Sean Casten Profile picture
Sep 25, 2020 19 tweets 4 min read Read on X
This has been a rough week in DC, but maybe we need some #energytwitter nerd threads to distract us. Today: why economy-wide GHG pricing doesn't work for the transportation sector, absent complementary policies.
1/ First, stipulate that "economy wide GHG pricing" is a supply/demand-set price per ton (or any other mechanism that treats all tons of GHG pollution as economically equivalent.)
2/ Suppose you buy a reciprocating engine to generate electricity. You run it 5 days/week, all year long, or 5x24x52 = 6,240 hours per year. When you make that investment, you plan on keeping it for 15 years before you have to replace it.
3/ Now suppose you also buy a reciprocating engine that in the form of your commuter vehicle (e.g., an IC engine). You have a 45 minute (each way) commute. You keep it for 15 years. That engine runs 45 minutes x 5 x 52 x 15 = 5,850 hours over the course of it's entire life.
4/ In other words, the same technology, but in one case used for power generation and in the other for transportation. In one mode you operate 6000 hours/yr, and in the other you operate it 6000 hours over 15 years.
5/ Since your fuel use is a function of operating hours (e.g., you don't burn gasoline while your car is in the garage), that means that fuel cost is ~15x as important to the investment thesis in a power plant as it is in a vehicle, all else equal.
6/ To put this in more personal terms: in the example above, if you average 35 mpg on your commute and get 27 mpg, you're spending $155/month on $4/gallon gas.
7/ I'll bet that's less than your monthly car + insurance payment. And note that if the price of gasoline moves by $1 / gallon, your differential cost is just $40/month.
8/ Which, by the way, is the same impact as a 25% change in fuel economy. The obvious implication being that in the (passenger) transpo sector, the economics of vehicle ownership are dominate by vehicle cost. In the heat & power sectors, the economics are dominated by fuel cost.
9/ Now let's bring that back to GHG pricing. GHG pricing, by definition is applied to the thing that emits greenhouse gases when burned - the fuel.
10/ Any price that is set at a high enough level to change the economics of the heat & power sectors & decarbonize will be too low to decarbonize transpo. And any price high enough for transpo will be way too high for H&P.
11/ Or, in economics parlance, the GHG price set in a supply/demand balanced paradigm will never clear at a high enough price to affect transportation economics.
12/ To be clear, we should - nay, MUST - put a price on GHG emissions. The point is just that decarbonizing the transportation sector will also require complementary policies that affect the price of the vehicle. I'm a big fan of feebates, personally: casten.house.gov/media/press-re…
13/ Another way to think of this for the financially inclined. How much more would you pay for a car that had zero fuel cost? e.g., in the example above, how much would you pay to save $150/month?
14/ If you are Homo Economicus rational and you are financing your car with a 7 year, 5% loan, you'd be willing to pay about $10,000 more for that car (since at anything above that level, your car payment increase > your fuel savings)
15/ Such a vehicle of course doesn't exist (Damn you thermodynamics!) but I think we can stipulate it would cost more than $10,000 more than Beck's current Hyundai.
16/ (Sorry for the obscure song reference - couldn't resist.) Point is, decarbonizing transportation requires policies to lower vehicle cost. Decarbonizing power and industrial sectors requires policies that price GHG emissions. /fin
Because there seems to be some confusion on this point. A $150/month car payment at 7 years would amortize a 5% loan. This is basic financial math, not a political statement on how much people should pay for fuel economy.
(Shorter version for those without any finance training: open Microsoft Excel on your computer. Click "help" and read up on the PMT function.)

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More from @SeanCasten

Nov 11
My primary thought on the election, after a week to reflect: We have to face up to some hard, uncomfortable truths about who we are. But we also have the opportunity to run headlong towards the nobility that accrues to to those who commit themselves to making us better. Thread:
1. I was speaking to a group earlier this week and noted that my Mt. Rushmore of writers about America is de Tocqueville, Baldwin, Paine and Douglass. It is not coincidental that all of them were outsiders. They understand America's unique defects AND it's unique potential.
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Oct 14
A quick thread on Trump's Project 2025 thing that's been on my mind. It's not just Trump's agenda. It's the agenda of the entire @GOP. A small deep dive:
1. I want to focus very narrowly on the Financial regulation section because I've served on the committee of jurisdiction for 6 years. So much of the P2025 plan has already been introduced by @HouseGOP members. It's what they'd do if they controlled all 3 branches.
@HouseGOP 2. For example, P2025 says we should eliminate the Consumer Financial Protection Board (you know, so that businesses can abuse consumers more easily.) Image
Read 13 tweets
Oct 1
Let's talk US immigration policy. As JD Vance admits to lying so he can gin up the xenophobes and the @HouseGOP keeps bringing bills to the floor that claim to solve imaginary problems, we've got to understand the real data, and real issues. Thread:
1. First, the idea that immigrants are prone to criminality has ALWAYS been used to argue against immigration and has never been true. Immigrants - especially undocumented ones - are consistently vastly more law-abiding than the general population. nij.ojp.gov/topics/article…

Image
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2. This makes intuitive sense. Whatever drove one to leave their home, their social network, their culture, their language and start a new life in the United States, the more precarious you are in that new life the less likely you are to do something that could send you back.
Read 21 tweets
Sep 22
I promised I'd say more about this. We need to talk about the financial regulation portions Trump's Project 2025 and why they are inimical to capitalism, free markets and would destroy the US economy. Thread:
1. Prebuttal to everyone about to chime in with "Trump said he's not associated with it!" I don't know how to break this to you but Trump is a liar. Fool me once, shame on you. Fool me 356,782 times, shame on me. It's his people writing policies for him. Move along.
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Sep 21
I am often critical of the @HouseGOP for their incompetence, absence of any abiding moral compass and hostility to democracy. But this week, they deserve praise for their nationwide message discipline during “anti-woke week”. Thread:
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Sep 12
OK, Trump got his ass kicked by Harris this week. That’s great but it’s time to move on. Specifically, to the huge national security / malign actor interference risk that Donald John presents as early as a week from tomorrow. Thread:
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2. What would you pay for a company with $3.4M in revenue, is blowing through $33M of cash per year & has negative earnings? If you said “zero” you’ll agree that #DJT is overvalued. The current $3B market cap is why it is MASSIVELY overvalued. finance.yahoo.com/quote/DJT/key-…
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