Transportation's Role in Reducing U.S. Greenhouse Gas Emissions ...

Transportation's Role in Reducing U.S. Greenhouse Gas Emissions: Volume 1
transportation energy technologies and would not guide important investments
in transportation infrastructure and the built environment.” 150
However, complementary policies would need to be carefully chosen and
designed to avoid overlap or increasing rather than decreasing implementation
costs. In order to reduce total compliance costs, a complementary measure
would need to be designed to compensate for a market failure that prevents
higher allowance prices from inducing efficiency improvements. Also, the
stringency or scale of the complementary policy would need to be set to generate
net benefits at allowance prices equal to or lower than those generated by the cap
and trade program.
Complementary measures could lower implementation costs but would not reduce
national emissions levels
Because the national cap controls the total quantity of emissions, additional
reductions in one sector caused by a complimentary policy permit increased
emissions in another sector. The benefit of the complementary policy then is
economic—lowering implementation costs—rather than environmental.
Implications for alternative fuels
A cap and trade program also would have distinctive effects on alternative fuels,
with implications for complementary policies in this area. Synthetic fuels
derived from coal or natural gas without carbon sequestration will become even
more expensive than they are currently. Biofuels that depend on conventional
fuel for process heat, and for petroleum-based transport for feedstocks or the fuel
itself, will see some incremental cost increase.
In addition, biofuels may face increased competition for feedstocks under a cap
and trade program. The grower of a ‘fast rotation woody crop’ suitable for
conversion into cellulosic ethanol, for instance, could leave this crop standing
and sell the sequestered carbon as an offset. Or, he could harvest the crop, and
sell the crop into the electric power sector as biomass fuel to replace coal. Or, he
could sell the crop to be processed into ethanol. Under cap and trade, market
forces will move the crop to the ‘best’ use for achieving emission reductions.
Alternative uses for biomass as energy or sequestration crops under cap and
trade may tend to raise the value of land and water, which will further affect
biofuel economics.
Distribution of revenues could further affect transportation and consumers
Since the price elasticity of demand for fossil fuels is low, while the volume of
fossil fuels is large, a cap and trade system that significantly constrains emissions
could potentially raise large revenues. Allowances are valuable. If all, or a
150 D. L. Greene and A. Schafer (2003). Reducing Greenhouse Gas Emissions from U.S.
Transportation. Pew Center on Global Climate Change.
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