The Paris Climate Agreement And Climate Change: The Next Step

"We did not need to be a part of a flawed agreement when we joined last year, nor do we now. We have the tools to make strides environmentally all on our own."

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In a great move by the Trump administration this week, the United States is departing from the Paris Climate Agreement. Those on the left are already freaking out, but noticeably absent from their displeasure is talk about the job loss, economic cost and higher energy costs to American consumers that the Paris agreement would have brought with it.

The hysteria of those on the left is purely an emotional response void of any facts or data. It is as if they forget that the United States is already making progress environmentally, and has been long before the Paris agreement. This is evident from an EPA produced graph displaying CO2 emissions growing at a slower rate and the aggregate emissions from the six most common pollutants declining by 65% since 1980. 

It is also as if they have forgotten that the United States can–and should–still work to reduce carbon emissions outside of the Paris agreement. In fact, the U.S. now has the power to work to reduce emissions without being a part of an unrealistic and economically damaging treaty which President Obama had no constitutional authority to bind the country to in the first place without Senate approval.

Yesterday, former President Obama himself boldly made the case for not needing this Paris agreement to make environmental progress.

“I’m confident that our states, cities, and businesses will do even more to lead the way,” said Obama.

There it is. We did not need to be a part of a flawed agreement when we joined last year, nor do we now. We have the tools to make strides environmentally all on our own.

With the Paris accord behind us, it is time for the United States to take carbon emission reduction into its own hands by overturning old policies and implementing new ones that are both efficient and effective.

Climate change is unequivocally real, and although it is largely cyclical, we should do everything we can to reduce man-made effects on the environment–so long as we are not digressing living standards and hurting the economy. One great way to do this is to target carbon emissions from transport, which makes up around 20% of greenhouse gas emissions globally.

Since 1973, the United States government has enforced a policy known as CAFÉ Standards (Corporate Average Fuel Economy Standards) for carbon emission-reduction. CAFÉ Standards were initially put in place to lessen the reliance on foreign oil, but have been expanded through the tightening of the standards during various Presidential administrations under the premise of countering the environmental impact of greenhouse-gas emissions. Similar to the Paris agreement, these standards are costly and inefficient. Changing this policy could help the United States further reduce carbon emissions while simultaneously reducing the cost of doing so.

The standards are assessed for each auto maker in the country and require that every auto manufacturer’s fleet have an average fuel economy above a prescribed level. Current standards mandate that auto manufacturers increase the fuel efficiency of their fleets to 54 miles per gallon by 2025, up from the original 1970s standards which set the average fuel efficiency for fleets at 27.5 miles per gallon.

While achieving some environmental success via reducing carbon emissions from passenger vehicles and contributing to the progress shown in the aforementioned EPA graph, CAFÉ Standards have been largely inefficient and costly. The negatives of this policy far outweigh the benefits. As highlighted in The Economist, most studies show that the cost to society of CAFÉ standards exceeds the value created of saved carbon.

While CAFÉ Standards produce a number of harmful effects, the three major ones are:

  • CAFÉ standards create a rebound effect. As more fuel-efficient cars are created, drivers have an incentive to drive more than they did previously, as their cost-per-mile is lower. Arthur van Benthem with the University of Pennsylvania estimates that people who switch to a twice-as-efficient vehicle drive about 10% more miles. More miles means more carbon emission.
  • The standards do not actually reach most American vehicles. In the United States, used cars (cars more than a year old) make up 94% of vehicles. These cars, while under previous fuel economy standards, are not under the new, tightened standards, which only regulate new vehicles in the prescribed model year.
  • The standards impact the price of cars. While the price of cars clearly reflects many factors, it is estimated that the CAFÉ standards and the new regulations have indeed raised the prices, with some estimates claiming they add nearly $4000 to the average price of a new car. All in all, these costs are very significant, and could be alleviated just by taking a different approach to reduce carbon emissions and mitigate the social marginal damage from carbon emission.

The good news is, there’s a better option. The most notable and widely accepted alternative to CAFÉ standards, is a Pigouvian Tax, such as a gas or carbon tax. This tax would equal the amount of social marginal damage created at each quantity of carbon emission per vehicle. From an economic standpoint, such a tax seems to be the most efficient alternative to CAFÉ standards. If we are going to have a policy that combats human contribution to climate change of the sort (like we already do), we should implement the most efficient and least costly possible.

In a recent University of Chicago survey, 92.5% of economists said that a gasoline tax is preferential to raising fuel-economy standards. An analysis and a report commissioned by the American Economic Association shows that for the same emission reduction, a gas tax is between 6 to 14 times less costly than CAFÉ standards. A gas tax costs less for the most part because of the responses it generates. Such a tax creates a strong incentive for the purchasing of fuel efficient vehicles by consumers, would render extinct some of the distortive loopholes that CAFÉ standards allow, and would encourage drivers to diminish their travel and miles driven, regardless of whether the car is used or new. The increased demand for increasingly fuel-efficient vehicles would also serve to encourage the suppliers to invest more heavily in new technologies and even better-efficiency cars for the future.

Possibly the most important benefit of a petrol tax compared to efficiency standards is the ability of the tax revenue to directly benefit the taxpayer. As detailed in The Economist, these benefits could come either in the form of reduction of unrelated taxes which are not being used to correct a negative externality, such as the income tax or estate tax, or in the form of rebates to those who are hit the hardest by the tax.

Many conservatives would argue against this idea, however, as it serves to create a new tax on citizens. Lack of favorability among American citizens is largely responsible for such a measure not being put in place to start with, as people see a direct cost to them and overlook the indirect costs of CAFÉ Standards. A tax working to correct a negative externality like carbon emissions should be much more preferential than those that do not serve a meaningful purpose though, and such a tax is our best bet.

The United States is now free from the faulty Paris agreement, and it is now up to us to ensure our laws are working in the most effective and efficient manner. There is no doubt that CAFÉ Standards have stood to benefit the environment, a point that should be elevated and celebrated. The unpleasant truth though is, these environmental benefits have come with significant costs and risks. It is these factors that should lead to the relaxation and phasing out of CAFÉ Standards, to be replaced by a fuel tax that more efficiently corrects for social damage done by carbon emission.

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