Strategic Issues Facing Transportation, Volume 5: Preparing State Transportation Agencies for an Uncertain Energy Future (2014)

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9 This chapter briefly summarizes the motivation for the study, provides commentary on the approach and scope, and outlines the organization of the remaining chapters and appendices. 1.1 Motivation The American Association of State Highway and Transpor- tation Officials (AASHTO) funded a series of NCHRP projects to examine long-range strategic issues that state departments of transportation (DOTs) and other transportation agen- cies are likely to confront in the coming decades. This docu- ment presents the results of one of these: NCHRP Project 20-83(04), “Effects of Changing Transportation Energy Sup- plies and Alternative Fuel Sources on Transportation.” The objectives of the project, as set forth in the call for proposals, were “(1) to determine how the mandate, role, funding, and operations of DOTs will likely be affected by future changes in long-term energy supply and demand and (2) to identify strategies and actions that can be used by the DOTs to plan and prepare for these effects.” Over the past century, the nation’s transportation systems have depended largely on petroleum-based liquid fuels, most notably gasoline and diesel. Several factors suggest that this could shift considerably in the coming decades. Increasing global demand for oil has contributed to higher prices and greater price volatility, boosting the relative appeal of petro- leum alternatives. Concerns related to energy independence and climate change have provided further motivation for fed- eral and state policies to promote the development and adop- tion of alternative fuels and vehicle propulsion technologies. Finally, considerable public and private research investment has already been devoted to the exploration and development of alternative-fuel vehicle technologies, including plug-in hybrid-electric vehicles, battery electric vehicles, natural-gas– fueled vehicles, bio-fueled vehicles, and hydrogen fuel-cell vehicles. Some of these are now available on the market, and others are expected to be introduced within just a few years. While alternative fuels offer great promise, they also face significant obstacles based on such factors as cost, techni- cal maturity, and refueling infrastructure requirements. At the same time, improved drilling and extraction technolo- gies have vastly expanded the supply of economically recov- erable petroleum from conventional and unconventional sources, and the federal government recently adopted much more stringent vehicle fuel economy standards through 2025. With more available petroleum, the ability of cars and trucks to travel much farther on a gallon of gasoline or diesel, and a mature fuel distribution network already in place, many experts expect that petroleum—barring major technical breakthroughs for any of the potential competitors— will remain the dominant source of transportation fuel for at least several more decades. Regardless of whether petroleum remains dominant or is gradually displaced by one or more alternative fuels, state DOTs may be still be affected. One of the major concerns involves state DOT revenue, a substantial share of which derives from federal and state excise taxes on gasoline and diesel. Because such taxes are typically levied on a cents- per-gallon basis, inflation and vehicle fuel economy gains threaten to undermine total inflation-adjusted fuel-tax rev- enue in relation to total vehicle travel. While this could be addressed by periodically increasing fuel-tax rates or index- ing them to keep pace with inflation and average fleet fuel economy, pursuing such action appears to have become more politically challenging for federal and state elected officials in recent decades. Should any of the alternative fuels gain significant market share, the stability of fuel-tax revenue could be further eroded. Other issues that could be affected by changes in fuels and vehicle technologies and prices, posing either challenges or opportunities for state DOTs, include aggregate demand for passenger travel and goods movement, demand for different modes of travel, effects on air quality, and implications for greenhouse gas emissions. C H A P T E R 1 Introduction

10 1.2 Approach The research team, led by the RAND Corporation with assistance from Cambridge Systematics and the Institute of Transportation Studies at the University of California, Davis, pursued an approach to the study consisting of three main steps: • Develop a broad range of plausible future transportation energy scenarios in the 2040 to 2060 time frame. • Examine how the future scenarios might challenge state DOTs given their current and evolving roles, mandates, funding, and operations. • Employ the principles of robust decision making (RDM), a method for effective long-term policy analysis in the con- text of an uncertain future, to evaluate and identify promis- ing strategies for states to respond to the potential impacts. Many traditional planning approaches seek to identify one or more futures viewed as likely and then develop a set of strat- egies tailored for the envisioned futures. While this approach can work quite well for near-term plans resting on a relatively stable set of assumptions, the predict-then-act planning para- digm can prove more problematic when applied to longer- term horizons with greater degrees of uncertainty. Should the future evolve in an unexpected direction, the plan considered optimal may in fact prove to be grossly inferior. In contrast to traditional planning approaches, RDM considers a much broader array of potential future outcomes and then facili- tates the development of plans that should perform at least reasonably well regardless of how the future unfolds. The robust quality of RDM planning is enabled in part through the use of adaptive strategies that can be triggered or modi- fied as new information about the future becomes available (Lempert, Popper, and Bankes 2003). 1.3 Scope As further context for the material and findings contained in this report, it may be helpful to offer several additional comments about the scope of the study as understood and executed by the research team. Focus on fuels and vehicle propulsion technologies. The explicit focus of this study was on potential future trends and outcomes in transportation fuels and vehicle propulsion technologies and their respective prices and performance. These are not, however, the only uncertainties confronting transportation policy makers. Other emerging issues—such as evolving attitudes toward transportation among younger generations, social networking and improved telecommuni- cations, and the possible advent of autonomous vehicles in the coming years—could likewise affect future travel patterns in profound ways. Though important and worthy of research in their own right, such issues and uncertainties are viewed as beyond the main scope of this study and thus are men- tioned or considered only in passing. The final chapter in the report suggests several additional lines of research that could complement the findings from this study. Focus on highways, transit, and rail. Among the various available modes of transport, this report focuses mainly on passenger vehicle travel and trucking, and to a lesser degree on public transit and passenger and freight rail as competi- tors to cars and trucks. The traditional role of the state DOT has been to fund, plan, construct, operate, and maintain high- ways and other state roads. While DOTs have become more involved with other modes over time, their roles in other modes are often limited to oversight or planning functions; in terms of both staffing and funding allocations, highway travel remains the primary focus for most state DOTs. As of 2009, for example, 64% of all state and local transportation expen- ditures were devoted to roads, with another 24% allocated to transit [Bureau of Transportation Statistics (BTS) 2012c]. Additionally, passenger vehicle travel and trucking account for significant shares of both total travel and transportation energy consumption. Automobiles carried about 87% of all passenger miles in the United States in 2010 (BTS 2012a), while trucks were responsible for about 31% of the ton-miles of U.S. freight in the same year (BTS 2012b). Cars and trucks together accounted for about 71% of all energy consumption in the transportation sector as of 2010 [Oak Ridge National Laboratory (ORNL) 2012, Table 2.6]. Any significant changes in transportation fuels or prices are thus likely to exert their most dominant effects on passenger vehicles and trucks— aligning with the main focus on roads and highways for most state DOTs—with additional implications for such compet- ing modes as transit, passenger rail, and freight rail. Focus on state-level policies. This report identifies a num- ber of ways in which plausible transportation energy futures might create challenges for state DOTs, such as declining fuel- tax revenue, increased traffic congestion, and greater difficul- ties meeting federal air quality standards. Among the range of potential policy responses to these challenges, some are reserved for federal-level action, others could be appropriate for state- level implementation, and still others fall principally in the domain of local governments. This report—with its primary audience of state transportation decision makers—focuses on the subset of policies that could either be implemented or influenced through state-level action. The analysis also recog- nizes that many of the potential policy responses to challenges discussed in the report—for example, increasing fuel-tax rates or introducing alternate revenue mechanisms—lie beyond the authority of most state DOTs. With concurrence from the project panel, the report therefore considers policy actions that a state DOT could pursue on its own initiative, along with actions that might require state legislation, a governor’s executive order, or collaboration with other state agencies.

11 1.4 Organization of the Report Figure 1.1 shows the logical flow of the analysis for this study, which in turn shapes the organization of the report. To understand how evolving fuel sources, vehicle technologies, and prices might affect state DOTs, it was useful to consider current DOT roles, mandates, funding, and operations, as well as how they are evolving over time. In parallel, the team also investigated trends and future prospects for a range of tech- nical, socio-demographic, and policy variables likely to influ- ence future transportation energy outcomes. Based on this research, and with additional input from a series of interviews with subject matter experts, it was possible to construct a set of future transportation energy scenarios for the 2040 to 2060 time frame. In essence, the scenarios represent plausible ranges or outcomes for various factors of interest—such as the price of oil, the mix of fuels used to propel the vehicle fleet, growth in passenger vehicle travel, and future federal energy policies. After developing the scenarios, the team conducted a second set of interviews, this time with state DOT staff, to consider how some of the plausible futures might affect DOTs, along with appropriate policy responses. Beginning with state DOT staff suggestions as a starting point, the next steps were to outline a more comprehensive set of strategies that states might find helpful in mitigating certain impacts and to carefully assess the strengths and limitations of each. Finally, the team employed the principles of RDM to construct a framework for assisting state DOTs to develop effective long-range plans for addressing uncertain but potentially significant changes in future trans- portation energy sources, technologies, and prices, which was further refined in a follow-on workshop with state DOT staff. In essence, the framework offers a logic for selecting, combin- ing, and timing the pursuit of certain strategies, with the aim of minimizing the chances of regret—that is, minimizing the chances of either investing in a strategy that proves unnecessary given how the future unfolds or failing to have implemented a strategy that would have been useful. The organization of the report follows the logical flow shown in Figure 1.1. Following this introduction, Chapter 2 discusses current and evolving roles, mandates, funding, and operations for state DOTs. Providing this information at the outset offers helpful insights into some of the ways that evolv- ing transportation energy supplies might affect state DOTs and also suggests useful factors to include within the future trans- portation energy scenarios developed for the study. Next, Chapters 3 and 4 summarize background research used to help develop the range of plausible transportation energy futures. Chapter 3 discusses the current status along with future opportunities and barriers for some of the more promising fuel and vehicle technologies available. These include anticipated advances for conventional vehicles along with prospects for natural gas, biofuels, electric vehicles, and hydrogen fuel-cell vehicles, both in the light-duty fleet (cars and light trucks) and medium- and heavy-duty vehicle applications. Chapter 4 considers broader socio-demographic and policy factors that may also play a role in determining future travel demand and mode choice, and in turn aggregate transportation energy consumption. These include trends in population, economy, and land use, along with current policy debates in the areas of energy, climate, and transportation funding. Drawing on this background research, Chapter 5 presents the plausible transportation energy scenarios developed for the study, which consist of a series of elements divided into three categories: energy, travel, and federal policy. Energy-related ele- ments, such as the future price of oil and the mix of fuel types in use within the on-road fleet, describe possible evolutions DOT Roles, Mandates, Funding, Ops. Influencing Variables Robust Decision-Making Analysis Expert Interviews Transportation Energy Scenarios Strategy Assessment Scenario Impacts State DOT Interviews State DOT Workshop Support for State DOT Long-Range Planning Figure 1.1. Logical flow of the analysis.

12 The report then includes a series of appendices that provide more details about certain facets of the analysis. First, Appendi- ces A, B, C, D, and E contain detailed discussions of the potential fuels and vehicle technologies likely to compete for market share within the light-duty fleet (passenger cars and light-duty trucks) in the coming decades. These include conventional petroleum- fueled vehicles, natural gas, biofuels, electric vehicles, and hydro- gen. Appendix F then discusses the promise of some of these fuels and technologies in the context of medium- and heavy- duty vehicle applications. The summary discussion of fuels and vehicle technologies in Chapter 3 draws on the data and analysis presented in these six appendices. Next, Appendices G and H provide additional discussion of some of the broader socio-demographic and policy fac- tors that could influence future energy and travel outcomes. Appendix G focuses on trends in population, economy, and land use, while Appendix H considers ongoing debates and future prospects for federal policies relating to energy, climate, and transportation funding. The summary material in Chap- ter 4 draws on the findings from these two appendices. Finally, Appendices I, J, K, L, and M present and assess strategies that state DOTs might find helpful in responding to or, alternatively, seeking to influence, an uncertain energy future. Appendix I considers strategies aimed at stabilizing or enhancing transportation funding, while Appendix J examines strategies tailored to help reduce DOT costs. Next, Appendix K encompasses strategies to improve auto and truck travel—for example, to reduce congestion or to improve traffic safety, while Appendix L considers strategies to enhance other modes of travel. Appendix M then examines strategies that states might employ to foster greater energy efficiency or increased use of alternative fuels. References BTS. 2012a. Table 1-40: U.S. Passenger Miles. National Transportation Statistics. http://www.rita.dot.gov/bts/sites/rita.dot.gov.bts/files/ publications/national_transportation_statistics/html/table_01_40. html (accessed March 14, 2013). BTS. 2012b. Table 1-50: U.S. Ton-Miles of Freight (BTS Special Tabulation). National Transportation Statistics. http://www.rita.dot.gov/bts/ sites/rita.dot.gov.bts/files/publications/national_transportation_ statistics/html/table_01_50.html (accessed March 14, 2013). BTS. 2012c. Table 6-8: Transportation Expenditures by State and Local Governments: 2009. State Transportation Statistics 2011. http:// www.rita.dot.gov/bts/sites/rita.dot.gov.bts/files/publications/state_ transportation_statistics/state_transportation_statistics_2011/ html/table_06_08.html (accessed March 14, 2013). Lempert, R. J., S. W. Popper, and S. C. Bankes. 2003. Shaping the Next One Hundred Years: New Methods for Quantitative Long-Term Policy Analysis. RAND Pardee Center, Santa Monica. ORNL. 2012. Transportation Energy Data Book, Edition 31. U.S. Depart- ment of Energy. in energy use and technologies, and in some cases these may affect state DOTs in a direct way. For example, a significant shift away from petroleum-based fuel would lead to a steep decline in fuel-tax revenue. Next, travel-related elements, such as the growth in automotive or truck travel, are likely to be heavily influenced by evolving energy trends and technologies and will often affect DOTs in a more direct manner. Cheaper per-mile driving costs associated with electric vehicles, for example, could stimulate additional growth in vehicle travel, presenting state DOTs with the challenge of greater traffic congestion. Finally, elements related to federal policies in the areas of energy, climate, and transportation funding are likely to influence both energy and travel trends, and they may also expand or constrain the set of policy choices available to state DOTs in future decades. If the federal government were to allow broader application of tolling on the Interstate system, for instance, a state might gradually replace fuel-tax revenue with greater reliance on toll collection. Chapter 6 identifies the potential impacts of greatest concern for state DOTs. Determined after the future scenarios were con- structed and input was obtained through the state DOT inter- views, these include reduced revenue, increased costs, greater traffic congestion, increased crashes and fatalities, mounting pressure to reduce greenhouse gas (GHG) emissions, diffi- culty in meeting air quality goals, and greater demand for more affordable, non-automotive travel options. Next, Chapters 7, 8, and 9 focus on the policy analysis con- ducted for the study. Chapter 7, also drawing on insights from the state DOT interviews, compiles a set of strategies, or coordi- nated policy actions, that states may wish to consider, either to mitigate the negative impacts associated with certain plausible futures or to enhance the prospects for achieving a more sus- tainable energy future. The chapter also offers a summary of the relative strengths and limitations for each of the strategies con- sidered. Building on this assessment, Chapter 8 employs RDM principles to create a framework intended to assist state DOTs in the development of robust long-range plans for addressing an uncertain energy future. The framework distinguishes between strategies appropriate for near-term action and strategies that can be safely deferred until more information about the future becomes available, as well as between strategies entailing either lower or higher degrees of risk. Chapter 9 then explores pos- sible ways in which individual states can tailor elements of the robust decision-making framework to meet their own contex- tual challenges. For example, the set of strategies selected to mitigate a given challenge might vary depending on whether a state has a large metropolitan population or is instead largely rural. Chapter 10, which concludes the main body of the report, offers some suggestions for additional research that could complement the findings from this study.