Study Points To Greater Gas Price Impacts From Transpo Pact

CORRECTION: A State House News Service story published Thursday about a new Center for State Policy Analysis study on the Transportation Climate Initiative incorrectly reported the worst case scenario for consumer gas price increases. Under the center's model, gas prices could increase as much as 38 cents per gallon.

A new study of the cap-and-trade program under development by northeast states to reduce carbon emissions from cars and trucks found that the program could be more than twice as expensive for drivers than previously estimated, with the pandemic potentially playing a major role in how effective the Transportation Climate Initiative will be.

The Center for State Policy Analysis (CSPA) at Tufts University concluded that TCI would help reduce carbon emissions across the region and generate significant revenue for participating states to invest in clean energy alternatives and public health.

The tradeoff, however, would be increases in gasoline and diesel prices from as little at 3 cents to as much as 38 cents per gallon in 2022, according to the report released Thursday. The wide range takes in account a variety of factors, including how aggressively states try to reduce emissions and the health of the economy as it recovers from the COVID-19 pandemic.

Gov. Charlie Baker, who has been leading the push to establish the regional TCI program, said this week that cooperating states were taking a new look at the framework of the program in light of the pandemic and how business restrictions have impacted travel.

"I'm still very much a fan, but as I said yesterday in answer to another question, there's a lot that's changed about transportation generally over the course of the past eight months, and that stuff's got to get baked into the way people model what this would mean and how it would work going forward for them," Baker said Wednesday.

In December 2019, TCI states released their own study that estimated the cap-and-trade program would add between 5 cents and 17 cents to the price of a gallon of gasoline depending on whether the coalition set a target of a 20%, 22% or 25% reduction in emissions by 2032.

The CSPA study, however, calculated that under the middle emission reduction scenario of 22% TCI would most likely add 24 cents to the price of gas at the pump and generate $775 million for Massachusetts to invest in clean energy and public health.

If the economy stagnates due to the pandemic, the Tufts report estimated that the price increase would decrease to 13 cents, but the state would also collect just $406 million.

The greatest cost to consumers would arise if the states pursued a 25 percent reduction in emissions by 2032 and the economy rebounds and continues to grow at a moderate clip. While the pump price could increase 38 cents under such a scenario, a lot will also depend on whether the states decide to set a price ceiling and how the revenues are invested by states, the report found.

"How the money is spent really matters," said Evan Horowitz, director of the Center for State Policy Analysis.

Critics have pointed to the higher prices consumers will pay that will hit low-income and rural residents the hardest, but supporters have pointed out how revenues to the state can be reinvested in underserved communities that have been harmed by air pollution and other environmental hazards.

The reports notes that the environmental benefits of TCI will depend on whether states use the money to supplement existing spending on public health and climate change mitigation, or simply replace existing sources of revenue with TCI money and redirect new spending elsewhere.

The higher price estimates in the Tufts study stem, in part, from researchers' assumption that carbon emissions will decline without intervention at a slower rate than that projected by those with the TCI coalition, Horowitz said.

While TCI estimates that emissions will decline between 6% and 19% without a cap-and-trade program, the Tufts study believes those carbon reductions will be closer to 14.2% over the decade from 2022 to 2032.

The lower natural rate reduction means state policies will have to bridge a wider gap to meet emission targets, driving up the price of carbon allowances and fuel.

The study also warned that the coalition's decision to implement a price cap, which would serve to limit increases in fuel prices, will impact its ability to achieve emission reduction targets.

"There is a straight tradeoff. If you set a price cap, you do not reach your emission targets," Horowitz said.

The Transportation Climate Initiative started as a collaboration between 12 states and the District of Columbia, but the politics of carbon taxing and the possibility of higher consumer prices pushed New Hampshire Gov. Chris Sununu last year to withdraw.

The remaining states were due to release a memorandum of understanding with the final framework for the cap-and-trade program this spring, but the pandemic caused the states to adjust that timeline. The group now anticipates a final MOU before the end of the year for states that want to participate to sign.

In Massachusetts, Gov. Baker has the authority to enter into a multi-state carbon reduction pact on his own, but other governors will need to seek Legislative approval.

"You know, the biggest thing we've been doing, and this has been done in conjunction with the other states that have been part of this dialogue, is reprogramming some of the data around modeling the impact, because we're living at a point in time now that's dramatically different from the point in time we were living in when people's expectations about miles traveled and all the rest were a lot different than they are today," Baker said on Tuesday.

"And that modeling, I think, is an important part of figuring out how people feel about the cost-benefit that's associated with the program and the product, and it's certainly something that we think is an important part of helping states make decisions on this," he concluded.

Emissions from transportation account for about 43% of all carbon pollution in the region, according to TCI. Baker has set a goal of moving Massachusetts to net-zero carbon emissions by 2050.