Climate and energy security concerns have prompted policy action in the United States and abroad to reduce petroleum use and greenhouse gas (GHG) emissions from passenger vehicles. Policy affects the decisions of firms and households, which inevitably react to changing constraints and incentives. Developing and applying models that capture the technological and behavioral richness of the policy response, and combining model insights with analysis of political feasibility, are important agendas for both research and policy. This work makes four distinct contributions to these agendas, focusing on the case of climate and energy policy for passenger vehicles in the United States.

First, this work contributes to econometric studies of the household response to gasoline prices by investigating whether or not U.S. households alter their reliance on higher fuel economy vehicles in response to gasoline price changes. Using micro-level household vehicle usage data collected during a period of gasoline price fluctuations in 2008 to 2009, the econometric analysis shows that this short-run vehicle switching response, while modest, is more pronounced for low income than high income households, and occurs on both a total distance and per trip basis.

Second, this work makes a methodological contribution that advances the state of empirical modeling of passenger vehicle transport in economy-wide macroeconomic models. The model developments include introducing an empirically-based relationship between income growth and travel demand, turnover of the vehicle stock, and cost-driven investment both in reduction of internal combustion engine (ICE) vehicle fuel consumption as well as in adoption of alternative fuel vehicles and fuels. These developments offer a parsimonious way of capturing important physical detail and allow for analysis of technology-specific policies such as a fuel economy standard (FES) and renewable fuel standard (RFS), implemented individually or in combination with an economy-wide cap-and-trade (CAT) policy. The new developments within the model structure are essential to capturing physical system constraints, interactions among policies, and unintended effects on non-covered sectors.

Third, the model was applied to identify cost-effective policy approaches in terms of both energy and climate goals. The RFS and FES policies were shown to be at least six to fourteen times as costly as a gasoline tax on a discounted basis in achieving a 20% reduction in cumulative motor gasoline use. Each of these policies was shown to have only a small effect on economy-wide carbon dioxide emissions. Combining a fuel economy standard and a renewable fuel standard produced a gasoline reduction around 20% lower than the sum of forecasted reductions under each of the policies individually. Under an economy-wide CAT policy that targets GHG emissions reduction at least cost, obtaining additional reductions in passenger vehicle gasoline use with RFS or FES policy increases the total policy cost, and does not result in 4 of 225 additional reductions in GHG emissions. The analysis shows the importance of integrated assessments of multiple policies that act on separate parts of a system to achieve a single goal, or on the same system to achieve distinct goals.

Fourth, a political analysis shows how, in the case of climate and energy policy for passenger vehicles, sharp trade-offs exist between economic efficiency and political feasibility. These tensions are shown to exist at the level of policy justification, policy type, and design choices within policies. The pervasiveness of these tensions suggests that economically-preferred policies will face the greatest barriers to implementation.

This work concludes by integrating the findings from each of the individual parts to make recommendations for policy. Recognizing the heterogeneity of household responses, the prescriptions of the economic analysis, and the tensions between these prescriptions and political considerations, policy options should be evaluated not only based on cost effectiveness, but also on their ability to serve as stepping stones toward desirable end states by providing incentives to revisit and increase policy cost effectiveness over time.

In 2003 Japan proposed a Climate Change Tax to reduce its CO2 emissions to the level required by the Kyoto Protocol. If implemented, the tax would be levied on fossil fuel use and the revenue distributed to several sectors of the economy to encourage the purchase of energy efficient equipment. Analysis using the MIT Emissions Prediction and Policy Analysis (EPPA) model shows that this policy is unlikely to bring Japan into compliance with its Kyoto target unless the subsidy encourages improvement in energy intensity well beyond Japan's recent historical experience. Similar demand-management programs in the U.S., where there has been extensive experience, have not been nearly as effective as they would need to be to achieve energy efficiency goals of the proposal. The Climate Change Tax proposal also calls for restricting Japan's participation in the international emission trading. We consider the economic implications of limits on emissions trading and find that they are substantial. Full utilization of international emission trading by Japan reduces the carbon price, welfare loss, and impact on its energy-intensive exports substantially. The welfare loss with full emissions trading is one-sixth that when Japan meets its target though domestic actions only, but Japan can achieve substantial savings even under cases where, for example, the full amount of the Russian allowance is not available in international markets.

© 2006 Springer Science & Business Media

We use the MIT Integrated Global System Model (IGSM), which couples a global climate/chemistry model, a Global Land System for terrestrial hydrology and ecology, and the Emissions Prediction and Policy Analysis (EPPA) model. EPPA is a global, applied general equilibrium model of economic growth, international trade, and greenhouse gas emissions (CO2, CO, CH4, SO2, NOx, N2O, NH3, CFCs, PFCs, HFCs, SF6) from a set of trade-linked economic regions. Holistically, the IGSM is used to analyze the processes that produce greenhouse-relevant emissions, and to assess the climate and economic consequences of policy proposals intended to control these emissions. In conjunction with the recent CCSP exercise, a suite of emission/stabilization scenarios (450, 550, 650, 750 ppm, and BAU) generated by EPPA has been employed. For each of these emission scenarios, we perform a 400-member ensemble simulation with the IGSM, which samples combinations of plausible states of climate sensitivity, ocean heat uptake, precipitation frequency change, and ecosystem fertilization effect. We present results (mainly via PDF analyses) that quantify the range of response of various climate, hydrologic, ecologic and socio-economic sectors, and how various climate policies affect these trajectories.