Understanding the Tradeoffs of CAFE Standards

Trends in Fuel Economy, Power, and Weight (A) Fuel Economy and the CAFE Standard for Cars, 1975–2007 (MPG); (B) POWER AND WEIGHT OF CARS, 1975–2007. Source: US Environmental Protection Agency. 2007. Light-Duty Automotive Technology and Fuel Efficiency Trends: 1975 through 2007. 420-R-07-008

Trends in Fuel Economy, Power, and Weight (A) Fuel Economy and the CAFE Standard for Cars, 1975–2007 (MPG); (B) POWER AND WEIGHT OF CARS, 1975–2007. Source: US Environmental Protection Agency. 2007. Light-Duty Automotive Technology and Fuel Efficiency Trends: 1975 through 2007. 420-R-07-008

In the first of a two-part series, RFF Fellow Joshua Linn explains how vehicle manufacturers respond to tightening fuel economy standards. Click to read the second installment.

Though the Corporate Average Fuel Economy (CAFE) standards have been regulating the fuel economy of US vehicles since 1978, the levels of the standards were pretty much flat for more than 20 years after they fully took effect. It wasn’t until the passing of the Energy Independence and Security Act of 2007, which was drafted following a period of intense debate, that the first major changes to CAFE standards were enacted.

Since then, the standards have been revised and now they jointly regulate fuel economy and greenhouse gas emissions. The new standards are tightening steadily—between 2005 and 2025 the average fuel economy of new passenger vehicles will have roughly doubled, reducing gasoline consumption and greenhouse gas emissions dramatically. Much of the public, including many industry analysts, believes that tighter standards will cause manufacturers to add technology that will dramatically increase the cost of producing the vehicles, and that much of these costs will be passed on to consumers.

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Space Launch Risk Redux

Indemnification, the nation’s approach to managing some of the risks associated with the launch of privately owned rockets carrying our satellites for telecommunications, Earth observations, supplies for the International Space Station, and other services, is on its way to becoming a new annual rite of winter.  Specifically, the federal government (taxpayer) indemnifies a portion of the financial liability in the event of harms to people and property in the flight path.  As we wrote a year ago, Congress has tended to authorize indemnification for a year at a time.  The US Senate has just agreed on a two-year extension and the House, a one-year extension with language to spend the next year conducting hearings on the provisions.  Among the issues raised are the effects of the indemnification on private and government launch risk management, a peculiar “doughnut hole” where launch companies are indemnified for only a range of losses, and why the government is covering the risk at all. To inform the upcoming debate, we call attention to three key considerations as noted in our last post.

The Sandy Supplemental by the Numbers

Figure 1. Sandy Supplemental Compared with 2012 Agency Outlays Source: Fiscal Year 2014 Historical Tables Budget of the US Office of Management and Budget.

Figure 1. Sandy Supplemental Compared with 2012 Agency Outlays
Source: Fiscal Year 2014 Historical Tables Budget of the US Office of Management and Budget.

The amount of federal spending on disaster aid has been growing over time. Hurricane Sandy resulted in an enormous level of supplemental appropriations. For perspective, we compared the Sandy supplemental appropriation, more than $50 billion, with the 2012 federal outlays by agency, excluding entitlement programs, military spending, and debt payments, as shown in Figure 1. The Sandy supplemental was greater than the amount spent by the Environmental Protection Agency, National Aeronautics and Space Administration, State Department, Department of Justice, Department of Energy, and many others.

More than 90 percent of the supplemental appropriations for Hurricane Sandy went to four departments: the Department of Housing and Urban Development (HUD), Department of Transportation (DOT), Department of Homeland Security (DHS), and the US Army Corps of Engineers (Corps). The (pre-sequester) amounts appropriated to each are shown in Figure 2.

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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:


2014 U.S. Climate Action Report
The State Department has sent the United Nations a report that claims pending regulations under President Obama’s climate action plan, including EPA’s first-time climate rules for power plants, could help the United States meet its goal of cutting its greenhouse gas (GHG) emissions 17 percent below 2005 levels by 2020. — via U.S. Department of State

Carbon Capture and Sequestration: EPA’S Technology Availability Determinations Need to be Reproducible
The U.S. Environmental Protection Agency is proposing to amend its Clean Air Act Standards of Performance for Petroleum Refineries for Which Construction, Reconstruction, or Modification Commenced After May 14, 2007. In the same Federal Register notice, EPA also amended the definition of “delayed coking unit” as a direct final rule without a prior proposed rule. If EPA receives no adverse comment… — via Center for Regulatory Effectiveness

A Report on the Economics of California’s Low Carbon Fuel Standard and Cost Containment Mechanisms
A recent report prepared by UC Davis researchers for the California Air Resources Board (ARB) found that compliance costs for the Low Carbon Fuels Standard (LCFS) may increase rapidly in the future if there are large differences in marginal costs between traditional fossil fuels and alternative, low-carbon-intensity fuels; or if there are capacity or technological constraints to deploying alternative fuels, particularly those with low-carbon intensity. — via University of California, Davis, Institute of Transportation Studies

Border Adjustments for Economywide Policies That Impose a Price on Greenhouse Gas Emissions
Human activities around the world are producing increasingly large quantities of greenhouse gases (GHGs), the most abundant of which is carbon dioxide (CO2). In recent years, concerns about the effects those emissions might have on the climate have prompted the Congress, federal regulators, and others to consider policies to reduce them. This CBO report examines the unintended effects on the competitiveness of U.S firms… — via U.S. Congressional Budget Office

CBO: International Trade and Carbon Leakage
Under a broad-based carbon tax or cap-and-trade program, some of the reduction in U.S. carbon dioxide emissions would probably be offset by increases in foreign emissions that would not otherwise have occurred, a phenomenon known as carbon leakage. Industries with substantial total emissions, high trade ratios, and high emission intensities are the most likely to generate substantial leakage. — via U.S. Congressional Budget Office

For more from the RFF Library blog, click here.

Forty Years Later, an Oil Crisis Retrospective

Though the 1973 Yom Kippur War lasted only 20 days, the outbreak of Arab-Israeli hostilities was followed by two major events, with implications that are still debated today. The first was a politically motivated and largely symbolic initiative by a group of Arab oil producers (the Organization of Arab Petroleum Exporting Countries) to form a selective embargo on oil exports. The second was a collective economic decision by member countries of the Organization of Petroleum Exporting Countries (OPEC) to raise the price of oil.

The threefold-plus increase in the real price of oil per barrel in 1973–1974 inflicted significant economic damage worldwide, while generating intense concerns among policymakers about the ongoing vulnerability of the United States and other energy-dependent societies. Though one would think it important to distinguish between the embargo and the oil-price escalation, a surprising number of accounts that reflect on the oil crisis have conflated them into a single phenomenon. Let’s consider the two events in turn, recognizing the marked differences in their causes and effects. For a more detailed look, see my recently published RFF issue brief.

The embargo primarily targeted the United States and the Netherlands to protest these nations’ presumed support of Israel, though no evidence exists of success in achieving the embargoing nations’ intended objective. All indications suggest instead that an effective rerouting of world oil flows spared the intended targets any major disruption in supply, making the embargo a token gesture, distinctly separate from the damage done by the oil price hike.

Rather, shifting consumption and production patterns, such as increased US oil demand and aggressive  inventory buildup by uneasy industrial nations went far to firm up the price spikes of 1973–1974. Moreover, the United States itself reinforced supply stringency through the persistence of its oil price controls, which prevented any new US crude oil production from realizing the sharply higher prices commanded by imported oil. Unsurprisingly, this reduced incentives to expand domestic output, contributing to an “artificial” supply shortfall—a significant factor in the lengthy US gas station lines that remain among the more memorable features of that period. In short, with a variety of identifiable demand and supply factors at work, proof of OPEC-engineered shortages as the prime driver of the 1973–1974 crisis remains questionable at best.

In the end, the price hikes of 1973–1974 (with additional turmoil surrounding the Iranian Revolution of 1979–1980) had the “salutary” effect of helping steer the United States toward becoming a less energy-intensive society—making it less vulnerable to damage from a repeat experience—while also benefiting from freer energy-market conditions as an indirect result.  Additionally, these events have promoted an intensified focus on research and development in pursuit of advanced energy systems and technology. But despite these gains, the benefits of moving from acute oil import dependence to the prospective energy independence now in sight should not be overestimated. It is important to remember that there are limits to the ability of the United States to shield itself from global energy turmoil, whatever and wherever its genesis.

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:


Bureau of Reclamation: Climate Change Will Increase Water Scarcity in Lower Rio Grande Valley
A new study released by the Bureau of Reclamation offers further proof that a warming climate will cause severe water supply shortfalls across the Southwest in the coming decades. — via Department of the Interior, Bureau of Reclamation

Stranded Down Under? Environment-related Factors Changing China’s Demand for Coal and What This Means for Australian Coal Assets
Predictions of continued robust coal consumption in China, including a heavy reliance on imported coal to fuel power and steel plants, may prove misguided as China begins tackling a series of complex environmental problems related to air pollution, according to a new report published by the University of Oxford for the global investment bank HSBC… — via University of Oxford, Smith School of Enterprise and the Environment

NREL Study: Bolstering Renewables Production Would Displace Natural Gas
In the second phase of its Western Wind and Solar Integration Study (WWSIS-2), the Department of Energy’s National Renewable Energy Laboratory (NREL) attempts to forecast some of the costs and consequences of power plant cycling in a future where renewables have been scaled up to 33 percent of Western energy supplies. — via US Department of Energy, National Renewable Energy Laboratory

Multimodel Assessment of Water Scarcity Under Climate Change [Potsdam Study]
Water scarcity severely impairs food security and economic prosperity in many countriestoday. Expected future population changes will, in many countries as well as globally, increase the pressure on available water resources. On the supply side, renewable water resources will be affected by projected changes in precipitation patterns, temperature… — via Proceedings of the National Academy of Sciences

For more from the RFF Library blog, click here.

RFF/Stanford/USA Today Poll Shows Majority Support for Regulating Power Plant GHG Emissions

The first round of results from the RFF/Stanford/USA Today poll was released today and it shows that a majority of the US favors doing something to address the threat of climate change, although there is substantially less agreement about what exactly to do. There’s a lot to dig into that’s relevant to climate policy options we analyze here at RFF.  For example, the poll finds that 54 percent of respondents supports the US government requiring power plants to limit their emissions of greenhouse gas pollutants. That number is up from recent years, but it’s down slightly from its high in 2007.

Full wording of the question and historical responses are below:

Q36.     [RANDOMLY ASSIGN RESPONDENTS TO BE ASKED EITHER VERSION A OR VERSION B OF THE INTRODUCTION TO THE NEXT QUESTION.]

VERSION A: For the next items, please tell me for each one whether it’s something the government should require by law, encourage with tax breaks but not require, or stay out of entirely.  Each of these changes would increase the amount of money that you pay for things you buy. …First…Next… 

VERSION B: For the next items, please tell me for each one whether it’s something the government should require by law to try to reduce future global warming, should encourage with tax breaks but not require, or stay out of entirely.  Each of these changes would increase the amount of money that you pay for things you buy. …First…Next… 

[AFTER READING EACH ITEM, INTERVIEWER PAUSE, THEN ASK] “should the government require this by law (pause), encourage it with tax breaks, or stay out of it entirely?”

 Q36_5: Lowering the amount of greenhouse gases that power plants are allowed to release into the air?

 

Q36_5

3/14/2006

4/10/2007

11/29/2009

6/7/2010

11/14/2010

3/11/2012

6/21/2012

12/05/2013

Require by law

61

62

42

42

44

42

41

54

Encourage by tax   breaks

26

26

34

38

33

28

37

25

Stay out of way   entirely

11

10

22

19

20

27

21

21

Don’t know/Refused

2

3

1

1

2

3

1

1

Total

100

100

100

100

100

100

100

100

N

1002

1002

1005

1000

1001

1428

804

801

Full particulars of the poll:

Resources for the Future/Stanford University/USA Today poll, Conducted by Abt SRBI, Interview dates: Nov, 20 – Dec 5, 2013,  801 adults nationwide, margin of error: +/- 4.2 percentage points at the 95% confidence level

Expect more results in the future on both climate and energy topics - the precise wordings of the questions and responses discussed in today’s USA Today story are available here.  We’ve been lucky to work closely with RFF University Fellow Jon Krosnick and Bo Macinnis, both of Stanford, on the this poll.

States Can’t Take the Credit, But They Do Matter

In America, the story goes, states lead on climate policy and the federal government follows. That argument is probably overstated a bit today, but it will become increasingly true in the future.

Cap-and-trade programs in California and the Northeast and renewable portfolio standards across the country are the only major policies in place aimed specifically at reducing greenhouse gas emissions. With EPA now working hard on the first federal emissions-cutting program for power plants (the largest-emitting sector) in the form of Clean Air Act performance standards for existing sources, states are unsurprisingly lobbying to preserve the programs they have in place and their freedom to regulate as they see fit. The states participating in the Regional Greenhouse Gas Initiative and, separately, a group of 15 states (including California, Colorado, and Illinois ) organized by the Georgetown Climate Center have both submitted open letters to EPA encouraging the agency to make regulations as flexible as possible while leaving broad discretion to states and allowing them to take credit for progress made already.

Both letters overstate their case a bit by pointing to recent emissions reductions as evidence that state climate policies have been successful – the 15-state letter, for example, claims that “Through market-based programs, renewable portfolio standards, energy efficiency resource standards and funding commitments, utility planning, and other efforts, our states have reduced carbon pollution from the electricity sector by 20 percent from 2005 to 2011.”

It’s of course true that US emissions have declined significantly in recent years, but state climate policies probably haven’t played a large role. Most such policies are either just now coming into effect (as in California) or are in effect but aren’t currently binding (as in the RGGI states, and in many states with renewable portfolio standards). Some policies, like state-level energy efficiency standards, have been in place for longer, but they’re relatively small and their timing doesn’t match up with the post-2008 reduction in emissions either. Moreover, emissions have gone down nationwide, not just in states with robust climate policies. This doesn’t mean the policies aren’t important, but they almost certainly aren’t the cause of the emissions reductions. Arguing that they are requires more evidence than correlation alone. The states are probably hurting their case by arguing otherwise, since critics can attack this claim instead of the states’ actual proposals.

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Valuing Conservation in the Context of Climate Change

In the twentieth century, flooding caused more deaths and property damage in the United States than any other natural disaster. Most climate models predict that flooding will worsen in the future, a prospect that is leading a growing number of communities to explore the use of natural areas as protection against extreme events. These areas are currently providing flood mitigation benefits. They store floodwaters and lessen the flow to area streams and rivers; in coastal areas, they may protect against storm surge and flooding from hurricanes. Perhaps most important, by remaining undeveloped, they reduce exposure to storms. But how much more valuable will the lands become if floods are more frequent or severe in the future

With our coauthor, Ziyan Chu, we recently came up with a dollar value of these climate resilience benefits for the case of a specific investment in natural areas in the state of Missouri—the Meramec Greenway. The greenway is an area of mostly forested protected lands extending along 108 miles of the Meramec River. In an earlier study, we estimated the benefits—flood damages avoided and recreational and aesthetic benefits—and the opportunity costs of the lands under current conditions. In this study, we calculated the additional benefits that the greenway might provide in four climate change scenarios, two in which peak discharges increase and two in which the frequency of flooding increases.

First and, in our view, foremost, the greenway provides a substantial flood mitigation benefit right now, even before considering increased risks from climate change. According to our estimates, the current protected lands yield an average annual benefit in the form of avoided flood damages of $13.1 million a year, or about $6,000 per acre. If climate change causes peak discharges to rise by 30 percent, an increase consistent with some of the (limited) literature on how climate change will affect flood risks in the region, the benefits of the greenway are $4.5 million higher. If peak discharges rise by 50 percent, which we look at as an upper bound, the benefits of the greenway are $7.9 million higher. If the frequency of flood events doubles, the benefits double. And finally, if the frequency of only the worst events doubles (the 100-, 250-, and 500-year events), we find that the benefits increase by just $1.2 million, or 9 percent.

Our methodology calculates the benefits from reduced exposure to flooding—that is, the benefits from keeping developed properties out of harm’s way. It does not calculate the additional hazard mitigation benefits that might be provided by forest cover in terms of altering the hydrology of the riverine environment. In our setting, these benefits are likely to be much smaller in magnitude than those from reduced exposure. In other settings, a more comprehensive assessment may be worthwhile, though we feel that reduced exposure is a first-order concern in all locations. More research into the timing issues with climate change may also be worthwhile. We find that our benefit estimates are lowered by a sizeable amount if flooding worsens gradually over time and if we discount future benefits. These dynamic issues deserve further study, particularly if climate resilience is a motivator for conservation activities today.

Communities considering conservation investments to improve resilience to climate change need to think about the benefits and costs. Our analysis provides some guidance on first steps to doing that.

 

 

RFF on the Issues

Note: RFF on the Issues will be on hiatus until 2014.

Cross-State Air Pollution

A “slim majority” of Supreme Court Justices appear in favor of federal regulations imposed by the Cross-State Air Pollution Rule, which addresses air pollution that drifts across borders. While opponents to the rule say that the US Environmental Protection Agency is overreaching and usurping states’ rights, others say the agency is trying to “serve as an ‘honest broker’ between competing state interests.”

In a recent Marketplace interview, RFF’s Dallas Burtraw notes that downwind areas that currently have poor air quality “typically will have more stringent requirements on facilities located in those states” than upwind areas that contribute to the problem. New regulations would impose greater costs on upwind states, but Burtraw points out that states in the Northeast are already paying a “hidden tax”—health impacts from being exposed to air pollution.

Post-Sandy Green Infrastructure

One year after Hurricane Sandy, New Jersey residents are making efforts to invest in environmentally sustainable storm protection. Oceanfront locals aim to “make the coast more resilient by using ‘soft’ infrastructure projects,” such as beach replenishment and wetland conservation, which also offer “recreational and other benefits that improve everyday life” for communities.

In a recent Resources article, RFF’s Anna Brittain writes: “Investing in green infrastructure may be worthwhile, even if more costly than traditional approaches, because the social and environmental benefits may exceed the additional costs.” Research in RFF’s Center for the Management of Ecological Wealth focuses on a variety of ways to build resilience through green infrastructure—read more here.