In July 2002, California Assembly Bill 1493 (A.B. 1493) was signed into law. The law requires that the California Air Resources Board (CARB) develop and adopt, by January 1, 2005, greenhouse gas emission standards for light-duty vehicles that provide the maximum feasible reduction in emissions. In estimating the feasibility of the standard, CARB is required to consider cost-effectiveness, technological capability, economic impacts, and flexibility for manufacturers in meeting the standard. 

Tailpipe emissions of CO₂, which are directly proportional to vehicle fuel consumption, account for the vast majority of total greenhouse gas emissions from vehicles. A.B. 1493 does not mandate the sale of any specific technology and prohibits the use of the following as options for greenhouse gas reduction: mandatory trip reductions; land use restrictions; additional fees and/or taxes on any motor vehicle, fuel, or vehicle miles traveled; a ban on any vehicle category; reductions in vehicle weight; or a limitation or reduction on the speed limit on any street or highway in the State. Given these limitations and the preponderant share of total vehicle greenhouse gas emissions resulting from fuel consumption, improvements in fuel economy are the only practical way to attain any standard that requires a significant reduction in emissions. 

CARB released a report on August 6, 2004, detailing the reasons for the proposed rulemaking, providing light vehicle regulations to be considered for adoption, and outlining the required analyses used to develop the proposed regulations. The standards for light-duty vehicle greenhouse gas emissions were adopted in September 2004. The auto industry opposes A.B. 1493 and has filed suit against CARB, stating that the California greenhouse gas emissions standards are preempted by a Federal statute that gives the U.S. Department of Transportation the only authority to regulate fuel economy [44]. Given the uncertainty surrounding the possible outcome of this litigation, the A.B. 1493 greenhouse gas emission standards are not represented in the AEO2005 reference case; however, the standards were analyzed to estimate the potential impact on vehicle prices, greenhouse gas emissions, regional energy demand, and regional fuel prices. 

A.B. 1493 Regulation 

The greenhouse gas emission standards adopted in September 2004 incorporate emissions associated with vehicle operation, air conditioning operation, refrigerant emissions from the air conditioning system, and upstream emissions associated with the production of vehicle fuel. The emission standards apply to light-duty noncommercial passenger vehicles manufactured for model year 2009 and beyond. The standards, specified in terms of CO₂ equivalent emissions, apply to two size classes of vehicles: (1) passenger cars and small light-duty trucks with a loaded vehicle weight rating of 3,750 pounds or less, and (2) heavy light-duty trucks with a loaded vehicle weight rating greater than 3,750 pounds and a gross vehicle weight rating less than 8,500 pounds. The CO₂ equivalent emission standard for heavy light trucks also includes noncommercial passenger trucks between 8,500 pounds and 10,000 pounds. The regulation adopted in September 2004 sets near-term emission standards, phased in between 2009 and 2012, and mid-term emission standards, phased in between 2013 and 2016. After 2016, the emissions standards are assumed to remain constant. Table 9 summarizes the CO₂ equivalent standards. 

The regulations allow for CO₂ emission reduction credits that can be earned and traded for 2000 through 2008 model year vehicles. If a manufacturer decides to opt into the program before 2009, credits will be earned if average CO₂ equivalent emissions for that manufacturer’s fleet are lower than the 2012 standards. The regulations also provide flexibility in complying with the CO₂ emission standards. Manufacturers can apply for alternative compliance credits for eligible 2009 vehicles and later model years if those vehicles achieve greenhouse gas reductions through the use of alternative fuels. In addition, credits are provided for the use of advanced leak reduction air conditioning components and for the use of HFC-152a as the refrigerant. The regulations also set light vehicle nitrous oxide (N₂O) and methane (CH₄) emission standards. 

For this analysis, the CO₂ equivalent emission standards were converted to miles per gallon fuel economy equivalents (Table 10) [45]. The fuel economy equivalents shown in Table 10 assume that manufacturers will earn the maximum allowable air conditioning credits. The methodology used to estimate the fuel economy equivalents assumes that manufacturers will meet the N₂O and CH₄ standards and includes CO₂ equivalent emissions associated with N₂O and CH₄ emissions, which are generated by the exhaust catalyst and incomplete combustion. The fuel economy equivalent standards are assumed to remain constant after 2016. 

Analysis and Results 

Two cases were developed to measure the potential impact of the California light vehicle greenhouse gas emission standards on energy demand, fuel prices, and vehicle prices. The A.B. 1493 California-only case assumes that only California will adopt the new standards. The A.B. 1493 extended case assumes that New York, Maine, Massachusetts, and Vermont will also adopt the California standards for greenhouse gas emissions for light-duty vehicles. Those States have already adopted California emissions standards applicable to other types of vehicle emissions [46]. 

Both cases examined here assume that fuel economy impacts are limited to those States adopting the regulation and that the fuel economy and sales mix of vehicles sold in non-adopting States remain at levels achieved in the AEO2005 reference case. Although not addressed in this analysis, it is conceivable that State-based fuel economy regulation could cause unintended shifts in light vehicle markets. State-specified fuel economy standards might inadvertently provide manufacturers an opportunity to maintain or increase profits through the sale of larger, less efficient vehicles (sport utility vehicles, minivans, and large cars) in areas that do not adopt the California standards, while complying with the nationally based CAFE standards. 

As noted above, A.B. 1493 allows CO₂ emission credits for early compliance and for the sale of alternative-fuel vehicles. However, this analysis does not attempt to quantify the impact that either would have on the fuel economy required to meet the CO₂ equivalent emission standards. 

Impacts on Vehicle Sales and Prices 

For States adopting A.B. 1493, it is projected that advanced technologies implemented in conventional light-duty vehicles will account for the majority of the fuel economy improvements needed to achieve the required reductions in CO₂ emissions. For cars, in addition to the fuel economy gains achieved through advanced conventional technologies, increased sales of hybrid and diesel vehicles will be required to meet the fuel economy goal. Relative to the  projections in the AEO2005 reference case, hybrid car sales in those States adopting A.B. 1493 are projected to increase from 5.8 percent to 11.0 percent of total new car sales in 2016, and diesel car sales are projected to increase from 0.3 percent to 0.9 percent of total new car sales in 2016. 

As a result of increased use of advanced conventional technologies and increased market penetration of hybrid and diesel vehicles, the average price of a new car in 2016 is projected to increase by $1,860, and the average price of a new truck is projected to increase by $500 (2003 dollars) in both cases in the analysis. These cost estimates do not include the costs associated with credits earned from improved air conditioning systems or the emission control equipment needed to achieve the N₂O and CH₄ emission standards. They do account for increased demand for heavier vehicles, improved performance, and increased fuel economy that is projected to continue throughout the forecast period in the AEO2005 reference case. 

The EIA projections for vehicle sales and price impacts can be compared with those reported in the CARB staff analysis [47], which estimates that the average price of new passenger cars and small light trucks will increase by $1,064, and the average price of a new heavy light truck will increase by $1,029, in 2016 compared with the price of a model year 2009 base vehicle. Comparisons of the 2016 model year vehicle price to the 2009 base vehicle price implicitly assume that continued consumer demand for increased vehicle weight and performance will have no impact on the cost of complying with the regulation. CARB provided no information about its assumptions for fuel economy, weight, and performance ratings for the 2009 base vehicle. 

Impacts on Transportation Energy Use and CO₂ Equivalent Emissions 

In the A.B. 1493 California-only case, EIA estimates that total national transportation energy use in 2025 would be reduced by 0.15 million barrels per day (0.7 percent) and CO₂ equivalent emissions would be reduced by 21 million metric tons (0.8 percent) relative to the AEO2005 reference case projections. In the A.B. 1493 extended case, EIA estimates that total national transportation energy use in 2025 would be reduced by 0.22 million barrels per day (1.1 percent) and CO₂ equivalent emissions by 33 million metric tons (1.2 percent) relative to the AEO2005 reference case projections. 

The CARB staff analysis provides estimated emissions reduction impacts for 2020 and 2030, which allow for a direct comparison with EIA’s results for 2020. In the A.B. 1493 California-only case, EIA projects that 2020 light vehicle CO₂ equivalent emissions would be reduced by 14.9 million metric tons (Table 11). CARB’s analysis determined that by 2020 CO₂ equivalent emissions from light-duty vehicles would be reduced by 29 million metric tons, approximately double EIA’s estimate [48]. 

The difference in projected reductions in CO₂ equivalent emissions in the two analyses can be explained by three key factors. The first is the projected distribution of cars and light trucks in use. The CARB analysis projects that, in 2020, passenger cars and light trucks under 3,750 pounds loaded vehicle weight (so-called “small light trucks”) would account for approximately 80 percent of the light-duty vehicle stock and associated vehicle miles traveled. Specifically, passenger cars account for 63.6 percent of the total stock, small light trucks account for 18.2 percent of the total stock, and heavy light trucks account for 18.1 percent of the total stock [49]. In comparison, EIA’s analysis projects that passenger cars would account for 46.5 percent of the light vehicle stock, and all light trucks, which are predominantly over 3,750 pounds loaded vehicle weight, would account for 53.5 percent [50]. This is significant because, as shown in the CARB analysis, passenger cars and small light trucks are required to meet the more stringent CO₂ equivalent standard, which will result in greater projected emission reductions. 

Although NEMS does not specifically model light trucks less than 3,750 pounds loaded vehicle weight, light trucks are disaggregated by vehicle class. The fuel economy equivalent standards shown in Table 10 were modified to reflect an assumption that light trucks under 3,750 pounds gross vehicle weight would account for 12.3 percent of new light truck sales [51]. As a result, the light truck fuel economy equivalent standard used in EIA’s analysis would increase to 26.4 miles per gallon by 2016. 

The second significant difference between the two analyses is projected baseline fuel economy. Although no data were available for the baseline fuel economy projected in the CARB analysis, CARB staff informed EIA that their baseline for greenhouse gas emissions from light-duty vehicles does not project increases in new light vehicle fuel economy [52]. The AEO2005 reference case projects that new car fuel economy will increase from 29.5 miles per gallon in 2003 to 30.6 miles per gallon in 2020, and that new light truck fuel economy will increase from 21.8 miles per gallon in 2003 to 24.1 miles per gallon in 2020. As a result, the EIA projection of baseline fuel economy improvement reduces the amount of CO₂ that can be saved by the A.B. 1493 standards relative to savings available under the CARB baseline assumption of no change in new vehicle fuel efficiency. 

The third significant difference between the analyses is the projected impact of improved air conditioning systems on the reduction of CO₂ equivalent emissions. The CARB analysis includes CO₂ equivalent emission reductions associated with improved air conditioning. EIA’s analysis assumes that manufacturers will use the maximum allowable air conditioning credits, but it does not explicitly model air conditioning systems or associated emissions. Analyses of the credits allowed for this technology indicate that approximately 4 to 7 percent of the total CO₂ equivalent emission reductions reported by CARB could be attributed to improved light vehicle air conditioning systems. 

Regional Impacts on Transportation Fuel Supply and Prices 

Relative to the AEO2005 reference case, the A.B. 1493 California-only case projects reduced consumption of gasoline and diesel fuel in 2025 by 153,000 and 6,000 barrels per day, respectively, in Census Division 9 [53]. As a result, production of gasoline in 2025 is projected to decrease by 34,000 barrels per day, with an additional reduction of 109,000 barrels per day in gasoline imports. The balance of the difference results from changes in interregional transfers. Diesel fuel production in Census Division 9 is projected to decrease by 7,000 barrels per day in 2025. The reduction in diesel supply is slightly greater than the reduction in diesel consumption due to refinery optimization for gasoline production. As a result, disproportionate reductions in gasoline demand, as projected in the A.B. 1493 California-only case, affect the production of diesel even though the demand for diesel fuel is not projected to fall by as much. 

A.B. 1493 has little projected impact on diesel prices in Census Division 9. Because the reduction in gasoline demand causes an almost equal reduction in supply in the A.B. 1493 California-only case, the average gasoline price for Census Division 9 between 2016 and 2025 is projected to be 0.6 cents per gallon lower, than projected in the AEO2005 reference case. 

The A.B. 1493 extended case, which applies the same light vehicle greenhouse gas reduction requirements to selected States in Census Divisions 1 and 2 in addition to California, projects reduced consumption of gasoline and diesel fuel in 2025, by 88,000 and 4,000 barrels per day, respectively, in the New England and Mid-Atlantic regions [54]. This demand reduction results in a similar reduction in gasoline imports to the two regions, although the projected reduction of 74,000 barrels per day in gasoline imports is less than the reduction in demand. In contrast to Census Division 9, Census Divisions 1 and 2 are traditionally more integrated to fuel supplies from other refining regions. As such, a reduction in gasoline consumption of 4.5 percent (or 88,000 barrels per day) in Census Divisions 1 and 2, relative to the AEO2005 reference case, represents a reduction of only 0.9 percent when a broader market east of the Rocky Mountains including Census Divisions 1 through 7 (or Petroleum Administration for Defense Districts 1 through 3) is considered. The A.B. 1493 extended case has negligible impact on gasoline and diesel prices in Census Divisions 1 and 2. 

Conclusion 

Analysis of two A.B. 1493 cases indicates small national impacts on energy demand and fuel prices. The impact of A.B. 1493 could be more or less significant depending on manufacturer behavior, consumer response, and the number of States assumed to adopt the program if its legality is upheld. Because the required improvements in car fuel economy are much more stringent then those required for light trucks, above 3,750 pounds, a category that includes 88 percent of total light truck sales, consumer preference for larger high performance vehicles could spur further increases in the demand for light trucks, which counters the intent of the regulation. Further complicating the issue is the behavior of vehicle manufacturers with respect to their fiduciary responsibility to comply with nationally-based CAFE standards while also meeting niche market CO₂ emissions requirements. These issues, coupled with pending National Highway Traffic Safety Administration modifications to the current CAFE structure and the legal challenges facing A.B. 1493, create significant uncertainty with respect to the evaluation of the new California regulation.

Notes and Sources

Contact: John Maples
Phone: 202-586-1757
E-mail: john.maples@eia.doe.gov