In recent years, I have written several papers about the Transportation Sector’s Carbon Footprint. At USC, I have the good fortune to work with a talented Junior named Robert Huang. We recently released this NBER paper titled;
An Economic Analysis of U.S Public Transit Carbon Emissions Dynamics
Robert Huang & Matthew E. Kahn
WORKING PAPER 29900
DOI 10.3386/w29900
ISSUE DATE April 2022
Urban public transit agencies spend billions of dollars each year on workers, durable capital and energy to supply transportation services. During a time of rising concern about climate change, the urban public transit sector has not significantly reduced its carbon footprint. Using data for the nation’s transit agencies over the years 2002 to 2019, we benchmark U.S transit agencies with transit agencies in Germany and the United Kingdom. We study U.S urban public sector energy efficiency trends and explain the cross-sectional variation. We present a new operating profits metric that incorporates each transit agency’s annual total carbon emissions.
In the recent past, Shan, Jerry and I released this NBER paper;
Public Transit Bus Procurement: The Role of Energy Prices, Regulation and Federal Subsidies
The U.S. public transit system represents a multi-billion dollar industry that provides essential transit services to millions of urban residents. We study the market for new transit buses that features a set of non-profit transit agencies purchasing buses primarily from a few domestic bus makers. Unlike private vehicles, the fuel economy of public buses is irresponsive to fuel price changes. To understand this finding, we build a model of bus fleet management decisions of local transit agencies that yields testable hypotheses. Our empirical analysis of bus fleet turnover and capital investment suggests that transit agencies: (1) do not respond to energy prices in either their scrappage or purchase decisions; (2) respond to environmental regulations by scrapping diesel buses earlier and switch to natural gas buses; (3) prefer purchasing buses from manufacturers whose assembly plants are located in the same state; (4) exhibit significant brand loyalty or lock-in effects; (5) favor domestically produced buses when they have access to more federal funding.
This is all a prelude to establish that I have thought about these issues. So let’s flashforward to yesterday where Marshall Burke and I are having a good Twitter discussion about the Biden Administration’s announcement that it will spend $10b to replace all of the Post Office mail delivery trucks with EV trucks.
For those who want to know the core facts, here is a major NY Times piece about the Biden Administration’s investment and here is the technical consulting report evaluating the investment’s environmental benefits.
Permit me to make several points;
#1 The environmental benefits of this investment hinge on what mail trucks would USPS have purchased in the absence of the Biden Subsidy. If USPS predicts that gas prices will rise over the next 20 years, then USPS would have purchased high MPG trucks even in the absence of the subsidy. This investment would lower its present discounted value of operating expenses. This means that the greenhouse gas emissions reduction brought about by the policy are relatively small. This would mean that the implied Social Cost of Carbon is even higher.
Let me explain. Suppose that the USPS would have replaced its aging diesel trucks with Prius Trucks that achieve 50 MPG. Suppose the EV Trucks achieve effectively 75 MPG, then the greenhouse gas reduction each year per truck that drives M miles each year equals M/50 - M/75 . Add this up across the 66,000 trucks that will be retired. 66000*(M/50-M75) is the annual gallons of gasoline not consumed because of the EV swap out. Set the interest rate equal to 0% to simplify the math. Suppose the EV truck exists for 25 years. Then the total gallons of gasoline not consumed due to the policy equals 25*660000*(M/50-M75) = D. The implied Social Cost of Carbon = $10b/D.
Note the key role of the “50” here. The implied social cost of carbon is lower if the USPS would have purchased vehicles that achieve 12 MPG or some number < 50. The key counter-factual is what vehicles would the USPS have purchased in the absence of the subsidy. Here is a good paper that explores these issues in the case of Cash for Clunkers.
#2 The swap out of the dirty diesel trucks for new EVs will clean local air pollution (PM2.5) where the mail trucks operate. But, a standard idea in local public finance is that local public goods should be financed through local taxes. The people of San Francisco can raise taxes to create a pot of $ to buy the USPS a fleet of clean vehicles to deliver the mail. The City is rich and the Mayor can implement this either through a rigorous local smog check on such vehicles or through an explicit purchase. Dirty diesel trucks are highly visible. You can easily spot such vehicles and many engineers work on this issue of identifying super emitters of local pollutants.
The Coase theorem makes a strong prediction here. Of course, poor cities do not have the fiscal capacity to make these new truck purchases but richer cities do.
#3 Economics teaches us that the larger is the local/(local +National) % of the costs of the pollution then the issue should be handled locally.
#4 A new point. USPS has a binding budget constraint as it spends $ on capital and its 500,000 unionized workers. A fungibility issue arises. As the Federal Government subsidizes capital, this allows the USPS to pay union labor more! This is a politically brilliant move by the pro-Union (Union Supported) Bided Administration.
#5 Another reason to subsidize the $10b EV truck purchase is a green infant industry argument that this commitment will create a booming U.S truck market. I hope this is true. It appears to me that BYD China is way ahead of us. What would it cost to pay BYD to export the EV mail trucks rather than us making these ourselves. Once we develop our EV sector, will we out compete BYD for global sales? How important is the global market’s future sales in determining whether our domestic infant industry subsidy will ex-post be good public policy?
There are many open research and policy questions worth exploring here!
UPDATE: Permit me to throw one punch at my fellow environmental economists. We are not great general equilibrium macroeconomists. As the U.S Government and European Governments run ever larger deficits (in part because of ever rising subsidies), what are the medium term implications for inflation and economic growth? What is the marginal cost of large subsidies? Who bears these costs? How much less climate change risk will our children face because of these policies and what taxes will they face? How “existential” a threat is climate change?