Tailpipe emissions and the business climate

Business lobbyists often talk about building a better business “climate.” They use the noun “climate” in a metaphorical sense to imply that without the right tax policies business cannot thrive and expand. References to climate, however, should be taken in a more literal sense. Without air that is fit to breathe, relatively stable weather patterns and sustainable, affordable sources of energy, businesses cannot survive.

Early next month, Maine’s Bureau of Environmental Protection has an opportunity to enhance Maine’s business climate. On Dec. 1, BEP will continue hearings in Augusta on whether to adopt the strict vehicle tailpipe emission rules currently in place in California or revert to weaker federal standards. Maine’s best course, both economically and environmentally, is to enact and enforce strict standards. These would reduce greenhouse pollutants and smog, improve fuel economy, and help establish Maine’s place as a leader in the battle for environmental quality.

Maine’s population is small, but it retains considerable national visibility. Though it cannot single handedly reverse global climate change, it can play an influential role in policy reform. When Maine adopts and abides by strict standards, it is in a better position to pressure other states and to push for stronger national standards.

Since Maine is a relatively small state, it would be easy to argue that it should let other states slay the greenhouse dragon while preserving its best competitive advantage here and now. That would be faulty and short sighted logic. Maine may be at the end of the pipeline, forcing it to cope with polluted air from the Midwest and the Northeast corridor. Nonetheless, its own vehicles contribute both to greenhouse warming and to the smog that has on occasion made even the air in Acadia National Park a source of major health issues.

In addition, the relatively long commuting distances and the high costs of fuel in Maine make this state especially vulnerable to high energy costs. No state other than Hawaii is more vulnerable to supply disruptions than Maine.

Business interests like to argue that we should allow the market to do its thing. If oil costs are high, these costs will force motorists to buy more fuel efficient vehicles. Yet historically the price of gasoline – even with state and federal gas taxes included-has never reflected the true cost of auto use. Cost of road maintenance, fire and police services, and the damage to human lungs inflicted by automotive pollution are barely reflected in the price of gas at the pump.

Gas prices also fluctuate so widely that they provide a poor signal for both consumers and the auto industry. Decisions as to fundamental auto technologies take years to plan and implement. Today the U.S. auto industry suffers because it has a whole line of vehicles designed for an age of cheap fuel.

A broad shift in transportation modes also requires changes in the services available to those vehicles. Consumers won’t buy battery or hydrogen powered vehicles unless there are stations to fuel and service them. Appropriate facilities will not emerge until a critical mass of alternative vehicles is on the road. This phenomenon, called path dependence, constitutes a case for market intervention recognized even by many mainstream economists.

In an ideal scenario, federal tax policy would effect a gradually escalating price of gas. When temporary gluts drove prices down, higher taxes would kick in and when supply disruptions occur, taxes would be reduced. The thrust of tax policy would be to wean the society from dependence on ever more fragile oil supplies and environmentally damaging modes of transit. Had such a policy, which Jeff Faux, former president of the Economic Policy Institute, advocated 15 years ago been in place, both General Motors and American consumers would be far better off today.

In the absence of enlightened federal policy, adoption of strong emission regulations by Maine is still an important positive step. These regulatory changes are likely to be adopted not only by California but also by other New England states. They will drive continuing technology change by the auto industry. They will also force aggressive marketing of more fuel efficient, less polluting vehicles in Maine. The California Air Resources Board has estimated that auto engineered to meet its new tougher standards save the consumer between $400 and $1,100 in fuel charges (assuming gas at $2 a gallon) over the life of the car. Even these numbers don’t reflect the reductions in state government supported health costs.

Such efforts could be complemented by further public and private efforts to expand and promote van pooling, public transit options, Amtrak expansion and other alternative transit options. Amtrak has become increasingly successful in southern Maine and I hope Maine’s congressional delegation will fight Bush administration efforts to crush the service. In the long run, both business climate and human health are best served when tax, regulatory, and fiscal policy all work together to leverage more balanced and sustainable transit systems.

John Buell is a political economist who lives in Southwest Harbor. Readers wishing to contact him may e-mail messages to jbuell@acadia.net.