If someone asked me to name the state that has the least in common with California, Minnesota might be my first pick. Geographically, demographically, and economically the Land of 10,000 Lakes has little overlap with the Golden State. The temperatures experienced in the metro areas, the topography, the population densities, and the industrial lynchpins could hardly be more different.
It’s surprising, therefore, that Minnesota would adopt environmental rules promulgated by the California Air Resources Board. Yet that’s precisely what Minnesota is in the process of doing right now. The Clean Cars Minnesota rule will impose upon Minnesotans California’s Low Emission Vehicle (LEV) III and Zero Emission Vehicle (ZEV) standards.
Minnesota’s rule isn’t modeled on or inspired by the California rules, it’s a pure adoption of the mandate set 1,500 miles away, in accordance with Section 177 of the federal Clean Air Act, which grants other states the right to adopt California’s unique environmental policies as long as they are identical to the Golden State’s.
In a nutshell, the California-cum-Minnesota mandate requires automakers to deliver increasing number of electric vehicles (EVs) for sale in Minnesota each year. Should they fail to meet the quotas, automakers will be required to buy credits from others that have met the bar. According to the Center of the American Experiment, a Minnesota public policy organization that opposes the rule, the quotas will exceed each year the number of EVs registered in Minnesota in the last decade.
In keeping with the standard rulemaking process, the state was required to open an official comment period, in which the public had the opportunity to weigh in on this significant policy.
As part of our mission to oppose unwarranted intrusions into energy and transportation markets across this country, I engaged in the Clean Cars Minnesota comment process on behalf of IER. This process involved the submission of an initial comment on March 15, a rebuttal comment on March 22, and a response from the Minnesota Pollution Control Agency (MPCA). The remainder of this post will provide the highlights from the initial IER comment, IER’s rebuttal, and MPCA’s response.
IER’s comment, which can be read here in full, contends that MPCA inadequately presents the costs and benefits of the proposal to Minnesotans and that MPCA presents a warped perspective on the principle of “consumer choice,” which it cites as a reason for commanding the auto industry to hit an EV quota.
On costs and benefits, MPCA deploys a conveniently-round estimate of $500 million in climate damages that the rule will avoid in its Statement of Need and Reasonableness (SONAR). The SONAR fails to account for the ongoing debate surrounding the use of the social cost of carbon. Instead, MPCA simply adopts the Obama-era federal social cost of carbon—a number that the Biden administration will soon throw out.
MPCA wields its $500 million figure to present a picture that is frightening and yet solvable. But policies like this won’t move any dial on climate. The IER comment presents that issue thusly:
MPCA estimates that under the proposed rule by 2034 annual well-to-wheel emissions reductions will be 1.4 million tons of greenhouse gases. Even if accurate, this figure does not eclipse any threshold of significance when Minnesota’s transportation emissions are put into the context of the global economy.
In the most recent year on record, 2018, global emissions were around 40 billion tons. That total is likely to climb yet higher through 2034, meaning that Minnesota’s transportation reductions would bring global totals down by less than one-one hundredth of one percent. The emissions reductions, even in the best-case scenario, will be so trivial on the global scale as to render measurement of the policy’s success impossible, in terms of the key theme of a climate crisis.
On the matter of “consumer choice,” we’re all for it, but being for consumer choice means respecting the multitude of decisions that go on throughout complex economies. We oppose forcing products on the market, whether electric vehicles or, to offer another example, electricity produced by otherwise uneconomic sources. The market works well at meeting consumer demand without government interfering.
Among the many comments submitted to the state, a joint comment by a coterie of national environmental groups warranted particular attention. The comment in question was submitted by Fresh Energy, the Minnesota Center for Environmental Advocacy, the Natural Resources Defense Council, and the Sierra Club.
Due to the constraints of the rebuttal period, I directed my attention to one specific segment of the joint comment, which I think weakens the case it makes in favor of the rule. As I wrote in the IER rebuttal, the joint comment’s Section 6 (“Benefits to Consumers”) Subsection C (“Some EV models already deliver cost savings in total cost of ownership”) presented a misleading account of vehicle cost comparisons. The joint comment, in effect, argued EVs are cheaper in the long run. In fact, as the sources cited by the joint comment show, electric vehicles tend to be both more expensive up front and on a cost-of-ownership basis.
The two key sources that cast doubt on the joint comment’s account are the MIT Carbon Counter, which shows how various vehicles compare on a cost-of-ownership basis, and the Department of Energy’s EV sales data, which reveal just how skewed EV sales are towards high-priced Teslas.
IER’s rebuttal comment can be read in full here.
And here’s a quick look at some interesting comparisons, should you choose not to delve into the full rebuttal:
The Tesla Model 3, which starts at over $37,000, accounted for 47 percent of all plug-in electric vehicles sold in 2019, according to the U.S. Department of Energy. Excluding hybrids, the Tesla Model 3 accounted for over 60 percent of vehicles sold, making it a reasonable point of departure for cost-of-ownership comparisons.
According to MIT’s Carbon Counter, the Tesla Model 3 Standard Range Plus costs an owner more than $400 per month when factoring in fuel and maintenance. The Model 3 Long Range AWD costs more than $500 per month and the Model 3 Performance AWD costs almost $600 per month. Among the many common models of gasoline-powered vehicles that cost less per month than the most affordable Tesla Model 3 are the Honda CR-V, the Volkswagen Passat, the Chevy Trailblazer, the Honda Civic (4Dr 1.5L), the Nissan Sentra, and the Volkswagen Jetta.
The mid-tier Tesla Model 3 Long Range AWD is costlier per month than gasoline-powered vehicles such as the Ford F150 (2WD 2.7L), the Jeep Wrangler, Audi Q3, the Dodge Durango, and the Dodge Grand Caravan.
At the more affordable end of the EV market, the Nissan Leaf (SV/SL 62 kW-hr battery pack) is costlier to own than the Nissan Altima and the Hyundai Sonata (2.5L 191HP). Even the lowest-price Nissan Leaf (40 kW-hr battery pack) is costlier per month to an owner than gasoline-powered vehicles such as the Chevy Spark and the Mitsubishi Mirage, both of which cost less than $300 per month to own.
At the higher end of the EV market, the Tesla Model 3 Performance AWD is costlier than the Chevy Silverado (4WD 4.3L), the Ford F150 (4WD FFV 5.0L), the Jeep Gladiator (4WD), the Lexus ES (250 AWD), the BMW X1 (sDrive28i), the Cadillac CT5, and the Mercedes-Benz GLB250.
In each the comparisons made above, the EV is not only costlier per month, but has a higher up-front cost as well, sometimes dramatically. The relationship holds across market tiers. The Tesla Model 3 Performance AWD starts at $54,990; none of the seven vehicles to which it is compared here starts at more than $40,000. The Nissan Leaf (40 kW-hr battery pack) has a sticker price that is double that of the otherwise comparable Chevy Spark and Mitsubishi Mirage.
MPCA Response to IER Comment
On March 22, the same day that the rebuttal period closed, MPCA released its official responses to select comments. The MPCA document made three direct responses to aspects of the March 15 IER comment.
In Section “A.6. Comment on the appropriateness of using the federal social cost of carbon” MPCA responds to IER’s criticism of its utilization of what it calls the “federal social cost of carbon” (SCC) to justify this rule. IER pointed out that the Obama administration SCC consciously declined to follow OMB guidance to include a 7-percent discount rate analysis and that adopting the Obama-era number would carry that issue into this new rulemaking. MPCA claims that IER “misrepresents the policy discussion.”
IER’s comment is no misrepresentation. The comment communicated clearly that OMB stipulated the use of the 7-percent discount rate alongside the lower rates and that Obama administration opted not to follow that guidance:
Despite this instruction, the Obama administration opted to omit the 7-percent estimate. The result of this omission was profound, controversial, and now reverberates in this Minnesota proposed rule. MPCA claims the federal social cost of carbon ‘is the most credible estimate of the global damages from the emissions of one ton of carbon in any given year’ yet fails to communicate to Minnesotans that estimates vary wildly.
Though it alleges IER misrepresents the discussion, MPCA concluded response A.6 by noting:
The MPCA has estimated that this rule could lead to avoided climate damages valuing approximately $500 million over the first ten years of the rule (SONAR, pg. 59). The MPCA does not intend this to be a precise prediction of the value of avoided future climate damages: the actual value could be far higher or far lower.
In Section “M.4. Comments on the ZEV standard creating a market distortion” MPCA takes issue with IER’s claim that market manipulation in favor of electric vehicles “yields economic distortions that tend to benefit the wealthier segment of consumers for whom electric vehicles are a prudent choice.” MPCA responds by writing, “This rule seeks to make electric vehicles available for those that want them but makes no requirement on any individual that does not want one.”
IER does not contend that MPCA is forcing consumers to buy electric vehicles. IER’s point in reference to benefitting wealthier people refers to EV policies broadly, including the federal EV tax credit. However, the California-cum-Minnesota mandate may drive up the costs of vehicles across the board, as the auto industry passes the costs of their unprofitable EV investments through their comprehensive price system. The Center of the American Experiment made this point succinctly, writing in its comment, “In practice, ZEV mandates will increase the cost of ICEVs offered for sale in Minnesota as auto dealers attempt to recoup the costs they will incur when they are forced to purchase the EVs by the auto manufacturers. In this way, ICEV [internal-combustion engine vehicle] consumers are providing a cross-subsidy to EV drivers.”
In Section “A.4. Comments about the impact on global temperature” MPCA responds to IER’s point that this rule would, in the best case scenario yield an immeasurably small temperature-rise attenuation, writing, “the Institute for Energy Research asserts that the estimated reduction in GHG emissions resulting from this rule is small and insignificant relative to the global total of GHG emissions, specifically that MPCA’s projected annual GHG emissions by 2034 ‘…would bring global totals down by less than one-hundredth of one percent’.”
On this point, MPCA offers somewhat of a concession:
The direct impact on global temperature of any one single GHG regulation will inevitably be small; however, the MPCA’s statutory authority allows the Agency to act to reduce emissions of air pollutants. In addition, the NGEA sets emission reduction goals, not global temperature goals.
IER’s argument, of course, is that Minnesotans deserve to understand that this rule will deliver no measurable return-on-investment. By dropping global context, MPCA runs the risk of misleading Minnesotans. MPCA’s deflection to the NGEA goal of emission reduction rather temperature targets is unconvincing, given that MPCA has consistently used the weather experiences of Minnesotans to justify its rule—for example, on the Clean Cars Minnesota public communications website, which states, “One can see these changes happening now as Minnesota lakes freeze later, thaw earlier, and major rain events create 100-year floods at an alarming rate.”
What Comes Next
The core issues at play are that this rule would interfere with the ability of the auto industry to efficiently meet the needs of the Minnesota market and that that intrusion hasn’t been shown to be cost-effective as an environmental policy. To the extent that Minnesotans desire electric vehicles, demand will be met by the growing production and marketing of EVs. This rule clumsily commands companies to sell vehicles, the demand for which has yet to materialize.
It now awaits approval or disapproval from Minnesota Administrative Law Judge Jessica Palmer-Denig.