Cap and Trade and Transportation Sector Specific Policies

Focus Area

Climate Change

Subcommittee

Air Quality, Environmental Process

Status

Archived

Cost

$250,000-$499,000

Timeframe

Unknown

Research Idea Scope

Problem
How would pursuing transportation sector specific policies in conjunction with a cap and trade system change the price of allowances, alter the share of emissions reductions from transportation, and impact costs and benefits in the transportation sector?
 
Objective
Draft climate change legislation includes measures specific to the transportation sector as well as establishing an economy-wide cap and trade system.  The rationale is that without complementary measures, most greenhouse gas emission reductions would come from other sectors as a cap and trade system would only increase gasoline costs by about 20 cents per gallon.  This is not a problem inherently, since if there are more cost effective greenhouse gas (GHG) reductions to be made in other sectors, then it is more efficient for the economy as a whole for the reductions to come from those other sectors.  However, if there are market failures that reduce the reaction to higher prices, then pursuing additional measures can lower implementation costs by compensating for market failures. 
 
There is evidence that some aspects of transportation, as well as other sectors, may exhibit market failures. For instance, consumers tend to undervalue fuel savings in vehicle purchase decisions. That leads to the conclusion that a cap and trade system can serve as the central policy to guide cost-effective GHG reductions, while complementary policies (additional policies that work with the main cap and trade policy) also may be pursued to lower implementation costs by compensating for market failures when they exist. 
 
Tighter fuel economy standards, GHG standards, biofuel incentives, funding for vehicle research, and transportation planning requirements are all types of policies that are under discussion to be pursued in conjunction with cap and trade.  How would pursuing transportation sector specific policies in conjunction with cap and trade change the price of allowances, alter the share of emissions reductions from transportation, and impact costs in the transportation sector?  Universities, government agencies, and other researchers have used complex economic models to estimate allowance prices and GHG reductions from other sectors.  Examples include EPA’s ADAGE model.  However, researchers have not included complementary transportation measures in these models.
 
Related Work
·        EPA and DOE analyses of Waxman-Markey and Lieberman-Warner.
·        MIT analysis
 
Urgency/PriorityDraft transportation reauthorization legislation and climate change legislation are currently being considered in Congress. Information on how transportation sector specific policies would interact with cap and trade is important for cost-effective public policy.

Urgency and Payoff

Implementation
The research could help inform national policy.
 
EffectivenessThe project would help the transportation sector reduce greenhouse gas emissions, a very important goal as transportation accounts for about a third of U.S. carbon emissions and science indicates that emissions must be reduced substantially to avoid dangerous climate change impacts.

Suggested By

RNS. Sponsoring Committee: A0020T, Special Task Force on Climate Change and Energy Source Info: Special Task Force on Climate Change & Energy January 2010 Workshop

Submitted

08/06/2010