CARB doesn’t have to abandon diesel truck regulation

OPINION – California recently withdrew its EPA waiver request for its Advanced Clean Fleets (ACF) regulation in anticipation of the Trump administration’s opposition. However, CARB need not abandon ACF; the regulation could be reformed as a “feebate” incentive, which would circumvent federal preemption and could also have other advantages over an inflexible standard.

CARB’s ACF rule would require replacement of diesel trucks with zero-emission alternatives in trucking drayage operations and large fleets. ACF works in conjunction with CARB’s Advance Clean Trucks (ACT) regulation, which is a sales mandate on truck manufacturers while ACF is a purchase mandate. Both ACF and ACT could be reformed as feebate-type policies.

ACT is a tradable standard, which gives manufacturers compliance flexibility by allowing them to trade compliance credits. A regulated entity that is not in compliance with the standard can buy compliance credits from other entities who over-comply. However, there is no predictable limit on credit prices, and market volatility can play havoc with business planning decisions.

A feebate regulation can be designed to operate much like a tradable standard, but with the firm emissions standard replaced by a firm carbon price. A regulated entity would either pay a fee or be paid a rebate, depending on how its carbon emissions performance compares to the industry average within the regulated market.

The feebate revenue transfers would be similar to credit trading transactions under a tradable standard, but with two key differences: First, the carbon price is set by mandate and is immune to market volatility. Second, there is no predetermined, inflexible emission standard set by mandate. In effect, the “standard” is market-determined in response to the price incentive and dynamically follows the industry’s average emission performance. If there are very few zero-emission vehicles in operation, most entities’ emissions will be close to the average and fees will be very low while rebates will be high. As zero-emission vehicles gain market share and industry-average emissions decline, fees will increase while rebates commensurately decrease.

California has learned from its cap-and-trade regulations that inflexible emission targets are unworkable. CARB adopted a cap-and-trade system because of the certainty of the “firm cap on emissions” that it afforded, but in order to get the program reauthorized in 2017, CARB had to abandon the binding cap in favor of a binding price ceiling. Any practicable climate regulation is constrained by limitations of cost acceptability, and costs can be directly controlled via price regulation.

Regulatory costs are determined not only by carbon prices, but also by how carbon pricing revenue is spent. Unlike carbon taxes or auctions under cap-and-trade, feebates do not extract carbon pricing revenue from the regulated industry; all fees are returned to the industry as rebates. Feebates are self-financing, so they would not impose significant costs on state budgets.

Moreover, feebates would not be subject to federal preemption. The federal Clean Air Act limits the ability of states to enact their own new motor vehicle emissions standards. But a feebate would be an emissions control incentive, not a mandated emissions control standard. It would have the same status with respect to preemption as other incentive policies such as vehicle purchase loans, rebates, vouchers, and regulatory fees.

Federal obstructionism need not impede effective climate policy if we can overcome regulatory conservatism and orthodoxy and “think outside the box.” Rather than trying to stop the “Trump wrecking ball,” we can simply sidestep it.

Ken Johnson is affiliated with the Climate Reality Project: Silicon Valley Chapter (Legislation and Public Policy Committee). He has published on a variety of climate-policy topics such as feebates.