6

Policies for Reducing GHG Emissions from and
Petroleum Use by Light-Duty Vehicles

To reach the twin goals addressed in this study, significant changes in policy will be needed to induce a move toward vehicle-fuel systems whose petroleum demand and greenhouse gas (GHG) emissions are very different from those of today. The modeling and results from Chapter 5 suggest a range of possible policy and technology pathways by which these goals might be met. This chapter reviews policy options, including those analyzed in Chapter 5 (for example, vehicle fuel economy and GHG standards and renewable fuel standards), that may offer promise. Each policy is described and assessed based on evidence about its use, effectiveness, and any shortcomings. Policy suggestions based on these assessments are provided in Chapter 7.

The policies needed to reach the goals for reductions in petroleum use and GHG emissions will have to differ dramatically from those of the past and could incur a high up-front cost. However, as the modeling results in Chapter 5 illustrate, these costs may be more than recouped in later years.

Policies are needed that can promote major changes in direction in the extensive private investments associated with vehicle manufacturing, fuel production and related infrastructure—changes that in turn will affect the market decisions made by consumers and businesses which ultimately shape such investments. The extent to which the resulting transition to a low-petroleum light-duty vehicle (LDV) system with low net GHG emissions will require displacing the incumbent internal combustion, liquid fueled vehicle technology is not known. However, major changes clearly will be needed in the use of natural resources and in the impacts of GHG emissions associated with supplying LDV fuels. Given the inherent uncertainties, an adaptive policy framework is needed that will be responsive to markets, technologies, and progress toward achieving the goals.

6.1 POLICIES INFLUENCING AUTOMOTIVE ENERGY USE AND GREENHOUSE GAS EMISSIONS

Several arenas of policy are relevant as means of influencing automotive energy use and GHG emissions: land-use, transportation, energy, environmental protection, and technology. These arenas are interrelated and the relationships are sometimes implicit. Failure to recognize the interrelationships between policy arenas could result in poor coordination or even contradictions among policy signals. Some of the relationships have been made explicit as policy makers have realized, for example, the interactions between land-use planning and transportation planning. The challenge of achieving deep reductions in petroleum use and GHG emissions requires an even greater degree of coordination among the policy arenas influencing the LDV sector.

Figure 6.1 shows on a normalized scale the total nationwide levels of several key LDV-related impacts that have been a subject of public policy. From 1970 through 2005, light-duty vehicle miles traveled (VMT) increased by 160 percent. Over the same period, gains in fuel efficiency held LDV petroleum demand and CO2 emissions to a 74 percent increase. Modest absolute declines were achieved for traffic fatalities. The greatest improvement was seen in vehicle conventional air pollution, which achieved an absolute reduction of 65 percent by 2005 relative to its 1970 level.

6.1.1 Land-Use Policy

Land-use policies are perhaps the deepest foundation of the automotive system, helping, along with geography, to shape transportation patterns through the ages. U.S. land-use governance remains highly localized, and many levels of administration are involved in the planning, permitting, and



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6 Policies for Reducing GHG Emissions from and Petroleum Use by Light-Duty Vehicles To reach the twin goals addressed in this study, significant 6.1  POLICIES INFLUENCING AUTOMOTIVE ENERGY changes in policy will be needed to induce a move toward USE AND GREENHOUSE GAS EMISSIONS vehicle-fuel systems whose petroleum demand and green- Several arenas of policy are relevant as means of influenc- house gas (GHG) emissions are very different from those ing automotive energy use and GHG emissions: land-use, of today. The modeling and results from Chapter 5 suggest transportation, energy, environmental protection, and tech- a range of possible policy and technology pathways by nology. These arenas are interrelated and the relationships which these goals might be met. This chapter reviews policy are sometimes implicit. Failure to recognize the interrelation- options, including those analyzed in Chapter 5 (for example, ships between policy arenas could result in poor coordina- vehicle fuel economy and GHG standards and renewable fuel tion or even contradictions among policy signals. Some of standards), that may offer promise. Each policy is described the relationships have been made explicit as policy makers and assessed based on evidence about its use, effectiveness, have realized, for example, the interactions between land- and any shortcomings. Policy suggestions based on these use planning and transportation planning. The challenge of assessments are provided in Chapter 7. achieving deep reductions in petroleum use and GHG emis- The policies needed to reach the goals for reductions in sions requires an even greater degree of coordination among petroleum use and GHG emissions will have to differ dramat- the policy arenas influencing the LDV sector. ically from those of the past and could incur a high up-front Figure 6.1 shows on a normalized scale the total nation- cost. However, as the modeling results in Chapter 5 illustrate, wide levels of several key LDV-related impacts that have these costs may be more than recouped in later years. been a subject of public policy. From 1970 through 2005, Policies are needed that can promote major changes in light-duty vehicle miles traveled (VMT) increased by 160 direction in the extensive private investments associated with percent. Over the same period, gains in fuel efficiency held vehicle manufacturing, fuel production and related infra- LDV petroleum demand and CO2 emissions to a 74 percent structure—changes that in turn will affect the market deci- increase. Modest absolute declines were achieved for traffic sions made by consumers and businesses which ultimately fatalities. The greatest improvement was seen in vehicle con- shape such investments. The extent to which the resulting ventional air pollution, which achieved an absolute reduction transition to a low-petroleum light-duty vehicle (LDV) sys- of 65 percent by 2005 relative to its 1970 level. tem with low net GHG emissions will require displacing the incumbent internal combustion, liquid fueled vehicle tech- nology is not known. However, major changes clearly will be 6.1.1  Land-Use Policy needed in the use of natural resources and in the impacts of Land-use policies are perhaps the deepest foundation of GHG emissions associated with supplying LDV fuels. Given the automotive system, helping, along with geography, to the inherent uncertainties, an adaptive policy framework is shape transportation patterns through the ages. U.S. land-use needed that will be responsive to markets, technologies, and governance remains highly localized, and many levels of progress toward achieving the goals. administration are involved in the planning, permitting, and 131

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132 TRANSITIONS TO ALTERNATIVE VEHICLES AND FUELS FIGURE 6.1  Trends in impacts of U.S. light-duty vehicles. SOURCE: DOT, DOE, and EPA statistics. zoning of land use. Higher levels of government traditionally of the necessary investment for highways and major roads is show substantial deference to local prerogatives. accomplished through a federal-state partnership approach, Academic understanding of the links between land use while most local roads are handled by municipalities with and transportation has translated only slowly into policies varying degrees of state involvement. that might restrain travel demand growth tied to land use. A key financial reason for the success of automobiles Researchers have identified five land-use features, the “five is that the vehicles themselves are purchased by individual Ds,” influencing demand for automobile travel: population consumers, who also pay for operating costs, notably fuel. density, land-use diversity, neighborhood design, major des- That leaves to government the provision and maintenance tination accessibility, and transit stop distance from depar- of infrastructure. This contrasts with public transit modes, ture and arrival points of transit stops (TRB 2009, p. 52). which require a public or public-private partnership to Although only recently considered in the context of acquire and operate the vehicles and their supporting infra- transportation-related petroleum demand and GHG emis- structure. Consumers ultimately pay for all aspects of any sions, programs that support or constrain the expansion of transport system, with taxes or other user fees supporting croplands and managed forests used for sourcing biofuel the publicly provided elements. feedstocks or for carbon sequestration through afforestation and grassland restoration are another important aspect of 6.1.3 Energy Policy land-use policy. Determining the optimal use of land with respect to climate protection raises issues that may require U.S. energy policies have roots in natural resource policy. rethinking of such policies (Righelato and Spracklen, 2007; Most pertinent to the auto sector are policies that have facili- Wise et al., 2009; Zhang et al., 2008). tated the development of petroleum resources over the years and those related to ensuring access to overseas supplies and securing them vis-à-vis geopolitical considerations. On 6.1.2 Transportation Policy the domestic front, policies supporting the economic devel- Transportation policies center on the provision and opment of oil and gas resources confronted environmental operation of the infrastructure needed for mobility. For the considerations and the need to balance competing players’ automobile, they have focused on building, maintaining, and demands for use of lands and offshore locations. Thus, the supporting roadways. In urban areas, transportation policy U.S. Department of the Interior long has been involved in also supports mass transit, as well as sidewalks and bike petroleum-related activity. The Energy Research and Devel- paths, and so affects the availability and affordability of alter- opment Administration was created in 1974, and its succes- natives to auto travel. There is a clear emphasis in the U.S. sor, the U.S. Department of Energy (DOE) was formed in Department of Transportation’s (DOT’s) official mission 1977, following the 1970s petroleum crisis. statement on ensuring speed of conveyance as well as safety In recognition of the importance of petroleum for military and efficiency. With the automobile being by far the domi- operations and as a critical resource for the entire economy, nant mode of transportation for most Americans, facilitating efforts to secure and expand the supply of petroleum have auto travel has been a major part of DOT’s mission. Much long been and continue to be a key part of U.S. energy policy.

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POLICIES FOR REDUCING GHG EMISSIONS FROM AND PETROLEUM USE BY LIGHT-DUTY VEHICLES 133 The 1973-1974 energy crisis prompted the development of to expire at the end of 2010. Tax credits for battery-electric policies to encourage energy conservation and promote alter- motorcycles, three-wheeled electric vehicles, and low-speed natives to petroleum. The LDV fleet became a key target, and neighborhood-electric vehicles expired at the end of 2011, as vehicle efficiency standards known as the Corporate Average did a credit for converting conventional gasoline and diesel Fuel Economy, or CAFE, standards, were enacted as part vehicles to plug-in hybrid or all-electric propulsion systems. of the Energy Policy and Conservation Act of 1975 (P.L. Currently, under the American Recovery and Reinvest- 94-163). A “gas-guzzler” tax followed in 1978 with passage ment Tax Act and the Emergency Economic Stabilization of the Energy Tax Act (ETA; P.L. 95-618). Act of 2008, the United States uses a program that extends a The 1970s also saw the development of policies to sup- federal tax credit of up to $7,500 to buyers of qualified plug- port alternatives to petroleum ranging from synthetic fossil in hybrid and battery-electric LDVs. The credit is applicable fuels to biofuels. The ETA also introduced an excise tax in the year of the vehicle’s purchase. Subsequent legislation exemption for gasohol,1 which subsequently was extended limits the credit to the first 200,000 eligible vehicles from and transformed into a tax credit for ethanol, the volumetric each qualified automaker. When that threshold is reached, the ethanol excise tax credit (VEETC), which until recently tax credit for subsequent vehicles sold is reduced in stages, stood at $0.45 per gallon of ethanol. A tariff was imposed disappearing completely after six calendar quarters.2 Fuel- on imported ethanol to foster domestic biofuel production. cell electric vehicles remain eligible for a federal tax credit Both the tax credit and the tariff expired at the end of 2011. of $4,000-$8,000, depending on their fuel economy ratings, The CAFE credits program for alternative fuel vehicles but it is scheduled to expire in 2014. (AFVs) was created by the Alternative Motor Fuels Act of In December 2007, the Energy Independence and Security 1988 (P.L. 100-94). It provided credit incentives for the man- Act (EISA; P.L. 110-140) expanded the RFS to target 35 bil- ufacture of vehicles that used alcohol or natural gas fuels, lion gallons of ethanol-equivalent biofuels plus 1 billion gal- either exclusively or as an alternative to gasoline or diesel lons of biomass-based diesel by 2022, with life-cycle GHG fuel. This program induced automakers to sell a large number emissions stipulations designed to foster cellulosic and other of dual-fuel vehicles capable of running on E85. However, advanced biofuels. The same legislation raised the combined for a variety of reasons including limited availability of E85 light-duty fleet CAFE standard to a 35 mpg level by 2020 retail outlets, the program has not fostered significant use of while authorizing other structural reforms in the standards. alternative fuels (DOT-DOE-EPA, 2002). The Energy Policy The EISA also established a loan guarantee program for Act of 1992 (EPAct; P.L. 102-486) established an expanded construction of manufacturing facilities for advanced-vehicle set of incentives and programs to promote alternative fuels batteries and battery systems and requires a phase-out of the and AFVs. They include mandates for AFV use in the federal dual-fuel vehicle CAFE credit program by 2020. fleet and certain state and utility fleets, and authorization for federal support of voluntary AFV deployment programs, 6.1.4 Environmental Policy which were subsequently implemented by DOE through the Clean Cities program. Because automobiles and their supporting infrastructure Among the most recent developments in U.S. energy impact the environment in numerous ways, many aspects of policy with respect to the LDV sector is the Renewable Fuel environmental policy come into play. However, it is control Standard (RFS) instituted as part of the 2005 EPAct (P.L. of the direct emissions from motor vehicles that is most 109-58). The RFS put in place for the first time a nationwide relevant. mandate for use of a fuel other than petroleum. The 2005 The history of Los Angeles smog, the pioneering work EPAct also included expanded incentives for the production of Arie Haagen-Smit in linking smog to tailpipe pollution, and commercialization of a range of AFV technologies. and the subsequent development of emissions regulations It included tax incentives for AFVs and infrastructure for first in California and then federally with the broad author- alternative fuels that are not drop-in fuels. Incentives were ity established by the Clean Air Act (CAA 1970) all are provided on a graduated scale to encourage the production elements of one of the iconic stories of U.S. environmental of different AFVs (DOE-EERE, 2011a; TIAP, 2012). Metrics policy (Mondt, 2000; CARB, 2011). At the beginning of this related to technical fuel efficiency were used to determine the process in the 1960s, air pollution science was in its infancy level of incentives. The incentives were limited to the first and controls were rudimentary. As development continued, 60,000 qualifying vehicles produced by any one automaker. progressively tighter standards were set for restricting tail- Tax credits initially were for hybrid-electric, battery-elec- pipe emissions, prescribing fuel formulations, and limiting tric, and fuel-cell electric vehicles and for qualified diesel and fuel evaporation from vehicles and fuel pumps. natural gas LDVs. Numerous modifications have occurred The most stringent regulations for combustion-based over the years and Congress allowed the tax credits for vehicles, such as California’s partial zero emission vehicle hybrid electric vehicles, and diesel and natural gas vehicles 2  This tax credit is described in greater detail at http://www.fueleconomy. 1  A fuel consisting of a blend of gasoline and ethanol. gov/feg/taxevb.shtml, accessed February 6, 2012.

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134 TRANSITIONS TO ALTERNATIVE VEHICLES AND FUELS standard, cut emissions per vehicle-mile by over two orders challenge from a practical policy-making perspective. A of magnitude, reducing an LDV’s direct conventional air pol- national decision to reach goals such as those given in this lution impacts to nearly negligible levels. Quantitatively, the committee’s statement of task will likely need to involve all CAA policies addressing emissions have been by far the most of these different policy arenas and the associated diversity of effective areas of policy, resulting in a substantial absolute congressional committees, federal agencies, and stakeholder reduction of conventional pollution from LDVs even in the interests, along with an analogous range of interests at state face of rising VMT (see Figure 6.1). and local levels of government. Reaching a national decision The CAA’s overarching requirement for healthy air, to achieve the goals will be a complicated undertaking that embodied in the National Ambient Air Quality Standards requires an adaptive policy framework as discussed below (NAAQS), is what ultimately anchors the policy. The law in this chapter. obligates the U.S. Environmental Protection Agency (EPA) to pursue fact-based assessments of air pollutants’ impacts 6.2  WAYS TO INFLUENCE PETROLEUM USE AND on public health and welfare and to promulgate NAAQS GHG EMISSIONS EFFECTS IN THE LDV SECTOR solely on that basis. Economic considerations can enter in only when EPA develops the regulations that determine how Policies that affect petroleum use, GHG emissions, or the NAAQS will be met. both ultimately exert their influence through a few key The Supreme Court (2007) interpreted the CAA’s defini- parameters: tion of air pollutants to include greenhouse gases and said that they could be subject to regulation if found to endanger · Vehicle energy intensity—typically, the energy public health or welfare. The EPA subsequently made such required to move the average vehicle of the on-road an “endangerment” finding (2009), setting in motion a regu- LDV fleet 1 mile; latory process that started with GHG emissions standards for · Petroleum share of the energy used to power LDV motor vehicles and is being extended to other sources. fleets (when energy security and dependence on petroleum is the issue) or net GHG emissions bal- ance of the fuel system (when climate disruption is 6.1.5 Technology Policy the issue); the latter is often described as the average A large number of policy measures have the potential well-to-wheels GHG emissions of the energy used to to influence technical innovation in LDVs and fuels. The power the vehicle fleet;3 and federal department involved most actively in directly pro- · Volume of travel—typically, the VMT by the on-road moting new automotive technology has been the DOE. Its LDV fleet. role primarily has been one of funding basic science and engineering research related to vehicles and fuels and pur- It sometimes is argued that system efficiency constitutes suing demonstration and deployment programs that might an independent fourth parameter, but that is not the case. foster market adoption of the technologies developed. Many Policies that affect system efficiency influence GHG emis- National Research Council (NRC) studies reviewed this sions or petroleum use only through one or more of the three research, development, demonstration, and deployment parameters listed above.4 approach while suggesting refinements and highlighting A common analytic framework for transportation energy the challenges and obstacles involved. Examples of such and climate-change analysis involves factoring emissions energy technology policy programs include the Advanced based on the three key parameters, which interact multi- Battery Consortium, the Partnership for a New Generation plicatively. Addressing all three (vehicle energy intensity, of Vehicles, the hydrogen-oriented FreedomCAR program, petroleum share of energy use in LDVs, and travel activity) and the present US DRIVE program that emphasizes electric is important because a policy that focuses only on a single vehicles and plug-in hybrids. From the 1970s forward, paral- parameter is likely to require it to be pushed to extraordinary lel efforts have been aimed at developing renewable fuels. lengths.5 Whether the policies target one or more of the parameters, they operate by influencing market actors whose decisions 6.1.6  Decision Making Through the Matrix of Policy determine the values of the parameters, which in turn deter- Arenas mine LDV petroleum use and GHG emissions. Policies that Based on methods of technology assessment and eco- nomic analysis as discussed below in this chapter, policy 3 For advantages and disadvantages of the use of well-to-wheels ap- measures are established through a matrix of policy arenas proaches to regulating GHG emissions related to fuels, see below. 4 However, in view of the interest in policies promoting system efficiency, such as those outlined above. The preceding overview of they are discussed below in this chapter. the different arenas of public policy that influence the LDV 5 For example, the average on-road fleet fuel economy would have to sector—transportation, land use, environmental protection, exceed 180 mpg if vehicle energy intensity were the only parameter targeted energy, and technology—underscores the complexity of the for reducing LDV petroleum use; see footnote 2 in Chapter 2.

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POLICIES FOR REDUCING GHG EMISSIONS FROM AND PETROLEUM USE BY LIGHT-DUTY VEHICLES 135 target one parameter may influence others. A well-known on vehicle manufacturers, not vehicle purchasers. The penal- example is the difference in impact on vehicle GHG emis- ties for not meeting such standards are directly imposed on sions and energy use produced by motor fuel taxes versus these firms and, along with the costs of meeting the stan- efficiency standards. Motor fuel taxes stimulate demand for dards, may be wholly or in part passed onto consumers. It is more fuel-efficient vehicles. They also raise the variable therefore left to vehicle manufacturers and fuel producers not cost of driving, which in turn reduces VMT. In contrast, fuel only to develop and produce the products required to meet economy standards require the sale of more fuel-efficient the regulations to which they are subject but also to gener- vehicles, reducing the cost of driving, thereby increasing ate the economic signals that induce the purchase of their VMT. CAFE is effective at pushing new technology into products in the required quantities by consumers. the fleet but is unlikely to affect the size of vehicles that consumers purchase (at least with the current footprint- 6.3  POLICIES AIMED AT REDUCING VEHICLE based system). Taxes discourage people from driving more ENERGY INTENSITY and encourage consumers to purchase smaller vehicles. The benefits of CAFE and taxes are largely independent of one The ultimate aim of policies to reduce vehicle energy another. Both policies have been found to reduce LDV fuel intensity is to lower the average actual on-road fuel con- use overall, but the amount by which each policy reduces sumption of the total LDV fleet. There are two broad total LDV petroleum use or GHG emissions differs. approaches available for achieving this. The first is to reduce Finally, the cost of reducing emissions by changing any the average fuel consumption of the typical new vehicle, single parameter is likely to rise as the magnitude of required in all size classes, largely through incorporating technolo- change increases or the time over which the required change gies that reduce fuel consumption. The second is reduce or is to be accomplished decreases. eliminate the heaviest and thus least efficient vehicles in the Policies such as carbon pricing that affect more than a LDV fleet by encouraging the purchase and use of lighter single parameter are generally considered by economists to vehicles, which can lead to reduced performance or utility be most cost-effective. (e.g., reduced load-carrying ability or acceleration). Indi- Vehicle energy intensity, petroleum share of the fuel mar- vidual policies can emphasize one of these two approaches, ket, and travel demand each is an outcome of market deci- can encourage one while discouraging the other, or can be sions. Thus, the market actors whose decisions affect each neutral. of the parameters (and whose decisions on one parameter can affect their decisions on another) have to be examined 6.3.1  Vehicle Energy Efficiency and GHG Emissions in assessing policy options. Standards In general, the ultimate actor is the consumer—the owner or other end user of LDVs who purchases vehicles and fuel Several countries have enacted standards that mandate and, through tax dollars, user fees, and bundled transac- the level of energy efficiency or the level of CO2 emissions tions, also pays for roads and other parts of the transporta- that the average newly produced vehicle must achieve by a tion infrastructure. Through factors including their choices certain date. Anderson et al. (2011), Eads (2011), and An et of where to live, work, and shop, consumers determine the al. (2007) describe the vehicle efficiency and GHG emissions urban-regional forms and broader built environment that standards programs that are in place or under development automotive transportation shapes and serves. around the world. The CAFE standards have been in effect The markets that influence LDV petroleum use and GHG the longest, have been studied extensively, and are most emissions involve cash flow from consumers or other end pertinent to the committee’s task. users to the suppliers of transportation-related products and services, most notably, the automobile industry and the 6.3.2  U.S. CAFE Standards motor fuels industry.6 In most cases, policies designed to influence decisions about motor vehicle purchase and use The initial CAFE standards were enacted as part of the are directed at these entities rather than at the consumer.7 For 1975 Energy Policy and Conservation Act (see Figure 2.1 example, motor vehicle fuel economy standards are imposed for historical and projected LDV vehicle fuel economy). Although the U.S. standards are considered to be regulatory 6  Although the complex interactions and transactions that determine the rather than economic, they are enforced through economic provision of transportation infrastructure, associated land-use patterns, penalties. Manufacturers whose annual factory sales of vehi- and related services are difficult to characterize as a distinct “market,” cles do not meet the CAFE standards for each of their fleets they also involve a set of actors whose decisions can be viewed through (domestic and imported cars and domestic and imported an economic lens. trucks) must pay a civil penalty.8 For the 2011 model year, 7  There are exceptions. As is discussed below, “feebates”—subsidies for more fuel-efficient vehicles and taxes on less fuel-efficient ones—cause resources to flow directly between the government and consumers. The 8  “Factory sales” are sales by the manufacturer to the dealer. Therefore, same thing is true of direct tax credits. the number of vehicles of a certain model year actually reaching the con-

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136 TRANSITIONS TO ALTERNATIVE VEHICLES AND FUELS the penalty was $5.50 for each tenth of a mile per gallon that the manufacturer’s average fuel economy fell short of the standard, multiplied by the total volume of vehicles in BOX 6.1 the affected fleet (EPA, 2009). As of July 2011, NHTSA had The “Footprint” Approach collected a total of $795 million in civil penalties over the According to the “footprint” formula now used in comput- life of the CAFE program (NHTSA, 2011). ing CAFE, in model year 2016 a compact car such as the Honda Fit, with a model footprint of 40 square feet, would have a fuel 6.3.2.1  Lag Between the Fuel Economy of New Vehicles The economy target of 41.4 mpg (2.42 gal/100 mi), while a full size and That of the On-Road Fleet car, such as the Chrysler 300, with a model footprint of 53 square feet, would have a fuel economy target of 32.8 mpg (3.05 gal/100 There is a significant difference between the fuel economy mi). A large pickup truck such as the Chevrolet Silverado, with of the average new vehicle and that of the average on-road a model footprint of 67 square feet, would have a fuel economy vehicle. The average LDV’s lifetime has been increasing and, target of 24.7 mpg (4.05 gal/100 mi). according to R.L. Polk, is now about 10.8 years (R.L. Polk and Company, 2011). Vehicles are driven less as they age, SOURCE: Davis et al. (2011), Table 4-19. and so it takes about 15 years for the age- and travel-weighted average fuel economy of the on-road fleet to reach 90 percent of the average level of new vehicles in a given year, based on the most recently published vehicle survivability statis- tics (NHTSA, 2006). The CAFE standards apply only to the standards and GHG emissions standards for LDVs for the new-car fleet, and rarely has an effort been made to impact model year (MY) 2017-MY2025 period. The agencies pro- the pace of fleet turnover.9 posed an increase in the standards to a MY2025 target of 54.5 mpg, with GHG emissions reductions (CO2 equivalent) cor- 6.3.2.2  Recent Changes in the U.S. CAFE Standards responding to a fleet average of 163 g/mi (EPA and NHTSA, 2011). In fuel economy terms, the agencies project LDV fleet In 2007, new legislation set a fuel economy target of 35 average compliance levels of 40.9 mpg (2.4 gal/100 mi) in mpg (2.9 gal/100 mi) for the combined LDV fleet of cars and 2021 and 49.6 mpg (2.0 gal/100 mi) in 2025. The agreement trucks, to be achieved by model year 2020.10 The legislation would provide CAFE credits for the production of vehicles authorized NHTSA to set standards on the basis of vehicle employing certain advanced technologies. The initial 5-year attributes. The agency settled on vehicle “footprint,” defined phase, for MY2017-MY2021, provides for a slower rate as the track width times the wheelbase, as a basis for all LDV of increase for light trucks, averaging 2.9 percent per year, standards, building on the similar approach adopted in the compared to a 4.1 percent increase in passenger car standards 2006 CAFE reform rule for light trucks. Therefore, CAFE for the same period. The program also provides for a com- standards now vary with the size mix of an automaker’s prehensive mid-term evaluation prior to finalization of the fleet (Box 6.1). Pursuant to the Obama Administration’s MY2022-MY2025 standards. Although subject to revision agreement with automakers and other parties to develop a under the mid-term review, the rates of increase proposed single national program for CAFE standards in coordination for the second phase of the program, covering MY2022- with federal and California LDV GHG emissions standards, MY2025, are 4.7 percent per year for light trucks and 4.2 a more ambitious target date was set, requiring that a 35.5 percent per year for passenger cars. The projected average mpg CAFE-equivalent (counting non-fuel-economy-related annual rate of fuel economy increase for the recently final- GHG emissions) new fleet average be met by model year ized and currently proposed CAFE regulations is 3.6 percent 2016 (EPA and NHTSA, 2010). This target implies an annual per year over the 2010-2025 period, rising from an achieved rate of improvement in average new LDV fleet fuel economy MY2010 compliance level of 29.3 mpg (NHTSA, 2012) of 5 percent. These two rulemakings reflect a significant change in the In November 2011, NHTSA and EPA jointly published a way CAFE standards are developed and issued. Previously, Notice of Proposed Rulemaking to further strengthen CAFE the task had been solely the responsibility of NHTSA, in con- sultation with other agencies such as the EPA. The standards sumer differs somewhat from that model year’s factory sales. Manufacturers can carry forward or backward excess CAFE credits for 3 model years in applied only to the fuel economy of new vehicles. However, order to offset any shortfalls to a given fleet. Manufacturers cannot transfer NHTSA and the EPA issued the final MY2010-MY2016 credits between fleets or between manufacturers. Penalties are assessed for standards jointly, and the MY2017-MY2025 standards are a given model year and fleet if any shortfall in CAFE during that model year being developed and proposed by both agencies in order to is not offset by these credits (NHTSA, 2012). address the fuel economy of vehicles and the GHGs they 9 The most notable exception was the “Cash for Clunkers” program adopted by the Obama Administration in 2009. This is discussed in more emit. detail below. NHTSA’s authority for issuing fuel economy standards 10 This legislation was the Energy Independence and Security Act. remains the 1975 Energy Policy and Conservation Act,

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POLICIES FOR REDUCING GHG EMISSIONS FROM AND PETROLEUM USE BY LIGHT-DUTY VEHICLES 137 as amended by the 2007 EISA. EPA’s authority for GHG time of purchase of a vehicle (Bastard, 2010). The amount emissions standards is the CAA. The factors NHTSA may charged (“malus”) or rebated (“bonus”) depends on the consider in developing fuel economy standards are not pre- vehicle’s CO2 type approval test emissions figure.12 Origi- cisely the same as the factors that EPA may use in developing nally, the amounts ranged from a bonus payment of €1,000 GHG emissions standards, and so the promulgation of a rule for cars rated under 100 g/km to a fee of €2,600 for cars covering both fuel economy and GHG emissions requires a rated above 250 g/km. A bonus payment of €5,000 applied considerable amount of interagency coordination to ensure a for vehicles with a CO2 emissions value below 60 g/km. The consistent set of requirements. An additional level of coordi- incentive provided by these bonus-malus values has been nation is involved because the state of California, subject to estimated to be broadly equivalent to €150/metric ton of EPA waiver of the CAA preemption provision, has authority CO2 (Bastard, 2010). to set its own motor vehicle emissions standards. California According to Bastard (2010), “the system demonstrated has agreed to harmonize its standards with the EPA and high effectiveness: in 2008, CO2 emissions from new vehi- NHTSA under the single national program terms. cles in France fell by 9 g/km compared to 2007, falling from 149 g/km to 140 g/km, most of the decrease resulting from the bonus-malus system.” The decrease resulted from three 6.3.3  Subsidies for More Fuel-Efficient Vehicles and Fees separate impacts: (1) a downsizing in the segment mix, (2) on Less Fuel-Efficient Vehicles a downsizing in power, and (3) a move to diesel in certain Another policy for encouraging the production and sale of segments. The measure was intended to be revenue neutral, vehicles that are more fuel-efficient and/or emit less CO2 is but has turned out to have a net cost for the French state, as to use subsidies, taxes, or both, based on fuel use, CO2 emis- the shift in the market to smaller vehicles was higher than sions, or a combination. In the United States, a gas guzzler anticipated. Bastard estimates that the net budgetary cost tax was established by the Energy Tax Act of 1978. Phased in was approximately €200 million in 2008 and €500 million over 1981-1985, this program now involves a graduated level in 2009.13 of taxation on passenger cars having a fuel economy below 22.5 mpg (regulatory level, as used for CAFE standards).11 6.3.4  Motor Fuel Taxes as an Incentive to Purchase More The gas guzzler tax is proportional to the increase in fuel Fuel-Efficient Vehicles consumption rate above that of a 22.5 mpg car and the current maximum is $7,700 on cars rated at less than 12.5 mpg. The A third type of policy to incentivize the purchase of more gas guzzler tax does not apply to light trucks and for at least fuel-efficient vehicles is motor fuel taxes. Nearly every the past two decades has applied to only a small fraction of country levies taxes on motor fuel, but the level of tax var- vehicles, typically high-performance sports and luxury cars. ies widely. Table 6.1 shows the variance in motor fuel taxes In its early years, the gas guzzler tax was effective in helping for several major developed countries, in 1990 and in 2010. to motivate fuel economy improvements in the least efficient Fuel prices impact both vehicle purchase decisions with cars in the fleet (Khazzoom, 1994; DeCicco and Gordon, respect to fuel economy and how much vehicles are driven. 1995). Japan, many countries in Western Europe, and a few The sum of these impacts is measured by the elasticity of others have had graduated vehicle taxation schedules based demand for fuel—defined as the percentage change in fuel on fuel consumption, engine displacement, or some other purchased divided by the percentage change in fuel price. metric defined for tax purposes. Some of these programs This elasticity has been estimated by many studies, which have been recast in recent years to be based on vehicle CO2 generally differentiate between short-term (2 years or less) emissions rate. and long-term (more than 2 years) elasticity. Short-term elas- When subsidies for efficient vehicles are added to a ticity generally is interpreted as reflecting changes in VMT. vehicle taxation program, it becomes what is referred to as a Long-term elasticity is interpreted as reflecting changes in “feebate” program. Such a program was under discussion as the fuel economy of vehicles purchased and the long-term part of the response to the 1973 energy crisis (Difiglio, 1976), VMT changes generated by changes in where people live but only the gas guzzler tax portion was implemented. Over and work. the years, feebate programs were proposed in a number of In January 2008 the Congressional Budget Office (CBO) states but were never enacted. In 1991, the Canadian Prov- reviewed the literature on fuel price elasticity and concluded: ince of Ontario enacted a tax for fuel conservation that levied modest graduated taxes on inefficient vehicles and provided Estimates of the long-run elasticity of demand for gasoline subsidies for a subset of efficient vehicles. indicate that a sustained increase of 10 percent in price In recent years, France has pursued a feebate-type pro- eventually would reduce gasoline consumption by about 4 gram, known as the “bonus-malus” system, applied at the percent. That effect is as much as seven times larger than the 12  This is similar to the “as tested” CAFE standard. 11  See http://www.epa.gov/fueleconomy/guzzler/index.htm for a gas guz- 13  Bastard (2010), p. 25. The tax and subsidy values have been adjusted zler tax program overview and lists of vehicles subject to the tax. in an effort to make the system more nearly revenue-neutral.

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138 TRANSITIONS TO ALTERNATIVE VEHICLES AND FUELS TABLE 6.1  Gasoline and Diesel Prices, Tax, and Percent Tax in 1990 and 2010 France Germany Japan United Kingdom United States 1990 2010 1990 2010 1990 2010 1990 2010 1990 2010 Gasoline Total price $5.60 $6.72 $4.09 $6.86 $4.87 $5.93 $4.35 $6.81 $2.08 $2.71 Tax $3.97 $4.16 $2.56 $4.30 $2.29 $2.75 $2.63 $4.37 $0.56 $0.50 Percent tax 70.9% 61.9% 62.7% 62.7% 47.1% 46.3% 60.4% 64.2% 26.7% 18.2% Diesel Total price $2.66 $5.59 $4.06 $5.94 $2.61 $5.04 $3.05 $6.95 $1.48 $2.94 Tax $1.67 $3.01 $2.30 $3.25 n/a $1.66 $1.80 $4.39 $0.41 $0.53 Percent tax 62.8% 53.8% 56.6% 54.7% n/a 32.9% 59.0% 63.1% 27.9% 17.9% SOURCE: Data from Davis et al. (2011), Figures 10.2 and 10.3. estimated short-run response, but it would not be fully real- forms of energy used by vehicles and index the motor fuel ized unless prices remained high long enough for the entire tax to inflation and also to the average energy efficiency of stock of passenger vehicles to be replaced by new vehicles all vehicles on the road. For example, if total vehicle miles purchased under the effect of higher gasoline prices—or of travel per unit of energy increased by 3 percent from about 15 years . . . consumers also might adjust to higher one year to the next, the tax in the following year would be gasoline prices by moving or by changing jobs to reduce increased by 3 percent. Such an indexed highway user fee on their commutes—actions they might take if the savings in transportation costs were sufficiently compelling. Those energy would maintain a constant tax rate per vehicle mile long-term effects would be in addition to consumption sav- of travel while encouraging car buyers to purchase energy- ings from short-run behavioral adjustments attributable to efficient vehicles. higher fuel prices. CBO (2008) 6.3.5  A Price Floor Target for Motor Fuels A 2009 study titled Moving Cooler: An Analysis of Transportation Strategies for Reducing Greenhouse Gas A major impediment to investment in new alternative Emissions (Collaborative Strategies Group, 2009) modeled technologies, even when petroleum prices are high, is how much lower LDV fleet GHG emissions would be in 2050 uncertainty about the future price path. Investors and con- (relative to 2005) if fuel prices or carbon taxes were used to sumers are less likely to invest in fuel-efficient technolo- boost U.S. motor fuel prices to West European levels. The gies that require substantial up-front costs when they are elasticities used in the analysis were comparable to those uncertain about the payoffs from those investments. Prices cited in the 2008 CBO study. The reduction as a result of of crude oil have been volatile in the past (Figure 6.2). the improved fuel economy portion of the fuel price impact In the late 1970s and early 1980s, the private and public was 19 percent. The reduction as a result of the VMT impact sectors invested heavily in alternative fuels and AFVs, but portion was 8 percent (Collaborative Strategies Group, 2009 many of the alternatives became uneconomic when prices pp. B-15 and D-11). of crude oil fell in the mid-1980s and remained low until Fuel taxes can also differ by fuel type, thereby influenc- the early 1990s. ing the choice of engine used to power a vehicle. In Europe, One policy to stabilize the prices of petroleum-based most vehicle models are available in both gasoline and diesel fuels at a level that will help ensure a transition to more versions. The diesel versions cost more but deliver better fuel energy efficiency is through the use of a tax or surcharge economy. France, in particular, taxes diesel at a much lower on the price of oil that is applied only when oil prices fall rate than gasoline—in 2010, the tax on diesel was $3.01/gal below a specified target price. This surcharge would then whereas the tax on gasoline was $4.16/gal. That differential be inversely related to the price of oil. For example, if the has been credited with being an important factor in causing target price of oil with existing taxes is $90/bbl, and the price a rise in the diesel share of new automobiles in France from falls to $85/bbl over a specified period, the surtax would be 2 percent in 1973 to 74 percent in 2007. $5/bbl, ensuring that the market price remains at $90/bbl. Fuel economy improvements reduce motor fuel tax rev- If the market price fell below $85/bbl, the surtax would enues, all else equal, because under current law the amount of increase, and if the market price rose above $90, then the tax per gallon of fuel is constant. Inflation also erodes the real surtax would be zero. The setting of the target price would value of fuel tax revenues. Finally, substitution of hydrogen be a policy choice made by Congress and the President and or electric vehicles for conventional vehicles would further implemented in ways similar to other taxes on oil sales with diminish tax revenues unless those fuels were brought within the goal of stabilizing prices of petroleum-based fuels above the purview of the tax law. One solution would be to tax all a minimum price.

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POLICIES FOR REDUCING GHG EMISSIONS FROM AND PETROLEUM USE BY LIGHT-DUTY VEHICLES 139 vehicle attribute, for which NHTSA selected footprint as discussed above. The EISA 2007 legislation authorized simi- lar restructuring for all LDVs, and footprint-based standards have subsequently been promulgated for passenger cars and light trucks. Although the exact effect depends on the shape of the curve that maps vehicle footprint to regulatory targets for fuel economy, a general intent of this structure is that similarly sized vehicles would be required to achieve a similar increase in fuel economy. The regulatory curves are flattened at the extremes, to avoid standards that are too stringent for the smallest vehicles or standards that are too weak for the largest vehicles. Designing and estimating the effects of such standards involve complex evaluations of many factors that influence vehicle design and engineering, customers’ preferences, and FIGURE 6.2  Actual average annual world oil prices from 1980 to automakers’ product strategies. The analysis given in the EPA 2010 and projected annual world oil prices from 2010 to 2035 under and NHTSA rulemaking studies concludes that the adopted three different scenarios (in 2010 dollars per barrel). SOURCE: footprint-based standards appropriately balance the many Annual Energy Outlook 2012 (EIA, 2012). considerations that the agencies were required to weigh and does not provide any motivation for automakers to change their fleet mixes for CAFE purposes. Some have argued, Such a price floor or fuel price stabilization policy could though, that the chosen footprint curves inhibit downsizing be implemented on crude-oil sales in the United States as as a cost-effective compliance strategy and may create an suggested above, or it could apply only to imported crude oil incentive to upsize the LDV fleet in a way that reduces fuel (Hubbard and Navarro, 2010). Borenstein (2008) shows how savings and GHG emissions reductions attributable to the the concept of the oil price floor could be tied only to gasoline standards (Whitefoot and Skerlos, 2012). or other specific fuels that are derived from crude oil. Other policies, such as the “Cash for Clunkers” program Revenues from any such surcharge would vary over time. undertaken in 2009, have been designed to encourage con- They could be earmarked for use in current and proposed sumers to dispose of lower-efficiency vehicles (which were subsidies for alternative vehicles and AFVs, or used more then rendered inoperable) and replace them with higher- broadly for tax or deficit reduction. efficiency new vehicles, providing a stimulus to new-car sales. While the program was operating, it encouraged the purchase of fuel-efficient vehicles (Yacobucci and Canis, 6.3.6  Policies to Change the Size and Weight 2010). Because the program was temporary, most observers Composition of the LDV Fleet believe that it operated primarily to shift vehicle purchases in The average on-road fuel economy of the LDV fleet can time rather than achieve any long-term impact on fleet com- also be changed by altering the fleet’s composition. One position. In a report published in October 2009, Edmunds. example of the impact that such a change can have is the com estimated that of the nearly 690,000 new vehicles sold decline in U.S. on-road fleet average fuel economy due to during the period the program was operating, only 125,000 the increase of trucks in the fleet mix between MY1980 of the sales were incremental (Edmunds.com, 2009). and MY2004.14 Policies could be designed to encourage or discourage such a shift. 6.3.7  Assessment of Vehicle Fuel Economy Improvement An example of a policy change that discourages a shift in Strategies fleet mix is the 2007 legislation updating the CAFE program. Before then, CAFE standards were set for and had to be met The various policies described above each have demon- by each of four fleets (U.S. cars, imported cars, U.S. trucks, strated a potential to reduce the LDV fleet’s average fuel and imported trucks) of each manufacturer selling vehicles consumption. It is generally agreed that the U.S. CAFE stan- in the United States. This approach permitted manufacturers dards have been effective in stimulating the production and to “downsize” or “upsize” their fleets as part of their CAFE sale of more fuel-efficient vehicles (NRC, 2002). Accord- fulfillment strategy and helped lead to the proliferation of ing to the EPA, the composite average LDV new-vehicle trucks and SUVs in the fleet mix. The reform rule of 2006 fuel economy (laboratory rated at 55 percent city driving restructured light-duty truck standards, basing them on a and 45 percent highway driving) increased from 15.3 mpg (6.5 gal/100 mi) in MY1975 to 28.6 mpg (3.5 gal/100 mi) 14  In 1980, “trucks” accounted for 16.5 percent of LDV production; by in MY2011, the latest year for which data have been pub- 2004 the truck share had reached 52.0 percent (EPA, 2010, Table 1, p. 7). lished (EPA, 2010). Most of this increase occurred between

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140 TRANSITIONS TO ALTERNATIVE VEHICLES AND FUELS MY1978 and MY1988. The political acceptability and track Measuring and tracking petroleum reduction require record of the CAFE program have established it as a leading that the feedstocks used for producing fuel be quantified option among policies for meeting LDV petroleum use and and reported. Given a legal definition of what qualifies as GHG reduction goals. However, as discussed elsewhere in “non-petroleum” (e.g., as specified by AMFA [1988] and this chapter, a strict CAFE standard alone is not sufficient subsequent energy legislation), determination of the extent of for meeting ambitious petroleum and GHG reduction goals petroleum reduction is conceptually straightforward. How- because it fails to address issues of consumer motivation, ever, determining various fuels’ net GHG emissions impacts travel demand, and other factors that shape the on-road fuel is difficult, for several reasons: consumption of the LDV fleet. Although there is less experience with their use, subsidies · At least some of the GHG emissions or CO2 uptake and taxes based on projected vehicle fuel consumption and occurs upstream from the use of any fuel. For imposed at the time of vehicle acquisition (feebates) could example, battery electric vehicles do not have tailpipe supplement (or, in principle, even substitute for) CAFE emissions, but the production of electricity to fuel the standards. So also could higher fuel taxes. Both types of batteries may emit GHGs. policies have been shown to be effective in encouraging the · The quantification of net CO2 uptake, sequestration, purchase (or lease) of more fuel-efficient vehicles. However, and related emissions is uncertain in some cases. For the reluctance in the United States to raise taxes of any kind, example, the storage of carbon in soil by perennial consumers’ undervaluation of fuel economy, and the level to bioenergy feedstocks depends on prior land condition which taxes would have to be raised to achieve results com- and is difficult to estimate with high certainty. parable to those seen with fuel economy standards, especially · A significant portion of the GHG emissions impacts if supplemented by feebates, make their use problematic. of all alternative fuels occurs outside the LDV sector. For example, the GHG emissions from electricity generation for powering battery electric vehicles or 6.4  POLICIES TO REDUCE THE PETROLEUM USE IN for producing hydrogen to power hydrogen fuel-cell OR GHG EMISSIONS IMPACTS OF FUEL vehicles occur in the power generation or hydrogen The second major factor influencing the LDV sector is production sector. Therefore, the GHG emissions petroleum’s share of fuel use or the overall GHG emissions must be tracked in multiple sectors beyond the LDV impact of supplying and using the fuel. Although numerous sector. policies intended to reduce petroleum use by LDVs have · Biofuel-induced land-use changes and nitrous oxide been pursued over the years (e.g., the Energy Security Act of flux from nitrogen fertilization could affect the net 1992 [96 P.L. 294], the Alternative Motor Fuels Act of 1988 GHG emissions effects. Yet, the quantification of [100 P.L. 494), the EPAct of 1992 and 2005 [109 P.L. 58], those net GHG emissions effects could be difficult. and the EISA of 2007 [110 P.L. 140] (DOE-EERE, 2011b), to date they have had little impact on the overwhelming 6.4.1  Incentives for Fuels and Their Infrastructure Tax dominance of petroleum-derived gasoline and diesel fuel. Nevertheless, many policy makers still show considerable During the energy crisis in the 1970s, policies were interest in pursuing similar strategies for encouraging or developed to support alternatives to petroleum ranging from mandating the use of biofuels, natural gas, hydrogen, elec- synthetic fossil fuels to biofuels. The Energy Tax Act of tricity, or other non-petroleum fuels to power LDVs. Regu- 1978 (P.L. 95-618) introduced an excise tax exemption for lations, subsidies, various forms of tax incentives, and loan gasohol. The exemption subsequently was extended and guarantees are now being used both in the United States and transformed into a tax credit for ethanol called the VEETC, other countries to encourage the use of non-petroleum-based a $0.45/gal tax credit. Congress also approved a tariff on fuels and fuels that are expected to emit fewer GHGs. Fuel imported ethanol to foster domestic biofuel production. Both taxes and price floors on petroleum-based fuels also would the VTEEC and the tariff expired at the end of 2011. discourage petroleum use. The EPAct of 2005 also established a tax credit of up to Although the goals of reducing petroleum use and GHG $30,000 for the cost of fueling equipment for alternative emissions commonly are treated together (as in the case of fuels including hydrogen, natural gas, propane, electricity, the statement of task for this study; see Appendix A), the E85, and diesel fuel blends containing at least 20 percent scientific, economic, and technical issues associated with biodiesel.15 Residential fueling equipment was eligible for these two goals are not identical. Each goal has its distinc- a credit of up to $1,000. The tax credits for hydrogen run tive challenges associated with the design of fuels policies. through 2014; they expired at the end of 2011 for all other Implementing any such policies requires appropriate metrics fueling equipment (DOE-EERE, 2011a). and the ability to track and measure effects throughout the fuel supply, distribution, and end-use systems that the poli- 15  California and a number of other states have policies for subsidizing a cies seek to influence. variety of alternative fuel vehicles (AFVs) and related infrastructure.

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POLICIES FOR REDUCING GHG EMISSIONS FROM AND PETROLEUM USE BY LIGHT-DUTY VEHICLES 141 6.4.2 Fuel-Related Regulations volume mandate for the “renewable fuel” category has been met by corn-grain ethanol and is expected to be met up to Traditional fuel regulations, as authorized under the 2022 (NRC, 2011). Production capacity is available for meet- original language of the CAA’s Section 211, addressed ing the volume mandate for biomass-based diesel. However, fuel composition and its physical and chemical properties. commercial production of cellulosic biofuels has fallen far These fuel-performance standards were based in principle short of the volume for that category mandated by EISA. on measurable fuel properties. Fuel suppliers could certify Indeed no compliance-tracking renewable identification their products through laboratory testing or analytic methods numbers (RINs) had been generated for cellulosic biofuels based on physiochemical characteristics. Regulators could as of April 2012 (EPA, 2012a).18 readily verify that standards were met by directly sampling EISA gives EPA the right to waive or defer enforcement fuel products, although this was rarely done. Because fuel of RFS2 under a variety of circumstances. For example, additives and formulation requirements may not be finally RFS2 can be waived if sufficient biofuels are not likely to incorporated into a consumer fuel until they are blended in be produced for blending or if its enforcement has been at a distribution terminal, tanker truck, or even a fuel pump, deemed to cause economic dislocation (NRC, 2011). For the regulated entity may vary in fuel standards (40 CFR 80.2, example, the governors of nine states, 26 members of the Definitions).16 The point of regulation is the point of finished U.S. Senate, and 156 members of the U.S. House of Rep- fuel product distribution, which is where most fuel properties resentatives petitioned EPA to grant the RFS waiver, citing are determined. the effects of the 2012 drought on U.S. food and feed prices Compliance with the complex model for gasoline emis- as the reason for potential economic dislocation. The EPA sions was a departure from this standard. There are a large has been exercising its discretion to reduce the level of number of fuel parameter combinations that could meet the cellulosic biofuels required in RFS2. Specifically, the EPA requirements for compliance, and compliance was referenced reduced the mandate for cellulosic biofuels by 93 percent to the base fuel of each individual fuel supplier. Compliance in 2010 (from 100 million to 6.5 million gallons), by 97 was determined before the fuel left the production facility. percent in 2011 (from 250 million to 6.6 million gallons), Once the fuel was distributed and comingled with other and by 98 percent for 2012 (from 500 million to 10.5 mil- fuels that complied at production, it was no longer possible lion gallons) (EPA, 2012b). When there is a waiver, blend- to determine compliance at the final point of distribution. ers are permitted to buy RINs from EPA instead of actually As energy policy considerations came into play, regu- purchasing cellulosic biofuels. There also is a clause that lations were designed to stipulate the use of certain fuels allows blenders to buy RINs from EPA even if cellulosic derived from specified non-petroleum feedstocks. Thus, biofuels are available but substantially more expensive fuel regulations developed for energy policy take the form than petroleum-based fuels (Thompson et al., 2010; NRC, of a legal requirement to supply a certain amount of a fuel 2011). Although the intent was to protect consumers from manufactured from particular resources. Others take the form high prices relative to gasoline, the clause effectively of a requirement to supply a minimum percentage of a group eliminates a guaranteed demand for cellulosic biofuels. of fuels derived from desired sources or to supply a mix of The potential waiver and clause regarding the purchase of fuels that on average meet requirements for being derived RINs reduce the incentive for the major fuel producers to from desired sources. Such is the case for the amended develop and deploy technology for producing cellulosic Renewable Fuel Standard (RFS2) in the EISA. An approach biofuels, particularly when large financial investments and generalized to require a mix of unspecified fuels that meet risks are involved. But without the waiver, blenders are specified average net GHG emissions over their life cycle is required to purchase fuel that is not being made; their only known as a Low-Carbon Fuel Standard (LCFS), and such a option is to buy RINs. The cost of cellulosic fuels has not standard has been established in California. come down as some had hoped. The combination of high cost, the potential waiver, and the clause described above Renewable Fuel Standard17 6.4.3  have undermined the effectiveness of RFS2 in driving an increase in cellulosic biofuels. RFS2 was intended to move the United States “toward greater energy independence and security” and to “increase the production of clean renewable fuels” (110 P.L. 140). 18  “The Renewable Identification Number (RIN) system was developed by RFS2 is actually a collection of mandates for fuel provid- the EPA to ensure compliance with RFS2 mandates. A RIN is a 38-character ers to supply categories of renewable fuels defined by their numeric code that corresponds to a volume of renewable fuel produced in feedstock type and life-cycle GHG emissions (Box 6.2). The or imported to the United States. RINs are generated by the producer or importer of the renewable fuel. RINs must remain with the renewable fuel as the renewable fuel moves through the distribution system and as ownership 16  Code of Federal Regulations, Title 40, Part 80, “Regulation of Fuels changes. Once the renewable fuel is blended into motor vehicle fuel, the RIN and Fuel Additives,” Definitions section; available at www.gpoaccess.gov/ is no longer required to remain with the renewable fuel. Instead, the RIN cfr/index.html. may be separated from the renewable fuel and then can be used for compli- 17  This description is taken from EPA’s website. ance, held for future compliance, or traded” (McPhail et al., 2011, p. 5).

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142 TRANSITIONS TO ALTERNATIVE VEHICLES AND FUELS Effects of U.S. Biofuel Policy concluded that “RFS2 may be an ineffective policy for reducing GHG emissions because BOX 6.2 the effect of biofuels on GHG emissions depends on how Life-Cycle Assessment for the biofuels are produced and what land-use or land-cover Greenhouse Gas Emissions changes occur in the process” (NRC, 2011; p. 2-4). The same physical fuel can have widely different life-cycle GHG Life-cycle assessment (LCA) is a tool available for the emissions depending on numerous factors, including the accounting of net greenhouse gas (GHG) emissions effects of feedstock used (e.g., corn stover or switchgrass), the manage- different fuel pathways. However, the use of LCA to determine ment practices used to produce the feedstock (e.g., nitrogen policy compliance is a marked departure from traditional ap- fertilization during biomass growth), the energy source used proaches to fuels regulation, which prior to the RFS had always in the biorefinery (e.g., coal or renewable electricity), and been based on physiochemical fuel properties. Standards based whether any indirect land-use changes were incurred as a on a fuel’s physiochemical properties are enforceable through result of feedstock production. For example, the use of crop measurement or measurement-based analytic methods that al- or forest residues for feedstock is less likely to cause indirect low verifiable assurance of fuel providers’ compliance. However, land-use changes than is the use of planted crops. Moreover, fuel property standards are not adequate for regulating the GHG indirect land-use changes as a result of bioenergy feedstock emissions associated with both production and use of a fuel. production and the associated GHG impacts are difficult to Fuel property standards cannot account for upstream emissions ascertain. associated with any fuel. Therefore, LCA is used to assess the GHG emissions impacts of fuels. However, GHG emissions occur in multiple sectors in geographically dispersed locations and over 6.4.4  Possible Alternative to RFS2 multiple periods of time. For example, for biofuels, CO2 uptake by Because GHG sources and sinks are dispersed across sec- biomass and sequestration in soil or GHG emissions from indirect tors (agricultural, forestry, and industrial) and international land-use changes occur remotely from locations of fuel use in the borders, some committee members believe that policies that transportation sector. Thus, accounting for life-cycle emissions target them at the location where they occur are likely to be is more complicated and uncertain than it is for direct emissions much more effective than RFS2 in reducing GHG emissions (NRC, 2011). impacts. RFS2 includes a GHG accounting system that can Some members of the committee believe that a problem account for upstream emissions. This system requires an with using LCA in policy regulation is a misplaced burden of elaborate tracking mechanism and a combination of real- proof (DeCicco, 2012) because some of the CO2 sequestration world measurement and estimation of GHG emissions at and emissions occur outside the LDV sector and are not under each source and sink along the supply chain to verify overall the control of fuel producers, fuel retailers, or fuel users. Others claimed benefits from the production and transport of the believe that it is appropriate to hold fuel providers responsible biomass through conversion and distribution of the final for the upstream emissions of their products. The parties that are products. responsible for the direct and indirect emissions from all the dif- ferent parts of the biofuel supply chain have not been clearly estab- lished. If the United States is to limit the GHG emissions impacts 6.4.5  California’s Low Carbon Fuel Standard of LDVs and their associated fuel supply systems (as opposed to A regulatory effort to encourage the use of alternative their direct tailpipe emissions only), then policies are needed to fuels, with the specific intent of lowering GHG emissions, address the GHG emissions from other sectors upstream from is California’s LCFS. On January 18, 2007, California’s fuel use. Although GHG emissions from the transportation sector then-governor issued Executive Order S-1-07 that called could be reduced in the United States by RFS2, the policy may for a reduction of at least 10 percent in the carbon intensity not contribute to reducing global GHG emissions. of California’s transportation fuels by 2020. The California Air Resources Board developed regulations to implement the order, approving them in April 2009. After delays due to litigation the regulations were promulgated on June 4, 2012, under an April 2012 court order permitting the promulga- tion to occur pending the results of an appeal that was still RFS2 requires EPA to determine whether the four types underway at the time of this writing. of renewable fuel meet their respective GHG thresholds. The LCFS uses life-cycle assessment (LCA) rather than Although the intent was to ensure that biofuels have lower direct measurement of fuel properties to determine compli- GHG emissions impacts compared to petroleum-based fuels, ance. It applies to essentially all transportation fuel used whether the policy will actually contribute to a reduction in in the state. Regulated parties are defined broadly as fuel GHG emissions is uncertain. The NRC report Renewable producers and importers and some owners of alternative Fuel Standard: Potential Economic and Environmental fuels or alternative fuel sources. The regulation defines a

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POLICIES FOR REDUCING GHG EMISSIONS FROM AND PETROLEUM USE BY LIGHT-DUTY VEHICLES 143 carbon intensity (CI)19 metric based on LCA. Fuel suppli- 6.5.1  Historical and Projected Future Growth in LDV VMT ers are required to progressively lower the average CI of Between 1970 and 2005, VMT in the U.S. LDV fleet grew the fuel they supply. The targeted GHG-emission reduction by an average annual rate of 2.8 percent. This rate of growth is 10 percent in 2020 compared to the average baseline of is not expected to continue. Indeed, the average annual rate of transportation fuels in 2010. The LCFS assigns a CI to dif- VMT growth from LDVs projected by the Energy Informa- ferent types of biofuel (e.g., corn-grain ethanol produced tion Administration’s (EIA) Annual Energy Outlook (EIA, via different pathways with different types of energy input 2011) for the period 2010 to 2035 is only about 60 percent gets different scores) and a CI for land-use change and other of the average rate experienced between 1970 and 2007, the indirect GHG effects. However, the actual GHG effects peak year prior to the recent economic recession. from land-use change and other indirect effects could span a But VMT is still projected to grow. Indeed, if the 1.49 per- wide range (Mullins et al., 2010; Plevin et al., 2010). Given cent annual growth rate of VMT over the last 5 years of EIA’s the large uncertainties, the extent to which LCFS actually projection period is assumed to be realized as well during the contributes to reducing net GHG emissions is unclear. One 2035-2050 period, VMT in 2050 will be 5.0 trillion—an 85 committee member considers that the uncertainties in LCA percent increase relative to its 2010 level.21 are such that one cannot have confidence in the efficacy of an LCFS or other policies using LCA to ensure reductions of GHG emissions from fuels. As is the case with RFS2, fuel 6.5.2  Reducing the Rate of Growth of VMT by Increasing providers are held accountable for upstream GHG emissions Urban Residential Density and GHG emissions from indirect effects. They do not con- The relationships among household location, workplace trol these effects but can mitigate them by their choice of the location, trip-making activity, and LDV travel have been source of their fuel supply.20 subjects of research and policy debate for many years. LCFS allows fuel providers to petition for individualized These relationships have been difficult to establish for many CI score. LCFS proponents view such provisions as benefi- reasons, including the problem of controlling for variables cial for fostering innovation in low-emission fuel produc- such as self-selection bias as households locate in places tion. For example, some ethanol producers could sequester that best suit their travel needs, preferences, and capabili- their CO2 emissions, account for them, and seek credit for ties. However, there is general agreement that higher urban these reductions under the LCFS. Similarly, oil companies density is associated with less driving. The important issues practicing enhanced oil recovery could seek credits for the are (1) the magnitude of this relationship and (2) the extent portion of the injected CO2 that remains in the water phase to which VMT might be altered by changes in urban density. of the oil well and the portion that is dissolved in the unre- An NRC study analyzed in great detail the impact of covered oil. compact development (another term for increased urban density) on motorized travel, energy use, and CO2 emissions. 6.5  POLICIES TO IMPACT VEHICLE MILES TRAVELED The principal findings of the 2009 study can be summarized as follows: Since 1970, increases in U.S. LDV vehicle miles traveled have more than offset improvements in LDV on-road fleet · Developing more compactly, that is, at higher resi- fuel economy (see Figure 6.1). As a result, LDV petroleum dential and employment densities, is likely to reduce use and CO2 emissions have increased over the period. With VMT. VMT being such a driver of increased petroleum use and · Doubling residential density across an individual CO2 emissions, it is natural that attention has been devoted metropolitan area might lower household VMT by to finding ways of reducing its rate of growth—or even its about 5 to 12 percent, and perhaps by as much as absolute total. This section reviews the principal policies 25 percent, if coupled with higher employment con- that have been examined and what is known about their centrations, significant public transit improvements, likely impact. mixed uses, and other supportive demand manage- ment measures22 (NRC, 2009, pp. 2-6). The 2009 analysis suggests that reductions in national 19  Carbon intensity as defined in the LCFS is equivalent to life-cycle VMT resulting from compact, mixed-use development greenhouse gas emissions. 20  2012, California was enjoined from enforcing the Low Carbon Fuel In Standard because of a December 29, 2011, decision by the Federal Eastern 21  This is the number used in the business-as-usual and reference cases District Court of California in the case of Rocky Mountain Farmers Union and in most of the policy simulations in this report. vs. Goldstene. The state is appealing the decision to the Ninth Circuit 22  The 2009 committee commented on its second conclusion as follows: Court of Appeals, which lifted the lower court’s injunction on April 23 and “Doubling residential density alone without also increasing other variables, thereby allowed the state to proceed with LCFS implementation pending such as the amount of mixed uses and the quality and accessibility of transit, appeal (CARB, 2012). will not bring about a significant change in travel” (NRC, 2009, p. 89).

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144 TRANSITIONS TO ALTERNATIVE VEHICLES AND FUELS might range from less than 1 percent to 11 percent. The tation. Although some of these strategies may be additive, high estimate would require 75 percent of new development many are not. Also, some strategies (such as the transit strate- to be built at double the density of existing development, a gies, pedestrian strategies, and certain of the employer-based significant departure from the declining densities recorded in commute strategies) may already be reflected in the density- most urban areas over the past 30 years. The study empha- based VMT impacts reported earlier in this chapter. Indeed, sizes that increasing densities and mixing land uses may be the 25 percent reduction in VMT cited in NRC (2009) as a more achievable in some metropolitan areas than others. possible upper bound due to higher density was generated by Metropolitan areas differ a great deal in their geographic a combination of VMT-related policies, not merely increased characteristics, land area, historical growth patterns, eco- density. nomic conditions, and local zoning and land-use controls. Policies that affect land use are local in the United States 6.5.5  Summary of the Impact of Policies to Reduce the and in some areas in the past have led to decreasing density Rate of Growth of VMT as urban areas have expanded. In others, strong regional authority with a commitment to more compact land use has Policies designed to reduce the rate of growth of VMT increased density through land-use policy. are likely to have limited impact compared with policies The present committee concluded that the likely changes targeting vehicle efficiency and new energy sources. Even in VMT as a result of changes in residential density would the extreme reorganization of national economic activity be small in the aggregate. needed to produce the higher level of urban density examined in NRC (2009) would yield only an 11 percent reduction in VMT. And it should be remembered that the various VMT- 6.5.3  Reducing the Rate of Growth of VMT Through the related policies are not additive. Nevertheless, this limited Use of Pricing Strategies VMT impact should not lead to the inference that such poli- Many strategies in addition to those encouraging increased cies might not be valuable for other reasons. residential density have been suggested as having the poten- tial to reduce the rate of growth of VMT. The 2009 Moving 6.5.6  Policies to Improve the Efficiency of Operation of Cooler study (Collaborative Strategies Group, LLC. 2009) the LDV Transport Network mentioned above examined a number of pricing strategies, including congestion pricing, intercity tolls, pay as you As noted above, there has been considerable recent inter- drive (PAYD) insurance, a VMT tax, and a gas or carbon est in the extent to which policies designed to improve the tax. Each of these pricing measures produced a reduction of operating efficiency of the LDV transport network might also 1 percent or greater in 2050 urban VMT under all levels of serve to reduce GHG emissions or petroleum use. Examples policy intensity studied—extended current practice, aggres- of such policies are eco-driving programs; ramp metering; sive implementation, and maximum implementation. Indeed, variable message signs; active traffic, integrated corridor, the VMT impact of a fee per mile traveled at maximum incident, road weather, and signal control management; implementation was estimated to reduce 2050 urban VMT traveler information; and vehicle infrastructure integration. by about 8 percent.23 Many of these policies focus on reducing congestion to help even out vehicle speeds and reduce time spent stopped in traffic. Others provide drivers with the knowledge and 6.5.4  Reducing the Rate of Growth of VMT Through Other information needed to learn to drive their existing vehicles Policies using less fuel. Moving Cooler (Collaborative Strategies Group, LLC. There is no dispute that drivers can, if they are careful and 2009) also examined a range of additional policies deemed to attentive, significantly improve the fuel economy they expe- have the potential to reduce the future rate of VMT growth. rience on the road. There also is no dispute that congested As in the case with pricing strategies, each of these other conditions waste fuel as well as drivers’ time. The question is policies was evaluated at three levels of implementation. how widespread the use of eco-driving or the implementation Three of the non-pricing strategies were estimated to have a 1 of technologies that have a potential to reduce congestion percent or greater impact on 2050 urban VMT with expanded (e.g., vehicle-to-vehicle communications, also known as current practice; four had a 1 percent or greater impact with telematics) become and how great the aggregate impact of practice more aggressive than current practice; and five had such policies and technologies might be at the national level. an impact of 1 percent or greater with maximum implemen- The challenge in developing such estimates is somewhat similar to the challenge of estimating the impact of increased 23  urban density on VMT growth. In both cases, examples “Maximum implementation” is a $0.12/mi fee, representing the incre- ment needed to represent Western European motor fuel tax levels. It was showing major potential, and sometimes actual, improve- derived based on an additional tax of approximately $4/gal on an approxi- ments in specific local situations can be cited. But how mate average on-road 33 mpg. generalizable are these local results either to other localities

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POLICIES FOR REDUCING GHG EMISSIONS FROM AND PETROLEUM USE BY LIGHT-DUTY VEHICLES 145 or, more importantly, to the national level? And are there There is no universally agreed-upon taxonomy for the factors that can be expected to offset these improvements to stages of the innovation process, but one common framework some degree over time? divides the process into four stages (NSF, 2007): Little research has been done to address these issues. Indeed, the only estimate of the possible national impact over 1. Research, or “systematic study directed toward fuller time that the committee is aware of appears in the Moving knowledge or understanding.” Research may be basic Cooler report discussed above. or applied. Basic research is directed toward the “fun- That report counts as “benefits” only the fuel savings and damental aspects of phenomena and of observable associated GHG emissions reductions resulting from the facts without specific applications toward processes various measures to improve the operational efficiency of or products in mind.” Applied research is directed the road transport network.24 It subtracts from these benefits toward “determining the means by which a recog- an amount that reflects the VMT increase projected to result nized and specific need may be met” (NSF, 2007; p. from reduced congestion.25 Moving Cooler also takes into 1). account the rate and extent of deployment of these strategies 2. Development, which takes the knowledge produced (Collaborative Strategies Group, 2009). Even at maximum in research and systematically applies it toward the deployment, the only strategy that reduces GHG emissions production of useful materials, devices, and systems and fuel consumption by more than 0.5 percent as of 2050 or methods to meet specific requirements, often cul- is ecodriving, which yields a 4 percent reduction in GHG in minating in prototypes. that year.26 3. Demonstration, which tests the feasibility of the Moving Cooler acknowledges that these estimates are developed technology at an appropriate scale to rather rough and might be greater if deployment of the strat- identify all significant impediments to commercial egies occurs sooner, of development is more widespread, success. or if the strategies themselves are more effective than they 4. Deployment, in which the technology becomes now appear to be. Clearly, there is much need for additional widely used. research on this topic. The need for government intervention is most widely accepted for the first two of these four stages: research and 6.6  POLICIES IMPACTING THE INNOVATION development (R&D). R&D builds the nation’s intellectual PROCESS capability to address energy problems. Even in the presence Identification, development, and commercialization of of strong intellectual property protection, private businesses technologies that yield vehicles that are more efficient than generally cannot capture all of the benefits generated by their current vehicles, AFVs, fuels from non-petroleum resources, R&D investments, especially any investments that they might fuel production systems with reduced GHG emissions, and, make in basic research. Because of this “spillover effect,” in some cases, even the means of reducing the rate of VMT private investment in R&D falls short of the socially optimal growth often stem from research undertaken years before the amount, thereby justifying public support. technologies appear in the market. This section examines the There is an even stronger case to be made for publicly different stages of the innovation process to address the ques- funded R&D to reduce greenhouse gas emissions and tions about the role of government in this process. to displace petroleum use. The production and use of petroleum-derived energy generate negative environmental 24 Estimates given in Moving Cooler (Collaborative Strategies Group, externalities and impose national security costs, neither 2009) cover all road vehicle traffic, not merely LDVs. Other benefits that of which is fully reflected in market prices. These social are not counted by Moving Cooler include time savings that may result concerns compound the insufficient motivation for private from these measures. 25 This “induced driving” effect is used by opponents of building more firms to invest in R&D aimed at achieving these particular roads to argue that doing so only causes more driving. Using Federal High- objectives. way Administration models, Moving Cooler estimates that a systemwide Although this committee is not in a position to recom- average reduction in delay of 1 hr/1000 VMT in the absence of induced mend specific levels of government R&D spending to demand results in a systemwide increase in VMT of 2.13 percent. This advance vehicle and fuel technology, one insight from its increase in VMT results in a proportionate increase in fuel consumption and GHG emissions. This increase will be less in the short run than in the analysis is that maintaining a diverse R&D portfolio is long run. Moving Cooler adjusts GHG emissions from increased VMT in appropriate given the nature of the challenge. The commit- the initial year of strategy deployment by (2.13 percent × 0.5), ramping tee’s scenarios demonstrate that several pathways involving this increase to the full 2.13 percent after 10 years (Collaborative Strategies combinations of advanced vehicle and fuel technologies Group, 2009, p. B-88). have the potential to achieve the goals of an 80 percent 26 Some of these strategies might be somewhat additive, but it does not appear reasonable to claim that they are totally additive. Even if they were, reduction in petroleum use and GHG emissions from LDVs. the impact of the policies other than ecodriving would total only 1.4 percent R&D critical to success for many key vehicle and fuel inno- (Collaborative Strategies Group, 2009, p. D-12). vations includes:

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146 TRANSITIONS TO ALTERNATIVE VEHICLES AND FUELS · Low-cost, conductive, chemically stable plate materi- also may be unwilling to shoulder those costs. The cost of als for fuel cells; producing fuel in a first-of-a-kind commercial-scale plant · New, durable, low-cost membrane materials for the likely will not be as low as it might become, because the first- fuel cell stack and batteries; of-a-kind commercial-scale plant will not have the benefit · New catalyst structures that increase and maintain the of the “learning-by-doing” that can lower construction and effective surface area of chemically active materials operating costs. But without this step, full-scale commercial- and reduce the use of precious metals; ization will not occur. · New processing techniques for catalyst substrates, If the technology is protected by strong patents or can impregnation, and integration with layered materials; be kept secret, and if the price that the firm constructing a · Energy storage beyond lithium-ion batteries; first-of-a-kind commercial-scale plant can expect to receive · Reduced cost of carbon fiber and alternatives to poly- for output from the plant reflects nearly all of the benefits acrolyonitrile as feedstock; that the technology creates, a private firm may run the risk · Replacements for rare-earths in motors; of constructing this demonstration plant on its own. But if · Waste heat recovery; and the developer of the technology cannot protect it from being · “Smart car” technology. easily appropriated by others, or if a significant share of the benefits cannot be captured in the price that the output of the Key fuel technologies include: plant will sell for, a private firm is not likely to be willing to take this step. In such cases, the first-of-a-kind commercial- · “Drop-in” biofuels with low net GHG emissions; scale plant may not be built without some form of govern- · Carbon capture and storage; and ment financial assistance. However, if the eventual business · Advanced hydrogen production technologies with case for the technology relative to competing options (includ- low net GHG emissions. ing potential progress in an incumbent technology) is weak, then even a government-financed first-of-a-kind demonstra- These two lists may not be exhaustive over the time tion may not lead to the scale-up to multiple or larger plants horizon examined; rather, they represent options already needed for commercial success. (However, some of the included in DOE’s R&D portfolio. All of the fuel options government policies discussed above in this chapter, such as entail combinations of new energy resources or carbon cap- a carbon tax or a price floor on oil, could improve the busi- ture and storage technologies sufficient to deliver biofuels or ness case for certain alternative technologies.) other synthetic fuels, electricity, hydrogen, or combinations Vehicles pose a different demonstration issue. Manufac- thereof with low net GHG emissions impacts. It is unclear turers commonly create demonstration fleets to generate which pathway is most likely to succeed, because each information on the in-use performance of vehicles using depends on technology success, cost reduction, consumer new powertrain systems. Examples of demonstration fleets acceptance, and public policies. include the General Motors EV1 and Equinox hydrogen fuel cell vehicles, Honda FCX Clarity, Audi A3 E-tron, and the Mini E. In these cases, only a limited number of vehicles 6.6.1 Demonstration have been produced. They were made available only to Once a technology moves beyond research and devel- screened applicants, and ownership of the vehicle remains opment, the case for government support becomes more with the manufacturer. controversial. Consider the case of federal funding of dem- Circumstances may dictate that government must directly onstration projects. Suppose that R&D has yielded a new participate in the demonstration project. In the case of the way of producing a fuel for LDVs. The R&D process may DOE’s National Fuel Cell Vehicle Learning Demonstration have shown that the technology works in a laboratory, but Project, the primary goal was to validate vehicle and infra- it does not demonstrate system integration in a production structure systems using hydrogen as a transportation fuel for setting that might be scaled to a commercial level.27 Before LDVs under real-world conditions using multiple sites, vary- private industry will invest the large sums required to con- ing climates, and a variety of sources for hydrogen.28 Spe- struct large numbers of commercial-scale plants employing cific objectives included validating hydrogen vehicles with such technology, someone must construct a first-of-a-kind more than a 250-mile range, 2,000-hour fuel cell durability, commercial-scale plant. Prior to that, there may be a need and hydrogen production costs of $3 per gallon of gasoline to test and refine the workability of the technology in a equivalent. The project was structured around a highly col- production-like setting through the construction and opera- laborative relationship with four industry teams—Chevron/ tion of a pilot plant at less-than-commercial scale. Industry Hyundai-Kia, Daimler/BP, Ford/BP, and GM/Shell—with the National Renewable Energy Laboratory (NREL) col- 27  lecting and analyzing the data and publishing results. A A pilot facility is a form of demonstration that integrates technologies developed in the laboratory into a production system. The pilot demonstra- tion is a step toward commercial design. 28  This description is taken from Wipke et al. (2010).

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POLICIES FOR REDUCING GHG EMISSIONS FROM AND PETROLEUM USE BY LIGHT-DUTY VEHICLES 147 total of 140 fuel cell vehicles, covering both Generation lifetime of the LDV fleet, vehicles incorporating the sorts 1 and Generation 2 technology, were deployed over the of technologies described in Chapter 2 would have to be course of the project. Twenty refueling stations, utilizing in the market in substantial quantities by about 2035. If four different types of refueling technology, were deployed. these vehicles require a new fuel infrastructure, enough of The geographic regions covered were the San Francisco to it would have to be in place even prior to this date to quell Sacramento region, the Los Angeles metro area, the Detroit vehicle owners’ anxieties about fuel availability. The Chap- metro area, the Washington, D.C., to New York region, and ter 5 analyses suggest that transitions in energy resource and the Orlando metro area. supply sectors or to alternative fuels, AFVs, or any combi- The project established specific goals for many of the nations would have to be forced more rapidly than would technical and operating questions and periodically reported occur through private market forces alone if the goals are to progress toward meeting these goals. A detailed summary of be achieved by 2050. Therefore, financial inducement from the project’s results through 2009, identifying which goals either private or public resources will be required. had been met and which goals still needed to be met, was The condition for private investment in deployment is published in 2010. Some teams ended their participation in that the technology is so promising that the potential inves- 2009, but some continued at least through most of 2011. At tor would prefer it over other opportunities. Because of the an update made available in early 2012, NREL reported that long timeframe and uncertain outcome, potential private through the third quarter of 2011, vehicles assigned to the investors will require a high rate of return on that investment project had accumulated a total of 154,000 operating hours and will limit the amount they will invest to a level that does and had traveled a total of 3.6 million vehicle-miles (NREL, not endanger their long-term financial viability. The analyses 2012). in Chapter 5 suggest that deployment of alternative LDV What seems to have made this demonstration project and fuel technologies will in some cases be too large, last successful was its careful design that involved the coordina- too long, and be too uncertain for a private entity to support tion of a simultaneous demonstration of vehicles and fuel- financially. Further, the modeling shows that a substantial ing infrastructure, its focus on measurable goals that were part of the return on the investment will accrue to society at critical to the eventual success of hydrogen-electric vehicles, large rather than to the private investor. mandatory reporting of detailed performance data including Policy-driven deployment is likely to be necessary to safety to establish expected baselines for commercialization, encourage and support a new technology through the early and its use of paired teams of vehicle manufacturer and fuel phases of market introduction, particularly if the success manufacturer, with the government playing a facilitating and of the investment depends heavily on societal benefits. For coordinating role. AFV systems, publicly funded deployment encouraged by public policy might be especially important for addressing two major barriers: 6.6.2 Deployment The next step after demonstration is deployment—the · The scale-related cost problem associated with the roll out of a fully demonstrated technology with all of the fact that new vehicle-fuel systems lack sufficient technical and economic aspects as fully defined as possible. economies of scale during the early stages of com- This is likely to be particularly challenging in the case of mercialization, and vehicles using non-liquid fuels, such as grid-connected- · The coordination of commercial deployment of AFVs electric, natural gas, or hydrogen fuel cell vehicles, Even with the fueling infrastructure for those vehicles. after successful completion of the demonstration phase, potential vehicle purchasers would need to be convinced Nevertheless, given the uncertainties involved, technology- that the technology is reliable and that the form of energy it specific deployment programs may not be needed. If such requires will be available, while energy suppliers and vehicle programs are needed, several general principles should be manufacturers would need to be convinced that the vehicle/ followed: fuel system would be purchased by consumers in increasing volumes within timeframes relevant to major private invest- · The deployment effort should be undergirded by ment planning. Cost reduction through learning-by-doing and based on a long-term, substantial market signal and by increasing sales volumes to achieve economy of to focus and drive reducing petroleum use and GHG scale likely would be necessary to ensure availability of a emissions. An example would be a carbon tax or an range of vehicle makes and models to consumers. Refueling equivalent means of setting costs for carbon GHG infrastructure also would have to be widely enough available emissions. to sustain an expanding market. · The cost of deployment would have to be known and The analysis in Chapter 5 illustrates that the timing of the amount be acceptable. deployment is critical if the 2050 petroleum use and GHG · The time period over which any public investment is reduction goals are to be achieved. Because of the long provided would have to be limited, and a technical

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148 TRANSITIONS TO ALTERNATIVE VEHICLES AND FUELS agency would be used to develop metrics to assess Regarding the adoption of hybrid vehicles, it has been progress and guide adjustments by policy makers demonstrated that consumers today have little knowledge based on the achieved results, including building on of the technology and limited knowledge of the potential effective activities and terminating activities that are benefits of the technology (e.g., roominess, power, and quiet ineffective or are overcome by events. operation) beyond the financial and environmental benefits · A condition of public investment needs to be the (Ozaki and Sevastyanova, 2011). presence of one or more legally committed private In addition, financial and other incentives unsupported by partners obligated to make a substantial investment effective public information programs do little to increase the so as to have a stake in the success of the technology number of people performing the behavior being incentiv- deployment. ized and typically have the most influence on those already disposed to accept the policies and goals being promulgated, The government has tools in addition to direct invest- whereas public information programs have the potential of ment that it can use to ease the investment hurdle for private helping consumers form positive opinions about the recom- capital. These could include loan guarantees to lower the mended goals and policies—especially those who held no rate of interest paid by the investor for the necessary private opinion, and even those who were opposed to such goals and capital and direct loans to the investor at less than market policies, before being exposed to the information campaign rates. The government can also use mandates. Government (Allen et al., 1993; Ditter et al., 2005). mandates that set goals that are truly technology neutral tend Overcoming the lack of knowledge about the need to to be attractive because they allow industry rather than the achieve the recommended goals also is critical. Although government to select the most promising means to meet the some number of consumers will respond solely to policies requirement. However, loan guarantees, loans and below- providing financial benefit for modifying their driving habits market interest rates, and mandates all share the disadvantage to lower VMT and/or facilitate their purchase of low-emitting that they tend to hide the true cost of the government support. and AFVs, it will be decades, if ever, before such vehicles A strongly mitigating factor against government involve- demonstrate performance and cost-of-ownership character- ment in technology-specific deployment is that there is little istics that make them clearly competitive with conventional or no successful experience to guide the selection of policies vehicles. In their 2004 study of the impact of energy- and tactics for such actions for vehicles and fuel technolo- efficiency audits on the adoption by industry of efficiency gies. One relevant precedent is the successful reduction of technologies such as energy-efficient lighting, heating, and air pollutants from LDVs. The government’s effort there was cooling systems, Anderson and Newell (2004, p. 2) found generally directed at the outcome rather than a particular that “access to more accurate performance information can achievement path. reduce the uncertainty and risk associated with adopting The route to achieving the 2050 goals is not clear, and technologies that are new, or that receive differing reviews so the government’s approach to pursue these goals has to from equipment vendors, utilities, or consultants.” The be flexible and adaptive. The government must be able to Washington State Department of Transportation, which has assess candidate activities, select only those with a high a long history of successful public transit and VMT reduc- chance of success, accept some risk because success is not tion programs, has found that public education “is a vital guaranteed in every case, and be robust enough to survive element” in its transportation demand management projects when approaches initially chosen fail. The government needs (McBryan et al., 2000). to make unbiased and prompt assessments of progress and act swiftly to modify ineffective efforts and terminate those 6.8  ADAPTIVE POLICIES that are failing. As discussed throughout this report, many uncertainties surround advanced LDV, fuel, and energy supply technolo- 6.7  POLICIES IMPACTING PUBLIC SUPPORT gies. Today’s knowledge of the feasibility, scalability, costs, Fostering public understanding of the rationale underpin- and benefits associated with the options analyzed in this ning various policy decisions, regulatory actions, and vehicle report is insufficient to craft policies framed around any and fuel technologies designed to achieve the nation’s GHG specific vehicle-fuel systems. Analysis performed today and petroleum reduction goals for the LDV fleet is critical can be suggestive but is never dispositive about what tech- to achieving public support of same. nologies will succeed in the future. Neither can the market It has been demonstrated that proper dissemination of responses of the diverse actors whose decisions determine information that increases consumers’ awareness of and both technology adoption and the real-world impacts of its knowledge about a particular policy or program—alone use be predicted with much certainty. As Dwight D. Eisen- or in concert with incentives—can have a more permanent hower remarked, “Plans are nothing; planning is everything.” impact on consumers’ behavior than do incentive programs Policy makers face a need to design measures that can be alone (Hopper and Nielsen, 1991; Iyer and Kashhyap, 2007). modified as new information becomes available while main-

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POLICIES FOR REDUCING GHG EMISSIONS FROM AND PETROLEUM USE BY LIGHT-DUTY VEHICLES 149 taining a focus on meeting the goals of the policy. Although anticipate the range of conditions that lie ahead, but also have it addresses a different issue, a RAND (RAND Europe, an up-front design that is robust in the face of unanticipated 1997, p. 2) study summarizes this sensibility by saying that situations. Aspects of such design include integrated and “a realistic approach to the formulation of policy should forward-looking analysis, policy development deliberations explicitly confront the fact that policy will be adjusted as that involve multiple stakeholders, and the definition of key the world changes and as new information becomes avail- performance indicators that are then monitored in order to able.” An example of such an adaptive policy is provided trigger automatic adjustments in parameters of the policy. in Chapter 5 (see Section 5.6, “Adapting Policy to Changes Adaptive policies ideally are able to navigate toward success- in Technology”). In that example, a mid-course change in ful outcomes even while encountering developments (includ- policy was made as a result of an unanticipated improve- ing lack of hoped-for outcomes) that cannot be anticipated ment in one vehicle technology or fuel type, and the study in advance. goals were met. An example of such an adaptive framework for the In considering what such an adaptive policy framework transport-sector GHG emissions is the proposal contained in might look like, it is important that it not be trivialized to a a 2009 consensus report by the U. S. Climate Action Partner- mere exhortation that “policy makers should adapt.” Policy ship (USCAP), a group of 31 corporations and public-interest makers adapt all the time. Although the criticism, “America groups. The USCAP proposal states (2009, p. 23): lacks an energy policy,” is often heard, the country in fact has as energy policy that has developed over time, includ- Congress should require EPA, in collaboration with the ing evolving measures to address transportation energy use. Department of Transportation (DOT) and other federal and Congress and successive administrations have adapted laws, state and local agencies, to carry out a periodic in-depth regulations, and other programs to new conditions and new assessment of current and projected progress in transporta- tion sector GHG emissions reductions. . . . This assessment information, satisfying different needs and interests to dif- should examine the contributions to emissions reductions ferent degrees (perhaps leaving some unsatisfied). Vehicle attributable to improvements in vehicle efficiency and GHG efficiency standards have been modified over the years performance of transportation fuels, increased efficiency in depending on the public priority placed on petroleum conser- utilizing the transportation infrastructure, as well as changes vation and more recently coordinated with CAA-authorized in consumer demand and use of transportation systems, and GHG emissions standards in response to climate concerns. any other GHG-related transportation policies enacted by The track record of the existing approach to transporta- Congress. tion energy policy is decidedly mixed. CAFE standards have On the basis of such assessments EPA, DOT and other helped to limit growth in oil demand and GHG emissions, agencies with authorities and responsibilities for elements but at uneven rates over the years. Whatever learning may of the transportation sector should be required to promulgate have been achieved, in the United States alternative fuel and updated programs and rules—including revisions to any authorized market incentives, performance standards, and vehicle technologies have had little impact on the sector’s other policies and measures—as needed to ensure that the petroleum dependence and no measurable benefit on its net transportation sector is making a reasonably commensurate GHG emissions intensity (which may in fact have worsened). contribution to the achievement of national GHG emissions Corn ethanol has displaced a portion of petroleum gasoline, targets. but there is no evidence for the beginning of a broader transi- tion to non-petroleum resources beyond the levels mandated Committee members hold a range of views on the merits by the RFS. If changes in energy use and GHG emissions of of the USCAP proposal. This committee presents its own the magnitude given in this committee’s task statement are to proposal for an adaptive framework in Chapter 7. be achieved, the country will need a policy framework that is much more effective in moving the LDV-fuel system toward specified goals. Although a formal adaptive paradigm has not 6.9 REFERENCES been used for transportation and energy policy to date, some Allen, J., D. Davis, and M. Soskin. 1993. Using coupon incentives in guidance can be obtained from other contexts where it has recycling aluminum: A market approach. Journal of Consumer Affairs been used. Insights can also be found in the history of public 27(2):300-318. An, F., D. Gordon, H. He, D. Kodjak, and D. Rutherford. 2007. Passenger policies that have resulted in varying degrees of progress on Vehicle Greenhouse Gas and Fuel Economy Standards: A Global the impacts of LDVs. Update. Washington, D.C.: The International Council on Clean Trans- One issue for which discussions of adaptive policy have portation. been published is that of climate adaptation, i.e., measures Anderson, S.T., and R.G. Newell. 2004. Information programs for tech- for handling the impacts of climate change rather than nology adoption: The case of energy-efficiency audits. Resource and Energy Economics 26:27-50. mitigating its causes. This body of work builds on prior Anderson, S.T., I.W.H. Parry, J.M. Sallee, and C. Fischer. 2011. Automobile thinking about adaptive frameworks for natural resource fuel economy standards: Impacts, efficiency, and alternatives. Review of and ecological systems management. Swanson and Bhadwal Environmental Economics and Policy 5(1):89-108. (2009) characterize adaptive policies as those that not only

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