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  An Introduction to Climate Change Legislation

Table of Contents | Foreword | Preface | Executive Summary | Overview | Contributors | Participants and Staff


Transport Policies to Reduce CO2 Emissions from the Light-Duty Vehicle Fleet

Raymond J. Kopp


  • Transport is the second-largest source of carbon dioxide (CO2) emissions and household vehicle use alone accounts for roughly 16 percent of total U.S. emissions. These emissions have been growing roughly 1.5 percent per year.
  • Three factors affect CO2 emissions from light-duty vehicles: vehicle use (typically expressed as vehicle miles traveled or VMT), fuel economy (typically expressed in miles per gallon or mpg), and net greenhouse gas (GHG) emissions associated with the production and consumption of the transportation fuel(s) used. Fuel economy in turn is affected by vehicle characteristics as well as by operating conditions and practices. Growth in VMT has been the principal driver of rising emissions from the light-duty vehicle fleet, since fleet fuel economy and fuel carbon content have remained relatively unchanged over the past decade.

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Transport Policies to Reduce CO2 Emissions from the Light-Duty Vehicle Fleet

  • An emissions tax or cap-and-trade system (or other carbon pricing mechanism) is the only incentive policy that simultaneously address all three of these factors, efficiently allowing trade-offs among them. Policies that target vehicle fuel economy or fuel carbon content, by contrast, do not provide incentives for reducing VMT.

  • Concern about whether consumers properly value fuel economy when purchasing vehicles has led to an emphasis on policies that directly address fuel economy rather than increase the price of fuel. Historically, the primary policy tool for influencing transport-sector energy use has been the Corporate Average Fuel Economy (CAFE) program. Although recent reforms to CAFE as it applies to light trucks have likely improved the program's economic efficiency, further changes could potentially yield additional improvements in cost effectiveness. Such changes could include allowing trading across fleets and manufacturers, incorporating a "safety valve" or other cost-containment mechanism, and shifting to a "feebate" system.

  • A cap-and-trade mechanism for CO2 emissions could be designed to focus on vehicle manufacturers. Based on expected lifetime emissions, it would look very similar to a tradable CAFE or feebate program, except that it would tend to raise the price of all vehicles to reflect their projected future emissions, not just those with low fuel economy. Such a program could be modified to encourage manufacturers to produce vehicles that utilize lower-carbon transportation fuels, such as biofuels, electricity, or eventually hydrogen.

  • Fuel standards have also been proposed to address apparent obstacles to the deployment of low-carbon fuels, such as the interconnectedness of infrastructure, vehicle fuel flexibility, and fuel production and distribution. In their most flexible and hence most cost-effective form, these proposals specify an average life-cycle emissions rate per gallon that must be met in aggregate (where the life-cycle emissions rate includes emissions from all stages in the production and use of different fuels).

  • When assessing the merits of policies designed to alter the carbon intensity of transport fuels and energy sources, one must consider carbon impacts from the entire fuel cycle, taking into account the technologies and energy sources used to produce and distribute new fuels as well as emissions at the point of use. This is especially true for vehicles powered by biofuels, electricity, or hydrogen where upstream factors have a large impact on full fuel-cycle GHG characteristics.

  • Although both a carbon tax and an emissions cap-and-trade mechanism address all three drivers of transport-sector GHG emissions, concern about other market failures - along with the view, held by some, that typical CO2 market prices will not produce the level of emissions reductions needed from this sector - makes it likely that complementary policies to address vehicle fuel economy and fuel carbon content will be adopted, either in addition to or instead of a CO2 pricing policy for transport-sector GHG emissions. The rationale for such policies does not rest on economic cost or efficiency arguments, but rather brings in a number of other policy judgments and objectives that are often deemed important.

  • There is no doubt that an economy-wide carbon price would align all incentives in the right direction and is needed. Additional policies may be useful, however, for the reasons noted above. To the extent that such policies are adopted, economic-efficiency considerations argue for maximizing cost flexibility to the extent possible (for example, by applying either trading or price-based mechanisms). Ideally, policymakers should seek to provide simultaneous incentives for vehicle manufacturers to continually improve fuel economy, for fuel providers to produce fuels with lower life-cycle carbon emissions, and for households to reduce VMT.

  • If it proves necessary over time to undertake very deep reductions in transport-sector emissions, fundamentally new technologies, infrastructure, and related institutions could be needed. Policies that may work well in the near term to elicit early emissions reductions at a reasonable cost may not be as effective in a context where much deeper reductions and significant technology breakthroughs are required.


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