Carbon taxes and the affordability of gasoline

Although new taxes can seem like a third rail in American politics, taxing carbon seems to be an approach that is slowly gaining ground in public discussions of ways to tackle global warming.

We recently explored what a carbon tax would mean for how U.S. consumers feel about the affordability of gasoline. It turns out that for over 90% of Americans, a $40 per ton carbon tax -- which translates to an extra 36 cents per gallon -- would still leave them a gasoline price range that they consider affordable.

Of course, consumers' views on the issue depend on their household incomes, with lower income households expressing a lower price threshold for "pain at the pump," so to speak.

Further details on these survey findings can be found in the article on "A carbon tax: how much would be too much?" at the University of Michigan Energy Survey website, where the full report is also posted.

Carbon balance effects of real-world biofuel use

Most of the debate about the environmental merits of biofuel use has been based on lifecycle analysis (LCA). Also known as life-cycle assessment, carbon footprint analysis, "cradle-to-grave" analysis, or (in the case of motor fuels) "well-to-wheels" analysis, LCA is a method for adding up all of the impacts of interest associated with a product. It includes the effects of producing a product and its component materials, associated shipping and packaging effects (as relevant), the use of the product and any related disposal effects. For assessing climatic impacts, LCA tallies the greenhouse gas (GHG) emissions associated with the production, use and disposal of the product. When the product is a motor fuel, the numerical result of such LCA modeling is called the fuel's "carbon intensity," as calculated for California's Low-Carbon Fuel Standard (LCFS), for example.

A cornfield does not absorb CO2 from the atmosphere
any more quickly when it is used to make ethanol than
when it is grown for food or feed. This basic fact of 
carbon mass balance is ignored by the lifecycle studies
that claim climate benefits for biofuels. 

The question, "how does the overall emissions impact of using a biofuel such as ethanol compare to that of a fossil fuel such as gasoline?" seems straightforward, and sounds like something that LCA can answer. However, that question is actually ill-posed scientifically speaking. In other words, when one looks carefully at what actually happens when a given biofuel substitutes for a fossil fuel, it turns out that LCA cannot give a straightforward, unambiguous answer. Properly qualified, the answer will always be, "it depends." And it doesn't just depend on the particular fuel and how it is produced; it also depends on the design of the LCA model and the assumptions it invokes.

Latest tweak to U.S. biofuel mandate is politically correct and ecologically cruel

EPA's new Renewable Fuel Standard (RFS) proposal modestly increases the amount of biofuel that America's cars and trucks have to consume next year but still keeps the total renewable fuel mandate below the Congressionally scripted target.

In the plan released on May 18, ordinary corn ethanol gets a 300 million gallon boost, biodiesel is bumped up by 100 million gallons and other so-called advanced biofuels see a 200 million gallon increase compared to last year's regulation. Nevertheless, the proposed 18.8 billion gallon total remains significantly lower than the 24 billion gallon goal for renewable fuel in 2017 that Congress wrote into law back in 2007.

EPA's approach reflects a compromise worked out last year after several tortuous years of regulatory delay. This "politically correct" strategy has the agency taking a middle road that balances the money-making interests of the biofuel industry and the corn and soybean lobbies against the engineering and economic realities that render ethanol and biodiesel such inferior motor fuels. Reactions to the proposal were predictable. The renewable fuel lobby and its allies complain "that's not enough" while the oil industry and other critics say "that's too much" biofuel.

Fuel Economy Matters

Pump prices are down and given the outlook of a weak global economy, a strong dollar and a lingering oil glut, they could drop even more as the year goes on. The U.S. average retail gasoline price fell below $2.00 per gallon in January and as of last week it averaged $1.93 per gallon. For over a year now, it's been significantly lower than the roughly $3.50 per gallon average of the previous few years, let alone the brief spike to over $4.00 per gallon in summer 2008. 

Consumers respond to gasoline prices and so it's no surprise that new vehicle sales are at a record high while the vehicle mix has shifted away from compact segments and back to trucks, larger SUVs and more luxurious cars. The amount of driving is back up as well. 

The fuel economy of the vehicle fleet doesn't totally backslide even when the price of fuel does. Most efficiency gains are due to improved technology; once such engineering refinements are made they don't get undone. Corporate Average Fuel Economy (CAFE) standards prop fuel economy up even when consumer interest fades, and that policy is now reinforced with greenhouse gas (GHG) emissions standards that limit the amount of carbon dioxide (CO₂) and other GHGs exhausted from tailpipes. 

Average new car and light truck fuel economy (right-hand axis) 

compared to nominal and inflation-adjusted gasoline prices. 

The adjoining graph compares the average fuel economy of new cars and light trucks to the price of gasoline since 1970, shown as both nominal "dollars of the day" and inflated to 2015 ("real") dollars. It's clear how fuel economy ratchets up as fuel prices rise. We can also see the slow backsliding that happened from the late 1980s until a decade ago. Although fuel economy has been climbing since 2005, we may be in for a serious tug-of-war between the need to keep fuel economy heading up and weakened consumer interest due to lower gasoline prices. 

Think Progress and Out-of-Touch 'Persuasion'

There's no doubt that shifting political opinion toward effective climate action is going to take a lot of persuasion, especially of individuals and policymakers who don't already believe in the urgent need to drastically limit greenhouse gas emissions, or at least tend to rate the environment high on their list of concerns. 

But advocates trapped in the mental boxes of green-group group-think -- and that includes the dear former California governator, Republican though he may be -- are unlikely to change the minds of those in the most need of persuasion by approaching the issue as touted in this recent piece, "Did The Governator Just Come Up With A Republican-Proof Argument On Climate Change?" on Think Progress. 

The question that Mr. Schwarzenegger posed on Facebook was along the lines of "What room with a sealed door would you be rather trapped in, one with a gasoline car running at full throttle or one with an electric car running flat out?" (on treadmills, we presume).

Bringing biofuels back to earth

After all that's been written about the pros and cons of biofuels over the years, it's fair to ask whether there's anything left to say. It turns out that there is, and a new insight comes from evaluating what actually happens on the earth, that is, on the land where the plants used to make biofuels are grown.

Don't tout low-carbon fuel; track real carbon instead

My recent studies expose the fallacies behind California's Low-Carbon Fuel Standard (LCFS) and similar provisions of the U.S. Renewable Fuel Standard (RFS). Such policies claim to reduce the carbon footprint of motor fuels, but are more likely to actually increase CO2 emissions.

I'm not alone in expressing such concerns. A paper whose authors include the original developer of the lifecycle analysis method that underpins the LCFS points out how such approaches can mislead policy makers. A recent World Resources Institute (WRI) report faults policies that promote biofuels and create an adverse "food vs. fuel" trade-off.

Among the objections to my criticism is that it is merely academic and fails to offer a constructive solution for the transportation fuel-related CO2 emissions that remain after improving vehicle efficiency and limiting travel demand.

Governor Arnold Schwarzenegger signing AB 32 on Sept. 27, 2006
(Source: Getty Images via Zimbio)

In California, however, the answer is right under policy makers' noses. The Global Warming Solutions Act [Assembly Bill (AB) 32] caps carbon emissions statewide, and starting this year also places transportation fuels under the cap. AB 32 is the best climate protection program established anywhere to date, and with a technical correction plus expanded provisions for carbon offsets, it would be an ideal policy for addressing fuel-related CO2 emissions.

Bread & Circuses vs. Getting the Prices Right

Two researchers just published an analysis showing something that many casual observers have long realized about the political challenges of using taxes to address externalities. Liddle & Lung (2015) find that countries whose citizenries consume a lot of fuel tend to tax fuel at lower rates than countries with relatively lower consumer demand for fuel. In other words, the nations having a greater need to "get the prices right" through some form of consumption tax are, politically speaking, less likely to pursue the types of taxation that economists would recommend.

The paper is:

Liddle, Brant and Lung, Sidney, The Endogeneity of OECD Gasoline Taxes: Evidence from Pair-Wise, Heterogeneous Panel Long-Run Causality Tests. Transportation Research A: Policy and Practice, 73: 31-38, 2015. DOI: 10.1016/j.tra.2014.12.009; available at SSRN: http://ssrn.com/abstract=2557780

The RFS and the climate challenge

The Renewable Fuel Standard (RFS) confronts many issues but perhaps its ultimate test is how well it helps meet the climate challenge. The world isn't running out of oil and so the business case for renewable fuels hinges on their role in reducing CO₂. That role is much more restricted and farther into the future than RFS advocates, including many green groups, have assumed. From a carbon perspective, the very premise of the RFS is fatally flawed.

Recent analysis reveals that fuel lifecycle models, such as those used in policies including the RFS and California's Low-Carbon Fuel Standard (LCFS), make a serious mistake in their baseline assumptions. This error cuts to their very core but is only just now coming to light. This isn't another debate about net energy or processing efficiency. Rather, it's about how these policies build in an assumption of carbon neutrality without first verifying the conditions under which it is true. 

The RFS assumes that just because biomass recycles carbon, then substituting a biofuel for a fossil fuel automatically neutralizes the CO₂ coming out the tailpipe. That's not true for the biofuels now produced at market-meaningful scale.

Does a corn field absorb more CO2 from the atmosphere when it
is harvested for fuel than when it is harvested for feed or food? 

Let's think about what occurs when you substitute ethanol for gasoline, and let's start with the facts on the ground. There, the threshold question is this: does a harvest keep more CO₂ out of the air when it's used for fuel than when it's used for other purposes? For example, does corn that goes into biofuel remove more CO₂ from the atmosphere than the corn that goes into cornmeal? The answer is no.

Now, if we grew feedstocks on barren land, say in a desert where nothing was growing before, then that would absorb more CO₂ than was otherwise being absorbed. But that's not what's happening. The vast majority of renewable feedstock is harvested from land that was already in production.

You might argue, well, doesn't carbon stay in the ground when you use a biofuel instead of gasoline?  Yes, carbon stays in the ground, but that doesn't necessarily mean that less gets into the air. A reduction occurs only if you increase the net rate at which CO₂ is removed from the air in other locations. 

Remember that at the car, the amount of CO₂ directly emitted varies little among liquid fuels. And so as far as climate is concerned, if biofuels have a benefit, it's not when they're burned. 

It always comes down a question of how much more CO₂ gets taken out of the air somewhere else. Lifecycle models completely gloss over that question. Because they leave existing land use out of the equation, their carbon balance calculations are incorrect. This problem is more fundamental than the issue of indirect land-use change (ILUC), which only adds to the uncertainties involved. 

In short, lifecycle policies such as the RFS and LCFS are a mistake as far as climate is concerned. They risk doing more harm than good. Policymakers need to go back to the drawing board and do the careful homework that was never done before these programs were put in place. 

This post reflects remarks made at the SAE Government-Industry Meeting panel on "Crosscutting Challenges for the Renewable Fuel Standard," held in Washington, DC on January 23, 2014. Supporting information is available in a technical brief released that day, and the remarks also draw on the paper, "Biofuel's carbon balance: doubts, certainties and implications," published in
Climatic Change 121(4): 801-814, http://dx.doi.org/10.1007/s10584-013-0927-9. 

Alternative fuels: maybe not so fast

Someone long ago pointed out that we'd run out of atmosphere -- meaning its ability to safely soak up excess CO2 -- well before we ran out of coal. Now that global warming has progressed from a seemingly remote risk to a clear and present danger, it's heartening that U.S. leaders are finally starting to tackle greenhouse gas (GHG) emissions from power plants where coal use is concentrated. Addressing such energy sector emissions is a centerpiece of the new climate plan announced by President Obama in July.

As it turns out, such action to address GHG emissions upstream, meaning in the energy and resource systems that supply the fuels used downstream in our everyday lives, is also the next important step needed to control CO2 emissions from cars and other forms of transportation.

Automotive carbon-cutting bang-for-buck

Fuel efficiency is clearly the low-hanging fruit when it comes to reducing CO2 emissions from cars and trucks. But what if we need to reach higher on the technology tree to get on track to cutting carbon as much as eventually will be needed? 

Alternatively fueled vehicles (AFVs), meaning cars designed to run on something other than gasoline or diesel fuel made from petroleum, are commonly touted as "clean fuel vehicles," and green-leaning policymakers promote them as a key part of sustainable energy strategy. 

Although various AFVs have gone in and out (and in again) of favor over the years, some form of all-electric drive is often seen as a leading contender for the car of the future. In 1990, California issued a zero-emission-vehicle (ZEV) mandate to push battery electric vehicles (BEVs) and eventually hydrogen fuel cell vehicles (FCVs) into the market. Originally justified as the solution to smog-forming tailpipe pollution, ZEVs are now thought to be crucial for cutting carbon. Given the range limitations of BEVs, plug-in hybrid electric vehicles (PHEVs) that can both charge up with electricity and fill up on gasoline have been added to the portfolio as well. 

The Fuel Efficiency Horizon study, however, shows that the supply of low-hanging fruit is more ample than many people think. The adjoining chart compares the relative cost to the relative GHG reduction benefit for several competing technology options. 

The vertical axis gives the costs as a percentage increase over the price of a baseline vehicle, taken as a 2005 midsize car. The horizontal axis gives the percentage cut in GHG emissions relative to the baseline, counting emissions both downstream at the tailpipe and upstream at locations where fuels or electricity are produced. All of the options reflect projections of lower costs and improved performance attainable by 2035, drawing results from the MIT On the Road in 2035 report. The BEV, FCV and PHEV points assume modest reductions in upstream GHG emissions for electricity and hydrogen. No upstream GHG reduction or CO2 offset is assumed for the gasoline or diesel vehicles. 

The upshot? Efficiency improvement remains the least costly way to cut auto sector CO2 emissions for the foreseeable future. This fuel efficiency horizon involves only vehicles that still rely solely on gasoline or diesel, up to and including "grid-free" (non-plug-in) hybrid electric vehicles (shown as the "gasoline hybrid" point on the chart). These ongoing efficiency gains offer GHG reductions greater than those from the battery electric, hydrogen fuel cell and plug-in hybrid technologies at a lower cost (a cost that is far lower in comparison to BEVs). 

In short, an evolutionary technology pathway, highlighted as the shaded band in the lower portion of the chart, will enable quite a lot of progress over the next 25 years, and do so without the high costs, consumer acceptance concerns and fuel infrastructure barriers faced by the alternatives.  

Auto efficiency: how much is on the horizon?

Everyone appreciates how higher fuel efficiency is important for controlling oil use and greenhouse gas (GHG) emissions. Although efficiency can be given a big boost by making a vehicle all-electric, plug-in cars have limitations as well as high costs. And so a key question is this: how much can we improve the fuel economy of "grid-free" automobiles that still use only gasoline?  

Most technologies can progress quite a lot given sufficient time, but policymakers concerned about climate want to cut GHG emissions substantially by mid-century. Because it takes roughly 15 years to replace the on-road stock of cars and light trucks, the relevant question becomes that of how much more efficient new vehicles could be by 2035. 

An answer is provided in a recent report, A Fuel Efficiency Horizon for U.S. Automobiles. This study examines how far auto efficiency can be taken if it is pursued with determination, using technology and design options that offer a "revolution by evolution." 

Quite a lot of progress -- as much as a tripling of new fleet average fuel economy -- can be made through ongoing refinements to vehicles that still rely on internal combustion engines as their sole and prime mover. Costs are involved, but much less than the costs of electric and other alternatively fueled vehicles (AFVs), which face infrastructure barriers and other market challenges.