Thursday, April 9, 2009

A Better Transportation & Climate Idea

When I was a staffer involved in the development of the MGA Climate Accord during the summer of 2007, I had considerable faith in the expansive potential of the cap and trade concept to reduce GHGs in a cost effective and efficient way. Today, while I still believe that a cap and trade approach can and should be developed and used in certain circumstances, I no longer believe in its universal applicability.

Applying a cap and trade regime on the owners and operators of the nation’s cars and trucks is just not practical, since unlike electricity generators and even industrial emitters, there are tens of millions of fuel-burning transportation vehicles. The next best idea seems to be to apply the cap and trade at the refinery level, i.e. the level where the crude oil is converted into gasoline or diesel. On it’s surface this sounds like a good and simple solution. However, a refinery produces a product: gasoline, diesel, jet fuel. The refining of the oil into these products emits relatively little GHGs. Rather, it is the combustion of that fuel in our cars, trucks and airplanes that creates GHGs. Thus, if a refinery is held responsible for the GHGs from the fuel it creates under a cap and trade, it must either produce less fuel or purchase GHG offset credits. Neither should be acceptable. One is a form of rationing, the other an indirect cost increase to consumers; both undermining the cost containment and economy efficiency principles that led us to embrace the cap and trade approach in the first place.

It is this new appreciation of the cap and trade’s limitations that led me to conclude that addressing GHGs is more like golf than tennis. While both are great sports (which I play poorly), addressing GHGs is more like golf than tennis. Every tennis court in the world is the same…except for the surface: clay, grass and hard…but they have the same dimensions. While in golf each hole is different and each course is different…posing different challenges to the golfer…like the emissions of GHGs.

A tennis player uses the racquet to hit every shot on the court; while a golfer selects the right club for the specific situation. For example, when teeing off, most people use a driver. But, one rarely uses a driver for a tee shot on a par 3; a different club is needed. One wouldn’t think of teeing off with a tennis racquet or serving with a driver.

What could these other clubs be for addressing GHGs from the transportation sector? Here are some possibilities:

1. Drive less through increased public transit, better, more efficient land use or even walking;
2. Drive more efficiently;
3. Drive vehicles that replace the internal combustion engine with electricity or hydrogen;
4. Use more biofuels…Minnesota is already leading the nation.
5. Make driving or its inputs really expensive through a direct tax or entry tolls a la London’s congestion tax.

These ideas aren’t particularly creative, aren’t my own, have significant drawbacks and are probably very expensive. But, there is a sixth idea, an idea that Bill Ford the executive chairman and chairman of the board of Ford Motor Company supports, that does appeal to me: encouraging people to replace their old cars for new, more efficient vehicles. Below is an op-ed by Mr. Ford published in the USA Today newspaper on March 31, 2009.

Imagine if instead of going through the convoluted political machinations of increasing the cost of travel or reshaping our inherently mobile society, we just encouraged everyone to replace their old, inefficient vehicles with new, cleaner, more efficient vehicles? Use the market carrot of incentives to achieve the GHG-reducing results we want and not the market stick of artificially raising costs. Ratepayers contribute millions of dollars each year for home and building efficiency efforts…why not do something similar for new cars and trucks?

Cash in old cars for new ones: Economy, consumers, automakers would all benefit
By Bill Ford
Executive Chairman and Chairman of the Board
Ford Motor Company
USA Today 3/31/09

In spite of the many challenges our country faces, I strongly believe the government stimulus and other steps to thaw credit markets will be effective in driving economic growth over time.

But we still face an immediate and serious challenge. Last week, President Obama observed that U.S. auto sales have seen a huge drop-off, starkly noting "every automaker is getting killed right now." In just one year, U.S. auto sales have fallen by nearly 50%. And March's sales numbers promise to be sobering for foreign and domestic automakers.

This unprecedented trend is sustainable for neither the industry nor the economy. We urgently need to draw reluctant consumers back into the marketplace. The good news is that there is a proven initiative, outlined by the president on Monday, that can help consumers overcome their fear. The plan also would help the environment and increase energy security. It has been called a "fleet modernization" or a "scrappage" program. Whatever the name it works.

In January, the German government enacted a consumer incentive equivalent to $3,200 to scrap automobiles that are at least 9 years old and buy new, more environmentally advanced vehicles. By February, sales of new vehicles jumped 21% over the same month a year before. Countries such as Japan, France, Italy, South Korea and others are considering or already have similar programs.

This model can work in the U.S., too. President Obama said that he would like to use parts of the economic stimulus package to fund a program that would give consumers a "generous credit" when they replace an older car with a new, more fuel-efficient car.
President Obama has rightly emphasized the importance of vehicle fuel-efficiency gains and expressed concern about shrinking U.S. auto sales and the risk it poses to the economy. This program could help the environment and jobs.

Here's how one bipartisan proposal before Congress would work to stimulate new vehicle purchases. The program would provide vouchers to consumers for vehicles at least 9 years old. The vouchers likely would be worth more than the current value of their vehicle. For example, a consumer who turns in an older car could get a voucher ranging from $4,000 to $5,000 to use as a down payment on a $20,000 car that exceeds 27 miles per gallon. Combined with current auto sales incentives, consumers likely will get unprecedented deals on more fuel-efficient cars.

An independent analyst, Barclays Capital, estimates that this proposal could boost sales by 2.5 million units if 2% of eligible vehicles were traded in. This surge in sales would help preserve American jobs in communities across the country.

Taxpayers are rightly concerned about the federal deficit given the significant spending on the economic stimulus. Let me clarify, Ford is in a different position and is not seeking emergency taxpayer assistance. Nonetheless, Congress needs to spur consumer demand for autos the largest purchase a family makes after a home.

This vehicle modernization idea would require additional investment by taxpayers. Its cost would be dependent on how Congress structures the incentive and its duration. The alternative, however, if sales do not rebound quickly, is more jobs losses, more home foreclosures, and less revenue for governments that must provide more jobless and health care benefits.

In addition to its consumer benefits, this initiative would help reduce our carbon footprint. Automakers are accelerating efforts to reduce greenhouse gases, but the latest fuel-economy rules apply only to new cars. This proposal would help America get greener faster by retiring a portion of the 240 million vehicles on the road. It could reduce our CO2 emissions by millions of metric tons per year.

The program also would help contribute to greater energy independence. Replacing an older car with a new, more fuel-efficient one drives down gas consumption. That helps consumers, too. In fact, the Department of Energy estimates a family could save $780 per year by moving from a vehicle with 18 miles per gallon to one with 30 mpg.

The auto industry, both foreign and domestic, needs to work together to do our part in turning the economy around. But we also need to use the tools that our government possesses, and routinely deploys in so many other ways, to help move the economy more swiftly to a better place.

Improved auto sales will be one of the key indicators that America is on the road to economic recovery. As Congress weighs a national energy policy, climate change or even more stimulus measures, we urge lawmakers to consider this market-based consumer incentive. This fleet modernization idea would be a win-win-win for the consumer, the economy, the environment.

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