10 april 2018

EPA’s war with California proves America needs a carbon tax

Artificially low fuel prices are the root of the problem

Dana Nuccitelli, The Guardian, Tue 10 Apr 2018

Last week, Trump’s EPA announced that it will repeal the vehicle fuel efficiency standards set under the Obama administration and replace them with weaker requirements. EPA also threatened to revoke California’s ability under the Clean Air Act to impose its own greenhouse gas standards. If they do so, California’s attorney general will sue the EPA.

This lawsuit would be tied up in court for years, and in the meantime California’s more stringent standards would remain in place. Those standards have been adopted by 12 other states, which along with California account for one-third of new car sales in America. Weaker federal fuel efficiency standards wouldn’t much help the US auto industry if they don’t apply to one-third of domestic sales.

The Obama administration set the stricter fuel efficiency standards after the federal government was forced to bail out the auto industry. Struck by the 2008 global recession and a spike in fuel prices, US auto manufacturers, whose fleets were less fuel efficient than foreign competitors, were in dire financial straits. The auto industry thus accepted the federal bailout and didn’t fight the higher fuel efficiency standards – until Donald Trump came into office. California also agreed to the new federal standards in 2008, and now wants to use its Clean Air Act authorization to keep them.

The auto industry has argued that low gasoline prices are the problem, but that’s not a problem they want to solve. In fact, US automakers are in the process of repeating the same mistakes that led to the industry collapse a decade ago:

American gasoline is too cheap

Other than Russia, no developed country has gasoline prices nearly as cheap as America’s. Australia’s are closest at 35% more expensive than American gasoline. Canada’s are 46% more expensive, and European petrol is about twice the American price.

Automakers are complaining that they can’t meet the stricter fuel efficiency standards because those low fuel prices are causing more Americans to buy gas-guzzling trucks and SUVs. The problem isn’t technological – every major auto company offers a range of hybrid, plug-in hybrid, and/or fully electric vehicles, but these account for just 3% of new car sales in America today.

It’s also important to note that American fuel prices are artificially low because they don’t reflect the associated costs of climate change damages. This is known as the ‘social cost of carbon’ – the costs taxpayers incur to pay for the added damages from climate-intensified hurricanes, floods, droughts, heatwaves, and so on. Economists call these costs ‘externalities’ because they’re not reflected in the market price of fossil fuels. Putting a price on this sort of pollution is ‘Econ 101’, and 95% of economists support either a carbon pollution price or standards like these fuel efficiency rules.

The solution could not be clearer, but it’s not a solution most Americans want to hear – gasoline prices should be higher.

A carbon tax would be a win-win solution

Automakers admit that consumer demand for gas guzzlers is the problem. Conservatives claim to be worried about the ballooning national debt (despite having passed a trillion-dollar tax cut). Environmentalists and scientists want to cut carbon pollution. Donald Trump claims to be worried about America’s crumbling infrastructure. The stricter standards would save $1.7 trillion on fuel by 2025; buying inefficient cars would cost Americans money.

Implementing a carbon pollution tax could solve all of these problems.

* It would raise fuel prices, thus increasing consumer demand for fuel efficient cars, allowing the automakers to easily meet the more stringent standards.

* Having fuel-efficient fleets would also protect US automakers the next time gasoline prices spike and demand for economic cars rises, as it did in 2008.

* By reducing fuel consumption, a carbon tax would reduce American carbon pollution, thus helping tackle climate change.

* It would generate tremendous revenue that could be used in a variety of ways like reducing the deficit, cutting other taxes, or funding infrastructure projects.

* Or, to blunt the financial impact of higher fuel prices on Americans’ finances, the revenue could be partially or entirely returned to taxpayers, which would spur economic growth.

In short, it’s the sort of policy that everyone looking out for America’s long-term best interests should support. Unfortunately, the key power players in this story don’t.
Automakers tried to make a deal with the devil and got burned
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Automakers don’t lobby for a carbon tax because their most profitable models are inefficient trucks and SUVs. As an industry group spokesman told the LA Times,

"Manufacturers need to sell vehicles that customers need and want today to fund the technological shifts and electrification and automation expected in the future."

That’s a charitable way of saying that automakers want to maximize their near-term profits by continuing to sell lots of gas guzzlers. So, they instead hired a group to submit a climate denial report to the EPA and asked Administrator Scott Pruitt to negotiate a weaker, compromise standard with California. The New York Times reports that talks are quietly ongoing behind the scenes, but thus far Pruitt’s comments have not been encouraging.

In fact, the EPA Notice repealing the standard didn’t even mention climate change or public health – the primary factors underpinning these fuel efficiency standards. Instead, Pruitt simply scrapped the federal standard and threatened to go nuclear by revoking California’s ability to set its own standards, and California responded by threatening to take EPA to court. The automakers are not pleased.

But it’s their own fault for relying on an EPA administrator who they know is a fossil fuel industry puppet and an ideologue, rather than advocating for a win-win carbon tax that would have hurt their short-term profits but given the industry long-term certainty and stability. Instead, they’ll likely have to deal with the uncertainty of an ongoing court case and requirements to meet two different standards. As California Air Resources Board Chairman Mary Nichols said last year,

"I want to turn to the industry representatives who are here and say, ‘what were you thinking when you threw yourselves on the mercy of the Trump administration to solve your problems?’"

In public statements, auto and oil companies support a carbon tax. General Motors, ExxonMobil, Shell, Total, and BP are even founding members of the Climate Leadership Council – a group led by Republican Party elder statesmen but also supported by Stephen Hawking, Steven Chu, and The Nature Conservancy, whose goal is to implement a revenue-neutral carbon tax. However, when similar legislation is actually introduced in Congress, the auto and oil industries refuse to throw their support behind it, and Republican lawmakers inevitably kill it.

In this case, the auto industry tried to bypass the problem while maintaining the short-term profits associated by selling polluting gas guzzlers. Instead they got burned – they’ll still have to meet California’s stricter standards despite the relatively low demand for economic vehicles due to artificially cheap fuel prices. And we’ll continue to wait for enough Republican lawmakers to get on board with a win-win carbon tax.

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