Air Pollution Regulation and Grandfathering

A recent New York Times article discusses an exemption for heavy-duty diesel truck emissions standards. First enacted by the Clinton administration, the standards include a provision that exempts truck engines built before 1999. Some entrepreneurs are taking advantage of this provision to circumvent the regulations by installing rebuilt pre-1999 engines in new truck bodies. According to the article, the rebuilt trucks sell for at least 10 percent less than compliant new trucks and also cost less to operate.

The focus of the article is the lobbying directed towards maintaining the exemption, but I want to focus on the real underlying problem: the exemption of existing sources from more stringent emission standards, also called grandfathering. If emissions and degraded ambient air quality have negative effects on morbidity and mortality, then those effects occur regardless of whether the emissions come from “existing” or “new” sources. So there is no public health or scientific rationale for grandfathering. Emissions are emissions regardless of their origin.

Instead, grandfathering eliminates the expense of retrofitting or scrapping existing durable equipment and imposes the cost of compliance gradually. This reduces the explicit cost of compliance and thus limits political opposition to emission control.

The downside of grandfathering is that it incentivizes the retention and operation of old equipment. In the cover story of the spring 2006 issue of Regulation, Shi-Ling Hsu describes the thirty-year struggle over the imposition of emission controls on coal-fired electricity power plants. When the Clean Air Act was amended by Congress in 1977, existing plants were exempted from the pollution control measures that were required of new power plants. Ever since, much ink has been spilled, and large legal fees and campaign and lobbying expenditures have been spent in the struggle over whether emission controls would ever be imposed on such plants because the right to emit without controls is very valuable.

The emissions loophole for trucks is similarly valuable, and old trucks are also exempt from excise taxes on new trucks and other regulations increasing the value of the exemption. 

What should be done about grandfathering? One possibility is emission taxes rather than regulation, but that works only if the politics of tax exemption differ from the politics of regulatory exemption. A second possibility is to set a certain end date to the grandfathering exemption. But that requires the legislature to resist the temptation for a grandfathering extension in return for political support, the subject of the Times article. Experience suggests this temptation is large.

Assuming that limiting emissions is a worthy goal, emission standards or taxes should be applied equally to all sources of emissions. So good public policy would not grandfather, but instead would require Congress to impose explicit costs on all existing emitters or explicit taxes on the rest of us to pay for emission reduction. And that appears to be as difficult as it sounds.

Written with research assistance from David Kemp.