A Policy Critique of California's Assembly Bill 1493 to Regulate Vehicular Greenhouse Gas Emissions

42 Pages Posted: 14 Feb 2005

Date Written: March 28, 2005

Abstract

In September, 2004, the California Air Resources Board (CARB) approved regulations implementing AB 1493, which requires maximum feasible and cost-effective reduction of greenhouse gas emissions from motor vehicles. The regulations have the potential for both achieving significant reduction of vehicular greenhouse gas emissions in California and setting a precedent that may be followed by other states and countries. But the law and the regulations unfortunately have several deficiencies that may significantly limit the emissions reduction relative to the reduction levels that will be required for climate stabilization and that could be achieved cost-effectively.

This analysis demonstrates that (1) the proposed regulations contain several fundamental flaws that can and should, at a minimum, be corrected to comply with the legislative mandate; and (2) the statute itself could be improved by allowing the use of a feebate-type regulatory instrument that would better serve the legislative policy intent and may avoid conflict with federal preemption.

CARB's regulations suffer from the following specific flaws:

(1) The computation of the emission standard uses a regression method of dubious validity to estimate the maximum feasible emission level as a function of vehicle weight.

(2) CARB does not set the emission standard according to its best estimate of the maximum, feasible emission level (the regression lines), but rather constrains the standard to have an LEV-compatible, step-function form, which would achieve significantly less emissions reduction.

(3) Even within the constraints of an LEV-type standard, the proposed emission limits are not optimal because the computations on which they are based neglect trading between the two vehicle classes.

The LEV compatibility constraint makes the standard unnecessarily dependent on assumed market conditions. Several consequences of this dependence are:

(1) The regulations are only constructed to be feasible for the California market, and would not necessarily be feasible (or may not achieve maximum feasible emissions reduction) if adopted by other states and countries.

(2) Though constructed to be feasible for all six major auto manufacturers, the standard does not require any manufacturers other than General Motors to achieve maximum feasible emissions reduction, and it would unnecessarily distort the existing competitive balance between manufacturers.

(3) The standard would become less relevant to existing market conditions as vehicle fleet characteristics change over time (e.g., in response to the standard-induced incentives to change vehicle weights or LEV classifications).

Although the regulations could be amended to remedy the above deficiencies, any regulation based on emission caps still could not be expected to achieve maximum feasible and cost-effective emissions reduction, due to the inherent uncertainty in predicting future economic and technology conditions. AB 1493's policy objective could be better served by employing a feebate-type regulatory instrument, which would provide direct control over regulation-induced technology costs and would thereby eliminate the issue of cost unpredictability. (A distributionally-balanced feebate, described herein, would be more economically efficient and politically acceptable than conventional vehicle feebates.)

Also, as argued by the auto industry in a recently filed federal lawsuit, the AB 1493 regulations' emission caps may conflict with federal fuel economy (CAFE) standards, and therefore, might be preempted by the federal Energy Policy and Conservation Act. A feebate-type policy could avoid the risk of federal preemption.

Keywords: AB 1493, greenhouse gas emissions, emission standard, fuel economy

JEL Classification: K23, K32, L51, L62, L92, L98, Q48

Suggested Citation

Johnson, Kenneth C., A Policy Critique of California's Assembly Bill 1493 to Regulate Vehicular Greenhouse Gas Emissions (March 28, 2005). Available at SSRN: https://ssrn.com/abstract=665844 or http://dx.doi.org/10.2139/ssrn.665844

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