A cap-and-trade system for vehicle emissions?

Source: Camille von Kaenel, E&E News reporter • Posted: Wednesday, March 29, 2017

Economists and regulatory experts are proposing a cap-and-trade system for vehicle greenhouse gas emissions to replace existing fuel economy standards.

President Trump has vowed to review the emissions and mileage requirements to boost automotive jobs. U.S. EPA and the National Highway Traffic Safety Administration have until April 2018 to decide whether to lower the targets. Automakers have asked the administration to ease costs associated with the fuel efficiency rules given surging truck sales

Michael Greenstone and Sam Ori from the University of Chicago’s Energy Policy Institute and Cass Sunstein, former President Obama’s head of the Office of Information and Regulatory Affairs and now a legal scholar at Harvard University, saw an opening. They put together a proposal to cap the entire sector’s pollution level and make automakers trade credits based on the lifetime emissions of their vehicles.

They hope to sell it to the Trump administration as a sleek system that cuts costs while directly achieving a set environmental outcome.

“The current system is not meeting the goals of advocates or the industry,” Greenstone said. “The time is right for new ideas, and this is one of them.”

The current corporate average fuel economy standards, set by EPA, NHTSA and California’s Air Resources Board, require automakers to meet an average fuel efficiency target for each category of vehicle sold. The system’s built-in flexibilities let the targets fluctuate with gas prices. Environmental advocates have calculated that that erases some greenhouse gas benefits, while automakers argue the system is not flexible enough to account for changing consumer preferences.

The proposal from Greenstone, Ori and Sunstein would replace that with increasingly limited allowances for automakers that take into account the greenhouse gas emissions of vehicles over their entire lifetime. The current system fails to differentiate between an autonomous car that drives hundreds of miles a day and a gas-guzzling truck driven once a week, for example.

Sunstein, one of the country’s leading legal scholars, argued that EPA could implement the system after 2025 without passing legislation because it is required to regulate tailpipe emissions.

“The Trump administration has a policy challenge,” he said. “They seem inclined to think that it’s too aggressive now, but how to form a new proposal is very much in their hands. … If the legal and administrative challenges can be met, they can meet their own goals, which is having something less burdensome, and energy savings goals.”

“An appealing feature is it requires not a single vote from [Rep.] Mark Meadows [R-N.C.] or [House Minority Leader] Nancy Pelosi [D-Calif.],” added Greenstone, pointing to the administration’s failure to pass a health care bill in the House last week.

David Schwietert, the executive vice president of the Alliance of Automobile Manufacturers, said he was concerned the proposal would require EPA to go beyond its statutory authority. The CAFE program began as Transportation Department rules meant to reduce dependence on foreign oil, but the Obama administration started regulating tailpipe emissions in 2009.

He raised doubts that EPA, under the current administration, would retain its authority to regulate greenhouse emissions as enshrined in the Massachusetts v. EPA 2009 Supreme Court ruling.

“You would be taking something that is a core statute of DOT and giving it over to EPA,” he said.

Trevor Houser, a partner at the Rhodium Group, said the panel, speaking to a packed room at the Brookings Institution, would likely not get the ear of the current administration given the political connotations of a “cap-and-trade” program.

“It’s a paper that would have been perfect for a different administration,” said Houser. “I feel like we’re on a panel in an alternate universe. … Right now the current administration is not interested in addressing carbon emissions. Between weakening the standards or scrap it for a cap-and-trade program, if I were Steve Bannon the latter seems less politically attractive to me.”