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

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6 Informing the Choices Ahead This report examines U.S. transportation’s consumption of petroleum fuels and the public interest in reducing this consumption to enhance the nation’s energy security and help control emissions of carbon dioxide (CO2) and other greenhouse gases (GHGs) that threaten climate change. It describes how over many decades the transportation sector has come to exert increasing influence over where Americans reside, work, shop, and socialize and how U.S. businesses are structured and operate. As the dominant source of energy for nearly all modes of transportation, petroleum has become so vital that controlling its adverse side effects presents many complex public policy challenges. The transportation sector accounts for more than two-thirds of the petroleum fuel consumed each year in the United States. The burning of this carbon-rich fuel in transportation accounts for about one-quarter of all CO2 emissions from U.S. energy consumption. Because CO2 is a powerful GHG whose molecules can remain in the atmosphere for decades, these emissions contribute to growing concentrations of GHGs in the atmosphere. Scientific analyses and models indicate a need to stabilize these concentrations by the middle of the century to control adverse effects on climate. To achieve this stability, the models suggest that annual emissions in three or four decades will need to be cut by up to 80 percent, even as population and the economy are projected to grow. The report reviews policy options for bringing about desired energy consumption and GHG emissions reductions from the U.S. transportation 179 

180 Policy Options for Reducing Energy Use and Greenhouse Gas Emissions from U.S. Transportation sector. Environmental problems have been the subject of public policies to regulate transportation’s use of energy in the past. More than 40 years ago, the mitigation of local and regional air pollution caused by the burn- ing of gasoline, diesel, and other petroleum fuels became a major goal of national energy, environmental, and public health legislation. The resulting regulatory actions, which consist of measures governing fuel composition, pollution control technologies, and vehicle maintenance and refueling pro- cedures, have led to sharp reductions in the sector’s emissions of carbon monoxide, lead, sulfur, oxides of nitrogen, and other substances harmful to public health and the environment. A similar commitment of public policy, but one entailing even more far-reaching actions and responses, will almost certainly be required if transportation is to have a significant role in U.S. efforts to reduce GHG emissions over the next 40 years. The report considers various opportunities for reducing transportation’s emissions of CO2 and other GHGs through policies seeking to increase the energy efficiency of vehicles and their operations, reduce the amount of energy- and emissions-intensive transportation activity, and lower the carbon impacts of transportation fuels. Cars, trucks, aircraft, ships, and trains consume much less energy today than did their predecessors in 1970 when the basis of measurement is transportation output, such as fuel con- sumed per passenger mile or ton-mile. These gains in energy efficiency have helped temper upward pressure on the sector’s petroleum use caused by many countervailing trends in population, automobile ownership and use, personal travel, freight demand, and traffic congestion. However, limiting growth in petroleum use will not be enough to yield deep emissions reductions by the middle of the century. To achieve much more from transportation will likely require not only larger gains in the energy efficiency of vehicles and their operations but also the emergence of a more diverse lower-carbon energy supply and changes in how the transportation system evolves and is used. In other words, increases in vehicle efficiency will need to be accompanied by other systemic mea- sures that are economically efficient, acceptable to the public, and capable of producing reductions in fuel use and emissions that grow over time. Current policies that regulate vehicles and fuels, such as fuel economy standards and renewable fuel mandates, seek to reduce transportation 

181 Informing the Choices Ahead petroleum use and associated emissions through changes in the perfor- mance and mix of the products sold by vehicle and energy suppliers. First adopted in the 1970s, federal regulations requiring automobile manufac- turers to increase vehicle fuel economy have been accepted by consumers, elected officials, and industry, despite long periods in which the standards remained unchanged. Three decades later, supplier-targeted regulations, which now include GHG performance standards for new cars and light trucks, remain the primary approach by which the federal government seeks to curb energy use and emissions from the light-duty fleet. Planned fuel efficiency standards for medium- and heavy-duty trucks and the recent adoption of renewable fuel standards, which mandate that a certain percentage of the fuel supply consist of lower-carbon fuels, represent a continuation of the supplier-focused approach to policy making. Programs that compel suppliers to make more efficient vehicles and to diversify the fuel supply may yield even larger savings in energy use and emissions from the transportation sector. However, supplier man- dates can exploit only some of the opportunities for achieving energy and emissions savings. For reasons explained in the report, extending vehicle efficiency standards to the other commercial modes such as trucking and aviation may be more challenging to administer and require longer time frames to exert fleetwide influence than experienced in the automotive sector. Even for cars and light trucks, a plan for continual tightening of standards could prove difficult to sustain if consumers do not place a high value on the additional energy and emissions savings that will ensue. Broader and deeper reductions in transportation petroleum use and emissions over the longer term will probably require actions that motivate households and commercial carriers to demand greater savings in fuel and emissions. They will also necessitate flexibility and innovation on the part of vehicle and fuel suppliers in responding to regulatory mandates and consumer demands. Several policy options examined in this report exemplify approaches that can begin to motivate this combination of consumer and supplier interest. Efficiency-oriented “feebate” programs, which increase the price of lower-performing products while reducing the price of higher-performing products, offer a way to stimulate interest in efficiency by both users and suppliers of transportation vehicles and fuels. 

182 Policy Options for Reducing Energy Use and Greenhouse Gas Emissions from U.S. Transportation Similarly, provisions allowing suppliers to bank and trade performance credits when they comply with efficiency and fuel standards can offer an incentive to firms to innovate in ways that are more economically efficient and responsive to consumer needs. Table 6-1 summarizes how the main policy options examined in this report compare with respect to their scope of application (across modes) and array of impacts (i.e., on energy and emissions efficiency, activity, and the GHG characteristics of fuel). Fuel taxes have the greatest appli- cability across modes. Indeed, fuel taxes are already in effect in nearly all modes of transportation. In addition to having sectorwide applicabil- ity, fuel taxes prompt a varied energy- and emissions-saving response by both consumers and suppliers of fuels, vehicles, and transportation services. By raising fuel prices, fuel taxes can lead to increased consumer interest in more fuel-efficient vehicles and operations and a reduction in the demand for energy-intensive transportation activity (with the magnitude of the effect depending on the size and duration of the tax). Higher fuel prices encourage energy-conserving behaviors by individu- als and businesses through a variety of means in addition to prompting changes in vehicles and fuels, such as reduced vehicle travel speeds and truck idling, more direct routing, more intense vehicle and fleet utili- zation, and innovations in equipment (e.g., low-rolling-resistance tires and more aerodynamic trailers) and system operations (e.g., intelligent transportation systems). In comparison, efficiency standards have a more focused impact; they seek to increase the energy and emissions performance of vehi- cles and fuels but do not prompt vehicle operators to engage in more energy-efficient operations or to scale back energy- and emissions- intensive activity. With the exception of fuel taxes, most policy options listed in Table 6-1 have a narrow impact; they are targeted at specific modes and at only one of the factors influencing transportation energy use and emissions. Aligning Strategic Interests and Policies To achieve timely, sustained, and increasing reductions in GHG emis- sions, a combination of policies may be needed. Actions that go beyond 

table 6-1 Scope, Scale, and Timing of Impacts of Major Policy Approaches to Reducing Transportation’s Petroleum Use and GHG Emissions Scope of Application and Impacts Timing and Scale of Impacts Applicability Across Prospects for Early Policy Approach Transportation Modes Impactsa Policy Implementation Scale of Impactsb Fuel taxes If fuel taxes can be sustained Because taxes are already Taxes that raise the price of fuel Taxes can be assessed on all and continually raised, they imposed on fuels used in most will prompt consumer and car- fuels used in all modes of can generate increasing transportation modes, higher rier interest in energy-efficient transportation. impacts on transportation fuel taxes would be straightfor- vehicles and operations as energy use and emissions over ward to administer. The major well as alternatives to energy- time as consumers and sup- challenge to early implementa- intensive transportation activ- pliers of vehicles and energy tion is to find innovative ways ity. A tax structure favoring adjust their purchases, behav- to engender and sustain public low-GHG fuels can also foster ior, travel activity, and prod- support for higher taxes, which interest in alternative fuels ucts offered. Complementary have been resisted during the and more emissions-efficient policies that facilitate fuel- and past two decades. vehicle types. emissions-saving responses, such as compatible land use and transportation infrastruc- ture planning, may make the higher fuel taxes more accept- able to consumers. (continued on next page) 

table 6-1 (continued) Scope, Scale, and Timing of Impacts of Major Policy Approaches to Reducing Transportation’s Petroleum Use and GHG Emissions Scope of Application and Impacts Timing and Scale of Impacts Applicability Across Prospects for Early Policy Approach Transportation Modes Impactsa Policy Implementation Scale of Impactsb Continued tightening of Vehicle energy and emissions Vehicle energy and emissions Vehicle efficiency Efficiency standards already standards that yield smaller efficiency standards are in efficiency standards are one- standards exist for cars and light trucks. reductions in energy use and effect and being tightened for dimensional in that they do They are based on energy emissions will test consumer cars and light trucks. While not cause vehicle operators to consumed or emissions per acceptance. In the absence of vehicles in other modes are seek out operating efficiencies vehicle mile. Establishing higher fuel prices, purchase candidates for standards, (e.g., energy-saving routing) standards for larger pas- incentive programs such as instituting them presents or to reduce the volume of senger and freight-carrying feebates may be needed to technical and administrative transportation activity. The modes is more complicated motivate consumer interest challenges. resultant lowering of the fuel because of the variability in higher levels of vehicle cost of transportation may in vehicle types and uses. efficiency. lead to some additional travel The standard must account activity, offsetting a portion for the work performed by of the energy and emissions these vehicles (volume or savings from the increased tonnage of freight, volume of vehicle energy and emissions passengers). efficiency. 

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

table 6-1 (continued) Scope, Scale, and Timing of Impacts of Major Policy Approaches to Reducing Transportation’s Petroleum Use and GHG Emissions Scope of Application and Impacts Timing and Scale of Impacts Applicability Across Prospects for Early Policy Approach Transportation Modes Impactsa Policy Implementation Scale of Impactsb Fundamental changes in the The prospects for early imple- Public investments Applicable to all modes in Investments in transporta- operations and structure of the mentation will depend in large in infrastructure which governments own tion infrastructure can make transportation system, such as part on motivations other than operating and operate the transporta- operations more efficient through the introduction of the energy and emissions savings, efficiencies tion infrastructure, such as in terms of energy use and Next Generation Air Transpor- especially congestion relief the highways, airways, and emissions. However, capacity- tation System and intelligent and safety enhancement. waterways. expanding investments that transportation system tech- Because adding physical reduce the fuel and time nologies, could lead to more capacity to transportation sys- cost of travel may lead to an far-reaching energy and emis- tems is becoming more costly increase in total travel activity, sions benefits over time. and time-consuming, the offsetting some of the energy more likely investments will and emissions savings. be in measures that control traffic and allocate use of the systems more effectively. a Ability to affect the amount of energy-intensive transportation activity, the efficiency of vehicles and their operations, and the GHG profile of the energy supply. b Potential to generate large energy and emissions savings from the transportation sector over the next 25 to 50 years. 

187 Informing the Choices Ahead the current focus on regulating vehicle and fuel suppliers will probably be required, including energy pricing. Although fuel taxes have long played a key role in financing the nation’s transportation infrastructure, their use for inducing energy conservation has not been tested in the United States. The resistance encountered by proposals to raise fuel taxes even slightly to pay for transportation infrastructure has produced skepticism about the prospects for energy pricing to have a meaningful role in the near to medium term. Because of such resistance, other forms of user pricing, such as areawide tolls and fees per mile driven, are being con- sidered to supplement or replace fuel taxes as methods of infrastructure financing. Although such user pricing may not promote energy diversi- fication and efficiency directly, it may prove more acceptable by helping to reduce traffic congestion. In a similar manner, making energy pricing more agreeable to consumers by providing something tangible in return may be essential in generating the broader acceptance needed to exploit this demand-oriented approach for reducing energy use and emissions. Innovative policy making may be required, such as providing consum- ers and businesses with rebates of the revenues generated by fuel taxes to counter the general resistance to higher energy prices. In the right-hand columns of Table 6-1, policies are compared with respect to their prospects for early implementation and their potential for generating large energy and emissions savings over a span of 25 to 50 years. Gaining public acceptance is a challenge for all meaningful policies. Although vehicle and fuel standards have demonstrated such potential, at least in recent years, they too may need to be supplemented with pricing strategies, such as the vehicle feebate schemes examined in this report, to create and sustain a demand for more efficient vehicles and fuels. Few of the policies examined in this report are likely to be adopted quickly or retained for long unless they promise to do more than reduce GHG emissions. For policy approaches to succeed, the public must ulti- mately be committed to reducing transportation energy use and emis- sions. Fundamental changes in the transportation sector are difficult to imagine in the absence of such public resolve. Interest in reducing dependence on petroleum, much of it supplied by politically unstable regions of the world, has been an important reason for the adoption of 

188 Policy Options for Reducing Energy Use and Greenhouse Gas Emissions from U.S. Transportation fuel economy standards, and this interest will continue to be a driving force behind the introduction of other policies aimed at curtailing trans- portation’s energy use. Other public interests must also be aligned with these goals. For example, investments in transportation infrastructure and operating practices that make the system more energy efficient will also be desirable to consumers if they reduce congestion and delays. The coordination of land use planning and transportation investments can similarly yield more effective and efficient energy-saving responses by consumers. Indeed, the introduction of fuel taxes and other pricing policies to stimulate consumer interest in saving energy would require infrastructure-related policies to be made compatible. To achieve reductions in GHG emissions, a policy pathway that is both tactical and strategic is indicated. Having demonstrated their potential for implementation, vehicle efficiency standards, for example, may be desirable in slowing the rate of growth in energy use and emis- sions. However, such mode- and vehicle-specific policies will need to be succeeded by policies that can generate much larger systemic responses, such as those produced by energy pricing. The strategic challenge ahead will lie in structuring and gaining public acceptance of these more far-reaching policies. A convincing case for their importance will be required, as will the timely introduction of many complementary policies, such as infrastructure investments and land use planning, that will foster acceptance and facilitate a long-term energy- and emissions- saving response. Research to Inform Strategic Policy Making Although this study was not charged with developing a research agenda, the challenges discussed in the report clearly point to the long-term importance of making near- and medium-term policy choices on a well- informed, strategic basis. A policy-making approach that is strategic will require research that goes beyond the traditional role of supporting tech- nology advancement. A strong foundation of research will put elected officials in a better position to assess how alternative policies are likely to interact with one another, the lead times that specific measures will 

189 Informing the Choices Ahead require for maximum effectiveness, and the actions that will be needed to introduce and gain support for favored policies. A recent Transportation Research Board report (TRB 2009) consid- ered the array of policy research that will be needed to inform decisions aimed at reducing emissions-intensive transportation activity, increasing the efficiency of vehicles and their operations, and furthering the demand for and supply of low-carbon energy sources. The report observed that as policy makers consider proposals intended to curb growth in passenger and freight activity, they will need fundamental information on the con- nections between transportation activity and economic productivity, such as the relative advantages of using fuel tax revenues to provide consumer rebates or invest in transportation alternatives. Understanding these con- nections will help ensure that policies are acceptable to the public and will provide insight into complementary actions that can increase policy acceptance. In addition, research can yield a stronger understanding of how policies to promote new energy and transportation technologies can affect petroleum prices, energy consumption, and GHG emissions in other parts of the world and other sectors of the economy such as manufacturing, construction, and agriculture. Policy research and experimentation can also help in finding and exploiting ways to improve the energy performance of the transporta- tion operating environment. To date, research has been geared toward finding ways to increase vehicle efficiency through improved designs, materials, and technologies. Most of these vehicles, however, operate on transportation networks that are largely owned, operated, and main- tained by government agencies. For the energy-intensive long-distance modes such as freight truck and aviation, even marginal improvements in the efficiency of the nation’s publicly controlled highways and airways can have large impacts on total energy use and associated emissions. Research can reveal to transportation agencies the importance of mak- ing the operation of their networks more energy efficient and responsive to the needs of consumers faced with higher fuel taxes. It can reveal how other public policies, such as truck size and weight regulations, may affect the goal of reducing sector energy use and emissions. It can help in understanding how energy flows on a systemwide basis so that the 

190 Policy Options for Reducing Energy Use and Greenhouse Gas Emissions from U.S. Transportation impacts of mode-specific policies can be assessed. In this respect, state and local governments can provide test beds for energy- and emissions- saving public policies, with the federal government playing an impor- tant role in monitoring and evaluating the results. Concluding Observations Although the focus of this study has been on looking forward, much of what is assumed about the future of transportation is rooted in an under- standing of the past. Over the past 40 years, the transportation sector as a whole has made significant progress in reducing its energy use per unit of transportation output. These gains are a result of many factors, includ- ing technological advances, changes in the economics of the transporta- tion industry, and public policies and infrastructure investments. Many of these developments, including the role of new technologies, were not even anticipated a decade before they occurred, much less a half cen- tury in advance. The history of transportation also contains long periods in which the sector made little progress in reducing its energy demand, such as the period of declining fuel prices in the 1990s. A recognition of this history will help inform the development of energy and emissions policies that are realistic and responsive to changing conditions and circumstances. Transportation’s future will undoubtedly differ from the projections offered in this report as information, communications, and other tech- nologies advance and as individual preferences and household demo- graphics change. A recent National Research Council report (NRC 2010) on strategies for limiting climate change advised that while policy approaches must be sustained for decades, they must also retain the abil- ity to adapt and respond to changing conditions and technologies and to the uncertainties about climate change risks and mitigation needs. For decades, there have been ample reasons for the public to care a great deal about saving energy in transportation—from the need to improve air quality to concern over the world’s oil supplies. Climate change has added to and elevated this public interest. Although calls for a strategic alignment of public policies to meet these interests are not new, they are becoming more urgent. 

191 Informing the Choices Ahead References abbreviations NRC National Research Council TRB Transportation Research Board NRC. 2010. Limiting the Magnitude of Future Climate Change. National Academies Press, Washington, D.C. http://www.nap.edu/catalog.php?record_id=12785. TRB. 2009. Special Report 299: A Transportation Research Program for Mitigating and Adapting to Climate Change and Conserving Energy. Transportation Research Board of the National Academies, Washington, D.C. http://onlinepubs.trb.org/ onlinepubs/sr/sr299.pdf.