Dollars & Sense: The Economic Impacts of Bringing Clean Cars, Light-Duty Trucks and SUVs to Minnesota

Released by: Environment Minnesota Research and Policy Center

Executive Summary

Emissions from cars, light-duty trucks and SUVs are a major source of air pollution and global warming gases in Minnesota. During its 2007-2008 Session, the Minnesota legislature considered adopting standards - known as “clean car standards” - that would reduce these emissions.  Automakers and their trade associations and others argued that the adoption of these standards would have a negative economic impact on the state and reduce vehicle choice.

This report looks at the economic impacts of bringing clean cars, light-duty trucks and SUVs to Minnesota, and concludes that in addition to significantly reducing the pollution that threatens our special places and our health, these clean vehicle standards also provide a net economic benefit to Minnesota.

Global warming is one of the most serious environmental problems our state faces.  Leading climate scientists have concluded that the world is warming more quickly than expected, with potentially more damaging long-term consequences. According to Dr. Lee E. Frelich of the University of Minnesota’s Center for Hardwood Ecology global warming could cause the ecology of the Boundary Waters to change so significantly that, within 50 years, the wilderness would look completely different.  According to the Minnesota Climate Change Advisory Group, Minnesota’s transportation sector accounts for approximately one quarter of the state’s greenhouse gases.

Air pollution like smog, soot and cancer-causing air toxics from our cars, trucks and SUVs worsen asthma and lung disease and have been linked to an increased risk of stroke, heart attack and cancer. According to the Minnesota Pollution Control Agency, Minnesota’s transportation sector accounts for approximately half of the state’s air toxics that can contribute to asthma and other chronic lung diseases.

Transitioning the state’s fleet to cleaner, more fuel-efficient, vehicles will help reduce emissions of greenhouse gases and air toxics from the state’s cars, light-duty trucks and SUVs.

In May 2008, the Minnesota Climate Change Advisory Group (MCCAG) recommended that the legislature adopt the clean vehicle standards as part of a fleet of climate policies necessary to achieve the global warming emission reduction targets outlined in Minnesota’s Next Generation Energy Act of 2007.

As introduced in the 2009 legislature these standards would start with model year 2013, apply only to new vehicles, be phased in over time, and ramp up to a 30 percent reduction in global warming emissions across a manufacturer’s fleet.  In making their recommendation, the MCCAG estimated that a clean car standard would cut 13 million metric tons of global warming pollution from Minnesota’s atmosphere by 2025.

Because of the threats to our special places and the quality of the air we breathe Minnesota is currently considering joining 14 other states in adopting these more protective state-based clean vehicle standards.  As discussed in this report, the good news is that adopting these standards will also mean a net economic benefit for Minnesota, a critical consideration in these tough economic times.

Vehicles that meet these state-based clean vehicle standards are more fuel-efficient, leading to real savings at the pump for consumers.  A new Environment Minnesota analysis found that Minnesota consumers would see significantly greater savings under these state-based standards than under existing federal fuel-economy standard.

  • At prices of $1.74 per gallon, Minnesota drivers would spend $1.4 billion less on gasoline between now and 2020.
  • If gas prices return to $3.00 per gallon the savings would be even more significant - Minnesota drivers would spend $2.4 billion less on gasoline between now and 2020.
  • Starting in 2020, drivers in 5 Minnesota counties would annually save $10 million or more at the pump if Minnesota adopts the clean vehicle standards. These counties are Washington County, Anoka County, Dakota County, Ramsey County and Hennepin County.
  • Drivers in 49 of Minnesota’s 86 counties would save more than $1 million per year at the gas pump under the clean vehicle standards.

While these clean vehicles are projected to cost about $1,000 more in 2016 as a result of incorporated technology, these vehicles are a good deal for Minnesota’s drivers.

Under the program, a consumer who buys a new car, light-duty truck or SUV in 2016 will see a net savings of between $210 and $420 during the life of a five year loan, assuming $1.74/gallon gasoline, with lower spending on gasoline outweighing the higher costs of his or her auto loan.  After the loan is paid off, a consumer can expect to save between $285 to $325 per year, with a payback period of 3.7 to 4.3 years.

Manufacturers have a history of overestimating the price of producing cleaner vehicles to comply with stronger emission standards.

  • Auto industry costs estimates for the 1970s catalytic converter requirements were 1.6 to 3.2 times higher than the actual cost. In the 1990s, Sierra Research, who provided cost analyses for the auto industry, estimated costs that were 4 to 6 times higher than the actual cost of compliance for the original low emission vehicle program.
  • After automakers and car dealerships sued the state of Vermont citing that its clean car global warming standards would cost too much, weren’t feasible and would limit production, the Vermont District Court Judge said that automakers have “failed to carry their burden to demonstrate that the regulation is not technologically feasible or economically practicable… given the flawed assumptions and overly conservative selection of technologies” utilized. Instead, the Court found that “compliance is possible in the time period provided at a relatively reasonable cost.” The Judge also concluded that the auto industry can make any vehicle reduce its greenhouse gas emissions. The Court did “not find convincing the claims that consumers will be deprived of their choice of vehicles, or that manufacturers will be forced to restrict or abandon their product lines.”

Because drivers will be spending less at the pump—money that largely leaves the local economy and is sent out of state or overseas—the state’s economy will benefit as people have more money to spend on other commodities and in their local stores.

  • As of 2006, Minnesotans were spending nearly 5 billion a year on gasoline for motor vehicles.  A new Environment Minnesota analysis found that adopting the clean vehicle standards in Minnesota would save 146 million gallons of gas in 2020, the equivalent of taking nearly 245,000 cars off the road for a year in 2020, or more than 1 million cars off the road for a year by 2020 – above and beyond the gas savings Minnesota will experience under the existing federal fuel-economy standards.
  • The most detailed analysis of the impact of the clean vehicle standards on an individual state’s economy was conducted for California by that state’s Air Resources Board.  The agency projected that the money saved through reduced fuel costs-money that usually flows out of the local economy-will raise personal income levels and help to energize the local economy through increased spending on other goods and services. These expenditures would create jobs and help to create new businesses.  The Air Resources Board estimated that for California in 2020, 83,000 jobs and $5.3 billion in personal income would be added as a result of the standards.

Reducing air pollution and global warming pollution would result in additional cost-savings for Minnesota.

  • Because the program would also reduce the air pollution that affects rates of asthma, cancer and heart disease, a reduction in state medical costs could also be expected. Reducing emissions that trigger asthma attacks and increase cancer will inevitably lead to fewer sick days and reduced health care costs for business and government.  Asthma alone was estimated to have cost Minnesota approximately $363.9 million in 2003.
  • In addition, acting immediately to reduce greenhouse gas emissions—from the transportation sector and economy-wide—would help Minnesota to avoid the costs of inaction.  The former chief economist of the World Bank, Sir Nicholas Stern, has put the price of inaction or unmitigated warming at as high as 20 percent of global GDP by 2100.

Recommendation: Minnesota should require auto manufacturers to produce and sell cleaner vehicles, reducing pollution while providing a net economic benefit to the state.