Watts Up With That
Guest post by Roger Caiazza,
I have previously described the Transportation and Climate Initiative (TCI) framework and Memorandum of Understanding (MOU). This post summarizes my comments on the MOU in hopes that readers of this blog will submit comments to the TCU Public Input form to balance the comments made that are flooding that forum saying that, for example, “We must forge ahead at full speed if we have any hope of staving off climate disaster.”
Last December the TCI released a draft proposal and invited public input on “a new draft proposal for a regional program to establish a cap on global warming pollution from transportation fuels and invest millions annually to achieve additional benefits through reduced emissions, cleaner transportation, healthier communities, and more resilient infrastructure.” They propose a cap-and-invest approach to reduce pollution from the transportation sector. According to their fact sheet, this is “an approach that limits the total amount of emissions from an industry or the whole economy. The total emissions limit—or cap—gets lower and lower over time, which means that less and less pollution is permitted from the capped sources of pollution.” The second aspect, investments “provide funding for programs to further reduce emissions or to provide other benefits to households and communities, as determined by each state.”
If you are a resident of Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont, Virginia, or the District of Columbia it is in your best interest to comment on their public input page. Most of the comments have been entered on the input page form but you can also attach a document. Hopefully my description of the comments that I submitted will give you some ideas for your submittal. The bottom line is that this is a fuel tax that has little hope of making cost-effective reductions much less reductions that could possibly do anything to affect climate change.
I submitted TCI comments on 2/21/2020. The comments were split into two parts. The first part described my concerns with carbon pricing initiatives and then I responded to their specific questions. I have not found any comments submitted by anyone else from the general public that actually addressed those questions.
My Carbon Pricing Comments
Based on my experiences with cap and trade programs there are a number of practical reasons that carbon pricing will not work as theorized. The theory for carbon pricing may work if it covers all sectors across the globe but this proposal is one sector in one region of one country. As a result, the emissions will likely just move elsewhere rather than actually be reduced. For example, this tax will increase fuel prices inside the TCI region. The likely response for visitors is to purchase as much fuel outside the region as possible to avoid the tax.
The Social Cost of Carbon (SCC) is supposed to represent the future cost impact to society of a ton of CO2 emitted today. Therefore, it is entirely fair to use it as a metric to determine if the investments made from carbon pricing income are cost effectively reducing CO2. I believe New York and other TCI states will base their carbon pricing on a $50 global social cost of carbon at a 3% discount rate so that is the cost benefit effectiveness threshold metric I used. I evaluated the New York State Energy Research and Development Authority (NYSERDA) report New York’s RGGI-Funded Programs Status Report – Semiannual Report through December 31, 2018 to determine how New York’s investments have been doing relative to this metric. They have spent over billion dollars and can only claim 1,207,781 tons of CO2 emissions reduced. There were 19 programs that claimed to reduce CO2 emissions and none of them had a cost per ton reduction efficiency less than $50. Worse there were 18 programs funded with RGGI investments that could not even claim CO2 reductions. The record shows that RGGI-funded investments were not cost effective.
Another problem with carbon pricing schemes is that the affected sources, in this case state fuel suppliers, have limited options to make reductions. The only one I can think of is lower-carbon fuel. The most likely scenario is that they will buy what allowances they can and pass the costs on to the customer because they have no way to make effective emission reductions. Also consider options for the TCI investments. One potential control option is to reduce transportation CO2 emissions is to replace gas and diesel passenger vehicles with electric vehicles. The EPA Greenhouse Gas Equivalencies Calculator calculates the greenhouse gas emissions from a passenger vehicle driven for one year. Based on their numbers the average car drives 11,705 miles and emits 4.72 metric tons of CO2 or 5.2 short tons of CO2. The NYSERDA NY Drive Clean rebate is a typical electric vehicle (EV) program to encourage EV adoption. The program offers rebates from $2,000 for buying a model that has an EPA all-electric mileage range of more than 120 miles to $500 for a model that only has an all-electric mileage range of less than 20 miles. The $ per ton reduced rate for the $2,000 rebate is $384.65 and for the $500 rebate it is $96.19. Using the EPA numbers any rebate over $259.98 exceeds the $50 SCC cost effectiveness threshold.
I made several other points related to carbon pricing. A problem with all carbon pricing schemes is that revenues decrease over time. I believe that air pollution control costs increase exponentially as control efficiency increases. Consequently, at the same time revenues are going down the cost to make reductions is going up. I have shown that the RGGI affected sources don’t behave as economist theory says they should. The fact that electric generating companies with extensive experience with market-based programs did not behave as expected means that affected sources in TCI are even less likely to operate as theory expects simply because they have experience with this type of program. I am sure they will treat this as a tax and there is no more regressive a tax than one on energy and transportation. Finally, I referenced the Regulatory Analysis Project (RAP) study: Economic Benefits and Energy Savings through Low-Cost Carbon Management that concluded “ that an attempt to reduce Vermont’s carbon emissions based on carbon pricing alone will cost more, and deliver less, than a program of carbon reductions that is based on practical public policies”.
My Reply Comments to TCI Questions
The TCI asked what level should be used to set the starting point or cap and what future reductions limits should be. They provided no numbers describing current emissions or historical emissions and I was unable to find any. Consequently, I offered no recommendation for the cap or trajectory. In the absence of numbers, I recommended that they start the program without a cap, establish the cap once they had a reporting system in place for several years and determine the trajectory based on expected emission reductions. For example, if you use the EPA Greenhouse Gas Equivalencies Calculator and estimate the number of conventional vehicles you can displace then you can estimate how many tons could be reduced.
My biggest concern with this initiative is price. The ultimate problem with a carbon pricing scheme is that the ultimate control option is to simply stop operating. In this case once the allowed fuel allotments are sold then fuel suppliers will simply stop selling fuel. That surely will spike prices higher and get the attention of the general public that is blissfully unaware of this process. As a result, whatever they do should avoid a cap that leads to fuel shortages.
I also commented on the TCI documents. I explained that I was disappointed with the initial projection summary’s description of costs. The summary states:
“If the regulated entities in the petroleum industry choose to pass the costs of compliance with a cap and invest program on to consumers, our modeling estimates an incremental price increase in 2022 of $0.05, $0.09 or $0.17 per gallon in the 20%, 22% and 25% Cap Reduction Scenarios, respectively. These changes would be well within the range of historical variability. The goal of a regional cap-and-invest program would be to use the proceeds to invest in clean transportation options, reducing the exposure of our economy to these oil market price fluctuations. Complementary programs that reduce fuel consumption, such as more ambitious federal and state vehicle emissions standards, would be expected to moderate costs further.”
My comments explained why I thought this paragraph was misleading and naïve. It is unreasonable to expect that the regulated entities in the petroleum industry would do anything but pass the costs of compliance on to consumers. As written this sentence attempts to deflect blame for the costs away from the TCI and on to corporations. The modeling results present 20% to 25% reduction scenarios but disingenuously omit the fact that the TCI component of the reduction is only 6% of the total. They claim that this program will moderate price fluctuations and actually reduce costs. It is more likely that the opposite will occur.
I think it would be in the best interest of residents in the affected states to submit a comment saying this initiative is a bad idea that will likely only increase costs. There was no evaluation included that claimed how this program would affect global warming. The fact that there is no evidence that RGGI investments were cost-effective relative to the social cost of carbon metric that advocates claim account for the impacts means that even if you want to do something this is not appropriate.
Roger Caiazza blogs on New York energy and environmental issues at Pragmatic Environmentalist of New York. This represents his opinion and not the opinion of any of his previous employers or any other company with which he has been associated.