I’m not sure whether dealing with auto emissions is a hot political topic or not. For most of us I imagine it’s either a don’t care or an occasional annoyance when it comes time to register a vehicle. I think about it more than most, I think, because I’m a car and truck hobbyist and in some parts of the country, most notably California, draconian emissions regulations make it very difficult to modify a vehicle for increased performance, looks, or whatever. Emissions laws would actually have an impact on my decision whether or not to move to a new city for work.

In California, purportedly for the purpose of limiting exhaust emissions, vehicles are subject to a visual inspection in addition to the actual tailpipe emissions test. The California Air Resources Board (CARB) has very specific rules about what kinds of modifications can be made to vehicles. Enthusiasts may want to change their exhaust or intake systems, engines, air cleaners, or carburetors. They may want to convert a carbureted vehicle to fuel injection or go from gas to diesel. Only a tiny subset of available modifications is allowed. And God forbid if you actually wanted to remove some ancient, performance robbing emissions equipment from a late 70’s vintage vehicle.

I honestly have no idea what CARB is trying to accomplish with its restriction on vehicle modifications. Many an enthusiast has complained about this, noting that the tailpipe emissions test is all that should matter. And, in fact, many modifications, such as the conversion of an older vehicle to fuel injection, will actually reduce emissions yet still be disallowed. My claim, however, is that even the tailpipe test really only tells part of the story.

First off, I’d like to acknowledge that in someplace like Los Angeles, with thousands of cars confined to a small space, exhaust emissions are an issue. Everyone suffers when smog levels are high, yet no single person can be blamed for contributing more than a tiny bit to the total. A common libertarian response to pollution problems is to assume an absolute right to be free of pollution and allow lawsuits to reclaim damages. In this case though, the class of people suing would be everyone – and everyone (well, almost everyone) would be a defendant. We need something better.

The current approach, of course, is to simply limit the emissions per car (per mile or unit time). Some politician or bureaucrat picks a value out of thin air and decreases it every year until the car manufacturers complain too much. He has no idea whether the level is imposing costs (mostly on vehicle manufacturers and therefore buyers) far in excess of the increased utility resulting from cleaner air. Despite the claims of environmentalists, most of us don’t want cleaner air at any cost. Furthermore, blanket restrictions on emissions like this inefficiently prevent the poor car enthusiast from registering his hot rod, even if he’s willing to pay for the privilege.

At this point you may be saying, “why do you think you should be able to pay for the right to pollute the environment”, or (less likely since this is a libertarian site) “why should the rich be allowed to pollute just because they can pay for it?”. Think of it like this. Smog causes disutility to people because it is unpleasant to breathe. However, people would likely be willing to breathe some amount of it if you paid them enough. So, if you can pay people enough that they are indifferent to the breathing of smog (are equally happy not breathing it or breathing it and being paid), then who’s going to complain? The trick is charging everyone the right amount and then figuring out who to pay.

Here’s an idea I have that involves the use of “pollution credits”. I think it’s a fairly practical approach, but not theoretically perfect. The idea is that we start where we start; there is a certain amount of smog created each year already. I won’t assume that everyone has the right to live in a smog free world, even though that would be best. The reason is because I don’t know how to compute damages to each person (each person’s reaction to smog is different, and they each inhale a different amount) and I don’t trust people to tell the truth. For now I’m giving up on the part about paying people the right amount, but I can take a shot at a system that does a better job charging people.

We start with a total number of pollution credits equaling our best estimate of per year emissions at the current time. Each credit allows a certain amount of emissions per year, possibly broken down by chemical. Credits are infinitely divisible. When you go to register your vehicle, they do the tailpipe emissions test (possibly on a dynamometer, as in Phoenix, Arizona) to estimate the amount of emissions generated per mile. Then you estimate your annual mileage (which will be verified and adjusted next time) and compute your total estimated emissions for the year. The mileage component is important. It’s irrational for people to take such issue with an old collector car that generates a relatively large amount of pollution per mile but is only driven 50 miles per year on sunny weekends. You’re still making a lot of pollution with your new car if you drive 100 miles round trip to work every day.

Anyway, now that you have your estimated emissions for the year, all you have to do is hit the pollution credit market and purchase enough credits to cover it. If nothing has changed, you might still have the right amount left over from last year and you won’t need to buy any more. They don’t expire. If you do need to buy some, you are subject to the current market price for credits.

So what would this system do? Well, first of all, since the total number of credits in circulation is fixed, it sets an absolute cap on the amount of emissions. They can never go up from the amount seen during the year the system was implemented. In my view this is an imperfection in the system, since circumstances are conceivable under which the benefits of additional pollution would outweigh the costs. Generally, however, newer cars are cleaner and the old ones die off, so it probably won’t be a problem.

The system also gives an incentive to people to drive low emissions vehicles. After all, if you don’t need credits, you can cash them in; someone else will buy them from you. This incentive can be increased greatly by environmental groups, or anyone who is concerned about pollution, if they are willing to simply buy up a bunch of credits, but not use them. By doing so they will lower the absolute level of smog possible and drive up the price of credits. The fact that they are willing to put their money where their mouths are proves that they really are concerned about smog and it send the correct signal to people buying smog credits. If a lot of people are holding smog credits unused, it says that people really do want less pollution and people should rightfully pay more for the privilege of creating it. Conversely, if credits are cheap, it says that nobody really cares much about smog – at least not enough to spend any money to prevent it.

The last thing the system does is give a little fairer shake to people who want to either drive smoggy vehicles once in a while or simply create more than the average amount of smog. As long as they pay the right amount, which is proportional to the total pollution emitted as opposed to the amount generated per time or mile, they can enjoy their hobby, run a dump truck business, or whatever.

This entry was posted on Thursday, July 14th, 2005 at 7:55 pm and is filed under Economics, Politics. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.