Even As Trump Scuttles Climate Policy, Diehards Propose New Cap-And-Trade System For Auto Emissions

What would possess two Obama Administration veterans to propose that the Trump Administration—which on Tuesday revoked much of Obama's climate legacy—implement a cap and trade program to reduce auto emissions?
A new cap-and-trade proposal was unveiled Monday by Cass Sunstein, now of Harvard Law School, who headed Obama's effort to streamline regulations, and Michael Greenstone, now of the University of Chicago, who served as chief architect of Obama's "social cost of carbon" policy, which enabled the government to consider the climate impacts of nearly everything it does—until Trump abandoned the policy yesterday.
Sunstein and Greenstone unveiled their new cap-and-trade plan at a forum that also featured an energy expert who seemed to regard it as dead on arrival.
“It was a great, thoughtful paper,” said Trevor Houser of the Rhodium Group, poignantly using past tense at the proposal’s very unveiling. "And it was a paper that would have been perfect for a different administration that was actually curious about how you can make our vehicle standards more environmentally effective."
Houser suggested the proposal was a poor fit for the Trump Administration's goals.
“I feel like we’re on a panel in an alternate universe where we have an administration who has a goal of addressing climate change and is interested in a thoughtful conversation about how to do it,” he said. “There is a starting point of, do you have a shared policy objective? And from there you proceed to a conversation about how do you achieve that shared policy objective? Of course, there’s not a shared policy objective. Right now the current administration is not interested in addressing carbon emissions from vehicles.”
“I don’t know what to say about that,” Sunstein replied. But he did know what to say about it. It just took him a moment.
“You may be right. You probably know more about Washington these days than I do,” Sunstein said, and then he began pushing back:
“What’s the right word to say about that approach? It’s literally deadening. Because they’re people, they’re human beings, they have a policy challenge, and to pre-commit to the idea that they’re just going to put the back of the hand to this, when fuel economy standards are about, mind you, not just greenhouse gases, but they’re also about consumer savings and possibly safety issues, they’re about energy security, which the current administration is concerned about. And they’re about garden-variety air pollution which the current administration is concerned about. Aside from the fact that there is a legal obligation.”
The Energy Policy and Conservation Act of 1975 and the Energy Independence and Security Act of 2007 require the Department of Transportation to enforce standards for fuel economy for passenger cars and light trucks. Greenstone believes those laws require Trump to improve fuel economy.
“Aren’t they bound by existing legislation to do something?” Greenstone asked Houser.
“If we look at their two options," Houser said, "as either weaken the existing standards or do something radical and swap them out for a cap and trade program—a Trump-originated cap and trade program—if I were Steve Bannon, I think the latter would be slightly less politically attractive to me.”
Currently the DOT meets its requirements through the Corporate Average Fuel Economy (CAFE) standard, which was strengthened substantially during the Obama Administration. Regulators projected the CAFE standard would bring passenger cars up to 54 miles per gallon by 2025, but the standard’s performance has been undermined by low oil prices.
“Fracking has greatly reduced the price of oil, and that has changed the choices people are making,” Greenstone said, noting that fracking is but one of a series of developments that have undermined the standard. “A lot of that has been facilitated by my family and other families switching to SUVs, which has been facilitated by the low petroleum prices.”
As a result the CAFE standard has not saved as much fuel as expected, Greenstone said, and its benefits have been expensive.
The cap and trade proposal is authored by Greenstone, Sunstein, and Sam Ori, a fuel-economy expert who directs the Energy Policy Institute at Chicago (EPIC). It would deliver more fuel savings at a much lower cost, Greenstone said, by unleashing market forces.
To implement it, the government could use existing EPA authority, so no new legislation is required. The government would set an industry-wide cap on automobile emissions based on the nation’s policy goals for carbon emissions and climate.
Automakers would have to hold a permit in total gallons for the lifetime fuel consumption of the vehicles they sell. The government would set up a system for allocating and auctioning permits, which could be purchased and traded in a “robust secondary market."
The system creates a financial incentive for higher fuel efficiency and lower emissions, modeled on the successful cap-and-trade program that has reduced the sulfur-dioxide emissions responsible for acid rain.
Greenstone and Sunstein signaled an appreciation of the reception their proposal might receive, Greenstone calling cap and trade "a dangerous word around Washington" and Sunstein calling it a "ridiculously provocative term." But they contend their proposal has hope nonetheless because the Trump Administration has abandoned Obama's plans to strengthen CAFE—but still must do something.
"I think there is a real opportunity," Greenstone said. "This is not just a pie-in-the-sky proposal."