Transportation Emissions Response to Carbon Pricing Programs

Author(s): Craig Raborn

Published: September 2009

download: working paper (.pdf) >

Transportation accounts for approximately one‐third of greenhouse gas (GHG) emissions in the United States, and how it is treated in federal climate change policy will have a significant impact on the nation’s efforts to reduce GHG emissions. Most leading proposals for U.S. climate change policy would implement an economy‐wide cap‐and‐trade program that restricts the amount of GHG emissions and allows trading of permits between emitters, allowing them to either reduce emissions or purchase permits. Because the number of permits available each year declines, the price of carbon is expected to increase. The result is a market force effect in which the increasing price on carbon encourages users to find various ways to reduce emissions and avoid paying these costs. An economy‐wide cap‐and‐trade program allows the market to find the lowest‐cost and most efficient emissions reductions. An inclusive cap‐and‐trade program that covers all sectors of the economy ensures that the cap can be met with reductions from any potential cost‐effective source. Cap‐and‐trade is not intended to result in an equal distribution of efforts across sectors. Because emissions from different sectors have different costs of reduction, sectors will reduce emissions at different rates. As the transportation sector is a significant source of emissions, understanding how a cap‐and‐trade program affects this sector can help policymakers design optimal policies.