Cooler Cars in California

I was just perusing the month-old press release for the new regulation from California's Air Resources Board requiring car makers and auto repair shops to reduce the amount of infrared light that windshields and other car glazing allow into a car's interior, beginning in 2012. On the surface this seems like an eminently sensible idea and one sure to appeal to drivers in a warm, sunny state who are tired of climbing into hot cars in the summer and waiting for the A/C to catch up. Living in another warm state, I'd be tempted to order this as an option on my next car, too. The problem is that CARB isn't requiring carmakers to offer low-transmittance glass as an option; they're mandating its use, in two successively stricter stages, and consumers must absorb the higher cost, whether they want to or not. Moreover, when the touted emissions reductions are compared to those costs this looks like a very pricey means of achieving them, compared to many other alternatives. Regulating car-window glazing as a way to reduce emissions epitomizes the pitfalls of applying the command-and-control approach from the regulation of local pollution to climate change.

When I couldn't quickly find enough information to unpack the assumptions behind the emissions numbers in the press release, I reverted to examining its implied cost/benefit by applying some very simple assumptions to the figures in the release itself. At a conservative average fuel price of $3 per gallon, CARB's estimate of annual fuel savings of $16 per car from reduced air-conditioner use implies a fuel saving of 5 1/3 gallons per year, resulting in cumulative avoided greenhouse gas emissions of under 0.6 tons of CO2 over 10 years. Applying the $70 per car estimated cost of the 2012 standard, it appears the cost of achieving these reductions comes in at around $120 per ton. That's more than double the expected cost of directly capturing and sequestering CO2 from power plants and ten times the federal government's expected price of emissions allowances under the Waxman-Markey climate bill in its early years--coincidentally beginning in 2012. Using the same logic, the equivalent emissions reduction cost of the tighter 2016 standard exceeds $300/ton of CO2.

I'm also skeptical about the need to apply such a standard to the entire state, ignoring the enormous geographic diversity it encompasses, unless that was simply intended to increase CARB's leverage with carmakers. I grew up on the Central California coast and didn't feel the need to purchase the A/C option until I moved to L.A. While I doubt many cars are sold in my native state without A/C today, the coastal concentration of California's population, particularly north of the Tehachapis, suggests much lower fuel savings and emissions benefits in important portions of the state. If anything, many car owners in cooler regions of the state will need to use their heaters more to compensate for less natural warming of the vehicle interior. That's not a big drain on conventional cars, but it represents a direct energy cost for EVs and plug-in hybrids.

Now, it seems clear that the new regulation would benefit some consumers directly through reduced fuel costs, though I wonder how many of them would find the agency's expected payout of five to twelve years on the required investment especially compelling, if they weren't already sold on the comfort aspects of this feature. Since CARB isn't constrained by cost/benefit analysis of its rules, car window glazing represents just another piece of the puzzle to an agency that is already under the gun to implement the state's AB32 emissions law--even if the contribution of the new regulation toward cutting the state's 480 million tons per year of net emissions looks relatively trivial. There is no disincentive to pursuing such prescriptive solutions, however incremental or inefficient they might be. As a result, CARB doesn't need to ask the more important question of how that $250 per car (after 2015) might better be spent to reduce more emissions. Anyone preferring national regulation of emissions by the EPA to cap and trade--assuming the excesses and distortions of Waxman-Markey can be reined in by the Senate--should consider this a cautionary tale.

California's New Standard

A column in yesterday's Wall St. Journal reminded me that I had neglected to comment on the latest revision in California's targets for low- and zero-emission vehicles (ZEV.) These regulations are important signals to auto makers, and to the other states that have typically followed California's lead on environmental matters. I was struck by two facets of the new rules, both deserving at least a brief mention here.

First, at a time when the principal focus of US environmental debate is shifting away from tailpipe emissions of local pollutants--SOx, NOx, etc.--and more to the regulation of greenhouse gas emissions, the California Air Resources Board (CARB) persists in drawing the envelope around the vehicle itself, rather than its entire energy system, and thus its well-to-wheels emissions. That's consistent with CARB's mission; after all, even if they drive super-ultra-low-emission cars, 18 million Angelenos are going to create some smog. Still, the number of annual Health Advisory days in the L.A. Basin, the lowest level of air quality alerts, is now lower than the number of severe Second-Stage Alerts prevailing when I first moved there in the late 1970s. Even though L.A.'s air quality is worse than federal standards, the trend is positive, in spite of enormous population growth over the same period. Isn't it time for CARB to abandon the outdated pollution-shifting rationale behind the ZEV standard and focus mainly on the reduction of lifecycle emissions per mile? Otherwise, they risk fostering such foolishness as cars with internal combustion engines burning hydrogen produced from natural gas, resulting in higher well-to-wheels emissions than gasoline.

It also struck me that the requirement for automakers to produce 58,000 plug-in hybrids per year, starting in 2012, may be too low, rather than too high. I'm no fan of mandates such as this, but spreading that quantity of vehicle sales among a half dozen large manufacturers will likely not result in a profitable model line for any of them. 58,000 cars per year is barely enough for one successful model, let alone one requiring vastly more R&D and retooling than a conventional car. And while Fred Krupp of the Environmental Defense Fund was surely correct in his observation in his WSJ op-ed yesterday that, "a lot of people will make a killing" solving global warming, I think it's equally true--and even more important to note--that our chances of solving global warming will be low, unless there is a lot of profit in it.

Gasoline Island

Yesterday’s posting grew too long to include a relevant current example of the side-effects of California’s environmentally-driven de-industrialization. While retail gasoline prices across the US have jumped by 30 cents/gallon since January, prices in California are up by 50 cents, averaging $3.07/gallon for unleaded regular last week, with a few stations charging over $3.50. Before outraged consumers clamor for another investigation of collusion and gouging, though, they might consider what previous investigations have concluded: fundamental structural problems make the California gasoline market unusually vulnerable to local refinery outages. As a Marin County paper recently put it, “the state is like an island.” That was already true when I traded West Coast refined products for Texaco in the late 1980s.

Two minutes of Googling yielded a 2003 study by the Energy Information Agency of the Department of Energy, prepared at the direction of the Congress to assess that year’s California gasoline price spikes. It includes a nice graph showing that from 1995-2003, gasoline prices in the Golden State were consistently higher and more volatile than the national average. In addition to the unique problems of switching from MTBE to ethanol that year, the EIA identified the following contributing factors:

• California’s distance from alternate gasoline supplies
• The complexities and higher cost of producing gasoline to California’s unique, environmentally-oriented specification (CARB), especially when switching from winter to summer formulations.
• California’s over-extended refining system, which has not expanded as fast as gasoline demand.

The last point is particularly important, because it has a strong influence on price volatility. Since normal demand keeps these facilities running near capacity, California refiners must plan carefully for annual plant maintenance, lining up supplies from outside the state to cover anticipated shortfalls. But when something unexpected happens, such as the recent fire at Chevron’s Richmond refinery, more imports are needed, and they are typically weeks away, depending on whether product is available from Seattle-area refiners, the Gulf Coast, Europe or Asia. In addition, once refinery production returns to normal, there is no large, local surplus from which to rebuild the inventories that help to dampen price swings.

While the media has generally been doing a better job of reporting these issues than they used to, NBC News’s coverage on Monday included an interview in which an official of the Automobile Club of Southern California blamed “speculators” for pushing the price up. In fact, it is this normal spot market price response that enables California to attract supplies from other, more distant markets. A refiner in Texas, for example, must recoup the cost of blending a tanker-sized batch of gasoline--worth over $20 million--to California’s stringent specifications, plus freight, plus enough profit to cover the risk that prices will have fallen again, by the time the cargo is discharged a couple of weeks later. Without a significant price differential between the California and Gulf Coast spot markets, no cargoes would be forthcoming.

All of this ultimately flows from decisions taken decades ago by state and local air quality regulators to control air emissions (plain old pollution, in those days) by tightening up on stationary sources--including refineries--and requiring carmakers to install better smog equipment and refiners to make cleaner-burning fuel. What they didn’t do was ask consumers to buy more efficient cars. As a result, California consumers routinely pay the higher cost of making CARB gasoline, and whenever local supplies are disrupted, they pay extra for the lack of a capacity cushion.

As I’ve suggested in the past, this is still not a bad deal for Californians. Before these regulations really took hold, air quality in the state’s big cities was very poor, especially in the Los Angeles Basin. California consumers sacrifice a little of their material standard of living at the gas pump—about 23 cents per gallon more than the rest of the country, on average since 2001—in exchange for cleaner air. Going forward, as I discussed yesterday, they will sacrifice a little more to address climate change, with benefits that won’t be nearly as immediate or noticeable. It will be interesting to see what happens to the level of consumer complaints.