Policy Brief: Reducing the U.S. Transportation Sector's Oil Consumption and Greenhouse Gas Emissions

March 5, 2010

This policy brief from the Belfer Center for Science and Internaitonal Affairs is based on Belfer Center paper #2010-02 and an article published in Energy Policy, Vol. 38, No. 3.

Authors:W. Ross Morrow, Former Research Fellow, Energy Technology Innovation Policy research group, 2008–2009; Henry Lee, Director, Environment and Natural Resources Program; Kelly Sims Gallagher, Senior Associate, Energy Technology Innovation Policy research group; and Gustavo Collantes, Former Research Fellow, Energy Technology Innovation Policy Research Group/Enviroment and Natural Resources Program, 2007-2008.

Bottom Lines

  • Harder Than it Looks. Reducing oil consumption and carbon emissions from transportation is a much greater challenge than conventional wisdom assumes. It will require substantially higher fuel prices, ideally in combination with more stringent regulation.
  • Higher Gasoline Prices Essential. Reducing carbon dioxide (CO2) emissions from the transportation sector 14% below 2005 levels by 2020 may require gas prices greater than $7/gallon by 2020.
  • Tax Credits Expensive. While relying on subsidies for electric or hybrid vehicles is politically seductive, it is extremely expensive and an ineffective way to significantly reduce greenhouse gas emissions in the near term.
  • Climate and Economy Not a Zero Sum Game. Aggressive climate change policy need not bring the economy to a halt. Even under high-fuels-tax, high-carbon price scenarios, losses in annual GDP, relative to business-as-usual, are less than 1%, and the economy is still projected to grow at 2.1-3.7% per year assuming a portion of the revenues collected are recycled to taxpayers.

Oil security and the threat of climate disruption have focused attention on the transportation sector, which consumes 70% of the oil used in the United States.

This study explores several policy scenarios for reducing oil imports and greenhouse gas emissions from transportation.

  1. Business as usual (based on the Department of Energy's 2009 Annual Energy Outlook).
  2. An economy-wide CO2 tax, with prices starting at $30/t of CO2 in 2010 and escalating to $60/t in 2030. (This tax serves as a surrogate for a cap-and-trade system like that proposed in the pending American Clean Energy and Security Act.) Tax revenue is returned to consumers through income tax reductions.
  3. The economy-wide CO2 tax, plus a strong gasoline and diesel tax. ($0.50/gal in 2010 and increasing 10% per year, relative to the previous year and in real terms, resulting in a $3.36/gal tax in 2030.)
  4. The economy-wide CO2 tax, plus improved Corporate Average Fuel Economy (CAFE) standards during 2020-2030, reaching a new standard of 43.7 mpg in 2030.
  5. The economy-wide CO2 tax plus aggressive performance-based tax credits for alternative motor vehicles.
  6. The United States adopts all of these policies.

These scenarios were analyzed using the National Energy Modeling System (NEMS), an energy-economic equilibrium model of energy markets in the United States, maintained by the Department of Energy's Energy Information Administration (EIA). As with any modeling exercise, the results rely on the assumptions built into the model and thus should be interpreted as an indication of the direction and magnitude of potential policy impacts rather than an exact prediction.

For the results, conclusion and to read more (including a PDF of the Policy Brief), visit theBelfer Center Web site.

The policy brief explores policy scenarios for reducing oil imports and greenhouse gas emissions from the transportation sector, which consumes 70 percent of the oil used in the United States.

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