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

Transportation's Role in Reducing U.S. Greenhouse Gas Emissions: Volume 1
efficient vehicles, improved system efficiency, and travel alternatives brought on
by a cap and trade system or complementary policies.
Complementary Policies under Cap and Trade
A cap and trade system should, in theory, minimize the economic cost of a given
level of emission reductions, and render additional strategies redundant. Under
a cap and trade system, those sectors with the most cost effective emission
reduction strategies available will reduce emissions and sell allowances to other
sectors that are not able to reduce emissions as cost effectively. In theory, if it is
more costly to reduce emissions from transportation than from electric power
generators for instance, then it is economically efficient for most emission
reductions to come initially from the other sectors while deferring significant
transportation reductions until some time in the future. The environmental
benefits of reducing directly emitted, long-lived GHGs such as carbon dioxide do
not depend on where or how reductions occur.
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. 144 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 where they can be demonstrated to lower
implementation costs by compensating for market failures when they exist. 145
A recent McKinsey report finds several strategies that could reduce GHGs while
saving substantial sums of money. 146 These actions include insulating buildings
and purchasing more efficient household appliances and vehicles that would
save consumers more in reduced energy costs than it would cost them in up
front costs. The National Highway Traffic Safety Administration (NHTSA)
estimates that its recent model year 2011 fuel economy standard will reduce
greenhouse gas emissions at a net savings of $1.5 billion over the time period
144 Greene, D. L., J. German, and M. A. Delucchi (2009). “Fuel Economy: The Case for
Market Failure.” In Reducing Climate Impacts in the Transportation Sector, D. Sperling
and J. S. Cannon, eds, Springer.
145 There may be additional value in reducing emissions from a particular source or
category of sources: for instance, reducing petroleum consumption may produce
economic or national security benefits over and above the benefits of reducing the
associated greenhouse gas emissions.
146 McKinsey & Company (2007). Reducing U.S. Greenhouse Gas Emissions: How Much at
What Cost?
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