Among the proposed ways of fighting greenhouse gas emissions, the most popular seems to be a "cap and trade" system. It works like this: the government establishes a ceiling on the total amount of CO2 per year that an industry such as electric power generation is allowed to emit. Then every year, it lowers this ceiling a bit. Companies can meet their reduced quotas in two ways: 1) lower their own emissions with improved technology, and/or 2) purchase emission "credits" from other companies who have reduced their own emissions more than the required amount.
These CO2 credits are traded on the open market, and their value is set by supply and demand. Their cost acts as a penalty on companies that don't reduce emissions, and a bonus for companies that do.
Even some Republicans support this concept, since it unleashes "the magic of the free market" to meet social goals, without the gummint "picking winners" or "dictating solutions".
Well, what if we applied some of that magic to the auto industry? Here's how it might work…
First consider the current CAFE (Corporate Average Fuel Economy) system. It's sort of like a "cap" system without the "trade", since each auto company is treated as an isolated entity. If Ford or Toyota wants to sell more gas guzzlers, it has to also sell more economy cars to keep its average mileage rating in compliance. But it's not actually a hard cap, because any company can sell as many cars as it wants as long as they comply.
CAFE can reduce overall emissions (the thing we actually need to control), but only indirectly; there's no actual limit on total emissions. So what the government ought to do is say, in effect, "All cars built in 2010 can only burn a total of X gallons of fuel per year" (based on average miles driven per vehicle). For the 2011 fleet, the total allowed annual fuel burn is something less than X, and so on into the future. Instead of "CAFE", call it "TEA": Total Emissions Allowance.
Just like with carbon credits for the electric power companies, car manufacturers could meet their quota by improving the mileage of the cars they sell, and/or purchasing credits from other car companies making more efficient fleets. This would accomplish several things:
- It would set a hard (and declining) limit on total CO2 emissions from cars.
- It would reward companies that beat their quotas, and penalize companies that didn't.
- It would give the car manufacturers more flexibility. Cadillac or Mercedes could continue to sell cars with poor average fuel economy, but they and their customers would pay for the privilege.
- It could make high-mileage cars more affordable by, in effect, subsidizing their manufacture.
Note that if there was a boom in auto sales, the manufacturers would still have to keep total emissions within the quota, providing even more incentive to make high-mileage cars (If the government felt that this provision constrained economic growth too much, it could perhaps relax the cap temporarily, especially in the early years—but this would have to be insulated from political manipulation. If the cap wasn't relaxed in boom years, it would tend to constrain the supply of new cars, driving prices up somewhat and adding to industry profits, especially on their high-mileage models—maybe not a bad thing for cash-strapped companies that need capital to invest in the next round of emission cutting.)
So there it is: to fight greenhouse emissions more effectively we need to switch the auto industry from CAFE to TEA.
Discuss…