Energy & Technology

A Climate Policy Framework: Balancing Policy and Politics


"A Climate Policy Framework: Balancing Policy and Politics"
Proceedings from the joint Aspen Institute/Pew Center Conference,
March 2004

A diverse group of business, government, and environmental leaders, brought together by the Aspen Institute and the Pew Center, recommends a framework for a mandatory greenhouse gas reduction program for the United States. The group started with the premise that, if mandatory action is taken, climate policies should be environmentally effective, economical and fair. After a three-day dialogue, the participants reached consensus on a policy framework that is both effective and politically feasible.


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U.S. Technology and Innovation Policies: Lessons for Climate Change

US Technology  Innovation Policies

U.S. Technology and Innovation Policies: Lessons for Climate Change

Prepared for the Pew Center on Global Climate Change
November 2003

John A. Alic, Consultant
David C. Mowery, University of California, Berkeley
Edward S. Rubin, Carnegie Mellon University

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Eileen Claussen, President, Pew Center on Global Climate Change

New technologies for electric power generation, transportation, industry, and consumer products are expected to play a major role in efforts to reduce the greenhouse gas (GHG) emissions that contribute to global climate change.   Yet technological change on this scale cannot happen overnight.  Government policies will be instrumental in encouraging more rapid development and adoption of technology.  In the United States—long a leader in innovation—well-crafted policies that encourage the development, deployment, and diffusion of new technologies will be essential complements to other GHG-reduction policies.                     

The Pew Center commissioned this report to examine U.S. experience with technology and innovation policies—both successes and failures—and to draw lessons for future applications, including efforts to address climate change.   The authors found that because innovation is a complex, iterative process, different policy tools can be employed as catalysts at various phases (e.g., invention, adoption, diffusion). They also discuss the roles that intellectual property protection and regulatory policies play in driving innovation, and examine programs such as the Defense Advanced Research Project Agency (an innovative force in information technology), as well as public-private collaborations such as the Partnership for a New Generation of Vehicles, to glean lessons for climate change policy.  The insights revealed are clear: 

  • A balanced policy portfolio must support not only R&D, but also promote diffusion of knowledge and deployment of new technologies: R&D, by itself, is not enough.
  • Support for education and training should supplement research funding.
  • “Non-technology policies” provide critical signposts for prospective innovators by indicating technological directions likely to be favored by future markets.
  • Policy-makers should channel funds for technology development and diffusion through multiple agencies and programs, because competition contributes to policy success.
  • Public-private partnerships can foster helpful, ongoing collaborations.
  • Effective programs require insulation from short-term political pressures.
  • Policy-makers must be prepared to tolerate some “failures” (i.e., investments that do not pay off), and learn from them as private sector entrepreneurs do.
  • In light of the inherent uncertainty in innovation processes, government policies should generally support a suite of options rather than a specific technology or design.

Technology policies, while important, cannot by themselves achieve the GHG reductions necessary to mitigate climate change.  Rather, they should be part of a comprehensive approach that includes “non-technology policies,” such as a GHG cap and-trade program.  The authors and the Pew Center thank Bob Friedman, Ken Flamm, David Hart, and Ev Ehrlich for commenting on previous report drafts.

Executive Summary

Large-scale reductions in the greenhouse gases (GHGs) that contribute to global climate change can only be achieved through widespread development and adoption of new technologies. In the United States, energy consumption is the dominant source of GHG emissions. Most of these emissions consist of carbon dioxide (CO2), which accounts for approximately 84 percent of total GHG emissions. Although other GHGs, such as methane (CH4), have a more powerful effect on global warming per unit of release, CO2 enters the atmosphere in far greater quantities because it is produced whenever fossil fuels are burned. Thus the technological innovations needed to reduce GHG emissions and eventually stabilize GHG concentrations in the atmosphere are those that can, at reasonable cost: (1) improve the efficiency of energy conversion and utilization so as to reduce the demand for energy; (2) replace high-carbon fossil fuels such as coal and petroleum with lower-carbon or zero-carbon alternatives, such as natural gas, nuclear, and renewable energy (e.g., wind and solar); (3) capture and sequester the CO2 from fossil fuels before (or after) it enters the atmosphere; and (4) reduce emissions of GHGs other than CO2 that have significant impacts on global warming.

Although innovation cannot be planned or programmed, and most innovations come from private firms, government policies of many types influence the rate and direction of technological change. This report identifies technology policy tools that have fostered innovation in the past (see summary table below) and draws lessons for GHG abatement. It also briefly discusses other measures such as environmental regulations that would serve to induce innovation.

A Summary of Technology Policy Tools


Direct Government Funding of Research and Development (R&D)

  • R&D contracts with private firms (fully-funded or cost-shared).
  • R&D contracts and grants with universities.
  • Intramural R&D conducted in government laboratories.
  • R&D contracts with industry-led consortia or collaborations among two or more of the actors above.

Direct or Indirect Support for Commercialization and Production; Indirect Support for Development

  • Patent protection.
  • R&D tax credits.
  • Tax credits or production subsidies for firms bringing new technologies to market.
  • Tax credits or rebates for purchasers of new technologies.
  • Government procurement.
  • Demonstration projects.

Support for Learning and Diffusion of Knowledge and Technology

  • Education and training (technicians, engineers, and scientists; business decision-makers; consumers).
  • Codification and diffusion of technical knowledge (screening, interpretation, and validation of R&D results; support for databases).
  • Technical standard-setting.*
  • Technology and/or industrial extension services.
  • Publicity, persuasion, and consumer information (including awards, media campaigns, etc.). 

* Refers only to standards intended to ensure commonality (e.g., driving cycles for comparing automobile fuel economy), or compatibility (e.g., connectors for charging electric vehicle batteries), not to regulatory standards.

The key lessons of this analysis are supported by a large body of literature in economics and other fields concerning the innovation process, and include the following:

  • Technological innovation is a complex process involving invention, development, adoption, learning, and diffusion of technology into the marketplace. The process is highly iterative, and different policies influence outcomes at different stages.
  • Gains from new technologies are realized only with widespread adoption, a process that takes considerable time and typically depends on a lengthy sequence of incremental improvements that enhance performance and reduce costs. For example, several decades passed before gas turbines derived from military jet engines improved in efficiency and reliability to the point that they were cost-effective for electric power generation. Today, gas turbines are the leading technology for new, high-efficiency power plants with low GHG emissions.
  • Technological learning is the essential step that paces adoption and diffusion. “Learning-by-doing” contributes to reductions in production costs. Adopters of new technology contribute to ongoing innovation through “learning-by-using.” Widespread adoption accelerates the incremental improvements from learning by both users and producers, further speeding adoption and diffusion.
  • Technological innovation is a highly uncertain process. Because pathways of development cannot be predicted, government policies should support a portfolio of options, rather than a particular technology or design.

Government policies influence technological change at all stages in the innovation process. Lessons learned from U.S. experience with technology policies over the past several decades include the following:

  • Federal investments contribute to innovation not only through R&D but also through “downstream” adoption and learning. Government procurement of jet engines, for example, accelerated the development of gas turbines by providing a (military) market that allowed users and producers to gain experience and learn by using. Likewise, in the early years of computing, defense agencies made indispensable contributions to a technological infrastructure that propelled the industry’s rise to global dominance.
  • Public-private R&D partnerships have become politically popular because they leverage government funds and promote inter-firm collaboration. Partnerships may have particular advantages in fostering vertical collaborations, such as those between suppliers and consumers of energy.
  • Adoption of innovations that originate outside a firm or industry often requires substantial internal investments in R&D and human resources. Smaller firms may be less able to absorb innovations without government assistance.
  • Just as competition in markets helps resolve uncertainties and improves economic performance, competition within government can improve performance in fostering innovation. The messy and often duplicative structure of U.S. R&D support and related policies creates diversity and pluralism, fostering innovation by encouraging the exploration of many technological alternatives.
  • Because processes of innovation and adoption are lengthy and convoluted, effective policies and programs require insulation from short-term political pressures.Reliable political constituencies have been essential for the development of new technologies in defense, for research in the biomedical sciences, and for agricultural and manufacturing extension. By contrast, technology policies for addressing climate change face a discordant political environment.

Technology policies alone cannot adequately respond to global climate change. They must be complemented by regulatory and/or energy pricing policies that create incentives for innovation and adoption of improved or alternative technologies. Such “non-technology policies” induce technological change, with powerful and pervasive effects. Environmental regulations and energy efficiency standards have fostered innovations that altered the design of many U.S. power plants and all passenger cars over the past several decades. The technological response to climate change will depend critically on environmental and energy policies as well as technology policies. Because climate change is an issue with time horizons of decades to centuries, learning-by-doing and learning-by-using have special salience. Both technology policies and regulatory policies should leave “space” for continuing technological improvements based on future learning. Climate change policy must accommodate uncertainties, not only regarding the course and impacts of climate change itself, but also in the outcomes of innovation.


Greenhouse gas emission reductions will require a broad portfolio of policies to foster technology development and adoption by actors ranging from households to multinational corporations. The policy portfolio should combine technology policies as discussed in this report with other policies to induce innovation and deployment.

A climate change policy package must account for uncertainties in the pace and cost of innovation. Technological evolution is always accompanied by unknowns concerning the levels of performance that can ultimately be achieved, the technological attributes that will prove most attractive to adopters, and the costs of these technologies. Technical design and development are fluid, open-ended activities with multiple choices and tradeoffs and often-ambiguous selection or evaluative criteria. Uncertainties, part and parcel of innovation, can be resolved only through learning processes. These processes are often slow and piecemeal, studded with lessons from both successes and failures. Technology-oriented policies and non-technology policies alike must function in such settings.

Further lessons for climate change policy include the following:

  • Because the benefits of technological innovation come only with widespread adoption, and because adoption and learning are mutually reinforcing processes, the policy portfolio should support diffusion of knowledge and deployment of new technologies as well as research and discovery. In short, R&D alone is not enough.
  • Because private investments respond primarily to near-term market incentives, public investments are necessary to build a technological infrastructure able to support innovation over the long term. A key ingredient of such infrastructures is a vibrant community of technologists and entrepreneurs working in settings in which knowledge and information flow freely. Government financial support for education and training, as well as for research, enhances such infrastructures. Excessively strong intellectual property rights may weaken such infrastructures.
  • Competition among firms contributes to effective selection of innovations, and competition among academic research groups contributes to discovery. Similarly, competition among government agencies and government laboratories contributes to policy success. Competition exposes ineffectual bureaucracies, out-of-touch government laboratories, poor policy choices, and project-level mistakes. It encourages diversity by opening alternatives for exploration by technology creators and technology users alike. For these reasons, policy-makers should channel new funds for R&D through multiple agencies and allocate funds to industry and other researchers on a competitive basis.
  • Because there can be no learning without some failures, policy-makers cannot expect every government investment to pay off. They must be prepared to tolerate mistakes, and to learn from them, just as entrepreneurs in the private sector do. Needless to say, tolerance for error is no excuse for sloppy management or ill-conceived policies and programs.

To encourage innovation in response to climate change, the federal government should support the development of an environment that nourishes creativity and learning in science, technology, and commercial applications. Well-designed technology policies support the free flow of information, which promotes the evaluation of new ideas and the acceptance and diffusion of the best new technologies. Much innovation will be needed if GHG emissions are to be reduced to the levels needed to stabilize atmospheric concentrations of heat-trapping gases. Government policies will set the underlying conditions for (and constraints on) innovation. The effectiveness of climate change policies will be judged by the innovation that follows. Well-crafted policies can help nourish an energy technology revolution over the next half century as astonishing as the information technology revolution of the last half century.

About the Authors

JOHN A. ALICConsultant

John Alic writes and consults on policy issues related to technology, science, and the economy. As a staff member at the congressional Office of Technology Assessment from 1979 to 1995, he directed projects that include U.S. Industrial Competitiveness: A Comparison of Steel, Electronics, and Automobiles (1981) and Commercializing High-Temperature Superconductivity (1988). His consulting has included work for government agencies, the National Academy of Engineering, and the H. John Heinz III Center for Science, Economics, and the Environment project on “Technology Policies for Reducing Greenhouse Gas Emissions.” Alic is co-author of Beyond Spinoff: Military and Commercial Technologies in a Changing World (1992) and New Rules for a New Economy: Employment and Opportunity in Postindustrial America, a Century Foundation book published in 1998. A graduate of Cornell, Stanford, and the University of Maryland, he has taught at several universities and is currently completing a book manuscript with the working title, Trillions for Technology: Innovation and the U.S. Military.

DAVID C. MOWERY, University of California, Berkeley

David Mowery is Milton W. Terrill Professor of Business at the Walter A. Haas School of Business at the University of California, Berkeley, a Research Associate of the National Bureau of Economic Research, and during the 2003-04 academic year, the Bower Fellow at the Harvard Business School.  He received his undergraduate and Ph.D. degrees in economics from Stanford University and was a postdoctoral fellow at the Harvard Business School.  Dr. Mowery taught at Carnegie Mellon University, served as the Study Director for the Panel on Technology and Employment of the National Academy of Sciences, and served in the Office of the United States Trade Representative as a Council on Foreign Relations International Affairs Fellow.  He has been a member of a number of National Research Council panels, including those on the Competitive Status of the U.S. Civil Aviation Industry, on the Causes and Consequences of the Internationalization of U.S. Manufacturing, on the Federal Role in Civilian Technology Development, on U.S. Strategies for the Children's Vaccine Initiative, on Applications of Biotechnology to Contraceptive Research and Development, on New Approaches to Breast Cancer Detection and Diagnosis.  His research deals with the economics of technological innovation and with the effects of public policies on innovation; he has testified before Congressional committees and served as an adviser for the Organization for Economic Cooperation and Development, various federal agencies and industrial firms.  Dr. Mowery has published numerous academic papers and has written or edited a number of books, including ‘Ivory Tower’ and Industrial Innovation:  University-Industry Technology Transfer Before and After the Bayh-Dole ActPaths of Innovation:  Technological Change in 20th-Century America; The International Computer Software Industry:  A Comparative Study of Industry Evolution and Structure; U.S. Industry in 2000; The Sources of Industrial Leadership; Science and Technology Policy in Interdependent Economies;  Technology and the Pursuit of Economic Growth; Technology and Employment:  Innovation and Growth in the U.S. EconomyThe Impact of Technological Change on Employment and Economic Growth;Technology and the Wealth of Nations; and International Collaborative Ventures in U.S. Manufacturing.  His academic awards include the Raymond Vernon Prize from the Association for Public Policy Analysis and Management, the Economic History Association's Fritz Redlich Prize, the Business History Review's Newcomen Prize, and the Cheit Outstanding Teaching Award.

EDWARD S. RUBIN, Carnegie Mellon University

Dr. Rubin is the Alumni Professor of Environmental Engineering and Science at Carnegie Mellon University.  He holds joint appointments in the departments of Engineering and Public Policy and Mechanical Engineering, and is also Director of CMU's Center for Energy and Environmental Studies.  He obtained his Bachelor's degree in mechanical engineering at the City College of New York, and his Masters and Ph.D. at Stanford University. Over the past 32 years, he has directed research on a wide range of technology-policy issues related to energy and the environment, especially focused on coal-based systems.  He has served on various technical and advisory boards to the U.S. Department of Energy, the U.S. Environmental Protection Agency, and the National Academies, and is currently a member of the National Research Council's Board on Energy and Environmental Systems (BEES), and its committee assessing DOE's Vision 21 program.  He is the author of over 200 technical papers and reports dealing with advanced energy technologies, environmental control systems and environmental policy, as well as a recent textbook on Engineering and the Environment. In addition, he has served as a consultant to a variety of public and private organizations in the U.S. and abroad concerned with energy use and environmental protection.


U.S. Energy Scenarios for the 21st Century

Energy Scenarios Report Cover

U.S. Energy Scenarios for the 21st Century

Prepared for the Pew Center on Global Climate Change
July 2003

Irving Mintzer, Global Business Network
J. Amber Leonard, Global Business Network
Peter Schwartz, Global Business Network

Press Release

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Appendix B: Technology Assessments (pdf)
Appendix C: Detailed Model Output (pdf)
Appendix D: AMIGA Model Abstract and Documentation (pdf)


Eileen Claussen, President, Pew Center on Global Climate Change

The question of how U.S. energy supply and use—which account for over 80 percent of U.S. greenhouse gas emissions—will evolve over the next several decades is critical to developing sound U.S. climate policy. To answer this question, the Pew Center convened two workshops, including members of its Business Environmental Leadership Council and independent experts, to envision and analyze future energy scenarios for the United States, and to assess the implications of these scenarios for U.S. carbon emissions. The scenarios are:

  • Awash in Oil and Gas, in which oil and gas are cheap, abundant, and reliably available;
  • Technology Triumphs, in which the commercialization of climate-friendly energy technologies is accelerated through a combination of state policy, technological breakthroughs, public and private investment, and consumer interest; and
  • Turbulent World, in which supply disruptions and energy security concerns lead to aggressive federal energy policy promoting domestic, low-risk resources. 

Climate policy was deliberately excluded from these "base case" scenarios. 

Carbon emissions increase under all these scenarios. This points to the need for a mandatory carbon policy under a broad range of energy futures. Carbon emissions increased much more under Awash in Oil and Gas than in the other two scenarios. This draws attention to the importance of climate-friendly energy technologies and climate-friendly energy policies in moving us toward a low-carbon future. 

When a hypothetical mandatory climate policy was imposed on all three scenarios, it was most difficult to achieve under Awash in Oil and Gas, of medium difficulty in Turbulent World, and easiest in Technology Triumphs. This range of difficulty is due to fundamental differences in the base case scenarios. But the unmistakable conclusion is that under all scenarios, a mandatory carbon policy is necessary. 

In the course of the analysis, the Pew Center and the Global Business Network also developed technology assessments revealing that a number of emerging technologies—such as carbon capture and geological sequestration, distributed generation, hybrid-electric vehicles, and hydrogen fuel cells—have the potential to yield multiple economic, environmental, and energy security benefits.

This report explores what might happen to U.S. energy supply and use in the future; the Pew Center plans to turn next to an exploration of what ought to happen. We will use these scenarios to test policy and technology options and identify those that are robust across a broad range of plausible futures. We hope that readers will join us in developing a shared national vision of policies, strategies, and investments that will reduce U.S. greenhouse gas emissions and promote U.S. energy security while maintaining economic growth. 

The Pew Center would like to thank Amory Lovins of the Rocky Mountain Institute and William Chandler of Batelle Memorial Institute for their helpful comments on a previous draft of this report, Skip Laitner for his advice on and review of the modeling analysis, and the Energy Foundation for its generous support of this project.

Executive Summary

This study presents a set of scenarios describing three divergent paths for U.S. energy supply and use from 2000 through 2035. The scenarios presented here are not predictions; taken together however, these potential futures can be used to help identify key technologies, important energy policy decisions, and strategic investment choices that can enhance energy security, environmental protection, and economic development over a range of possible futures. To envision these scenarios and to draw policy-relevant conclusions from them, the Pew Center on Global Climate Change, working with the Global Business Network, convened two workshops with experts from the corporate, academic, and NGO sectors. The Pew Center also commissioned a set of technology assessments and joined with the Global Business Network to analyze the scenarios. 

The trajectory of future U.S. economic growth, energy use, and carbon emissions will be a product of dynamic interactions among a complex set of driving forces, including technological advances, international events, energy and environmental policy, private investment, and consumer behavior. The interactions among these forces and their interplay with other social, economic, environmental, and cultural forces that stimulate change are not completely understood today. However, if the past thirty years are useful as a guide, it is likely that major surprises will occur between now and 2035.

The scenarios developed in this study reflect divergent trends in all of these driving forces. In brief, the three base case scenarios are:

  • Awash in Oil and Gas, a scenario in which abundant supplies of oil and natural gas remain available to U.S. consumers at low prices. Energy consumption rises considerably, and conventional technologies dominate the energy sector. In this low energy price scenario, there are few incentives to improve energy efficiency and little concern for energy issues. Carbon emissions rise 50 percent above the year 2000 level by 2035; 
  • Technology Triumphs, a scenario in which an array of driving forces converge to accelerate the successful commercialization in the U.S. market of many technologies that improve energy efficiency and produce lower carbon emissions, and in which U.S. companies play a key role in the subsequent development of an international market for these technologies. Despite sustained economic growth and an increase in energy consumption, carbon emissions rise 15 percent above the year 2000 level by 2035; and
  • Turbulent World, a scenario in which U.S. energy markets are repeatedly buffeted by developments both at home and abroad, with unsettling effects on energy prices and mounting threats to U.S. energy security. High energy prices and uncertainty about energy supplies slow economic growth, and the country moves from one technological “solution” to another, finding serious flaws with each, until finally settling on a program to accelerate the commercialization of hydrogen and fuel cells. Despite slower economic growth in Turbulent World, carbon emissions rise 20 percent above the year 2000 level by 2035.

Climate change policy was deliberately excluded from these three base case scenarios; rather, the participants in the scenario development process formulated a hypothetical climate policy overlay. The policy overlay postulated a freeze of U.S. carbon dioxide (CO2) emissions in 2010 and subsequent 2 percent per year decreases from 2010 to 2025, followed by 3 percent per year decreases to 2035. Like the base case scenarios, the policy overlay is neither a prediction nor a recommendation. To achieve the targeted emissions reductions trajectory and create the policy overlay cases, the same portfolio of primarily market-oriented policies and programs was imposed on each base case scenario. 

Carbon dioxide emissions reductions achieved in other countries, carbon sequestration in plants and soils, and reductions in emissions of other greenhouse gases were beyond the scope of this analysis. Other analyses indicate that to minimize the cost of emissions reductions for the energy and energy-intensive industries, it is important to have flexibility in offsetting energy-related CO2 emissions through international emissions trading, non-CO2 greenhouse gas reductions, and carbon sequestration. 

When the postulated policy overlay is applied to each of the base case scenarios, it modifies the pattern of energy technology development. For example, in the base case of theTurbulent World scenario, concerns about energy security stimulate a major national commitment to expanding production of hydrogen from coal and to accelerating the development of hydrogen fuel cells, both for transportation and in stationary power applications. In the policy overlay case for the Turbulent World scenario, the carbon constraint combines with growing public and private concerns about the security of energy facilities to stimulate demand for distributed generation (DG) and for combined heat and power (CHP) systems.

In the Technology Triumphs base case, new technologies already contribute to a slowing in the growth of carbon emissions. In the policy overlay case for Technology Triumphs,the carbon emissions limit forces faster reductions in oil demand, especially in the transportation sector, compared to the Technology Triumphs base case, resulting in accelerated market penetration by hybrid gasoline-electric and diesel-electric vehicles. Imposition of the carbon constraint in the policy overlay case expedites efforts to lower the barriers that typically hold back distributed generation, end-use efficiency improvements, and renewable energy technologies from large-scale commercialization in the United States.

In Awash in Oil and Gas, imposing carbon policies is more complex and more challenging. The base case scenario, built around cheap and abundant resources of oil and gas, includes little private investment in the technologies that improve end-use efficiency or reduce carbon emissions. Thus, meeting the carbon emissions target of the policy overlay introduces tremendous tension into this scenario. Major federal programs are needed to mandate carbon reductions and educate individual and industrial consumers about the climate consequences of their energy use. Yet cheap fuel encourages consumers to drive inefficient vehicles and stimulates air travel. Facing an exceedingly tight constraint on emissions and with little time to upgrade capital stock, public and private decision-makers move aggressively (but late in the scenario period) to develop carbon capture and geological sequestration technology so as to keep combustion-derived carbon dioxide out of the atmosphere.

Taken together, this scenario analysis revealed three important conclusions: 

(1) Climate change policy is needed to stem future emissions growth, regardless of which path the U.S. energy future ultimately takes. In the absence of policies designed to reduce U.S. carbon emissions, these emissions increase over the next three decades in all of the base case scenarios, even those with optimistic assumptions about the future cost and performance of energy technologies.

(2) Policy and investment decisions today, especially those that support key technologies, will have a significant impact on the difficulty of reducing energy-related carbon emissions tomorrow. Early and sustained investment, engineering success, and consumer acceptance of innovative low-carbon and efficiency-improving technologies make the task of reducing emissions easier, as do energy security policies that reduce oil import dependence. Low fossil fuel prices make the task harder by encouraging high-carbon and energy-inefficient investments. Other scenario conditions, such as external events, play a major role as well. 

3) A portfolio of policies combining technology performance targets, market incentives, and price-oriented measures can help the United States meet complementary energy security, climate protection, and economic objectives. Targeted policies can stimulate investment, accelerate the turnover of capital stock, and encourage emissions reductions. Emissions allowance trading, along with informational and other programs designed to address market imperfections, can lower the barriers to commercialization of efficiency-improving measures and new low-emissions technologies. However, policies designed to reduce carbon emissions can entail significant costs for the energy and energy-intensive sectors of the economy. Flexible program design, as well as successful development of major new technologies, can help to reduce these costs.

These principal conclusions are discussed below.

Absent a climate policy, U.S. carbon emissions will continue to increase

In the absence of a mandatory carbon cap, none of the base case scenarios examined in this study achieves a reduction in U.S. carbon dioxide emissions by 2035 relative to current levels. This is true even in the scenario with the most optimistic assumptions about the future cost and performance of energy technologies. Although the future is unlikely to unfold in precisely the manner described by any one of these scenarios, without climate policy U.S. carbon dioxide emissions in 2035 are unlikely to be less than the 1,800 to 2,400 million metric tons of carbon represented in the three base case scenarios. Thus, slowing the buildup of greenhouse gases in the atmosphere will require significant, systematic, and sustained policy intervention in the United States.

In the base case scenarios, while U.S. population grows steadily, GDP increases significantly and pushes the rate of growth in aggregate energy demand beyond the rate of improvement in energy efficiency.1 Total primary energy demand grows at an average annual rate that varies from 0.5 percent per year in the Turbulent World scenario to approximately 1.2 percent per year in Awash in Oil and Gas. These annual increases in primary energy use lead to energy consumption levels in 2035 ranging across the three base case scenarios from approximately 120 to 150 Quads (quadrillion British thermal units), up from 100 Quads in 2000.2 

During the same period, U.S. carbon emissions increase from approximately 1560 million metric tons of carbon (MMTC) emitted as carbon dioxide3 in the year 2000, reaching 1800 to 2360 MMTC in 2035. This is equivalent to an increase in annual CO2 emissions of 15 to 50 percent above the 2000 level, and largely parallels the increase in primary energy use. Despite declining carbon intensity of the U.S. economy at an average annual rate of 1.8 to 2.6 percent, carbon emissions rise in all base cases. In the three policy overlay cases, which include mandatory carbon constraints, the carbon intensity of the U.S. economy declines more rapidly than in the base case scenarios, at an average annual rate of 3.6 to 4.2 percent, and by 2035 annual CO2 emissions fall to almost 40 percent below the year 2000 level. 

Choices made today will determine the difficulty of reducing carbon emissions 

Many climate policy analyses create one base case and then overlay various policy options; this scenario planning exercise takes three different base cases and analyzes the effect of imposing the same policy overlay on each of them. Because the conditions of each base case scenario are different, achieving carbon reductions through the policy overlay is not equally difficult for all three scenarios. Aggregate costs to the economy of meeting the carbon emissions constraint differ by more than a factor of two among the scenarios; they are lowest in Technology Triumphs and highest in Awash in Oil and Gas.

The conditions of each scenario influence energy consumption and investment in that scenario, which in turn affect the level of carbon emissions. Each scenario illustrates a unique pattern of public policies, technological choices, and external events that affect prices, investment, consumption, and economic growth. Implementing climate policies modifies the energy mix, the pattern of technological development, and the composition and level of economic activity. For example, low oil and gas prices stimulate high levels of energy consumption and produce high levels of carbon emissions; low prices also discourage investment in energy efficiency-improving measures and carbon emissions-reducing technologies. Thus, the consumption and investment patterns in a scenario can lead to high carbon emissions and put the United States in a poor position to develop future technological solutions. Base case conditions that discourage energy consumption and favor investment in technological advances better position society to reduce carbon emissions.

More specifically, in Technology Triumphs, early and consistent investment in clean and energy-efficient technologies strengthens the economy and leaves the United States better positioned to reduce GHG emissions in the future. By contrast, in Awash in Oil and Gas much more aggressive and stringent policies are required to achieve the targets of the policy overlay because the economy starts from a high emissions trajectory. In addition, although the overall level of economic activity increases substantially in Awash in Oil and Gas, this scenario’s growing reliance on imported oil significantly increases the likelihood that events in politically unstable regions of the world could lead to spikes in oil prices or temporary disruptions of supply. 

A smart investment path today provides a greater capacity to respond to unexpected developments affecting future energy demand and supply. The scenario analysis identified several technologies as critical to the successful evolution of U.S. energy markets, enabling those markets to respond more effectively to uncertain future conditions.

The most important technologies include fuel cells, energy efficiency, CHP, renewable energy, DG, high-efficiency natural gas combined cycle power plants, hybrid electric vehicles, hydrogen production technologies, geological carbon sequestration, and integrated gasification combined cycle (IGCC) coal plants. Many of the electric power technologies are modular, allowing improved matching of supply and demand over relatively short time intervals. Modular technologies may improve the speed with which the energy sector can respond to changes, help to control risk, and maintain profitability in the U.S. energy sector.

Several technologies prove to be wise investments across the scenarios; others play key roles only under certain conditions. Natural gas consumption along with investment in energy efficiency measures, renewable energy technologies, and distributed generation increase in each scenario, both with and without climate policy. In all three policy overlay cases, hybrid-electric vehicles offer multiple benefits and emerge as a key near- or mid-term bridge to a hydrogen economy, and hydrogen makes an important contribution in the out-years. Hydrogen offers the possibility of numerous production pathways, using a variety of feedstocks. It is derived primarily from coal in Turbulent World, from natural gas inAwash in Oil and Gas, and from a variety of sources in Technology Triumphs. Distributed generation increases in each scenario, but to an extent and for reasons that vary by scenario. In the Turbulent World base case, investment in IGCC strengthens the role of coal in the U.S. energy sector. This early investment facilitates the commercialization of IGCC coupled with geological sequestration of CO2, which enables coal to maintain a major role in Turbulent World with Policy, even in a carbon-constrained future. Bio-fuels and nuclear power play modest roles across the scenarios, both with and without climate policy. 

A balanced portfolio of policies can help achieve multiple objectives

A balanced portfolio of market-oriented policies and performance standards—one that includes a carbon cap-and-trade program, incentives for technology development, strategies that remove barriers to new technologies, and efficiency standards—can help to achieve several objectives concurrently. These objectives include economic growth, energy security, and climate protection. These goals are often complementary: programs implemented for one of these reasons often contribute to the achievement of the other objectives as well. For example, in the Turbulent World base case, tough fuel economy standards designed to address energy security have the secondary effect of reducing GHG emissions. In Turbulent World with Policy, the carbon constraint incidentally but significantly reduces oil imports. 

Many key technologies achieve multiple objectives. For example, distributed generation has energy security, environmental, and economic benefits. In both the Turbulent Worldbase and policy cases, DG’s increased market penetration is driven, in part, by its ability to reduce security risks for energy facilities. Many analysts believe that the small, often modular facilities used to provide distributed generation are less likely to be targets for terrorists than would be, for example, large, centralized nuclear power complexes or liquefied natural gas facilities. In Technology Triumphs with and without climate policy, engineering advances, state policy leadership, and sustained interest among private investors converge, contributing to nationwide efforts aimed at breaking the barriers to commercialization for “disruptive” new energy technologies. In Awash in Oil and Gas, the drivers include electric grid congestion caused by rapid electricity demand growth as well as interest in power quality4 for specialized industrial applications and new consumer gadgets. In each of the policy overlay cases, relative to the respective base case, the efficiency benefits as well as the low-carbon characteristics of some DG and renewable energy technologies accelerate their penetration. Several of the most important energy efficiency and low-carbon technologies are cost-competitive today in specific applications. These include many energy efficiency measures in the buildings and transportation sectors, wind power plants, CHP, and combined-cycle turbines. Other important technologies are not yet cost-competitive in the U.S. energy market, including carbon capture and geological sequestration, photovoltaic power systems, and fuel cell vehicles. Full-scale commercialization of these critical technologies requires public policy to sustain investment in technology and market development.

Commercialization and market penetration of key technologies in the policy overlay cases are facilitated by various policies, strategies, and investments. Federal and state initiatives include renewable portfolio standards, fuel economy and air quality requirements, national electric grid interconnection standards, and aggressive R&D investment in hydrogen and fuel cell technologies. Private investment in emerging energy technologies also plays a critical role in all scenarios. This is especially true in the case of a major transition to use of hydrogen as a fuel, which requires sustained and coordinated investment in hydrogen production, transportation, and distribution infrastructure, as well as in fuel cell vehicles. Rapid commercialization of renewable and distributed electric generation also depends on new investment, but is greatly facilitated by removing institutional barriers to their use and by recognizing the full value contributed by these technologies to the operation of integrated electric grids. Because the time lag from technological breakthrough to commercialization is long, it is essential to initiate these investments early on and sustain them over time. 

The hypothetical policy overlay emphasizes “barrier busting” policies and programs to remove institutional obstacles and lower the barriers to commercialization of new technologies. For example, expenditures on informational and educational programs can increase awareness of emerging technological opportunities and increase the ability of U.S. society to respond to unexpected changes in energy markets. Institutional reforms, such as uniform electric grid interconnection standards, facilitate the market penetration of disruptive technologies such as distributed generation and building-integrated photovoltaic power systems. By putting investment in energy-efficiency measures and carbon emissions-reducing technologies on a more equal footing with conventional energy supply technologies, such programs and policies help to ensure fair competition and increase the likelihood that investment moves toward the technologies that have the best long-run return for U.S. society.

In sum, this scenario exercise suggests that in the absence of a mandatory climate policy, U.S. carbon emissions will continue to increase. Policy is needed to encourage investment in climate-friendly technologies and to pull these technologies into the marketplace. Policy and investment choices made today will determine the difficulty of reducing carbon emissions in the future. A smart investment path today provides a greater capacity to respond to surprises tomorrow. A portfolio of technology performance standards and market-oriented policies can stimulate investment, accelerate capital stock turnover, reduce carbon emissions, and enhance energy security across a wide range of possible energy futures.


This study presents a set of scenarios describing three divergent paths for the United States from 2000 through 2035. Many different patterns of energy supply and use could emerge in the future. The scenarios presented here reveal important conclusions about the role of technology in determining future U.S. energy supply, energy demand, and carbon emissions. These scenarios are not predictions; taken together however, they can be used to help identify key technologies, important energy policy decisions, and strategic investment choices that can increase the likelihood of achieving U.S. energy security, environmental protection, and economic development goals across a range of possible futures. Taking these lessons into account can help decision-makers plan for the future, despite uncertainty about how the future will unfold.

This exercise takes three different base case scenarios and analyzes the implications of imposing the same portfolio of policies on each of them. This approach allows conclusions to be drawn about the relative difficulty of implementing a carbon-constraint policy under quite different conditions. External events and other driving forces vary widely among the scenarios, as do policy and investment decisions and the consequent paths of technology development. Some conditions, such as low fossil fuel prices, increase the difficulty of implementing a carbon constraint. In contrast, actions such as early and sustained investment in emerging energy technologies facilitate both domestic economic development and carbon emissions reductions. Taken together, the three policy overlay cases show that a portfolio of market-oriented policies and standards can lead to substantial reductions in U.S. CO2 emissions by 2035, without major negative impacts on the overall level of U.S. economic activity. However, implementation of such policies could have significant costs for the energy and energy-intensive sectors of the economy.

Without a mandatory carbon constraint, the absolute level of emissions rises in each base case scenario, despite the fact that the carbon intensity of the economy declines considerably. In the Pew Center scenarios without a carbon emissions policy, CO2 emissions in 2035 range from 1800 to 2400 MMTC, an increase of 15 to 50 percent over the U.S. year 2000 level. This result points to the need to develop climate change policy in order to stem these increases.

The scenario analysis identified several technologies as critical to the U.S. energy future in a carbon-constrained world. These technologies are beneficial across scenarios, though the relative importance of a particular technology may vary among the scenarios. Most of these technologies would have a place even in a world without a carbon constraint, as they assist the United States in achieving its policy objectives—including environmental and energy security goals—while growing the economy.

Natural gas is one of the most important contributors to the decline of the carbon intensity of the energy sector in both the base and policy overlay cases. The market for natural gas expands in all scenarios, with and without the policy overlays. Substituting natural gas for coal results in approximately half the carbon emissions per unit of energy supplied. Increased use of natural gas also has energy security benefits for the United States.

Energy efficiency improvements also play a key role in reducing carbon emissions. In response to the carbon constraint, the fuel economy of cars and light trucks dramatically improves in the policy cases, significantly reducing oil imports. In each of the scenarios, combined heat and power technology improves the efficiency of electric generation. When the carbon policy overlay is imposed, performance standards for electrical devices and for gas- and oil-fired equipment lead to improved energy efficiency in the residential, commercial, and industrial sectors.

Renewable energy and distributed generation technologies contribute to the reduction of carbon emissions in each of the scenarios and their policy overlay cases. While both renewable energy technologies and DG grow in the base case scenarios, they experience more substantial increases following the implementation of the policy overlay, which aids their commercialization by promoting investment and by breaking barriers to entry in U.S. energy markets.

Nuclear power plays a significant role in each of the scenarios and their associated policy cases. Nuclear power production remains close to the year 2000 level in each scenario, with and without the policy overlays. In the absence of nuclear power, carbon emissions would be significantly higher in 2035.

Geological sequestration emerges as a key technology in the policy overlay cases, allowing continued reliance on fossil fuels even in the face of a carbon constraint. Sequestration is particularly important in Turbulent World with Policy, a scenario in which hydrogen is produced primarily from coal. Geological sequestration allows hydrogen to be produced from fossil fuels without releasing carbon emissions, facilitating the transition to a hydrogen economy.

Hybrid-electric vehicles play an important role in the transportation sector for all cases, except the Awash in Oil base case, and act as a bridge technology for fuel cells in mobile applications. Toward the end of the scenario period, hydrogen and fuel cells become significant in Technology Triumphs with Policy and Turbulent World with Policy. As improvements in energy efficiency slow, the technology for hydrogen and fuel cells matures in these scenarios, accounting for an increasing share of economy-wide carbon reductions.

Many of these critical technologies, however, are not commercially viable in 2003. Public and private investment in these emerging energy technologies plays a key role in their successful commercialization in the Pew Center scenarios. Public policies at the state and federal level are necessary to lower barriers to commercialization of these technologies and to stimulate sustained investment during the course of these scenarios. Included among the policies that promote commercialization of these technologies are a carbon emissions allowance cap-and-trade program for some sectors and a set of equipment-efficiency credit trading programs, as well as renewable portfolio standards, fuel economy and air quality requirements, and electric power grid interconnection standards.

One key insight that emerged is that policy is necessary to address climate change. A second is that there are technologies—with supporting policies and investments—that could address climate change, accelerate capital stock turnover, and enhance the nation's energy security, no matter which direction the future takes. Finally, the scenarios indicate that energy policy and investment decisions made today affect the difficulty of implementing a climate policy tomorrow. If U.S. decision-makers can implement the necessary policies and encourage appropriate investments during the next thirty years, the United States could be better positioned to achieve its complementary economic, energy security, and environmental goals.

About the Authors

Author Bios

Peter Schwartz, Global Business Network

Peter Schwartz is cofounder and chairman of Global Business Network, a Monitor Group company. He is an internationally renowned futurist and business strategist. A specialist in scenario planning, Mr. Schwartz works with corporations and institutions to create alternative perspectives of the future and develop robust strategies for a changing and uncertain world. His current research and scenario work encompasses energy resources and the environment, technology, financial services, telecommunications, media and entertainment, aerospace, national security, and the Asia-Pacific region. Mr. Schwartz is also a venture partner of Alta Partners, a partner of The Monitor Group, and serves on the advisory boards of numerous organizations and companies ranging from The Highlands Group to the University of Southern California’s Institute for Creative Technologies.

From 1982 to 1986, Mr. Schwartz headed scenario planning for the Royal Dutch/Shell Group of Companies in London. His team conducted comprehensive analyses of the global business and political environment and worked with senior management to create successful strategies. Prior to joining Royal Dutch/Shell, Mr. Schwartz directed the Strategic Environment Center at SRI International. The Center researched the business milieu, lifestyles, and consumer values, and conducted scenario planning for corporate and government clients.

Mr. Schwartz is the author/co-author of several works including Inevitable Surprises, The Art of the Long View, The Long Boom, When Good Companies Do Bad Things, and China’s Futures. He publishes and lectures widely and served as a script consultant on the films "Minority Report," "Deep Impact," "Sneakers," and "War Games." Mr. Schwartz holds a B.S. in Aeronautical Engineering and Astronautics from Rensselaer Polytechnic Institute.


Irving M. Mintzer, Global Business Network

Dr. Irving M. Mintzer is a member of Global Business Network, Executive Editor of Global Change Magazine, and a Senior Associate of the Pacific Institute for Studies in Development, Environment and Security. Since 1983, Dr. Mintzer has been an active participant in the international debate on national energy strategies and on policy options to reduce the risks of rapid climate change. During the last decade, he has testified on energy policy and climate issues before the U.S. Congress, the British Parliament, the German Bundestag, the Italian Parliament, and the European Parliament. He has been a Senior Special Fellow with the United Nations Institute for Training and Research (Geneva, Switzerland) and a visiting scientist with the Swedish Academy of Sciences, the Soviet Academy of Sciences, and the Hungarian Academy of Sciences. In 1995-96, he was a lead author of Working Group 3 (Economics and Policy Responses) of the Intergovernmental Panel on Climate Change (IPCC) and was co-author of the IPCC Synthesis Panel Report. From 1997 to 2000, Dr. Mintzer taught courses on multilateral negotiations at the Johns Hopkins School of Advanced International Studies in Washington, DC.

Dr. Mintzer is the author of numerous articles in scientific journals and other periodicals. He is co-editor with J.A. Leonard of Confronting Climate Change: Risks, Implications, and Responses and Negotiating Climate Change: The Inside Story of the Rio Convention. Dr. Mintzer holds a Ph.D. in Energy and Resources and a Masters in Business Administration from the University of California, Berkeley.

J. Amber Leonard, Global Business Network

J. Amber Leonard works with Global Business Network and is Senior Associate at the Pacific Institute for Studies in Development, Environment, and Security. She is the Managing Editor of Global Change Magazine and is the Pacific Institute’s Project Director for the New Initiative for a North-South Dialogue on Climate Change, organizing an ongoing series of regional meetings in developing and industrialized countries.

Ms. Leonard has participated in the international negotiations on climate change since 1992. In addition, she has been invited to participate as an expert on climate change at meetings in Bonn, Germany; Rio de Janeiro and Sao Paulo, Brazil; Beijing, China; Dakar, Senegal; and Abidjan, Ivory Coast, among others. Ms. Leonard has also co-convened a series of roundtables for U.S. business leaders focused on the Clean Development Mechanism and the climate negotiations. Prior to joining Global Business Network, Ms. Leonard was a senior editor and project director for the Stockholm Environment Institute (Stockholm, Sweden). She is co-editor with Dr. Irving Mintzer of two books on climate change, Confronting Climate Change: Risks, Implications and Responses and Negotiating Climate Change: The Inside Story of the Rio Convention. Ms. Leonard holds a Masters Degree in Business Administration with a concentration in International Business from Cal State University, San Francisco, and a B.A. from the University of California, Berkeley


Irving Mintzer
J. Amber Leonard
Peter Schwartz

Climate-Friendly Energy Policy: Options For The Near Term

In Brief, Number 5

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The majority of U.S. greenhouse gas (GHG) emissions—84 percent—are in the form of carbon dioxide (CO2), resulting almost entirely from the combustion of fossil fuels. As a result, energy policies that reduce fossil fuel use will reduce GHG emissions. Fossil fuel use can be reduced by: (1) deploying technologies that increase energy efficiency (e.g., more efficient power plants, cars, and appliances) and (2) employing non-fossil fueled energy sources (e.g., solar, wind, geothermal, biomass, hydroelectric, nuclear energy, or renewables-based hydrogen). CO2 emissions also can be reduced by shifting from high-carbon to lower-carbon fuels (e.g., shifting from coal to natural gas in the electricity sector), and by employing carbon capture and sequestration technologies.

A “climate-friendly” energy policy can advance climate objectives while serving energy policy goals. However, a climate-friendly energy policy is not a substitute for climate policy. More significant GHG emissions reductions would be necessary in order to address climate change than can be justified solely on the basis of traditional energy policy objectives. The energy policy options outlined in this brief represent sensible and important first steps in U.S. efforts to reduce GHG emissions.



Energy use and climate change are inextricably linked. The majority of U.S. greenhouse gas (GHG) emissions—84 percent—are in the form of carbon dioxide (CO2), resulting almost entirely from the combustion of fossil fuels.1  Choices made today in the current national energy policy debate will directly impact U.S. greenhouse gas emissions far into the future. Decision-makers face the challenge of crafting policies that allow the United States to meet its energy needs while acting responsibly to reduce GHG emissions.

Often, these objectives are thought of as competing goals—that energy policy and energy security issues are in conflict with environmental objectives and vice versa. In reality, there is a substantial convergence between the goals of energy policy and climate policy, and many feasible and beneficial policies from supply and security perspectives can also reduce future U.S. greenhouse gas emissions. This brief considers near-term energy policies that can be adopted in the context of the energy policy debate, short of adopting a GHG reduction program now, to best position the United States to reduce GHG emissions and to implement future climate change policies. These options make up a “climate-friendly energy policy.” This brief is drawn from a Pew Center report: Designing a Climate-friendly Energy Policy: Options for the Near Term.2

It is important to note that a climate-friendly energy policy is not a substitute for a mandatory climate policy. More significant GHG emissions reductions would be necessary in order to address climate change than can be justified solely on the basis of traditional energy policy objectives. A previous Pew Center policy brief outlines potential programs aimed specifically at GHG abatement,3  and Pew Center reports discuss options for designing a mandatory U.S. GHG reduction program4  and reducing GHG emissions from U.S. transportation.5

The Link Between Energy and Climate

Because the vast majority of GHG emissions are in the form of CO2 resulting from fossil fuel combustion, energy policies that reduce fossil fuel use will reduce GHG emissions.6  Fossil fuel use can be reduced by: (1) deploying technologies that increase energy efficiency (e.g., more efficient power plants, cars, and appliances) and (2) employing non-fossil fueled energy sources (e.g., solar, wind, geothermal, biomass7, hydroelectric, nuclear energy, or renewables-based hydrogen). CO2 emissions also can be reduced by shifting from high-carbon to lower-carbon fuels (e.g., shifting from coal to natural gas in the electricity production sector), and by employing carbon capture and sequestration technologies. Conversely, energy policies that increase fossil fuel consumption, discourage or miss opportunities for efficiency improvements, and expand reliance on high-carbon fuels will increase CO2 emissions and thereby exacerbate climate change.

Given this close relationship between energy use and GHG emissions, near-term energy policy choices have significant future implications for climate change. Climate-friendly energy policies fall into one of three general categories—policies that: 

(1) Reduce GHG emissions now;

(2) Promote technology advancement or infrastructure development that will reduce the costs of achieving GHG emissions reductions in the future; and

(3) Minimize the amount of new capital investment in assets that would be substantially devalued (or “stranded”) if a GHG program were implemented.

Energy Policy Context

A discrete and unified U.S. energy policy does not exist. Rather, policies affecting energy production and use in the United States have many sources and take a multitude of forms. For example, while this brief focuses primarily on federal energy policies, state and local governments also play a key role in regulating energy-related activities. In addition, while there are federal policies aimed directly at achieving energy objectives, there are also federal policies aimed at achieving other objectives—ranging from environmental protection to easing traffic congestion—that have indirect but nevertheless substantial impacts on energy production and use. Finally, even those policies aimed squarely at achieving energy-related objectives are shaped by other policy concerns, such as labor and foreign policy issues. Energy policy, in short, operates in multiple dimensions.

Historically, most major shifts in U.S. energy policy have been triggered by interruptions, and subsequent price increases, in crude oil supply. Such events occurred in 1973 (Arab oil embargo), 1979–80 (triggered by the Iranian revolution), and 1990 (associated with the Persian Gulf War). The policy prescriptions for reducing supply vulnerability have included increasing U.S. production of conventional and alternative fuels, emphasizing market forces, reducing demand through efficiency measures, establishing and maintaining the strategic petroleum reserve (SPR),8  and maintaining international arrangements under the International Energy Program (IEP) to coordinate petroleum stock drawdowns. Over the years, the United States has reduced its vulnerability to a physical interruption of crude oil supplies but economic vulnerability remains. U.S. oil imports continue to grow, and the OPEC countries continue to be the source of significant oil imports, leaving the transportation sector in particular—and the economy in general—exposed to supply and price risk.

Today’s energy policy debate confronts a mixture of old and new issues. The United States remains vulnerable to concerted action by oil-producing nations to curtail production and increase prices. Conflicts in Central Asia and the Middle East have brought fuel supply concerns again to the fore. Moreover, the events of September 11, 2001, have given rise to a new energy policy priority: Securing domestic energy facilities from terrorist attack. In addition, sharply increased rates of U.S. economic growth in the late 1990s exposed energy supply shortages, as well as transportation and transmission bottlenecks. The deregulation of the electric power industry in some states has created regulatory idiosyncrasies that have sharply increased prices of electricity in some regions.9  Furthermore, current U.S. energy policy is much more market-oriented, less focused on cost-based price regulation, and more focused on environmental regulation than it was in the 1970s.

Current U.S. Energy Picture

The United States supplies about three-quarters of its energy needs from domestic sources. The nation has ample sources of coal and, indeed, is a modest coal exporter. The United States also supplies about 84 percent of its own natural gas; imports, mostly from Canada, account for about 16 percent of U.S. natural gas consumption.10 Oil presents a very different picture, however. The United States imported about 55 percent of the petroleum it consumed in 2001, and imports are projected to increase.11

The United States consumes a tremendous amount of energy each year, at considerable expense. In 2001, it consumed about 97 quadrillion British Thermal Units (or “quads”) of energy, at a cost of nearly $700 billion.12 Figure 1 indicates end uses of energy by sector, with the primary energy13 used for electricity generation allocated to each sector in proportion to its electricity consumption.


The bulk of U.S. primary energy comes from fossil fuels. Fossil fuels provided 86 percent of U.S. primary energy in 2001.14 (See Figure 2.) Non-fossil sources provided the remaining 14 percent, of which nuclear energy represented approximately 8 percent and renewable energy resources accounted for approximately 6 percent (about 40 percent of the renewable energy is hydropower). The amount of energy provided by nuclear sources is expected to increase slightly over the next few decades, but DOE does not anticipate any new nuclear facilities being built in the United States during that period.15 Hydropower output is expected to be static. Other renewable sources (biomass, wood, municipal solid waste, ethanol, geothermal, wind, and solar) now supply only 3.4 percent of total U.S. energy consumption and only 2.1 percent of total U.S. electricity generation.16 DOE projects slow growth for non-hydro renewables because of the relatively lower costs of fossil fuels for electricity generation, and because less capital-intensive natural gas technologies have an advantage in competitive electricity markets over coal and baseload renewables for new capacity.17



Current Greenhouse Gas Emissions Picture

Greenhouse gas emissions from U.S. energy use and production are primarily CO2 emissions from the combustion of fossil fuels in the electricity generation, buildings, industrial processes, and transportation sectors.18 (See Figure 3.) CO2 from fossil fuel combustion accounts for 82 percent of total U.S. GHG emissions.19  Figure 4 shows U.S. CO2 emissions broken down by fuel source. 



One way to view the broad relationship between energy use and CO2 missions is to examine shifts in two indices: energy intensity (measured by energy used per dollar of gross domestic product (GDP) created) and carbon intensity (measured by CO2 emissions per dollar of GDP created). The first value indicates the economy’s overall energy efficiency, while the second is a function of the fuel mix and generation technologies used to meet the nation’s energy needs. With regard to fuel mix, it is important to understand that different types of fossil fuels have different levels of carbon content. (See Figure 5.) Both energy intensity and carbon intensity are influenced by energy policy choices.


As the U.S. economy has grown, CO2 emissions have increased, although at a slower rate than conventional measures of economic output. During the 1990s, the divergence between CO2 and GDP growth was primarily a result of lower energy intensity. From 1990 to 2001, GDP grew by about 2.9 percent per year, while CO2 from energy grew by about 1.3 percent per year, i.e., CO2 grew at about half the rate of GDP. Energy use per dollar of GDP fell by 1.7 percent per year, while CO2 emissions per unit of energy consumed have remained at roughly the 1990 level.20  This decrease in the U.S. economy’s energy intensity since the early 1990s has resulted in large part from an increase in non-energy-intensive economic sectors (e.g., computer equipment and semiconductor manufacturing) relative to traditional energy-intensive manufacturing industries (e.g., steelmaking), as well as from energy efficiency improvements.21

The primary CO2 growth components during the 1990s were electricity generation and transportation. CO2 emissions from the electric power sector grew by 24 percent between 1990 and 2001, and CO2 emissions from transportation increased 19 percent during this period.22 The demand for electricity has grown with the U.S. economy and with substantial increases in the market penetration of electricity-consuming electronic equipment, consumer appliances, and manufacturing technologies. In the transportation sector, an increasing proportion of vehicles on the road (e.g., minivans, sport utility vehicles, and light trucks) are not subject to the passenger car Corporate Average Fuel Economy (CAFE) standards, but instead are subject to the significantly less stringent “light-duty truck” CAFE standards. CAFE standards established in 1975 required new passenger car fuel economy to reach 27.5 mpg in 1985, where the standard remains today. Less was required of light trucks; standards set by the U.S. Department of Transportation increased to 20.5 mpg in 1987 and stand at 20.7 mpg today.23  The actual fuel economy of new passenger cars and light trucks has closely followed the standards, and has not increased since 1988; indeed, today’s combined fleet of passenger cars and light trucks gets fewer mpg than the vehicles sold fifteen years ago because of the growth in the proportion of light trucks in the fleet.24  Finally, all vehicles are being driven more miles as a result of relatively low gasoline prices and land-use patterns characterized by sprawl.

Economic Analysis of Energy Policy

The body of economic work on energy and climate change contains several important themes to be considered in any effort that aims to identify “climate friendly” energy policies. These key themes include:

  • Energy use in the U.S. economy is largely a function of the current equipment (or “capital stock”) used to extract, produce, convert, and use energy (e.g., machinery used in longwall coal mining, technology used to explore for and produce oil and natural gas, boilers and turbines used to convert fossil fuel to electric power, and automobiles and trucks used to transport people and goods).
  • New energy technologies usually take time to develop, mature, and find broad acceptance in the market.
  • The market penetration of improved equipment reflects economic behavior, not just technological potential.
  • Energy or fuel prices can play a substantial role in energy use and emissions outcomes, apart from long-run technology choices.
  • To the extent that policy actions alter the market supply or demand of specific fuels or energy types, such policies can change energy prices. As a consequence, future energy use decisions would be based on a new set of prices, which may affect the expected level and cost of eventual emissions reductions.
  • Expectations regarding future prices, technologies, and policies can play a large role in shaping current investment decisions. Thus, the form and direction of policy enacted in the near term can encourage market participants to alter longer-term decisions even before regulatory compliance deadlines or other milestones occur.
  • It is critical to assess the impact of today’s energy policy choices in terms of the future cost of pursuing future GHG reduction policies.


Policy Objectives

While U.S. energy policy has many sources, forms, and influences, it is nevertheless possible to identify four traditional objectives on which U.S. energy policy has focused: 

  1. a secure, plentiful, and diverse primary energy supply; 
  2. a robust, reliable infrastructure for energy conversion and delivery; 
  3. affordable and stable energy prices; and 
  4. environmentally sustainable energy production and use.

The policy options considered in this brief serve one or more of these objectives.

Climate-friendly energy policies fall into one of three general categories—policies that: 

  1. reduce GHG emissions now; 
  2. promote technology advancement or infrastructure development that will reduce the costs of achieving GHG emissions reductions in the future; and 
  3. minimize the amount of new capital investment in assets that would be substantially devalued (or “stranded”) if a GHG program were implemented. 

Using the criteria outlined above, the following elements of a climate-friendly energy policy have been identified:

Fossil Fuels 

Expand natural gas transportation infrastructure. Encouraging expansion of the natural gas transportation system in North America through, for example, rate incentives, streamlined permitting for pipeline and liquefied natural gas (LNG) facilities, and expedited approvals needed for construction of an Alaska natural gas pipeline, will increase the delivery capability for natural gas and lower the price of the delivered product. This will facilitate the use of gas as a substitute for coal in electricity production and thus reduce GHG emissions. 

Increase natural gas production. Encouraging increased production of natural gas in North America through, for example, tax incentives, royalty relief, and access to public land for resource development will lower the price and increase the availability of natural gas. This will, in turn, permit the use of gas as a substitute for coal in electricity production and thus reduce GHG emissions.


Encourage deployment of efficient electricity production technologies
. Encouraging developers of new generation capacity to employ very efficient generation technologies—with tools such as tax incentives for combined heat and power and high-efficiency distributed generation—can significantly increase the amount of useful energy gleaned from fuels, and thus reduce both energy costs and emissions. Moreover, support for repowering existing plants with technology that improves the efficiency of electricity generation can reduce electricity prices and reduce fuel consumption per kilowatt-hour (kWh), with corresponding GHG reduction benefits. Conversely, policies that discourage such investments in improved efficiency, and instead result only in energy-consuming pollution control retrofits (e.g., scrubbers to reduce conventional air pollutants), may be counterproductive from a climate perspective. Incentives for investment in advanced technologies such as carbon capture and sequestration would allow future use of coal resources without net GHG emissions.

Maintain role for nuclear and hydroelectric power. Policies that allow the safe continued use of nuclear power plants—such as granting license extensions, approving plant upratings where warranted, and finding new solutions to the nuclear waste problem—preserve diversity of energy supply, may reduce electricity prices, and avoid very substantial coal consumption for electricity generation. Likewise, maintaining or expanding hydroelectric capacity in a way that protects natural resources provides low-cost electricity without GHG emissions.

Encourage development of renewable energy resources. Policies that encourage the development of renewable energy resources—such as production tax credits, a renewable portfolio standard, electricity transmission policies that do not discriminate against intermittent renewable resources such as solar and wind, and net metering for small distributed renewable resources—can help diversify our energy portfolio and are environmentally attractive. Wind, solar, geothermal, and hydropower generation produce no GHG emissions, and use of biomass produces no net GHG emissions.

Buildings End-Use Efficiency

Promote use of efficient technologies and green design in buildings. Policies that require increased efficiency of energy end-use (such as building codes or appliance efficiency standards), and policies that encourage use of highly efficient equipment and technologies (such as tax incentives, product efficiency labeling, and Energy Star™ programs) can significantly reduce energy consumption, consumer operating costs over a product’s or building’s lifecycle, the need for investment in new power plants, and emissions related to energy use.

Industrial End-Use Efficiency

Promote the use of more efficient processes and technologies in industry. Policies that provide incentives for investment in efficient processes and combined heat and power technologies, expand coverage of efficiency standards to standard-design industrial equipment, and provide more information on efficient technologies to industrial consumers can lead to further emissions reductions in the industrial sector.


Enhance end-use efficiency of automobiles and light trucks. Regulatory and tax policies—such as more stringent CAFE standards, reforms to the “gas guzzler” tax, efficiency standards for tires, and tax or other incentives for the purchase of highly efficient hybrid vehicles—can significantly reduce fuel consumption per mile, thus reducing oil consumption and mitigating reliance on oil imports. Very significant energy and climate policy benefits can be gained in this area. According to a recent National Research Council study, if lead times are long enough, automakers can produce substantially more fuel-efficient vehicles without increasing net consumer costs or compromising safety.25 Moreover, fundamental redesigns such as hybrid vehicles (already commercially available in some Honda and Toyota vehicles) and fuel-cell vehicles offer important additional benefits.

Research and Development

Promote research and development on efficient electricity production technologies. Federal funding or tax incentives for R&D on improving the efficiency of the electricity generation process, regardless of fuel source, can provide options to reduce future energy prices and reduce future fuel consumption per kWh, with corresponding GHG benefits.

Promote research and development on efficient end-use technologies. Federal funding or tax incentives for R&D on improving transportation, building, and industrial end-use efficiency can provide options to reduce future energy costs to consumers and to reduce future energy consumption, with corresponding GHG benefits. Support for R&D is particularly important in areas where fundamental changes are possible, such as the widespread use of hydrogen in fuel cells to power vehicles.

Promote research and development on non-fossil fuels and carbon sequestration. Federal funding or tax incentives for R&D on alternatives to fossil fuels, such as biofuels and hydrogen, can provide future viable alternatives to oil. Development of economical carbon sequestration technologies could enable continued reliance on coal consistent with a GHG regulatory regime.



A “climate-friendly” energy policy can advance climate objectives while serving energy policy goals. However, a climate-friendly energy policy is not a substitute for climate policy. More significant GHG emissions reductions would be necessary in order to address climate change than can be justified solely on the basis of traditional energy policy objectives. In the long run, we can only curb climate change by weaning ourselves of our reliance on fossil fuels. The energy policy options outlined in this brief represent sensible and important first steps in U.S. efforts to reduce GHG emissions.




1 CO2 from fossil fuel combustion represents 82% of U.S. GHG emissions. Only 2% of U.S. GHG emissions are CO2 released from other activities. Although most methane emissions (the second-largest GHG emissions source) come from landfills and agricultural sources, about one-third are attributable to production of natural gas or coal, or to transportation of natural gas. See U.S. DOE, EIA. 2003. Emissions of Greenhouse Gases in the United States 2001. Available at .
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2 Smith, Douglas W., Robert R. Nordhaus, Thomas C. Roberts, Marc Chupka, Shelley Fidler, Janet Anderson, Kyle Danish, and Richard Agnew. Designing a Climate-friendly Energy Policy: Options for the Near Term. Pew Center on Global Climate Change. Arlington, VA. July 2002.
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3 The U.S. Domestic Response to Climate Change: Key Elements of a Prospective Program. In Brief, Number 1. Pew Center on Global Climate Change. Arlington, VA.
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4 Nordhaus, Robert R. and Kyle W. Danish. Designing a Mandatory Greenhouse Gas Reduction Program for the U.S. Pew Center on Global Climate Change. Arlington, VA. May 2003. This report identifies issues that must be addressed in the design of a mandatory U.S. GHG reduction program. Three options are specifically evaluated: (1) cap-and-trade programs, (2) GHG taxes, and (3) a “sectoral hybrid” program that combines efficiency standards for automobiles and consumer products with a cap-and-trade program applicable to large sources of greenhouse gases.
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5 Greene, David L. and Andreas Schafer. Reducing Greenhouse Gas Emissions from U.S. Transportation. Pew Center on Global Climate Change. Arlington, VA. May 2003.
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6 CO2 makes up the lion’s share of U.S. GHG emissions, but other gases also play a role in enhancing the greenhouse effect. Non-CO2 greenhouse gases account for roughly 18% of the global warming potential of U.S. GHG emissions. Some of them have a very weak effect; options to control GHG emissions have focused on the five with the strongest impact. Methane (CH4) and nitrous oxide (N2O) are created through decomposition, chemical processes, fossil fuel production and combustion, and many smaller sources. Sulfur hexafluoride (SF6) is used as an insulating gas in large-scale electrical equipment. The remaining two are hydrofluorocarbons (HFCs) used as refrigerants and perfluorocarbons (PFCs) released during aluminum smelting and used in the manufacture of semiconductors. When compared using 100-year global warming potentials, their weighted emissions are as follows: CH4, 9%;  N2O, 5%; HFC/PFC/SF6, 2%. For further discussion of non-CO2 greenhouse gases, see Reilly, John M., Henry D. Jacoby, and Ronald G. Prinn. Multi-gas Contributors to Global Climate Change. Pew Center on Global Climate Change. Arlington, VA. February 2003.
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7 CO2 emissions from the combustion of biomass are offset by CO2 removed from the atmosphere by the plants.
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8 Crude oil in the SPR plus private company stocks would cover approximately 150 days without imports.
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9 For more information about deregulation in the electric power sector, see U.S. DOE, EIA. Electric Power Industry Restructuring Fact Sheet. Available at  
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10 U.S. DOE, EIA. 2002. Annual Energy Review 2001. Available at
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11 U.S. DOE, EIA. 2003. Annual Energy Outlook 2003, p. 83. Available at . This number reflects net imports.
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12Ibid., Tables A2 and A3.
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13 “Primary energy” consists of the sum of “site energy” (the energy directly consumed by end users) and the energy consumed in the production and delivery of energy products to end users. See
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14 U.S. DOE, EIA. 2002. Annual Energy Review 2001, Table 1.3.
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15 U.S. DOE, EIA. 2003. Annual Energy Outlook 2003, pp. 5-6.
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16 U.S. DOE, EIA. 2002. Annual Energy Review 2001, Tables 1.3 and 8.2a.
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17 U.S. DOE, EIA. 2003. Annual Energy Outlook 2003, p. 6.
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18 In addition to CO2 emissions, energy production and use contributes two other greenhouse gases: CH4, primarily from natural gas systems and coal mining, and N2O from fuel combustion.
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19 See Endnote 1.
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20 See U.S. DOE, EIA. 2003. Emissions of Greenhouse Gases in the United States 2001, p. 26.
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22Ibid., pp. 24 and 21 (respectively).
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23 A rulemaking by the Department of Transportation, in progress at time of writing, calls for the light truck standard to be raised to 22.2 mpg by 2008.
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24 Greene and Schafer.
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25 National Research Council. 2002. Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) Standards. Available at
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Taking Climate Change into Account in U.S. Transportation

U.S. transportation is responsible for more than a quarter of U.S. greenhouse gas (GHG) emissions. This In Brief describes the options for reducing this contribution to global climate change. There are three fundamental ways to curb these emissions.
  • Improve vehicle efficiency. Major gains in fuel efficiency are technically feasible for cars, trucks, and airplanes. There is evidence, however, that consumers undervalue fuel savings when purchasing new vehicles. In addition, the environmental and security benefits of fuel efficiency are external—i.e., dispersed throughout society rather than to the individual consumer. Because fuel efficiency is thus undervalued in the market place, policies are essential to pull efficiency improvements into the market. The current system for setting vehicle efficiency standards could be made more effective by providing longer lead times for tougher standards. Another option would be to require light trucks to meet standards as stringent as those for cars. Because it takes time for the vehicle fleet to turn over, programs must be initiated now and sustained over decades to realize this technological potential.
  • Substitute low-carbon fuels for carbon-intensive fuels. Many alternative fuels produce less carbon dioxide (CO2) per unit of energy than petroleum. Petroleum, however, has many advantages and is supported by an extensive and well-functioning infrastructure, so policy intervention would be required to spur a transition to alternative fuels. Requiring the use of ethanol as a gasoline additive could yield a 3 percent net reduction in GHG emissions in the near term and a 10 percent reduction in the long term, while maintaining the current fueling system.1 Work should also start now to lay the groundwork for longer-term solutions, such as a hydrogen-based transportation system.
  • Increase transportation system efficiency. Numerous transportation modes—such as air, water, rail, car, bus, and bicycling—exist to move people and goods. Increasing the efficiency of the transportation system would require both improving accessibility to the various modes of transportation and using more efficient ones. Which mode is most efficient depends on the distance traveled as well as population density. In the United States, the evolution over decades of automobile dependence and land use patterns has resulted in an energy-intensive transportation system. Policy options for increasing system efficiency include funding public transportation, building infrastructure that eases the transfer of freight and passengers between modes, supporting "intelligent transportation" technologies. and promoting "smart growth."

Greenhouse gas emissions consequences are now unaccounted for in public as well as private transportation decisions. Taking climate change into account in these decisions would provide a major impetus to improve vehicle efficiency, substitute low-carbon fuels, and increase transportation system efficiency. Policy options include building institutional capacity at all levels of government to address the climate consequences of transportation, incorporating climate change as a consideration in disbursing monies from the federal Highway Trust Fund, and developing a greenhouse gas cap and trade program to constrain emissions at the lowest possible cost.

No single policy approach will be sufficient. Reducing GHG emissions from transportation calls for a balanced combination of cost-effective measures. Many of the policy measures discussed in this brief do much more than reduce CO2 emissions. For example, since U.S. transportation is almost entirely fueled by petroleum, decreasing GHG emissions from this sector would also decrease dependence on imported oil.

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Reducing Greenhouse Gas Emissions From U.S. Transportation

Reducing GHG from Transportation

Reducing Greenhouse Gas Emissions From U.S. Transportation

Prepared for the Pew Center on Global Climate Change
May 2003

David L. Greene, Oak Ridge National Laboratory and 
Andreas Schafer, Massachusetts Institute of Technology

Press Release

Download Entire Report (pdf)


Eileen Claussen, President, Pew Center on Global Climate Change

Transportation accounts for nearly a third of our nation's greenhouse gas emissions, and its emissions are growing more rapidly than other sectors. In this report, authors David Greene and Andreas Schafer find that numerous opportunities are available now and in the future to reduce the transportation sector's impact on climate. Many of these same actions would also address other national priorities, including reducing U.S. dependence on oil imports.

This latest Pew Center report is the first building block in our effort to examine key sectors, technologies, and policy options to construct the "10-50 Solution" to climate change. The idea is that we need to tackle climate change over the next fifty years, one decade at a time. This report points to the following key elements of the 10-50 Solution to transportation.

  • We can start now, and we must start now. Fuel economy for cars and trucks could be increased by 25-33 percent over the next 10 to 15 years using market-ready technology at a net savings, if fuel savings are taken into account. Increasing efficiency of vehicles (aircraft, car, trucks and trains) takes time because fleet turnover typically takes 15 years or more.
  • We will need a sustained effort over many decades. Technologies on the horizon are likely to enable fuel economy improvements in cars and light trucks of 50 to 100 percent by 2030. Transforming land-use patterns to enable more efficient travel, or transitioning to a hydrogen based transportation system, will require decades of incremental change.
  • R&D and voluntary efforts are necessary but not sufficient; mandatory policies are essential. Since fuel economy is undervalued in the marketplace, policies such as mandatory standards and public information are needed to pull technological improvements into the market. Fuel economy has gotten worse recently not because of lack of technology, but because of lack of policy. Hydrogen holds out the tantalizing promise of near-zero greenhouse gas emissions, but government must provide clear policy direction to drive massive private investment by the fuel and vehicle industries.
  • We need a mix of policies, and there are many to choose from. Opportunities for significant emission reductions include implementing a carbon constraint, raising efficiency standards for automobiles, blending low-carbon fuels with gasoline, and changing land-use patterns through urban design and planning. Each of these measures could contribute to reducing GHG emissions, but none is sufficient alone. The authors estimate that a combination of reasonable measures would reduce carbon emissions by about 20 percent by 2015, and almost 50 percent by 2030, compared to "business as usual."

The authors and the Pew Center would like to thank Roland Hwang of the Natural Resources Defense Council, Barry McNutt of the U.S. Department of Energy, Alan Pisarski, and Daniel Sperling of the University of California, Davis for their review of and advice on a previous draft of this report.

Executive Summary

Since the introduction of motorized transportation systems, economic growth and advancing technology have allowed people and goods to travel farther and faster, steadily increasing the use of energy for transportation. Modern transportation systems are overwhelmingly powered by internal combustion engines fueled by petroleum. Emissions of carbon dioxide (CO2), the principal greenhouse gas (GHG) produced by the transportation sector, have steadily increased along with travel, energy use, and oil imports. In the absence of any constraint or effective countermeasures, transportation energy use and GHG emissions will continue to increase.

In the U.S. economy, transportation is second only to electricity generation in terms of the volume and rate of growth of GHG emissions. In terms of carbon dioxide, which accounts for 95 percent of transportation's GHG emissions, transportation is the largest and fastest growing end-use sector.1  Today, the U.S. transportation sector accounts for one-third of all U.S. end-use sector CO2 emissions, and if projections hold, this share will rise to 36 percent by 2020. U.S. transportation is also a major emitter on a global scale. Each year it produces more CO2 emissions than any other nation's entire economy, except China. Given its size and rate of growth, any serious GHG mitigation strategy must include the transportation sector.

This report evaluates potential CO2 emission reductions from transportation in the United States. Measures considered include energy efficiency improvements, low-carbon alternative fuels, increasing the operating efficiency of the transportation system, and reducing travel. Highway vehicles should be the primary focus of policies to control GHG emissions, since they account for 72 percent of total transportation emissions. Passenger cars and light trucks together account for more than half of total sectoral emissions.

Energy Efficiency

By 2015, the fuel economy of new passenger cars and light trucks can be increased up to one-third by the adoption of proven technologies, at a cost below the value of the fuel that would be saved and without reducing the size or performance of vehicles. Before 2030, advanced diesel engines, gasoline or diesel hybrid vehicles, and hydrogen-powered fuel cell vehicles will likely permit new car and light truck fuel economy to be increased by at least 50 to 100 percent, while satisfying current and future emission standards. Efficiency gains of 25 to 50 percent for new heavy trucks will likely also be possible over the next 15 to 30 years. For new aircraft, fuel economy increases of 15 to 25 percent seem feasible by 2015, reaching 25 to 40 percent by 2030.

Because the energy efficiency of new vehicles will rise gradually, and because it takes time to turn over the entire fleet of vehicles in use, by 2015 the increase in energy efficiency achieved by all transportation vehicles in use will be only about half that achieved by new vehicles. With policies to ensure the use of cost-effective technologies to increase fuel economy, by 2015 it should be possible to boost the average efficiency of vehicles in use by 10 to 15 percent, reducing GHG emissions by about 11 percent. By 2030 GHG emissions reductions on the order of 25 percent should be achievable. These estimates take into account the tendency for slight increases in travel when fuel costs are lowered by efficiency gains.

Alternative Fuels

Despite 25 years of effort, alternatives to petroleum have not displaced more than a few percent of petroleum fuels. Petroleum fuels are supported by an extensive and well-functioning infrastructure. They also have high energy density, low cost, and a demonstrated ability to adapt to environmental challenges. In the near term, lower-carbon alternative fuels such as natural gas and liquefied petroleum gases will continue to be viable in niche markets. Lower-carbon replacement fuels, such as alcohols or ethers produced from biomass, can be blended with gasoline to displace several percent of petroleum use. If methods of producing ethanol from cellulose can be commercialized and if current tax subsidies are continued, renewable liquid fuels blended with petroleum fuels could reduce transportation's CO2 emissions by 2 percent by 2015 and 6 percent by 2030.

Technological advances in fuel cells, hydrogen production, and hydrogen storage are needed to accomplish a transition to a largely hydrogen-powered transportation system. Such a transition will also require intensive planning, major commitments by government, industry, and the public, and supportive public policies. If achieved, however, a transition to hydrogen produced from renewable or nuclear energy or from fossil resources with carbon sequestration, could eliminate most of transportation's GHG emissions sometime after 2030.

System Efficiency

While changing behavior has the potential to reduce transportation fuel use and GHG emissions, large and sustainable reductions have never been achieved in this manner in the United States. Increasing wealth and vehicle ownership combined with decreasing household size and population densities has led to steadily declining vehicle occupancy rates. The same trends have historically contributed to declining market shares for mass transit, although mass transit ridership has been growing over the past few years. On the freight side, shippers increasingly value speed and reliability, favoring truck and airfreight, the most energy-intensive modes. Still, GHG emission reductions of a few percent can be achieved with concerted effort, and much might be possible if innovative strategies could be found to increase vehicle occupancy rates without diminishing service or convenience.

Reducing Transportation Activity

Mobility gives people access to opportunities and enhances the efficiency of the economy. Reducing transportation activity per se is not a desirable goal. Where there are environmental damages (such as GHG emissions) unaccounted for in private transportation decisions, increasing the cost of travel to reflect these impacts is beneficial from both an economic and environmental perspective. In particular, internalizing the externality of climate change through carbon cap-and-trade systems or direct pricing of the carbon content of motor fuels is an especially attractive option. An even greater impact can be achieved by redistributing certain fixed costs of motor vehicle travel so that they fall on carbon fuels. One example is collecting a portion of vehicle insurance fees as a surcharge on motor fuel. This could reduce GHG emissions from motor vehicles by 8 to 12 percent and could improve the overall economic efficiency of highway transportation.

The patterns of land use and development that have evolved over many decades are inefficient from a transportation perspective. If the geography of cities can be transformed to provide equal or greater accessibility with less travel, both the environment and the economy would benefit. Experimentation and modeling analyses indicate that travel reductions of 10 percent may be achievable in the long run, without loss of accessibility. The ability to consistently achieve and sustain such reductions has not been demonstrated in the United States, and much remains to be learned about planning and realizing more transportation-efficient patterns of land use.

Policy Options

There are plenty of practical and effective policies for reducing transportation's GHG emissions. The policies described in this report are not the only policies that can be effective; rather, they are representative of the kinds of policies a comprehensive strategy would include. A reasonable combination of policy measures should be able to reduce U.S. transportation sector CO2 emissions by 20 to 25 percent by 2015 and by 45 to 50 percent by 2030 in comparison to a transportation future without any efforts to control carbon emissions. If the demand for transportation energy use continues to grow at 2 percent per year through 2030, achieving these reductions will result in CO2 emissions in 2030 that are about the same as the current level.

These estimates of GHG reductions achievable by 2015 are based on: (1) proven energy efficiency technologies and low-carbon replacement fuels, (2) levels of efficiency improvement at which the value of the fuel saved is greater than or equal to the cost of technology, (3) no change in vehicle size or performance, (4) pricing and other policies that do not increase the overall cost of transportation and, (5) a carbon cap-and-trade system equivalent to approximately $50 per ton of carbon. Greenhouse gas reductions estimated to be achievable by 2030 are based on: (1) efficiency improvements that depend on technological progress judged highly likely by 2020 with a focused R&D effort, and (2) continuation or moderate extensions of pricing and behavioral policies adopted for 2015. GHG emissions would be lower if growth in demand for transportation fuel is slower, or with more stringent energy efficiency standards, a tighter carbon emissions cap, or if technological innovation is more rapid than assumed here.

Fuel efficiency improvements, especially of cars and light trucks, offer the largest potential for reducing CO2 emissions from transportation over the next 30 years. Several policies can contribute to realizing this potential, including fuel economy standards. Fossil fuel or carbon pricing policies would encourage fuel economy improvements while simultaneously discouraging transportation demand. Pricing measures alone, however, would probably not be sufficient to achieve the above indicated emission reductions. A price of $100 per ton of carbon, which translates into $0.25 per gallon of gasoline, might increase fuel economy by about 5 to 10 percent and reduce light-duty vehicle travel by about 1 to 3 percent, far below the estimated potential of a comprehensive strategy.

The long lead times required to turn over the entire fleet of vehicles and the supporting infrastructure mean that policies must be implemented now to create the impetus for change in order to achieve the reduction levels indicated in this report. Within the next 15 years, energy efficiency improvements, various pricing policies, and low-carbon replacement fuels are the key components of a comprehensive effort for reducing GHG emissions. Over the longer term a large-scale transition away from petroleum fuel toward low-carbon alternative fuels should be considered. Among the most promising low-carbon fuels for the longer term is hydrogen, which has many desirable fuel characteristics and can be produced from a variety of zero-carbon feedstocks or from fossil fuels with subsequent carbon sequestration. Obstacles, however, remain in areas such as hydrogen storage and the cost of hydrogen fuel cell vehicles. A transition to hydrogen will require an entirely new infrastructure for producing, transporting, distributing, storing, and retailing hydrogen, and possibly for sequestering CO2 emissions generated during its production.

Many of the policy measures discussed in this report do much more than reduce CO2 emissions. For example, improving fuel efficiency of the U.S. transportation system reduces dependence on foreign oil imports and increases the global competitiveness of the U.S. vehicle industry. Similarly, more efficient land-use patterns not only increase the ridership potential of public transportation modes but also relieve traffic congestion. Taking these multiple benefits into account spreads the costs of controlling CO2 emissions and adds incentives for taking action.

The size and rate of growth of transportation's GHG emissions make them impossible to ignore. The interconnectedness of transportation to nearly every aspect of human activity, the provision of most transportation infrastructure as public goods, the important external costs associated with transportation activity and energy use, and other market imperfections mean that no single policy is likely to achieve the needed reductions in transportation GHG emissions. A suite of policies will be necessary. Devising and implementing an effective, comprehensive strategy will be a difficult and complex task, but it can be done.

1. The end use sectors are industry, residential, commercial, transportation and agriculture. Electric utility GHG emissions are apportioned to the sectors according to their electricity use.


By combining a variety of policies, U.S. transportation-related carbon emissions could be cut by 20 to 25 percent by 2015 and by 45 to 50 percent by 2030, in comparison to a continuation of current trends in energy efficiency, petroleum dependence, and traffic growth. Curbing the growth of transportation's GHG emissions will require a combination of meaningful policies and technological progress. A successful policy portfolio will involve all modes of transportation and will include a variety of measures, from fuel economy and fiscal policies to infrastructure investments. In the longer run, technological progress — and policies that promote it — must provide the means for continued efficiency improvements and ultimately for a transition to low-carbon energy sources for transportation. There are many specific forms of policies that can achieve the same objective.

Reducing transportation's GHG emissions will not be easy because demand for mobility of both people and goods will almost certainly continue to grow. Increasing transportation activity will result in growing energy use and GHG emissions, unless the energy efficiency of vehicles can be increased, alternative energy sources developed, and ways found to improve the ability of land use and transportation systems to provide accessibility with less motor vehicle travel.

The international effort to protect the global climate, especially efforts to reduce GHG emissions from transportation, provides a unique opportunity for the United States to work cooperatively with other countries to reduce worldwide demand for oil. Both near-term and longer-term actions to reduce GHG emissions from transportation will produce major benefits for U.S. energy security in the form of reduced oil imports and reduced economic losses from oil price shocks. Actions to reduce GHG emissions taken in concert with the other oil-consuming nations of the world will undermine the market power of the OPEC cartel, amplifying the United States' own efforts to increase energy security. By staying out of the global effort to reduce GHG emissions, the United States may be squandering its best chance to solve the oil dependence problem.

Harnessing market forces is a very useful but probably insufficient strategy for mitigating transportation's GHG emissions. Even a carbon cap-and-trade system, as beneficial as it would be, would be hindered by the tendency of households to undervalue fuel economy. It would be unlikely to bring about an appropriate level of investment in long-term transportation energy technologies and would not guide important investments in transportation infrastructure and the built environment. A combination of policies is needed to promote energy efficiency, stimulate investments in research and development, improve land use and infrastructure planning, and harness market forces.

For at least the next decade, the U.S. transportation system will continue to be powered primarily by conventional, petroleum-based liquid fuels. As a result, the most productive options to reduce GHG emissions will be fossil fuel or carbon pricing policies, energy efficiency improvements, and the blending of low-carbon replacement fuels with petroleum liquids.

Over the next 15 to 30 years, new technologies will be introduced, and the stock of transportation vehicles will be turned over twice, making much larger increases in energy efficiency possible. The world is also likely to have begun an important transition from conventional petroleum to alternative energy sources. The path of least resistance would be a gradual transition to increased use of unconventional sources of liquid hydrocarbon fuels, yet promising technologies are emerging that could lead in a very different direction, toward major roles for hydrogen and electric motors. It is not too soon to begin planning for and developing the technologies for an energy transition for transportation. The use of unconventional fossil fuels entails higher costs and more severe environmental consequences. An alternative, cleaner, more economically efficient energy future for transportation is possible, if the right technologies can be developed.

Increasing the efficiency of energy use now will buy more time for the transition and for the development of alternative technologies. Other decisions made over the next 10 years in R&D and also in infrastructure investments will influence the path taken. The paths that lead toward very low GHG emissions will require bold changes in technology and investments in infrastructure. At the same time, continued improvements in energy efficiency will be valuable whichever path is chosen. If the high-carbon fossil fuel path is chosen, continuing efficiency gains will be needed to hold carbon emissions in check. If the low-carbon path is chosen, higher efficiencies will help reduce the costs of clean technologies.

An attractive alternative to a petroleum-based transportation system is one based on hydrogen. Hydrogen can be produced from a variety of energy resources with minimal environmental impacts with the right technologies. Hydrogen, however, is not yet ready to compete with petroleum. Technological advances are needed in hydrogen storage, in the robustness and cost of fuel cells to produce power from hydrogen, and in economical and environmentally benign hydrogen production. The federal government's newly created FreedomCAR and hydrogen initiatives and California's Fuel Cell Partnership aim to create a transportation system powered by pollution-free hydrogen fuel cells. Even with the best efforts of these programs, it will be at least 15 to 20 years before hydrogen can achieve significant success in the marketplace.

The United States is the source of one-fourth of the world's GHG emissions. It is also the owner of the world's largest transportation system, the fastest growing source of CO2emissions in the U.S. economy. The U.S. transportation system is a key target for GHG emissions reduction. There are many responsible and cost-effective actions that can be taken to restrain the growth of GHG emissions from transportation. Action can begin today, and pathways exist to a low-carbon future for transportation. Formulating and implementing an effective, comprehensive strategy will not be easy, but it can be done.

About the Authors

David L. Greene, Oak Ridge National Laboratory

A Corporate Fellow of Oak Ridge National Laboratory, David Greene has spent 25 years researching transportation and energy policy issues for the U.S. government. His research interests include analysis of policies to mitigate greenhouse gas emissions from transportation, energy and transportation demand modeling, economic analysis of petroleum dependence, and understanding market responses to advanced transportation technologies and alternative fuels. Dr. Greene earned a B.A. degree from Columbia University in 1971, an M.A. from the University of Oregon in 1973, and a Ph.D. in Geography and Environmental Engineering from The Johns Hopkins University in 1978. He has published over one hundred fifty articles, which have appeared in various professional journals, books, and technical reports. In recognition of his service to the National Academy of Science and National Research Council, Dr. Greene has been designated a lifetime National Associate of the National Academies.

Andreas Schafer, Massachusetts Institute of Technology

Andreas Schafer is a Principal Research Engineer at the Center for Technology, Policy & Industrial Development and the MIT Joint Program on the Science and Policy of Global Change at the Massachusetts Institute of Technology. Previously, he spent 5 years with the Energy Systems group at the International Institute for Applied Systems Analysis (IIASA), Laxenburg (Austria). His research interests cover the modeling of the demand for and supply of energy and transportation systems and the introduction of technology under environmental constraints. He holds a M.Sc. in Aero- and Astronautical Engineering and a Ph.D. in Energy Economics both from the University of Stuttgart, Germany.

Andreas Schafer
David L. Greene

Solving the Climate Equation: Mandatory & Practical Steps for Real Reductions

Mandatory & Practical Steps for Real Reductions

Remarks By Eileen Claussen
President, Pew Center on Global Cliamte Change

Alliant Energy Conference
Madison, Wisconsin

April 15, 2003

Thank you very much. It is a pleasure to be here in Madison. And to be here on tax day makes it even more special. I hope I can be as creative in my remarks as many Americans are on their Form 1040.

Considering that it is tax day and coming from Washington, as I do, I thought you would be interested to know that Congress is indeed getting very serious about tax simplification. It’s true. The new tax forms they are discussing would include just three parts.

Part One: How much did you make last year? Part Two: How much do you have left? Part Three: Please send in the amount listed in Part Two.

Seriously, I expect you will all be glad to know that I am not here today to talk about taxes. Rather, what I want to talk about is the very taxing problem of global climate change. Okay, that’s the last time today that I will mention taxes.

I know that this morning’s panels included a session on the science of climate change. So I will skip the part of the speech laying out the evidence of how serious a problem this is. I hope that I don’t need to persuade you of that.

Instead, I would like to talk about where we stand today in our efforts to meet the challenge of climate change – and I may surprise some of you by saying there are actually a lot of good things happening. The momentum is building for practical solutions. People and governments are indeed taking important and worthwhile steps to address this problem, and I want to talk with you a little bit about what they are doing.

At the same time, I also want to talk with you about what must happen next. Because what is happening now is clearly not enough. And the priority looking ahead must be to marry a long-term vision of a climate-friendly future with the short-term strategies that will get us there. We need mandatory goals to ensure the broadest possible participation across all industry sectors in this effort. And we need to give businesses the flexibility to achieve those goals as cost-effectively as possible.

But, before I get into all of that, let me give you some background about the organization I represent. The Pew Center on Global Climate Change is a non-profit, non-partisan and independent organization. We consider ourselves a center of research, analysis, and collaboration. We are also a center in another sense – a much-needed centrist presence on an issue where the discussion too often devolves into battling extremes.

Our mission is to provide credible information, straight answers and innovative solutions in the effort to address global climate change. We see ourselves as a force for a pragmatic path forward on this issue. And we fulfill this role by educating the public and key policy makers, and by encouraging the domestic and international community to take practical steps to reduce emissions of greenhouse gases.

Over the past several years, we have issued 45 reports from top-tier researchers on key climate topics such as economic and environmental impacts, policy solutions, equity issues and more. We have convened conferences and symposia, and we have worked with policy makers and businesses throughout the world as they strive to shape climate solutions.

In the course of our work, as you might expect, we have developed a fairly keen sense of where things stand in the global effort to address the climate problem. This is what I want to share with you today. It is the view from 30,000 feet, and I find it’s an especially useful vantage point for assessing our progress on this issue.

What does this high-level view show us? It shows us that despite everything we see and hear coming out of Washington, despite the fact that U.S. climate policy remains in neutral, from a higher altitude we can see that there is actually a great deal of activity under way. There are actually a lot of people who are already hard at work charting the “Path Forward” on climate change that is advertised as the topic of this conference.

Consider this: Despite the opposition of the Bush administration, the Kyoto Protocol stands on the verge of entering into force sometime this year. The ratification of the treaty by Poland and Canada late in 2002 brought the number of ratifying countries to 100. These countries were responsible for nearly 44 percent of global greenhouse gas emissions in 1990. Russia’s expected ratification of the treaty later this year should bring that share to 55 percent, which is the level required for Kyoto to become law.

I have no illusions, of course, that Kyoto is the definitive solution to the climate problem – and I strongly believe, as I will say later, that it is time to start thinking beyond Kyoto. But the simple fact that this critical mass of developed nations have agreed to the treaty – and are already hard at work on strategies to meet their Kyoto emission targets – is a development of truly historic proportions.

Equally encouraging – if not equally historic – are the voluntary efforts of many companies throughout the world to address the climate problem in a proactive way. As many of you know, the Pew Center serves as a convenor of leading businesses that are taking practical steps to reduce their contribution to the problem. The 38 members of our Business Environmental Leadership Council represent nearly 2.5 million employees and have combined revenues of $855 billion. They include mostly Fortune 500 firms, and they are deeply committed to climate solutions:

There is DuPont, for example, which made a voluntary pledge to reduce its global emissions of greenhouse gases by 65 percent by the year 2010. And guess what? Late last year, they announced they had achieved this target eight years ahead of schedule.  Also ahead of schedule in meeting its target is BP, which in 2002 announced that it had reduced global greenhouse emissions by 9 million metric tons in just four years. This marked a 10-percent reduction in the company’s emissions – and, like DuPont, BP had originally intended to achieve this goal in 2010.

Other companies have set similar targets and are working hard to meet them. And then there are all the companies that, even if they are not setting targets, are working in other ways to reduce their contribution to the climate problem. Alliant Energy itself – the sponsor of this important gathering – is also the sponsor of an array of energy efficiency and renewable energy programs.

The company’s innovative Second Nature program, for example, allows residential utility customers in Iowa, Minnesota and Wisconsin to buy renewable energy equal to 25 percent, 50 percent or 100 percent of their electric usage. At the end of 2002, Second Nature customers helped generate more than 9.8 million kilowatt-hours of renewable energy, including wind power from a new wind farm in Minnesota and biomass energy from a methane gas plant at a landfill in Mayville, Wisconsin.

Companies such as Alliant, BP and DuPont are not alone in taking proactive steps to address this problem. Also charting a path forward are individual states throughout the country. The Pew Center’s research shows that a majority of states have programs that, while not necessarily directed at climate change, are achieving real emission reductions.

Texas and 13 other states, for example, now require utilities to generate a specified share of their power from renewable sources. New York State’s new energy plan sets a goal of reducing emissions 10 percent below 1990 levels by 2020. What’s more, some states are going beyond target-setting and are establishing direct controls on carbon emissions from power plants and – in the case of California – cars and SUVs.

And I would be remiss not to mention what is happening here in Wisconsin, which since 1993 has required any facility that emits more than 100,000 tons of carbon dioxide to report its emission levels to the Department of Natural Resources. Wisconsin was the first state with a mandatory reporting rule; of the other states, only New Jersey has followed Wisconsin’s lead. And now Wisconsin is hard at work on a new registry that will enable firms to report reductions of CO2 or other greenhouse gases. The state is doing this, in part, to make sure that firms acting now will be able to get credit under future emission reduction regimes.

And so the path forward is being mapped out all around us – by entire nations, and by individual companies and states. Even the news from Washington is not all bad. Last year alone, nearly twice as many climate change bills were introduced on Capitol Hill than in the previous four years combined.

Then, early this year, as all of you know, the bipartisan duo of Senators John McCain and Joe Lieberman forged a landmark measure that for the first time brings together several features that would be critical to the success of a national climate change strategy. This bill would establish ambitious and binding targets for reducing U.S. greenhouse gas emissions. Equally important, it would provide companies with the flexibility to reduce emissions as cost-effectively as possible – thanks to the creation of a rigorous nationwide system allowing emissions trading and providing some credit for carbon storage. Last but not least, the bill would recognize those reductions that are being made now by the companies that are taking the lead on this issue and provide additional flexibility for these early actors.

Of course, the McCain-Lieberman measure has no real chance of becoming law any time soon, but it is an encouraging development nonetheless to see our policymakers in Washington finally coming to grips with exactly what it is going to take to yield real progress toward a climate-friendly future. And what it is going to take, as I stated early in my remarks, is a long-term vision of where we need to be, coupled with short-term strategies that will get us there.

At the Pew Center, we call it the 10/50 Solution. The idea is to think ahead to where we need to be 50 years from now if we are going to meet the challenge of climate change, and then to figure out decade by decade how to do it.

Why look 50 years out? Because achieving the necessary reductions in our greenhouse gas emissions will ultimately require innovation on a level never before seen. It will require a massive shift away from fossil fuels to climate-friendly sources of energy. It will require fundamental changes in how we produce things, how we power our homes and buildings, and how we travel to work.

The 10-50 approach doesn’t just look long-term, though. It recognizes that in order to realize that 50-year vision, we have to start right now. A while back, the Pew Center held a workshop with leading scientists, economists and other analysts to discuss the optimal timing of efforts to address climate change. They each came at it from a different perspective, but the overwhelming consensus was that to be most effective, action against climate change has to begin right now. Among the reasons why:

First, current atmospheric concentrations of greenhouse gases are the highest in more than 400,000 years. This is an unprecedented situation in human history, and there is a real potential that the resulting damages will not be incremental or linear, but sudden and potentially catastrophic. Acting now is the only rational choice under these circumstances.

A second reason to act now is that the risk of irreversible environmental impacts far outweighs the lesser risk of unnecessary investment in reducing or mitigating greenhouse gas emissions.

Third, it is going to take time to figure out how best to meet this challenge. And we must begin learning by doing now.

Fourth, the longer we wait to act, the more likely it will be that we are imposing unconscionable burdens and impossible tasks on future generations.

Fifth, there is an obvious lagtime between the development of policies and incentives that will spur action and the actions themselves.

And, last but not least, we can get started now with a range of “no regrets” policies that have very low or even no costs to the economy.

We can start with the low-hanging fruit – the countless ways we can reduce greenhouse emissions at little or no cost by simply being more efficient: everything from more fuel-efficient cars and trucks, including hybrids, to energy-efficient appliances and computers, efficiency improvements in industry, and even better management of animal wastes.

In the medium to long term, the challenge is to begin what we have called a second industrial revolution. The Pew Center is just now completing a scenario analysis that identifies several technologies as essential to our ability to create a climate-friendly energy future for the United States. Among them:

  • Number one: natural gas. Substituting natural gas for coal results in approximately half the carbon emissions per unit of energy supplied, but we need policies to encourage the expansion of natural gas supply and infrastructure.
  • Number two: energy efficiency. We have the ability to dramatically improve the fuel economy of cars and light trucks right now and in the very near future through a combination of advances in the internal combustion engine or through hybrid electric vehicles.
  • Number three: renewable energy and distributed generation. The potential here is enormous, but policy support will be essential in promoting investment and breaking barriers to market entry for these technologies.
  • Number four: nuclear power. Despite its problems, the fact remains that our carbon emissions would be much higher without nuclear power,
  • Number five: geological sequestration. Sequestration holds the potential of allowing for the continued production of energy from fossil fuels, including coal, even in the event of mandatory limits on carbon emissions.
  • And number six: hydrogen and fuel cells. The President’s recent announcement of a new federal commitment to fuel cell research was a welcome one, but we must have policies that will help pull these vehicles into the market.

Looking down this list, it is hard not to see that most, if not all, of these technologies would be important even in a world where we did not have this pressing obligation to reduce the amount of greenhouse gases in the atmosphere. For energy security and economic growth reasons, and a wide range of environmental reasons as well, these are simply smart things to do. The second industrial revolution is not just about responding to the challenge of climate change; it’s about creating a common-sense energy future.

And how can we make that future happen? Well, for one thing, we need an effective, long-term international agreement – one ensuring that all major emitting countries do their fair share to meet this challenge. The Kyoto Protocol – despite all its flaws, and despite being rejected by President Bush – is a reasonable first step. But even as other countries move ahead to implement it, they need to be looking beyond 2012 when the 1st commitment period ends. Because an agreement that’s going to work – an agreement that can bring in not only the United States, but developing countries as well – will in all likelihood be somewhat different than Kyoto. And it’s going to take some time to get there.

The more immediate challenge, of course, is here at home. That challenge is to get serious about reducing U.S. emissions. And getting serious means recognizing that a national climate strategy that lets emissions continue to grow is really not much of a strategy at all.

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Greenhouse & Statehouse: The Evolving State Government Role in Climate Change

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Greenhouse & Statehouse: The Evolving State Government Role in Climate Change

Prepared for the Pew Center on Global Climate Change
November 2002

Barry G. Rabe, University of Michigan

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The current level of state activity surrounding the issue of climate change is striking. Measures that have proven controversial at the federal level, such as renewable portfolio standards and mandatory reporting of greenhouse gas emissions, have been implemented at the state level, often with little dissent.

In this report, author Barry Rabe of the University of Michigan describes a diverse array of state initiatives to reduce greenhouse gas emissions. Based on case studies of nine states - Georgia, Massachusetts, Minnesota, Nebraska, New Jersey, North Carolina, Oregon, Texas, and Wisconsin - the report identifies the strengths as well as the limitations of these state-level initiatives, some of which could serve as prototypes for federal programs.

A number of themes emerged from the case studies. Foremost among these is that there are multiple drivers that influence states to reduce their greenhouse gas emissions, and states derive multiple benefits from doing so. New Jersey, for example, views climate change explicitly and comprehensively, and has integrated all sectors of the economy into programs to reduce greenhouse gas emissions. Conversely, Texas passed an ambitious renewable portfolio standard primarily out of a desire to ensure long-term energy security for its residents, to secure its position as an "energy state," and to take advantage of increasing opportunities in renewable energy.

Indeed, state climate change efforts illustrate that climate change can be a bipartisan issue, an economic development opportunity, and an opportunity for policy entrepreneurship. But state action is not a substitute for a comprehensive national or international approach. A number of factors limit the ability of states to address climate change, including the reluctance of some states to deal with the issue, constitutional limits to their engagement in international relations, limited funding, and potential inefficiencies if states address climate change in different, incompatible ways. Rather, state leadership is getting the United States started down the path of reducing greenhouse gas emissions and providing learning opportunities for policy-makers. We would do well to be mindful of their successes as we work toward federal and international programs, and actively involve states in their design and implementation.

The Center and the author wish to thank Tom Arrandale, Bill Becker of STAPPA-ALAPCO, John Dernbach of Widener Law School, David Terry of NASEO, Michael Winka, Athena Sarafides, Philip Mundo, Caroline Garber, Eric Mosher, Joanne Morin, Dana Runestad, Alex Belinky, Matthew Weinbaum, and John Shea for their comments on a previous draft of this report.

Executive Summary

Most analysis of policy options to address global climate change has focused on national and international levels of governance. Even within the United States, most scholars and journalists have concentrated on federal government capacity to engage in international negotiations and formulate nation-wide policies. This emphasis has tended to overshadow a remarkably - and increasingly - active process of policy formulation evident in the American states. This report is intended to provide an overview of this aspect of American climate change policy, considering recent trends and highlighting a range of case studies that cut across traditional policy sectors.

States have been formulating climate change policy for more than a decade, although their efforts have expanded and intensified in the past several years. In some cases, states have considered climate change mitigation explicitly while in others it has been an incidental benefit. Reflective of the vast scope of activity that generates greenhouse gases, state policies have been enacted that reduce these emissions in such areas as promotion of renewable energy, air pollution control, agriculture and forestry, waste management, transportation, and energy development, among others. In almost all cases, there have been multiple drivers behind and multiple benefits from these state policies. In Texas, for example, the desire for energy independence, economic development, and air pollution control drove the state to promote renewable energy. Not all states have demonstrated interest in these initiatives and some legislatures have taken steps to prevent state agencies from pursuing any efforts that are designed to reduce greenhouse gases. Nonetheless, there has been a remarkable increase and diversification of state policies since the late 1990s, reflected in their current operation in every region of the country. Collectively, they constitute a diverse set of policy innovations rich with lessons for the next generation of American climate change policy.

Much of this report is devoted to an examination of leading examples of innovation in various sectors, from renewable energy efforts in Texas to a cross-cutting approach in New Jersey. Nine case studies are presented in particular depth, followed by supplemental cases where appropriate. These cases tend to vary markedly from one another in detail and yet are linked by common design characteristics. First, they tend to have been supported through broad, bipartisan coalitions that received significant support from diverse stakeholders. State climate change policies have been signed into law by Governors who are Democrats, Republicans, and Independents. Second, they regularly have viewed climate change mitigation as an economic development opportunity. State policies have been crafted to foster long-term economic well-being, which has contributed to their broad base of support. Third, they reflect abundant state-level opportunities for innovation and policy entrepreneurship, often involving state officials who build coalitions around a particular idea for new policy. Many of the most effective entrepreneurs are not particularly well known outside their respective states but have helped redefine climate change policy with their efforts.

When viewed as a collection of efforts, these initiatives outline possible elements of a long-term climate change strategy for the United States. Diffusion of innovation from one state to others is already occurring and clusters of contiguous states are beginning to consider cooperative efforts. Some of these policies may also serve as models that warrant emulation by the federal government in developing a more comprehensive strategy for the nation. This is entirely consistent with the long-standing tradition in American governance whereby states serve as laboratories for subsequent federal policy. In turn, the vigorous and creative nature of state innovation in this area suggests that any future federal policy initiatives on global climate change consider carefully the significant roles that state governments may be able to play in achieving long-term reduction of greenhouse gases.


Transportation in Developing Countries: Greenhouse Gas Scenarios for Chile

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Transportation in Developing Countries: Greenhouse Gas Scenarios for Chile

Prepared for the Pew Center on Global Climate Change
August 2002

Raúl O’Ryan, Universidad De Chile
Daniel Sperling, Mark Delucchi, and Tom Turrentine, University of California, Davis

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Eileen Claussen, President, Pew Center on Global Climate Change

Worldwide, transportation sector greenhouse gas (GHG) emissions are the fastest growing and most difficult to control. In Chile, where the transportation sector is growing even faster than the rest of the economy and accounts for one-third of the nation's energy use, per capita GHG emissions are relatively high and car and truck ownership rates continue to increase.

Until recently, the environmental consequences of Chile's rapid development received little scrutiny. GHG emission levels continue to be a low priority for policymakers, but severe air pollution and traffic congestion are raising awareness of the need to address transportation-related environmental problems. As one of the world's most sophisticated countries at transferring transportation infrastructure and services provision to the private sector - most are now owned or managed by private companies, and market principles are being widely used in providing traditional public services - Chile could pioneer market-based approaches to transportation and environmental challenges.

This report creates two scenarios of GHG emissions from Chile's transportation sector in 2020. It finds:

  • Greenhouse gas emissions increase 117 percent in the high, "business-as-usual" scenario but only 42 percent in the low scenario.
  • Urban transportation strategies driven by concerns over air quality, traffic congestion, and the high cost of road infrastructure investments would also have climate change benefits. Examples of these strategies are:
  • Introducing new and enhanced technology, such as converting urban buses from diesel to hydrogen fuel cell and using natural gas and small battery-powered electric cars.
  • Improving public transportation, such as integrating bus routing and fare structures, establishing exclusive bus lanes and rights-of-way, offering more comfortable buses, and significantly expanding Metro and suburban rail services.
  • Encouraging smaller cars and alternatives to car use, e.g., by implementing parking restrictions, charges, and road fees, and eliminating tax incentives for larger and inefficient cars and light trucks.
  • For interurban transportation, the main problem is inadequate road, rail, port, and airport infrastructure. Supporting rail infrastructure will restrain GHG emissions.

Transportation in Developing Countries: Greenhouse Gas Scenarios for Chile is part of a five-report series on transportation sector GHG emissions in developing countries. The report's findings are based on a Lifecycle Energy Use and Emissions Model (LEM) developed by the Institute of Transportation Studies at the University of California at Davis. It estimates CO2-equivalent GHG emissions from the transportation sector. The Pew Center gratefully acknowledges Ralph Gakenheimer and Chris Zegras of MIT, Eduardo Sanhueza of Climate Change and Development (a Chilean consulting firm), and Michael Walsh, an independent transportation consultant, for their review of early drafts. The authors also express their gratitude to Barbara Cifuentes of the Universidad de Chile.

Executive Summary

Chile is a lightly populated country of 15 million that has undergone major economic transformations. Over the past 25 years, the economy has evolved from a slow-growing, state-directed one into a fast-growing, market-oriented one. Chile's South American neighbors imitated this transformation during the nineties. In the transportation sector, as in other areas of the economy, the private sector took over many traditionally state-managed activities. Chile has undertaken more structural changes in this sector in the past two decades than perhaps any other developing country.

This report addresses changes in transportation, energy use, and greenhouse gas (GHG) emissions and other environmental impacts resulting from economic growth and transportation choices. It includes interurban transportation and the urban system in the capital city, Santiago. Chile is an especially interesting case study because of its enthusiastic embrace of market competition in all aspects of transportation. In particular, it has developed a franchising system by which the private sector has been encouraged to finance infrastructure development. However, during this period of economic transformation and growth, Chile has not addressed many environmental problems, including GHG emissions. The expected increase in emissions in the next twenty years is significant, and any reductions would result from indirect efforts intended to address other urban, environmental, and congestion problems.

Chile's transportation sector is growing even faster than the rest of the economy, especially in Santiago. Between 1985 and 1998, the Chilean economy increased by 2.5 times (7.4 percent per year on average) and the transportation sector by about 3.5 times (over 10 percent per year on average). Between 1977 and 1991, cars increased their share of passenger travel by more than 60 percent, while the bus share fell by 27 percent. These shifts are motivated by the strong urbanization process, with over 85 percent of the population now living in cities, and strong growth in car ownership, with one in ten persons now owning a car. Cars now account for 26 percent of travel within cities (measured as passenger-kilometers) and 41 percent between cities. Public transportation has been losing market share for decades.

The transportation sector is responsible for about 28 percent of GHG emissions in Chile. Of the total GHG emissions from transportation, 45 percent are from cars and taxis, 22 percent from trucks, 13 percent from ships, 9 percent from airplanes, 10 percent from buses, and less than 1 percent from trains. Passenger transportation accounts for about two-thirds of transportation sector GHG emissions, while about one-third is from freight. Interurban transportation accounts for over half of total emissions. Chile's policymakers at the national, sectoral, and local levels have largely ignored the environmental consequences of rapid development. A policy of "grow first, clean up later" was pursued until 1990, after which a few local environmental concerns did reach the policy agenda. Lack of interest in GHG emission reductions continues, stemming from growth-oriented thinking as well as the general understanding that Chile's impact on the global climate is small compared to major industrial nations. With only 15 million people, each using on average less than one-sixth as much energy as each U.S. resident, and with large carbon dioxide (CO2) sinks due to natural regeneration in abandoned lands and forest plantations, Chile's relative net contribution to global climate change is small. Concern for global climate change is not likely to motivate domestic policy action.

But other concerns, especially acute air pollution and worsening traffic congestion, are already motivating actions that will have a side effect of reducing growth in GHG emissions. Intensifying policy debates over motor vehicles will play a central role in determining Chile's impact on climate change. Prospective international incentives, for example from the sale of emission credits under the Kyoto Protocol's Clean Development Mechanism (CDM), would serve to support such domestic initiatives, with potentially large climate change benefits.

This report develops high ("business-as-usual") and low emission scenarios for GHGs for the next two decades. The scenarios are based upon interviews with experts and policymakers, and extensive analysis of transportation and energy data gathered from a wide range of Chilean sources. Both scenarios are premised on strong continued economic growth (5.8 percent annual GDP growth). Under the business-as-usual scenario, it is assumed that no strong actions are taken to curb GHG emissions or restrain motorization. The result, over the next twenty years, is a doubling of energy consumption and GHG emissions by the transportation sector.

In an alternative low emission scenario, changes include policies to improve public transportation and introduce cleaner and more efficient vehicles. The net effect is a 42 percent increase in GHG emissions, significantly less than in the high scenario.

It is clear, given Chile's strong economic growth, that overall national GHG emissions will increase. It is also clear that the potential exists to substantially restrain the growth in transportation emissions. This study illustrates the opportunities and benefits of laying a foundation now for a more fundamental strategy shift toward the low GHG emissions scenario. The national experience using market-based approaches to finance transportation sector infrastructure development could prove to be a useful model for implementing additional market-based initiatives that reduce GHG emissions, including international mechanisms. Indeed, policymakers and private sector partners in Chile may have the capacity to develop cost-sharing projects in which domestic goals - e.g., better transportation and local air quality - and international GHG goals can be attained.


Designing a Climate-Friendly Energy Policy: Options for the Near Term

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Designing a Climate-Friendly Energy Policy: Options for the Near Term

Prepared for the Pew Center on Global Climate Change
July 2002

Douglas W. Smith, Robert R. Nordhaus, Thomas C. Roberts, Shelley Fidler
Janet Anderson, Kyle Danish, Richard
Agnew, of Van Ness Feldman, P.C.

Marc Chupkam The Brattle Group

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Eileen Claussen, President, Pew Center on Global Climate Change

Energy use and climate change are inextricably linked. In the current national energy policy debate, choices made today will directly impact U.S. greenhouse gas (GHG) emissions far into the future. In addition, near-term energy policy decisions will affect the costs of implementing any future climate policy. Decision- makers face the challenge of crafting policies that allow the United States to meet its energy needs while acting responsibly to reduce GHG emissions. This report contributes to the debate by examining a number of "climate-friendly" energy policy options for the near term-that is, policies that would advance U.S. energy policy goals during the next few decades while at the same time contributing to efforts to curb global warming.

For this most recent report in the Pew Center's policy series, a diverse team of authors from Van Ness Feldman, P.C. and The Brattle Group has identified key elements of a climate-friendly energy policy. The authors describe important U.S. energy policy objectives, including: (1) a secure, plentiful, and diverse primary energy supply, (2) a robust, reliable infrastructure for energy conversion and delivery, (3) affordable and stable energy prices, and (4) environmentally sustainable energy production and use.

Often, these objectives are thought of as competing goals - that energy policy and security issues are in conflict with environmental objectives and vice versa. In reality, our authors find a substantial convergence between the goals of energy policy and climate policy, and that many feasible and beneficial policies from supply and security perspectives can also reduce future U.S. GHG emissions. Some key elements of a climate-friendly energy policy identified here include: increasing natural gas production and expanding natural gas transportation infrastructure; developing and deploying renewable energy technologies and efficient electricity production technologies; enhancing efficiency of automobiles and light trucks, industry, and buildings; and research and development on non-fossil fuels and carbon sequestration.

The authors caution, however, that a climate-friendly energy policy is not a substitute for climate policy. More significant GHG emissions reductions would be necessary in order to address climate change than can be justified solely on the basis of traditional energy policy objectives. The policy options outlined in this report represent sensible and important first steps in the United States' efforts to reduce GHG emissions.

In other reports and workshops, the Pew Center is evaluating options to produce more dramatic changes to the U.S. energy system, which could eventually lead us to an economy based on energy sources other than the carbon-based fossil fuels that are the primary contributors to global warming. Indeed, in the long run, we can only curb climate change by weaning ourselves of our reliance on fossil fuels.

The Pew Center and the authors wish to thank Ralph Cavanagh, David Greene, Tom Runge, Thomas Casten, and Ev Ehrlich for their comments on previous drafts of this report.

Executive Summary

Energy policy and climate policy are closely linked because the majority of U.S. greenhouse gas (GHG) emissions are in the form of carbon dioxide (CO2) emissions resulting from the combustion of fossil fuels. Energy policies can reduce CO2 emissions by, for example, increasing energy efficiency, reducing reliance on fossil fuels, and shifting from high-carbon to lower-carbon fuels. Conversely, energy policies that miss opportunities to make such changes will leave unchecked the trend of increasing CO2 emissions. Consequently, energy policy decisions made today can help reduce GHG emissions in the near term and can significantly affect how costly it would be to implement any future climate policy.

The federal government is in the throes of one of its periodic comprehensive reviews of U.S. energy policy. It is likely that significant federal energy policy questions will be addressed in the near term, before the development of any climate change regulatory program. Yet, there is also the distinct possibility that the United States will eventually adopt a mandatory GHG reduction program. This report considers energy policies that can be adopted in the context of the energy policy debate, short of adopting a GHG program now, to best position the nation to reduce GHG emissions and to implement future climate change policies. These are the options that make up a "climate-friendly energy policy."

In reviewing policy options, we have identified four key objectives that drive energy policy:

(1) Secure, plentiful and diverse primary energy supply,

(2) Robust, reliable infrastructure for energy conversion and delivery,

(3) Affordable and stable energy prices, and

(4) Environmentally sustainable energy production and use.

In developing a template for a climate-friendly energy policy, we have limited ourselves to a review of energy policy options, i.e., policies that serve one or more of these objectives. We have not considered climate policies that lack a direct energy policy nexus. We have also limited ourselves to relatively near-term energy policy initiatives, i.e., initiatives that could begin to produce energy policy benefits over the next decade or two.

Climate-friendly energy policies fall into one of three general categories-policies that:

(1) Reduce GHG emissions now,

(2) Promote technology advancement or infrastructure development that will reduce the costs of achieving GHG emissions reductions in the future, and

(3) Minimize the amount of new capital investment in assets that would be substantially devalued (or "stranded") if a GHG program were implemented.

Using these guidelines, the following are highlighted as key elements of a climate-friendly energy policy:

Fossil Fuels
Increased natural gas production and expanded natural gas transportation infrastructure will lower the price and increase the availability of natural gas and, in turn, support the continued use of gas in lieu of coal in new power plants.

Deployment of efficient electricity production technologies, including combined heat and power, fuel cells, and highly efficient power plant technologies, can significantly increase the amount of useful energy gleaned from fuels, and thus reduce both energy costs and GHG emissions.

Maintaining a role for nuclear and hydroelectric power can enhance diversity of energy supply. It also will reduce growth in fossil fuel consumption for electricity generation and may reduce energy prices.

Deployment of renewable energy technologies can help diversify the nation's energy portfolio. These technologies are environmentally beneficial-most produce little or no GHG emissions.

Building and Industrial Efficiency
Enhancing end-use efficiency in buildings and industry can reduce overall consumer costs in many cases, can reduce the need for new electric power plants, and can reduce GHG emissions related to energy use.

Enhancing efficiency of automobiles and light trucks reduces oil consumption, and thereby mitigates reliance on oil imports and reduces GHG emissions.

Research and Development
Research and development on efficient technologies in all sectors can provide options to reduce future energy costs to consumers and future energy consumption, with corresponding GHG benefits.

Research and development on non-fossil fuels and carbon sequestration can provide future alternatives to reliance on oil and could enable continued use of coal consistent with a GHG emissions limitation.

In many areas, there is a substantial convergence between energy policy objectives and climate policy objectives. In particular, climate-friendly energy policies aim to: (1) increase the efficiency of energy use; (2) increase the use of renewable (including biofuels) and other non-emitting technologies; (3) promote the use of natural gas instead of coal or oil; and (4) encourage research and development on new energy technology.

This set of climate-friendly energy policies advances energy policy objectives. Taken together, these measures would build on the policies implemented to date to: enhance energy security by reducing growth in demand for oil, increase the diversity of the country's energy mix, strengthen the energy delivery infrastructure, and contribute to improvements in air quality without significantly increasing consumer energy costs. In addition to the policies listed above, there are other energy policy options that have no significant climate change impacts but may address central energy policy concerns and, thus, should be considered for inclusion in any comprehensive energy policy. These could include policies to increase domestic production of oil, to expand electricity transmission infrastructure, and to promote competitive electricity markets.

The set of climate-friendly energy policies discussed in this report advances climate objectives, but it does not constitute a fully elaborated climate policy. It does not produce the magnitude of reductions needed, for instance, to meet the non-binding goal set forth for the United States in the 1992 Rio Framework Convention on Climate Change, i.e., to return U.S. GHG emissions to 1990 levels. Based on the U.S. Department of Energy's analysis1 of a similar set of policy elements, it appears that this package could significantly slow the projected growth of GHG emissions, but is not sufficient to reduce energy-related GHG emissions from current levels, much less return them to 1990 levels. Moreover, trying to achieve climate goals indirectly through energy policy tools will necessarily be more expensive than achieving the same climate goals through an effectively designed, market-based GHG regulatory program covering all sectors of the economy. Instead, this is a collection of near-term energy policies that stand on their own as energy policies and would help better position the U.S. economy for possible future GHG emissions limitations.

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