Trump's $2 Trillion Mistake, the “War on Energy Efficiency
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ATTACHMENT TRUMP’S $2 TRILLION MISTAKE, THE “WAR ON ENERGY EFFICIENCY: The “command-but-not-control” approach of fuel economy and energy efficiency performance standards delivers consumer pocketbook savings, grows the economy and protects public health Version 1.1 December 1, 2017 TABLE OF CONTENTS EXECUTIVE SUMMARY xiii I. INTRODUCTION 1 The Consumer Stake in Energy Efficiency Standards Foregone Energy Savings and Tax Reform Household Energy Expenditures A Consumer Issue Analyzed from a Consumer Point of View The Origin of Efficiency Standards The Stakes for consumers A Pragmatic Consumer Approach Outline PART I. THE LEGAL FRAMEWORK FOR REGULATING FUEL CONSUMPTION AND EMISSIONS FROM VEHICLES II. THE LEGAL TERRAIN OF STANDARDS FOR FUEL ECONOMY AND 10 ENVIRONMENTAL PROTECTION Laws Governing Agency Action The Complex Terrain of Energy Efficiency Standards Setting Identifying the Range of Options Reconciling the Institutional and Legal Differences of a Complex Economic and Environmental Challenge The Inseverable Link between Energy Consumption and Emission of Pollutants American Federalism at its Best Executive Branch Guidance on Rulemaking The Legal Context of Regulatory Reform of Fuel Economy Standards Executive Orders Physics, Law and Economics Go Hand in Glove in the Rulemaking Process III. THE IMPORTANCE OF RIGOROUS BENEFIT-COST ANALYSIS IN CORRECTING 24 MARKET FAILURES The Foundation of Energy Policy in Market Imperfections Benefits and Costs Market Imperfections Fundamental Economic Perspectives The LBL Investment/Technology Adoption Framework The Welfare Economics of Vigorous Policy Action Conceptual Specifications of Market Imperfections Lawrence Berkeley Laboratory Resources for the Future Other Recent Comprehensive Efficiency Gap Frameworks Conclusion: The Increasing Urgency of Closing the Efficiency Gap i PART II. PERFORMANCE STANDARDS: EFFECTIVE “COMMAND-BUT-NOT-CONTROL” POLICY TOOLS IV. THE STRUCTURE OF EFFECTIVE PERFORMANCE STANDARDS 37 Market Imperfections Externalities Information and Behavior Market Structure and Transaction Costs Well-Crafted Standards Market Imperfections and Policy Responses The Key Characteristics of Performance Standards Light Duty Vehicles Swift Compliance The Industry Response to Well-Crafted Performance Standards The Effectiveness of the Balanced Approach DOT “Opportunities” to Improve Standards The Automaker View is Equally Distorted V. EVALUATIONS OF PERFORMANCE STANDARDS 47 Comparisons of Policies Flexibility Across Time PART III. PUBLIC OPINION ABOUT AND SUPPORT FOR ENERGY EFFICIENCY STANDARDS VI. CONSUMER SUPPORT FOR FUEL ECONOMY STANDARDS 57 Long-Term Consumer Attitudes Concerns about Gasoline Importance of Reducing Oil consumption Support for Fuel Economy Standards Public Opinion about Standards in Mid-2017 Conclusion about Light Duty Vehicles Work Trucks VII. AUTOMAKER ROLL BACK V. CONSUMER SUPPORT FOR STANDARDS 68 The Automakers Political Gambit Conflicts with Support for Fuel Economy Standards Continuing Consumer Demand for Higher Fuel Economy Conflict between Consumer Needs and Automaker Wants The Public is Not as Enamored of Gasoline Powered Muscle Cars and Trucks as the Automakers Claim. VIII. ATTITUDES ABOUT APPLIANCE EFFICIENCY STANDARDS 76 ii Methodology Attitudes toward Appliance Efficiency and Standards Perception of Benefits and Support for Minimum Standards Attitudes toward Payback Periods and Minimum Standards Appliance Efficiency Standards Compared to Fuel Economy Standards Other Surveys PART IV BENEFIT COST METHODOLOGY AND ISSUES IX. BENEFIT-COST ANALYSIS, THE DISCOUNT RATE AND POCKETBOOK SAVINGS 86 Continuing Controversies A 3% Discount Rate is a “High” Estimate for Consumers and Society High Implicit, Market Discount Rates are Misleading Consumer Preferences and Market Imperfections: Willingness to Pay Studies Miss the Main Point Conclusion X. DECLINING COST OF COMPLIANCE AND TECHNOLOGICAL FEASIBILITY 95 The Tendency for Cost to Decline Through the Implementation Phase The National Program Explanations for the Overestimation of Costs The Cost of Increasing Fuel Economy Technical Feasibility of the Standards Technology Cost Curves Choosing Standards XI. MACROECONOMIC GROWTH AS A POSITIVE EXTERNALITY OF WELL-DESIGNED PERFORMANCE STANDARDS 107 Conceptualizing the Sources of Macroeconomic Stimulus Rebound effect Quantitative Estimates Transfer Payments and Economic Growth Employment Impacts When the Cost of Driving Declines Conclusion PART V MEDIUM AND HEAVY-DUTY (WORK)TRUCKS XII. THE CONSUMER STAKE IN THE FUEL USE OF HEAVY DUTY TRUCKS 118 Household Expenditures for Work Truck Fuel Current Future Household Expenditure Trends Commercial Fuel Costs are Passed Through to Households A Cost of Doing Business Econometric Models Demonstrate the Pass-Through Nature of iii Transportation Fuel Costs XIII. POTENTIAL FUEL SAVINGS AND MARKET IMPERFECTIONS FOR MEDIUM AND HEAVY-DUTY TRUCKS 126 Medium and Heavy-Duty Truck Technology Efficiency Curves Market Obstacles, Barriers and Imperfections Inhibiting Investment Externalities Lead to Underinvestment in Fuel Saving Technologies Imperfections in the Market XIV. THE WORK TRUCK RULES AS EFFECTIVE PERFORMANCE STANDARDS 132 Performance Standards as a Policy Tool to Overcome Obstacles to Investment Key Explanations The Efficiency Gap and Discount Rates Pass-through The Attributes of the Phase II Rule for Work Trucks Striking the Balance Between Fuel Savings and Feasibility Conclusion PART VI. APPLIANCE EFFICIENCY STANDARDS XV. STANDARDS FOR TRADITIONAL HOUSEHOLD APPLIANCES 144 Residential Appliances Quantity Cost Gas Furnaces Market Imperfections as the Cause of Consumer Harm in the Market for Gas Furnaces The Track Record of Appliance Energy Performance Standards and Prices Impact on Efficiency Price XVI. THE CASE FOR MINIMUM EFFICIENCY STANDARDS FOR COMPUTERS AND DISPLAYS 156 The Growing Importance of Household Digital Devices The Cause of the Efficiency Gap in Household Digital Devices Evaluating the CEC Staff Analysis and Proposed Standard Design of the Standards The CEC Proposal Market Evidence Suggests that the Standard is Feasible History Shows That Costs Will Fall, Rather Than Rise. Rejection of Industry Opposition Basic Criticism Standards v. Labels Impact of a Standard iv Standards v. Consumer Behavior High End Products PART VII. FOUR DECADES OF SUCCESSFUL ENERGY EFFICIENCY PERFORMANCE STANDARDS VXII. THE BENEFIT-COST ANALYSIS OF FUEL ECONOMY STANDARDS 174 Parameters of the Analysis Periods Past Standards Light Duty Fuel Economy Standards Appliances Benefit Ratios and Rates Present Standards Light Duty Vehicles Work Trucks Appliances Conclusion XVIII. THE LONG-TERM SUCCESS OF ENERGY EFFICIENCY STANDARDS AND THE 183 $2 TRILLION MISTAKE OF ABANDONING THEM The Broad Sweep of Standards Past Standards Freeze and Rollback Future Standards Work Trucks A Closer Look at Light Duty Vehicles Freeze and Rollback Dollar Values Understanding the Differences Between the Agencies Appliances XIX. LOW INCOME CONSUMERS 193 CFA’s Seminal Analysis of Light Duty Vehicles Confirmation of the CFA Argument Winners and Losers The Overall Picture Low Income Consumers Conclusion: Lower Income Households Enjoy Much Larger Benefits from Efficiency Standards PART VIII. AUTOMAKERS MEETING THE STANDARDS XX. A DEEP DIVE INTO THE NEW FUEL ECONOMY STANDARDS AND THE 207 v AUTO MARKET RESPONSE Gasoline Prices Four-Cylinder Engines: Efficient, Popular The Proposed Standards are Well Within the Reach of The Industry XXI. A 2017 ANALYSIS OF CONSUMER SAVINGS AND AUTOMAKER PROGRESS ON THE ROAD TO 2025 CAFE STANDARDS 217 Introduction Nearly Half of “All-New” 2017 Vehicles Cost Less to Buy and Fuel Than their 2011 Counterparts Overall, Fuel Economy Improvements Far Exceed Their Cost, and Partially Offset the Cost of Other Improvements CAFE Compliance among “All-New” Vehicles Show Manufacturers are on Their Way to 2025 Compliance Many Models Exceed Current Year CAFE Requirements– Some Complying to 2025 Gas Guzzlers Decline Significantly in 2017 - Vehicles Getting Over 30 MPG Stays Steady SUVs, Crossovers and Pickups with Higher MPG Increases Sell Better Conclusion XXII. CFA’S ELECTRIC VEHICLE ANALYSIS 221 The Benefit of Technology Neutral, Product Neutral Long-Term Standards The Process of Adopting New Technologies Electric Vehicles Are Off to a Faster Start than Hybrids Early Adoption Number of Electric Models Keeps Increasing EV Ranges Are Matching Household Driving Patterns EVs Are Increasingly Price Competitive Knowledge Affects Consumer Interest in EVs The 2015 Survey Overall Interest in Purchasing an EV How Does Knowledge about EVs Affect Attitudes Towards Them? The Impact of EV Knowledge on Potential Purchase Behavior The 2016 Survey APPENDIX A: DETAIL ON EXECUTIVE ORDERS AND OMB GUIDANCE ON APPROACHES TO RULEMAKING 233 APPENDIX B: ANNOTATED TABLES FOR THE GENERAL LITERATURE ON THE CONCEPTUALIZATION OF THE EFFICIENCY GAP 238 APPENDIX C: ANNOTATED TABLES FOR THE EMPIRICAL EVIDENCE SUPPORTING THE EFFICIENCY GAP 245 vi APPENDIX D: BEHAVIORAL CONSTRUCTS AND COGNITIVE BIASES 254 APPENDIX E: A RISK – HEDGING VIEW OF THE PROPOSED FUEL ECONOMY STANDARDS 267 APPENDIX F: VEHICLE AND PRICE CHANGES AMONG “ALL-NEW” MODELS 2011 TO 2017 272 ENDNOTES 276 LIST OF FIGURES I-1: Household Spending on Energy 2 II-1: Parallel and Complementary Goals and Decision-Making Criteria for Standard Setting in Energy Efficiency and Environmental Regulation 12 II-2: The Relationship between Fuel Economy and Carbon Dioxide Emissions 16 II-3: The Near Perfect Correlation of Greenhouse Gas