Research Questions for the Midterm CAFE Review: Will the Footprint-Based CAFE Standard Work as Expected?

This is the third in a series of blog posts by RFF’s transportation team that addresses some of the key research questions for the midterm CAFE review.

Source: iStockphoto

The first two blog posts in this series introduced the midterm review of the corporate average fuel economy (CAFE) standards and discussed unresolved issues for this review about the fuel efficiency gap. In this post, we focus on issues raised by the shift to vehicle footprint–based standards. Until the changes to the CAFE rules in 2012, all passenger cars were held to the same fuel economy standard (27.5 miles per gallon [mpg] from 1990 to 2011) and all light-duty trucks were held to a weaker standard (between 20 and 23 mpg during the same period). But before the standards were tightened in 2012, federal legislation in the late 2000s required the ruling agencies to base the new standards on a vehicle attribute or attributes related to fuel economy (known as attribute-based standards). The US Environmental Protection Agency and National Highway Traffic Safety Administration (NHTSA) now base the standards on a vehicle’s footprint, defined as the area between the four wheels, and they also maintain the car–truck distinction. Vehicles with a smaller footprint must meet a tighter standard than those with a larger footprint, and light-duty trucks still have a less stringent overall footprint standard than cars.

Before making this decision, the agencies considered several attributes on which to base the standards. European, Japanese, and Chinese standards depend on vehicle weight, with heavier vehicles allowed to have more lenient standards. One argument for the footprint standard used in the United States over the weight-based standard is that it would provide incentives for manufacturers to improve fuel economy by using lighter-weight materials. A weight-based standard would not provide the same incentive, because lighter vehicles would face a tighter standard. The agencies also argued that a footprint standard would force more technology for improved fuel economy across all vehicle sizes, with less incentive to downsize to meet the standard. Whether based on size or weight, the attribute-based standard has political appeal because it will have costs that fall more evenly on all manufacturers compared to a mpg-based standard that would tend to favor manufacturers with a smaller or lighter vehicle fleet. An attribute-based standard was also especially appealing to NHTSA, who was particularly concerned that, with so many large vehicles on the roads, downsizing new vehicles would result in more fatalities.

But will the footprint standard work as expected?  The effect of CAFE standards on traffic fatalities is highly controversial. Bigger and heavier vehicles are safer in single-vehicle accidents and are safer for their own occupants in multi-vehicle crashes. But drivers and passengers face greater risk in an accident with a larger or heavier vehicle than with a smaller or lighter one. Furthermore, NHTSA analysis recently concluded that reducing weight while holding footprint constant does not increase fatality risks; this is a major reason the agency favors the footprint-based standard. Read More

Flood Insurance Claims: A Fat Tail Getting Fatter

Floods remain some of the worst disasters around the world. They cause more property damage and insured losses than many other types of events. In the US, floods are primarily insured through the federally-run National Flood Insurance Program (NFIP). This program has been making the headlines recently as Congress tries to address the program’s massive debt from Hurricanes Katrina, Ike, and Sandy; homeowners bemoan high flood insurance costs; communities receive new flood maps suggesting flood risk has changed over time; and disaster victims wonder how to rebuild to prevent future losses and keep insurance costs manageable.

We have been examining the distribution of NFIP claims, provided by the Federal Emergency Management Agency to the Wharton Risk Center.  Individual claims are aggregated to census tracts and months, over the years 1978 to 2012. We find that this distribution is decidedly fat-tailed. This means that yearly losses can be hopelessly volatile and, as such, historical averages are not good predictors of future losses. For those more technically inclined, we have been doing this by fitting a Pareto distribution to the aggregate claims. Our estimation of the tail index gives an indication of the fatness of the tail. The smaller the tail index, the fatter the tail.

That flood claims are fat-tailed is, in and of itself, not so surprising. Many disaster losses have been found to exhibit fat tails. What is concerning, however, is that the tail of flood insurance claims seems to be getting fatter over the time period in our data. This would indicate the extremes are getting even more extreme.  One way to examine this is to use the so-called Hill estimator, which gives an estimate of the tail index (here, based on the largest 10% of claims), for each year. When we plot estimates of the tail index using this method, there is a clear downward trend, as seen in the figure below. Lower values, fatter tail. The blue diamonds are the yearly estimates and the black line is a fitted linear trend line to those estimates.


We also looked at the tail index by state. We broke the data into two periods, 1978-1990 and 1990-2012, and estimated the tail index (using maximum likelihood) for each period for each state in the country. For all but a handful, the tail index is lower in the later period, indicating that the tail of the distribution of flood claims is fatter in the later period.

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What Do State Renewable Portfolio Standards Mean for Carbon Intensity?

RFF-DP-14-10-coverIn the last two decades, 31 states have passed renewable portfolio standards (RPS) into law that are aimed at increasing the portion of state energy that is sourced from renewable, typically non-carbon-emitting, resources. In many states, such standards were not explicitly meant to reduce greenhouse gas (GHG) emissions, although given the energy sources they promote (solar and wind, for example), emissions reductions are an expected result. The environmental economics literature, however, points out that RPS are far from the most efficient policy to reduce carbon emissions. In fact, previous econometric studies on early RPS implementation suggest that the standards have failed to decrease GHG emissions or even significantly increase renewable energy deployment. However, in a new RFF discussion paper, with RFF University Fellow Brent Sohngen of Ohio State University,  we find that RPS actually have reduced carbon emissions in the United States by around 4 percent at present, and that figure is increasing.

We used data between 1997 and 2010 to identify the drivers of state carbon intensity, measured in tons of carbon dioxide emissions per dollar of gross state product. After accounting for differences in economic structure and environmental factors, we find that RPS implementation reduces state carbon intensity, mainly through an increase in electricity prices, with a $0.01/KWh increase in electricity prices leading to an approximately 1 percent decrease in state carbon intensity. The relationship between the price of electricity and carbon intensity is slightly smaller but still significant in states that have passed RPS because these states already have lower initial carbon intensities than states without RPS, causing them to be less sensitive to additional changes in the price of electricity. In addition, the standard itself also has an effect on the carbon intensity, although the effect is statistically insignificant. 

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Twitter Q&A Roundup: Exploring the Local Impacts of Shale Gas Development

On April 10, RFF hosted a seminar on the benefits and costs of shale gas development as experienced by local communities, titled “Exploring the Local Impacts of Shale Gas Development.” As moderator of that event, I’ll attempt to tackle some of the questions posed by our Twitter audience during the event that we were unable to address during the live seminar due to time constraints.

Our calculations for numbers of round trips were determined primarily by dividing the amount of water needed to frack a well by the amount of water a single truck can hold. 

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RFF ON THE ISSUES: Mercury regulations upheld; Beijing pollution; Local shale impacts

Mercury Regulations Upheld

Last week, the US District Court of Appeals for the DC Circuit upheld the US Environmental Protection Agency’s (EPA’s) authority to enforce its Mercury and Air Toxics Standards (MATS). The court ruled that the standards are “substantively and procedurally valid,” despite concerns that the rules would severely increase electricity rates.

Various studies have attempted to predict the potential impacts of MATS. RFF’s Blair Beasley, Matt Woerman, Anthony PaulDallas Burtraw, and Karen Palmer attempted to reconcile the results of this research and found that the “studies that most closely match the regulatory requirements as laid out in the final MATS rule and do not include other proposed EPA regulations . . .[demonstrate] less severe impacts on the electricity market.”

Beijing Pollution

The rapid growth of Beijing’s economy, population, and energy use—along with pollution from surrounding provinces—is to blame for the city’s continued air quality problems, according to the Beijing Environmental Protection Research Institute. China’s government has drafted ambitious plans to cut future coal consumption, but challenges remain, including “big polluting industries and growth-obsessed local authorities.”

In an interview with Resources magazine, RFF Visiting Fellow Mun Ho suggests that changes in China’s demographics have facilitated support for more restrictive pollution policies: “[F]or a long time now, given the large-scale, low-income situation in China, growth has been the key priority. This is changing, now that China is developing more of a middle class. The emphasis now is on the quality of life. The quality of the environment, accordingly, is much higher on the agenda, but it is a difficult problem.”

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This Week in the RFF Library Blog

Each week, we review the papers, studies, reports, and briefings posted at the “indispensable” RFF Library Blog, curated by RFF Librarian Chris Clotworthy. Check out this week’s highlights below:

The End of China’s Coal Boom:  5 Facts You Should Know
Global greenhouse-gas emissions may peak before 2020 if China achieves a plan to drastically cut its coal use, reducing carbon production equivalent to Australian and Canadian output combined, Greenpeace says. — via Greenpeace

Fueling a New Order? The New Geopolitical and Security Consequences of Energy
The paper Fueling a New Order? The New Geopolitical and Security Consequences of Energy examines impacts of the major transformation in international energy markets that has begun. The United States is poised to overtake Saudi Arabia and Russia as the world’s largest oil producer and, combined with new developments in natural gas, is on track to become the dominant player in global energy markets. Meanwhile, China is in place to surpass the United States… — via Brookings Institution

National Environmental Policy Act: Little Information Exists on NEPA Analyses
Little information exists on the costs and benefits of completing NEPA analyses. Agencies do not routinely track the cost of completing NEPA analyses, and there is no governmentwide mechanism to do so, according to officials from CEQ, EPA, and other agencies GAO reviewed… — via U.S. Government Accountability Office

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Mixing and Matching Electricity Sector Policies

RFF-DP-13-20_coverA number of concerns have emerged over the last decade about climate change, energy security, and energy efficiency, inspiring an equally long list of proposed policy fixes. The majority of these options, including renewables subsidies, performance standards, and emissions pricing schemes, apply directly to the power sector. Lawmakers can also choose to implement multiple policies in tandem, as the European Union did in its 20/20/20 by 2020 targets—a 20 percent reduction in emissions, a 20 percent share of renewables in total energy consumption, and a 20 percent improvement in energy efficiency. Similarly, California, in adopting an emissions cap-and-trade system, is retaining renewable energy mandates and subsidies, as well as energy conservation policies.  Despite the growing interest in using this mix-and-match approach, little research has been done to explore how cost-effectiveness and technological innovation are affected by interactions between coexisting policies.

In general, to address the damages posed by greenhouse gas emissions, economists recommend placing a price on those emissions, such as with a carbon tax or a cap-and-trade program. Many are skeptical of the need for additional policies, noting that once an emissions cap is in place, additional policies to expand renewable energy, for example, produce no new emissions reductions. (See a recent post by RFF University Fellow Rob Stavins of Harvard for more on this topic.) However, concerns about additional market failures, such as spillovers from innovation or the undervaluation of energy efficiency improvements, can justify additional interventions. Read More

New Issue of Resources Magazine

Resources 186

Image: Resources for the Future

A dramatic rise in world oil prices and skyrocketing domestic gas prices resulting from the 1973–1974 oil crisis prompted a recognized need for a national energy policy in the United States. One challenge is that the policies we put in place today will likely outlive the context in which they were created—and for quite a long time. Joel Darmstadter’s retrospective on the energy crisis, Stephen Brown and Charles Mason’s examination of lifting the oil export ban, and Joseph Aldy’s argument for eliminating domestic fossil fuel subsidies in the latest Resources magazine illustrate this point. Other articles from this issue include:

Do Driving Restrictions Reduce Congestion? Lessons from Beijing
Ping Qin and Jintao Xu
Pro-environment business behaviors are driven by a rich set of political and social factors that affect profitability—all of which conservation advocates can use as leverage to motivate change.

Groundwater Markets: Managing a Critical, Hidden Resource
Yusuke Kuwayama
Although 95 percent of usable freshwater comes from underground, withdrawals of this water are largely unmonitored and unregulated in the United States. By developing groundwater markets, governments can provide an incentive for more sustainable pumping of this critical resource.

Private Funding of Public Parks: Assessing the Role of Philanthropy
Margaret A. Walls
Private donations account for an increasingly large percentage of city parks’ revenue stream, but a new survey of park directors reveals a discrepancy between how this funding is used and the most pressing needs of today’s parks.

To view all articles from this issue of Resources, visit our website or download the Resources app for iPad, iPhone, or Android.

RFF ON THE ISSUES: Regulations for new power plants; European shale gas

Note: There is still time to register for the April 17th seminar, “From the Gulf to the Arctic: What Have We Learned since the Deepwater Horizon Spill?” Join RFF for two distinguished panels featuring experts from the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling, the National Oceanic and Atmospheric Administration, the Bureau of Ocean Energy Management, the US Department of Energy, and more.

Regulations for New Power Plants

US Environmental Protection Agency (EPA) Administrator Gina McCarthy said last week that although the new regulations for existing power plants will not be “aspirational standards,” they will allow emissions targets to be achieved through a combination of strategies. This may signal a different direction from the rules for new power plants, and could provide states the flexibility needed to keep many older facilities open.

In a comment to EPA, RFF’s Nathan Richardson explains why separating regulations for new coal and gas plants, as EPA is currently proposing, could sharply limit the flexibility available under rules for existing plants. He writes: “Here’s hoping EPA has combined the categories. If they have not, I do not see how the agency can fulfill its promise to preserve existing [flexible] state climate programs.”
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This Week in the RFF Library

Each week, we review the papers, studies, reports, and briefings posted at the “indispensable” RFF Library Blog, curated by RFF Librarian Chris Clotworthy. Check out this week’s highlights below:

Does Size Matter? ["Chaos" article arguing for downsizing of the power grid to reduce blackouts]
In a study published online Tuesday by the journal Chaos, two physicists and an engineer say the nation’s electrical distribution system would face a lower risk of severe outages if it were divided into scores of gridlets rather than the three major grids that exist today for the East, the West and a large chunk of Texas. — via Chaos: An Interdisciplinary Journal of Nonlinear Science

The Economic Case for Restoring Coastal Ecosystems
This report analyzes the economic benefits provided by 3 of the 50 coastal restoration projects that the National Oceanic and Atmospheric Administration, or NOAA, funded with grants from the American Recovery and Reinvestment Act, or ARRA, of 2009 and finds that each dollar invested by taxpayers returns more than $15 in net economic benefits for the three projects. — via Center for American Progress

Shifting Gears: A New Approach to Reducing Greenhouse Gas Emissions from the Transportation Sector
In 2007, Congress passed the Energy Independence and Security Act, which requires a certain percentage of biofuels like ethanol to be blended with the regular gasoline supply each year. A central goal of the Act was to take a bite out of the climate-changing pollution emitted from the tailpipes of motor vehicles. The transportation sector is second only to the electricity sector in its volume of carbon pollution, so targeting it for reductions makes good sense.  — via NYU School of Law, Institute for Policy Integrity

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