CEI Comments on Revised 2023 and Later Model Year Light-Duty Vehicle Greenhouse Gas Emissions Standards Proposed Rule

Environmental Protection Agency, Revised 2023 and Later Model Year Light-Duty Vehicle Greenhouse Gas Emissions Standards, Proposed Rule, 83 FR 43726 (August 10, 2021)

Docket ID: EPA–HQ–OAR–2021–0208; FRL 8469–02–OAR 

Thank you for the opportunity to comment on the Environmental Protection Agency’s (EPA) proposed greenhouse gas (GHG) emission standards for model year (MY) 2023-2026 light-duty vehicles.[1] The authors and undersigned organizations strongly oppose the EPA’s proposal to replace the Safer Affordable Fuel-Efficient (SAFE) Vehicle Rule’s GHG standards with more stringent regulatory requirements.

Motor vehicle GHG standards have three unavoidable downsides. Such policies (1) increase vehicle ownership costs,[2] (2) restrict consumer choice,[3] and (3) make the average vehicle less crashworthy than it otherwise could be.[4]

Our comments challenge the plausibility of the EPA’s climate benefit estimates. The EPA estimates that, during calendar years 2023-2050, the proposal’s GHG emission reductions will deliver $91 billion in climate change mitigation benefits.[5] Those benefits are a mirage. Our comments may be summarized as follows.

The EPA’s climate benefits estimate is based on the Biden administration Interagency Working Group’s (IWG) social cost of carbon (SCC) estimates.[6] Whatever its value as an academic pursuit, SCC estimation is too speculative and assumption-driven to inform policy decisions. The seeming objectivity and precision of official SCC estimates are illusory.

Indeed, SCC estimates are easily manipulated for political purposes. The IWG exercise is a case in point. All of the IWG’s methodological decisions have the effect of increasing SCC values.

Those dubious decisions include the use of below-market discount rates, an analysis period extending far beyond the limits of reasonable speculation, outdated climate sensitivity assumptions, unscientific depreciation of carbon dioxide fertilization benefits, unjustified pessimism regarding human adaptive capabilities, implausible “return to coal” baseline emission scenarios, and net-benefit calculations that misleadingly compare domestic costs to global benefits. Absent those biases, the IWG’s SCC estimates could fall to zero dollars or below during 2023-2050 and beyond.

Even if the IWG’s methodology were not biased in multiple ways, the EPA’s $91 billion climate benefit estimate would still defy common sense. The proposed motor vehicle GHG standards are projected to avoid 0.001°C-0.002°C of global warming by 2050. That hypothetical change would be far too small for scientists to detect. It would make no discernible difference in weather patterns, crop yields, polar bear populations, or any other environmental condition people care about. Benefits no one can experience are “benefits” in name only.

Section 1: Social Cost of Carbon Basics

The SCC is an estimate in dollars of the cumulative long-term damage caused by one ton of CO₂ emitted in a specific year. That number also represents an estimate of the benefit of avoiding or reducing one ton of CO₂ emissions.

The computer models used to project SCC values are called integrated assessment models (IAMs) because they combine aspects of a climate model, which estimates the physical impacts of CO₂ emissions, with an economic model, which estimates the dollar value of climate change effects on agricultural productivity, property values, and other economic variables. The IWG uses three IAMs—abbreviated DICE, FUND, and PAGE—to estimate SCC values.[7]

In federal agency analyses, the cumulative damage of an incremental ton of CO₂ emissions is estimated from the year of the emission’s release until 2300. SCC estimates are highly sensitive to:

• The discount rates chosen to calculate the present value of future emissions and reductions.
• The climate sensitivity assumptions chosen to estimate the warming impact of projected increases in atmospheric GHG concentration.
• The choice of socioeconomic pathways used to project future GHG emissions and concentrations.
• The timespan chosen to estimate cumulative damages from rising GHG concentration.
• The extent to which the SCC reflects empirical information about the agricultural and ecological benefits of carbon dioxide fertilization.
• The assumptions chosen regarding the potential for adaptation to decrease the cost of future climate change impacts.

In addition, from a political perspective, it matters a great deal whether the net benefits of climate policy proposals are calculated by comparing the domestic costs of GHG-reduction policies to the IAM-estimated global climate benefits or to the much smaller domestic benefits.

What this all means is that, if a modeler intends to make climate change look economically catastrophic and make GHG regulations appear essential, the modeler:

• Runs the IAMs with below-market discount rates.
• Uses IAMs that assume high climate sensitivity.
• Calculates cumulative damages over a 300-year period—i.e., well beyond the limits of informed speculation about how the global economy will evolve and how adaptative technologies will develop.
• Runs the models with implausible emission scenarios that assume the world repeatedly burns through all fossil fuel reserves absent aggressive climate policies.
• Minimizes the immense agricultural benefits of atmospheric CO₂ fertilization by, for example, averaging the results of three IAMs, two of which effectively assign a dollar value of zero to carbon dioxide’s positive externalities.
• Includes at least one IAM that assumes adaptation cannot mitigate the cost of climate change impacts once 21^st century global warming and sea-level rise exceed 2°C and 0.25 meters, respectively.
• Calculates climate policy net benefits by comparing apples (domestic costs) to oranges (global benefits).

In other words, the modeler does exactly what the Obama IWG did in its 2010, 2013, and 2016 technical support documents (TSDs), and what the Biden IWG proposes to do in its 2021 interim TSD.[8]

Section 2: Artifactual Benefits No One Will Ever Experience

What will be the proposed regulation’s measurable effects on global average surface temperature, compared to the existing SAFE Rule standards, and what benefits can be expected to accrue from the proposed changes?

In a word, the answer to both is simple: None.

It is a standard procedure for the EPA to assess the temperature effects of proposed or existing policies using the Model for the Assessment of Greenhouse-Gas Induced Climate Change. Developed at the National Center for Atmospheric Research, the model’s official acronym is MAGICC.[9]

That subtle humor aside, one can use MAGICC to determine the effects of continuing the current vehicle standards versus those now proposed (which are roughly equivalent in stringency to the Obama-EPA standards rescinded by the SAFE Rule).

Using standard MAGICC assumptions, which include an equilibrium climate sensitivity of 3.0°C, MAGICC calculates the net “savings” of global warming to be 0.003°C by the year 2100.[10]  That is roughly the average temperature difference between the air surrounding your knees and the air surrounding your midsection.

According to the National Oceanic and Atmospheric Administration, the inherent error in current calculations of annual global average surface air temperature is 0.08°C, which is nearly 27 times the calculated effect of the new standards.[11] 

Yet when the EPA multiplies projected emission reductions by the IWG’s SCC estimates, it comes up with climate benefits of $91 billion by 2050. Given that the MAGICC-calculated temperature change is a mere 0.003°C by 2100, the 2050 temperature “savings” has to be far less than half of this value, rounding to some value between 0.001°C and 0.002°C.

It simply defies logic to calculate the benefits of a regulation that will have impossible-to-detect effects on surface temperature, because it is those same temperature changes that drive cost estimates. 

In short, the proposed vehicle standards will have an undetectable effect on surface temperature, which means the standards will produce undetectable climate “benefits.” In pursuit of such digital artifacts, the EPA will foist enormous costs on automakers, forcing some consumers to purchase vehicles they would otherwise not choose to buy while pricing others out of the market for new motor vehicles.

Qui bono? The only interest groups with tangible benefits are the administering agencies and the dominant automakers. Tightening GHG/fuel economy standards perpetuates and expands regulatory control over the auto industry. It also further cartelizes the industry. All automakers must comply or incur penalties. None is free to beat competitors on price, ride height, crashworthiness, or other vehicle attributes by producing fleets that fall short of the EPA’s GHG reduction requirements.

Section 3: How the Discount Rate Affects the SCC[12]

Models used to estimate the SCC rely on the specification of a discount rate. Discounting is essential in benefit-cost analysis because compliance costs are best viewed as investments intended to yield benefits in the future. Applying discount rates enables agencies to compare the projected rate of return from CO₂-reduction expenditures to the rates of return from other potential investments in the economy.

Office of Management and Budget (OMB) guidance in Circular A-4 specifically stipulates that agencies discount the future costs and benefits of regulations using both 3.0 percent and 7.0 percent discount rates.^[13] The IWG suggests that a 7 percent discount rate is an affront to intergenerational equity, apparently on the theory that discount rates higher than 1-2 percent imply that people living today are more valuable than people living decades or centuries from now.^[14]

We respectfully disagree. The point of discounting is not to rank the worth of different generations but to have a consistent basis for comparing alternate investments. Only then can policymakers determine which investments are most likely to transmit the most valuable capital stock to future generations. In other words, discounting clarifies the opportunity cost of investing in climate mitigation, for example, rather than medical research, national defense, or trade liberalization.

Not only is it reasonable to include a 7 percent discount rate in SCC estimation, it is arguably the best option because 7 percent is the rate of return of the New York Stock Exchange over the last hundred and twenty-five years.^[15] Only by using a 7 percent discount rate can policymakers assess the wealth foregone when government invests in GHG reduction rather than other policy objectives or simply allows companies and households to invest more of their dollars as they see fit.

Institute for Energy Research economist David Kreutzer illustrates the point as follows. Suppose an emission-reduction investment produces $100 in benefits by 2171 (150 years from now). That is equivalent to investing $5.13 today with a 2 percent annual ROI. But if the same $5.13 is invested in stock that appreciates at 7 percent annually, the investment yields $131,081 in 2171. Clearly, that is a much larger bequest to future generations.

Kreutzer also notes that all baseline scenarios assume future generations are richer than current generations. He comments:

It is a terrible policy to make investments that return $100 instead of $131,081, but it is virtually brain-dead to argue the bad return is justified on equity grounds. Those alive centuries from now are almost certain to be much wealthier, healthier, and possessed of technology to better overcome any adversity—including climate change.[16]   

It is hard to shake the suspicion that the IWG has never used a 7 percent discount rate, even as a sensitivity case analysis, because doing so would spotlight the comparatively low rates of return of GHG-reduction policies.

Read full comments as pdf.

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