Analysis and commentary on California's and federal regulatory policy initiatives relating to climate change

This page was last updated on January 18, 2010.

For background on AB 32, see CARB's Climate Change page
Rulemaking documents for AB 1493: http://www.arb.ca.gov/regact/grnhsgas/grnhsgas.htm


2010:

A decarbonization strategy for the electricity sector: New-source subsidies

Publication reference:
Johnson, K., 2010. A decarbonization strategy for the electricity sector: New-source subsidies. Available online 13 January 2010.
http://www.sciencedirect.com/science/journal/03014215
http://dx.doi.org/10.1016/j.enpol.2009.12.044

Abstract

Regulatory instruments for greenhouse gas control present a policy dilemma: Market-based instruments such as cap and trade function to reduce regulatory costs; but because they provide no guarantee that costs will be reduced to acceptable levels it is infeasible to set caps at sustainable levels. Emission taxes provide cost certainty, but their comparatively high cost makes it infeasible to set tax rates at levels commensurate with sustainability goals. However, there is a straightforward solution to this dilemma: Just as cap and trade uses free allowance allocation to minimize regulatory costs, an emission tax’s cost can be mitigated by refunding tax revenue in such a way that emission reduction becomes profitable. A refunded tax, like cap and trade with free allocation, would be revenue-neutral within the regulated industry. Marginal competitive incentives for commercializing emission-reducing technologies would not be diminished by the refund, and the refund could actually make it politically and economically feasible to increase the incentives by an order of magnitude. Whereas cap and trade merely caps emissions at an unsustainable level while subjecting the economy to extreme price volatility, refunded emission taxes could create a stable investment environment with sustained incentives for emission reduction over a long-term investment horizon.

Author’s corrected manuscript: http://ssrn.com/abstract=1427106

2009:

Circumventing the Weight-Versus-Footprint Tradeoffs in Vehicle Fuel Economy Regulation

Publication reference: Johnson, Kenneth C., Circumventing the Weight-Versus-Footprint Tradeoffs in Vehicle Fuel Economy Regulation (December 14, 2009).
Available at SSRN: http://ssrn.com/abstract=1523398

Abstract
   
China, Japan, and the European Union use weight-based fuel economy standards, whereas the U.S. Department of Transportation has rejected such an approach in favor of footprint-based standards. Which is the right approach? A weight-based standard can neutralize weight-changing incentives that are detrimental to consumer welfare, but it also neutralizes beneficial weight-changing incentives. Footprint-based standards preserve weight-reduction incentives, but do not discriminate between beneficial and detrimental weight-changing strategies; and footprint-based standards may be more susceptible to gaming incentives over the long term. The tradeoffs between weight and footprint can be circumvented by employing a weight-based standard, which is constructed to neutralized weight-changing incentives, in combination with complementary regulatory measures that would be focused specifically and exclusively on motivating beneficial weight reduction strategies.


Articles for Gristmill Blog

2008:

Commentary for AB 32 Proposed Scoping Plan:
Scoping Plan - #39
CEQA Evaluation - #1
Commentary for AB 32 Draft Scoping Plan and Supplemental Evaluations:
Program Design - #19
General Comments - #234
Transportation - #64
Measure Document Supplement - #2

Commentary for the California Public Utilities Commission (R.06-04-009):

In response to the Sept. 12, 2008 Final Opinion on Greenhouse Gas Regulatory Strategies

COMMENTS OF KENNETH C. JOHNSON ON THE FINAL OPINION ON GREENHOUSE GAS REGULATORY STRATEGIES
September 16, 2008
http://docs.cpuc.ca.gov/efile/CM/91642.pdf

In response to the April 16, 2008 ALJ ruling on allocation policies:

COMMENTS OF KENNETH C. JOHNSON PERTAINING TO EMISSION ALLOWANCE ALLOCATION POLICIES
June 2, 2008
http://docs.cpuc.ca.gov/efile/CM/83767.pdf

Comments for AB 32 Economic Analysis Technical Stakeholder Work Group Meetings, June 3, 2008 ("Ken Johnson")
Comments for AB 32 Program Design Technical Stakeholder Work Group Meetings, March 17 ("Ken Johnson:1" and "Ken Johnson:2") and April 25, 2008 ("Ken Johnson")

March 12, 2008
Correspondence with Governor Schwarzenegger, the California Air Resources Board, and the California legislature relating to the AB 32 maximum reduction mandate
Available at SSRN: http://ssrn.com/abstract=1080608

Jan. 21, 2008
Response to the Western Climate Initiative solicitation for stakeholder input on
Option Papers (Allocations and Electricity)
http://www.westernclimateinitiative.org/ewebeditpro/items/O104F15309.pdf

2007:

Oct.-Dec., 2007

Participation in the California Public Utilities Commission's rulemaking proceedings on greenhouse gas policies (R.06-04-009):

In response to the Oct 15, 2007 ALJ ruling requesting comments on allocation issues,

COMMENTS OF KENNETH C. JOHNSON PERTAINING TO ALLOWANCE ALLOCATION ISSUES
October 31, 2007
http://docs.cpuc.ca.gov/efile/CM/74501.pdf

REPLY COMMENTS OF KENNETH C. JOHNSON PERTAINING TO ALLOWANCE ALLOCATION ISSUES
November 12, 2007
http://docs.cpuc.ca.gov/efile/CM/75156.pdf

In response to the Nov 9, 2007 ALJ ruling requesting comments on type and point of regulation issues,

COMMENTS OF KENNETH C. JOHNSON PERTAINING TO TYPE AND POINT OF REGULATION ISSUES
November 21, 2007
http://docs.cpuc.ca.gov/efile/CM/75626.pdf

In response to the Nov 9, 2007 ALJ ruling requesting comments on modeling-related issues,

COMMENTS OF KENNETH C. JOHNSON PERTAINING TO MODELING-RELATED ISSUES
December 3, 2007
http://docs.cpuc.ca.gov/efile/CM/75992.pdf


Sept., 2007

Proposals to the California Air Resources Board relating to the AB-32 Scoping Plan (Click "Ideas Submitted" link.)

"Cap-and-Trade with auctioned allocation, a price floor, and output-based refunding"
"Cap-and-Trade with Governor-authorized safety valve"
(Click "Other" link, look for "Ken Johnson".)

"Attribute-Based Vehicle Feebate"
(Click "Transportation" link, look for "Ken Johnson".)

Of related interest: "Attribute-Based Vehicle Feebates" (Several types of attribute-based vehicle feebates are analyzed and compared using model-year 2005 sales data for the U.S. market.)


June 23, 2007
To the California Air Resources Board
Commentary on the Market Advisory Committee’s report, “Recommendations for Designing a Greenhouse Gas Cap-and-Trade System for California,” June 30, 2007 (for consideration at the July 27, 2007 Board meeting)
http://www.arb.ca.gov/lists/ccmac06/8-comments_2007_07_23.pdf

June 7, 2007
Reading Material for 25-26 June 2007 Feebate Forum, hosted by Rocky Mountain Institute
- "Vehicle Feebates: A Comparison of Policy Alternatives"
- "Feebate Economics"
http://www.rmi.org/feebate

June 5, 2007
To the Market Advisory Committee
Commentary on “Recommendations for Designing a Greenhouse Gas Cap-and-Trade System for California,” June 1, 2007 draft report
Ken_Johnson_Comments_2007_06_05.pdf

April 9, 2007: Letter to California Air Resources Board Re AB 32 and AB 493
ARB_2007_04_09.pdf

March 16, 2007: Letter to Rep. Dingell, U.S. House of Representatives Committee on Energy and Commerce
Re Rep. Dingell's Feb 27, 2007 letter to NGOs requesting guidance on climate policy
Dingell_2007_03_16.pdf

March 13, 2007: Letter to California State Assembly Committee on Transportation
Re AB 493 (Ruskin, 2007), AB 32 (Nunez and Pavley, 2006), AB 1493 (Pavley, 2002)
Available at SSRN: http://ssrn.com/abstract=969444.
Excel files for Feebate Comparison: Feebates_AB493_Excel.zip

2006:

Refunded emission taxes: A resolution to the cap-versus-tax dilemma for greenhouse gas regulation

Publication reference:
Johnson, K., 2006. Refunded emission taxes: A resolution to the cap-versus-tax dilemma for greenhouse gas regulation.
Energy Policy 35 (5), 3115-3118. Available online 30 November 2006.
http://www.sciencedirect.com/science/journal/03014215
http://dx.doi.org/10.1016/j.enpol.2006.10.020

Abstract

Regulatory instruments for greenhouse gas control present a policy dilemma: Market-based instruments such as cap and trade function to reduce regulatory costs; but because they provide no guarantee that costs will be reduced to acceptable levels it is infeasible to set caps at sustainable levels. Emission taxes provide cost certainty, but their comparatively high cost makes it infeasible to set tax rates at levels commensurate with sustainability goals. However, there is a straightforward solution to this dilemma: Just as cap and trade uses free allowance allocation to minimize regulatory costs, an emission tax’s cost can be mitigated by refunding tax revenue in such a way that emission reduction becomes profitable. A refunded tax, like cap and trade with free allocation, would be revenue-neutral within the regulated industry. Marginal competitive incentives for commercializing emission-reducing technologies would not be diminished by the refund, and the refund could actually make it politically and economically feasible to increase the incentives by an order of magnitude. Whereas cap and trade merely caps emissions at an unsustainable level while subjecting the economy to extreme price volatility, refunded emission taxes could create a stable investment environment with sustained incentives for emission reduction over a long-term investment horizon.

Author's corrected manuscript: RefundedTaxes.pdf

Refunded Emission Taxes: A Coherent Post-Kyoto Policy Framework for Greenhouse Gas Regulation

Publication reference:
Johnson, Kenneth C., "Refunded Emission Taxes: A Coherent Post-Kyoto Policy Framework for Greenhouse Gas Regulation" (October 15, 2006). Available at SSRN: http://ssrn.com/abstract=934481

Abstract

Current experience with the Kyoto Protocol indicates that climate sustainability goals will be attainable only if future regulatory policy is grounded on a sound and clearly articulated policy rationale that is relevant to political and economic realities. The mandatory targets and timetables approach employed by Kyoto has a clear and coherent rationale if environmental objectives take precedence over cost considerations and emissions are capped at a sustainable level; but in the context of real-world political constraints and priorities, mandatory emission caps can have the perverse effect of actually reducing the likelihood that climate sustainability will be achieved. An alternative policy instrument that would be better adapted to political and economic realities is a refunded emission tax, which would be revenue-neutral within specific regulated industry sectors and would create long-term market incentives for minimizing GHG emissions (rather than merely capping emissions at an unsustainable level) while limiting regulation-induced costs and eliminating market price volatility.
[Note: A summary version of this paper is published in Energy Policy: http://dx.doi.org/10.1016/j.enpol.2006.10.020. A less technical summary paper is also posted at http://ssrn.com/abstract=945570 under the title "A Sensible Policy Approach for Greenhouse Gas Regulation".]

California’s greenhouse gas law, Assembly Bill 1493: Deficiencies, alternatives, and implications for regulatory climate policy

Publication reference:
Johnson, K., 2007. California's greenhouse gas law, Assembly Bill 1493: Deficiencies, alternatives, and implications for regulatory climate policy.
Energy Policy 35 (1), 362-372. Available online 18 January 2006.
http://www.sciencedirect.com/science/journal/03014215
http://dx.doi.org/10.1016/j.enpol.2005.11.026

Abstract
    California’s Air Resources Board has finalized regulations implementing Assembly Bill (AB) 1493, which requires “maximum feasible and cost-effective reduction of greenhouse gas emissions from motor vehicles”. By 2030, when California’s light-duty vehicle stock has been substantially replaced by regulation-compliant vehicles, total emissions from regulated vehicles are projected to be reduced by 27% relative to “business-as-usual”, but are nevertheless expected to be 8.7% higher than 2004 emissions. If an 8.7% increase truly represents the “maximum feasible and cost-effective” emissions reduction from transportation vehicles, then global climate stabilization clearly will not be attained within limits of “feasibility” and “cost-effectiveness”, and climate sustainability will only be achievable through severely draconian measures. On the other hand, if significantly greater emissions reduction would be feasible and cost-effective, then the AB 1493 regulations fail to satisfy the legislative policy mandate and the task is to find a regulatory mechanism that will. The thesis of this paper is that the regulations do not satisfy the mandate for several reasons, the most important being the conflicting policy objectives of the “cost-constrained” legislative mandate and the “quantity-constrained,” standard-based regulatory instrument. An alternative policy instrument that would better fit legislative policy and environmental objectives would be a feebate-type system (although not necessarily a conventional vehicle feebate).

Author’s corrected manuscript and Electronic Annexes:  CA_AB1493.pdf, CA_AB1493.zip

Jan. 30, 2006: Public commentary for Climate Action Team's Dec. 8, 2005 draft report to the governor and legislature
KenJohnsonComments2.pdf
Supplemental comments (via email)

2005:

Feebates: An effective regulatory instrument for cost-constrained environmental policy

Publication reference:
Johnson, K., 2006. Feebates: An effective regulatory instrument for cost-constrained environmental policy.
Energy Policy 34 (18), 3965-3976. Available online 8 November 2005.
http://www.sciencedirect.com/science/journal/03014215
http://dx.doi.org/10.1016/j.enpol.2005.10.005

Abstract
    A feebate can be described as an emissions tax combined with a refunded (i.e., negative) consumption tax, the balance of which can be either positive (a fee) or negative (a rebate) depending on how a taxed product’s emissions performance compares to the industry average. A successful feebate-type policy is exemplified by Sweden’s nitrogen oxide program, which has motivated power plant operators in Sweden to reduce NOx emissions far below levels achieved in the U. S. and other industrial countries. A key to this success has been the fair and efficient manner by which the refund is distributed, and a similar approach could be applied to automotive vehicle feebates (for greenhouse gas reduction), making it possible to overcome limitations of political acceptability and greatly improve policy effectiveness. One such approach would distribute refunds in proportion to vehicle mass (rather than at a fixed rate per vehicle), so that the refund has at least an approximate correlation to vehicle utility and economic value. A second, alternative approach would apply separate feebates to multiple weight classes comprising limited, but overlapping, weight ranges, so that each feebate covers vehicles having similar transportation utility characteristics.

Author’s corrected manuscript and Electronic Annexes:  Feebates.pdf, Feebates.zip

Oct. 24, 2005: Public commentary for Oct. 24, 2005 Cap and Trade Workshop (Climate Action Team)
KenJohnsonComments.pdf

Oct. - Nov., 2005:
Commentary on the DOT-NHTSA Proposed Rulemaking:
Average Fuel Economy Standards for Light Trucks; Model Years 2008-2011
Docket Number 2005-22223
NHTSA_2005_10_05.doc
NHTSA_2005_10_25.doc
NHTSA_2005_11_09.doc

Aug. 19, 2005: Supplementary notes and rebuttals to the FSORFSOR_notes.pdf.

July 11, 2005:  Transcript of presentation at the CCAC quarterly meeting: 2005-07-11_TRANSCRIPT.pdf (pp. 291-299).

June 21, 2005:  Second letter to the California Energy Commission, Climate Change Advisory Committee,  re Climate policy options: link.

May 18, 2005: Commentary in response to “Second Notice of Public Availability of Supporting Documents and Information,” posted on May 11, 2005:
    AB1493_Commentary3.pdf

April 8, 2005: Letter to the California State Assembly Committee on Transportation, re AB 1493: link.

April 1, 2005: Letter to the California Energy Commission, Climate Change Advisory Committee,  re Climate policy options: link.

March 28, 2005: "A Policy Critique of California's Assembly Bill 1493 to Regulate Vehicular Greenhouse Gas Emissions"
(conveyed to the California Assembly Transportation Committee on April 8, 2005)

This documnet can be downloaded from http://ssrn.com/abstract=665844 .

CARB-supplied data sources on which the document is based:
for_costeffect,_inventory,etc_082404.xls
Corporate Fleet Average Weights (2002).xls
(Also see CARB notes on above Excel file.)

Additional calculations based on CARB data:
AB1493.xls

Author contact: kjinnovation@earthlink.net

2004:

Outline of discussion points for my testimony at the Air Resources Board's Sept. 23-24 public hearing regarding AB 1493.
    Testimony_2004_09_24.html

Official transcript of testimony and staff response is posted at
    http://www.arb.ca.gov/board/mt/mt092404.txt
on pages 10-17.

Second Commentary on California Assembly Bill 1493:
    AB1493_Commentary2.pdf  (Sept. 5, 2004)

11/6/2004 correction:
This commentary is based on an erroneous interpretation of the proposed section 1961.1 regulatory language. The commentary interpreted the regulation as imposing a noncompliance penalty of $24.39 per g/mi debit for PC/LDT1 and $15.06 per g/mi debit for LDT2, whereas the penalty actually appears to be $24.39 + $15.06 = $39.45 per g/mi debit for both weight classes. Thus, contrary to points (2) and (3) in the commentary, there is no disparity between weight classes and the penalty may be sufficient to deter noncompliance. But points (1) and (4) are valid. The penalty formula changes the meaning of the Health and Safety Code section 43211 in a manner that is confusing and without a clear policy rationale. Furthermore, the policy intent of AB 1493 would be better served if the penalty charge were applied to the purchase of emission credits to offset the excess emissions represented by the noncompliance. (Section 43211 stipulates that the penalty charge shall simply be deposited into the General Fund.)

Analysis and Commentary on California Assembly Bill 1493, in response to the California Air Resources Board's August 6, 2004 report, "Staff Report: Initial Statement of Reasons for Proposed Rulemaking, Public Hearing to Consider Adoption of Regulations to Control Greenhouse Gas Emissions from Motor Vehicles":
    AB1493_Commentary.pdf  (Aug. 11, 2004)

CARB-supplied data used in the above analysis:
    for CostEffect, Inventory,etc 052804_nl.xls
See "std_regressions" tab.
"Count of Model Name" is 2002 CA vehicle sales. (Note: Some sales numbers inexplicably have fractional values.)
"TW" is Test Weight; "CW" is Curb Weight.
"CO2" (column I) is emissions (CO2 grams per mile).

03/28/2005 note:
This commentary is partly in error due to misinterpretation of the LEV vehicle class distinctions. The ISOR defines the PC/LDT1 class as "passenger cars and light duty trucks under 3751 lbs loaded vehicle weight", but the 3751 -lb limit does not apply to cars. A more concise definition is "passenger cars up to 6000 lbs loaded vehicle weight and light duty trucks up to 3750 lbs loaded vehicle weight". See "A Policy Critique ..." under 2005 above for a revised analysis based on the correct LEV classification.