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

Transportation's Role in Reducing U.S. Greenhouse Gas Emissions: Volume 1
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in 2030, corresponding to a $65 per tonne allowance price. 99 A carbon tax
instituted at a comparable level to the permit price of a cap and trade system
would have similar impacts. Increasing the Federal motor fuels tax would also
have a similar impact, but would only raise prices on gasoline and diesel, rather
than applying to all fuels based on carbon content. 100 This section does not
examine the impact of carbon pricing on aviation or maritime industries.
Costs to the broader economy of cap and trade proposals are estimated on the
order of less than one percent of U.S. gross domestic product (GDP) in 2030 and
two percent of GDP in 2050. Both a carbon tax and a cap and trade system could
be made more socially equitable by, in the case of a carbon tax, giving rebates to
low income households, and in the cap and trade system, compensating low
income households using a portion of the revenue from the auction of
allowances. 101
3.8 KEY INTERACTIONS
Many of these strategies interact to produce different outcomes in total GHG
reductions. The benefits of each strategy (or group of strategies) are not additive,
and in fact may be reduced depending on other strategies that are implemented.
On the other hand, some strategies are complementary and their effectiveness is
likely to be enhanced if implemented in combination with each other. As
examples:
• The effect of market mechanisms and vehicle efficiency standards would be
somewhat overlapping. An increase in the cost of carbon should provide
incentives for the development and purchase of more efficient vehicles as
well as for reducing travel. The GHG reductions from vehicle efficiency
improvements would therefore be the maximum of those caused by the fuel
price increase or those set by regulatory standards—not the sum of the
impacts if either were applied individually. With higher CAFE standards
already in place, the most cost-effective fuel efficiency technologies would
already be adopted, meaning that the additional benefits of modestly higher
fuel prices under a cap and trade system are small. A recent U.S. DOE
analysis of proposed cap and trade legislation found that additional fuel
efficiency improvements would be very modest—about 1.2 percent for light-
99 The modeling performed by EIA finds that gasoline prices change under a policy
scenario not only because of the direct impact of the allowance requirement, but also
because of general equilibrium effects, such as a lower demand for fuels leading to
slightly lower world crude oil prices.
100 Vol. 1 Sec. 4.1.
101 Vol. 1 Sec. 4.1.