Climate Law No Cash Cow for California

It is said by many that there is a scientific consensus in support
of global warming, but there is also an economic consensus on global
warming policy: Fighting climate change is costly.

politicians, however, deny this economic consensus. To back their
unorthodox economic theories, these deniers point to a study released
this fall by the California Air Resources Board claiming that the
Golden State’s plan to reduce greenhouse gas emissions to 1990 levels
by 2020 would generate $14 billion for consumers in avoided fuel costs,
thanks to increased energy efficiency.

In fact, the deniers’ case rests on shaky science, because the CARB
study uses cherry-picked data that overestimates the benefits and
underestimates the costs of using energy-efficiency measures to address
global warming.

CARB calculates
that three-quarters of the energy savings would come from a regulation
requiring automakers to build vehicle fleets with an average fuel
efficiency of 35 mpg by 2016. According to CARB’s
logic, higher fuel efficiency means lower fuel consumption, which
supposedly would save California drivers about $10 billion at the pump
through 2020.

To calculate that $10 billion in savings, CARB
multiplies the number of gallons “saved” by the per-gallon cost of
gasoline, which is estimated using a 2007 California Energy Commission
report that projects future gasoline prices. Inexplicably, CARB
chooses the Energy Commission’s “high” price estimate for its
calculations, even though “base” and “low” price estimates are offered.
By choosing the “high” price case, which is 80 percent greater that the
“low” price, CARB seems to be selectively choosing data to inflate the benefits to consumers.

decision to use a high gasoline estimate is perplexing given that
California’s fuel efficiency measure would lower the price of gasoline.
Because eleven other states have adopted California’s fuel efficiency
policy, the 2016 miles-per-gallon target would become a de facto
national standard, rather than a regulation specific to the Golden
State. A national fuel efficiency standard, in turn, would slash demand
for gas in the U.S., the world’s largest consumer of transportation
fuels. And lower demand leads to a lower price.

inexpensive gas gives motorists an incentive to drive more. This
“rebound effect” helps explain why the total number of miles driven in
the United States has increased by 150 percent since 1975, according to
the Federal Highway Administration, despite the fact that fuel
efficiency in cars and trucks has almost doubled during the same period.

are costs to more driving, especially in California. For starters,
traffic would increase. Residents in Los Angeles, San Diego and San
Francisco could expect to spend even more time idling in their cars.

driving also leads to more pollution. According to a study from the
libertarian Cato Institute, a 50 percent increase in fuel efficiency
would increase net emissions of volatile organic compounds by almost 2
percent, nitrous oxides by 3.4 percent and carbon monoxide by 4.6

Finally, traffic fatalities would increase. Vehicle
weight is inversely proportional to fuel economy, so California’s
regulation would pressure drivers into smaller cars that are more
dangerous than heavier, less fuel-efficient autos. According to USA Today,
there are an additional 7,700 annual car fatalities for every mile per
gallon gained in fuel efficiency in the national fleet.

analysis, however, ignores these unintended consequences of fuel
efficiency regulations. It therefore underestimates the costs of
climate policy.

The sad part is that California regulators
easily could avoid all of these unwelcome side effects by enacting a
simple gas tax, which would reduce driving – and therefore emissions –
in California without affecting the global oil market. Indeed,
economists agree that a gas tax is the easiest, most efficient method
to reduce greenhouse gas emissions from the transportation sector.

politicians, however, don’t have the mettle to support an unpopular gas
tax. Instead, they ignore the costs and inflate the benefits of
policies like increased fuel-efficiency standards.

William Yeatman