A new report released this week on fuel economy and emissions standards for the state of California concludes that the idea there is a necessary trade-off between environmental goals and economic growth is a fallacy. It comes at a time when there is much deliberation over vehicle standards by both the NHTSA and the California Air Resources Board, for vehicles manufactured in the 2017-2025 model year range – so the findings could help shape policy.
The study, “Driving California’s Economy: How Fuel Economy and Emissions Standards Will Impact Economic Growth and Job Creation” – issued by public interest NGO, Next 10, and authored by UC Berkeley Professor, David Roland-Holst, uses comprehensive economic modelling to analyze the impact of 5 distinct scenarios for future vehicle standards. These range from no standards at all, to the most stringent one considered – a federal mandate to increase vehicle fuel economy by 6% per year between 2017-2025. The effects of these scenarios are summarized as follows:-
- More efficient vehicles will provide consumer savings, which will be reinvested into local economies
- Job creation will result – and not just in green-collar occupations, but across the broader state economy
- Greenhouse-gas emissions will be reduced by 8 – 19%
- Overall energy costs will be lowered, so benefits will extend to owners of gas guzzlers too
- The rebound effect (the act of driving more in response to lower energy cost) is only small
The More Stringent, the better
Perhaps the most important finding is that the more stringent the standards, the bigger the dividend to the state. A 6% per year increase in fuel economy standards would result in a net job creation of 236,000, whereas enacting no standards at all would result in just 38,000 jobs. Similarly, Gross State Product (GSP), would be enhanced by up to 1.31% if standards are more stringent but just 0.03% if no standards are introduced.
The Multiplier Effect
A key finding from the study is that that when fuel economy increases, fewer dollars are spent on fossil fuels and consumers choose to shift their spending towards more labor intensive service sectors. Whereas the energy industry is capital intensive, it’s not employment intensive, so the shift towards spending on services creates demand for employees; it creates jobs. The study explains that a dollar saved on traditional energy is a dollar earned by 10-100 workers, because the money continues to circulate through the economy. That’s the multiplier effect in action and since consumers will spend across the whole spectrum of the economy, it’s not a “green-collar” jobs program. Professor Roland-Holst succinctly summarizes, “Take a dollar out of the gas pump and give it to the consumer…it will create jobs.”
The Effect of Global Oil Prices
Of course, we live in times of volatile petroleum prices, and as Professor Roland-Holst explains, even if in absolute terms energy prices rise, stringent vehicle economy standards will moderate the increase, enhance energy security and place California in a more favorable relative position in a global context. It’s worth noting, the study does not depend on stretch-goals of EV adoption rates – instead it’s grounded in existing technologies in the conventional vehicle fleet. If however, EV’s are strongly adopted, the state would see even bigger dividends than the more conservative ones reported in the study.
The Traditional Energy Industry
The only sector of the California economy which will likely not welcome the study findings, is the oil and gas industry – where jobs will be lost. However, the study suggests that temporary adjustment assistance could be extended to this sector to help garner support. This might include public-private partnerships to help shift the industry away from “the model of tanker trucks and gasoline” as Professor Roland-Holst describes it, towards modernizing infrastructure to extend the life and value of existing reserves. Furthermore, he ventures to say that energy efficiency could be to the energy industry what IT was to management – revolutionizing traditional practices around the world, increasing productivity and reducing the huge carbon liability. But most significantly, he says “You don’t have to be green to see good sense in these [energy efficiency] policies….they just make economic sense.”