Air Board’s Greenhouse Rule: Raw Deal for Dealers

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On September 24, <?xml:namespace prefix = st1 ns = “urn:schemas-microsoft-com:office:smarttags” />California’s Air Resources Board (CARB) adopted a plan to regulate greenhouse gas (GHG) emissions from new cars and trucks starting in 2009. To sell cars in California, automakers will have to reduce fleet average GHG emissions by 22 percent in 2012 and 30 percent in 2016. CARB’s rulemaking is a raw deal for auto dealers in California and any other state that mimics California’s plan.

Unscientific. To justify its rule, CARB cites the U.N. Intergovernmental Panel on Climate Change’s (IPCC) scary forecast of a 2.5°F to 10.4°F warming over the next 100 years. However, the IPCC forecast is junk science. The IPCC’s warming estimates presuppose ridiculous economic growth rates in developing countries (i.e., most of the world). For example, even the IPCC’s low-end (2.5°F) forecast assumes that underachievers like North Korea, Libya, and Argentina grow so rapidly their per capita incomes will surpass U.S. per capita income in 2100! CARB’s rule has no credible scientific rationale.

Unlawful. California Assembly Bill 1493, the enabling legislation, directs CARB to achieve “maximum feasible” emission reductions. However, CARB cannot do so without forcing automakers to increase the average fuel economy of their fleets. Unsurprisingly, CARB’s list of recommended GHG-reducing technologies closely matches the National Research Council’s inventory of fuel economy-enhancing technologies. Yet the federal Energy Conservation and Policy Act prohibits states from enacting laws or regulations “related to” fuel economy—a prohibition necessary to ensure economies of scale and a competitive U.S. auto industry. CARB will surely be challenged in court.

Unaffordable. AB 1493 also stipulates that CARB’s plan must be “cost effective.” CARB claims that fuel savings from the technologies automakers deploy to reduce emissions will substantially exceed the increase in vehicle sticker price. Of course, this is a tacit confession that the rule is a de facto fuel economy program.

Sierra Research, Inc., in a report written for the Alliance of Automobile Manufacturers, finds multiple problems in CARB’s cost-effectiveness calculation. CARB inflated vehicle costs in the 2009 baseline (no regulation) case by assuming general adoption of expensive technologies such as 5- and 6-speed automatic transmissions. CARB knocked down by 30 percent its own contract researcher’s cost estimates based on nothing more specific than staff’s “experience” and the potential for “unforeseen innovations.” CARB assumed that consumers benefit from fuel savings years after most cars are sold or scrapped.

Whereas CARB projects a net lifetime consumer saving of $1,703, Sierra estimates a net loss of $3,357. The rule will reduce vehicle sales and put the brakes on the chief source of air quality improvement—replacement of older vehicles with newer, cleaner models. CARB’s rule is bad for the environment!

Raw Deal. If implemented, CARB’s plan will hammer California auto dealers. The rule applies to automakers, not auto owners or operators. Unless CARB is prepared to build a wall around California, it cannot stop people from importing less regulated, more affordable cars from out of state.

Dealers elsewhere would be unwise to celebrate, however, because California is a trend setter. Any state that adopts California’s rule (seven Northeast states may do so) will similarly hobble its auto dealerships.    

Marlo Lewis

Senior Fellow, Environmental Policy

Competitive Enterprise Institute, Washington, D.C.