Reducing Oil Dependence through Energy and Climate Policy

Fuel use in the transportation sector is widely regarded to be less sensitive to changes in price, relative to electricity and other sectors of the economy, due in part to limited availability of transportation options and substitutes for petroleum fuels. Recent swings in fuel prices, corresponding demand responses, and other research suggest, however, that modest price signals — especially sustained price signals — can spur investments in clean transportation and create significant benefits for the transportation sector. Options to create a carbon price through a fee on transportation fuels can be designed to be as effective and predictable as other policy options based on tradable allowances. Any revenues generated through such policies can be returned to consumers and businesses, reinvested in transportation infrastructure and advanced vehicle and fuel technology, or directed to a combination of public uses.

In April 29, 2010, the Environmental and Energy Study Institute (EESI) held a briefing to examine the potential effects of pending energy and climate legislation on the transportation sector and U.S. dependence on oil. Policies that create a sustained and predictable price on carbon for transportation fuels have the potential to promote fuel-efficient vehicles, low-carbon fuels, and more energy-efficient transportation decisions by businesses and consumers. However, how such a price is determined, how it is applied, and how generated revenues are used can greatly influence the benefits and costs of such a policy. This briefing focused on the economic and environmental implications of alternative ways to reduce oil use and greenhouse gas emissions in the transportation sector and how key stakeholders are likely to respond.