Transcript Overlapping Strategies for Reducing Carbon

Overlapping Strategies for Reducing Carbon
Emissions from Light Duty Vehicles
Soren Anderson (MSU and NBER)
Carolyn Fischer (RFF and FEEM)
Alexander Egorenkov (RFF)
October 2016
Problem
Transportation accounts for 26% of
U.S. greenhouse gas emissions …
… of which light-duty vehicles
account for 61% (EPA 2016).
Problem
Causes
MILES
CARS
attributes (ex: size)
tech (ex: hybrid)
FUELS
Problem
Causes
Solutions
Multiple margins for reducing CO2
emissions from transportation
MARGIN
Drive less
Smaller cars
MPG tech
Switch fuels
CO2
tax
What policy tools do we have, and
how do they affect these margins?
CO2 tax or cap-and trade
Symmetry between price
and quantity regulations

Impose PRICE on CO2 via
an emissions tax 
emissions quantity

Impose QUANTITY of
CO2 via cap-and-trade 
emissions permit price
CO2 tax pushes all margins
MARGIN
CO2
tax
Drive less
+
+
+
+
Smaller cars
MPG tech
Switch fuels
Fuel taxes
Source: TaxFoundation.org
Also: sales-weighted average state gasoline tax ≈ $0.30 per gallon.
Fuel tax pushes all margins except
fuel switching
MARGIN
CO2
tax
BTU
tax
Drive less
+
+
+
+
+
+
+
Smaller cars
MPG tech
Switch fuels
Fuel Economy Standards (CAFE)
Source: James Adcock / Wikipedia
CAFE only pushes small cars and
MPG technology
MARGIN
CO2
tax
Drive less
+
+
+
+
Smaller cars
MPG tech
Switch fuels
CAFE
CAFE
traditional
size-based
–
+
+
–
+
Renewable Fuel Standard (RFS)
Source: EIA
RFS only pushes renewable fuels
MARGIN
CO2
tax
RFS (Q)
RFS (%)
Drive less
+
+
+
+
–
–
–
+
~
~
~
+
Smaller cars
MPG tech
Switch fuels
Low Carbon Fuel Standard (LCFS)
LCFS behaves similarly to RFS %
MARGIN
CO2
tax
RFS (Q)
RFS (%)
LCFS
Drive less
+
+
+
+
–
–
–
+
~
~
~
+
~
~
~
+
Smaller cars
MPG tech
Switch fuels
Carbon policies could make OTHER
problems better—or worse!
Pollution (miles)
Congestion (miles)
Accidents (miles & weight)
Policies that push less driving and/or
smaller cars are extra helpful
MARGIN
CO2
tax
BTU
tax
Drive less
+
+
+
+
+
+
+
Smaller cars
MPG tech
Switch fuels
RFS (Q)
RFS (%)
LCFS
–
–
–
+
~
~
~
+
~
~
~
+
BTU tax > CO2 tax > other policies
CAFE (traditional) > CAFE (size-based)
CAFE
CAFE
traditional
size-based
–
+
+
–
+
Research questions
 What are the effects of current policy mix?
– Carbon savings
– Cost-effectiveness ($/tCO2)
– Other damages from miles and/or weight
 What would be optimal?
 How well do single policies perform?
Overview of our model
 Based on Fischer, Newell, and Preonas (2014)
 Two stages: 1 and 2
 Fuel production
–
–
–
–
Gasoline
Corn ethanol
Sugarcane ethanol
Cellulosic ethanol (learning-by-doing)
 Fuel demand
–
–
Fuel economy: size & technology (undervaluation)
Miles traveled
We consider the following policies







CO2 tax
BTU tax
LCFS
RFS (quantity)
RFS (%)
CAFE (traditional)
CAFE (size-based)
Baseline reflects multiple policies







CO2 tax
BTU tax
LCFS
RFS (quantity)
RFS (%)
CAFE (traditional)
CAFE (size-based)
Baseline
policies
Optimal carbon policy targets market
failures more directly







CO2 tax
BTU tax
LCFS
RFS (quantity)
RFS (%)
CAFE (traditional)
CAFE (size-based)
Optimal
policy
Carbon and welfare changes
 Hold CO2 emissions constant
 Private welfare
–
–
–
Consumer surplus
Fuel producer surplus
Tax revenue (lump-sum transfers)
 Other external damages
–
–
Miles (congestion, local pollution, traffic fatalities)
Miles x weight (traffic fatalities)
Parameters from EIA’s AEO (2014)
 Stage 1 = 2015-2024; Stage 2 = 2025-2040
 Baseline prices, quantities, and policies
–
Pins down fuel supply intercepts (with help of other #s)
 Fuel supply slopes
–
–
–
–
Gasoline: low vs. high oil demand
Ethanol: supply curves for underlying feedstocks
MPG via size: low vs. high oil supply
MPG via technology: car costs as size-based CAFE ramps up
Other parameters from literature
 Cellulosic ethanol supply
–
–
Learning-by-doing elasticity: 0.15
Knowledge appropriability rate: 50%
 Fuel demand
–
–
Fuel economy valuation rate: 100%
Short-run price elasticity -0.1 (long-run ≈ -0.45)
 Annual discount 5%  0.54 factor on Stage 2
 Other external damages
–
–
Miles: ≈ $0.10 per mile
Miles x weight: ≈ $0.05 per mile (at baseline weight)
Results—main calibration
For each policy, table reports …
• Total emissions (cumulative, 2015-2040)
• Changes in private surplus and other damages relative to the no-policy
scenario (presented discounted value, 2015-2040)
• Average abatement costs excluding and including other damages
Baseline policy
Relative to “no policy” scenario …
• CO2 emissions fall by 9%
• Targets all margins except car size
• Cost-ineffective: marginal costs vary greatly across strategies
• Average cost of $44/tCO2
Optimal policy
Relative to “baseline” policy …
• No cellulosic ethanol  production subsidy is not necessary
• No undervaluation  CO2 tax is optimal
• Average cost of $15/tCO2
CO2 tax and BTU tax
Relative to “optimal” policy …
• CO2 tax is also optimal (no cellulosic ethanol)
• BTU tax stimulates zero ethanol of any kind (corn, sugar, or cellulosic)
• But BTU tax is very close to CO2 tax
LCFS and quantity-based RFS
Relative to “optimal” policy …
• Much greater ethanol production
• Lower fuel prices
• Lower fuel economy and more driving
• Average costs of $24/tCO2 and $28/tCO2
Traditional and size-based CAFE
Relative to “optimal” policy …
• Both types of CAFE deliver similar fuel economy
• But size-based CAFE emphasizes technology (vs. smaller cars)
• Average costs of $20/tCO2 and $27/tCO2
Marginal abatement costs
Accounting for other damages in
miles and weight
Relative to costs that exclude other damages …
• Large NEGATIVE costs for CO2 tax and BTU tax (size↓ miles↓)
• Small effect on LCFS and RFS (no incentive for size or miles)
• Small effect on traditional CAFE (size↓ but miles↑)
• Massively increases cost of size-based CAFE (size↑ & miles↑)
Sensitivity to undervaluation of fuel
economy (25%)
• CO2 emissions fall 13% under baseline (no-policy emissions ↑)
• Optimal policy differs from CO2 tax (undervaluation; cellulosic needed)
• CO2 tax, BTU tax, and CAFE have NEGATIVE costs (undervaluation)
• Accounting for other damages reinforces benefits of fuel taxes ...
… and undermines benefits of size-based CAFE
Conclusions
 Current policy is too focused on technology
– Missing low-tech, low-cost options (miles & size)
 Fuel taxes deliver low-cost abatement
– Especially when measuring other damages
 LCFS and RFS are more costly
 CAFE’s performance sensitive to assumptions
– Undervaluation
– Other external damages
TOO LOW !