Policy Options for Reducing Energy Use and Greenhouse Gas Emissions from U.S. Transportation: Special Report 307 (2011)

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Summary This report examines U.S. transportation’s consumption of petroleum fuels and the public interest in reducing this consumption to enhance national energy security and help control emissions of carbon dioxide (CO2) and other greenhouse gases (GHGs). Scientific analyses and models indicate a need to stabilize atmospheric concentrations of these gases by the middle of this century. Worldwide emissions reductions of up to 80 percent may be needed over the next four decades as a consequence. A response by the transportation sector to this energy and emissions challenge will be impor- tant, because the sector accounts for more than two-thirds of the petro- leum consumed in the United States and produces between one-quarter and one-third of all the CO2 emissions attributable to the country’s energy consumption. The report reviews policy options to bring about desired energy con- sumption and GHG emissions reductions from U.S. transportation over the next half century. It is not intended to model or quantify the impacts of each policy option over time but instead to examine the means by which each influences behavior and the demand for and supply of energy- and emissions-saving technology, particularly in the modes of transpor- tation with the greatest effect on the sector’s consumption of petroleum and emissions of GHGs. In choosing among policies, elected officials must take into account many factors that could not be examined in this study, such as the full range of safety, economic, and environmental implications of their choices; therefore, the report does not recommend 1 

2 Policy Options for Reducing Energy Use and Greenhouse Gas Emissions from U.S. Transportation a specific suite of policies to pursue. Instead, the emphasis is on assessing each policy approach with regard to its applicability across transportation modes and its ability to affect the total amount of energy-intensive trans- portation activity, the efficiency of transportation vehicles, and GHG emissions characteristics of the sector’s energy supply. For each policy option, consideration is given to the challenges associated with imple- mentation and with the production of large savings in energy and GHG emissions over a time span of decades. Given the magnitude of the needed emissions reductions indicated by climate change science and GHG modeling, it is difficult to envision the U.S. transportation sector contributing meaningfully to these reductions without a close alignment of policies to induce and sustain the needed energy- and emissions-saving response. Gradual improvements in the energy efficiency of transportation vehicles and their operations over the past several decades—brought about in part by public policies—have helped temper transportation’s overall demand for carbon-rich petro- leum, even as the total population, automobile ownership, personal travel, freight demand, and traffic congestion have grown. However, a mere tempering of the growth in petroleum demand by transportation will not yield deep reductions in the CO2 and other GHGs emitted from transportation over the next 40 years. In this respect, the policy challenge that lies ahead is more complex than the energy conservation challenge facing the nation over the past 40 years. The achievement of deep reduc- tions in energy use and emissions by midcentury will require more than gradual improvements in vehicle energy efficiency. It is likely to require reducing the GHG impact of the transportation fuel supply and the total amount of energy- and emissions-intensive transportation activity. The Policy Challenge Ahead Transportation is central to commerce and to the daily lives of Ameri- cans. It allows people to access more places of work, obtain a wider range of goods and services, and connect socially over broader areas. It allows businesses to situate in the most economically efficient locations and reach a larger number of suppliers and customers. Today’s transportation modes and systems cannot be easily or quickly altered, having evolved 

3 Summary over many decades and reflecting countless decisions about where and how Americans live and U.S. businesses operate. The diversity, complex- ity, and ubiquity of the nation’s energy-intensive transportation system thus present both opportunities and challenges for policy making. The total energy consumed in transportation and the associated emis- sions of GHGs are largely a function of the energy efficiency of transpor- tation vehicles and their operating environment, how often and intensely the vehicles are used, and the GHG characteristics of the fuels that are consumed. Policies to curb transportation energy consumption and emissions in the decades ahead will almost certainly need to focus on the cars and light trucks used for personal travel and the medium and heavy trucks used for moving freight. Cars and light trucks alone account for about two-thirds of the sector’s petroleum consumption and thus for a comparable share of GHG emissions. Largely because of anticipated increases in vehicle energy- and GHG-efficiency standards, light-duty vehicles are projected to account for a smaller share of the transportation sector’s total energy use and emissions over time. Nevertheless, they will continue to account for the majority (55 to 60 percent) in 2030. Heavy- and medium-duty vehicles, including trucks that carry freight, account for 20 to 25 percent of the sector’s energy use and emissions. They are projected to account for a similar percentage in 2030, which means that all motor vehicles will continue to account for more than 75 percent of transportation’s total energy use and emissions. The next- largest contributor is the passenger airline industry, whose share of emissions is projected to increase from about 6 to about 8 percent over the 20-year period. Thus, three types of vehicles—cars, trucks, and pas- senger aircraft—will remain the chief sources of sector energy use and emissions for many years to come. Any policies aimed at making major changes in transportation energy use and emissions trends will almost certainly need to find and exploit opportunities to reduce the activity of these vehicles and their energy and emissions intensity. For cars and light trucks, these opportunities are likely to include 2020 in an attempt to exceed the goal of 35 miles per gallon required in current legislation; 

4 Policy Options for Reducing Energy Use and Greenhouse Gas Emissions from U.S. Transportation particularly for the fastest-growing reasons for personal trip making, such as discretionary trips for shopping and services; and favor energy sources whose production and consumption both result in lower emissions of GHGs. For freight-carrying trucks, the opportunities are likely to include designs and technologies, energy-efficient operations and maintenance practices, and energy sources whose production and consumption both result in lower emissions of GHGs. For passenger airlines, the opportunities are likely to include - craft that are more efficient in using energy and produce fewer emis- sions and of improved air traffic management procedures and systems. The successful exploitation of opportunities for saving energy and reducing emissions in these dominant modes will require policies that influence the decisions and actions of those who (a) supply the vehicles, fuels, and infrastructure; (b) own and operate the vehicles and provide commercial freight and passenger services; and (c) demand these trans- portation services. A policy approach that does not influence the incen- tives and actions of all of these groups will almost certainly fall short of achieving the desired outcome. The crux of the debate is over the types and combinations of policies that are best suited both to making early progress in controlling emissions and to enlarging the savings to bring about deep emissions reductions by the middle of this century. 

5 Summary Aligning Strategic Interests and Policies A long-standing emphasis of U.S. policy making has been on regulating transportation vehicles and fuels to compel the production of more effi- cient vehicles and the emergence of energy sources other than gasoline and diesel fuel. Federal regulations that require automobile manufactur- ers to increase vehicle fuel economy have been in place since the 1970s and are now accompanied by GHG performance standards for new cars and light trucks starting in model year 2012. Additional efficiency stan- dards are planned for medium- and heavy-duty trucks, and similar stan- dards may eventually be pursued for larger vehicles in other modes. The recent adoption of federal renewable fuel standards, which require that a certain percentage of the transportation fuel supply consist of fuels pro- ducing lower GHG emissions on a life-cycle basis, represents another policy approach that is largely based on the suppliers of transportation products. In comparison, policies aimed at influencing the behavior and decisions of the users of transportation vehicles and the consumers of fuel are seldom proposed, much less introduced. Supplier-oriented vehicle and fuel standards are not the only options available to policy makers, and actions targeted to consumers will almost certainly be required if large reductions in transportation energy use and emissions are to be achieved over the next half century. The policy options reviewed in this report include - tives to motivate interest in vehicle efficiency), curbing private household vehicle use, and operating efficiencies. The report examines how each policy option influences transporta- tion energy use and GHG emissions, whether by affecting the amount of energy- and emissions-intensive transportation activity, the energy 

6 Policy Options for Reducing Energy Use and Greenhouse Gas Emissions from U.S. Transportation efficiency of vehicles and their operations, or the GHG characteristics of the transportation energy supply. Policies that affect all three factors and that can be applied across modes are likely to have the largest influence on transportation energy use and emissions. How quickly each policy can be put into effect is an important consideration because GHG emis- sions are accumulating in the atmosphere. Table S-1 summarizes how each of the policies above compares with respect to scope of application (across modes) and array of impacts (i.e., on energy and emissions efficiency, activity, and the GHG characteristics of fuel). Fuel taxes have the greatest applicability across modes. Indeed, fuel taxes are already in place in nearly all modes of transportation, although their magnitude varies. In addition to having sectorwide appli- cability, fuel taxes have the advantage of prompting a varied energy- and emissions-saving response by both consumers and suppliers of fuels, vehicles, and transportation services. By raising fuel prices, fuel taxes can lead to increased consumer interest in more fuel-efficient vehicles and operations and a reduction in the demand for energy-intensive trans- portation activity (with the magnitude of the effect depending on the impact; they seek to increase the energy and emissions performance of vehicles and fuels but do not prompt vehicle operators to engage in more energy-efficient operations or to scale back their energy- and emissions- intensive activity. With the exception of fuel taxes, most policy options listed in Table S-1 have a narrow impact; they are targeted at specific modes and at only one of the factors influencing transportation energy use and emissions. The importance of achieving timely, sustained, and increasing reduc- tions in GHG emissions means that a combination of policies may be needed. Actions that go beyond the current focus on regulating vehicle and fuel suppliers will almost certainly be required, including energy pricing. Although fuel taxes have long played a key role in financing the nation’s transportation infrastructure, their use for inducing energy con- servation has not been tested in the United States. The resistance encoun- tered by proposals to raise fuel taxes even slightly to pay for transportation infrastructure has produced skepticism about the prospects for energy pricing to have a meaningful policy role in the near to medium term. 

table s-1 Scope, Scale, and Timing of Impacts of Major Policy Approaches to Reducing Transportation’s Petroleum Use and GHG Emissions Scope of Application and Impacts Timing and Scale of Impacts Applicability Across Prospects for Early Policy Approach Transportation Modes Impactsa Policy Implementation Scale of Impactsb Fuel taxes If fuel taxes can be sustained Because taxes are already Taxes that raise the price of fuel Taxes can be assessed on all and continually raised, they imposed on fuels used in most will prompt consumer and car- fuels used in all modes of can generate increasing transportation modes, higher rier interest in energy-efficient transportation. impacts on transportation fuel taxes would be straightfor- vehicles and operations as energy use and emissions over ward to administer. The major well as alternatives to energy- time as consumers and sup- challenge to early implementa- intensive transportation activ- pliers of vehicles and energy tion is to find innovative ways ity. A tax structure favoring adjust their purchases, behav- to engender and sustain public low-GHG fuels can also foster ior, travel activity, and prod- support for higher taxes, which interest in alternative fuels ucts offered. Complementary have been resisted during the and more emissions-efficient policies that facilitate fuel- and past two decades. vehicle types. emissions-saving responses, such as compatible land use and transportation infrastruc- ture planning, may make the higher fuel taxes more accept- able to consumers. (continued on next page) 

table s-1 (continued) Scope, Scale, and Timing of Impacts of Major Policy Approaches to Reducing Transportation’s Petroleum Use and GHG Emissions Scope of Application and Impacts Timing and Scale of Impacts Applicability Across Prospects for Early Policy Approach Transportation Modes Impactsa Policy Implementation Scale of Impactsb Continued tightening of Vehicle energy and emissions Vehicle energy and emissions Vehicle efficiency Efficiency standards already standards that yield smaller efficiency standards are in efficiency standards are one- standards exist for cars and light trucks. reductions in energy use and effect and being tightened for dimensional in that they do They are based on energy emissions will test consumer cars and light trucks. While not cause vehicle operators to consumed or emissions per acceptance. In the absence of vehicles in other modes are seek out operating efficiencies vehicle mile. Establishing higher fuel prices, purchase candidates for standards, (e.g., energy-saving routing) standards for larger pas- incentive programs such as instituting them presents or to reduce the volume of senger and freight-carrying feebates may be needed to technical and administrative transportation activity. The modes is more complicated motivate consumer interest challenges. resultant lowering of the fuel because of the variability in higher levels of vehicle cost of transportation may in vehicle types and uses. efficiency. lead to some additional travel The standard must account activity, offsetting a portion for the work performed by of the energy and emissions these vehicles (volume or savings from the increased tonnage of freight, volume of vehicle energy and emissions passengers). efficiency. 

Low-carbon fuel Low-carbon fuel standards The prospects for early The main effect of a low-carbon Low-carbon fuel standards standards may be helpful in attracting implementation are unclear fuel standard is to reduce the can be applied to the entire and sustaining investment in since there is limited experi- GHGs generated by the fuel transportation fuel supply. alternative fuels, potentially ence with such programs. If supply (during consumption lowering the cost of supplying the standards raise the price of and production) by increasing them over time. If fuel prices fuel, as would be expected, the the demand for and supply of remain high as a consequence, implementation challenge will alternative fuels. If fuel prices the challenge will be in main- be similar to that of raising fuel increase as a consequence, the taining public support for the taxes. As with other policies standards will also cause some program. to control GHG emissions, the reduction in transportation ability to account for and verify activity and greater interest in emissions will affect imple- energy-efficient vehicles and mentation potential. operations. Land use controls Because the built environment Because land use planning The main effect of these poli- These measures apply and travel changes only gradually over and many travel demand cies is to reduce the amount mainly to travel in metropoli- demand time, many decades will be measures are traditionally of energy- and emissions- tan areas, especially by cars management required for land use plan- the responsibility of local intensive transportation and light trucks. They have measures ning to have national effects governments, states will likely activity. They would need to limited applicability to other on transportation energy use need to take a more active role be accompanied by other modes and to travel in rural and emissions. Once in place, in coordinating and aligning policies, such as efficiency areas. however, a more compact built these decisions. The early standards and fuel taxes, to environment may have lasting implementation challenge affect the efficiency of vehicles impacts on energy use and will entail establishing these and the GHG profile of the fuel emissions and align well with state and regional programs to supply. other policies such as higher influence and coordinate local fuel taxes. decisions. (continued on next page) 

table s-1 (continued) Scope, Scale, and Timing of Impacts of Major Policy Approaches to Reducing Transportation’s Petroleum Use and GHG Emissions Scope of Application and Impacts Timing and Scale of Impacts Applicability Across Prospects for Early Policy Approach Transportation Modes Impactsa Policy Implementation Scale of Impactsb Fundamental changes in the The prospects for early imple- Public investments Applicable to all modes in Investments in transporta- operations and structure of the mentation will depend in large in infrastructure which governments own tion infrastructure can make transportation system, such as part on motivations other than operating and operate the transporta- operations more efficient through the introduction of the energy and emissions savings, efficiencies tion infrastructure, such as in terms of energy use and Next Generation Air Transpor- especially congestion relief the highways, airways, and emissions. However, capacity- tation System and intelligent and safety enhancement. waterways. expanding investments that transportation system tech- Because adding physical reduce the fuel and time nologies, could lead to more capacity to transportation sys- cost of travel may lead to an far-reaching energy and emis- tems is becoming more costly increase in total travel activity, sions benefits over time. and time-consuming, the offsetting some of the energy more likely investments will and emissions savings. be in measures that control traffic and allocate use of the systems more effectively. a Ability to affect the amount of energy-intensive transportation activity, the efficiency of vehicles and their operations, and the GHG profile of the energy supply. b Potential to generate large energy and emissions savings from the transportation sector over the next 25 to 50 years. 

11 Summary In the right-hand columns of Table S-1, policies are compared with respect to their prospects for early implementation and their potential to generate large energy and emissions savings over a span of 25 to 50 years. Gaining public acceptance is a challenge for all meaningful policies. Although vehicle and fuel standards have demonstrated such potential, at least in recent years, they too may need to be supplemented with pricing strategies, such as the vehicle feebate schemes examined in this report, to create and sustain a demand for more efficient vehicles and fuels. Few of the policies examined in this report are likely to be adopted quickly and retained for long unless they promise to do more than reduce GHG emissions. Interest in reducing dependence on petroleum, much of it supplied by politically unstable regions of the world, has been an important reason for the adoption of fuel economy standards, and this interest will continue to be a driving force behind the introduction of other policies aimed at curtailing transportation’s energy use. Other pub- lic interests must also be aligned with these goals. For example, invest- ments in transportation infrastructure and operating practices that make the system more energy efficient will also be desirable to consumers if they reduce congestion and delays. The coordination of land use planning and transportation investments can likewise yield more effective and efficient energy-saving responses by consumers. Indeed, the introduction of fuel taxes and other pricing policies to spur consumer interest in saving energy would require infrastructure-related policies to be made compatible. To achieve reductions in GHG emissions, a policy pathway that is both tactical and strategic is indicated. Having demonstrated their poten- tial for implementation, vehicle efficiency standards, for example, may be desirable in slowing the rate of growth in energy use and emissions. However, such mode- and vehicle-specific policies will need to be suc- ceeded by policies that can generate much larger systemic responses, such as those produced by energy pricing. The strategic challenge ahead will lie in structuring and gaining public acceptance of these more far-reaching policies. A convincing case for their importance will be required, as will the timely introduction of many complementary policies, such as infrastructure investments and land use planning, that will foster acceptance and facilitate the desired long-term energy- and emissions-saving response. 

12 Policy Options for Reducing Energy Use and Greenhouse Gas Emissions from U.S. Transportation Research to Inform Strategic Policy Making Although this study was not tasked with developing a research agenda, the challenges discussed in the report point to the long-term importance of making near- and medium-term policy choices on a well-informed, strategic basis. A policy-making approach that is strategic will require research that goes beyond the traditional role of supporting technology advancement. It will require information and analytic techniques that are drawn from multiple fields and disciplines—for example, economics research on the connections between transportation and productivity, political research on how policies can be coordinated across jurisdic- tions, and behavioral research that yields a better understanding of how consumers value future streams of energy savings. With such informa- tion, policy makers will be in a better position to assess how alternative policies are likely to interact with one another, the lead times that specific measures will require for maximum effectiveness, and the actions that will be needed to put favored policies into effect. Such research can inform many relevant decisions. It can reveal to transportation agencies the importance of making the operation of their networks more energy efficient and responsive to the needs of consum- ers faced with higher fuel taxes. It can reveal how other public policies, such as truck size and weight regulations, may affect the goal of reduc- ing sector energy use and emissions. It can help in understanding how energy flows on a systemwide basis so that the impacts of mode-specific policies can be better assessed. The scale, uses, and constraints of the transportation sector need to be well understood when the potential for new vehicle and fuel technologies to have meaningful effects on the research can yield a stronger understanding of how policies to promote new energy and transportation technologies may affect petroleum prices, energy consumption, and GHG emissions in other parts of the world and in other sectors of the economy such as manufacturing, construction, and agriculture. Whichever strategic combination of policies is pursued, success in introducing and sustaining them will ultimately depend on the public’s 

13 Summary resolve to conserve energy and reduce GHG emissions from transporta- tion and other sectors. For decades, there have been ample reasons for the public to care a great deal about saving energy in transportation—from the need to improve air quality to concern over the world’s oil supplies. Climate change has added to and elevated this public interest. Although calls for a strategic alignment of public policies to meet these interests are not new, they are becoming more urgent.