How to Establish Cap and Trade Auto Mileage

Could a system commonly used for trading industrial power plant emissions allowances provide a rational basis to curb fuel consumption, and therefore emissions in the U.S. automobile sector? Such a "cap and trade" (CAT) system would establish a mileage threshold and allow vehicle owners who drive fewer miles to use them later or sell them to vehicle owners whose mileage surpasses the allowable threshold. Credit and debit amounts would reflect relative fuel-efficiency based on EPA gas mileage ratings or similar manufacturer data. Administered most effectively at the state level, such a program would generate massive government revenue to research alternative energy sources. Reducing fossil-fuel consumption comes down not only to increasing miles per gallon (MPG) but to reducing miles driven per vehicle (MPV). Reducing MPV saves oil more directly than either the technological improvements that impact CAFÉ standards or increased gas taxes.

Difficulty: Challenging

Instructions

1. Initially, each registered vehicle would receive a mileage allocation per vehicle (MAV) benchmarked to well-established, equitable precedents from average behavior of the driving public. For example, average mileage allocation for leased vehicles generally range from 12 to 15 thousand miles per year. Similarly, EPA vehicle mileage and performance data is based on national estimates of 15K miler per year. Vehicles accumulate mileage credits and debits equal to how much above or below the mileage threshold the vehicles have been driven.

2. Credits and debits will be denominated in gallons, pro-rated to the EPA (average of city and highway mileage) rating for that vehicle. A car with 2000 miles in credits (debits) and 20 miles to the gallon will have a credit/debit of 100 gallons. A second vehicle with an average EPA city/country mileage rating of 40 will have a credit/debit of 50 gallons.

3. The simplest and arguably fairest Auto Cat model would give every vehicle the same allocation regardless of its fuel-mileage. In such a model, a SUV that accumulates credits is in a superior position to a more fuel efficient vehicle that accumulates debits. Conversely, the fuel efficient vehicle with credits is in a much superior position, proportionate to the difference in their mileage ratings, than the SUV with debits.

4. For those with debits, the simple auto-CAT would limit their choice to purchasing credits in a quantity equal to the difference between the distance driven and the allocation, adjusted for that vehicle’s MPG. Such purchase may occur online in an electronic market or at the inspection itself. In the event that there are no credits available at the time, vehicle owners must purchase the necessary quantity of credits at a posted Maximum Price Ceiling (MPC).

5. The program’s contact point is the annual or biennial vehicle or emissions inspections regimes currently in place in at least 34 states. Odometer readings monitor the total miles driven between such inspections

6. What factors should determine the maximum ceiling price? Quantified certain external costs associated with the use of fossil-fueled motor vehicles such as direct government subsidies to the oil industry; publicly funded infrastructure costs; and the health and environmental costs associated with burning fossil fuels.
   . For example, the UK-based New Economics Foundation cites a report prepared for the UK Treasury estimates that each ton of emitted carbon dioxide costs about $35 in environmental damage.
   
   The Hidden Cost of Oil.”
   
   Oil imports -$779.5 billion in 2005 – were equivalent to a $4.10 increase to the price of a gallon of gasoline if amortized over the total volume of imports. A major percentage of the premiums represent the enormous military costs associated with Persian Gulf oil. The "hidden cost" was equal to adding $7.41 cents to the price of a gallon of gasoline.
   
   Because the costs for this oil show up in the defense budget and are already covered by income taxes, a reasonable estimate can be reached by subtracting the Persian oil premium from the world oil premium. That figure equates to $3.31. At $35 per ton for the added carbon to the environment, costs of environmental carbon equal approximately two cents per gallon. The resulting figure -- $3.33 per gallon -- would be a reasonable estimate for the initial setting of the Maximum Ceiling price in the contemplated Auto-CAT Program.

Tips & Warnings

• TIP Odometer fraud is a potential stumbling block for a CAT system but may be contained through documentation under the federal Truth in Mileage act, which incorporates mileage data from originating dealerships as well as original ownership title, existing or extended warranties, or oil change data. The lack of physical signs of tampering (loose screws, scratches, marks, misaligned digits)as well as normal tire wear all further authenticate critical mileage readings.