7

Policy Options

Previous chapters demonstrate that achieving a 50 percent reduction in petroleum consumption by light-duty vehicles (LDVs) by 2030 and 80 percent reductions in both petroleum consumption and greenhouse gas (GHG) emissions by LDVs by 2050 will be extremely challenging. What likely will be required to achieve those goals is some combination of the following:

  • Major improvements in existing LDV powertrains;
  • Major reductions in the weight and other loads of all sizes and types of LDVs;
  • Changes in the energy resources or fuels used to power LDVs, and the effective control of net GHG emissions in the sectors that supply fuels for LDVs; and
  • The successful introduction and widespread use of one or more entirely new powertrain systems (e.g., electric vehicles and fuel-cell electric vehicles [FCEVs]).

Reaching the ambitious goals for 2050 will be made easier by any reductions in the rate of growth in vehicle miles traveled (VMT) that might be practical and by technological advances that increase the operating efficiencies of transportation systems. However, the primary focus of the findings and policy options identified in this chapter is on how to bring about changes in vehicles and fuel supply sectors, and in consumer demand, necessary to meet the goals addressed in this study.

If the increases in new LDV fuel economy reflected in the standards finalized by the National Highway Traffic Safety Administration (NHTSA) and the U.S. Environmental Protection Agency (EPA) are attained by 2025, as noted in Chapter 5, considerable progress will have been made in moving the new LDV fleet toward lower levels of energy use and GHG emissions. This progress will have been achieved primarily by production and sale of LDVs with improved efficiency employing existing powertrain concepts, including conventional hybrid electric vehicles. Despite such progress, however, this strategy alone is insufficient to decrease LDV petroleum consumption by 50 percent by 2030.

To meet the goals addressed in this study, vehicle and fuel-supply advances will be needed in the period from 2025 through 2050. One possible pathway to meet the 2050 petroleum use and GHG emission reduction goals could be combining high LDV fuel economy with high levels of drop-in biofuels produced using processes with low net GHG emissions. Another possible pathway could be a transition to other alternative fuel and alternative powertrain technologies (e.g., plug-in hybrid electric vehicles [PHEVs], battery electric vehicles [BEVS], and FCEVs) to constitute a significant share of the on-road fleet by 2050. The time required for fleet turnover means that vehicles incorporating these technologies will need to begin to enter the new LDV fleet in significant numbers by the 2030s. The technical, economic, and consumer acceptance barriers currently faced by these technologies may have been largely overcome by then. The uncertainties about technology improvements and costs are such that the committee cannot rule out either pathway for meeting the goals addressed in this study.

If new fuels are required to enable use of alternative powertrain technologies, these fuels will have to be available widely enough by 2025 to enable early adopters not to be overly concerned about fuel availability. Because physical stock changes in major energy supply systems occur more slowly than LDV stock turnover, enough measurable progress in this regard must be seen by 2030 so that it is clear that the 2050 reductions of in-sector LDV GHG emissions enabled by the advanced powertrain technologies will not be largely offset by the emissions generated by the production and distribution of the fuels themselves.

The objective of the policy actions suggested in this chapter is to substantially increase the probability of achieving the goals specified in the statement of task. The policy options identified in this chapter as most promising by the commit-



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7 Policy Options Previous chapters demonstrate that achieving a 50 percent conventional hybrid electric vehicles. Despite such progress, reduction in petroleum consumption by light-duty vehicles however, this strategy alone is insufficient to decrease LDV (LDVs) by 2030 and 80 percent reductions in both petroleum petroleum consumption by 50 percent by 2030. consumption and greenhouse gas (GHG) emissions by LDVs To meet the goals addressed in this study, vehicle and by 2050 will be extremely challenging. What likely will be fuel-supply advances will be needed in the period from required to achieve those goals is some combination of the 2025 through 2050. One possible pathway to meet the 2050 following: petroleum use and GHG emission reduction goals could be combining high LDV fuel economy with high levels of · Major improvements in existing LDV powertrains; drop-in biofuels produced using processes with low net GHG · Major reductions in the weight and other loads of all emissions. Another possible pathway could be a transition sizes and types of LDVs; to other alternative fuel and alternative powertrain technolo- · Changes in the energy resources or fuels used to gies (e.g., plug-in hybrid electric vehicles [PHEVs], battery power LDVs, and the effective control of net GHG electric vehicles [BEVS], and FCEVs) to constitute a signifi- emissions in the sectors that supply fuels for LDVs; cant share of the on-road fleet by 2050. The time required and for fleet turnover means that vehicles incorporating these · The successful introduction and widespread use technologies will need to begin to enter the new LDV fleet in of one or more entirely new powertrain systems significant numbers by the 2030s. The technical, economic, (e.g., electric vehicles and fuel-cell electric vehicles and consumer acceptance barriers currently faced by these [FCEVs]). technologies may have been largely overcome by then. The uncertainties about technology improvements and costs are Reaching the ambitious goals for 2050 will be made easier by such that the committee cannot rule out either pathway for any reductions in the rate of growth in vehicle miles traveled meeting the goals addressed in this study. (VMT) that might be practical and by technological advances If new fuels are required to enable use of alternative that increase the operating efficiencies of transportation sys- powertrain technologies, these fuels will have to be available tems. However, the primary focus of the findings and policy widely enough by 2025 to enable early adopters not to be options identified in this chapter is on how to bring about overly concerned about fuel availability. Because physical changes in vehicles and fuel supply sectors, and in consumer stock changes in major energy supply systems occur more demand, necessary to meet the goals addressed in this study. slowly than LDV stock turnover, enough measurable prog- If the increases in new LDV fuel economy reflected in ress in this regard must be seen by 2030 so that it is clear the standards finalized by the National Highway Traffic that the 2050 reductions of in-sector LDV GHG emissions Safety Administration (NHTSA) and the U.S. Environmental enabled by the advanced powertrain technologies will not be Protection Agency (EPA) are attained by 2025, as noted in largely offset by the emissions generated by the production Chapter 5, considerable progress will have been made in and distribution of the fuels themselves. moving the new LDV fleet toward lower levels of energy use The objective of the policy actions suggested in this chap- and GHG emissions. This progress will have been achieved ter is to substantially increase the probability of achieving the primarily by production and sale of LDVs with improved goals specified in the statement of task. The policy options efficiency employing existing powertrain concepts, including identified in this chapter as most promising by the commit- 152

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POLICY OPTIONS 153 tee are based on its review of the past experience with and 2025 as part of this country’s efforts to improve LDV fuel potential effectiveness of the possible policies described in economy and reduce GHG emissions. Chapter 6, and on the committee’s own evaluation of policies and policy combinations in Chapter 5. Regulatory policies FINDING. “Feebates,” rebates to purchasers of high-fuel- such as Corporate Average Fuel Economy (CAFE) standards, economy (i.e., miles per gallon [mpg]) vehicles balanced by pricing policies (either economy-wide or directed at fuel sup- a tax on low-mpg vehicles is a complementary policy that ply sectors) such as feebates for vehicles, and regulatory or would assist manufacturers in selling the more-efficient pricing policies directed at fuel supply sectors will likely be vehicles produced to meet fuel economy standards. essential to attaining the 2050 goals for reducing LDV petro- leum consumption and GHG emissions. Additional policies POLICY OPTION. The committee recognizes that U.S. may also be required if a transition to alternative vehicle and government “feebates” based on the fuel consumption fuel systems turns out to be the best way to attain the goals. of LDVs could have a role as a complement to LDV fuel Such transition policies include infrastructure investments economy and GHG emissions standards to facilitate and and possible subsidies. Because of uncertainties and unfore- accelerate the introduction of significantly more efficient seen circumstances in the future, policies must be adaptive in vehicles into the market to the meet the 2050 timing of the response to technology and to market conditions over time to goals. The committee suggests that the U.S. government ensure that the goals are met in a cost-effective way. include “feebates” as part of a policy package to reduce LDV fuel use. 7.1  POLICIES TO ENCOURAGE THE CONTINUED IMPROVEMENT OF THE FUEL EFFICIENCY OF 7.2  POLICIES TARGETING PETROLEUM USE THE LIGHT-DUTY VEHICLE FLEET Petroleum consumption can be reduced by a variety of Even if the fuel economy and CO2 reduction standards policies. Placing a quantity constraint on petroleum con- for new LDVs currently being implemented by NHTSA and sumption (also known as rationing) would reduce its use the EPA are met, further improvement in the fuel efficiency directly and increase its price. A tax on petroleum would of vehicles could be made in and after model year (MY) directly increase the price of petroleum, providing a signal 2025. Although the committee believes that it is premature to both producers and consumers to find ways to reduce to suggest a specific fuel economy target for new LDVs by use of petroleum-based fuels, redesign vehicles, or replace MY2050, a “ballpark” estimate is that a further doubling petroleum-based fuels with other fuels. Other approaches (that is, a doubling beyond the doubling that is scheduled to include requiring quantities of alternative fuels to be sold occur between 2005 and 2025) of the average new LDV fleet (such as through application of the Renewable Fuel Stan- fuel economy standard by 20501 will be technically feasible dard) or using subsidies to reduce the prices of alternative but costly. The modeling results in Chapter 5 indicate that fuels to make their cost lower than the cost of petroleum- such an increase in the CAFE standard could reduce GHG based fuels. As discussed in Chapter 6, it can be difficult emissions by about 50 percent in 2050 compared to the 2005 to design a policy that successfully mandates the sale of level. Reaching such ambitious fuel economy targets will certain fuels when they are more expensive than petroleum- require a mix of policies that affect the decisions of vehicle based fuels. Subsidies require government revenue to fund, manufacturers to produce fuel-efficient vehicles and the deci- whereas taxes raise revenue that either can be used to fund sions of consumers to purchase them. programs related to energy and GHG emissions reduction or can be refunded to the taxpayer. FINDING. The CAFE standard has been effective in Placing a quantity limit on oil consumption (or use of reducing vehicle energy intensity, and further reductions petroleum fuels by LDVs specifically) has rarely been pro- can be realized through even higher standards if com- posed and would be expected to have significant adverse bined with policies to ensure that they can be achieved. social impacts. What has been widely discussed for many years is taxa- POLICY OPTION. The committee suggests that LDV tion that would directly target petroleum demand or petro- fuel economy and GHG emissions standards continue to leum imports. Existing U.S. motor fuel taxes were adopted be strengthened to play a significant role after model year to raise revenues for funding roads. Historically, these taxes have helped support petroleum demand by facilitating vehi- cle use while remaining low enough to avoid significantly 1  affecting fuel demand. A small exception to the historical Such a further doubling of on-road fleet fuel economy between 2025 and 2050 cannot, by itself, achieve the goals set forth in the charge to this com- rationale was the $0.043 per gallon gasoline tax increase mittee. Additional changes involving fuels and VMT also will be needed. of 1993 (the last time U.S. fuel taxes were raised), which See the committee’s scenarios in Chapter 4 for details. had been proposed originally as a “Btu tax” to foster energy

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154 TRANSITIONS TO ALTERNATIVE VEHICLES AND FUELS conservation and reduce the federal deficit. However, the of petroleum-based fuels or set a price floor target for funds from that levy were redirected back to the Highway petroleum-based fuels. Trust Fund in 1997. To be used extensively, alternative fuels, together with Taxing petroleum or implementing a price floor to pre- the vehicles that they power, would have to be at least price vent the decline of petroleum price beyond a certain level competitive with petroleum-based fuels and conventional would discourage its use and contribute to reducing VMT vehicles. For compressed natural gas and hydrogen, the and increasing the use of fuel-efficient internal combustion alternative fuels would have to be made available with engine vehicles (ICEVs) if petroleum-based fuel remained complementary vehicle and refueling infrastructure. To the dominant fuel. (See Box 7.1 and see Section 6.3.5, “A undertake the large investments necessary for the develop- Price Floor Target for Motor Fuels,” in Chapter 6). A reduc- ment and widespread availability of any alternative fuels, the tion in petroleum use also would reduce the social cost of fuel producers and distributors will have to be convinced that oil consumption. (See Box 5.5, “Social Costs of Oil Depen- there eventually will be a profitable market for those fuels, dence,” in Chapter 5.) including assurance that they will not be undercut by low- cost petroleum. The price of petroleum-based fuels would FINDING. The Renewable Fuel Standard contributed to have to be relatively high and stable for investors to be con- reducing petroleum use by LDVs. As a result of the fail- fident in the profitability of alternatives. One policy that has ure of cellulosic biofuels to achieve commercial viability promise for creating price stability in the oil market is a tax and the ability of the EPA to waive the requirement, the on petroleum that moves inversely with petroleum price and volume of cellulosic biofuels mandated by the RFS has is levied only when petroleum prices fall below a target level, repeatedly been reduced. The RFS could become more as discussed in Chapter 6. This tax approach ensures the price effective if the EPA’s authority to reduce the mandated stability necessary to provide better signals to investors to requirement either is eliminated so as to maintain a invest more in efficiency or in alternative energy sources. guaranteed market for any cellulosic biofuels produced or linked to a requirement to fund RD&D for progress FINDING. Taxes on petroleum-based fuels can cre- toward the improved viability of cellulosic biofuels. ate a price signal against petroleum demand, offset the “rebound effect” induced by increasingly efficient POLICY OPTION. The committee supports continu- vehicles, and help assure innovators, producers, and dis- ation of the Renewable Fuel Standard because it has tributors that there is a profitable market for improved been modestly effective in displacing petroleum. The efficiency in energy use and for alternative fuels. The committee suggests periodic review of the RFS by Con- range of possible tax policies includes a fixed tax rate per gress to assess whether the mandated volumes should be barrel on petroleum that is a surtax on current taxes, or a increased and whether other alternative fuels should be tax that moves inversely with the oil price when the price included in the mandate to encourage the use of alter- falls below a target level, thereby stabilizing prices so that native fuels and reduce the share of petroleum-based they are at or above the target. Fuel subsidies or quantity fuels in use for LDVs. The committee also supports further mandates are more difficult than taxes to use effectively. research and analysis for refinement of the means of assess- Subsidies require government funding, and sometimes com- ing how fuels qualify as renewable. plex decisions about who is eligible for the subsidies. Until alternative fuels become cost competitive with petroleum- 7.3  POLICIES TO REDUCE GHG EMISSIONS based fuels, quantity mandates for alternative fuels would ASSOCIATED WITH LDV FUELS require fuel producers to cross-subsidize their money-losing alternative fuels from their profitable petroleum-based fuels. Policies that reduce the overall energy demand of LDVs Creating and then maintaining the conditions necessary for through improving vehicle efficiency and lowering travel successful cross-subsidization would be difficult, politically demand contribute to a reduction in GHG emissions. In and otherwise, for the government. Yet without adopting addition, reducing GHG emissions requires policies that one or more of these policy approaches, the lure of eventual limit the net GHG emissions associated with the fuels used profitability necessary to induce investment is absent, and so by LDVs. In considering fuel-related policies, it is crucial the investment is unlikely to occur. to distinguish between the fuels themselves—that is, the end-use energy carriers used directly by vehicles—and the POLICY OPTION. High and stable oil prices would primary energy resources (such as fossil fuels) and associ- be helpful in transitioning away from oil use in LDVs ated energy sector systems that supply end-use fuels. GHG and meeting the 80 percent reduction goal by 2050. If emissions from fuel use can be limited through three basic fluctuations in oil prices and often low oil prices persist, approaches: it may be necessary to impose a tax on domestic use

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POLICY OPTIONS 155 BOX 7.1 The Case for Fuel Pricing The case for fuel pricing policies is based on economic theory as well as experience: for most goods, raising the price reduces the quantity demanded. One way to reduce petroleum use or greenhouse gas (GHG) emissions is to tax them. GHG emissions are environmental externalities, and their full societal costs are not reflected in market prices. As discussed in Box 5.5 in Chapter 5, a range of estimates exist for the damage that may be caused by GHG emissions. The committee chose a value at the high end of the range, $136.20 per metric ton of CO2, because that is most consistent with the 80 percent GHG mitigation goal. There are excess social costs of oil dependence, as well, caused by the use of market power by oil producers, as well as increased public expenditures on defense (Greene and Leiby, 1993). As discussed in Box 5.6 in Chapter 5, a tax on the order of $10.50 to $38 per barrel with a midpoint of $24 in 2009 dollars would be needed to reflect the full social costs of oil dependence. Fuel prices affect producer and consumer behavior with respect to the three parameters that affect petroleum use and GHG emissions: fuels, vehicles, and vehicle miles traveled. Experience both here and abroad indicates that producers and consumers indeed respond to fuel prices (Sterner, 2007; Dahl, 2012) but that fuel demand is relatively inelastic. For example, estimates of the elasticity of demand for gasoline range from only 0.1 over short periods when it is difficult to modify use, to about 0.3 to 0.5 over longer periods when there are more opportunities to change behavior. One study finds that a tax on gasoline that increases to about $2.00 a gallon by 2030 results in decreased gasoline use of about 25 percent over that same period (Krupnick et al., 2010). There is little experience with GHG pricing of transportation fuels and their supply chains, and so the overall GHG emissions response to including such pricing could be greater than the demand response alone. There are also reasons why a fuel or GHG tax may need to be combined with other policies. Pricing gasoline to reflect its full costs will still not induce consumers to make optimal choices about fuel-efficient vehicles if they undervalue fuel economy (Greene, 2010). This point is discussed more fully in Chapter 5, but to the extent it is true, then a combination of pricing and vehicle standards will be important. The committee’s scenario analyses suggest that significant ongoing fuel economy improvement is likely to play a very large role in meeting both the petroleum reduction and GHG emissions reduction goals (Greene, 2011; Allcott et al., 2012). That is why one of the committee’s high-priority suggestions is to continue to strengthen vehicle standards for fuel economy and GHG emissions. There are other reasons why pricing energy will be helpful in conjunction with such vehicle standards: · Reducing VMT, including countering the rebound effect. Because fuel economy standards reduce the variable cost of driving, they encourage more driving, partially offsetting the fuel-use-reducing benefits of the standards. This phenomenon is called the rebound effect. Raising fuel prices counters the rebound effect and reduces the demand for fuel-consuming travel generally. · Increasing demand for fuel-efficient vehicles. Higher fuel prices increase consumers’ demand for fuel-efficient vehicles, thereby aligning the requirements faced by automakers under vehicle standards with the demands of consumers. Any of these behavioral rationales for higher fuel taxation would represent a significant departure in U.S. fiscal policy. Traditionally, federal, state, and local fuel taxes have been justified only as a way to raise revenue for transportation infrastructure and maintenance. Federal U.S. gasoline taxes have not increased in nominal terms in almost 20 years; in real terms, they have declined dramatically, leading to crumbling roads, bridges, and tunnels. Other studies have documented a justification for higher fuel taxes in order to make up for this substantial shortfall in transportation funding (National Surface Transportation Policy and Revenue Study Commission, 2007). Thus, taxing fuels to reduce oil use and GHG emissions could have the important co-benefit of raising needed revenue for our transportation system. Although this behavioral rationale for fuel pricing is not traditional in U.S. policy, it has been used in Western Europe and other countries and is one reason for the higher levels of vehicle fuel economy and lower levels of per capita demand for automobile travel observed in those countries relative to the United States. · By counterbalancing the end-use (vehicular) CO2 (See also Chapter 6.) In the future, counterbalancing emissions from carbon-based fuels with sufficient also might occur through geologic storage or biologi- net CO2 uptake elsewhere. Because this CO2 uptake cal sequestration techniques. and the emissions associated with feedstock growth · By using physically carbon-free fuels such as elec- and processing (e.g., for biofuels) occur outside the tricity or hydrogen, which avoid release of CO2 from transportation sector, the optimal policies are not vehicles themselves. These energy carriers must then those directed at the transportation sector per se, but be supplied from low-GHG emitting-production rather measures to address net GHG emissions in sectors. Therefore, optimal policies are not those fossil fuel extraction and refining, biorefining, agri- directed at the transportation sector per se, but rather culture, forestry, and related land-use management measures addressing electric power generation and sectors involved in supplying carbon-based fuels. other industrial sectors that produce carbon-free fuel.

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156 TRANSITIONS TO ALTERNATIVE VEHICLES AND FUELS · By capturing and preventing the release of the CO2 would result (which could be helpful for federal finances), produced during combustion or other utilization of pursuing a carbon tax would entail engaging in a major carbon-based fuels directly on vehicles, or by avoid- fiscal policy discussion that affects many other aspects of ing the production of CO2 during on-board energy national policy. utilization. Because no practical means of on-board Although the near-term political prospects of cap-and- CO2 capture or avoidance are currently known, this trade are poor, it may ultimately be favored over other third approach is not considered in this report. options. It was the leading national GHG policy option in prior Congresses. Cap-and-trade once had some bipartisan This list demonstrates that it is impossible to have a support even though it fell short of sufficient majority sup- complete policy for controlling auto-sector GHG emis- port. California is implementing an economy-wide GHG sions in isolation from policy to control emissions in other cap-and-trade through its AB 32 program. The northeast sectors, namely, those that supply energy and feedstock Regional Greenhouse Gas Initiative is implementing a GHG for fuel production. This principle is true whether the fuel cap-and-trade program for the power sector. is carbon-based or carbon-free. The extent to which poli- cies are also needed to affect the choice of vehicular fuel FINDING. Meeting the GHG emissions reduction target depends on whether a change of end-use energy carrier is of this study requires addressing the upstream emissions required. That question cannot be resolved on the basis of that occur in the non-transportation sectors involved present scientific knowledge. As the committee’s scenario in supplying energy and feedstock for fuel production. analyses demonstrate, some technological approaches for Substituting hydrogen, biofuels, or electricity for petroleum- meeting the task statement goals entail entirely new fuels based gasoline in vehicles will result in net GHG emissions and fuel distribution systems, but others (namely, the use reductions only if these alternative fuels are produced using of drop-in biofuels in high-efficiency vehicles) do not. In technologies and processes that emit few GHGs. Carbon each scenario evaluated where the goals are achieved, a capture and storage (CCS) is likely a critical technology major change is required in the energy sectors that supply for producing low-GHG hydrogen and electricity, but other automotive fuel. options that directly produce electricity and can indirectly The committee recognizes that GHG emissions that produce hydrogen through electrolysis exist (e.g., nuclear occur in the non-transportation sectors involved in supply- and renewable power). ing energy and feedstock for fuel production need to be addressed to reduce net GHG emissions effects of the LDV POLICY OPTION. A policy that addresses GHG emis- sector. However, a thorough treatment of policies for address- sions from the energy sources and sectors that supply ing GHG emissions that occur in the non-transportation fuels used in LDVs is needed if GHG emissions from sectors is beyond the scope of this study. (See Appendix A the LDV sector, including upstream emissions, are to be for the statement of task.) Either an economy-wide GHG reduced enough to meet the 2050 goals. That policy can policy or a coordinated multisector GHG policy is likely take the form of a set of measures that are specific to each to offer the most economically efficient and equitable way sector that affects fuel production and distribution, or to achieve deep GHG emissions reductions across multiple it can embody a comprehensive approach to addressing sectors. Broadly speaking, the options for multisector GHG GHG emissions (e.g., a carbon tax or a carbon cap-and- policy include direct regulation of GHG emissions under the trade policy). Clean Air Act (CAA), carbon taxation, or a cap-and-trade system that blends elements of regulatory and fiscal policies 7.4  POLICIES TO REDUCE THE RATE OF GROWTH by placing an economy-wide limit on GHG emissions and OF VMT propagating a price signal to motivate emissions reductions across multiple sectors. As shown in the previous chapter, increases in vehicle The EPA is beginning to pursue CAA regulation of GHG miles traveled by LDVs have offset much of the potential emissions; however, without new congressional authoriza- reduction in petroleum use and in GHG emissions caused tion, the agency might not pursue targets that are stringent by improved fuel economy over the last several decades. enough to support GHG emissions reduction of 80 percent by If VMT increases at the rates projected in the “business as 2050. Carbon taxation is another way to motivate reductions. usual” scenario described in Chapter 5, the same is likely to If the policy is of stringency comparable to that of setting be true in the decades ahead.2 a cap on energy supply sector GHG emissions at about 20 percent of the 2005 level by 2050, it would encourage GHG 2  The “business as usual” and “reference” cases assume a slowdown in the emissions reduction from other sectors (e.g., electricity and rate of growth of VMT in the future. Nevertheless, in these cases, as well agriculture) that would contribute to reducing GHG emis- as in the committee’s simulations, VMT continues to grow. This growth in sions from the LDV sector. However, determining the tax VMT will offset some of the reductions in petroleum use and GHG emis- level needed will be difficult. Given the large revenues that sions that otherwise would occur.

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POLICY OPTIONS 157 A range of policy options exists that have the potential 7.5  POLICIES TO ENCOURAGE RESEARCH AND to reduce VMT growth, but they differ widely in their likely DEVELOPMENT, DEMONSTRATION, AND impact. For example, policies to increase residential density DEPLOYMENT are likely to produce limited results on a national scale. As As discussed in Chapter 6, the federal government has discussed in Chapter 6, a previous National Research Coun- implemented a range of policies intended to encourage cil (NRC) report has found that a doubling in density of 75 the development and use of fuel-efficient LDVs and the percent of the new development by 2050, something that alternative fuels to power them, with mixed success. Stages the report characterizes as “require[ing] such a significant of advancement for new technologies are separated into departure from current housing trends, land use policies of research and development (R&D) (which involves basic and jurisdictions on the urban fringe, and public preferences that applied research on improvements to or evolution of the tech- they would be unrealistic absent a strong state or regional nology, including prototypes), demonstrations (which test role in growth management,” would reduce VMT by only 8 to the feasibility of developed technology, including significant 11 percent below what it otherwise would be in 2050 (NRC, impediments to commercial success), and deployment of the 2009). And even this extremely optimistic degree of dou- technology into the market at large scale. bling of the density of new residential development would The government’s role in facilitating each of these stages have to be accompanied by large increases in the amount of varies with the type of technology, how far along in the mixed-use development and in the quality and accessibility advancement process the technology for either the vehicle of transit. A major study of the potential impact of other or the fuel has progressed, and what policies are already in much-discussed factors, such as pedestrian and bicycle place. For example, new technologies for advanced ICEVs strategies, has shown them to have only a small impact on and hybrid vehicles powered by gasoline are continually national VMT (NRC, 2009). developed, and regulatory policies such as CAFE and pric- Indeed, the policies found to have the most significant ing policies such as feebates encourage the market adoption impact on VMT are those that raise the marginal cost of of fuel-efficient technologies and vehicle designs. Other driving—for example, increasing fuel taxes. Other possible powertrains and fuels, such as FCEVs, BEVs, hydrogen policies would be “pay at the pump” insurance, a means by fuels produced with low net GHG emissions, and biofuels which vehicle owners can pay for their car insurance through are at early stages of commercialization. BEVs have been charges added to the price of gasoline, or a road-user charge. introduced commercially, although sales are still low. Sev- A road-user charge of $0.12 per mile would have an effect on eral companies have demonstrated FCEVs at small scale the variable cost of driving roughly comparable in magnitude and expect to start introducing them commercially by 2015. to the effect of current West European motor fuel taxes. The However, significant technology and production progress report Moving Cooler. An Analysis of Transportation Strate- is needed for cost reduction before these vehicles will be gies for Reducing Greenhouse Gas Emissions estimated that competitive at scale with existing ICEVs. Some alternatives a charge of this level would reduce 2050 VMT by 5 percent, to petroleum are at early stages of development, and demon- and that just the VMT impact portion of a carbon tax levied strations may be important in addition to R&D. at similar levels would reduce 2050 VMT by almost 8 percent (Collaborative Strategies Group, 2009). 7.5.1  Research and Development FINDING. The policies that have the most significant There is a strong case for R&D, whether public or private, impact on reducing the rate of growth of VMT are those to advance the intellectual infrastructure of the country for that raise the marginal cost of driving. Policies other than meeting technical challenges, as discussed in Chapter 6. those that raise the marginal cost of driving could result in significant reductions in the rate of VMT growth or even FINDING. Fuel cells, batteries, biofuels, low-GHG pro- reductions in total VMT in certain individual urban areas, duction of hydrogen, carbon capture and storage, and but they are not likely to result in significant reductions in vehicle efficiency should all be part of the current R&D GHG emissions or petroleum use at the national level by strategy. It is unclear which options may emerge as the 2050. more promising and cost-effective. At the present time, foreclosing any of the options the committee has analyzed POLICY OPTION. If reducing VMT growth is to be pur- would decrease the chances of achieving the 2050 goals. sued to meet the study goals of reducing petroleum use The committee believes that hydrogen fuel cell vehicles are and GHG emissions, policies that increase the marginal at least as promising as battery electric vehicles in the long cost of driving should be considered. term and should be funded accordingly. Both pathways show promise and should continue to receive federal R&D support.

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158 TRANSITIONS TO ALTERNATIVE VEHICLES AND FUELS POLICY OPTION. The committee supports consis- tion of integrated demonstrations of promising vehicles and tent R&D to advance technology development and to fuel systems or stations. reduce the costs of alternative fuels and vehicles. The best approach is to promote a portfolio of vehicle and FINDING. Demonstrations are needed for technologies to fuel R&D, supported by both government and industry, reduce GHG emissions at appropriate scale (e.g., hydro- designed to solve the critical technical challenges in gen produced with low net GHG emissions and CCS) to each major candidate pathway. Such primary research validate performance, readiness, and safety. efforts need continuing evaluation of progress against performance goals to determine which technologies, FINDING. Integrated demonstrations of vehicles and fuels, designs, and production methods are emerging as fueling infrastructure are necessary to promote under- the most promising and cost-effective. standing of performance, safety, consumer use, and other important characteristics under real-world driving FINDING. Current methods for the accounting of net conditions. GHG emissions associated with the production and use of transportation fuels involve numerous uncertain- POLICY OPTION. The committee supports the govern- ties. Reducing the uncertainties and developing robust ment’s involvement in limited demonstration projects accounting approaches are important for defining R&D at appropriate scale to promote understanding of the strategies, guiding private sector investments, and performance and safety of alternative vehicles and fuel- developing effective public policies for reducing the net ing systems. For such projects, substantial private sector GHG emissions associated with fuels used by light duty investment should complement the government invest- vehicles. ment, and the government should ensure that the dem- onstration incorporates well-designed data collection and POLICY OPTION. Because of the uncertainties asso- learning to inform future policy making and investment. ciated with existing methods of accounting for the net The information collected with government funds should GHG emissions impacts of the production and use of be made available to the public consistent with applicable transportation fuels, especially for electricity, biofuels, rules that protect confidential data. and hydrogen, the committee suggests further efforts to develop accounting methods to account for GHG emis- 7.5.3 Deployment sions that are applicable to the design of public policies for addressing these impacts. Many of the findings and policy options mentioned earlier in this chapter will encourage deployment of highly efficient or alternative vehicles and alternative fuels, and policy will 7.5.2 Demonstration be a critical driver of deployment. Policy options include The alternative vehicles discussed in Chapter 2 have dem- CAFE and feebate policies for vehicles, performance stan- onstrated their performance readiness. Remaining challenges dards, consumption mandates or pricing policies for fuels, are cost reduction and further advancement through contin- and carbon control policies. Modeling results described in ued R&D, and potentially, successful deployment. Private Chapter 5 show that such policies will greatly increase the industry may choose to demonstrate new technologies or shares of highly efficient and alternative vehicles over time. new vehicle models or prototypes, but the need for further However, Chapter 5 also found that additional deployment government involvement appears to be limited to areas of policies will likely be needed for some alternative-vehicle special government interest, such as validating the safety or fuel systems if they are to be part of the strategy to attain the performance of alternative vehicles. significant reductions in petroleum use and GHG emissions For fuels, vehicles, and GHG management technologies discussed in this report. Additional policies such as subsidies that show promise of commercial readiness, appropriately or mandates for vehicles or fuel infrastructure investment scaled demonstration projects that are supported by both will depend on the path of future technology, market condi- industry and government are likely to be important for tions, and the urgency of the energy security and climate- validating feasibility, proving physical and environmental change issues that these fuels are needed to address. The safety, and establishing cost-effectiveness. The results of timing of additional deployment policies is critical and will such demonstrations could provide essential information for depend on how close any one technology or combinations of identification of which alternative fuel and GHG manage- technologies are to market readiness. At present, it is unclear ment technologies have long-term potential to both compete which vehicle and fuel technology or technologies will have with gasoline in the marketplace and achieve GHG emissions consumer acceptance and the best potential for lowest costs reduction goals, and to establish readiness for deployment. at scale to achieve the goals addressed in this study. Data on Another appropriate role for the government is the coordina- the costs of particular technologies will accumulate over time and will inform future policy decisions.

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POLICY OPTIONS 159 In addition, for alternative-vehicle fuel systems, the gov- have specific goals and time horizons for deployment. ernment, in partnership with industry, will likely have a role The review process should include assessments of net in coordinating the commercial deployment of alternative reductions in petroleum use and GHG emissions, vehicle vehicles with the fueling infrastructure for those vehicles. and fuel costs, potential penetration rates, and consumer Coordination of vehicle sales and provision of refueling responses. infrastructure are more challenging for hydrogen than for electricity or natural gas because hydrogen requires a FINDING. For alternative-vehicle fuel systems, gov- completely new, large-scale fuel production and delivery ernment involvement with industry may be needed to system. In contrast, natural gas and electricity already have help coordinate commercial deployment of alternative a large, robust, and ubiquitous distribution system, and the vehicles with the fueling infrastructure for those vehicles. additional deployment needed is an accessible dispensing infrastructure. The committee’s analysis found that the timing and the Assessments of the readiness of affected technologies scope of policy-related actions have a major influence on the and continuous assessments of the effectiveness of deploy- successful transition to new vehicle and fuel technologies. ment policies are important. Such assessments would require If the policies are insufficient, ill-targeted, or improperly metrics to be established to determine when to initiate a timed to overcome the cost barriers to making the transition, deployment effort, to assess progress during initial deploy- then the transition will not occur and the costs of the policy- ment, to guide adjustments based on the achieved results, related actions can be wasted. and to determine when to terminate deployment efforts that are ineffective or have been overcome by events. Starting 7.6  THE NEED FOR AN ADAPTIVE POLICY deployment prematurely will increase the chance of failure FRAMEWORK and costs, extend the time for support, and undermine public confidence. Yet prolonged delay in deployment risks failure FINDING. Many uncertainties surround not only to meet the GHG emissions reduction and fuel saving goals. advanced vehicle, fuel, and energy supply technologies Determining technical and market readiness is challenging but also the response of the many LDV market actors and should involve an unbiased expert review of available to policies implemented for meeting goals such as those data, and consideration of the viewpoints of applicable stake- described in this committee’s task statement. Therefore, holders. In particular, the analysis in Chapter 5 indicates that policy makers will be well served to establish an adaptive subsidies of particular vehicles and fuels as a deployment framework that enables the set of measures enacted to be strategy may be important, but careful and periodic evalua- systematically adjusted as the world changes and as new tions are needed to ensure their effectiveness. information becomes available while staying on track to meet the long-term policy goals. FINDING. The commercialization of fuel and vehicle technologies is best left to the private sector in response As found in Chapter 6, such a framework should not only to performance-based policies, or policies that target anticipate the range of conditions that lie ahead but also be reductions in GHG emissions or petroleum use rather designed to be robust in the face of unanticipated develop- than specifc technologies. Performance-based policies ments. Aspects of such policy design include provisions for for deployment (e.g., CAFE standards) or technology integrated and forward-looking analysis, policy develop- mandates (e.g., RFS) do not require direct government ment deliberations involving multiple key stakeholders, and expenditure for particular vehicle or fuel technologies. performance metrics that are monitored to trigger automatic Additional deployment policies such as vehicle or fuel adjustments in parameters of the policy. To be effective, such subsidies, or quantity mandates directed at specific tech- a framework requires the establishment of clear, measur- nologies are risky but may be necessary to attain large able, and durable goals. Because of the uncertainty about reductions in petroleum use and GHG emissions. which technologies would emerge as most effective and cost-effective, and about how consumers will respond to POLICY OPTION. The committee suggests that an those technologies and fuel delivery systems, new evidence expert review process independent of the agencies imple- and information will be key to developing the best policies. menting the deployment policies and also independent of Chapter 5 (see Section 5.7, “Simulating Uncertainty About any political or economic interest groups advocating for the Market’s Response”) illustrates the dilemma in setting the technologies being evaluated be used to assess avail- policy in the absence of good information about key aspects able data, and predictions of costs and performance. Such of consumer preferences on the demand side, and learning assessments could determine the readiness of technolo- and scale economies on the supply side of the market. This gies to benefit from policy support to help bring them into and other information would have to be provided by vari- the market at a volume sufficient to promote economies ous sources, and its assessment will inform effective policy of scale. If such policies are implemented, they should decisions.

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160 TRANSITIONS TO ALTERNATIVE VEHICLES AND FUELS FINDING. The policies and measures needed to achieve improved public information and education programs. the petroleum and GHG emissions reduction goals stated Because the payoff of public education and information pro- in the committee’s statement of task will be implemented grams is long term and is typically measured in public benefit by more than one federal agency, as well as coordinated rather than direct financial return, it is critical that govern- with state and local jurisdictions. Moreover, as experi- ment be involved in developing and fostering such programs, ence is gained and new information becomes available, because they tend to be underprovided by the private sector. adjustments will be needed and will be coordinated across the implementing agencies. POLICY OPTION. If the United States is to achieve the goals of reduced petroleum use and reduced GHG emis- POLICY OPTION. To meet the petroleum-use and GHG sions from the LDV fleet, then U.S. policy makers could reduction goals stated in the statement of task, the com- develop public programs aimed at informing consumers mittee considers it desirable to define a federal light-duty of the goals to be achieved, the reasons such achievement vehicle petroleum and GHG emissions reduction policy is necessary, and the nature of the costs and benefits— with the following elements: individual and societal—to be derived from the policies · Establish overall goals (e.g., via congressional being implemented. action). · Assign relevant federal agencies having jurisdic- As noted elsewhere in this report, the committee has dif- tion over LDV energy use and GHG emissions, fering views regarding the value of public promotion of spe- in collaboration with the other relevant federal, cific alternative vehicle and fuel technologies, a difference of state, and local agencies, to carry out periodic view that carries over into public information policy. Where assessments of progress against the goals and to there is agreement is in the value of informing consumers report the results. The assessments would include: about the broad importance of the national goals, the connec- — Quantifying progress to date and assessing the tion with fuel economy and perhaps other objective vehicle efficacy of the programs and policies in use for environmental performance metrics to these goals, and the reducing petroleum use and GHG emissions; value of choosing highly fuel-efficient vehicles accordingly. —  Identifying the causes of emerging shortfalls in meeting the goals, and the steps being taken 7.8 REFERENCES and planned to remedy those shortfalls, con- sistent with the authority of the implementing Allcott, H., S. Mullainathan, and D. Taubinsky. 2012. Externalities, Inter- nalities and the Targeting of Energy Policy. Cambridge, Mass.: National agencies; and Bureau of Economic Research. —  Identifying changes in implementing author- Collaborative Strategies Group, LLC. 2009. Moving Cooler: An Analysis ity needed to remedy shortfalls and recom- of Transportation Strategies for Reducing Greenhouse Gas Emissions. mending those changes to Congress. Washington, D.C.: Collaborative Strategies Group, LLC. Dahl, C.A. 2012. Measuring global gasoline and diesel price and income elasticities. Energy Policy 41:2-13. If national policies are established to address these issues Greene, D.L. 2010. How Consumers Value Fuel Economy: A Literature more broadly across the economy, then this LDV sector Review. Washington, D.C.: U.S. Environmental Protection Agency. adaptive policy should be coordinated with, and appropri- ———. 2011. Uncertainty, loss aversion, and markets for energy efficiency. ately incorporated within, the overall national energy and Energy Economics 33(4):608-616. climate policy framework. Greene, D.L., and P.N. Leiby. 1993. The Social Costs to the U.S. of Mo- nopolization of the World Oil Market, 1972-1991. Oak Ridge, Tenn.: Oak Ridge National Laboratory. 7.7  THE NEED FOR PUBLIC INFORMATION AND Krupnick, A., I. Perry, M. Walls, T. Knowles, and K. Hayes. 2010. Toward a New National Energy Policy: Assessing the Options. Washington, D.C.: EDUCATION Resources for the Future. FINDING. The committee considers that a vigorous pro- National Surface Transportation Policy and Revenue Study Commission. 2007. Transportation for Tomorrow. Washington, D.C.: National Surface gram of public information and education is essential to Transportation Policy and Revenue Study Commission. the success of the other recommended policies and thus to NRC (National Research Council). 2009. Driving and the Built Environ- achievement of the twin goals of reduced GHG emissions ment: The Effects of Compact Development on Motorized Travel, Energy and reduced use of petroleum-based fuels. Increased Use, and CO2 Emissions. Washington, D.C.: The National Academies research regarding public understanding and attitudes Press. Sterner, T. 2007. Fuel taxes: An important instrument for climate policy. associated with these issues would inform the design of Energy Policy 35(6):3194-3202.