The California Pavley Legislation (ab-1493) Background




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The California Pavley Legislation (AB-1493)

Background
The California legislature passed AB-1493, commonly known as “Pavley,” in 2001. The legislation is named for its lead author, State Assembly member Fran Pavley. The legislation was created to reduce the levels of greenhouse gas emissions produced by vehicles in the state of California by regulating carbon dioxide emission levels per mile traveled of new vehicles sold in the state. The legislation does not set the levels of CO2 emissions directly, instead directing the California Air Resources Board (CARB) to set the requirements needed to achieve the “maximum feasible reduction of vehicle greenhouse gas emissions.”1

The Legislation sets guidelines to ensure that these reductions in vehicle CO2 emissions are done in a manner that takes into consideration: the technological feasibility of meeting the regulation, the economic impacts of imposing the regulations on the state, and flexibility in the modes of compliance.2 The legislation also allows for the granting of emissions credits from vehicles meeting the set standards before the start of regulation.

The Legislation is prohibited from accomplishing CO2 emission reduction goals by; imposing fees or taxes on vehicles, fuels or vehicle miles traveled, banning the sale of any vehicle category, requiring a reduction in vehicle weight, or mandating changes in speed limits within the state.3

The guidelines set by the legislation divide vehicles into two separate categories with different CO2-equivalent emissions levels. The vehicle categories are “PC/LDT1,” which includes passenger cars and light trucks/vans/SUVs, and “LDT2” including heavy trucks/vans/SUVs. Standards set by the legislation were determined by the California Air Resources Board by examining current levels of emissions using the year 2000 as the baseline CO2-equivalent levels for each vehicle category. Vehicle emissions standards apply only to new vehicles, and are to begin with the 2009 model year vehicles. Each successive year after the implementation of the standards requires a reduction in the regulated levels from the previous model year. In setting the emission levels, the technologies available and the approximate costs of applying these technologies to vehicles were taken into account to enable the reductions to be done in a cost-effective manner. In determining the cost-effectiveness of the requirements, the approximate increase in vehicle-cost is compared to the yearly operational cost of owning the vehicle. The regulations levels as set by CARB reportedly will see cost reductions in operating cost due to increased vehicle efficiency that will offset the increased vehicle cost.



The Situation in California
The state of California is the only state that has been granted a waiver to the federal Clean Air Act’s regulation of state vehicle emission laws. The Clean Air Act (CAA) of 1970 allows California to regulate emissions within the state at a level more stringent than federal standards, a later amendment allows other states to adopt California’s stricter emissions standards.4

California’s ability to regulate emissions through AB-1493 has come under legal pressure by the state’s automotive industry due to the language of the federal Energy Policy and Conservation Act of 1975 (EPCA). EPCA effectively preempts any state fuel economy legislation without creating an exception for California, unlike the CAA. No state is allowed by the EPCA to create legislation that regulates the fuel economy of its vehicles, and must adhere to the federal fuel economy regulations, currently set by the Corporate Average Fuel Economy (CAFE) standards.5

California’s auto manufacturers are currently challenging AB-1493 under the claim that by regulating the emission of CO2 by motor vehicles, the legislation is effectively regulating the fuel efficiencies of the vehicles as well. Because the EPCA prevents any state from adopting standards other than those set by the federal regulations (currently the CAFE standards), it would be illegal for California to regulate CO2 emissions.6


Minnesota’s Current Situation
Due to technological advances, the fuel efficiency (Miles Per Gallon) has increased dramatically since the advent of the automobile. Much of the efficiency increases have been the result of fairly simple technology changes, such as catalytic converters and improved ignition timing devices. The average miles per gallon of the vehicle fleet in the United States has begun to level out as engineering has been directed toward alternative fuels and engine types.

The data provided by the United States Department of Transportation typically classifies vehicles as “passenger cars” and “other 2-axle vehicles”. The term “passenger car” includes all cars and may include some models of light trucks and SUVs, depending on drive-train and weight specifications. The “other 2-axle vehicle” category includes all other highway certified vehicles with two axles and has much lower average fuel efficiency due to the broad nature of the classification.

As seen in the figure below, the rate of increase in average fuel efficiency of passenger cars has decreased over the past 10 years. The increase MPG of other 2-axle vehicles in the US fleet has also begun to slow, with a decrease seen in the last two reported years. The slowing of efficiency increases may be due to a transfer of engineering efforts from the typical engine systems produced in the past. This slowing may also be affected by the increase in average vehicle life seen in US vehicles. The current average vehicle life is 13 years, with an average age in the fleet of 7.65 years.

Vehicle Miles Traveled (VMT) is the measure of total miles traveled by an average vehicle in a single year. Although the VMT for the country has been increasing at a high rate over the past ten years due to increases in personal vehicle numbers, road conditions, and in the distance traveled to work, the VMT in Minnesota has not increased as dramatically as the national average.

The average Minnesota vehicle travels slightly more than 33.5 miles per day and 12300 miles per year. At the national average of 22.4 MPG, a Minnesota passenger car uses almost 550 gallons of gasoline per year. At the same mileage, the average Minnesota truck at the national average of 16.2 MPG uses almost 760 gallons per year.

Minnesota’s motor fuel consumption has been steadily rising through the late 90’s and into the 21st century. The improvements in vehicle fuel efficiency have been met by an increasing population, and constantly increasing vehicle registrations. The current growth in motor fuel consumption in Minnesota is due to the increasing number of vehicles on our roads and will continue to increase unless a change is made.



In addition to the increased prices at the pump brought by more vehicles on the road, increased vehicle registrations also result in increased CO2 emissions throughout the state. Even with increases in vehicle efficiency, and only minor increases in Minnesota VMT numbers, the state of Minnesota produced 29,437,228 metric tons of CO2 from motor vehicles in 2004 alone. This is 124% of what was produced by motor vehicles in the state in 1995. With an increasing population, and an increased number of vehicle registrations due to a reliance on personal vehicles, these figure are sure to increase in the future if nothing is done.

The Projected Future of Vehicles in Minnesota
To enable an analysis examining the effects of adopting the California legislation AB-1493 in the state of Minnesota, we created a model for the future of automotive vehicles in the state. The assumptions made in this analysis are as follows: the average VMT is held at the 2004 level of 12300 miles/year to due to a slowing rate of increase, the average vehicle age in Minnesota’s fleet is 7.3 years with a vehicle life cycle of 13.7 years, Minnesota’s “other 2-axle vehicle” classification follows the federal breakdown for classification into the California system, 2002 baseline data for CO2-equivalent emissions is used for all vehicles prior to the proposed implementation of AB-1493 in Minnesota, all projections are made through the year 2025 to allow for a complete fleet turnover.

California AB-1493 divides vehicles into two classes for CO2 emission regulations, “PC/LDT1” (includes passenger cars and light trucks, vans and SUVs), and “LDT2” (heavy trucks, vans, and SUVs). The Minnesota vehicle registration data is classified into the categories of “Passenger Cars” and “Other 2-axle vehicles” and thus required re-classification. The breakdown of the entire US fleet was used as an estimate in re-classifying the “other 2-axle vehicle” classification to fit the California system. The registrations of light trucks, vans and SUVs were placed in the “PC/LDT1” category for this projection, medium and heavy trucks, vans and SUVs were placed in the “LDT2” classification. We calculated the average rate of increase in vehicle registrations for each class over the period from 1995 to 2004 and projected the figures to 2025. The following graph shows the projected vehicle registrations in Minnesota through the year 2025.

The model projects that more than 6 million vehicles will be on Minnesota’s roads by the year 2015, and by the year 2025 the number of vehicles in the state will have nearly doubled from the 2000 figures.

It should be noted that the percentage of vehicles in the much less efficient “LDT2” category is projected to increase, with a decrease in the rate of passenger car registrations. As all vehicle registrations increase, so too will gasoline consumption and the CO2 emissions from its use. The use of gasoline by motor vehicles in Minnesota produced close to 23 million metric tons of CO2 in 2004, and growth at current rates will result in 27 million metric tons in 2010 and 38.5 million metric tons in 2020.




These projected increases in vehicle numbers and fuel use pose threats to our state not only in increased levels of greenhouse gas emissions, but also in increased dependency and expenditures on non-renewable resources. It is essential to our way of life that we look for new ways to diminish or reverse these trends.


The Adoption of Pavley AB-1493 Legislation in Minnesota
Although Minnesota does not have the authority to create legislation to reduce emissions, the 1977 amendments to the Clean Air Act allow all states to adopt California emissions standards once California has received a formal EPA waiver. This “piggyback” amendment allows Minnesota to take an active role in the reduction of harmful greenhouse gas emissions such as CO2.

Adopting the California standards requires relatively little internal work for the state of Minnesota, as California has provided the background research and has set standards for CO2-equivalent emissions in a manner that is intended to be both feasible for automotive manufacturers, and economical for the consumer.

The California legislation sets maximum allowable CO2-equivalent emissions standards on all new vehicles sold in the state based on a year 2000 baseline assumption. The following is an analysis of a proposed adoption of California’s AB-1493 by the state of Minnesota.

The analysis uses a 2002 baseline emissions level for all vehicles currently in the state, and all vehicles of model year 2010 and later would be subject to the new emissions standards. As seen in the graph below, the adoption of this legislation would gradually phase in vehicles that produce less CO2-equivalent emissions per mile traveled, reducing the overall levels of projected emissions. The first year of the new regulations would see a reduction of 250,000 metric tons of CO2 emissions from motor vehicles. As the Minnesota fleet turns over, and more new vehicles subject to the legislation enter the fleet, the emission reductions would increase more dramatically. By the year 2015, 5 years after implementation, we would see a reduction of 3.5 million metric tons of CO2-equivalent emissions.



While the model shows a decrease in the rate of CO2 emissions growth, the predicted increase in total vehicles on Minnesota’s roads will continue to increase the total yearly emissions from our current levels. It should be noted that this model only projects emission reductions required by AB-1493 and does not take into account additional reductions that may be seen through an increase in the use of alternative fuels and new technologies that may be embraced by Minnesota’s vehicle owners.



Although no state has the authority to regulate vehicle fuel efficiencies, adopting the California legislation would indirectly increase the projected average fuel efficiency of vehicles in Minnesota. This increase in fuel efficiency is a result of the use of improved technologies in meeting proposed CO2-equivalent emissions standards. These increases in fuel efficiency would result in a reduced cost at the pump for vehicle owners, and also a reduction in the negative externalities caused by greenhouse gas emissions in Minnesota.

Economic Costs of Implementing AB-1493
Because the California legislation was created to both reduce the emission of greenhouse gas into the atmosphere, and to have the smallest possible impact on the economy of California, the legislation allows vehicle manufacturers to meet emission standards using the most cost-effective measures available. The estimated cost of meeting the standards for a single passenger car or light truck in the 2009 model year in California is $17.00. Because the proposed adoption of this legislation would begin implementation with the 2010 model year in Minnesota, we have created the following table to illustrate the expected costs of meeting these requirements.


 

 

Average Cost of Pavley

Gasoline Savings (Yearly)

Years Until Break Even

Model Year

Fuel Price

PC/LDT1

LDT2

PC/LDT1

LDT2

PC/LDT1

LDT2

2010

$2.50

$17.00

$36.00

$158.95

$260.35

0.11

0.14

2011

$2.50

$58.00

$85.00

$237.63

$328.30

0.24

0.26

2012

$2.50

$230.00

$176.00

$359.23

$435.59

0.64

0.40

2013

$2.50

$367.00

$277.00

$480.82

$539.31

0.76

0.51

2014

$2.50

$504.00

$434.00

$502.28

$560.76

1.00

0.77

2015

$2.50

$609.00

$581.00

$520.16

$578.65

1.17

1.00

2016

$2.50

$836.00

$804.00

$552.35

$610.83

1.51

1.32

2017

$2.50

$1,064.00

$1,029.00

$580.96

$643.02

1.83

1.60

The average costs listed for implementing AB-1493 for a single vehicle are the estimations from the 2004 California figures, assuming the same technology costs for new vehicles in Minnesota beginning with the model year 2010. The gasoline savings are estimated by calculating baseline fuel efficiencies required to meet the California CO2-equivalent emissions standards and applying these efficiencies to the assumed vehicle miles traveled of 12300 miles/year for a Minnesota vehicle and an estimated fuel price of $2.50/gallon.

Vehicles of the 2010 through 2014 model years for PC/LDT1 and 2010 through 2015 for LDT2 will see savings in price at the pump equal or greater to the increase in initial vehicle price as estimated by California’s Air Resources Board.

When the Pavley legislation was created, it was not assumed that gasoline prices would reach these levels, and the additional price of emission reducing technologies on new vehicles were expected to require a longer time span before savings in gasoline prices would match these costs. With current gasoline prices at such high levels, the estimated costs of reaching the emission reduction levels created by this legislation are offset by savings in decreased gasoline expenditures within the first two years of vehicle ownership.

Because the costs of implementing AB-1493 are placed upon the vehicle manufacturer and are expected to be imposed on the consumers of new vehicles, there is no cost to the state of Minnesota in adopting the legislation. Individual consumer costs are projected to be offset by reduced expenditures on gasoline which will benefit the entire state by reducing the projected demand for gasoline and in avoided CO2-equivalent emissions.

The table below projects the CO2-equivalent emission reductions, avoided fuel costs, and overall costs seen by the entire state with an adoption of the California legislation with implementation beginning in 2010.




















(Assume $2.50/gallon)

 

Total Emission Reductions

Total Cost

Dollars/Metric Ton

Dollars/Metric Ton

Avoided Fuel

Overall

Year

(Metric tons CO2)

 

(CO2 Reduction)

(C Reduction)

Cost

Cost

2010

251,499

$8,758,788

-$255.90

-$69.79

$73,117,572

-$64,358,784

2015

9,949,914

$727,404,778

-$217.62

-$59.35

$2,892,708,950

-$2,165,304,172

2020

41,781,856

$3,172,624,470

-$214.79

-$58.58

$12,147,114,741

-$8,974,490,271

2025

101,699,106

$6,198,456,676

-$229.78

-$62.67

$29,566,678,764

-$23,368,222,088

Adopting AB-1493 in Minnesota beginning with the model year 2010 would result in the abatement of 101.7 million metric tons of CO2 over the 15 year time period. The total emissions avoided by taking this action are 1.5 times greater than the total emissions produced by motor vehicles in the state from 1995 to 2004. This results in an average yearly abatement of 6.4 million metric tons of CO2, more than 60% of the total emissions produced by motor vehicles in the state in 2004.

Critics of the California legislation state that the estimated cost of outfitting a single vehicle with the technology needed to achieve the CO2-equivalent emissions goals are estimated by the California Air Resources Board at levels much lower than their actual cost. Even at three times the estimated cost of the current technologies available to make these reductions, the reduced expenditures on fuel due to increased vehicle efficiency surpasses the cost of outfitting the vehicles for Minnesota’s fleet. This is due to current gasoline prices of more than $2.50 for regular unleaded gasoline, with increases in gasoline prices projected in the future, the avoided fuel costs achieved by adopting this legislation will continue to rise.


Technology
To achieve Pavley standards
In the 2004 CARB report to the governor, specific technologies that are currently in use in some production vehicle models that when implemented will bring vehicles into compliance with the AB-1493 regulations. The technologies are as follows: Cylinder deactivation, improved transmissions, variable timing and lift, turbocharging, stoichiometric gasoline direct injection, and more efficient, low-leak air conditioning. These technologies were investigated in the CARB report and are the basis for the cost estimates for the production of vehicles under the Pavley legislation.

No new technologies need to be created or advanced beyond current levels to achieve the standards set by AB-1493, and the auto manufacturers are allowed to meet the emissions standards by adopting the technologies that are the most cost effective for their vehicles.


Future Technology
While vehicles that run primarily on gasoline are mandated under the California legislation, Alternative Fuel Vehicles have been dealt with by a system of emissions credits. The use of renewable fuels such as ethanol produce more CO2-equivalent emissions than gasoline—as a result, vehicles designed to run on these renewable fuels would be subject to stricter standards under the legislation. To prevent hindering the use of alternative fuels, a system of vehicle credits is established through AB-1493 that provides the vehicle manufacturer with tradable credits that can be used if their fleet average CO2 emissions rise above compliance levels from implementation through the model year 2014. Similar credits are established for early-compliance manufacturers with fleets below the regulated levels before the legislation takes effect. All credits can be traded or sold to other manufacturers but are phased out beginning in the 2012 model year.

Hybrid-vehicles are becoming increasingly popular throughout the United States due to their high fuel efficiencies and low emissions levels. AB-1493 does not direct the manufacture or sale of hybrid vehicles specifically, but the vehicles are included in the fleet analysis of manufacturers. The legislation does not assume that hybrids will be produced by the automotive industry and instead directs all models to the available technologies listed above. Hybrid production may allow vehicle manufacturers to earn early-compliance levels or reach fleet standards without adopting the technologies taken into account in the legislation.

Plug-in hybrids offer the same opportunities to the automotive industry as hybrids under AB-1493, although it should be noted that plug-in hybrids and plug-in electric vehicles require the use of electricity generally produced by means other than gasoline. In the state of Minnesota, this energy need would likely be met by increased electricity production from coal. The AB-1493 was created with the intention of reducing mobile source air pollution and smog forming GHG emissions, and as such does not deal with CO2 emissions produced by the burning of coal or other energy sources for the production of electricity used by vehicles.


Conclusions
In our analysis of California legislation AB-1493, the regulation of Carbon Dioxide- equivalent emissions in motor vehicles using the model outlined above, we determine that it would be cost-effective and beneficial to the state of Minnesota to adopt the California legislation in full beginning implementation in the 2010 model year.

This analysis determines that it is cost-effective for the state to adopt said legislation, as no additional costs will be brought against the state in adopting or implementing the legislation. The only perceived loss in revenue for the state that could occur is a possible loss of revenue from state gasoline taxes. This would not likely be a decrease in tax revenue, but a reduced rate of increase in the state’s revenue from gasoline taxation due to a projected increase in motor vehicle registrations that will likely increase gasoline demand at a level higher than the reduction brought by adopting AB-1493.

This analysis determines that it is also cost-effective for the average Minnesota resident for the state to adopt the California legislation. This is due to the relatively low price increases expected with the adoption of the technologies needed to meet CO2-emissions standards in relation to the price saved at the pump resulting from an increase in vehicle fuel efficiency. This analysis was conducted assuming a price for regular gasoline holding at $2.50/gallon, if the price of gasoline rises in the future the savings for the average consumer with a vehicle meeting AB-1493 standards will see increasing savings at the pump.

This analysis finds that it is possible to abate 101.7 million metric tons of Carbon Dioxide emissions by the year 2025 with no cost to the state of Minnesota. The economic outlook for the state of Minnesota with the adoption of the California legislation looks promising, as a projected $23.4 billion dollars that would have been spent on gasoline (at $2.50/gallon) will be available for consumption in the state’s economy.



The legal challenges brought against AB-1493 in California by the automotive industry may prevent California from upholding the CO2-equivalent emissions legislation investigated here. In the case that the state of California is allowed to continue with the emissions requirements, it is unlikely that similar legislation will be brought against states adopting California’s legislation. This is especially true in Minnesota due to the single automotive manufacturing plant in the state, which has recently announced shutdown well before the 2010 model year when the legislation would take effect in the state.

1 Report to the Legislature and the Governor - Regulations to Control Greenhouse Gas Emissions from Motor Vehicles, California Environmental Protection Agency Air Resources Board, 2004, pp. 2.

2Giovinazzo, Christopher T., California’s Global Warming Bill: Will Fuel Economy Preemption Curb California’s Air Pollutnio Leadership? Ecology L.Q. 893-954 (2003).

3 http://democrats.assembly.ca.gov/members/a41/, accessed April 12, 2006.

4 The Clean Air Act, http://www.epa.gov/oar/caa/contents.html, Accessed April 12, 2006.

5 http://www.nhtsa.dot.gov/cars/rules/cafe/overview.htm, Accessed April 12, 2006.

6 For more in-depth legal analysis, see Giovinazzo, Christopher T., California’s Global Warming Bill: Will Fuel Economy Preemption Curb California’s Air Pollution Leadership? Ecology L.Q. 893-954 (2003).


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