Valerie Karplus PhD ’11, research scientist, and Sergey Paltsev, assistant director for economic research, both of MIT’s Joint Program on the Science and Policy of Global Change, were awarded the 2012 Pyke Johnson Award for their study on vehicle efficiency standards. The award, presented to the co-authors last night at the national Transportation Research Board’s (TRB) annual meeting, recognizes the best paper in the area of planning and the environment.
Published in November in the journal Transportation Research Record, their study looks into the new vehicle efficiency standards. The standards are considered one of the landmark environmental achievements of President Obama’s first term: They have been touted as a way to save consumers more than $1.7 trillion at the pump and cut vehicle emissions in half. Karplus looks behind the numbers to understand the full energy and economic impacts.
“Common thinking in Washington holds that any policy that seems to advance technology without creating new taxes must be a no brainer for the country. That misses the broader economic impact,” Karplus says. “As my colleague says, you may see more money in your front pocket at the pump, but you’re financing the policy out of your back pocket through your tax dollars and at the point of your vehicle purchase.”
University of Maine environmental economist Jonathan Rubin, chair of the TBR Transportation Energy Committee who was not part of the study, says, “The research of Dr. Karplus on the energy and climate impacts of the nation’s fuel economy standards for our cars and trucks makes an important contribution to policy-making based on science.”
The new fuel standards require automakers to install pollution-control technology to improve the fuel efficiency of cars by 5 percent and light trucks by 3.5 percent with each new model year starting in 2017. Karplus and her colleagues simulated the proposed standards, and found that while drivers of these more efficient vehicles will no doubt save at the pump, they could spend several thousands of dollars more when buying their new car. Even more troubling, diverting efforts toward improved vehicle efficiency distracts attention away from policies, such as carbon tax, that would target the broader economy and reduce fuel use or emissions more cost effectively.
Estimates of how costly the policy would be — in terms of both direct costs to consumers and the larger rippling costs to the economy — hinge on the relative cost of the technology available to improve efficiency. The shorter the time frame automakers are given to develop the technology and produce more efficient vehicles, the less time there will be for technological progress and other factors to drive down costs and the more consumers will need to pay upfront. Emissions and oil imports will drop — both due to increased fuel efficiency and as the higher vehicle costs weighs on consumer budgets — but will be offset as consumers face lower costs per mile traveled, incentivizing more driving.
Karplus hopes her results will help policymakers make more informed decisions going forward. She credits that goal to the innovative method she used, which weaves engineering and technology constraints into a broad economic framework and allows researchers to test the cost and other impacts of a policy at different levels of stringency. This method inherently takes account of life-cycle emissions, as well as impacts that transmit across fuel markets by affecting prices. For example, a policy might only consider gasoline use by plug-in electric hybrids, but that “tailpipe measure” doesn’t take into account the emissions created from building, transporting and recharging those batteries. Her approach does.
“There are a lot of hidden costs to a policy like this,” Karplus says. “This model doesn’t allow you to ignore other important aspects of the economy and energy systems. It requires you to be explicit about your technology and cost assumptions. It provides a framework that allows lawmakers to look at all the available information on costs and the state of the technology and decide how to best create or update policies.