unintended consequences: why u.s. afv adoption increases fleet gasoline consumption & ghg...

Unintended Consequences: Why U.S. AFV Adoption Increases Fleet Gasoline Consumption & GHG

Emissions under Federal CAFE/GHG Policy

Jeremy J. Michalek Professor

Engineering and Public Policy Mechanical Engineering

Carnegie Mellon University

Inês AzevedoAssociate Professor

Engineering and Public Policy Carnegie Mellon University

Alan JennPostdoctoral Research FellowEngineering and Public Policy Carnegie Mellon University

(now at UC-Davis)

AFV

2USAEE | 27 Oct 2015 Jeremy J. Michalek

MotivationTransportation: 28% of U.S. GHG emissions 2nd largest source after electricity sector

Light duty vehicles: 62% of these emissions

118 billion gallons of gasoline in 2012

Main U.S. policy effort: Corporate Average Fuel Economy (CAFE) standards

(NHTSA)

Greenhouse Gas (GHG) Emission Standards (EPA)

3USAEE | 27 Oct 2015 Jeremy J. Michalek

A brief history of CAFE1975: response to oil crisis

1990: cars stagnant for two decades, then tightened under Obama administration

2012: following CA and 2007 ruling, joint NHTSA CAFE & EPA GHG standards

2012: attribute-based

2025: 54.5 mpg (on 2-cycle test)

4USAEE | 27 Oct 2015 Jeremy J. Michalek

A binding constraintNo manufacturer except Tesla would have satisfied the 2016 standards with their 2009 fleet

5USAEE | 27 Oct 2015 Jeremy J. Michalek

Implications of a binding standardCongressional Budget Office (2012) “With CAFE standards in place … putting more electric

(or other high-fuel-economy) vehicles on the road will produce little or no net reductions in total gasoline consumption and greenhouse gas emissions.”

Binding standards must be satisfied by the overall fleet, regardless of whether or not alternative-fuel vehicles are sold

Goulder et al. (2012): “Leakage”

6USAEE | 27 Oct 2015 Jeremy J. Michalek

A binding CAFE/GHG standardBasic policy With AFV incentives

Total autos sold

Sales volume of

model j

GHG target for

model jGHG rate for model j

Sales-weighted

GHG target

Sales-weighted

GHG emission rate

=

Sales-weighted

GHG target

Modified sales-weighted GHG emission rate

=

GHG rate

when operating

on gasoline

Portion of VMT

operating on alt fuel

GHG rate when

operating on alt fuel

AFV incentive weight

AFV incentive multiplier

Conventional vehicles

Alt fuel vehicles

7USAEE | 27 Oct 2015 Jeremy J. Michalek

AFV incentives in CAFE/GHG policyWeighting factors and multipliers incentivize sale of AFVs by relaxing the CAFE/GHG target when AFVs are sold

8USAEE | 27 Oct 2015 Jeremy J. Michalek

Balancing vehiclesWithout AFV incentives

With AFV incentivesWith AFV incentives in place, manufacturer can relax emission rates and/or change sales volume of some conventional vehicles and still comply

9USAEE | 27 Oct 2015 Jeremy J. Michalek

Net effectNet Δ GHG emissions

GHG emissions increase with smaller weights w

larger multipliers m (if AFV GHGs < avg. GHGs)

lower AFV gasoline consumption rG

larger AFV sales volume n (if AFV GHGs < avg. GHGs)

*Case shown assumes no change in sales-weighted vehicle footprint induced by CAFE/GHG AFV incentives. For general case, see working paper.

Manufacturer’s CAFE target

VMTAFV sales

volume

10USAEE | 27 Oct 2015 Jeremy J. Michalek

Net effectNet Δ gasoline consumed

Proportional to GHGs if no AFV sales induced by policy

nj = nj’

*Case shown assumes no change in sales-weighted vehicle footprint induced by CAFE/GHG AFV incentives. For general case, see working paper.

(GHG/gal)-1

11USAEE | 27 Oct 2015 Jeremy J. Michalek

IllustrationCase of Chevy Volt with a single balancing vehicle model of equal sales volume

12USAEE | 27 Oct 2015 Jeremy J. Michalek

Net effect per AFV soldGHGs increase of up to 60 metric tons

Up to 6,700 gallons extra gasoline consumed

Depending on vehicle model and year

13USAEE | 27 Oct 2015 Jeremy J. Michalek

Cumulative effectUsing AEO AFV sales projections: 30-70 million

metric tons CO2

3-8 billion gallons of gasoline consumed

Compared to no AFV incentives or no AFV sales

On-road effect may be 30-40% higher

14USAEE | 27 Oct 2015 Jeremy J. Michalek

Policy relevanceCAFE/GHG midterm review and future policy on AFV incentives

Rationale for ZEV policy

Similar policies in other regions (e.g.: EU, China)

AFV

15USAEE | 27 Oct 2015 Jeremy J. Michalek

Policy options1. Do nothing

2. Eliminate CAFE AFV incentives

3. Eliminate other AFV sales incentives

4. Redesign policy

5. Replace policy

16USAEE | 27 Oct 2015 Jeremy J. Michalek

Policy options1. Do nothing

2. Eliminate CAFE AFV incentives

3. Eliminate other AFV sales incentives

4. Redesign policy

5. Replace policy

Tolerate near-term increases in gasoline consumption and GHG emissions in pursuit of long term gains of a fleet transition

Long term gains of fleet transition likely far outweigh near term factors we estimate

If CAFE AFV policy enables a transition that would not have happened otherwise, good

If policy only accelerates a pending transition, not clear if benefits outweigh costs

17USAEE | 27 Oct 2015 Jeremy J. Michalek

Policy options1. Do nothing

2. Eliminate CAFE AFV incentives

3. Eliminate other AFV sales incentives

4. Redesign policy

5. Replace policy

Would eliminate increase in fleet emissions per AFV sold but not emissions leakage effect

Resulting standards may be more difficult for automakers, given low gas prices and consumer preferences for performance over fuel economy

Negotiations in setting CAFE policy may have resulted in less stringent standards if incentives had been excluded

18USAEE | 27 Oct 2015 Jeremy J. Michalek

Policy options1. Do nothing

2. Eliminate CAFE AFV incentives

3. Eliminate other AFV sales incentives

4. Redesign policy

5. Replace policy

Examples: ZEV mandate, subsidies, etc.

Would reduce fleet emissions through 2025

However, could stall efforts to put fleet on a transition that would take decades even if the ideal technology and infrastructure were available today at competitive costs

19USAEE | 27 Oct 2015 Jeremy J. Michalek

Policy options1. Do nothing

2. Eliminate CAFE AFV incentives

3. Eliminate other AFV sales incentives

4. Redesign policy

5. Replace policy

Fleet emissions increase proportionally to number of AFVs sold, and state ZEV policy mandates sale of more AFVs Improved coordination of federal and

state policy design could help reduce negative interactions

Coordination is nontrivial The new CAFE standards themselves

were created as a federal compromise with California, which wanted to create more stringent standards

20USAEE | 27 Oct 2015 Jeremy J. Michalek

Policy options1. Do nothing

2. Eliminate CAFE AFV incentives

3. Eliminate other AFV sales incentives

4. Redesign policy

5. Replace policy

Pricing externalities at a value equal to the estimated marginal damages to society among most efficient options

US public support is dismal, even if tax revenues returned to households

Alt policies more politically realistic Regulating CO2 as a pollutant

Subsidizing fuel-efficient vehicles

Requiring high fuel efficiency

Continue efforts to persuade public & lawmakers of benefits of externality pricing: target end goal rather than specific technologies

21USAEE | 27 Oct 2015 Jeremy J. Michalek

AcknowledgementsContact

Jeremy J. Michalek (CMU)

jmichalek@cmu.edu

Coauthors

Alan Jenn (CMU, UC-Davis)

Inês Azevedo (CMU)

Support

NSF-CMU Center for Climate and Energy Decision Making

Toyota Motor Corporation

AFV