Valerie J. Karplus, Ph.D. Jennifer Morris, Ph.D. candidate

1. Targeting one bird with two stones: The impact of combining a renewable electricity standard and a vehicle fuel economy standard Valerie J. Karplus, Ph.D. Jennifer Morris, Ph.D. candidate MIT Joint Program on the Science and Policy of Global Change June 21, 2011

2. Background – Model – Combining Reg. – Conclusions Passenger vehicles and electric power generation together account for aroundhalf of U.S. GHG emissions… Passenger vehicles Electric Power • Electric power : • 30% of total U.S. GHG emissions • Passenger vehicles : • 16% of total U.S. GHG emissions • Generation mix • (40% of U.S. petroleum use) Coal Source: EIA, Emissions of Greenhouse Gases Report, (2009).

3. Background – Model – Combining Reg. – Conclusions Comparing two options for reducing GHG emissions (and petroleum use) 1) Combine policies focused on individual sectors : One bird, two stones Electric Power Passenger vehicles Renewable electricity standard (State-level RES policies) Fuel economy standard (U.S. Corporate Average Fuel Economy Standards) 2) Achieve same reduction with single economy-wide policy : Cover many sectors, incentivize reductions at least cost One bird, one stone … How do the costs of each approach compare?

4. Background – Model – Combining Reg. – Conclusions Electricity sector and passenger vehicle fleet detail were added into an economy-wide macroeconomic model The MIT Emissions Prediction and Policy Analysis Model New passenger vehicle sector Detailed physical accounting Primary Factors Income Consumers Passenger Vehicles Producers (includes electricity) (1) Travel demand (2) Fuel efficiency Expenditures (3) Alt. Technology Goods and Services EPPA-HTRN • Multi-sector, multi-regional general equilibrium model • Technologies compete based on cost • Prices are determined inside the model • Can apply policies, e.g. cap-and-trade, fuel tax

5. Background – Model – Combining Reg. – Conclusions Representing policies in the EPPA model Renewable Electricity Standard Vehicle fuel economy standard New vehicles Electricity generation Halves vehicle fuel consumption by 2030, constant thereafter. Reaches 22.5% by 2030 and constant thereafter.

6. Background – Model – Combining Reg. – Conclusions Impact on the electricity sector Changes in Installed Capacity Electricity – Primary fuel use

7. Background – Model – Combining Reg. – Conclusions What if GHG emissions were instead limited by a cap-and-trade policy? Capped emissions are equivalent to combined FES + RES policy CAT policy covers all sectors of the economy. Emissions are reduced relative to reference, but modest.

8. GHG Emissions Reduction and Economic Cost Background – Model – Combining Reg. – Conclusions Regulatory policy combination is 3X more costly than cap-and-trade policy

9. Background – Model – Combining Reg. – Conclusions What are the effects of combining the regulatory policies with a tough cap-and-trade policy? • Why combine? • Many current examples Oil FES RES Economy Wide

10. Background – Model – Combining Reg. – Conclusions What is the effect of adding the two regulatory policies in the background of a more stringent cap-and-trade policy?

11. Background – Model – Combining Reg. – Conclusions Conclusions • Should we combine fuel economy standard + renewable electricity standard? No. Can achieve same GHG reduction at 1/3 of the cost with cap-and-trade system! • What about if we combine them with a tough cap-and-trade system? It will cost you more to get the same reduction, regardless of whether technology cost is high or low… • Future work : Regulations versus cap-and-trade—how do costs and GHG emissions outcomes compare under uncertainty?

12. MIT Joint Program on the Science and Policy of Global Change vkarplus@mit.edu holak@mit.edu Thank you! Prof. John Heywood Prof. Jake Jacoby Prof. Kenneth Oye Prof. John Reilly • Prof. Mort Webster (chair) Dr. Mustafa Babiker (Saudi Aramco) Prof. Dick Eckaus Prof. Jerry Hausman Prof. Kenneth Train (Berkeley) Rosie Albinson (BP) Dr. Sebastian Rausch Dr. Niven Winchester Awesome JP & SAL students E-mail: vkarplus@mit.edu

13. CO2 emissions comparison for small to midsize U.S. carEPPA Result – March 4, 2010 Error bars on 2010 PHEV and EV indicate emissions using electricity exclusively from coal (high) or wind (low).