One of the favorite climate policy prescriptions is to apply carbon pricing either by a direct tax or by requiring purchase of carbon credits or offsets.  Now comes a report of unintended consequences, namely that rising prices for carbon credits have increased the demand for coal, the most disliked of all fossil fuels.

From Bloomberg Why Higher Pollution Costs Aren’t Denting Coal Demand in EU  Excerpts in italics with my bolds.

If you thought the surging price of fossil-fuel emissions in Europe would hurt coal demand, think again.

The highest prices for carbon credits in a decade have also lifted natural gas, discouraging power stations from making the switch away from coal. As a result, demand remains strong for the dirtiest fossil fuel in the continent that’s doing the most to clean up its economy. Coal prices as a result reached their highest in five years on Tuesday.

Gas futures would need to plunge by more than 20 percent before coal-fired power stations become uneconomic to run, based on current market prices for fuel and electricity, according to Georgi Slavov, head of research at broker Marex Spectron.

“This is highly unlikely” through at least November, Slavov said. “There are no plausible scenarios which support pricing out of coal.”

Demand for coal in China and India is drawing in cargoes that otherwise would land at plants in Europe from the Netherlands to Germany. The Dutch front-year contract recovered from losses early in the year to rise almost 13 percent, climbing alongside gas and oil.

Gas-fired generators, Chinese importers of liquefied natural gas and storage sites in mainland Europe are all competing for the same shipments, stoking the cleaner fuel’s rally. There simply hasn’t been much spare gas supply to allow switching from coal because of carbon’s price surge.

Global coal imports are set to reach a record 1.01 billion tons this year, exceeding 2013’s level, which was just below 1 billion tons, according to Guillaume Perret, founder and director of Perret Associates Ltd., a London-based research company.

“The coal market is now facing a structural shortage” of investment, including in mines and logistics, Perret said.

 

How Goes the Transition Away from Fossil Fuels

The first objective in the Great Green Transition is to stop the use of Coal, Climate Enemy #1. An update report on that front comes from Vijay Jayaraj, Aug 18, 2018, at Townhall The Dawn of Climate Realism: Coal Surges Amid Climate Rhetoric  Excerpts in italics with my bolds.

Many countries have been at the crisscross of warfare between anti-coal establishments and the traditional coal industry. Despite the elite-empowered and politically motivated worldwide campaign to phase out coal, demand for coal is on the rise!

Coal has been “enemy No. 1” for the climate establishment. In fact, it would seem that the entire global warming movement is hinged upon the singular aim to eliminate coal from use.

Catastrophic Anthropogenic Global Warming (CAGW) is a notion that cites a popular scientific hypothesis and concludes that the global temperatures have risen, or will soon rise, to dangerous levels in the post-industrialized era due to human activity.

The proponents of CAGW believe that the primary contributor to this increase in temperature is the combustion of coal and the subsequent release of carbon dioxide gas into the atmosphere.

However, peer-reviewed scientific journals by hundreds of scientists render many of these claims dubious at best. Here are just three of them.

Firstly, contrary to the claim that carbon dioxide is the primary driver of global warming, global temperatures have not risen proportionately to carbon dioxide concentration in the atmosphere. In other words, an increase in carbon dioxide emission has not resulted in an increase in temperature.

Secondly, most of the current “consensus” on climate change is based on forecasts from computer climate models. But the wide divergence between observed temperature and model predictions makes it apparent that the models were programmed incorrectly to be over-dependent on carbon dioxide concentration to predict temperature changes.

In what was a major embarrassment to United Nations Intergovernmental Panel on Climate Change (IPCC), top climate scientists admitted these flaws in the climate models when they failed to reflect real-world temperatures during the last 19 years. The same was widely publicized and even testified to the U.S. House Committee on Science, Space & Technology.

Thirdly, contrary to the claim that recent warming is historically unprecedented, today’s temperature levels are similar to the temperatures the earth experienced in the first and eleventh centuries. Also known as Roman Warm Period and Medieval Warm Period, these were times when, though as warm as today or warmer, the earth’s ecosystems flourished. The notion that “today’s temperature levels are at unprecedented levels” is completely false.

Despite these (and many more) straight-forward evidences against the CAGW hypothesis, the climate establishment continues to advocate for the ban of coal and coal-fired power plants. Global climate treaties like the Paris Agreement were set out to target and close down coal plants in developing countries.

But to their surprise, coal use is rising.

This financial year, Coal India—India’s largest state-controlled coal mining company—saw its first-quarter profits jump 61 percent and its coal production rise 15.23 percent. India has a long-term vision to increase its coal output and has been vocal about “carbon imperialism”—a term it uses to define the attitude of the anti-coal climate establishment.

In 2017, coal accounted for 60.4 percent of total energy consumption in China. The country’s coal production outputs for the first seven months of 2018 was 1.98 billion tons, 3.4 percent higher than the same period last year. China’s coal imports surged this July and hit a record high (29 million tons), beating the previous highest recorded monthly volume import (January 2014).

But the surge in coal is not just limited to Asia.

Russia’s coal production of 410 million tons was its highest since the Soviet era and is expected to reach 420 million tons this year. The coal industry is set to expand in the coming years with massive infrastructure upgrades.

U.S. coal output reached a 16-year high in 2017 (701 million tons), after a change in leadership that saw the lifting of heavy restrictions on coal from the previous administration. Coal output in 2017 was 40.8 million tons higher than in 2016, and India was the top importer of U.S. coal in Asia (13 million tons).

The trend continued in 2018, and the month of April recorded the highest coal export in five years. U.S exports to India reached 6.2 million tons in just the first half of 2018, which is nearly the entire export (6.8m tons) to India in 2017! And coal is expected to do fairly well in the U.S. despite the disruption from the natural gas boom.

The situations for coal in India, China, and the U.S. are prime examples of the coal industry’s strength. It can also be said that the climate rhetoric has failed to break the world’s dependence on coal. And for good reason. Coal remains among the cheapest, and technically simplest, sources of the abundant, affordable, reliable electricity indispensable to the modern industry and technology that are indispensable to lifting and keeping whole societies out of poverty.

Leaders across the globe understand the indispensable role of coal in their economies. They are also beginning to understand the exaggerated nature of climate-change dangers promoted heavily in the mainstream media.

The climate establishment’s doomsday prophecies failed to come true in the last 20 years, which saw global temperature remain largely stable. Arctic ice remained stable, global agricultural outputs increased, more people rose out of poverty, and the forests in Europe grew instead of shrinking.

Clearly, there is no reason why the coal industry should slow down, and it won’t. Overblown climate-change rhetoric is leading rapidly to the downfall of the climate establishment, and nations are moving past it at a rapid pace.

Postscript:

 

California’s Climate Extremism
Joel Kotkin reports from the Golden State. Excerpts in italics with my bolds.

The pursuit of environmental purity in the Golden State does nothing to reverse global warming—but it’s costing the poor and middle class dearly.

Environmental extremism increasingly dominates California. The state is making a concerted attack on energy companies in the courts; a bill is pending in the legislature to fine waiters $1,000—or jail them—if they offer people plastic straws; and UCLA issued a report describing pets as a climate threat. The state has taken upon itself the mission of limiting the flatulence of cows and other farm animals. As the self-described capital of the anti-Trump resistance, California presents itself as the herald of a green, more socially and racially just society. That view has been utterly devastated by a new report from Chapman University, in which coauthors David Friedman and Jennifer Hernandez demonstrate that California’s draconian anti-climate-change regime has exacerbated economic, geographic, and racial inequality. And to make things worse, California’s efforts to save the planet have actually done little more than divert greenhouse-gas emissions (GHG) to other states and countries.

Jerry Brown’s return to Sacramento in 2011 brought back to power one of the first American politicians to embrace the “limits of growth.” Brown has long worried about resource depletion (including such debunked notions as “peak oil”), taken a Malthusian approach to population growth, and opposed middle-class suburban development. Like many climate-change activists, he has limitless confidence in the possibility for engineering a green socially just society through “the coercive power of the state,” but little faith that humans can find ways to address the challenge of climate change. If Brown’s “era of limits” message in the 1970s failed to catch on with the state’s voters, who promptly elected two Republican governors in his wake, he has found in climate change a more effective rallying cry, albeit one that often teeters at the edge of hysteria. Few politicians can outdo Brown for alarmism; recently, he predicted that climate change will cause 3 to 4 billion deaths, leading eventually to human extinction. To save the planet, he openly endorses a campaign to brainwash the masses.

The result: relentless ratcheting-up of climate-change policies. In 2016, the state committed to reduce greenhouse-gas (GHG) emissions 40 percent below 1990 levels by 2030. In response, the California Air Resource Board (CARB), tasked with making the rules required to achieve the state’s legislated goals, took the opportunity to set policies for an (unlegislated) target of an 80 percent reduction below 1990 levels by 2050.

Brown and his supporters often tout their policies as in line with the 2015 Paris Agreement, note Friedman and Hernandez, but California’s reductions under the agreement require it to make cutbacks double those pledged by Germany and other stalwart climate-committed countries, many of which have actually increased their emissions in recent years, despite their Paris pledges.

Governor Brown has preened in Paris, at the Vatican, in China, in newspapers, and on national television. But few have considered how his policies have worked out in practice. California is unlikely to achieve even its modest 2020 goals; nor is it cutting emissions faster than other states lacking such dramatic legislative mandates. Since 2007, when the Golden State’s “landmark” global-warming legislation was passed, California has accounted for barely 5 percent of the nation’s GHG reductions. The combined total reductions achieved over the past decade by Ohio, Georgia, Pennsylvania, and Indiana are about 5 times greater than California’s. Even Texas, that bogeyman of fossil-fuel excess, has been reducing its per-capita emissions more rapidly.

In fact, virtually nothing that California does will have an impact on global climate. California per-capita emissions have always been relatively low, due to the mild climate along the coast, which reduces the need for much energy consumption on heating and cooling. In 2010, the state accounted for less than 1 percent of global GHG emissions; the disproportionately large reductions sought by state activists and bureaucrats would have no discernible effect on global emissions under the Paris Agreement. “If California ceased to exist in 2030,” Friedman and Hernandez note, “global GHG emissions would be still be 99.54 percent of the Paris Agreement total.”

Many of California’s “green” policies may make matters worse. California, for example, does not encourage biomass energy use, though the state’s vast forested areas—some 33 million acres— could provide renewable energy and reduce the excessive emissions from wildfires caused by years of forest mismanagement. Similarly, California greens have been adamant in shutting down nuclear power plants, which continue to reduce emissions in France, and they refuse to count hydro-electricity as renewable energy. As a result, California now imports roughly one-third of its electricity from other states, the highest percentage of any state, up from 25 percent in 2010. This is part of what Hernandez and Friedman show to be California’s increasing propensity to export energy production and GHG emissions, while maintaining the fiction that the state has reduced its total carbon output.

Overall, California tends to send its “dirty work”—whether for making goods or in the form of fossil fuels—elsewhere. Unwanted middle- and working-class people, driven out by the high cost of California’s green policies, leave, taking their carbon footprints to other places, many of which have much higher per-capita emission rates. Net migration to other, less temperate states and countries has been large enough to offset the annual emissions cuts within the state. Similarly, the state’s regulatory policies make it difficult for industrial firms to expand or even to remain in California. Green-signaling firms like Apple produce most of their tangible products abroad, mainly in high-GHG emitting China, while other companies, like Facebook and Google, tend to place energy-intensive data centers in other, higher GHG emission states. The study estimates that GHG emissions just from California’s international imports in 2015, and not even counting imports from the rest of the U.S., amounted to about 35 percent of the state’s total emissions.

California’s green regulators predict that the implementation of ever-stricter rules related to climate will have a “small” impact on the economy. They point to strong economic and job growth in recent years as evidence that strict regulations are no barrier to prosperity. Though the state’s economic growth is slowing, and now approaches the national average, a superficial look at aggregate performance makes a seemingly plausible case for even the most draconian legislation. California, as the headquarters for three of the nation’s five largest companies by market capitalization—Alphabet, Apple, and Facebook— has enjoyed healthy GDP growth since 2010. But in past recoveries, the state’s job and income growth was widely distributed by region and economic class; since 2007, growth has been uniquely concentrated in one region—the San Francisco Bay Area, where employment has grown by nearly 17 percent, almost three times that of the rest of the state, with growth rates tumbling compared with past decades.

Some of these inequities are tied directly to policies associated with climate change. High electricity prices, and the war on carbon emissions generally, have undermined the state’s blue-collar sectors, traditionally concentrated in Los Angeles and the interior counties. These sectors have all lost jobs since 2007. Manufacturing employment, highly sensitive to energy-related and other regulations, has declined by 160,000 jobs since 2007. California has benefited far less from the national industrial resurgence, particularly this past year. Manufacturing jobs—along with those in construction and logistics, also hurt by high energy prices—have long been key to upward mobility for non-college-educated Californians.

As climate-change policies have become more stringent, California has witnessed an unprecedented level of bifurcation between a growing cadre of high-income earners and a vast, rapidly expanding poor population. Meantime, the state’s percentage of middle-income earners— people making between $75,000 and $125,000—has fallen well below the national average. This decline of the middle class even occurs in the Bay Area, notes a recent report from the California Budget and Policy Center, where in 1989 the middle class accounted for 56 percent of all households in Silicon Valley, but by 2013, only 45.7 percent. Lower-income residents accounted for 30.3 percent of Silicon Valley’s households in 1989, and that number grew to 34.8 percent in 2013.

Perhaps the most egregious impact on middle and working-class residents can be seen in housing, where environmental regulations, often tied directly to climate policies, have discouraged construction, particularly in the suburbs and exurbs. The state’s determination to undo the primarily suburban, single-family development model in order to “save the planet” has succeeded both in raising prices well beyond national norms and creating a shortfall of some 3 million homes.

As shown in a recent UC Berkeley study, even if fully realized, the state’s proposals to force denser housing would only reach about 1 percent of its 2030 emissions goals. Brown and his acolytes ignore the often-unpredictable consequences of their actions, insisting that density will reduce carbon emissions while improving affordability and boosting transit use. Yet, as Los Angeles has densified under its last two mayors, transit ridership has continued to drop, in part, notes a another UC Berkeley report, because incentives for real-estate speculation have driven the area’s predominantly poor transit riders further from trains and buses, forcing many to purchase cars.

Undaunted, California plans to impose even stricter regulations, including the mandatory installation of solar panels on new houses, which could raise prices by roughly $20,000 per home. This is only the latest in a series of actions that undermines the aspirations of people who still seek “the California dream;” since 2007, California homeownership rates have dropped far more than the national average. By 2016, the overall homeownership rate in the state was just under 54 percent, compared with 64 percent in the rest of the country.

The groups most affected by these policies, ironically, are those on whom the ruling progressives rely for electoral majorities. Millennials have seen a more rapid decline in homeownership rates compared with their cohort elsewhere. But the biggest declines have been among historically disadvantaged minorities—Latinos and African-Americans. Latino homeownership rates in California are well below the national average. In 2016, only 31 percent of African-Americans in the Bay Area owned homes, well below the already low rate of 41 percent black homeownership in the rest of nation. Worse yet, the state takes no account of the impact of these policies on poorer Californians. Overall poverty rates in California declined in the decade before 2007, but the state’s poverty numbers have risen during the current boom. Today, 8 million Californians live in poverty, including 2 million children, by far the most of any state. The state’s largest city, Los Angeles, is also now by some measurements America’s poorest big city.

To allay concerns about housing affordability, the state has allocated about $300 million from its cap-and-trade funds for housing, a meager amount given that the cost of building affordable housing in urban areas can exceed $700,000 per unit. These benefits are dwarfed by those that wealthy Californians enjoy for the purchase of electric cars and home solar: Tesla car buyers with average incomes of $320,000 per year got more than $300 million in federal and state subsidies by early 2015 alone. By contrast, in early 2018, state electricity prices were 58 percent higher, and gasoline over 90 cents per gallon higher, than the national average, disproportionately hurting ethnic minorities, the working class, and the poor. Based on cost-of-living estimation tools from the Census Bureau, 28 percent of African-Americans in the state live in poverty, compared with 22 percent nationally. Fully one-third of Latinos, now the state’s largest ethnic group, live in poverty, compared with 21 percent outside the state.

In a normal political environment, such disparities would spark debate, not only among conservatives, but also traditional Democrats. Some, like failed independent candidate and longtime environmentalist Michael Shellenberger, have expressed the view that California’s policies have made it not “the most progressive state” but “the most racist one.” Recently, some 200 veteran civil rights leaders sued CARB, on the basis that state policies are skewed against the poor and minorities. So far, their voices have been largely ignored. The state’s prospective next governor, Gavin Newsom, seems eager to embrace and expand Brown’s policies, and few in the legislature seem likely to challenge them. The Republicans, for now, look incapable of mounting a challenge.

This leaves California on a perilous path toward greater class and racial divides, increasing poverty, and ever-more strenuous regulation. Other ways to reduce greenhouse gases—such as planting trees, more efficient transportation, and making suburbs more sustainable—should be on the table. The Hernandez-Friedman report could be a first step toward addressing these issues, but however it happens, a return to rationality is needed in the Golden State.

Joel Kotkin serves as Presidential Fellow in Urban Futures at Chapman University and executive director of the Center for Opportunity Urbanism (COU).

The Farmer’s Weekly advises UK farmers: Don’t miss out on climate change tax discounts Excerpts below with my bolds.

 

 

The NFU has warned farmers they face rises in climate change taxes unless they register for a discount scheme before the 31 July deadline.

The Climate Change Levy (CCL) is a tax charged on gas, electricity, LPG, coal and coke used by UK businesses.

In April 2019, CCL rates levied on energy bills will increase by about 3% for electricity and 7% for gas for any businesses that do not register for a discounted rate under an NFU scheme.

Under the CCL scheme, eligible businesses can receive a discount in return for meeting energy-efficiency or carbon-saving targets. Achieving these targets will enable the business to receive a discount until March 2023, the NFU says.

The NFU CCL scheme gives up to 93% levy reductions on electricity and 78% on gas to qualifying businesses in the pig, poultry and protected horticulture sectors. It is therefore imperative to sign up to the scheme before the deadline of 31 July, the union warns.

Example of annual CCL savings for poultry farm using 350,000 kWh of import electricity and 45,000 litres of LPG
Year	Non-member pays	CCL member pays	Member saving
2012-13	£3,615.50	£1,265.43	£2,350.08
2017-18	£4,608.10	£605.71	£4,002.39
2019-20	£6,907.75	£630.36	£6,277.40

Update Nov. 22, 2018

With the Democrats taking control of the US House of Representatives, we can expect attempts to again “fight climate change” by means of counter productive regulations.  This post explains why such policies are ineffective and produce unintended consequences, with results worse than doing nothing.

Background:  Heisenberg Uncertainty

In the sub-atomic domain of quantum mechanics, Werner Heisenberg, a German physicist, determined that our observations have an effect on the behavior of quanta (quantum particles).

The Heisenberg uncertainty principle states that it is impossible to know simultaneously the exact position and momentum of a particle. That is, the more exactly the position is determined, the less known the momentum, and vice versa. This principle is not a statement about the limits of technology, but a fundamental limit on what can be known about a particle at any given moment. This uncertainty arises because the act of measuring affects the object being measured. The only way to measure the position of something is using light, but, on the sub-atomic scale, the interaction of the light with the object inevitably changes the object’s position and its direction of travel.

Now skip to the world of governance and the effects of regulation. A similar finding shows that the act of regulating produces reactive behavior and unintended consequences contrary to the desired outcomes.

An article at Financial Times explains about Energy Regulations Unintended Consequences  Excerpts below with my bolds.

Goodhart’s Law holds that “any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes”. Originally coined by the economist Charles Goodhart as a critique of the use of money supply measures to guide monetary policy, it has been adopted as a useful concept in many other fields. The general principle is that when any measure is used as a target for policy, it becomes unreliable. It is an observable phenomenon in healthcare, in financial regulation and, it seems, in energy efficiency standards.

When governments set efficiency regulations such as the US Corporate Average Fuel Economy standards for vehicles, they are often what is called “attribute-based”, meaning that the rules take other characteristics into consideration when determining compliance. The Cafe standards, for example, vary according to the “footprint” of the vehicle: the area enclosed by its wheels. In Japan, fuel economy standards are weight-based. Like all regulations, fuel economy standards create incentives to game the system, and where attributes are important, that can mean finding ways to exploit the variations in requirements. There have long been suspicions that the footprint-based Cafe standards would encourage manufacturers to make larger cars for the US market, but a paper this week from Koichiro Ito of the University of Chicago and James Sallee of the University of California Berkeley provided the strongest evidence yet that those fears are likely to be justified.

Mr Ito and Mr Sallee looked at Japan’s experience with weight-based fuel economy standards, which changed in 2009, and concluded that “the Japanese car market has experienced a notable increase in weight in response to attribute-based regulation”. In the US, the Cafe standards create a similar pressure, but expressed in terms of size rather than weight. Mr Ito suggested that in Ford’s decision to end almost all car production in North America to focus on SUVs and trucks, “policy plays a substantial role”. It is not just that manufacturers are focusing on larger models; specific models are also getting bigger. Ford’s move, Mr Ito wrote, should be seen as an “alarm bell” warning of the flaws in the Cafe system. He suggests an alternative framework with a uniform standard and tradeable credits, as a more effective and lower-cost option. With the Trump administration now reviewing fuel economy and emissions standards, and facing challenges from California and many other states, the vehicle manufacturers appear to be in a state of confusion. An elegant idea for preserving plans for improving fuel economy while reducing the cost of compliance could be very welcome.

The paper is The Economics of Attribute-Based Regulation: Theory and Evidence from Fuel-Economy Standards Koichiro Ito, James M. Sallee NBER Working Paper No. 20500.  The authors explain:

An attribute-based regulation is a regulation that aims to change one characteristic of a product related to the externality (the “targeted characteristic”), but which takes some other characteristic (the “secondary attribute”) into consideration when determining compliance. For example, Corporate Average Fuel Economy (CAFE) standards in the United States recently adopted attribute-basing. Figure 1 shows that the new policy mandates a fuel-economy target that is a downward-sloping function of vehicle “footprint”—the square area trapped by a rectangle drawn to connect the vehicle’s tires.  Under this schedule, firms that make larger vehicles are allowed to have lower fuel economy. This has the potential benefit of harmonizing marginal costs of regulatory compliance across firms, but it also creates a distortionary incentive for automakers to manipulate vehicle footprint.

Attribute-basing is used in a variety of important economic policies. Fuel-economy regulations are attribute-based in China, Europe, Japan and the United States, which are the world’s four largest car markets. Energy efficiency standards for appliances, which allow larger products to consume more energy, are attribute-based all over the world. Regulations such as the Clean Air Act, the Family Medical Leave Act, and the Affordable Care Act are attribute-based because they exempt some firms based on size. In all of these examples, attribute-basing is designed to provide a weaker regulation for products or firms that will find compliance more difficult.

Summary from Heritage Foundation study Fuel Economy Standards Are a Costly Mistake Excerpt with my bolds.

The CAFE standards are not only an extremely inefficient way to reduce carbon dioxide emission but will also have a variety of unintended consequences.

For example, the post-2010 standards apply lower mileage requirements to vehicles with larger footprints. Thus, Whitefoot and Skerlos argued that there is an incentive to increase the size of vehicles.

Data from the first few years under the new standard confirm that the average footprint, weight, and horsepower of cars and trucks have indeed all increased since 2008, even as carbon emissions fell, reflecting the distorted incentives.

Manufacturers have found work-arounds to thwart the intent of the regulations. For example, the standards raised the price of large cars, such as station wagons, relative to light trucks. As a result, automakers created a new type of light truck—the sport utility vehicle (SUV)—which was covered by the lower standard and had low gas mileage but met consumers’ needs. Other automakers have simply chosen to miss the thresholds and pay fines on a sliding scale.

Another well-known flaw in CAFE standards is the “rebound effect.” When consumers are forced to buy more fuel-efficient vehicles, the cost per mile falls (since their cars use less gas) and they drive more. This offsets part of the fuel economy gain and adds congestion and road repair costs. Similarly, the rising price of new vehicles causes consumers to delay upgrades, leaving older vehicles on the road longer.

In addition, the higher purchase price of cars under a stricter CAFE standard is likely to force millions of households out of the new-car market altogether. Many households face credit constraints when borrowing money to purchase a car. David Wagner, Paulina Nusinovich, and Esteban Plaza-Jennings used Bureau of Labor Statistics data and typical finance industry debt-service-to-income ratios and estimated that 3.1 million to 14.9 million households would not have enough credit to purchase a new car under the 2025 CAFE standards.[34] This impact would fall disproportionately on poorer households and force the use of older cars with higher maintenance costs and with fuel economy that is generally lower than that of new cars.

CAFE standards may also have redistributed corporate profits to foreign automakers and away from Ford, General Motors (GM), and Chrysler (the Big Three), because foreign-headquartered firms tend to specialize in vehicles that are favored under the new standards.[35] 

Conclusion

CAFE standards are costly, inefficient, and ineffective regulations. They severely limit consumers’ ability to make their own choices concerning safety, comfort, affordability, and efficiency. Originally based on the belief that consumers undervalued fuel economy, the standards have morphed into climate control mandates. Under any justification, regulation gives the desires of government regulators precedence over those of the Americans who actually pay for the cars. Since the regulators undervalue the well-being of American consumers, the policy outcomes are predictably harmful.

Update Nov. 22, 2018

With the Democrats taking control of the US House of Representatives, we we will likely see them attempting again to “fight climate change” by means of counterproductive regulations and rules.  This post explains why such policies are ineffective, create unintended consequences that can make matters worse than doing nothing.

Background:  Hiesenberg Uncertainty

In the sub-atomic domain of quantum mechanics, Werner Heisenberg, a German physicist, determined that our observations have an effect on the behavior of quanta (quantum particles).

The Heisenberg uncertainty principle states that it is impossible to know simultaneously the exact position and momentum of a particle. That is, the more exactly the position is determined, the less known the momentum, and vice versa. This principle is not a statement about the limits of technology, but a fundamental limit on what can be known about a particle at any given moment. This uncertainty arises because the act of measuring affects the object being measured. The only way to measure the position of something is using light, but, on the sub-atomic scale, the interaction of the light with the object inevitably changes the object’s position and its direction of travel.

Now skip to the world of governance and the effects of regulation. A similar finding shows that the act of regulating produces reactive behavior and unintended consequences contrary to the desired outcomes.

An article at Financial Times explains about Energy Regulations Unintended Consequences  Excerpts below with my bolds.

Goodhart’s Law holds that “any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes”. Originally coined by the economist Charles Goodhart as a critique of the use of money supply measures to guide monetary policy, it has been adopted as a useful concept in many other fields. The general principle is that when any measure is used as a target for policy, it becomes unreliable. It is an observable phenomenon in healthcare, in financial regulation and, it seems, in energy efficiency standards.

When governments set efficiency regulations such as the US Corporate Average Fuel Economy standards for vehicles, they are often what is called “attribute-based”, meaning that the rules take other characteristics into consideration when determining compliance. The Cafe standards, for example, vary according to the “footprint” of the vehicle: the area enclosed by its wheels. In Japan, fuel economy standards are weight-based. Like all regulations, fuel economy standards create incentives to game the system, and where attributes are important, that can mean finding ways to exploit the variations in requirements. There have long been suspicions that the footprint-based Cafe standards would encourage manufacturers to make larger cars for the US market, but a paper this week from Koichiro Ito of the University of Chicago and James Sallee of the University of California Berkeley provided the strongest evidence yet that those fears are likely to be justified.

Mr Ito and Mr Sallee looked at Japan’s experience with weight-based fuel economy standards, which changed in 2009, and concluded that “the Japanese car market has experienced a notable increase in weight in response to attribute-based regulation”. In the US, the Cafe standards create a similar pressure, but expressed in terms of size rather than weight. Mr Ito suggested that in Ford’s decision to end almost all car production in North America to focus on SUVs and trucks, “policy plays a substantial role”. It is not just that manufacturers are focusing on larger models; specific models are also getting bigger. Ford’s move, Mr Ito wrote, should be seen as an “alarm bell” warning of the flaws in the Cafe system. He suggests an alternative framework with a uniform standard and tradeable credits, as a more effective and lower-cost option. With the Trump administration now reviewing fuel economy and emissions standards, and facing challenges from California and many other states, the vehicle manufacturers appear to be in a state of confusion. An elegant idea for preserving plans for improving fuel economy while reducing the cost of compliance could be very welcome.

The paper is The Economics of Attribute-Based Regulation: Theory and Evidence from Fuel-Economy Standards Koichiro Ito, James M. Sallee NBER Working Paper No. 20500.  The authors explain:

An attribute-based regulation is a regulation that aims to change one characteristic of a product related to the externality (the “targeted characteristic”), but which takes some other characteristic (the “secondary attribute”) into consideration when determining compliance. For example, Corporate Average Fuel Economy (CAFE) standards in the United States recently adopted attribute-basing. Figure 1 shows that the new policy mandates a fuel-economy target that is a downward-sloping function of vehicle “footprint”—the square area trapped by a rectangle drawn to connect the vehicle’s tires.  Under this schedule, firms that make larger vehicles are allowed to have lower fuel economy. This has the potential benefit of harmonizing marginal costs of regulatory compliance across firms, but it also creates a distortionary incentive for automakers to manipulate vehicle footprint.

Attribute-basing is used in a variety of important economic policies. Fuel-economy regulations are attribute-based in China, Europe, Japan and the United States, which are the world’s four largest car markets. Energy efficiency standards for appliances, which allow larger products to consume more energy, are attribute-based all over the world. Regulations such as the Clean Air Act, the Family Medical Leave Act, and the Affordable Care Act are attribute-based because they exempt some firms based on size. In all of these examples, attribute-basing is designed to provide a weaker regulation for products or firms that will find compliance more difficult.

Summary from Heritage Foundation study Fuel Economy Standards Are a Costly Mistake Excerpt with my bolds.

The CAFE standards are not only an extremely inefficient way to reduce carbon dioxide emission but will also have a variety of unintended consequences.

For example, the post-2010 standards apply lower mileage requirements to vehicles with larger footprints. Thus, Whitefoot and Skerlos argued that there is an incentive to increase the size of vehicles.

Data from the first few years under the new standard confirm that the average footprint, weight, and horsepower of cars and trucks have indeed all increased since 2008, even as carbon emissions fell, reflecting the distorted incentives.

Manufacturers have found work-arounds to thwart the intent of the regulations. For example, the standards raised the price of large cars, such as station wagons, relative to light trucks. As a result, automakers created a new type of light truck—the sport utility vehicle (SUV)—which was covered by the lower standard and had low gas mileage but met consumers’ needs. Other automakers have simply chosen to miss the thresholds and pay fines on a sliding scale.

Another well-known flaw in CAFE standards is the “rebound effect.” When consumers are forced to buy more fuel-efficient vehicles, the cost per mile falls (since their cars use less gas) and they drive more. This offsets part of the fuel economy gain and adds congestion and road repair costs. Similarly, the rising price of new vehicles causes consumers to delay upgrades, leaving older vehicles on the road longer.

In addition, the higher purchase price of cars under a stricter CAFE standard is likely to force millions of households out of the new-car market altogether. Many households face credit constraints when borrowing money to purchase a car. David Wagner, Paulina Nusinovich, and Esteban Plaza-Jennings used Bureau of Labor Statistics data and typical finance industry debt-service-to-income ratios and estimated that 3.1 million to 14.9 million households would not have enough credit to purchase a new car under the 2025 CAFE standards.[34] This impact would fall disproportionately on poorer households and force the use of older cars with higher maintenance costs and with fuel economy that is generally lower than that of new cars.

CAFE standards may also have redistributed corporate profits to foreign automakers and away from Ford, General Motors (GM), and Chrysler (the Big Three), because foreign-headquartered firms tend to specialize in vehicles that are favored under the new standards.[35] 

Conclusion

CAFE standards are costly, inefficient, and ineffective regulations. They severely limit consumers’ ability to make their own choices concerning safety, comfort, affordability, and efficiency. Originally based on the belief that consumers undervalued fuel economy, the standards have morphed into climate control mandates. Under any justification, regulation gives the desires of government regulators precedence over those of the Americans who actually pay for the cars. Since the regulators undervalue the well-being of American consumers, the policy outcomes are predictably harmful.

The Carbon Tax experiment in British Columbia is summarized by Kris Sims, the B.C. director of the Canadian Taxpayers Federation.  He writes in the Financial Post
B.C. tricked Canadian politicians into believing its carbon tax policy works. It doesn’t.  Excerpts below in italics with my bolds.

While Prime Minister Justin Trudeau’s government gets set to force a federal carbon tax on all of Canada’s provinces and territories, taxpayers across the country deserve to know what happened in the country’s carbon-tax test case, British Columbia.

The Trojan horse of the carbon tax was wheeled into the B.C. public square in 2008 with the government’s promise that it would somehow cost average people nothing and would be “revenue neutral.” But, that turned out to be a cautionary tale for the ages.

Revenue Neutral? Hah.

For years, the carbon-tax cheerleaders continued to laud the fee that’s been tacked on to carbon-emitting goods and services, urging the rest of the country to follow suit. It was touted as a magical formula that would somehow protect the environment and lower taxes all at once. Visions of hydrogen-powered buses and solar cars danced in the heads of the green bean counters. “Revenue neutral” they all sang.

Before the charade was abandoned entirely, this is what “revenue neutral” meant for the B.C. carbon tax: In 2016–17 the provincial government raked in $1.2 billion in the carbon tax from taxpayers. The amount is listed on page 68 in the budget document as a frame entitled: “Revenue Neutral Carbon Tax Plan.” Then, the government scraped together 17 sundry tax credits and stuffed them into the carbon-tax frame, making the tax sum balance out to zero. Abracadabra: “revenue neutral.” That’s all it meant.

It was a crass puppet show. Every provincial and federal budget includes tax credits for things like home renovations, children’s fitness programs, film incentives, and business training tax credits. In B.C., however, there is an uncommon carbon tax taken from people, so these very common credits were just repackaged to make the tax appear neutral on paper. As a senior B.C. government official admitted during last year’s budget lockup, “this was always just an accounting exercise.”

Raising the Cost of Living

The carbon tax is not an accounting exercise for B.C. families. It’s an expensive reality for any Canadian subjected to it.

Under the federal formula at $35 per tonne, the carbon tax costs a lot of money at the gas station, approximately 8.55 cents per litre of gasoline with the GST tacked onto it, and 10.06 cents per litre for diesel with the GST. To fill up an average Toyota Camry with a 70-litre fuel tank costs $6 in carbon tax. A Dodge Ram pick-up truck costs more than $10 in carbon tax and a Ford Super Duty Diesel costs more than $17 per fill up. For tractor-trailer trucks, it costs $45 in carbon taxes to fill up just one of those cylinder tanks with diesel. Canadians bought more than 40 billion litres of gasoline and more than 16 billion litres of diesel fuel in 2016. Multiply that volume by the carbon tax per litre and the government haul is crystal clear.

(Note: My spreadsheet shows 5 Billion dollars in tax for 2016, had those rates been in effect across Canada.  In the years 2008 to 2014, BC alone took in 5 Billion $ in carbon tax revenues.  At the current (since 2012) $30/ton rate, BC carbon tax revenues are projected to be $1.2 Billion per year.)

BC Emissions Higher Than Ever

It gets worse, though, because even with the carbon tax costing Canadians billions of dollars, it’s still not reducing emissions, according to environmentalists leading the carbon-tax charge. In January, the Sierra Club reported on the B.C. experiment: “emissions were higher in 2015 than in 2010 and have risen in four of the last five years. B.C.’s latest emissions data mark years of failure to reduce emissions by more than a token amount.” If taking billions of dollars away from Canadians doesn’t reduce emissions, then, what is the point of this forced carbon tax?

Carbon Tax Not Stopping Emissions? Raise the Ante.

When the forced federal carbon tax is set at $50 per tonne in 2022, that means that gasoline will have a carbon tax of 11.63 cents per litre. Will that be enough? Not according to the Environment Canada bureaucrats who told Environment Minister Catherine McKenna that the country needs a carbon tax of $100 per tonne by 2020 and a tax of $300 per tonne by 2050 to meet the government’s promises under the Paris climate agreement. That would be 23 cents per litre on gas in 2020 and then 70 cents per litre by 2050 — about $50 extra in today’s money to fill up the family sedan.

A Tax Against Life As We Know It

People need to use oil and gas. The carbon tax doesn’t make people “reduce their use” of this modern lifeblood, it just costs them a lot of money while not stopping the emissions. Our economy and our modern way of life depend on oil and gas. We use them to run our power stations, till our soil, plant our food, mine our minerals, mill our wood, heat our greenhouses, manufacture all of our goods and haul those goods and food to market.

We use oil and gas products to travel to school, work and the beach. Planes, automobiles and transit buses all use oil and gas, and they were manufactured and shipped to us using oil and gas. All of these actions of everyday life depend upon the miracle of hydrocarbons, so, the carbon tax is a tax on everything.

Carbon taxes don’t just make gasoline more expensive, they make life much more expensive.