our understanding of the social cost of carbon emissions over the past several years. The Obama Administration originally pegged the social cost of emitting a tonne of carbon dioxide in 2017 at roughly $26. But new research published just last week finds that the damages due to increased heat-related mortality alone are currently $39 per tonne. As additional economic and social sectors are analyzed, our understanding of the social cost of carbon will continue to improve.

Using this figure, continuously updated, to guide market activity through a direct tax or cap-and-trade program would yield far more effective carbon reductions than fuel economy standards. Of course, a fair response is that such policies are politically difficult, and the current environment is not conducive to their implementation. But there are also reasons to be slightly more optimistic. A number of carbon tax proposals have surfaced over the past year, some led by Republicans in Congress. And there is some progress at the local level as well.

In fact, California, whose cap and trade program now includes transportation fuels, could serve as a model for exactly this kind of approach. But by preserving a web of overlapping programs, such as its own fuel-economy standards and technology mandates, it will deeply undermine firms’ ability to seek out the lowest cost emissions reductions.

Vehicle efficiency standards have been a cornerstone of U.S. energy policy since the 1970s. But their ability to address the large and growing challenge of carbon emissions in transportation is increasingly limited. It is time for policy advocates at the state and national level to begin to focus on building support for—and implementing—more effective policy.