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262 This appendix focuses on strategies that states could pur- sue to promote greater energy efficiency and the development and adoption of alternative fuels. Unlike many of the strate- gies discussed in earlier appendices, the primary motivation underlying the strategies in this appendix is to shape future energy outcomesâin particular, to positively influence the prospects for transitioning to a more sustainable energy future. Even if only partially successful in this more sweeping objective, such strategies could also help mitigate the emis- sions of local air pollutants and greenhouse gases within a state. The five strategic directions considered in this appendix are pricing vehicles, pricing fuel or emissions, setting up state mandates and programs for alternative fuels, state produc- tion and distribution of alternative fuels, and altering energy use within state agencies. M.1 Pricing Vehicles Pricing policies can be applied with the sale of new vehi- cles to promote the adoption of conventional vehicles with greater fuel economy or alternative-fuel vehicles. Vehicle- based pricing may be applied in ways that increase revenue (e.g., gas-guzzler taxes), require funding (e.g., subsidies for alternative-fuel vehicles), or are revenue neutral (e.g., sub- sidies for alternative-fuel vehicles or conventional vehicles with high fuel economy combined with taxes on conventional vehicles with low fuel economy). Such policies have the advantage of sending price signals to consumers and vehicle manufacturers that encourage, without requiring, desired production or consumption choices. However, the inter- action of pricing policies with other policies, such as fuel economy or renewable fuel standards, must be evaluated carefully because impacts may be masked or the policies may even work at cross-purposes. Pricing is not necessarily supe- rior to such mandates from a standpoint of either effectiveness or net social costs and benefits. M.1.1 Supportive Policies Pricing in general is widely acknowledged as being an effective means of influencing energy use (Greene and Plotkin 2011); however, the effect of any given vehicle pricing strategy will depend on the magnitude of the price signal, the alter- natives available to consumers, and other related policies in place. Subsidies or credits on fuel-efficient or alternative-fuel vehicles. One option for promoting certain types of vehicles, such as alternative-fuel vehicles or other designated low- emission or high-efficiency vehicles, is to offer financial incentives in the form of subsidies or tax credits. For example, BEVs and PHEVs are eligible for up to a $7,500 federal tax credit, and additional purchase incentives are offered in some states. The primary aim of such incentives is to help consum- ers overcome up-front cost differentials associated with efficient-technology vehicles, particularly for technologies that are still in the development stage. Tax credits are most effective when cost and performance differentials between vehicle types are relatively small. Another possibility in this vein is a vehicle scrappage incentive, usually structured as a tax deduction or cash payment for scrapping an existing vehicle with poor fuel economy. The Obama administrationâs cash for clunkers program was an example of this strategy. While such incentives can be effective and are generally pop- ular, they also require funding and are thus more difficult to sustain over the longer term. Financial penalties of fuel-inefficient vehicles. An alter- nate approach for achieving the same objective is to apply additional taxes on vehicles with low fuel economy, such as with the federal gas-guzzler tax. This should have a broadly similar effect on consumer and manufacturer behavior without the need for public investmentâindeed, it actu- ally creates a revenue stream. On the other hand, a tax-only approach is sure to face a much higher degree of public resistance. A p p e n d i x M Strategies to Promote Energy Efficiency and Alternative Fuels
263 Vehicle feebate programs. Feebates merge the two prior options, combining graduated fees on high-emission (or low fuel economy) vehicles with graduated rebates for low- emission (or high fuel economy, or alternative-fuel) vehicles (Greene and Plotkin 2011). Through careful design, fee- bate programs can be structured as revenue neutral, making them more economically feasible over the long term than tax credits alone. At the same time, they still provide consumers with a direct financial incentive to purchase a more efficient new vehicle. In fact, one study (Energy and Environmental Analysis 2008) noted that a feebate program should be more effective than either taxes on low fuel economy vehicles or subsidies for high fuel economy vehicles in isolation; the fee- bate incentives, ranging from negative to positive, apply to all new vehicles sold, whereas the tax-only or subsidy-only approach would only affect a portion of the new vehicle fleet (either low fuel economy or high fuel economy vehicles, respectively) each year. The success of a feebate program, however, ultimately depends on the magnitude of the fees and rebates. Other vehicle-based pricing incentives. Other finan- cial incentives and rewards can also be provided to encour- age consumers to adopt higher-efficiency or alternative-fuel vehicles. Examples are providing free access to HOV or HOT lanes, exemptions or discounts at other toll facilities, and dis- counted registration fees. These incentives are most useful for a given category of vehicles during the early stages of market penetration; as adoption grows, the negative effectsâsuch as toll revenue losses or overuse of HOV lanesâcan outweigh the benefits. Assumed policies for vehicle-based pricing. In assess- ing the strategy of pricing vehicles, it is assumed that states would implement a revenue-neutral feebate system based on fuel economy or CO2 emissions. Under such a system, conventional vehicles with higher levels of fuel economy along with emerging alternative-fuel vehicle technologiesâ plug-in hybrids, battery electric, fuel-cell vehicles, and the likeâwould qualify for rebates, whereas conventional vehicles with lower fuel economy would be assessed fees. The assess- ment does not consider the possibility of instituting rebates for high fuel economy and alternative-fuel vehicles absent corresponding fees on lower fuel economy vehicles given that such a program would be difficult to sustain financially over a long period of time. Because other vehicle-based incen- tives such as differential toll rates or HOV access are likely to have only modest impacts, they are likewise not assumed as part of the assessment. As noted earlier, anticipated effects would depend on the magnitude of the price incentive; it is assumed that the maximum penalties, credits, and subsidies would be consistent with past or proposed levels (e.g., maxi- mum rebates or fees on the order of a few thousand dollars per vehicle). M.1.2 Intended Mitigation Effects If not employed in the near term to shape future energy outcomes, feebate programs could be employed at a later date to mitigate some of the challenges associated with certain plausible futuresânotably challenges related to air quality and greater pressure to mitigate GHG emissions. Improving air qualityâmoderately effective (uncer- tain). If a feebate program results in a significant shift to EVs, PHEVs, or hydrogen vehicles with little or no tailpipe emissions, one of the likely results would be improved urban air quality. However, electric power plant emissions could increase, potentially undercutting the air quality benefits depending on the power source, emission controls, and prox- imity of the plant to population centers. Switching to more fuel-efficient conventional vehicles, another likely outcome of a feebate program, would not be expected to have that much of an effect on air quality given that all conventional vehicles would likely be held to similar emission standards for local air pollutants regardless of fuel economy. Reducing GHG emissionsâhighly effective. A feebate pro- gram should be effective in stimulating a shift to conventional vehicles with greater fuel economy and potentially alternative- fuel vehicles with lower carbon profiles as well. Either of these would have the effect of driving down GHG emissions. M.1.3 Intended Shaping Effects With respect to the shaping objectives considered in this study, and assuming potential fees and subsidies or tax credits on the order of a few thousand dollars, feebates should be highly effective for reducing aggregate oil consumption along with the energy cost of travel. Feebates could also be effective in stimulating a shift to alternative fuels if other conditionsâ such as reduced technology premiums and available fueling infrastructureâare met. Reducing oil consumptionâhighly effective. A feebate system would create a highly visible incentive for the pur- chase of vehicles with greater fuel economy, likely leading to significant reductions in aggregate fuel consumption. For example, a French feebate program implemented in 2008 led to an immediate and sustained reduction of 5% in average CO2 emissions for new passenger vehicles sold, corresponding roughly to a 5% improvement in fuel economy; other coun- tries with graduated CO2 taxes have seen similar impacts. In the United States, it has been estimated that a national fee- bate system would further reduce oil consumption and GHG emissions rates by about 10% beyond reductions achieved by existing fuel economy and GHG emission standards (Greene and Plotkin 2011). Promoting adoption of lower-carbon alternative fuelsâ highly effective (uncertain). A feebate system should in theory be equally effective at promoting the adoption of
264 alternative-fuel vehicles as they become available. And if the feebate structure is based on greenhouse gas emissions (as opposed to conventional vehicle fuel economy), the program would inherently favor vehicles capable of running on lower- carbon fuels. For this to occur, however, the vehicle tech- nology must first reach the market, and the premium for the alternative-fuel models should not be too much larger than the rebate; experience suggests that purchase incentives are most effective at shifting decisions where the new technology faces only a moderate cost disadvantage and does not have signifi- cant performance limitations. Additionally, broad adoption of a particular technology may depend on sufficient availability of fueling infrastructure. This is most relevant for natural gas and hydrogen, and is potentially an issue for electric vehicles as well. As an example, long-standing subsidies for natural gas vehicles have thus far failed to stimulate significant adoption, owing in part to the paucity of fueling stations. Reducing energy cost of travelâhighly effective. Feebate programs create a strong incentive for the purchase of more fuel-efficient vehicles, in turn reducing the amount of fuel that must be purchased to travel a given distance. Further, by reducing demand for oil in aggregate, such programs may exert downward pressure on the price of oil (although the effects of a single stateâs action in the context of a world market for oil are likely to be quite modest). Finally, depending on their structure, feebates could promote more rapid adoption of alternative-fuel technologiesâelectric vehicles or natural gas, for exampleâthat already offer much lower energy costs for driving than gasoline- or diesel-propelled vehicles. M.1.4 Other Effects The anticipated effects of a feebate program on the econ- omy, environment and public health, and equity are moder- ately positive, though in some cases uncertain. Economyâmoderately positive (uncertain). A feebate program as envisioned in this assessment would be revenue neutral and would therefore not have a net cost impact on consumers in terms of vehicle purchase price. As noted, though, it would tend to reduce the energy cost of travel, which should have a positive effect on the economy. Addition- ally, to the extent that the shift in vehicle technology results in reduced reliance on foreign oil, the U.S. economy could benefit in the long run through an improved balance of trade and by reducing volatility associated with factors influencing international energy markets (such as political disruptions in oil-producing countries). On the other hand, if the program is not well designed, it could result in distortions of the vehicle market. Environment and public healthâmoderately positive (uncertain). GHG benefits should be achieved from feebates and possibly air quality benefits if the adoption of certain alter- native fuels is encouraged. To the extent that feebates encourage the use of biofuels, on the other hand, negative environmental impacts could result from the conversion of land into agricul- tural uses for feedstocks. These negative impacts could take the form of loss of natural habitat as well as degraded water qual- ity due to agricultural production. However, some offsetting positive environmental benefits may be achieved as a result of reduced oil production (e.g., fewer oil spills and reduced emis- sions from oil refineries). On balance, the environmental and public health effects should be positive, although the interplay of these various factors remains uncertain. Equityâmoderately positive. A CARB study found that higher-income households purchase the large majority of new vehicles (CARB 2008). As such, this group would be most affected by the penalties and subsidies or tax credits associ- ated with the program. Lower-income households, however, would still benefit slightly from improved access to new fuel- efficient vehicles via tax credits or subsidies, and should also benefit from the increasing share of more efficient vehicles in the used vehicle market. M.1.5 Barriers Vehicle purchase incentive programs consisting solely of subsidies or tax credits are generally popular but not finan- cially sustainable over the longer term. Shifting to a feebate structure as discussed here allows for revenue neutrality but at the likely cost of increasing opposition due to the fee com- ponent. Feebate programs are also likely to require enabling state legislation. Low public supportâmoderate barrier. Feebate systems may be opposed by automobile manufacturers and dealers, who make larger profits off of larger and more expensive vehicles (which are less likely to be fuel-efficient) and by con- sumers who wish to buy larger vehicles and would therefore face additional fees. One way of minimizing these factors would be to establish a system of graduated fees and rebates within vehicle size classes (to reward the most efficient vehicles in a class), although this would somewhat reduce the overall effectiveness of the program in promoting a shift to vehicles with greater fuel economy. Enabling legislationâmoderate barrier. A straightfor- ward way to apply a feebate system is through the vehicle sales tax (e.g., differentiated tax rates). Changes in the sales tax structure would likely require enabling state legislation. M.1.6 Required Lead Time Vehicle feebate programs could be implemented within 1 to 5 years, allowing time to design the specific feebate mechanism, evaluate its impact, and establish an implementation strategy for collecting differential fees.
265 to consumers by overcoming any inherent price difference in the cost of producing the fuel and, potentially, the cost of the vehicle. For fuels that require alternate vehicle technology, the tax incentive must also be sustained for long enough to provide consumers with the confidence that any investment in up-front vehicle costs will ultimately be paid back through fuel-cost savings. Fuel feebates. The concept of feebates, described for vehi- cle purchases in the preceding section, could be applied to fuels as well. The basic idea would be to offer rebates on the purchase of less-polluting fuels and levy additional fees on the purchase of more-polluting fuels. Although intriguing, implementation could be complicated. To begin with, many fuels are already taxed. Assuming that the existing tax revenue stream is to be maintained, the feebate structure might sim- ply take the form of lower taxes for less-polluting fuels and higher taxes for more-polluting fuels. Examples in this vein are differential taxes for leaded versus unleaded fuel in Sweden (University College Dublin 2008a) and differential taxes based on a range of air pollutants in Denmark (University College Dublin 2008b). If applied to greenhouse gas emissions, such a structure would be quite similar to carbon pricing, which is discussed next. Additionally, with the possibility that some alternative fuelsânotably electricity, natural gas, and perhaps even hydrogenâcould allow for home refueling, administer- ing the feebate system could be challenging since it would require distinguishing between fuel or power used for vehicle travel and fuel or power used for other applications at home. Carbon pricing. Carbon pricing involves taxing fuels in proportion to CO2-equivalent emissions. This can be imple- mented through a fixed, economy-wide price per unit of car- bon or through a cap-and-trade system that allows the market to set prices for a fixed, tradable amount of carbon emissions. Carbon pricing will increase the cost of transportation fuels that result in carbon emissions, which will both increase the cost per unit of travel (creating a greater incentive to reduce travel and to purchase more-efficient vehicles) and change the relative cost competitiveness of different fuels based on their carbon intensity (creating incentives for manufacturers and consumers to adopt vehicles that use less carbon-intensive types of fuel). Assumed policies for fuel and emissions pricing. It would be difficult, financially, to sustain tax credits or subsidies for alternative-fuel use over the long termâparticularly at the state level where budgets must typically be balanced each year. And, as described previously, setting up some type of feebate structure for fuels could prove rather complex. It is therefore assumed that a state interested in this strategy would imple- ment carbon pricing, either by specifying a set carbon tax or setting up a cap-and-trade system. To help gauge the potential magnitude of the effects, it is further assumed that the carbon price would be generally consistent with expectations under M.1.7 Qualifications Feebates can reasonably be implemented at a state level, but the specific fee structure would likely need to vary by state to account for different vehicle fleet characteristics (e.g., rural states with a larger proportion of trucks versus urban states with a larger proportion of small vehicles). M.2 Pricing Fuel or Emissions Another strategy for encouraging a transition to more fuel- efficient conventional vehicles or alternative-fuel vehicles is to tax fuels based on their carbon content or, alternatively, to provide more favorable tax rates or subsidies for lower- carbon fuels. Policies that increase prices, as opposed to pro- viding subsidies, will also generate revenue, of which some or all may be directed toward transportation programs. Depend- ing on how it is applied, pricing can have the advantage of sending direct price signals to consumers and vehicle manu- facturers related to the impact that is being priced (energy, emissions, etc.), allowing them to choose their own pre- ferred path to mitigating these impacts rather than directing a specific solution. In designing such a strategy, however, it is important to consider interactions with other related strat- egies such as fuel economy standards, renewable fuel stan- dards, and vehicle taxation policies to ensure that their effects are complementary rather than working at cross-purposes. M.2.1 Supportive Policies Pricing in general is widely acknowledged as being an effective means of influencing energy use (Greene and Plotkin 2011). The intent could be to encourage a shift to fuels with lower carbon content, to fuels that are domestically or locally produced, or to fuels that are renewable. The effect of pricing fuels or emissions would depend on the magnitude of the price signal, the range of alternatives available to consum- ers, and other related policies in use. Options that might be considered include reduced tax rates or subsidies to support alternative-fuel use or a carbon tax on fuels based on their greenhouse gas emissions profile. Reduced tax rates or subsidies for alternative fuels. A state could promote increased use of alternative fuels through reduced rates or even by subsidizing their produc- tion or purchase. For example, ethanol has been eligible for a $0.45-per-gallon excise tax credit in recent years, although Congress allowed this subsidy to expire at the end of 2011. A $1.00-per-gallon tax credit for agricultural biodiesel was enacted in 2004, allowed to expire at the end of 2009, and then retroactively reinstated and extended through Decem- ber 2011. Cellulosic ethanol is eligible for a credit of $1.01 per gallon. For such tax credits or subsidies to be effective, the tax difference must be large enough to make the fuel attractive
266 the adoption of vehicles with higher fuel economy. In other words, carbon pricing, at the level assumed for this analysis, could reduce VMT by a little less than 2%, enough to have some effect on reducing congestion. On the other hand, while higher-priced fuel would encourage a general reduc- tion in travel, it would not specifically incentivize reductions in peak-hour travel. As such, carbon pricing has been rated as likely to be only moderately effective in reducing traffic congestion. Improving safety outcomesâmoderately effective. Motor vehicle crashes vary in proportion to total travel. By help- ing to reduce overall VMT by a modest amount, carbon taxes should have a moderate positive effect with respect to traffic safety rates as well. Improving air qualityâhighly effective (uncertain). A significant share of harmful local air pollutants stems from the combustion of petroleum in motor vehicles and coal in power plants. Because these are carbon-intensive energy sources as well, the application of carbon pricing should have the effect of reducing the consumption of fossil fuels in both of these sectorsâby reducing demand in the near term and by creating an incentive for the adoption of cleaner alternatives over the longer term. Still, there is an element of uncertainty given that there is not a perfect correlation between greenhouse gas emissions and local air pollutants. For example, certain forms of biofuels that would reduce car- bon emissions could also increase certain local air pollutants (U.S. DOT 2010). The location at which the emissions occur (i.e., proximity to population) would also affect their relative health impacts, and a switch to alternative fuels could result in changes in emissions at the source of fuel production and extraction as well as from the vehicle itself. Reducing GHG emissionsâhighly effective. While car- bon pricing might lead to only moderate reductions in GHG emissions within the transportation sector, an economy-wide application of carbon pricing would be expected to yield sig- nificant reductions in overall GHG emissions, especially in the power generation sector. M.2.3 Intended Shaping Effects Carbon pricing is considered a technology-neutral, performance-based policy and will have somewhat different effects than policies that promote specific technologies, such as tax credits for different alternative fuels. At the envisioned price level of $30 per ton of CO2-equivalent emissions, carbon pricing should be moderately effective in helping to reduce oil consumption and could promote the adoption of alterna- tive fuels, contingent on several other factors. Reducing oil consumptionâmoderately effective. Pric- ing carbon should help reduce oil consumption by providing a financial incentive for the purchase of more fuel-efficient recently proposed legislation and that carbon pricing would be applied across multiple sectors (e.g., including power gen- eration and industrial uses). An allowance price of $30 per ton of carbon is in the range of levels proposed for U.S. cap- and-trade systems in the 2030 time frame; this would trans- late to an increase in gasoline prices of $0.26 per gallon (EIA 2009). Finally, although carbon pricing could result in a sig- nificant revenue stream, it is not assumed that the majority of such funds would be devoted to transportation. Instead, for example, some of the revenue might be invested in research to reduce the cost of lower-carbon fuels and vehicle technolo- gies, some might be used to help lower-income households purchase more fuel-efficient vehicles and energy-efficient home appliances, and some might be channeled to a stateâs general fund in order to allow for a reduction in the tax rates of other general revenue sources (e.g., reducing a stateâs sales tax); the logic is that spreading the revenue around to mul- tiple uses might prove necessary, if not sufficient on its own, to reduce opposition to carbon pricing. M.2.2 Intended Mitigation Effects Taxing fuels based on carbon content would create a strong incentive for adopting lower-carbon fuels, in turn reducing aggregate GHG emissions. This strategy could also play a sup- porting role in boosting revenue, improving safety outcomes, reducing traffic congestion, and improving air quality. Increasing transportation revenueâmoderately effec- tive (uncertain). As indicated previously, the assumed carbon price of $30 per ton would translate to 26 cents for each gallon, roughly on par with average state fuel taxes. While a portion of this revenue could be directed to transportation, it also seems likely that the revenue would be spread to multiple claimantsâfor example, to mitigate potential equity issues or to replace other tax streams. Further, if the policy works as intended, GHG emissions should shrink over time. Assum- ing that the carbon tax is not raised on an ongoing basis, the revenue stream would decline as well. For these reasons, a carbon tax is rated as having only a moderate and uncertain effect in increasing transportation revenue. Reducing DOT costsâmoderately effective. A carbon price would increase the marginal cost of driving, putting downward pressure on vehicle travel. This should in turn have some effect on reducing overall construction and main- tenance needs. Reducing traffic congestionâmoderately effective. By reducing total vehicle travel, carbon pricing should also help ease traffic congestion. An analysis by the EIA suggests that a carbon price of $30 per ton would reduce transportation petroleum consumption, and in turn GHG emissions, by about 2.8% (EIA 2009). Of this, about two-thirds would be due to reductions in vehicle travel and about one-third to
267 if the effects of tax credits are included (CBO 2010)âor, by extension, even with any cost differential resulting from a carbon tax. In short, available evidence on cost differen- tials makes it unclear whether a carbon tax would have much effect in stimulating a shift to alternative fuels beyond that anticipated under RFS2. Additionally, the effects from stimulating a shift to alter- native fuels would also be contingent on cost differentials for the vehicle technology. This is less relevant for biofuels but potentially significant for electric and hydrogen vehicles. Based on such considerations, the effect of a carbon tax on alternative-fuel adoption has been assessed as moderately promising but uncertain. M.2.4 Other Effects The effects of carbon pricing on broader goals related to the economy, environment and public health, and equity are uncertain but likely to be mixed. Economyâmoderately positive (uncertain). In the near term, a carbon tax could be expected to have a moderately negative effect on economic growth. The costs to the econ- omy of the cap-and-trade system proposed in the American Clean Energy and Security Act of 2007, for example, were estimated at a little less than 1% of U.S. GDP in 2030. Such a program, however, would internalize (that is, price) the neg- ative environmental costs associated with emitting green- house gases that would otherwise be passed along to society at large. To the extent that pricing accurately reflects such external costs, the ultimate result is to improve net social welfareâspecifically by discouraging activities for which net costs (including social costs) exceed net benefits. In this instance, continued emissions of GHGs contribute to the risk of uncertain but potentially significant costs resulting from climate change. Reducing that risk has economic value. It is also worth noting that the shift to a more sustainable energy future provides enormous opportunities for future economic growth and development. Through leadership in climate policy in the form of either carbon pricing or cap and trade, states could create a business climate conducive to the formation of firms and industries that could become world leaders in such a transition. Taking all of these factors into consideration, it could be expected that carbon pricing would have a moder- ately positive but highly uncertain (ranging from moderately negative to highly positive) effect on the economy over the long term. Environment and public healthâhighly positive (uncer- tain). As noted previously, carbon pricing in all sectors of the economy could be expected to spur significant reductions in both local air pollutants (with some degree of uncertainty) and GHG emissions. Further environmental benefits would be achieved based on reduced oil production (e.g., fewer oil vehicles or vehicles propelled by lower-carbon alternative fuels. The effect, however, is likely to be modest. As men- tioned previously, a recent analysis by EIA suggests that pric- ing carbon at $30 per ton of CO2-equivalentâtranslating to about 26 cents per gallonâwould reduce transportation petroleum consumption by about 2.8% (EIA 2009). With respect to truck freight, Cambridge Systematics estimated that an increase in the cost of fuel on the order of $1 to $2 per gallon would lead to a reduction in truck fuel use of 20% to 40% over the long run (Cambridge Systematics 2009a), a combined result of reduced truck travel and efficiency improvements. With an increase in the cost of fuel of about 26 cents due to carbon pricing, the corresponding decline in truck fuel use would be about 5%. Over time, the incremental effectiveness of carbon pric- ing in stimulating reduced petroleum consumption could decline given recent increases in federal fuel economy stan- dards (U.S. DOT 2010), which are now set to double by 2025. As vehicles achieve higher fuel economy, they use less fuelâ and in turn incur less of a carbon tax penaltyâfor each mile of travel. Unless the carbon tax is increased over time, the incentive for further efficiency gains beyond those already mandated by CAFE standards is likely to grow progressively weaker. Promoting adoption of lower-carbon alternative fuelsâ moderately effective (uncertain). A carbon tax, by increas- ing the cost of gasoline and diesel, could help promote the adoption of low- or zero-carbon alternative fuels by making them more cost-competitive. For this to occur, however, the cost of the alternative fuels, on an energy-equivalent basis, would need to be relatively close to the cost of petroleum. There is some available evidence on the effects of price differentials for alternative fuels. The lapse of the $1.00-per- gallon biodiesel tax incentive on December 31, 2009, coin- cided with a sharp 42% drop in annual biodiesel production, and its reinstatement in 2011 coincided with a 69% increase in production (Urbanchuk 2011). In this case, the effect was large because biodiesel can be easily substituted for conven- tional diesel since it can be used in existing vehicles with- out modification at up to a 20% blend. However, the price effects for biofuels may be masked by renewable fuel require- ments as well as by air quality regulations that encourage use of ethanol as an oxygenate. One study (Babcock, Barr, and Carriquiry 2010) found that eliminating the ethanol tax credit of 45 cents per gallon along with the current tariff of 54 cents per gallon on imported ethanol would only decrease domestic ethanol output modestly, by about 6%; the main impact would be to shift the cost burden of complying with the ethanol production mandate under the federal RFS2. In the future, the scheduled rise in mandated volumes under RFS2 will require the production of biofuels in amounts that are probably beyond what the market would produce even
268 M.3 Alternative-Fuel Programs and Mandates States may establish programs to promote or mandate the production of alternative fuels for use in the transportation sector. The principal motivations for such programs include diversifying energy sources, promoting economic develop- ment within the state, and reducing greenhouse gas emissions, with the relative emphasis depending on the specific policy design. Mandated programs can be structured to require the sale of minimum quantities of certain types of fuelsâsuch as ethanol or biodieselâor to require that fuels meet specified performance standards in relation, for example, to carbon content. Programs implemented to date are intended to regu- late common liquid fuels, including petroleum or biofuels. The same concept could be applied to other fuels as well, such as synthetic fuels (e.g., gas-to-liquid or coal-to-liquid fuel), gas- eous fuels (e.g., natural gas or hydrogen), and electricity. States could also pursue voluntary programs designed to promote alternative fuels through coordinated partnerships with stake- holders and information campaigns. Other potentially comple- mentary policiesâincluding pricing vehicles or fuels, requiring alternative-fuel use by public agencies, and public investment in the production, transport, and dispensing of alternative fuelsâ are assessed as separate strategies in this appendix. M.3.1 Supportive Policies There are at least four policy approaches that states could implement to mandate or encourage greater production and use of alternative fuels: renewable fuel standards, low-carbon fuel standards that account for life-cycle carbon emissions per unit of energy, renewable electricity portfolio standards, and outreach and information programs to encourage volun- tary adoption of alternative fuels. Renewable fuel standards. Renewable fuel standards are typically structured to require wholesale fuel producers to achieve production volume or fuel sale percentage targets for certain types of liquid renewable fuels. By reducing reliance on imported petroleum, they offer inherent energy security ben- efits. Optionally, RFS programs can be designed to support the goal of reducing greenhouse gas emissions by requiring that qualifying renewable fuels meet specified life-cycle GHG per- formance levels. At the federal level, the EPAâs RFS2 program, as amended in the Energy Independence and Security Act of 2007, established specific production targets for renewable fuel volumes and a market-based compliance credit trading scheme (EPA 2007). At the state level, 12 states have renew- able fuel standards or mandates in place as of 2011 (EERE 2011). Oregonâs biofuels renewable fuel standard mandate, for example, requires all diesel fuel sold in the state to con- tain at least 5% by volume biodiesel [Oregon Department of Agriculture (ODA) 2012]. spills) and reduced coal extraction (e.g. less strip mining and mountaintop removal). On the other hand, to the extent that carbon pricing encourages the use of biofuels, negative envi- ronmental impacts could result from the cultivation of land to produce feedstocks, thus adding uncertainty to the rating. These negative impacts could take the form of habitat loss as well as degraded water quality due to agricultural produc- tion. Public health would benefit as well from improved air quality, and the higher cost of fuel with carbon pricing would likely induce some mode shift to non-automotive modes, in turn promoting more active lifestyles. Equityâmoderately negative (uncertain). A fixed increase in the unit price of travel would burden lower-income house- holds more than higher-income households. These negative impacts could be mitigated if revenue is directly distributed to lower-income households or used to provide services (such as transit) that improve transportation options for these groups. M.2.5 Barriers Pricing strategies that are perceived as increasing costs to businesses or the traveling public face significant public acceptance barriers. Enabling legislation would almost cer- tainly be required as well. Low public supportâsignificant barrier. To date, the con- troversial nature of carbon pricing has prevented implementa- tion of a carbon tax or cap-and-trade system at the federal level, although California, as one example, recently implemented a state-level cap-and-trade system. Opposition to cap and trade from energy-intensive industries that would be most affected by such a system has been especially intense. Enabling legislationâmoderate barrier. Any state wish- ing to implement carbon pricing, via either cap and trade or a carbon tax, would likely need to pass enabling legislation. This was the case in California with its landmark AB 32 climate legislation. M.2.6 Required Lead Time A carbon tax or cap-and-trade system could likely be imple- mented within a 1- to 5-year time frame, allowing time to design the tax-collection system or set up the market for carbon credits under cap and trade. M.2.7 Qualifications Carbon pricing would ideally be implemented at a national level since state-level application may provide unwanted incentives for businesses to move to other states where costs are lower. As the California example shows, however, some states have nonetheless chosen to consider or implement this strategy.
269 Climate Stewardship Platform Plan is an initiative among Midwestern states to develop a system of coordinated sig- nage across the region for biofuels and advanced transporta- tion fuels and to collaborate to create regional E85 corridors (Midwestern Governors 2007). Assumed policies for assessing programs and mandates to promote alternative fuels. In assessing this strategy, it is assumed that states will fully implement either a renewable fuel standard or a low-carbon fuel standard. States motivated mainly by climate change might choose the latter option since LCFS mandates explicitly seek to reduce greenhouse gas emis- sions and their flexible, fuel-neutral structure allows industry to respond in the most cost-effective manner. States more con- cerned with energy security or interested in promoting local production of specific fuels (e.g., biofuels in major agricul- tural states) to foster economic development might instead implement a renewable fuel standard. Given that the EPA has already adopted RFS2, however, the state would need to carefully consider the appropriate integration of state and federal mandates. Additionally, this assessment assumes that states concerned with climate change would also implement a renewable electricity portfolio standard if either battery elec- tric or plug-in hybrid-electric vehicles begin to achieve signifi- cant market share. Finally, it is assumed that states will also complement alternative-fuel strategies with efforts to promote voluntary adoption through stakeholder coordination and public information campaigns. M.3.2 Intended Mitigation Effects Fuel mandates and alternative-fuel promotion programs are often explicitly intended to reduce GHG emissions, and they may have additional benefits for local air quality as well. However, there is still some debate on the life-cycle emissions benefits of certain types of alternative fuels, especially biofuels. Improving air qualityâmoderately effective (uncertain). Though potentially promising, the net effects of an RFS or LCFS on air quality would depend on which alternative fuels are used as well as the emissions control technology of the engine or electricity generating unit. Engines powered by natural gas, for example, are generally cleaner burning than conventionally fueled engines, and biodiesel blends also show mixed life-cycle emission reduction benefits. Corn ethanol using current technology, however, may increase emissions, and greater use of electricity generated by the current fleet of power plants, including many legacy coal-fired plants, may result in higher levels of particulate matter and sulfur oxides (U.S. DOT 2010). Recent EPA estimates indicate that the federal RFS2 would result in a net increase in criteria pol- lutants but that the impacts would not be evenly distributed throughout the country (EPA 2010). Alternative electrical energy sources such as wind, hydro, and solar would result in Low-carbon fuel standards. In contrast to an RFS, which specifies target production levels for specific fuels, LCFSs require fuel producers to meet, on average, specified percent- age reductions in the carbon intensity of fuels sold. By focus- ing on carbon content, LCFS policies are explicitly oriented toward the goal of reducing greenhouse gas emissions. Addi- tionally, LCFS mandates are generally neutral with respect to the type of fuel used to meet the performance goals, allowing industry to determine the most cost-effective combination of fuels to achieve required reductions in carbon intensity. California became the first state to adopt an LCFS, setting the goal of reducing the carbon intensity of transportation fuels by 10% by 2020 (CARB 2009). States involved in the Western Climate Initiative, the Midwestern Greenhouse Gas Accord, and the Northeast Regional Greenhouse Gas Initia- tive are also considering introducing Californiaâs low-carbon fuel standard [Northeast States Center for a Clean Air Future (NESCCAF) 2009, Oregon Department of Environmental Quality 2011]. Renewable portfolio standards. Also known as renew- able electricity standards, RPSs are similar to low-carbon fuel standards but apply instead to electric power generation. These mandates are primarily intended to reduce emissions of greenhouse gases and local air pollutants resulting from the production of electricity; energy security is less an issue in the power sector since the vast majority of feedstocks are domestically produced. From a transportation perspective, the source of electric power becomes most relevant if bat- tery electric or plug-in hybrid vehicles begin to gain signif- icant market share. As of early 2012, 29 states had enacted RPS policies and 8 states had voluntary commitments in place. For example, Pennsylvania has required that 18% of all energy generated in the state come from alternative and renewable sources by 2021, including 0.5% from solar. Texas has required utility companies to generate 5,880 megawatts of renewable energy by 2015, of which 500 megawatts must come from non-wind resources (DSIRE 2012). Programs to promote voluntary adoption of alternative fuels through outreach. States can also implement programs that promote voluntary adoption through coordination and information initiatives that seek to educate the public about the availability and benefits of transitioning to alternative fuels. Programs can be designed to encourage alternative fuels in particular industries, or they may involve interstate coop- eration to develop alternative-fuel corridors. The Department of Energyâs Clean Cities program supports local initiatives to adopt practices that reduce the use of petroleum in the trans- portation sector by coordinating a network of more than 80 volunteer coalitions, which develop publicâprivate part- nerships to promote alternative fuels and advanced vehicles, fuel blends, fuel economy, hybrid vehicles, and idle reduc- tion (EERE 2012). At the state level, the Energy Security and
270 Promoting adoption of lower-carbon alternative fuelsâ highly effective (uncertain). To the extent that an RFS or low-carbon standard is effective in reducing petroleum con- sumption, it will achieve this through increased adoption of alternative fuels. Here again, then, such programs promise to be highly effective subject to some uncertainty in relation to the pace of alternative-fuel technology development. M.3.4 Other Effects The expected effects of alternative-fuel mandates on the economy, environment, and equity are both mixed and uncertain. Economyâneutral (uncertain). Evidence on the likely economic impacts of an RFS or LCFS is mixed, resulting in a rating of neutral but uncertain. Potential economic effects encompass changes in energy and agricultural trade, air pol- lution and GHG reductions, and changes to farm income and food costs. The EPA estimates that the RFS2 will result in significant net economic benefits, ranging between $13 and $26 billion in 2022 (EPA 2010). For the California LCFS, CARB estimates that the displacement of petroleum-based fuels with lower-carbon-intensity fuels will result in an over- all savings within the state of as much as $11 billion through 2020 (CARB 2009). The same study noted that the regulation will create costs to the state in the form of foregone transpor- tation fuel taxes ranging from $80 to $370 million by 2020 and have an impact on annual local sales tax revenue ranging from a loss of $51 million to a gain of $2 million by 2020. The economic impacts of renewable and low-carbon fuel stan- dards will be affected by market prices for conventional fuels and actual production costs of lower-carbon fuels, both of which are subject to high uncertainty. Either supply limita- tions of lower-carbon fuels or relatively low oil prices could result in overall net economic losses for LCFS programs. For example, recent estimates placed the costs of a national LCFS policy at between $80 billion and $760 million per year (Canes and Murphy 2009). Fuel mandates also result in a redistri- bution of economic activity, notably a shift of capital from the petroleum sector to the agricultural, chemical, electric- ity, and natural gas sectors (CARB 2009). With the exception of certain synthetic fuels, which may increase oil or natural gas imports, all of the fuel options discussed in this section result in decreased fossil-fuel use, in turn reducing reliance on foreign oil. To the extent that alternative fuels are produced domestically rather than from international sources, eco- nomic and national security benefits may be achieved due to the reduced threat of energy supply disruption, which would improve economic stability. Environment and public healthâmoderately positive (uncertain). Overall, the promotion of alternative fuels should result in improved air quality, with related public health far greater reductions in air pollutants than other technolo- gies (North Carolina Utilities Commission 2006). On bal- ance, RFS programs avoid emissions that would have resulted from conventional fossil fuel, which could improve air qual- ity and public health. Accounting for the variety of impacts related to specific alternative fuels, however, this rating must be qualified as uncertain. Reducing GHG emissionsâhighly effective (uncertain). There is general agreement that reducing the carbon content of fuels through a regulatory mandate should account for all emissions associated with the production, distribution, and consumption of fuels (Sperling and Yeh, 2009). Given this life-cycle emphasis, an LCFS should in theory prove quite effective in reducing GHG emissions. To date, however, it is too early to ascertain the effectiveness of alternative- fuel mandates. Establishing performance standards for fuels requires accepted methodology to quantify and compare the life-cycle greenhouse gas emissions from different types of fuels. It can be particularly challenging to estimate indirect emissions, especially those from land use changes due to the production of additional crops to serve as feedstocks for bio- fuels (Searchinger et al. 2008). While CARB and the EPA have both established life-cycle GHG factors for their respective LCFS and RFS standards (CARB, undated; EPA 2010), there is still uncertainly over associated indirect emissions, which vary depending on the specific fuel production source, refin- ing method, and transportation requirements. M.3.3 Intended Shaping Effects The main motivations for policies included as part of this strategy would be to displace petroleum and increase the pro- duction and use of alternative fuels. Because they are struc- tured as mandates, they should be very effective in achieving this end. Reducing oil consumptionâhighly effective (uncertain). Both renewable portfolio standards and low-carbon fuel stan- dards should have the effect of replacing petroleum with alter- native fuels in significant quantities; the former requires fuel vendors to achieve volumetric targets of specified alternatives, while the latter involves emissions performance standards that inherently favor lower-carbon alternative fuels. Also, the man- datory structure of such programs should make them highly effective in meeting their aims. It is worth noting, though, that even a requirement could fail unless both the fuel and supporting vehicle platforms undergo sufficient advances to become at least reasonably cost-competitive with petroleum. Absent such advances, there would be strong political pres- sure to relax the mandate, analogous to what occurred with the electric vehicle production mandate in the early years of Californiaâs ZEV program. Because of this possibility, the rating of highly effective is qualified as being uncertain.
271 such programs indicates that this barrier should not be insurmountable. Financial costâmoderate barrier. Fuel mandates and any accompanying voluntary promotion programs require ini- tial public investment to set up and administer. States must provide some dedicated staff time, develop implementation guidance on the programs, and commit resources to monitor programs. Technical riskâsignificant barrier. Significant additional research and development will likely be needed before low- carbon fuels are cost-competitive with petroleum. The capac- ity to expand production of developed biofuels, including corn ethanol and soy biodiesel, will be limited by land requirements, and second- and third-generation biofuels (such as cellulosic ethanol and algae-based biodiesel) may be required to achieve broad penetration of these fuels. Major advances are needed for fuel-cell vehicle technology and battery technology in order to make hydrogen or electricity practical for consumers as well as cost-competitive with current fuels and vehicles. In short, even if a state passes an RFS or LCFS, there is considerable risk that the technological advances needed for a successful program might not occur. Enabling legislationâmoderate barrier. Either the RFS or LCFS approach will generally require enabling and some- what complex state legislation. M.3.6 Required Lead Time A state alternative-fuel mandate may be enacted immedi- ately as a legislative action. However, designing and imple- menting a successful market-based program would likely require a period of 1 to 5 years. M.3.7 Qualifications States with significant crop-based biofuel production (e.g., corn-based ethanol) may be more likely to adopt legisla- tion for renewable fuel standards. For states aiming to help mitigate climate change, the LCFS approach offers greater promise. M.4 State Role in Alternative-Fuel Production or Distribution Another possible approach for states to encourage the emergence of alternative fuels would be to take an active role in helping to produce or distribute such fuels. To ful- fill internal energy needs or to meet goals related to climate change, interest from state agencies in generating or using alternative energy is growing (FHWA 2011). For example, in states with renewable energy mandates, utility companies and state DOTs are exploring options for using rights-of- benefits, reduced GHG emissions, reduced waste, and resource conservation. Localized air quality improvements are likely at the point of consumption but may, depending on the fuel in question, be offset by environmental degradation at the point of production. Various environmental impacts are associated with the extraction, production, and transport of different types of alternative fuels, particularly certain biofuels. Esti- mates by the EPA suggest that increased biofuel production could affect wildlife habitat and water quality and availabil- ity, depending on the agricultural practices employed (EPA 2010). Based on the interaction of these factors, anticipated environmental and public health effects are rated as mod- erately positive but uncertain. Equityâmoderately negative (uncertain). An RFS or LCFS could lead to higher fuel and food prices, both of which would have a regressive effect for lower-income households. A fuel mandate, when designed and implemented in one state but not in others, creates issues of equity for energy consum- ers and producers. For example, Californiaâs implementation of its LCFS was delayed by a federal judge in 2011 for impos- ing unfair restrictions on interstate commerce. Similarly, without a federal framework for LCFSs, producers would face inconsistent regulations, and fuel prices for consumers could vary significantly from state to state. The increased use of bio- fuels, primarily corn ethanol, as an energy source can reduce domestic food supply as agricultural production is shifted to fuel stocks. This leads to an increase in food prices, which disproportionately affects low-income households. The EPA estimates that the RFS2 will increase U.S. corn prices by 3% to 8% and soybean prices by 1% to 10% by 2022, compared to a reference case, although this would have only a small impactâ$10 per person per yearâon U.S. food prices (EPA 2010). However, estimating the overall economic impact of ethanol production is difficult because food prices are deter- mined by multiple factors, including the cost of fuel inputs, and the market for corn-based food products is already influ- enced by producer subsidies. In short, while there is some uncertainty, the effects of fuel mandates on equity appear to be moderately negative on balance. M.3.5 Barriers Alternative-fuel programs are potentially effective tools for enabling and accelerating market transition to alternative fuels, but they do face barriers to implementation. Low public supportâmoderate barrier. Programs that impose additional costs on producers are likely to increase consumer fuel prices. Given the national sensitivity to fuel prices and broader economic impacts, fuel mandates are likely to face at least moderate challenges in terms of build- ing public support. On the other hand, the fact that many states and the federal government have already implemented
272 Investment and incentives for alternative energy refuel- ing infrastructure. In the area of alternative-fuel distribu- tion, states have taken the approach of providing financial incentives to encourage private-sector development of fuel- ing stations, pipelines, or consumer distribution points. The rationale for such incentives stems from the so-called chicken-and-egg problem of alternative-fuel vehiclesâthat is, that consumers will be reluctant to purchase alternative- fuel vehicles unless they have ready access to refueling infra- structure, while industry will be reluctant to develop refueling infrastructure until the alternative-fuel vehicle market is large enough to make use of the infrastructure. If states, through the provision of incentives, bear some of the initial cost and risk to develop alternative-fuel distribution networks, consumers may be more willing to purchase vehicles, and retailers may be more accepting of investment risk in yet- unproven markets. A federal example of this approach is the Department of Energyâs Clean Cities program, which pro- vides funding to state energy and transportation departments to coordinate and allocate investments in alternative-fueling infrastructure initiatives (EERE 2012). One such program is the I-65 biofuels corridor, which features over 20 dispensers providing E85 fuel from the Great Lakes to the Gulf Coast (EERE 2009). Other states, such as California, New York, and Florida, have invested in hydrogen stations, fleet vehicle dem- onstration projects, and state purchases of hydrogen vehicles intended to support the commercialization of this technol- ogy (TCPA 2008). The state of Washington is administering $1.32 million in seed funding from the DOE to implement the nationâs first electric highway, which is a network of public- access electric-vehicle charging locations along Interstate 5 [West Coast Green Highway (WCGH) 2010]. Assumed policies for DOT involvement in energy pro- duction or distribution. In the assessments that follow, it is assumed that a state would first conduct a comprehensive statewide renewable energy feasibility study to identify the most promising options and then seek to develop at least one form of alternative energy utilizing state-owned assets. South- western states might understandably choose to focus on solar energy production, for example, while agricultural states might prioritize biomass production. It is also assumed that a state pursuing this strategy would provide financial incentives for the early-stage development of refueling infrastructure consistent with its selection of energy to be produced. M.4.2 Intended Mitigation Effects While this strategy would most likely be selected with the aim of shaping future energy outcomes, it could also help mitigate some of the potential challenges for state DOTs identified in this study. Specifically, it might play a modest role in boosting revenue, offsetting higher maintenance costs, way to produce energy. Some DOTs are installing alternative energyâgenerating capacity, such as solar and wind, on state- owned property to help power lighting, rest areas, or main- tenance facilities. Other DOTs are offering incentives and support to the private sector to develop alternative energy fueling infrastructure. When implemented at a large scale, these efforts may promote energy security and conservation and help reduce maintenance and operational costs (Poe and Filosa 2012). Primary limitations for alternative-fuel technologies are the lack of market penetration, critical mass-generating capac- ity, and necessary infrastructure. States, including DOTs, are well positioned to use resources to incentivize production of alternative energy sources. M.4.1 Supportive Policies State DOTs supervise millions of miles of public right-of- way (ROW) and state-owned buildings and other assets that have the potential to support renewable energy production, including solar, wind, and biomass (Poe and Filosa 2012). Some states are also offering financial incentives to the private sector for developing and operating refueling stations such as electric vehicle charging stations or hydrogen fueling stations (EERE 2011). Renewable energy production. Currently, solar, wind, biomass, and geothermal technologies offer immediate oppor- tunities for generating low-carbon, renewable energy with publicly owned assets. Other opportunities, such as waste- to-energy conversion, hydrogen fuel generation, and energy harvesting via wave-, tidal-, and vibration-capturing technol- ogies may serve important roles in the future (Poe and Filosa 2012). State DOTs in Colorado, Massachusetts, Texas, and Ohio have been conducting comprehensive statewide renew- able energy feasibility studies to identify promising energy technologies and locations to implement them (Kreminski, Hirsch, and Boand 2011, FHWA 2011). These studies map state-owned assets such as buildings and ROW against a set of resource-specific suitability criteria such as acreage, prox- imity to electrical transmission, slope, and ROW width and accessibility to identify potential sites for large- and small- scale wind and solar installations. The Oregon Solar Highway Demonstration Project first began generating solar electricity transmitted to the grid in 2008 (Oregon DOT 2012). Ohio DOT is installing a small, 32-kW wind turbine at a mainte- nance facility adjacent to Interstate 68 (FHWA 2011). The North Carolina Freeways to Fuel (F2F) National Alliance project, a joint effort between the North Carolina DOT and North Carolina State University, planted and harvested four 1-acre plots of canola and sunflower crops to produce about 600 gallons of B20 biodiesel that was used to fuel DOT fleet equipment (FHWA 2011).
273 though, there is insufficient evidence to argue that state pro- duction and support for distribution would exert significant influence in a shift to alternative fuels. Thus, the effects for GHG reduction are rated as moderate and uncertain. M.4.3 Intended Shaping Effects The primary motivation for state involvement in energy production or distribution would be to encourage a shift to domestically produced, lower-carbon alternative fuels in the transportation sector, in turn reducing reliance on imported oil. Reducing oil consumptionâmoderately effective (uncer- tain). To the extent that this strategy proves successful in pro- moting the adoption of alternative fuels, it should also result in reduced oil consumption. As discussed next, though, it is not clear that this approach, by itself, would lead to a signifi- cant shift in fuel choices. The strategy does not include any form of mandate to require the production and use of alter- native fuels, nor does it employ pricing to create an ongo- ing incentive for the adoption of alternative fuels. Thus, the anticipated effects are rated as moderate and uncertain. Promoting adoption of lower-carbon alternative fuelsâ moderately effective (uncertain). Pilot projects on state facilities and roadways have demonstrated the potential for producing energy from solar, wind, and biomass. While these small-scale projects have succeeded in producing electricity to power highway lighting and state facilities and in producing fuel for vehicle fleets, the effects on promoting alternative fuels in broader markets remains unclear. To have a major effect on the market for alternative fuels, these efforts would likely have to be undertaken on a much larger scale so as to help reduce costs and increase availability. Likewise, little evidence exists to assess the effectiveness of state investments and incentives for the private sector to develop and operate alternative refueling infrastructure. It is possible, though uncertain, that such pro- grams could complement other public policy support for alter- native fuels by stimulating greater private-sector investment in alternative energy, thus helping to overcome the initial barriers of market penetration and acceptance facing some alternative fuels and vehicle technologies. M.4.4 Other Effects State involvement in the production and distribution of alternative fuels could have moderately positive economic and environmental effects and would likely be neutral with respect to equity outcomes. Economyâmoderately positive (uncertain). A draft pro- grammatic environmental impact statement for solar energy projects in six states that evaluated use of existing federal land showed the economic effects of solar energy projects to be positive, generating increases in employment, income, improving air quality, and mitigating GHG emissions. How- ever, these are all highly speculative. Increasing transportation revenueâmoderately effec- tive (uncertain). State-owned assets could be leased to pri- vate producers, or state-produced energy could be sold to utility companies, generating a small stream of revenue for the state. To accomplish this, states would likely engage in publicâprivate partnerships with private producers or util- ity companies to establish lease or sell-back arrangements. There is not yet, however, a proven prototype for generating revenue from state energy production (Poe and Filosa 2012). A recent partnership between Oregon DOT and a subsidiary company of Portland General Electric resulted in the installa- tion of a 1.75-megawatt solar plant adjacent to a rest area on I-5. Oregon DOT receives a portion of the Renewable Energy Certificates and a small annual site license fee, but the Ore- gon DOT Office of Innovative Partnerships and Alternative Funding acknowledges that the project is better viewed as a possible framework for future revenue agreements (Oregon DOT 2012). However, potential revenue streams are likely to be small compared to a stateâs transportation investment needs and are unlikely to be bonded or applied to significant program accounts. Rather, any resulting revenue may pro- vide supplemental funding support for agency operation and administration costs. Reducing DOT costsâmoderately effective (uncertain). Alternative energy generation capacity may be used to reduce internal electricity usage, thus saving on operating costs and mitigating price fluctuations. At the Turkey Lake Service Plaza in Florida, for example, a combination of solar electric photovoltaics, solar thermal hot water, and solar lighting systems was able to meet the electrical energy needs of the service plaza over the course of a year, eliminating utility pay- ments and potentially generating additional revenue (Florida DOT 2010). Longer-term trade-offs between up-front capital costs and ongoing operational savings remain unclear; here again, though, the overall effect is likely to be modest at best. Improving air qualityâmoderately effective (uncertain). Broad adoption of certain alternative fuels, most notably electricity and hydrogen, could lead to significant air quality improvements in concentrated activity centers where most travel occurs. That said, a state might choose instead to focus on biofuels, for example, where air quality benefits are less certain. Additionally, as described previously, the role of state production and support for the distribution of alternative fuels seems likely to play a supportive, rather than a major, role in stimulating a shift to alternative fuels. Accordingly, the effects of this strategy with respect to air quality are rated as both moderate and uncertain. Reducing GHG emissionsâmoderately effective (uncer- tain). In comparison to gasoline and diesel, most alternative fuels should result in GHG emission reductions. Here again,
274 not the primary owner or operator of facilities, thus reduc- ing financial exposure. However, should states choose to engage in larger projects, they may find it efficient to build and operate facilities and infrastructure without partnering, thus incurring significant capital costs. Implemented at any great scale, energy production and distribution projects will offset agency energy costs in the long run. Still, the initial up- front investment of resources presents significant opportu- nity costs to a DOT and is thus viewed as a moderate barrier. Technical riskâmoderate barrier. Any investment in emerging technologies is associated with risk that the selected technology or fuel type will fail to gain market success. As such, early investments in yet-unproven fuels such as hydro- gen or in electric vehicle charging networks could result in very little return. Enabling legislationâmoderate barrier (uncertain). While the development of alternative-fueling infrastructure might require only a few million dollars in state match- ing funds (WCGH 2010), the legal structure of the publicâ private partnerships can be complex. Most states allow the use of highway ROW to accommodate public utility facilities (Poe and Filosa 2012, AASHTO 2005), but some only allow shared use with telecommunications (e.g., Colorado) or limit shared use of ROW to only certain state roads (e.g., Nebraska). As states become interested in the role of the public sector in alter- native energy generation, other legal barriers requiring legisla- tive remedies could arise; examples are limits on the ability of states to partner with utilities, state constitutional provisions or policies restricting public competition with private invest- ment, and liability concerns. Institutional restructuringâmoderate barrier. Energy production and distribution fall beyond the focus areas for most DOTs. Pursuing this strategy could thus require a modest degree of institutional restructuring to bring in the necessary staff expertise to oversee such projects. M.4.6 Required Lead Time States should expect a lead time of at least 5 to 10 years to formalize the institutional policies and partnership agree- ments, to secure the investment needed, and to plan, permit, and construct energy production or distribution facilities. M.4.7 Qualifications Energy production strategies may be implemented in all states regardless of geographic and programmatic differences; however, some states have geographic advantages for certain alternative energy sources. For instance, Utah was the first state to grow alternative-fuel biomass in highway ROW as part of the F2F project, but ultimately, arid conditions and heavily com- pacted soil proved too challenging. In contrast, North Carolina and state tax revenues [Bureau of Land Management (BLM) 2010]. Public investment in alternative-fuel technology adop- tion is unlikely to crowd out private investment but rather should complement it. To the extent that alternative fuels are produced domestically and with less price volatility, macro- economic and national security benefits could also result. The main economic downside would be the opportunity costs of state revenue invested in supporting fueling infra- structure should that investment fail to facilitate a shift to alternative fuels. Given this potential, the rating of mod- erately positive economic effects is described as uncertain. Environment and public healthâmoderately positive (uncertain). As described previously, this strategy could sup- port modest improvements in air quality and greenhouse gas reductions, with the former supporting both environmen- tal and public health goals. Yet there could also be negative environmental effects. Solar arrays, for example, require large land areas and can displace existing vegetation and habitat. A study of a solar array in Brookhaven, New York, showed minor construction impacts on the local environment, although these were not identified as significant issues [Brookhaven National Laboratory (BNL) 2009]. Electric vehicles create life-cycle environmental impacts through the mining of min- erals for battery production and through waste disposal. The net environmental impacts of electricity as a vehicle fuel are also dependent on the source of electrical energy generation. Wind turbines have been demonstrated to have an impact on wildlife such as migratory birds. These localized impacts are considered relatively small in comparison to providing renewable energy sources that offset conventional fuel use. Large-scale alternative energy development by states would result in reduced emissions of greenhouse gases and air pollut- ants, provided that the development offsets electricity genera- tion by new fossil-fuel power plants (BLM 2010). Equityâneutral. These strategies should not have any significant effects on equity. M.4.5 Barriers States interested in producing energy or supporting the development of fueling infrastructure would likely face several barriers, including up-front financial cost, technical risk, and the possible need for enabling legislation in relation to util- ity accommodation policies and non-compete restrictions on public entities. Financial costâmoderate barrier. Most examples of publicly supported renewable energy generation to date have been small-scale pilot projects implemented through publicâ private partnerships and using state and federal tax credits or grant programs so that the DOT bears no capital costs. States currently active in generation projects, such as Oregon, have developed policies in which the state may be a partner but
275 subdistrict maintenance sites, central offices, and sometimes other modal offices, their energy consumption totals and potential conservation savings may be greater than for other state agencies. Specific improvements can include lighting upgrades, implementation of desktop power-management systems, and even solar thermal or solar photovoltaic installa- tions. Department maintenance sheds and other facilities that have not been improved recently may be evaluated for cost savings associated with insulation and lighting improvements. Many state agencies are also participating in green building ini- tiatives by adhering to nationally recognized standards such as the Leadership in Energy and Environmental Design (LEED) program in new construction or building retrofits. The Mary- land DOT is one such example (Maryland DOT 2011). Public-sector fleets. A significant number of state agen- cies, including DOTs, are under requirements to purchase alternative-fuel passenger vehicles for fleet use. The Energy Policy Act, first enacted in 1992 but since amended several times, established the State and Alternative Fuel Provider pro- gram. This program requires that for state fleets that include 50 or more vehicles, with 20 or more operating in metropoli- tan areas, any federally subsidized fleet purchases must include at least 75% alternative-fuel vehicles. In 2007, this program resulted in the acquisition of more than 14,000 alternative- fuel vehicles by state governments and the consumption of 4.5 million gallons of biodiesel (NREL 2008). Various state DOTs have adopted a number of other policies in their own fleets to encourage fuel efficiency, including downsizing of vehicles, programmed engine-idle shutoff switches, program- ming medium- and heavy-duty trucks to limit maximum vehicle speed, reducing the weight of vehicles, using perfor- mance lubricants and fuel additives, maintaining proper tire pressure and preventative maintenance schedules, using global positioning systems, carpooling when using state vehicles, and practicing defensive driving (AASHTO 2008). Construction and operations practices. State DOTs have also pursued a number of energy efficiency measures in con- struction and operations activities, including using low-GHG construction materials, light-emitting diode (LED) lighting, and practices to reduce emissions from road construction activities. The use of fly ash in concrete, pavement recycling, warm-mix instead of hot-mix asphalt, and other materials is among the most effective ways in which DOTs can reduce energy use and GHG emissionsâresulting in four to five times the savings from all other internal DOT practices combined (Cambridge Systematics 2009b). In addition, some DOTs have sought to reduce emissions from construction activities by amending contract language or awarding contract bonuses for contractors implementing clean diesel, air quality, and green construction practices (Connecticut DOT, undated). Human resources. A number of state agencies have responded to increased fuel prices, state mandates to reduce and Michigan, with different climates, have had greater suc- cess (Poe and Filosa 2012). Solar, wind, and geothermal energy potential also varies considerably by region, and some states will be better positioned than others to pursue these options. Similarly, consumer markets in different regions of the country may drive alternative energy infrastructure investments. For example, liquefied natural gas as a vehicle fuel may be promoted in energy-rich states with Marcellus Shale deposits, while states with lower electricity costs and different policy priorities such as Washington and Oregon could develop more robust demand for electricity as a primary vehicle fuel. M.5 Agency Energy Use A number of state DOTs are pursuing energy efficiency and alternative fuels in the context of internal management and operations as part of statewide conservation or climate change action plans. Such policies aim to institutionalize energy effi- ciency and greenhouse gas emission reduction measures into ongoing department activities and the operations and mainte- nance of facilities, fleet vehicles, and heavy-duty equipment. As of August 2008, 39 states had energy efficiency requirements in place for state facilities, and 25 had energy-efficient equipment purchasing requirements (Cambridge Systematics 2009b). Potential motivations for pursuing such policies are achieving operational cost savings for buildings and fleets, serving as a role model to demonstrate the ease and feasibility of energy efficiency and alternative energy measures, and acting as an early-stage adopter to help catalyze the markets for alternative fuels and vehicle technologies. In states with energy efficiency mandates, DOTs are typically required to submit energy action plans detailing energy conservation efforts (EPA, undated; Cambridge Systematics 2009b). M.5.1 Supportive Policies Some of the most common energy efficiency and alterna- tive energy measures pursued by DOTs and other state agen- cies are efficiency improvements for buildings and facilities, the purchase of alternative or hybrid vehicles for public- sector fleets, and the use of energy-efficient traffic lights and signals. A growing number of DOTs are using recycled materials in construction or implementing other practices to reduce emissions from construction materials. Finally, many statewide programs in energy efficiency encourage alterna- tive work schedules or telecommuting, or set policies to limit travel for work-related business. Facilities management. Statewide energy conservation programs often focus on reducing electricity and natural gas consumption associated with operating agency buildings and other facilities. Because DOTs operate district offices,
276 improvements are impressive, road construction activities still account for just a small share of overall pollutant emissions in a region; thus, the potential effect must be judged as modest. DOTs have also implemented energy-saving practices, such as reduced equipment idling, with the aim of improving local air quality. For other energy efficiency and alternative-fuel strate- gies, very modest air quality benefits may be realized through reductions in vehicle travel and electricity and natural gas consumption. Reducing GHG emissionsâmoderately effective. Strate- gies that reduce energy consumption in materials production, construction activity, and facility and fleet operations will reduce GHGs proportionately. The use of alternative fuels will also generally result in GHG reductions compared to conventional fuels. However, the overall magnitude of impact of the emissions over which a DOT and other state agencies have direct control is small compared to total emissions from vehicles operating in the transportation system. M.5.3 Intended Shaping Effects The potential to shape emerging energy technologies rep- resents the main reason why a state might choose to pursue this strategy. The goal would be to foster the emergence of alternative-fuel technologies while reducing oil consumption and using electric power, much of which currently derives from fossil sources, more efficiently. The most direct influence under this strategy would be to help expand the market for alternative-fuel vehicles through fleet purchases; otherwise the amount of energy used by state agencies in relation to the broader economy is modest, with construction materials rep- resenting the greatest area of impact. This strategy also offers an opportunity for states to lead by example, hopefully provid- ing lessons for other public and private actors to follow. Reducing oil consumptionâmoderately effective. The typical state operates a large number of fleet vehicles. By pur- chasing more fuel-efficient conventional vehicles along with alternative-fuel models, states have the opportunity to play a modest role in helping to reduce aggregate fuel consumption. Promoting adoption of lower-carbon alternative fuelsâ moderately effective. As already noted, state fleets, which include both light-duty and heavy-duty vehicles, can serve as an early market for a range of alternative fuels and vehicle technologies. Additionally, the adoption of alternative fuels within state fleets requires installing refueling infrastructure that can potentially be opened for access to the general public. This should help overcome one of the early barriersâlack of sufficient access to refueling stationsâthat might hinder adoption of alternative fuels within the broader popula- tion. A state agency can also leverage its impact by requiring contractors to adhere to standards for energy efficiency and alternative-fuel use. fuel and energy consumption, and greenhouse gas emission requirements by introducing policies to reduce travel by state employees. Common responses include allowing the option of a 4-day, 10-hour workweek and revising department tele- commuting policies. Many states also have policies in place to limit travel by state employees, either by requiring carpooling when using state vehicles, maximizing the use of teleconfer- ences, or limiting all but essential travel, often primarily for cost-saving purposes (Cambridge Systematics 2009b). Assumed policies for assessing agency energy use. In assess- ing the potential effects of energy efficiency and alternative-fuel measures in the context of state agency operations and man- agement, it is assumed that the state would implement a con- sistent set of policies across all agencies, including improved energy efficiency in buildings and other facilities, the con- version of public-sector fleets to alternative-fuel vehicles or conventional vehicles with greater fuel economy, and the implementation of policies to reduce work-related travel for state employees. Beyond this core set of statewide policies, it is also assumed that the DOT would pursue additional strat- egies involving road construction, maintenance, and opera- tions, such as installing lighting systems to meet the 2009 Energy Star standard for roadway lighting (Greenroads 2011) and maximizing the use of recycled materials and other low- GHG practices in construction. M.5.2 Intended Mitigation Effects This strategy could help state DOTs mitigate some of the challenges that might arise with certain energy futures. In particular, it could help reduce operations costs, improve air quality, and reduce GHG emissions. Reducing DOT costsâmoderately effective. Reduced building electricity usage translates to ongoing savings, the amount of which is likely to increase over time should energy prices rise as expected. A recent evaluation of LEED building standards shows that LEED buildings use 25% to 30% less energy than the national average, with even higher savings for buildings that meet the most demanding LEED standards [New Building Institute (NBI) 2008]. With regard to opera- tions, in roadway lighting field tests, LED luminaries have shown energy savings of between 30% and 75% (Greenroads 2011). While net cost impacts depend on the material and production process, the use of recycled materials in road and building construction could help mitigate rising prices for raw materials as well as energy. Improving air qualityâmoderately effective. Compared to the standard hot-mix asphalt, warm-mix asphalt can reduce plant emissions by 30% to 40% for sulfur dioxide (SO2), by 50% for VOCs, by 60% to 70% for NOx, and by 20% to 25% for particulate matter. It also reduces worker exposure to aerosols and hydrocarbons (U.S. DOT 2010). While these percentage
277 along the natural turnover cycle for vehicle fleets. Operations and human resources practices can be implemented immedi- ately, although it may also take 1 to 5 years for adoption and real- ization of efficiency benefits. In aggregate, then, it would likely take states and state DOTs around 5 to 10 years to implement the complete package of assumed policies under this strategy. M.5.7 Qualifications The approaches described under this strategy should be equally applicable across all states regardless of geographic context. With respect to the goal of influencing the develop- ment and adoption of alternative-fuel vehicle technologies, however, this strategy is likely to be more effective when implemented by states with larger fleets. References AASHTO. 2005. A Guide for Accommodating Utilities Within Highway Right-of-Way. Washington, D.C. AASHTO. 2008. MNT-08-02 Survey for the Member Department of Transportation Equipment Managers. 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Lessons Learned During Creation of the I-65 Biofuels Corridor. M.5.4 Other Effects This strategy would not be expected to have significant effects on the economy or equity. It should, though, offer some environmental benefits. Economyâneutral. While many of the policies included under this strategy could result in net cost savings to DOTs, the overall effect on the economy is expected to be negligible. Environment and public healthâmoderately positive. As noted previously, this strategy should play a positive role in reducing greenhouse gas emissions and improving local air quality, with corresponding environmental and public health benefits. Other environmental benefits primarily result from the use of recycled materials in construction, which can keep a significant volume of material from entering landfills. Some processes have the added benefit of binding potentially haz- ardous materials into an inert form (such as the use of fly ash from coal plants in concrete), avoiding the need for other disposal methods. Equityâneutral. This strategy would not be expected to have any significant effects on equity. M.5.5 Barriers The advantage of pursuing this set of strategies to improve efficient internal management and operations is that they are typically cost-effective and relatively easy to implement without public or board review. The primary barriers are for the most part modest, and include up-front financial costs, concerns (real or perceived) over the use of technologies (e.g., materials, fuels) that are not widely tested and proven, and inertia that limits changes to internal practices even if the changes are beneficial. The first two are described in more detail in the following. The third concern can be overcome by initiative from agency staff and leadership. Financial costâmoderate barrier. For state agencies, the up-front capital costs to implement some of these strategies are higher than doing business as usual. Even if these costs will be recouped over time, this still could create a barrier for implementation. Technical riskâmoderate barrier. Due to the large up-front purchase costs, materials and fuels that are not proven can be a risk, especially if a technology might fail to work as planned. This concern could become less important over time as tech- nologies are demonstrated and become more widely proven. M.5.6 Required Lead Time With regard to facility operations, a building energy audit can be executed quickly, although it can generally take 1 to 5 years for measures to be installed that would provide for more efficient operations. Efficiency gains from public-sector fleets would be actualized within a 5- to 10-year time frame,
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Abbreviations and acronyms used without definitions in TRB publications: A4A Airlines for America AAAE American Association of Airport Executives AASHO American Association of State Highway Officials AASHTO American Association of State Highway and Transportation Officials ACIâNA Airports Council InternationalâNorth America ACRP Airport Cooperative Research Program ADA Americans with Disabilities Act APTA American Public Transportation Association ASCE American Society of Civil Engineers ASME American Society of Mechanical Engineers ASTM American Society for Testing and Materials ATA American Trucking Associations CTAA Community Transportation Association of America CTBSSP Commercial Truck and Bus Safety Synthesis Program DHS Department of Homeland Security DOE Department of Energy EPA Environmental Protection Agency FAA Federal Aviation Administration FHWA Federal Highway Administration FMCSA Federal Motor Carrier Safety Administration FRA Federal Railroad Administration FTA Federal Transit Administration HMCRP Hazardous Materials Cooperative Research Program IEEE Institute of Electrical and Electronics Engineers ISTEA Intermodal Surface Transportation Efficiency Act of 1991 ITE Institute of Transportation Engineers MAP-21 Moving Ahead for Progress in the 21st Century Act (2012) NASA National Aeronautics and Space Administration NASAO National Association of State Aviation Officials NCFRP National Cooperative Freight Research Program NCHRP National Cooperative Highway Research Program NHTSA National Highway Traffic Safety Administration NTSB National Transportation Safety Board PHMSA Pipeline and Hazardous Materials Safety Administration RITA Research and Innovative Technology Administration SAE Society of Automotive Engineers SAFETEA-LU Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (2005) TCRP Transit Cooperative Research Program TEA-21 Transportation Equity Act for the 21st Century (1998) TRB Transportation Research Board TSA Transportation Security Administration U.S.DOT United States Department of Transportation