An economic analysis of periodic vehicle inspection programs

Armospheric

,!3t~ironmr~lt Pergamon

Press 1973. Vol. 7. pp. 1237-l 246. Printed

in Great

Britain

AN ECONOMIC ANALYSIS OF PERIODIC VEHICLE INSPECTION PROGRAMS PAUL

Department

of Economics.

B. DOWNING* I’nicersity

of C‘alifornia.

Kivcrside.

U.S.A

Abstract---Preliminary data are presented on the cost and eRectivencss of an annual automobile emission inspection system. Using a least cost linear programming model it is shown that several retrofit devices are more economically efficient than inspection as a control strategy. It is then argued that the annual emission inspection is not a very good enforcement strategy either. A sideof-the-road inspection system is shown to be theoretically preferred.

THE United States Clean Air Act requires that the several states produce plans to meet the federal air quality standards by 1975. One of the alternatives being considered by many states in order to meet the oxidant standard of 0.08ppm is the initiation of a mandatory annual emission inspection of some or all automobiles coupled with repair of the more heavily polluting vehid1es.t In deciding whether or not to include some form of emission inspection in a state plan, it is desirable to compare the cost and emission reductions expected with those of other emission reduction alternatives such as the installation of additional emission control devices on some or all used cars. The’goal of this paper is to present currently available information which bears on this comparison .$ In order to make this analysis more meaningful, these comparisons will be made specific to the South Coast Air Basin (Los Angeles, California) in 1975. Throughout, we assume that the control agency is searching for the least costly policy capable of reaching the federal air quality standards or some other aii quality goal. However, since there is no commonly accepted air quality model for the Basin, the results of this study are reported in terms of percentage emission reductions. These reductions may or may not translate into air quality improvements. Of course, criteria other than least cost are also relevant in such policy decisions. The results of this study must be weighed against these criteria in formulating a policy. * This work was completed while the author was on leave and employed by the U.S. Environmental Protection Agency. However. the paper does not necessarily reflect the policy or opinions of EPA. An earlier version of this paper was presented at the North American Conference on Motor Vehicle Emission Control, 14 November 1972. Albuquerque, New Mexico, U.S.A. +The periodic vehicle emission scheme we are discussing requires that all vehicles (or all vehicles within a certain age group) must drive to a permanent emission inspection installation and have their car tested for emissions. If the car fails, the owner must have it repaired at the automobile rcpalr shop of his choice and reinspected. If it fails again. more repairs are required but in no cast arc additional new devices or engine modifications required. : II should be noted that currently available data arc scant. Thus, all numbers and conclusions stated In this paper must he considered preliminary and sublect lo change upon development of additional data. 1’37

COST

OF

INSPEC‘TIOI\;

The cost of a periodic vehicle emission inspection system is a function of the capital costs of facilities and equipment, the operating costs of the facilities. the cost of repairs to cars, and the opportunity costs to the people having their vehicles inspected. If carefully defined and quantified, these constitute the full cost to society. Neglecting some of these costs would make inspection appear to be a less costly option than it truly is. This can lead to incorrect policy choices. Specifically, the neglect of opportunity costs incurred by the car owner leads to incorrect answers. So does the use of analyses which employ only those costs incurred by the control agency. Shifting costs to car owners may make State Treasurers happy but it does not make that policy less expensive. A summary of the costs of emission inspection by the two most technologically likely inspection techniques (Key Mode and Idle) is found in TABLE I .* Capital costs were derived from the Northrop study completed for the CALIFORNIA AIR RE~O~R~-LS BOARD(1971). Included in capital costs are site acquisition, construction, equipment, and training. Each capital cost was annualized using the annuity formula, assuming an appropriate expected life and an interest rate of 8 per cent. Annual operating costs arc also derived from the Northrop study. As SCHWARTZ(1972) correctly points out, these costs exclude some administrative expenses. Following his argument, 20 per cent was added to the operation and maintenance expenses lo cover this expense. The annual repair costs depend upon the age of the vehicle inspected. In the Northrop study (NORTHROPCORPORATION,1971) it was found that controlled cars (ones which had emission reductions legislated at the time they were first sold) had a lower average repair cost than uncontrolled cars. (All 1966 and newer model year cars are controlled in California.) Also, following Schwartz, we assume that there is a 25 per cent repair cost savings for 1965 and older cars and a 50 per cent savings for 1966 and newer cars since many of the required repairs would have been completed by the owner in any case. We offset repair costs by S10.00 (for cars repaired only) since repairs increase gas mileage. Finally, since a rejection rate of 50 per cent is assumed, the calculated repair cost is halved to produce the average repair cost presented in TABLE 1. Opportunity costs include the cost of driving to the inspection station and the repair facilities (40 miles at $O.lOmile- ‘) and the value of the time spent driving and waiting (105 min at $2.50 h-l). This number is highly uncertain and probably conservative since it depends upon the placing of inspection stations, the number available. the rejection rate, and the average length of the queue. As can be seen from TABLE 1, opportunity costs are the major component of inspection costs. Neglecting them could create a substantial bias in favor of inspection. The cost data presented in TABLE I may bc an underestimate. This is because a 25-50 per cent increase in the demand for automotive repairs caused by the required emission inspection is likely to increase the prices charged for repair * The Idle inspection consists of analysis of HC and CO emissions in a sample of gas taken from the car when it is warm and operating wIthout load at XX) rev min _ ‘. The Key Mode inspection consists of a similar analysis of HC and CO at three of the seven modes used in the old seven mode California test (high cruise, low cruise. and idle) under chassis dynamometer loading. Two other inspection systems were studied in the Northrop work (C‘ertilicate of Compliance and Diagnostic Inspection) but they were found to be less effective than the two included in our analysis. There arc also other short-cycle tests available but data wcrc not available on thcsc. For further discussion of the various lnspectmn alternatives see hoHI,fKob~ ~OHI’OK~\rlO\ I 1971)and (‘I I\I and TI\KtiAv (IUWI

An Economic

Analysis

of Periodic

Vehicle Inspection

Programs

I239

TABLE 1. ANNUAL COSTOF PERIODICVEHICLEINSPECTIOK*

Key mode Cost category

Controlled 0)

Capital costs (a) Operating costs Average repair costs (b) Opportunity costs (c) Total annual cost per vehicle Total annual cost in S.C.A.B. (d)

Idle

Uncontrolled (8)

0.226 I.195 1.675 8.375 11.471

0.226 1.195 7.040 8.375 16.836

Controlled (S)

Uncontrolled (S)

0.140 1.114 4.000 8.375 13.629

0.140 1.1 14 7.525 8.375 17.154 85 255 000

74418000

* Annualized costs per car (South Coast Air Basin, 1975). (a) Annualized using 8 per cent interest. (b) Assuming 25 per cent savings in repair costs for uncontrolled cars and 50 per cent for controlled cars and S 10.00 y - ’ fuel savings. We also assume that 50 per cent are passed and not repaired. (c) Assuming $2.50h-’ and $O.lOmile~l. (d) Assumed automobile population in the S.C.A.B. in 1975 is 5 968 301 with 1 110 105 being uncontrolled (DOWNING and STODDARD,1973). NORTHROPCORPORATION (1971). SCHWARTZ (1972).

Sources:

substantially in the short run (and perhaps in the long run as well if more highly trained mechanics are necessary in order to obtain the required emission reductions). The demand for equipment for inspection stations may cause either an increase or a decrease in their price. In California alone there would be a demand for approximately 400 sets of necessary equipment if the Key Mode system were used. If there are economies of scale (a learning curve) in producing this equipment, prices would go down. This may offset the effects of increased demand. It must be remembered that other alternatives such as retrofit devices (devices added on to used cars in order to reduce emissions) probably are subject to the same sort of phenomena so that its neglect may not substantially alter relative rankings. BENEFITS

OF

INSPECTION

The goal of any air pollution control activity is to reduce the net damages caused by air pollution. These damages include health effects, psychological and aesthetic damages, and damages to plants and animals. Economic efficiency requires that the benefits of inspection (reduced damages) must exceed its costs and it must be less costly to obtain those benefits by inspection than by any alternative policy available. Information on the monetary value of the benefits to be derived from automotive air pollution control is scant and little can be said at this time about the first part of this efficiency criterion. Thus, the following analysis deals only with the second part of this criterion. That is, how can a given level of additional automotive emission control be reached at least cost? EFFECTIVENESS

OF

INSPECTION

2 summarizes the results of EPA and California research on the effectiveness of mandatory inspection of all vehicles with rejection and repair rates of 40 and 50 per cent, respectively. The general range of effectiveness appears to be fairly similar. The EPA study produces slightly smaller reductions, in part because of a lower rejection and repair rate. TABLE

Rejection

- 2.2 (e)

8.5 13.0

50

-2.8

14.5 10.4 -2.3

9.6 12.5

Weighted average (d)

California

(a)

- 1.9

13.9 16.7

Controlled

study (a)

50

-11.7

15.0 13.3

Uncontrolled

Key-mode

* Per cent of before inspection emissions. (a) Assumed to be one-half of initial reductions. (b) Based on CVS test scheme. (c) Based on seven-mode hot start test scheme. (d) Weighted by the population of controlled and uncontrolled cars in the South Coast Air Basin in 1975 (DOWNING and STODDARD, 1973). (e) Negative sign means increase in emissioris. Sources: Based on data from HOROWITZ(1972)for EPA study and NORTHROP (1971) for California study.

0.0

40

NO,

rate

12.0 10.0

Uncontrolled

Controlled

Controlled and uncontrolled

HC co

Pollutant

Idle

Idle and key-mode

EPA Study (b)

Reductions

TABLE 2. POPULATION FMISSIONREDIICTIONSFROM PERIODIC VEHICLEINSPECTIONS*

-3.7

14.1 16.1

Weighted average

z

$

;P 5 m u

An Economic Analysis of Periodic Vehicle Inspection Programs

1241

It is generally assumed among automotive engineers that the initial emission reductions due to repair will not last indefinitely and that emissions will tend to return to their initial level after some period of time. A schematic diagram of this phenomenon is presented in FIG. 1. This effect (called degradation) is not well understood at this time. It appears that immediately after inspection and repair there is a reduction in emissions for the average car (but there may be an increase in NO, emissions). For the first few miles after repair, emissions may be further reduced as parts wear in. At some point emissions increase and supposedly finally return to the original time path in the absence of additional inspection and repair. The emission reductions resulting from inspection and repair are not the initial reduction times the number of miles driven in a year. Rather, they are the area between the two curves (the shaded area in FIG. 1) for each pollutant. No inspection

0

Time of inspection ond repair

100000 Miles

FIG. 1. Schematic diagram of initial emission reductions and degradation inspection and maintenance program.

resulting from an

In order to produce an estimate of the true emission reductions, it is necessary to know the shape of the degradation curve. An attempt was made to estimate this curve using multiple regression techniques and data produced in the Northrop study (NORTHROP CORPORATION, 1971). Retests were made by Northrop from 3 to 8 months after the initial inspection and repair of the cars in their study. We ran several alternative regression models using some or all of the following variables in linear and log form: miles driven, days since repair, repair costs, whether or not the owner repaired the car after the Northrop repair, number of cylinders, displacement, type of transmission, and initial change in emissions (emissions before repair less emissions immediately after repair). The results of these regressions were very discouraging. Miles driven was statistically significant as an explanation of -degradation in only one-half of the regressions. Time was even less useful. All other variables seemed to be unrelated to degradation. The highest R2 obtained was an unacceptable 0.27 (in sharp contrast to the R2 of 0.44 reported by SCHWARTZ (1972) with presumably the same data). Part of the explanation for these poor results can be found in the quality of the data and lack of control of the experiment. Also, the 3- to 8-month period with only one observation per car provided insufficient data points. Continuing studies by EPA will hopefully provide much more information on degradation. However, at this time the shape of the degradation curve and the value of the

I 242

PAt’L

tk

~OW\lSC;

shaded area arc unknown. As a matter of convenience. I assume that emissions return to their pre-inspection levels within 1 y and that the degradation curve is a straight line. From my understanding of the data, this assumption probably overestimates the emission reduction potential of inspection. These assumptions also imply that the rate of degradation for older cars is higher than for newer ones. However, while these data are crude, they represent our best guess at this time. The assumed effectiveness figures presented in TABLE 2 arc for the first year of operating the inspection program. It is likely that almost all of the seriously malfunctioning cars will be caught and repaired during this first year. In the second year the number of seriously malfunctioning cars in the population should bc substantially reduced (assuming that they are not deliberately maladjusted by the owner). This being the case, effectiveness in the second and subsequent years ought to be less than for the first year and the estimates of TABLE 2 arc too large. Since we have no evidence on this point. the estimates of TABLE2 arc used.

Assuming that the benefits of additional automotive emission control exceed their cost. it is now desirable to determine if inspection is less expensive than alternative methods of obtaining the same emission reductions. The alternative methods to be studied arc various retrofit devices for used cars. A cost minimizing linear programming model was employed in order to determine under which circumstances (levels and mix of emission control) inspection will be chosen as part of a least cost emission reduction policy. The mbdel and data employed in the linear programming model arc drawn from DOWNING and STODDARD(1973) and from the Northrop study and employ the Key Mode inspection scheme reported in TABLES 1 and 2 above. The model and data refer specifically to the South Coast Air Basin in 1975. Runs were made assuming three alternative kinds of pollution control strategies: heavy concentration on NO, control, balanced effort between NO,, HC and CO control. and heavy concentration on HC control. For each of these strategies, groups of runs wcrc made with increasing levels of control. For convenience. model year groups wcrc employed in these runs. The results of these runs in terms of the devices employed and the model year groups on which they are employed are summarized in TABLE3.* These results are very revealing. Note that for moderately low levels of additional control eflort for automobiles the annual emission inspection option (iz) is not employed. Rather, for most 1965 and older cars. installation of the American Pollution Control Corporation dcvicc (R) is called for by the mode1 solution. Also. for most 1966-1970 cars either exhaust recycle (D) or evaporation control (C) devices are required by the solution. At 20 and 30 per cent control some Universal Oil Products catalytic mufflers (E) would be required on newer cars. Only when thcsc * Mosr

of these devices arc not no\\ available commcrciall! but it IS assumed that the! can he ma& available by 1975 if sufficient notice is given to manufacturers. De&c A is an annual inspection employing the Key Mode inspection system explained above. Device C traps and directs into the carburetor intake the hydrocarbon fumes caused by evaporation of gasoline in the fuel tank and carburetor. Device 11 recirculates a portion of the exhaust gas into the carburetor to reduce YO, emissions. Device H is a combination of device D and a debice which disconnects the vacuum spark advance system in order to reduce HC‘. CO and NO, emissions. Device 6 is a catalytic reactor which causes additional control of 11IC, CO and NO, through further chemical reactions in the exhaust system, Device G = .A + I‘. Dcvicc I - .A + E. Ikbiw J - C + E.

An Economic Analysis of Periodic Vehicle lnspction TABLE

3.

h%ICES

EMPLOYHI

Programs

I243

IN LEAST COST wLC:TKNS*

(South Coast Air Basin. 1975) Per cent reduction from expected 1975 automobile emissions IO 20

Concentration on NO, control

Balanced control 565 D70 U65 C70 D70

865 070 365 D70 EL?

30

B6.s D70 E72 E74

865 C-70 D70 E72 E74

50

Infeasihlc

865 D70 El0 E72 E74 J70

60

Infeasible

,475

Concentration on HC control B65 Cl0 A72 A74 865 f‘70 El4 A70 Al? ‘474 86.5 (‘70 E74 G70 A72 A75 E65 E72 1:‘74 G70 565

Infeasible

E65 1:‘70 E72 E74 G70 174 J70

Where: 65 70 72 74 75

= = = = =

* Not all cars IWO devices increases in combination

1965 and prior model year cars 1966 70 model year cars 1971 72 model year cars 1973-74 model year cars 1975 model year cars

A= B= C= D= E = G= I =

inspection AK device evaporation device exhaust recycle U.O.P.catalytic muffler inspection and evaporation device inspection and U.O.P.catalytic muffler J = evaporation device and U.O.P. catalytic muffler. in a given population are necessarily controlled by the listed devices. In several instances are employed on different proportions of a model year group. In these cases some emission constraints (greater control) would lead to the use of the more effective device (higher letter) on all vehicles in that model year group.

relatively high reduction goals are combined with concentration on HC control do we find that periodic emission inspection is called for in our solutions and then only on newer cars (rather than on older ones as one would probably expect). The reason for the relatively low priority of inspection for older cars can be found in three factors. First, repair costs are higher for older cars. Second, the average mileage driven, which is included in our estimates of emission reduction, is very much lower for older cars. Third, WChave assumed more rapid degradation for older cars. Thus, even though inspection reduced emissions by a larger amount in terms of grams per mile (TABLE 2) the fact that newer cars travel a greater number of

1244

PAUL

B. ~OWNINC;

miles per day and probably degrade more slowly more than offsets the higher percentage reductions. Many knowledgeable air pollution control engineers argue that it is unlikely that a catalytic muffler will be available as a retrofit device in 1975 due to various technological difficulties. In order to determine if the lack of such‘a device will affect our results on periodic emission inspection, another set of linear programming runs was made without the U.O.P. devices (E, I and .I). The results were consistent with those reported above. Only after device B was installed on all 1965 and older cars and devices C and/or D were installed on most 1966--1970 cars was inspection employed. And in this case, as before, only newer cars are inspected. In summary, the results of our analysis of the economic efficiency of control alternatives indicate that periodic vehicle emission inspection as it is defined above is less desirable (in a least cost context) than various available retrofit devices. Only after such devices as spark retard, exhaust recycle, and evaporation control are installed does inspection become an economical alternative. And even then older cars would not be inspected except in the most stringent control program. Note that these results assume a rejection rate of 50 per cent. Lower rejection rates may be more economically efficient but available data do not allow an analysis of this alternative at this time. THE

NO-INSPECTION

ALTERNATIVE

The results presented here do not include any assessment of what will happen if an inspection program is not instituted. The studies surveyed here took cars “at random” from the population. However, they appear to have excluded cars whose devices had been disconnected or deliberately maladjusted. Without inspection. car owners have little incentive to correct malfunctions of pollution control devices installed on their car as long as the malfunction does not adversely affect performance. In fact, if operation of the device causes substantially poorer performance, the owner (or his auto mechanic) will be inclined to disconnect the devices.* In the absence of periodic (or random) inspection. the owner may disconnect the device if it substantially reduces performance. With pre-announced inspection such as the periodic vehicle emission inspection system being discussed here, the owner may only connect the device during the inspection and may disconnect it again shortly after leaving the inspection station. Thus, the effectiveness rates reported here are likely to be higher than would be realized if the plan were implemented. This is because the data employed assume that devices are not deliberately disconnected or maladjusted after the inspection. When it is recognized that 1972 model year cars are experiencing substantial drivability problems and 1975 model year cars may be even worse, one fears that actual emissions, even with preannounced inspection, will be much larger than they might be if an alternative inspection technique were employed. Unannounced inspections at the side of the road [such as are now being used in California (CALIFORNIA HIGHWAY PATROL, 1972)] have substantial theoretical merit. When inspections are me-announced, car owners have little incentive outside of public spirit to operate and maintain control equipment between inspections. This is because non-operation (even if it is illegal) is costless. Having a law on the books which imposes high penalties does no good if the probability that an individual *There is growing (ANON.. 1972).

evidence that deliberate

maladjustment

is being carried

out on a substantial

scale

An Economic

Analysis of Periodic

Vehicle Inspection

Programs

I245

car owner will be found in violation is near or at zero. Non-enforcement between inspections could mean substantially higher emissions. But even side-of-the-road inspections may not do much good. Their effectiveness will depend upon the form of penalty imposed and the probability of being found in violation that any individual car owner perceives. Suppose that the penalty is of the typical form employed in California and elsewhere: if found in violation, you must repair the car and submit a certificate of repair to the California State Highway Patrol. In effect, the only penalty is a minor inconvenience in having the car repaired before a specified date. since the repair costs probably would have been incurred in a few months anyway. If the inconvenience of driving a car with the control equipment operating is greater than the inconvenience of being caught m violation, the car owner may disconnect the device and take his chances. Which leads us to the second half of this argument. If the probability of being inspected at the side of the road is very low, the expected cost of any penalty imposed is very low. Again, the owner may disconnect the device (or not repair an obvious malfunction). The principle is clear. Immediate penalties when accused of a violation (as in traffic citations) and a high probability of being inspected will lead to greater compliance with emission control efforts. Let me stress that at this time we do not know to what extent people will disconnect or fail to maintain devices (or indeed to what extent they do so now). This will clearly depend upon the drivability and operating costs of control devices as well as expected penalties for disconnecting. However, there is mounting evidence that this problem could be severe. There isan as yet unmentioned problem with side-of-the-road inspection (assuming away technical problems such as measurement errors, equipment breakdowns, etc.). Such an inspection is difficult to conduct on crowded streets and during rush hours. Thus, inspection locations are often on less widely traveled secondary streets and during non-rush hour periods. This could lead to an inspection sample which is biased towards low mileage cars, rather than high mileage commuter cars, thereby reducing the effectiveness of such a program. Unfortunately, there is no evidence now available on the effectiveness or cost of California’s side-of-the-road emission inspection system so that comparisons with a periodic emission inspection system are not possible at this time. CONCLUSIONS

This paper presents estimates of the cost of a periodic vehicle emission inspection program. Unfortunately, the evidence currently available on emission reductions from inspection and repair is very uncertain and the results presented here can only be thought of as indicative. This is because the degradation curve is unknown. The assumption of a linear degradation curve employed here is a reasonable approximation but it may either overestimate or underestimate the effectiveness of inspection. The analysis of devices chosen through the use of a least cost linear programming model indicates that several retrofit devices are more economically efficient than inspection. Annual pre-announced inspection was called for in our model onIy after spark retard and exhaust recycle devices were to be installed on all 1965 and older cars and exhaust recycle and evaporation control devices were to be installed on all 1966-1970 cars. Even then inspection was employed on the newer model cars first. Annual pre-announced inspection may be less cffcctive than current studies

I246

PAUL B. DOWNING

indicate. This is because there is a tendency for owners to “. . . deliberately maladjust new vehicles” (CALIFORNIA AIR RESOURCESBOARD. 1972). The theoretical merits ofa side-of-the-road inspection system, employed either in conjunction with or instead of annual emission inspection, were discussed. Unfortunately, data do not exist at this time which would allow any empirical comparison of the two inspection alternatives. The results reported here are based upon incomplete knowledge and arc only indicative. Further research is needed on benefits and effectiveness before definitive results can be obtained. It is clear that some form of enforcement is required whether or not retrofit options are chosen. Unfortunately the data needed to enable us to choose the most effective enforcement alternative await further research. REFERENCES SIAX OF CALIFORSIA (1972) Staff Report. Pilot Study Phase of C‘.H.P. Roadside Emission Tests. 27 September 1972. A~.O~.YMOUS (1972) The costs of cleanliness. Newswwk. 4 December 1972. p. 99. CALIIORNIA HIGHWAY PAI.KOI. (1972) Exhaust Emission Standards Enforcement. Press release dated X Scptemher 1972. CI.IX~ E. L. and TI\KIIAM L. (196X) A realistic Vehlclc Emission lnspcctlon S+em. Clayton Manufacluring C‘ompang. El Monte. C‘aliforma, AP<‘A Paper 6X-152. Dowu~xc; P. B. and STOINAKI) L. W. (1973) The economics of air pollution control for used cars. In Adcatrces ii1 E~lciro~lme~ltal Sciowe md Trc/wo/oyy (Edited by PITTS J. N. and MI:TC.ALFR. L.). Vol. 3. Wiley. New York. HOKOWIT~ JOFI. (1972) The Etlcctivencss and C‘osts of Inspection and Mamtcnancc for Rcduclng Automobile Emissions. En~ironmcntal Protection Apcncy. August. NOK~IHOI~ COKPOHATIO\ (IV71 b Mandator? Vchlcle Fmlsslon Inspection and Malntenancc Rcscarch Report to the State of California Air Resources Board, December. SCIIWAKTZ S. (1972) A systems view of automobile inspection programs. Paper presented at the 65rl1 .Af~nucr/Mreritq of f/w Air Pollurion Cmrrol A.wx+orh 1% 22 June.

AIKRESOIIKCES BOARI,.