California Dreamin’

Eakinomics: California Dreamin’ Casual observers of U.S. environmental policy – like Eakinomics – have long been confused by the outsized role of California in setting things such as fuel efficiency standards, auto emissions regulations and the like, especially because most of California public policy seems designed expressly to drive its economic base across the border to Utah. The latest iteration of this long-running saga is the California announcement that 100 percent of new light- and medium-duty vehicles sold in the state must be zero emission vehicles (ZEVs) by 2035. How does it get to do this? Does it make any sense? Will other states have to follow suit? There are so many questions. Fortunately, AAF’s Daniel Bosch has dug through the issue and lays out the steps in his new piece. Step one is that California gets to do what it wants under the Clean Air Act (CAA). The CAA “included language prohibiting states from setting their own emission standards but did allow any state with emissions standards in place before March 1966 to seek a waiver for ‘compelling and extraordinary conditions.’ This provision was written specifically to apply to only one state: California.” Waiving federal rules in California began the year after enactment, included greenhouse gases beginning in 2009, and has continued to this day – with a brief hiatus during the Trump Administration. Step two is the California regulator – the California Air Resources Board or CARB – moved from an aggressive plan known as “Advanced Clean Cars (ACCI) regulations, which combined standards for smog-producing pollutants and greenhouse gases into one program and covers model years (MY) through 2025” (this was the plan suspended by the Trump Administration but reinstated by the Biden Administration) to Advanced Clean Cars II (ACCII), which proposes to move the state from 35 percent ZEVs in model year 2026 to 100 percent in 2035. It seems like dreaming to move 65 percent in 10 years, but we shall see. But even if it can be done, does it make sense? As Bosch lays out, only if two things fall into place: gas prices stay high and the social cost of carbon (the dollar value of the environmental benefits of greenhouse gas reductions) is at the top of the estimated range. “CARB estimates an average price of about $4 per gallon. According to the U.S. Energy Information Administration, the average nationwide projected price per gallon from 2026–2040 is $2.89. While California consistently has the highest gas prices in the United States, CARB’s $4 per gallon projection is no certainty.”  Similarly: “The benefits projection is also contingent on the social cost of carbon (SCC). CARB estimates the range of SCC benefits to be $10.9–$46 billion, depending on whether a discount rate of 5 percent or 2.5 percent is used. For its benefits projection, CARB uses the highest possible projection of $46 billion. Similar to its projection of gas prices noted above, a realized savings that is on the lower end of the SCC benefits range would drastically alter the net impacts of the rule.” In short, it may be more dream than fact that the CARB rule makes sense. The final step is that other states get to piggyback on the California standards if they are out of compliance with essentially unrelated federal air quality regulations. Specifically, if a state is out of compliance with ambient air quality (think smog) standards, it can adopt the California standard. Per Bosch: “As of May, according to CARB, 17 other states and the District of Columbia had adopted California’s ACCI standards. These states are Colorado, Connecticut, Delaware, Maine, Massachusetts, Maryland, Minnesota, New Jersey, New Mexico, New York, Nevada, Oregon, Pennsylvania, Rhode Island, Vermont, Virginia, and Washington. Combined with California and D.C., these states make up more than 40 percent of new light-duty vehicle sales nationwide.” The appetite for ACCII remains unclear, however. That’s the short version of the California three-step. The full version is worth a read.