CARBs assumptions questioned

After two days of hearings, the California Air Resources Board (CARB) on September 24 unanimously approved its plan to require automakers to reduce greenhouse gas (GHG) emissions from new cars and trucks sold in the State starting in 2009.  The regulations, which implement Assembly Bill 1493, signed into law by then-Gov. Gray Davis in July 2002, require automakers to reduce GHG emissions by 22 percent in 2012 and 30 percent in 2016.

The regulation sets fleet average standards measured in grams per mile of carbon dioxide (CO₂)-equivalent emissions.  For passenger cars and light trucks, each automaker must ensure that the average emissions of the vehicles it sells in California do not exceed 323 grams per mile in 2009, 233 grams per mile in 2012, and 205 grams per mile in 2016.

AB 1493 requires CARB to achieve maximum feasible and cost-effective GHG emission reductions from new vehicles.  As Marlo Lewis of the Competitive Enterprise Institute and other critics have noted, however, it is not possible to achieve maximum feasible reductions without forcing automakers to substantially increase auto fuel economy.  Yet federal law prohibits states from enacting laws or regulations related to fuel economy.

CARB claims that its rule is cost-effective, arguing that fuel savings from the technologies automakers will deploy to meet the GHG standards will more than outweigh any increase in vehicle purchase price.  But this is a tacit confession that the rule is in fact fuel economy regulation by another name.

Sierra Research, Inc., in a report written on behalf of the Alliance of Automobile Manufacturers, finds multiple problems with CARBs cost-effectiveness calculation.  CARB inflated vehicle costs in the 2009 baseline (no regulation) case by unrealistically assuming universal adoption of expensive new technologies such as 5- and 6-speed automatic transmissions.  CARB used an unrealistically low markup factor to estimate how much retailers would charge for cars incorporating GHG-reducing technologies. 

In addition, CARB knocked 30 percent off the cost estimates of key technologies based on nothing more than its alleged experience and the potential for unforeseen innovations.  CARB forgot to take into account Californias 8 percent sales tax.  CARB overestimated fuel savings by using EPAs fuel economy model, which assumes slower average driving speeds and acceleration rates than prevail in California.  CARB implausibly assumed that consumers continue to value fuel savings years after most cars are sold or scrapped.

The net effect of such errors, according to Sierra Research, is that, The actual cost of the proposed standards will exceed an optimistic estimate of the present value of the fuel savings for an average California driver by approximately 200%.  Whereas CARB estimates a net lifetime saving of $1,703 for a new passenger car sold in 2016, Sierra estimates a net loss of $3,357.  The results of the proposed regulation can therefore be expected to include reduction in vehicle sales, longer retention of older vehicles on the road, and an increase in ozone precursor emissions.

Copies of the Sierra Research report may be obtained by calling (916) 444-6666.  CEIs comments on the final rule may be found at http://www.cei.org/pdf/4218.pdf.