This paper analyzes five different options for incorporating the transportation sector into a carbon cap-and-trade program. An upstream system at the refinery or importer level would be administratively simple, but would lead to minimal reductions in transportation emissions due to inelastic demand for driving; in effect, emissions reductions would be exported to the electricity generation and industrial sectors. A downstream system at the household level would lead to similar changes in emissions, but raise major administrative and privacy issues. Greater changes in behavior might result from a vehicle manufacturer-based scheme, but there are complex administrative issues and tailpipe standards appear to be achieving the same result. An offset system would provide financial incentives for a wider range of abatement measures, including those undertaken by local governments such as Smart Growth zoning, parking pricing and transit improvements. Empirical experience with the Clean Development Mechanism, however, suggests that transportation offsets, particularly those reliant on travel behavior changes, face significant hurdles in proving additionality and documenting emissions savings. This paper therefore proposes a municipal mobility manager trading design, under which local governments would assume responsibility for transportation emissions. This would give them the same financial incentives to implement abatement measures as under an offset scheme, but avoid the methodological and administrative challenges. The paper also argues that any design for including transportation in a carbon trading program will be beneficial, as it would avoid the tendency to overallocate permits to other sectors and force more realism in the expected emissions reductions from transportation.
Abstract