Earlier today on public radio, the Secretary of Transportation, Ray LaHood, stated that American drivers want smaller cars, in part, to help address the problem of climate change.  Similarly, when the White House recently sought to further increase the fuel efficiency of vehicles, it noted that doing so represented an important opportunity to reduce carbon emissions. 

It is true that increasing fuel efficiency will reduce carbon emissions.  And there is no question that increasing fuel efficiency is required to reduce the U.S. economy’s dependence on oil with all its attendant effects.  But to the extent that one’s goal is to reduce carbon emissions, reducing gasoline emissions is not particularly cost-effective as compared to achieving reductions from power plants.  In other words, if one was looking for the most cost-effective means to reduce carbon emissions, they would focus of reducing power plant emissions and not automotive emissions.

According to the Energy Information Administration, the transportation sector is responsible for approximately one third of all U.S. carbon emissions.  (See, http://www.eia.doe.gov/oiaf/1605/ggrpt/carbon.html.)  If it was equally efficient to reduce carbon emissions from all sectors of the economy, them one would expect that in response to any policy to achieve carbon emission reductions at a particular cost level, that each sector of the economy would contribute a percentage of the reduction in emissions equal to its percentage of overall emissions.  In other words, a sector that was responsible for 33 percent of the emissions, for instance, would also be responsible for 33 percent of the reductions.  In fact, that is not what happens.  For nearly any level of emission reductions sought, the transportation sector contributes a smaller percentage of overall reductions that it represents of overall emissions. 

This point is demonstrated clearly in two studies, one by the Energy Information Administration and the other by McKinsey & Company.   In a 2006 EIA study entitled Energy Market Impacts of Alternative Greenhouse Gas Intensity Reduction Goals, EIA analyzed 4 different cap-and-trade scenarios.  (See http://www.eia.doe.gov/oiaf/servicerpt/agg/pdf/sroiaf(2006)01.pdf.)  As part of its analysis, it calculated what percentage of reductions would come from each sector of the economy.  As is depicted in Figure 12 on page 18 of the report, in each scenario only a tiny portion of the emission reductions would come from the transport sector.  Similarly, a 2007 report by McKinsey & Co. entitled Reducing U.S. Greenhouse Gas Emissions: How Much at What Cost?, identified three cases that would lead to three different levels of carbon emission reductions.   (See http://www.mckinsey.com/clientservice/ccsi/pdf/US_ghg_final_report.pdf.)  Once again, the report concluded that if one were to take all opportunities to abate CO2 emissions at a cost of less than $50 CO2, and divide them into five clusters (buildings & appliances, transportation, industry, carbon sinks and power), only 0.3 gigatons of reductions would occur in the transportation sector in the mid-case range, and 0.7 gigatons in the high-range case, representing 10 percent of all reductions in the mid-case scenario and 15 percent in the high-case scenario.  (McKinsey report at p. xiv, Exhibit C.) 

The reason that transportation contributes a smaller portion of the reductions than its share of emissions is that well-designed emission reduction schemes seek to achieve the reductions in the lowest cost means possible.  And, it is much cheaper to achieve reductions in power plants and increased efficiency of things that use power than from cars.  Light duty vehicle emissions are distributed among over 250 million vehicles on the road in the U.S.  But power plant emissions are concentrated in less than 15,000 power plants.  Relatively speaking, it is easier to address emissions at 15,000 power plants than 250 million vehicles.  It is true that it is cost effective to increase automotive efficiency a little, which is why transportation emissions do fall somewhat at $50 a ton for CO2 equivalent.  But greater efficiency increase from cars become quite expensive. 

The importance of this point is that while addressing climate change and energy security call for a complementary set of policies, they are not substitutes.  One could address energy security without making significant progress towards addressing climate change.  Likewise, one could address climate change without making significant progress towards addressing energy security.  If we are to address both problems, they will require different, though not inconsistent solutions.  Let’s remember that as Congress works its way through climate and energy legislation this year.

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