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A Big Win on Climate Change and Clean Transportation

, president | December 18, 2018, 2:24 pm EDT
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If you would like to be inspired by an example of states working together on an ambitious plan to address climate change, read on—the following is a big deal!

Today, the governors of nine states (MA, VA, MD, CT, RI, VT, NJ, PA, DE) and the District of Columbia announced that their states will establish a regional “cap and invest” program to cut greenhouse gas emissions from the transportation sector and invest in clean transportation solutions. To pass muster, the announcement states that the program must cause substantial carbon emission reductions, ensure equity in its benefits and burdens, foster economic growth and job creation, enhance resilience in the transportation system, and allow states to pursue other, complementary policies. The states are to design the program in one year, at which point these states will make final decisions on participation and seek legislative or regulatory approvals.

This announcement borrows a page from a highly successful playbook. About ten years ago, the governors of many of these same states called for, and ultimately put in place, a cap and invest program that has driven down emissions from the electric sector, and generated billions of economic benefits for the northeast and mid-Atlantic states. This same model can work transportation.

What is ‘Cap and Invest,’ and why do we need it?

As readers of my Boston Globe op-ed and various UCS blogs know, the transportation sector is now the largest source of carbon emissions in the United States and the northeast/mid-Atlantic region. While there are a number of policies in place to lower transportation emissions (fuel economy standards for cars and trucks, incentives and mandates for electric cars, and investments in public transit), transportation sector emissions are expected to stay flat, and may even rise.

Why? Among other things, we are missing two key pieces: 1) a legally binding mechanism to force overall emissions down; and 2) a revenue source to fund the transition to cleaner transportation.

The regional cap and invest program announced today can put these vital pieces in place. It would establish a legally binding mechanism to drive down emissions by setting an overall, regional cap on greenhouse gas emissions from cars, trucks, and buses that will decline over time. To ensure that the cap is not exceeded, companies that bring transportation fuels (gasoline, diesel) into the region would have to acquire “allowances” that would be tied to the greenhouse gas emissions from combusting their fuel. The total allowances sold each year would not exceed the applicable cap, ensuring that the region’s emission reduction goals would be met.

The program also provides a much-needed revenue source for clean transportation. The allowances that companies would have to obtain would be sold at public auction, and states can use the revenues to invest in cleaner transportation, including electric cars, buses, and trucks, better public transportation, and affordable housing near jobs. We estimate that at modest allowance prices that would cost the average driver $6 per month, the program could bring approximately $3.5 billion into the region for clean transportation investments.

That’s an investment that will pay off in spades. For example, when we replace older dirty transit and school buses with ones that run on clean electricity, we can dramatically improve air quality for our kids and protect vulnerable populations that live in polluted areas.

Why is this a big deal?

Three reasons:

  1. It shows again that states are leading, even while the federal government has abdicated its duty to protect current and future generations from climate change, as demonstrated most recently—and shamelessly—by its hawking of fossil fuels at last week’s international climate conference. This bold regional plan announced by these ten states and the District of Columbia will help reassure an anxious world that the United States has not abandoned the fight and demonstrate that the Trump administration does not speak for the country on climate change.
  2. The scale of this plan is stunning. Over 50 million people live in these participating states, comprising over 15% of the US population and close to 20% of the US economy. If these states were a single country, they would be just beyond Germany as the fifth largest economy in the world.
  3. This is a bi-partisan success. The governors of 3 of the nine states (MA, MD and VT) are republicans, and the cap and invest approach is an idea pioneered by President George H.W. Bush to fight acid rain. In our current polarized political landscape, bipartisan collaboration, especially on climate change, is extremely rare. This initiative sets an excellent example.

What’s next?

This announcement is a first step. In the coming year, the states will need to hash out a number of important details, such as the initial level of the emissions cap, the pace of decline of the cap, which entities in the stream of commerce will be responsible for purchasing allowances, how revenues will be allocated back to participating states, and the principles for making equitable investments. This will take some time, but the states can take advantage of the fact that California and Quebec already have a working cap and invest program for transportation, and the RGGI program for electricity can also provide useful guidance on how to structure the program.

As the details are being hammered out, diverse stakeholder and public engagement will also be critical, and should include, among others, business, equity, health, justice, labor, and transit advocates. Making sure that these groups are empowered during the process will make for a cap and invest plan that benefits everyone.

UCS has played a major role in advancing this initiative to this stage. We have made the case for it to policymakers and anyone else who would listen, issued fresh technical analysis, built coalitions, and mobilized our members and supporters. We will continue to engage in both technical design and public outreach and education.

But for now, we applaud the governors and officials who have put their states behind a sensible, cost-effective, and much-needed policy to tackle the challenge of building a clean, equitable, modern transportation system for all.

Posted in: Global Warming, Vehicles

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  • Eric Strid

    Ken, thank you for reposting and responding to my initial comments.

    I think UCS should be cautious with their credibility when opining on the track record of cap-and-trade. For example, studies on the impact of RGGI conclude everything from “arguably negligible” (previously cited) to 50% of the emission reductions. An objective observer asks whether these studies disagree because of the data or because of analysis bias. With allowance prices ~$3 per ton and marginal abatement costs for power plants north of $50 per ton, observers should be skeptical. The Great Recession, natural gas plants getting cheaper than coal, and other emission policies muddy up the correlation vs causation.

    Changing the status quo will necessitate dismaying some consumers—if no one is upset, then you haven’t changed anything. For example, is it more acceptable to hit everyone with a broad energy tax, or to target the 10% or so who are affluent enough to buy new vehicles and also want to lock in emissions with unnecessary and inefficient larger drive trains?

    To squash Washington’s well designed i1631 carbon tax initiative, Big Oil did their polling homework and used soundbites like: “Learn how i1631 would increase your energy costs”, “with no cap”, “higher prices for gasoline”, “regressive energy tax”, “exempts 8 of the 12 largest polluters in the state”, “no real accountability or oversight”, “costly, ineffective, and unfair”, “burden on small businesses”. The frustration for me was that these are all true, even if misleading. If the best Big Oil could feature was “costly and unfair”, I think many Washingtonians would consider the cost vs. our smoke-filled summers and whether, for example, inefficient new vehicles should be singled out for a heavy license fee.

    Contrast an economy-wide tax or fee with the federal Gas Guzzler Tax on inefficient new cars, which has been in effect since 1978. The GGT tax rate since 1991 effectively charges a social cost of carbon of approximately $112/MTCO2e for lifetime fuel usage worse than 25 mpg. You don’t hear about it because so few cars are less than 25 mpg and because the IRS collects this tax from automakers. UCS could advocate for updating the GGT to fairly cover light trucks and SUVs by weight class or something, increase the thresholds from 25 mpg, and ramp the rates up toward Norway’s proven policy of ~$400/MTCO2e.

    Most of the public knows that something needs to be done, and that each visit to the gas station is part of the problem. But they’re stuck with the cars they can afford.

    Washington wasted two years trying to pass a regressive tax-and-invest policy. UCS should utilize its unique scientific and policy expertise to advocate for less regressive, more effective climate policies.

  • Thanks to you all for your thoughtful comments. Eric, I’ll focus on yours first:
    1. Eric, you are assuming a $20/ton price, but as you know, a cap and invest program does not set an allowance price. It sets an overall limit on emissions, and leaves it up to market forces to determine the price (although to be sure governments may put limits on the price to prevent economic shocks.) Thus, critiquing the program on the grounds that the price will be too low is speculative. However, I would hope that the allowances prices are low—if so, that will demonstrate that the transition to cleaner alternatives need not be expensive. In fact, this is the story of the decarbonization of the electric sector–efficiency and renewables have cost-effectively helped reduce coal plant generation and ultimately will do the same for natural gas plants.
    2. You are correct that a $20/ton price, which translates to approximately 20 cents per gallon, will not by itself change driving habits. However, as you acknowledge, direct public investments in cleaner transportation alternatives can make a big difference. And even at modest allowance prices $15/ton), the revenues from the sale of allowances can bring billions of dollars per year into the region. These funds can pay for subsidies to help low and moderate income residents afford electric cars; fund EV charging infrastructure, particularly for residents who don’t have garages; expand and strengthen public transportation, and work to ensure that new transportation technologies (transportation network companies like Uber and Lyft and perhaps autonomous vehicles) reach disadvantaged populations that are not well served by current transportation options. All of these investments are proven ways to drive down emissions from the transportation sector and can particularly benefit those most in need of cleaner, reliable, transportation options.
    3. Some of the other ideas have you posited, such as a federal electric vehicle mandate or a large tax on internal combustion cars, are also worth considering. But surely you must agree that at least in the short term, these do not seem to be politically viable options. In addition, one of the most attractive aspects of a cap and invest program at the state level is that helps, rather than hinders, complimentary policies, such as tighter zero emission vehicle mandates at the state level. It is useful to think about cap and invest not as a silver bullet, but as an umbrella policy with other policies working alongside it.

    Lyndon, you ask about the track record for cap and trade (a synonym for cap and invest). Actually the track record is very strong. It was first used to combat the problem of acid rain, and it has widely been credited with causing deeper, faster, and less costly sulfur dioxide emission reductions than traditional command and control methods. Indeed, the Economist called it “the greatest green success story of the past decade”. While cap and invest has stumbled a bit in the greenhouse gas context because the initial emissions caps were set too high, there have been notable successes. For example, the Nicholas Institute has estimated that an existing cap and trade system for power plants, the regional greenhouse gas emissions initiative (RGGI) is responsible for about one-quarter of the reductions for the participating states, which experienced far steeper reductions than the national average. And the well-respected Analysis Group has found that the re-investment of allowance proceeds in energy efficiency and renewables has added billions of dollars of net economic benefit to the region as dollars that would otherwise be exported to fossil fuel producers are instead reinvested in the regional economy. One can reasonably expect the same kind of benefits to accrue for the transportation sector.

    Thinkmore, you ask about electrification of transportation and its demands on the electric grid, a very important topic. As you may know, energy demand has been relatively flat in the United States for many years due to more efficient buildings and appliances, among other things, but it is likely that new capacity will be needed to electrify transportation, particularly to perform fast charging for buses and trucks. Fortunately, the plunging costs for solar, wind and energy storage make it feasible to meet these demands with clean electricity, and astute policies such as off-peak pricing could incent EV owners to charge during times of excess supply. Modernization of our electric grid is needed, though, and must go hand in hand with the electrification of transportation.

  • Eric Strid
  • lyndon_rm

    Though the details of this program are still forthcoming, from the general outline it sounds like cap-and-invest is a cross between cap-and-trade and a carbon tax. I was under the impression that these approaches were both now viewed with extreme skepticism. How successful have programs in California and Quebec, as mentioned in the blog, been at cutting carbon emissions?

  • Eric Strid

    UCS has been my gold standard for objective, authoritative studies on EVs, and effective transportation emission policy is an increasingly urgent need. But I must say that I’m surprised and disappointed that UCS would advocate such a problematic, regressive, and ineffective policy as cap-and-invest. While California is a strong leader in climate policies, the efficacy of their cap-and-invest system remains highly controversial.
    e.g., https://www.vox.com/energy-and-environment/2018/12/12/18090844/california-climate-cap-and-trade-jerry-brown

    Something is wrong when carbon pricing systems target prices on the order of $20/MTCO2e, while the latest studies estimate the global social cost of carbon (SCC) in the range of $180 to $800 per ton and costs to the US alone at ~$50/ton.
    https://phys.org/news/2018-09-nations-economic-climate.html

    If I can pay to pollute for only $20 when the actual social cost is $400, that’s a real bargain…

    Just as the Congressional Strategy Office concluded that the direct effect of the RGGI price was “arguably negligible”, how many people will change their driving habits due to a 20 cent per gallon fee (roughly the California rate and implied by the stated numbers)? And even that price is highly unpopular as hyped by Big Oil,—i1631 in Washington failed on such a tax, and Parisians rioted for a smaller increment.

    Thus the only useful feature from such a low price on pollution is dedicating the revenue to fund emission projects—and thus the rebranding of “cap and trade” to “cap and invest”. With low allowance trading prices, the economic efficiency of cap-and-invest derives less from trading across markets, as economists opine, and depends more on the marginal abatement cost (MAC), which is the cost of eliminating one MTCO2e through emission reduction projects.

    MAC is a useful concept, but not very trackable because, much like carbon offsets, the MAC depends on additionality—would this ton have been eliminated anyway, without this money spent? As clean-tech costs continue to drop, additionality can be increasingly murky. And did the emissions rise or fall due to other climate policies or projects, economic activity level, the weather, population growth, etc.?

    That still leaves the murky question: how much transportation emissions reduction is feasible with the proposed $72 of annual revenue per person? Or more like $50 in practice, accounting for the significant administrative costs and a big chunk of the revenue for low-income families to band-aid the fundamentally regressive energy tax.

    It seems that electrification is by far the biggest bang for a buck spent within transportation. That could include accessories like charger networks, but the additionality of such charger investments depends on many market factors.

    Bus emissions are ~2% of all vehicles, so a complete electrification of buses would be useful but certainly not sufficient for our deep decarbonization needs. This would benefit low-income groups who are the hardest hit by energy costs.

    The additionality of EV rebates has been shown to be quite effective to close the gap when EV prices approach parity with ICE incumbents. So what if the revenue was spent on ZEV rebates? That might make a significant emissions impact, but a rebate for EVs would be the definition of a regressive tax—everyone is taxed so that those rich enough to afford new cars get a discount. Could the rebates be sufficiently large and biased to favor low-income families, and what is the cost of that emissions impact?

    What are more effective transportation policy options?

    If we could elect enough oil-free senators and a reasonable President, we’d pass simple mandates as in the Clean Air Act and Clean Water Act—such as the Off Fossil Fuels Act which has 45 cosponsors in the House. Simple, effective, proven. Even GM recently advocated an EV mandate. But California is the only state that can mandate different vehicle requirements.

    Whether by mandate or by sufficiently high prices, a focus on steering infrastructure investments to zero emissions—such as vehicles or power plants or new factories—is highly effective and doesn’t punish people and businesses for using the inefficient infrastructure they’re stuck with fueling. A new purchase is the decision that locks in emissions, not the routine visit to the gas station—working-class families need to drive to work or to see their relatives. Everyone would rather be fueling and maintaining an EV, but they can’t yet afford the EV. Steering new vehicle purchases through fuel taxes is very indirect and subject to market failures, so why don’t we tax those who are affluent enough to buy new vehicles but choose gas guzzlers?

    The global leader in ZEV policy is Norway, which now boasts 50% EVs in new car sales. They bridge the purchase-price gap and steer sales by charging their profligate rich something like the real social cost of carbon (~$400/MTCO2e) for the lifetime emissions of a new vehicle. In Norway, a full-sized gas-guzzler would see an additional purchase fee ~$30,000. Application by state in the US could be a stiff fee on new vehicle emissions in excess of the best-in-class vehicles, based on the well-documented EPA vehicle fuel efficiencies in 9 classes of cars by passenger and cargo volume, and 8 classes of light trucks by weight. Such a fee would hit only the affluent buyers, and only if they choose vehicles with excess, arguably unnecessary emissions. Such a fee would adapt appropriately as EVs populate all the classes, and the (volatile) revenues could fund other emission-reduction projects.

    We have only about a decade to achieve dramatic emission reductions. I think the proposed cap-and-invest policy is so blunt, weak, and complex that it’d be a waste of precious time.

    Sorry for the lengthy post, but I think these issues are complex and need to be parsed and debated.

  • Eric Strid

    UCS has been my gold standard for objective, authoritative studies on EVs, and effective transportation emission policy is an increasingly urgent need. But I must say that I’m surprised and disappointed that UCS would advocate such a problematic, regressive, and ineffective policy as cap-and-invest. While California is a strong leader in climate policies, the efficacy of their cap-and-invest system remains highly controversial.
    e.g., https://www.vox.com/energy-and-environment/2018/12/12/18090844/california-climate-cap-and-trade-jerry-brown

    Something is wrong when carbon pricing systems target prices on the order of $20/MTCO2e, while the latest studies estimate the global social cost of carbon (SCC) in the range of $180 to $800 per ton and costs to the US alone at ~$50/ton.
    https://phys.org/news/2018-09-nations-economic-climate.html

    If I can pay to pollute for only $20 when the actual social cost is $400, that’s a real bargain…

    Just as the Congressional Strategy Office concluded that the direct effect of the RGGI price was “arguably negligible”, how many people will change their driving habits due to a 20 cent per gallon fee (roughly the California rate and implied by the stated numbers)? And even that price is highly unpopular as hyped by Big Oil,—i1631 in Washington failed on such a tax, and Parisians rioted for a smaller increment.

    Thus the only useful feature from such a low price on pollution is dedicating the revenue to fund emission projects—and thus the rebranding of “cap and trade” to “cap and invest”. With low allowance trading prices, the economic efficiency of cap-and-invest derives less from trading across markets, as economists opine, and depends more on the marginal abatement cost (MAC), which is the cost of eliminating one MTCO2e through emission reduction projects.

    MAC is a useful concept, but not very trackable because, much like carbon offsets, the MAC depends on additionality—would this ton have been eliminated anyway, without this money spent? As clean-tech costs continue to drop, additionality can be increasingly murky. And did the emissions rise or fall due to other climate policies or projects, economic activity level, the weather, population growth, etc.?

    That still leaves the murky question: how much transportation emissions reduction is feasible with the proposed $72 of annual revenue per person? Or more like $50 in practice, accounting for the significant administrative costs and a big chunk of the revenue for low-income families to band-aid the fundamentally regressive energy tax.

    It seems that electrification is by far the biggest bang for a buck spent within transportation. That could include accessories like charger networks, but the additionality of such charger investments depends on many market factors.

    Bus emissions are ~2% of all vehicles, so a complete electrification of buses would be useful but certainly not sufficient for our deep decarbonization needs. This would benefit low-income groups who are the hardest hit by energy costs.

    The additionality of EV rebates has been shown to be quite effective to close the gap when EV prices approach parity with ICE incumbents. So what if the revenue was spent on ZEV rebates? That might make a significant emissions impact, but a rebate for EVs would be the definition of a regressive tax—everyone is taxed so that those rich enough to afford new cars get a discount. Could the rebates be sufficiently large and biased to favor low-income families, and what is the cost of that emissions impact?

    What are more effective transportation policy options?

    If we could elect enough oil-free senators and a reasonable President, we’d pass simple mandates as in the Clean Air Act and Clean Water Act—such as the Off Fossil Fuels Act which has 45 cosponsors in the House. Simple, effective, proven. Even GM recently advocated an EV mandate. But California is the only state that can mandate different vehicle requirements.

    Whether by mandate or by sufficiently high prices, a focus on steering infrastructure investments to zero emissions—such as vehicles or power plants or new factories—is highly effective and doesn’t punish people and businesses for using the inefficient infrastructure they’re stuck with fueling. A new purchase is the decision that locks in emissions, not the routine visit to the gas station—working-class families need to drive to work or to see their relatives. Everyone would rather be fueling and maintaining an EV, but they can’t yet afford the EV. Steering new vehicle purchases through fuel taxes is very indirect and subject to market failures, so why don’t we tax those who are affluent enough to buy new vehicles but choose gas guzzlers?

    The global leader in ZEV policy is Norway, which now boasts 50% EVs in new car sales. They bridge the purchase-price gap and steer sales by charging their profligate rich something like the real social cost of carbon (~$400/MTCO2e) for the lifetime emissions of a new vehicle. In Norway, a full-sized gas-guzzler would see a purchase fee ~$30,000. Application by state in the US could be a stiff fee on new vehicle emissions in excess of the best-in-class vehicles, based on the well-documented EPA vehicle fuel efficiencies in 9 classes of cars by passenger and cargo volume, and 8 classes of light trucks by weight. Such a fee would hit only the affluent buyers, and only if they choose vehicles with excess, arguably unnecessary emissions. Such a fee would adapt appropriately as EVs populate all the classes, and the (volatile) revenues could fund other emission-reduction projects.

    We have only about a decade to achieve dramatic emission reductions. I think the proposed cap-and-invest policy is so blunt, weak, and complex that it’d be a waste of precious time.

    Sorry for the lengthy post, but I think these issues are complex and need to be parsed and debated.

  • thinkmorebelieveless

    Mr. Kimmell
    Has there been any serious thought as to where all this new (renewable?) electricity supply will be coming from that will be needed to power transportation?

  • “Cap and Invest” is the name Oregon is using for their carbon pricing program that will advance next year.
    “With the re-election of Gov. Kate Brown and Democrats increasing their majorities in both legislative chambers, Oregon appears poised next year to pass the Clean Energy Jobs bill which caps carbon emissions, but opponents could put it on the ballot.”
    https://www.planetizen.com/news/2018/12/101943-advocates-oregons-carbon-pricing-plan-proceed-cautiously

  • B Follett

    Glad we are making progress.