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Transitions to Alternative Vehicles and Fuels (2013)

Chapter: 7 Policy Options

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Suggested Citation:"7 Policy Options." National Research Council. 2013. Transitions to Alternative Vehicles and Fuels. Washington, DC: The National Academies Press. doi: 10.17226/18264.


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-

Suggested Citation:"7 Policy Options." National Research Council. 2013. Transitions to Alternative Vehicles and Fuels. Washington, DC: The National Academies Press. doi: 10.17226/18264.

tee are based on its review of the past experience with and potential effectiveness of the possible policies described in Chapter 6, and on the committee’s own evaluation of policies and policy combinations in Chapter 5. Regulatory policies such as Corporate Average Fuel Economy (CAFE) standards, pricing policies (either economy-wide or directed at fuel supply sectors) such as feebates for vehicles, and regulatory or pricing policies directed at fuel supply sectors will likely be essential to attaining the 2050 goals for reducing LDV petroleum consumption and GHG emissions. Additional policies may also be required if a transition to alternative vehicle and fuel systems turns out to be the best way to attain the goals. Such transition policies include infrastructure investments and possible subsidies. Because of uncertainties and unforeseen circumstances in the future, policies must be adaptive in response to technology and to market conditions over time to ensure that the goals are met in a cost-effective way.


Even if the fuel economy and CO2 reduction standards for new LDVs currently being implemented by NHTSA and the EPA are met, further improvement in the fuel efficiency of vehicles could be made in and after model year (MY) 2025. Although the committee believes that it is premature to suggest a specific fuel economy target for new LDVs by MY2050, a “ballpark” estimate is that a further doubling (that is, a doubling beyond the doubling that is scheduled to occur between 2005 and 2025) of the average new LDV fleet fuel economy standard by 20501 will be technically feasible but costly. The modeling results in Chapter 5 indicate that such an increase in the CAFE standard could reduce GHG emissions by about 50 percent in 2050 compared to the 2005 level. Reaching such ambitious fuel economy targets will require a mix of policies that affect the decisions of vehicle manufacturers to produce fuel-efficient vehicles and the decisions of consumers to purchase them.

FINDING. The CAFE standard has been effective in reducing vehicle energy intensity, and further reductions can be realized through even higher standards if combined with policies to ensure that they can be achieved.

POLICY OPTION. The committee suggests that LDV fuel economy and GHG emissions standards continue to be strengthened to play a significant role after model year 2025 as part of this country’s efforts to improve LDV fuel economy and reduce GHG emissions.

FINDING. “Feebates,” rebates to purchasers of high-fuel-economy (i.e., miles per gallon [mpg]) vehicles balanced by a tax on low-mpg vehicles is a complementary policy that would assist manufacturers in selling the more-efficient vehicles produced to meet fuel economy standards.

POLICY OPTION. The committee recognizes that U.S. government “feebates” based on the fuel consumption of LDVs could have a role as a complement to LDV fuel economy and GHG emissions standards to facilitate and accelerate the introduction of significantly more efficient vehicles into the market to the meet the 2050 timing of the goals. The committee suggests that the U.S. government include “feebates” as part of a policy package to reduce LDV fuel use.


Petroleum consumption can be reduced by a variety of policies. Placing a quantity constraint on petroleum consumption (also known as rationing) would reduce its use directly and increase its price. A tax on petroleum would directly increase the price of petroleum, providing a signal to both producers and consumers to find ways to reduce use of petroleum-based fuels, redesign vehicles, or replace petroleum-based fuels with other fuels. Other approaches include requiring quantities of alternative fuels to be sold (such as through application of the Renewable Fuel Standard) or using subsidies to reduce the prices of alternative fuels to make their cost lower than the cost of petroleum-based fuels. As discussed in Chapter 6, it can be difficult to design a policy that successfully mandates the sale of certain fuels when they are more expensive than petroleum-based fuels. Subsidies require government revenue to fund, whereas taxes raise revenue that either can be used to fund programs related to energy and GHG emissions reduction or can be refunded to the taxpayer.

Placing a quantity limit on oil consumption (or use of petroleum fuels by LDVs specifically) has rarely been proposed and would be expected to have significant adverse social impacts.

What has been widely discussed for many years is taxation that would directly target petroleum demand or petroleum imports. Existing U.S. motor fuel taxes were adopted to raise revenues for funding roads. Historically, these taxes have helped support petroleum demand by facilitating vehicle use while remaining low enough to avoid significantly affecting fuel demand. A small exception to the historical rationale was the $0.043 per gallon gasoline tax increase of 1993 (the last time U.S. fuel taxes were raised), which had been proposed originally as a “Btu tax” to foster energy


1Such 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 committee. Additional changes involving fuels and VMT also will be needed. See the committee’s scenarios in Chapter 4 for details.

Suggested Citation:"7 Policy Options." National Research Council. 2013. Transitions to Alternative Vehicles and Fuels. Washington, DC: The National Academies Press. doi: 10.17226/18264.

conservation and reduce the federal deficit. However, the funds from that levy were redirected back to the Highway Trust Fund in 1997.

To be used extensively, alternative fuels, together with the vehicles that they power, would have to be at least price competitive with petroleum-based fuels and conventional vehicles. For compressed natural gas and hydrogen, the alternative fuels would have to be made available with complementary vehicle and refueling infrastructure. To undertake the large investments necessary for the development and widespread availability of any alternative fuels, the fuel producers and distributors will have to be convinced that there eventually will be a profitable market for those fuels, including assurance that they will not be undercut by low-cost petroleum. The price of petroleum-based fuels would have to be relatively high and stable for investors to be confident in the profitability of alternatives. One policy that has promise for creating price stability in the oil market is a tax on petroleum that moves inversely with petroleum price and is levied only when petroleum prices fall below a target level, as discussed in Chapter 6. This tax approach ensures the price stability necessary to provide better signals to investors to invest more in efficiency or in alternative energy sources.

FINDING. Taxes on petroleum-based fuels can create a price signal against petroleum demand, offset the “rebound effect” induced by increasingly efficient vehicles, and help assure innovators, producers, and distributors that there is a profitable market for improved efficiency in energy use and for alternative fuels. The range of possible tax policies includes a fixed tax rate per barrel on petroleum that is a surtax on current taxes, or a tax that moves inversely with the oil price when the price falls below a target level, thereby stabilizing prices so that they are at or above the target. Fuel subsidies or quantity mandates are more difficult than taxes to use effectively. Subsidies require government funding, and sometimes complex decisions about who is eligible for the subsidies. Until alternative fuels become cost competitive with petroleum-based fuels, quantity mandates for alternative fuels would require fuel producers to cross-subsidize their money-losing alternative fuels from their profitable petroleum-based fuels. Creating and then maintaining the conditions necessary for successful cross-subsidization would be difficult, politically and otherwise, for the government. Yet without adopting one or more of these policy approaches, the lure of eventual profitability necessary to induce investment is absent, and so the investment is unlikely to occur.

POLICY OPTION. High and stable oil prices would be helpful in transitioning away from oil use in LDVs and meeting the 80 percent reduction goal by 2050. If fluctuations in oil prices and often low oil prices persist, it may be necessary to impose a tax on domestic use of petroleum-based fuels or set a price floor target for petroleum-based fuels.

Taxing petroleum or implementing a price floor to prevent the decline of petroleum price beyond a certain level would discourage its use and contribute to reducing VMT and increasing the use of fuel-efficient internal combustion engine vehicles (ICEVs) if petroleum-based fuel remained the dominant fuel. (See Box 7.1 and see Section 6.3.5, “A Price Floor Target for Motor Fuels,” in Chapter 6). A reduction in petroleum use also would reduce the social cost of oil consumption. (See Box 5.5, “Social Costs of Oil Dependence,” in Chapter 5.)

FINDING. The Renewable Fuel Standard contributed to reducing petroleum use by LDVs. As a result of the failure of cellulosic biofuels to achieve commercial viability and the ability of the EPA to waive the requirement, the volume of cellulosic biofuels mandated by the RFS has repeatedly been reduced. The RFS could become more effective if the EPA’s authority to reduce the mandated requirement either is eliminated so as to maintain a guaranteed market for any cellulosic biofuels produced or linked to a requirement to fund RD&D for progress toward the improved viability of cellulosic biofuels.

POLICY OPTION. The committee supports continuation of the Renewable Fuel Standard because it has been modestly effective in displacing petroleum. The committee suggests periodic review of the RFS by Congress to assess whether the mandated volumes should be increased and whether other alternative fuels should be included in the mandate to encourage the use of alternative fuels and reduce the share of petroleum-based fuels in use for LDVs. The committee also supports further research and analysis for refinement of the means of assessing how fuels qualify as renewable.


Policies that reduce the overall energy demand of LDVs through improving vehicle efficiency and lowering travel demand contribute to a reduction in GHG emissions. In addition, reducing GHG emissions requires policies that limit the net GHG emissions associated with the fuels used by LDVs. In considering fuel-related policies, it is crucial to distinguish between the fuels themselves—that is, the end-use energy carriers used directly by vehicles—and the primary energy resources (such as fossil fuels) and associated energy sector systems that supply end-use fuels. GHG emissions from fuel use can be limited through three basic approaches:

Suggested Citation:"7 Policy Options." National Research Council. 2013. Transitions to Alternative Vehicles and Fuels. Washington, DC: The National Academies Press. doi: 10.17226/18264.

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 emissions from carbon-based fuels with sufficient net CO2 uptake elsewhere. Because this CO2 uptake and the emissions associated with feedstock growth and processing (e.g., for biofuels) occur outside the transportation sector, the optimal policies are not those directed at the transportation sector per se, but rather measures to address net GHG emissions in fossil fuel extraction and refining, biorefining, agriculture, forestry, and related land-use management sectors involved in supplying carbon-based fuels. (See also Chapter 6.) In the future, counterbalancing also might occur through geologic storage or biological sequestration techniques.
  • By using physically carbon-free fuels such as electricity or hydrogen, which avoid release of CO2 from vehicles themselves. These energy carriers must then be supplied from low-GHG emitting-production sectors. Therefore, optimal policies are not those directed at the transportation sector per se, but rather measures addressing electric power generation and other industrial sectors that produce carbon-free fuel.
Suggested Citation:"7 Policy Options." National Research Council. 2013. Transitions to Alternative Vehicles and Fuels. Washington, DC: The National Academies Press. doi: 10.17226/18264.
  • By capturing and preventing the release of the CO2 produced during combustion or other utilization of carbon-based fuels directly on vehicles, or by avoiding the production of CO2 during on-board energy utilization. Because no practical means of on-board CO2 capture or avoidance are currently known, this third approach is not considered in this report.

This list demonstrates that it is impossible to have a complete policy for controlling auto-sector GHG emissions in isolation from policy to control emissions in other sectors, namely, those that supply energy and feedstock for fuel production. This principle is true whether the fuel is carbon-based or carbon-free. The extent to which policies are also needed to affect the choice of vehicular fuel depends on whether a change of end-use energy carrier is required. That question cannot be resolved on the basis of present scientific knowledge. As the committee’s scenario analyses demonstrate, some technological approaches for meeting the task statement goals entail entirely new fuels and fuel distribution systems, but others (namely, the use of drop-in biofuels in high-efficiency vehicles) do not. In each scenario evaluated where the goals are achieved, a major change is required in the energy sectors that supply automotive fuel.

The committee recognizes that GHG emissions that occur in the non-transportation sectors involved in supplying energy and feedstock for fuel production need to be addressed to reduce net GHG emissions effects of the LDV sector. However, a thorough treatment of policies for addressing GHG emissions that occur in the non-transportation sectors is beyond the scope of this study. (See Appendix A for the statement of task.) Either an economy-wide GHG policy or a coordinated multisector GHG policy is likely to offer the most economically efficient and equitable way to achieve deep GHG emissions reductions across multiple sectors. Broadly speaking, the options for multisector GHG policy include direct regulation of GHG emissions under the Clean Air Act (CAA), carbon taxation, or a cap-and-trade system that blends elements of regulatory and fiscal policies by placing an economy-wide limit on GHG emissions and propagating a price signal to motivate emissions reductions across multiple sectors.

The EPA is beginning to pursue CAA regulation of GHG emissions; however, without new congressional authorization, the agency might not pursue targets that are stringent enough to support GHG emissions reduction of 80 percent by 2050. Carbon taxation is another way to motivate reductions. If the policy is of stringency comparable to that of setting a cap on energy supply sector GHG emissions at about 20 percent of the 2005 level by 2050, it would encourage GHG emissions reduction from other sectors (e.g., electricity and agriculture) that would contribute to reducing GHG emissions from the LDV sector. However, determining the tax level needed will be difficult. Given the large revenues that would result (which could be helpful for federal finances), pursuing a carbon tax would entail engaging in a major fiscal policy discussion that affects many other aspects of national policy.

Although the near-term political prospects of cap-and-trade are poor, it may ultimately be favored over other options. It was the leading national GHG policy option in prior Congresses. Cap-and-trade once had some bipartisan support even though it fell short of sufficient majority support. California is implementing an economy-wide GHG cap-and-trade through its AB 32 program. The northeast Regional Greenhouse Gas Initiative is implementing a GHG cap-and-trade program for the power sector.

FINDING. Meeting the GHG emissions reduction target of this study requires addressing the upstream emissions that occur in the non-transportation sectors involved in supplying energy and feedstock for fuel production. Substituting hydrogen, biofuels, or electricity for petroleum-based gasoline in vehicles will result in net GHG emissions reductions only if these alternative fuels are produced using technologies and processes that emit few GHGs. Carbon capture and storage (CCS) is likely a critical technology for producing low-GHG hydrogen and electricity, but other options that directly produce electricity and can indirectly produce hydrogen through electrolysis exist (e.g., nuclear and renewable power).

POLICY OPTION. A policy that addresses GHG emissions from the energy sources and sectors that supply fuels used in LDVs is needed if GHG emissions from the LDV sector, including upstream emissions, are to be reduced enough to meet the 2050 goals. That policy can take the form of a set of measures that are specific to each sector that affects fuel production and distribution, or it can embody a comprehensive approach to addressing GHG emissions (e.g., a carbon tax or a carbon cap-and-trade policy).


As shown in the previous chapter, increases in vehicle miles traveled by LDVs have offset much of the potential reduction in petroleum use and in GHG emissions caused by improved fuel economy over the last several decades. If VMT increases at the rates projected in the “business as usual” scenario described in Chapter 5, the same is likely to be true in the decades ahead.2


2The “business as usual” and “reference” cases assume a slowdown in the rate of growth of VMT in the future. Nevertheless, in these cases, as well as in the committee’s simulations, VMT continues to grow. This growth in VMT will offset some of the reductions in petroleum use and GHG emissions that otherwise would occur.

Suggested Citation:"7 Policy Options." National Research Council. 2013. Transitions to Alternative Vehicles and Fuels. Washington, DC: The National Academies Press. doi: 10.17226/18264.

A range of policy options exists that have the potential to reduce VMT growth, but they differ widely in their likely impact. For example, policies to increase residential density are likely to produce limited results on a national scale. As discussed in Chapter 6, a previous National Research Council (NRC) report has found that a doubling in density of 75 percent of the new development by 2050, something that the report characterizes as “require[ing] such a significant departure from current housing trends, land use policies of jurisdictions on the urban fringe, and public preferences that they would be unrealistic absent a strong state or regional role in growth management,” would reduce VMT by only 8 to 11 percent below what it otherwise would be in 2050 (NRC, 2009). And even this extremely optimistic degree of doubling of the density of new residential development would have to be accompanied by large increases in the amount of mixed-use development and in the quality and accessibility of transit. A major study of the potential impact of other much-discussed factors, such as pedestrian and bicycle strategies, has shown them to have only a small impact on national VMT (NRC, 2009).

Indeed, the policies found to have the most significant impact on VMT are those that raise the marginal cost of driving—for example, increasing fuel taxes. Other possible policies would be “pay at the pump” insurance, a means by which vehicle owners can pay for their car insurance through charges added to the price of gasoline, or a road-user charge. A road-user charge of $0.12 per mile would have an effect on the variable cost of driving roughly comparable in magnitude to the effect of current West European motor fuel taxes. The report Moving Cooler. An Analysis of Transportation Strategies for Reducing Greenhouse Gas Emissions estimated that a charge of this level would reduce 2050 VMT by 5 percent, and that just the VMT impact portion of a carbon tax levied at similar levels would reduce 2050 VMT by almost 8 percent (Collaborative Strategies Group, 2009).

FINDING. The policies that have the most significant impact on reducing the rate of growth of VMT are those that raise the marginal cost of driving. Policies other than those that raise the marginal cost of driving could result in significant reductions in the rate of VMT growth or even reductions in total VMT in certain individual urban areas, but they are not likely to result in significant reductions in GHG emissions or petroleum use at the national level by 2050.

POLICY OPTION. If reducing VMT growth is to be pursued to meet the study goals of reducing petroleum use and GHG emissions, policies that increase the marginal cost of driving should be considered.


As discussed in Chapter 6, the federal government has implemented a range of policies intended to encourage the development and use of fuel-efficient LDVs and the alternative fuels to power them, with mixed success. Stages of advancement for new technologies are separated into research and development (R&D) (which involves basic and applied research on improvements to or evolution of the technology, including prototypes), demonstrations (which test the feasibility of developed technology, including significant impediments to commercial success), and deployment of the technology into the market at large scale.

The government’s role in facilitating each of these stages varies with the type of technology, how far along in the advancement process the technology for either the vehicle or the fuel has progressed, and what policies are already in place. For example, new technologies for advanced ICEVs and hybrid vehicles powered by gasoline are continually developed, and regulatory policies such as CAFE and pricing policies such as feebates encourage the market adoption of fuel-efficient technologies and vehicle designs. Other powertrains and fuels, such as FCEVs, BEVs, hydrogen fuels produced with low net GHG emissions, and biofuels are at early stages of commercialization. BEVs have been introduced commercially, although sales are still low. Several companies have demonstrated FCEVs at small scale and expect to start introducing them commercially by 2015. However, significant technology and production progress is needed for cost reduction before these vehicles will be competitive at scale with existing ICEVs. Some alternatives to petroleum are at early stages of development, and demonstrations may be important in addition to R&D.

7.5.1 Research and Development

There is a strong case for R&D, whether public or private, to advance the intellectual infrastructure of the country for meeting technical challenges, as discussed in Chapter 6.

FINDING. Fuel cells, batteries, biofuels, low-GHG production of hydrogen, carbon capture and storage, and vehicle efficiency should all be part of the current R&D strategy. It is unclear which options may emerge as the more promising and cost-effective. At the present time, foreclosing any of the options the committee has analyzed would decrease the chances of achieving the 2050 goals. The committee believes that hydrogen fuel cell vehicles are at least as promising as battery electric vehicles in the long term and should be funded accordingly. Both pathways show promise and should continue to receive federal R&D support.

Suggested Citation:"7 Policy Options." National Research Council. 2013. Transitions to Alternative Vehicles and Fuels. Washington, DC: The National Academies Press. doi: 10.17226/18264.

POLICY OPTION. The committee supports consistent R&D to advance technology development and to reduce the costs of alternative fuels and vehicles. The best approach is to promote a portfolio of vehicle and fuel R&D, supported by both government and industry, designed to solve the critical technical challenges in each major candidate pathway. Such primary research efforts need continuing evaluation of progress against performance goals to determine which technologies, fuels, designs, and production methods are emerging as the most promising and cost-effective.

FINDING. Current methods for the accounting of net GHG emissions associated with the production and use of transportation fuels involve numerous uncertainties. Reducing the uncertainties and developing robust accounting approaches are important for defining R&D strategies, guiding private sector investments, and developing effective public policies for reducing the net GHG emissions associated with fuels used by light duty vehicles.

POLICY OPTION. Because of the uncertainties associated with existing methods of accounting for the net GHG emissions impacts of the production and use of transportation fuels, especially for electricity, biofuels, and hydrogen, the committee suggests further efforts to develop accounting methods to account for GHG emissions that are applicable to the design of public policies for addressing these impacts.

7.5.2 Demonstration

The alternative vehicles discussed in Chapter 2 have demonstrated their performance readiness. Remaining challenges are cost reduction and further advancement through continued R&D, and potentially, successful deployment. Private industry may choose to demonstrate new technologies or new vehicle models or prototypes, but the need for further government involvement appears to be limited to areas of special government interest, such as validating the safety or performance of alternative vehicles.

For fuels, vehicles, and GHG management technologies that show promise of commercial readiness, appropriately scaled demonstration projects that are supported by both industry and government are likely to be important for validating feasibility, proving physical and environmental safety, and establishing cost-effectiveness. The results of such demonstrations could provide essential information for identification of which alternative fuel and GHG management technologies have long-term potential to both compete with gasoline in the marketplace and achieve GHG emissions reduction goals, and to establish readiness for deployment. Another appropriate role for the government is the coordination of integrated demonstrations of promising vehicles and fuel systems or stations.

FINDING. Demonstrations are needed for technologies to reduce GHG emissions at appropriate scale (e.g., hydrogen produced with low net GHG emissions and CCS) to validate performance, readiness, and safety.

FINDING. Integrated demonstrations of vehicles and fueling infrastructure are necessary to promote understanding of performance, safety, consumer use, and other important characteristics under real-world driving conditions.

POLICY OPTION. The committee supports the government’s involvement in limited demonstration projects at appropriate scale to promote understanding of the performance and safety of alternative vehicles and fueling systems. For such projects, substantial private sector investment should complement the government investment, and the government should ensure that the demonstration incorporates well-designed data collection and learning to inform future policy making and investment. The information collected with government funds should be made available to the public consistent with applicable rules that protect confidential data.

7.5.3 Deployment

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 be a critical driver of deployment. Policy options include CAFE and feebate policies for vehicles, performance standards, consumption mandates or pricing policies for fuels, and carbon control policies. Modeling results described in Chapter 5 show that such policies will greatly increase the shares of highly efficient and alternative vehicles over time. However, Chapter 5 also found that additional deployment policies will likely be needed for some alternative-vehicle fuel systems if they are to be part of the strategy to attain the significant reductions in petroleum use and GHG emissions discussed in this report. Additional policies such as subsidies or mandates for vehicles or fuel infrastructure investment will depend on the path of future technology, market conditions, and the urgency of the energy security and climate-change issues that these fuels are needed to address. The timing of additional deployment policies is critical and will depend on how close any one technology or combinations of technologies are to market readiness. At present, it is unclear which vehicle and fuel technology or technologies will have consumer acceptance and the best potential for lowest costs at scale to achieve the goals addressed in this study. Data on the costs of particular technologies will accumulate over time and will inform future policy decisions.

Suggested Citation:"7 Policy Options." National Research Council. 2013. Transitions to Alternative Vehicles and Fuels. Washington, DC: The National Academies Press. doi: 10.17226/18264.

In addition, for alternative-vehicle fuel systems, the government, in partnership with industry, will likely have a role in coordinating the commercial deployment of alternative vehicles with the fueling infrastructure for those vehicles. Coordination of vehicle sales and provision of refueling infrastructure are more challenging for hydrogen than for electricity or natural gas because hydrogen requires a completely new, large-scale fuel production and delivery system. In contrast, natural gas and electricity already have a large, robust, and ubiquitous distribution system, and the additional deployment needed is an accessible dispensing infrastructure.

Assessments of the readiness of affected technologies and continuous assessments of the effectiveness of deployment policies are important. Such assessments would require metrics to be established to determine when to initiate a deployment effort, to assess progress during initial deployment, to guide adjustments based on the achieved results, and to determine when to terminate deployment efforts that are ineffective or have been overcome by events. Starting deployment prematurely will increase the chance of failure and costs, extend the time for support, and undermine public confidence. Yet prolonged delay in deployment risks failure to meet the GHG emissions reduction and fuel saving goals. Determining technical and market readiness is challenging and should involve an unbiased expert review of available data, and consideration of the viewpoints of applicable stakeholders. In particular, the analysis in Chapter 5 indicates that subsidies of particular vehicles and fuels as a deployment strategy may be important, but careful and periodic evaluations are needed to ensure their effectiveness.

FINDING. The commercialization of fuel and vehicle technologies is best left to the private sector in response to performance-based policies, or policies that target reductions in GHG emissions or petroleum use rather than specifc technologies. Performance-based policies for deployment (e.g., CAFE standards) or technology mandates (e.g., RFS) do not require direct government expenditure for particular vehicle or fuel technologies. Additional deployment policies such as vehicle or fuel subsidies, or quantity mandates directed at specific technologies are risky but may be necessary to attain large reductions in petroleum use and GHG emissions.

POLICY OPTION. The committee suggests that an expert review process independent of the agencies implementing the deployment policies and also independent of any political or economic interest groups advocating for the technologies being evaluated be used to assess available data, and predictions of costs and performance. Such assessments could determine the readiness of technologies to benefit from policy support to help bring them into the market at a volume sufficient to promote economies of scale. If such policies are implemented, they should have specific goals and time horizons for deployment. The review process should include assessments of net reductions in petroleum use and GHG emissions, vehicle and fuel costs, potential penetration rates, and consumer responses.

FINDING. For alternative-vehicle fuel systems, government involvement with industry may be needed to help coordinate commercial deployment of alternative vehicles with the fueling infrastructure for those vehicles.

The committee’s analysis found that the timing and the scope of policy-related actions have a major influence on the successful transition to new vehicle and fuel technologies. If the policies are insufficient, ill-targeted, or improperly timed to overcome the cost barriers to making the transition, then the transition will not occur and the costs of the policy-related actions can be wasted.


FINDING. Many uncertainties surround not only advanced vehicle, fuel, and energy supply technologies but also the response of the many LDV market actors to policies implemented for meeting goals such as those described in this committee’s task statement. Therefore, policy makers will be well served to establish an adaptive framework that enables the set of measures enacted to be systematically adjusted as the world changes and as new information becomes available while staying on track to meet the long-term policy goals.

As found in Chapter 6, such a framework should not only anticipate the range of conditions that lie ahead but also be designed to be robust in the face of unanticipated developments. Aspects of such policy design include provisions for integrated and forward-looking analysis, policy development deliberations involving multiple key stakeholders, and performance metrics that are monitored to trigger automatic adjustments in parameters of the policy. To be effective, such a framework requires the establishment of clear, measurable, and durable goals. Because of the uncertainty about which technologies would emerge as most effective and cost-effective, and about how consumers will respond to those technologies and fuel delivery systems, new evidence and information will be key to developing the best policies. Chapter 5 (see Section 5.7, “Simulating Uncertainty About the Market’s Response”) illustrates the dilemma in setting policy in the absence of good information about key aspects of consumer preferences on the demand side, and learning and scale economies on the supply side of the market. This and other information would have to be provided by various sources, and its assessment will inform effective policy decisions.

Suggested Citation:"7 Policy Options." National Research Council. 2013. Transitions to Alternative Vehicles and Fuels. Washington, DC: The National Academies Press. doi: 10.17226/18264.

FINDING. The policies and measures needed to achieve the petroleum and GHG emissions reduction goals stated in the committee’s statement of task will be implemented by more than one federal agency, as well as coordinated with state and local jurisdictions. Moreover, as experience is gained and new information becomes available, adjustments will be needed and will be coordinated across the implementing agencies.

POLICY OPTION. To meet the petroleum-use and GHG reduction goals stated in the statement of task, the committee considers it desirable to define a federal light-duty vehicle petroleum and GHG emissions reduction policy with the following elements:

Establish overall goals (e.g., via congressional action).

Assign relevant federal agencies having jurisdiction over LDV energy use and GHG emissions, in collaboration with the other relevant federal, state, and local agencies, to carry out periodic assessments of progress against the goals and to report the results. The assessments would include:

—Quantifying progress to date and assessing the efficacy of the programs and policies in use for reducing petroleum use and GHG emissions;

—Identifying the causes of emerging shortfalls in meeting the goals, and the steps being taken and planned to remedy those shortfalls, consistent with the authority of the implementing agencies; and

—Identifying changes in implementing authority needed to remedy shortfalls and recommending those changes to Congress.

If national policies are established to address these issues more broadly across the economy, then this LDV sector adaptive policy should be coordinated with, and appropriately incorporated within, the overall national energy and climate policy framework.


FINDING. The committee considers that a vigorous program of public information and education is essential to the success of the other recommended policies and thus to achievement of the twin goals of reduced GHG emissions and reduced use of petroleum-based fuels. Increased research regarding public understanding and attitudes associated with these issues would inform the design of improved public information and education programs. Because the payoff of public education and information programs is long term and is typically measured in public benefit rather than direct financial return, it is critical that government be involved in developing and fostering such programs, because they tend to be underprovided by the private sector.

POLICY OPTION. If the United States is to achieve the goals of reduced petroleum use and reduced GHG emissions from the LDV fleet, then U.S. policy makers could develop public programs aimed at informing consumers of the goals to be achieved, the reasons such achievement is necessary, and the nature of the costs and benefits—individual and societal—to be derived from the policies being implemented.

As noted elsewhere in this report, the committee has differing views regarding the value of public promotion of specific alternative vehicle and fuel technologies, a difference of view that carries over into public information policy. Where there is agreement is in the value of informing consumers about the broad importance of the national goals, the connection with fuel economy and perhaps other objective vehicle environmental performance metrics to these goals, and the value of choosing highly fuel-efficient vehicles accordingly.


Allcott, H., S. Mullainathan, and D. Taubinsky. 2012. Externalities, Internalities and the Targeting of Energy Policy. Cambridge, Mass.: National Bureau of Economic Research.

Collaborative Strategies Group, LLC. 2009. Moving Cooler: An Analysis of Transportation Strategies for Reducing Greenhouse Gas Emissions. 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.

Greene, D.L. 2010. How Consumers Value Fuel Economy: A Literature Review. Washington, D.C.: U.S. Environmental Protection Agency.

———. 2011. Uncertainty, loss aversion, and markets for energy efficiency. Energy Economics 33(4):608-616.

Greene, D.L., and P.N. Leiby. 1993. The Social Costs to the U.S. of Monopolization of the World Oil Market, 1972-1991. Oak Ridge, Tenn.: Oak Ridge National Laboratory.

Krupnick, A., I. Perry, M. Walls, T. Knowles, and K. Hayes. 2010. Toward a New National Energy Policy: Assessing the Options. Washington, D.C.: Resources for the Future.

National Surface Transportation Policy and Revenue Study Commission. 2007. Transportation for Tomorrow. Washington, D.C.: National Surface Transportation Policy and Revenue Study Commission.

NRC (National Research Council). 2009. Driving and the Built Environment: The Effects of Compact Development on Motorized Travel, Energy Use, and CO2 Emissions. Washington, D.C.: The National Academies Press.

Sterner, T. 2007. Fuel taxes: An important instrument for climate policy. Energy Policy 35(6):3194-3202.

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For a century, almost all light-duty vehicles (LDVs) have been powered by internal combustion engines operating on petroleum fuels. Energy security concerns about petroleum imports and the effect of greenhouse gas (GHG) emissions on global climate are driving interest in alternatives. Transitions to Alternative Vehicles and Fuels assesses the potential for reducing petroleum consumption and GHG emissions by 80 percent across the U.S. LDV fleet by 2050, relative to 2005.

This report examines the current capability and estimated future performance and costs for each vehicle type and non-petroleum-based fuel technology as options that could significantly contribute to these goals. By analyzing scenarios that combine various fuel and vehicle pathways, the report also identifies barriers to implementation of these technologies and suggests policies to achieve the desired reductions. Several scenarios are promising, but strong, and effective policies such as research and development, subsidies, energy taxes, or regulations will be necessary to overcome barriers, such as cost and consumer choice.

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