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Climate Change in Today’s World The issue of climate change is a complex one, but leading scientists and governments around the world widely agree on three main points: 1) The global climate is becoming warmer as average temperatures around the world have shown measurable increases; 2) global warming, if kept unchecked, will cause severe and lasting impacts -impacts already evident in the rising sea levels, shrinking polar ice, warmer winters, and retreating glaciers, and which will become more severe as global warming continues with variations by region, but affecting every part of the world; and 3) global warming is caused largely by human activities, as human activities release greenhouse gases, which then accumulate in the atmosphere and trap the earth‟s heat. Human activities also reduce the earth‟s ability to absorb greenhouse gas (GHG) emissions by changing the uses of forested lands. Greenhouse gases exist naturally in the environment and are necessary for the world to be warm enough to support life, but the GHG concentrations have reached a level above their natural one, which causes warming temperatures. According to an Environmental Protection Agency (EPA) report, the total GHG emissions in the United States rose 14.1 percent from 1990 to 2006, when levels reached about 7.2 billion metric tons. The 2006 level is actually a slight decrease in emissions from the 2005 level of 7.3 billion metric tons.1 A study by McKinsey & Company based on official United States government forecasts says that GHG emissions will continue to rise, unless there are major policy changes, at an approximate rate of 1.2 percent annually through 2030, which would total a 35 percent rate increase by 2030. With this scenario, GHG emissions would rise from 7.2 billion metric tons in 2005 to 9.7 billion metric tons by 2030.2 Forests and grasslands are referred to as “carbon sinks” because they naturally absorb large quantities of CO2 through photosynthesis. When these lands are changed to serve agricultural or development uses, it reduces the absorption of CO2. Carbon sinks offset 12.3 percent of total GHG emissions in the U.S. in 2006 according to the EPA‟s latest inventory.3 The McKinsey report also says that there will be a nearly 7 percent drop in carbon absorption between 2005 and 2030.4 Some ways to increase carbon absorption include managing both publicly and privately-owned lands in ways that restore former forested areas (reforestation) along with creating more forests (afforestation). Other possibilities include providing incentives for agricultural practices that promote carbon absorption such as planting trees or grasses along streams and croplands; practicing “conservation tillage,” which leaves at least 30 percent of crop residue on the soil after planting; and rotational grazing, which divides the available pasture into smaller sections and rotating the cattle. While there are positives to using biofuels like ethanol, mainly that they emit less carbon when burned than petroleum-based fuels such as gasoline, using them widely causes the need for more land to be cleared for agriculture, and thus less carbon absorption will occur. A study by T. Searchinger and others in Science predicts that “corn-based ethanol, instead of

EPA, Inventory of U.S. Greenhouse Gas Emissions and Sinks, 1990-2006 – Public Review Draft (Feb. 2008), p. ES-16. 2 McKinsey & Co., Reducing U.S. Greenhouse Gas Emissions: How Much at What Cost (Dec. 2007), p. 6. 3 EPA, GHG Inventory 1990-2006, p. ES-7. 4 McKinsey & Co., Reducing U.S. Greenhouse Gas Emissions: How Much at What Cost (Dec. 2007), p. 8.


producing a 20 percent savings, nearly doubles greenhouse emissions over 30 years and increases greenhouse gases for 167 years. Biofuels from switchgrass, if grown on U.S. corn lands, increase emissions by 50 percent.” The same study, however, also states the good value that biofuels produced from waste products such as municipal waste, crop waste and fall grass harvests from reserve lands have. This is because these biofuels can avoid land-use change and its associated GHG emission.5 Reduced absorption is not a critical issue of climate change, however, according to a report by Resources for the Future, a non-partisan think-tank, Forest and Biological Carbon Sinks After Kyoto, which says that “the primary cause of the build-up in atmospheric carbon is not attributable to land use changes, but is due largely to fossil fuel burning and its associated emissions.”6 In 1988, the Intergovernmental Panel on Climate Change (IPCC), which includes leading scientists from around the world, was established to organize the latest scientific research on climate change. Some of the IPCC‟s findings from their latest report, the Fourth Assessment Report, released in November 2007, include the following: 1) eleven of the twelve years from 1995 to 2006 ranked among the twelve warmest years for global surface temperature since 1850, when recordkeeping began, and this temperature increase is widespread around the world, with greater increases at higher northern latitudes; 2) global sea level has risen at an average rate of 1.8 millimeters per year since 1961, with the rate increasing to 3.1 millimeters a year since 1993; and 3) the annual average extent of the Arctic Sea has shrunk by 2.7 percent per decade since 1978, with the shrinkage rate during the summer being 7.4 percent per decade, with glaciers and snow cover shrinking as well.7 These conclusions of the report have been widely accepted as representing the consensus of opinion in the scientific community. Although the U.S government has been hesitant to have specific goals for reducing GHG emissions, the Environmental Protection Agency has accepted the conclusions in this report, and the Transportation Research Board and Federal Highway Administration have referred to these conclusions as authoritative in recent reports.8 These conclusions are also being accepted by businesses, including many of the largest corporations in the United States9 (AASHTO, 2008). Impact of Climate Change on Transportation Definition of Terms: Cap-and-Trade: A flexible mechanism that puts a cap on the emission of a certain pollutant and distributes allowances based on that cap, but permits companies that can easily reduce emissions to sell allowances to other companies that would have a difficult time reducing emissions. This ensures emissions will not exceed a desired amount.

T. Searchinger et al., “Use of U.S. Croplands for Biofuels Increases Greenhouse Gases Through Emissions from Land-Use Change” Science, Vol. 319 no. 5687 (Feb. 29, 2008), pp. 1238-1240. 6 Resources for the Future, “Forest and Biological Carbon Sinks After Kyoto” (March 2006) p. 6. 7 IPCC, Fourth Assessment Report, “Summary for Policymakers”. 8 TRB, Special Report 290: Potential Impacts of Climate Change on U.S. Transportation (2008); Federal Highway Administration, Information on Climate Change and Transportation (March 2008). 9 McKinsey & Co., Reducing U.S. Greenhouse Gas Emissions: How Much at What Cost (Dec. 2007).


Background The Transportation Research Board‟s Special Report 290: Potential Impacts of Climate Change on U.S. Transportation, 2008, has reported that climate change will pose serious impacts on transportation. Some of these problems include the increasing frequency of wildfires, the compromising of pavement integrity, and deformed rail lines as the result of the increase in very hot days; inundated roads, bridges, and rail lines because of increased flooding of coastal areas; the increasing of Arctic temperatures causing the lowering of permafrost, disrupting roads, rail lines, and airports; the requirement to redesign and replace drainage structures as a result of heavier rainfall in many parts of the country; and more frequent and more severe hurricanes disrupting service in affected areas and requiring the devotion of more resources to evacuations.10 To try to stop this continuing rise in temperatures, the goal is to reduce GHG emissions and stabilize GHG concentrations in the atmosphere. As of yet, the U.S. government has not adopted a specific GHG reduction goal. A coalition of industry and environmental groups, the U.S. Climate Action Partnership (U.S. CAP), aims to reduce U.S. GHG emissions to 60 to 80 percent below 2005 levels by the year 2050. Many states have even more aggressive goals. Many economists agree that the most cost-effective way to lower GHG emissions is by establishing a carbon price, which would give businesses and individuals an incentive to lower their carbon usage. Two ways a carbon price could be set are by establishing a cap-and-trade program or instituting a carbon tax. Under a cap-and-trade program, allowances are given to emitting facilities for free, based on their current emissions, or can be auctioned off. With auctions, the potential for great revenues exists. How great these revenues would be would depend on the cost of the allowances, which would be set at the auction, but a reasonable expectation is that a national cap-and-trade program could raise $100 billion or more each year in revenue. If such a program were enacted, an important decision would be to decide how this revenue would be distributed -- whether to reduce existing taxes, support funding for existing or new programs, reimburse individuals or businesses that are disproportionately affected by higher energy prices, or a combination of these. A carbon tax would have a similar effect as the cap-and-trade program, but would have the government set the price charged for every ton of carbon dioxide emitted rather than pricing by the current condition of the market. Some carbon tax plans have the government reducing other taxes to redistribute the revenue gained from the carbon tax. Although many economists view the carbon tax as more efficient and avoiding possible windfalls to polluting industries, the cap-and-trade program appears to have the best chance for near-term enactment in U.S. Congress. Another possibility is a combination of the two methods, with a cap-and-trade program that also has a “safety valve,” or a ceiling on the price of carbon, which would add some of the pricing certainty of a carbon tax without having an actual tax. Transportation has a big role in GHG emissions, as about 27 percent of total emissions in the U.S. come from transportation. 72 percent of the transportation sector‟s emissions are generated by road use.11 The factors that affect GHG emissions from road use include: 1) fuel economy, 2) the type of fuel used, 3) the number of vehicle miles
10 11

TRB, Special Report 290: Potential Impacts of Climate Change on U.S. Transportation (2008). EPA, GHG Inventory 1990-2006


traveled (VMT), and 4) traffic operations, which includes traffic-flow management by transportation agencies and individual driving behavior. Fuel Economy and the Type of Fuel Used In 2007, Congress enacted fuel economy standards that will require the average of all new vehicles in the light-duty automotive fleet (cars, light trucks, and SUVs) to meet a standard of 35 miles per gallon by 2020.12 Today‟s average is about 20 mpg for both new and existing vehicles, so the new standards will drastically change the vehicles produced and sold by the auto industry. The hope is that alternative fuels, such as ethanol and biodiesel, will help reduce GHG emissions because they emit less CO2 for each unit of energy produced – although that reduction would be offset somewhat by a reduction in CO2 absorption as discussed above. Other changes that are being made that should reduce transportation‟s contribution to GHG emissions include hybrids, plug-in electric and hydrogen-fueled vehicles. Alternative fuels represented less than two percent of the fuel supply in 2006 and are projected to only rise to eight percent by 2030 by the Department of Energy (DOE). The Toyota Prius is one example of a gas-electric hybrid. The Prius‟ average fuel efficiency is 46 mpg, while a standard Toyota vehicle, the Corolla, averages 27 mpg in the city and 35 mpg on the highway. Hybrids, however, remain a small percentage of the vehicles on the road today even with sales increasing in recent years. Factors that could increase the number of hybrids in the market include changes in federal policy, technological innovations, and rising fuel prices. Many plug-in electric hybrids are expected to achieve fuel efficiency rates of 100 mpg. They are expected to operate mainly as limited range electric vehicles, and include a small gasoline engine to extend the range and recharge the batteries, if needed. The current battery system for plug-in hybrids is extremely expensive, so the hope is that more advanced technology will be available by 2015, and the future battery systems would be able to run without failure for 15 years. Their effectiveness in reducing emissions would depend on the power source, with little or no net reduction or even a gain in emissions if powered by a power plant that produces a high level of emissions, or a net reduction if powered by a source with low emissions such as wind, solar, or natural gas among others. The report by McKinsey & Co. states that many experts believe that plug-in hybrids “would likely be commercially available by 2030.”13 Another technology that is currently under development is hydrogen fuel-cell powered vehicles, which produce no GHG emissions from the vehicle itself. (Energy is required to produce the hydrogen fuel supply for the vehicles; if fossil fuels are used to produce the hydrogen, then there will be some GHG emissions associated with the use of hydrogen-powered vehicles.) Hydrogen-powered vehicles are projected to become widely used between 2030 and 2050. Main issues that still need to be resolved include reducing the size and weight of the fuel cells to the point where they can survive longterm road use and reducing the cost of producing the fuel cells. Another issue to overcome is widespread sources of hydrogen, with such sources needing to be available just as gas stations are today.

DOE, Annual Energy Outlook 2008, Revised Early Release, Tab 7, “Transportation Sector Key Indicators and Delivered Energy Consumption.” 13 McKinsey & Co., Reducing U.S. Greenhouse Gas Emissions: How Much at What Cost (Dec. 2007), p. 3


In regard to biofuels, federal and state laws have promoted increased use of ethanol and other biofuels as an energy source for transportation vehicles. An example of this is Congress‟ enacting energy legislation mandating the production of 36 billion gallons of biofuels by 2022 with the Energy Independence and Security Act of 2007. While most biofuels come from corn currently, there is much interest in developing cellulosic biofuels, which are made from cellulosic (woody) plants. Cellulosic biofuels are expected to produce a more clear-cut reduction in GHG emissions. They are not yet commercially available because enzymes are needed to break down the woody material into fuel, and these enzymes are not yet available on a commercially viable scale. Reducing Growth in VMT There is much interest in lessening highway use by changing trips to other modes of transportation, as statistics from the Federal Highway Administration (FHWA) show that VMT increased from about 2.1 trillion in 1990 to almost 3 trillion in 2005, an annual rate of 2.2 percent. At the same time, the annual population growth rate in the same period has only been about 0.8 percent.14 The American Association of State Highway and Transportation Officials (AASHTO), for example, supports a policy to double transit ridership by 2030. To significantly reduce emissions by increasing use of transit however “would require momentous efforts as transit accounts for only one percent of passengermiles traveled in the United States today,” according to a report by researchers for the Pew Center for Global Climate Change.15 A recent report, published by several smart growth advocacy groups concluded that the combination of aggressive land-use strategies and increased transit usage could bring about a 7 to 10 percent reduction in transportation-related CO2 emissions.16 Other options that could help reduce GHG emissions include making more trips by biking, walking or telecommuting. A VMT-related trend is that the growth in the vehicle miles traveled rate has slowed to 0.5 percent per year in the 2005 to 2007 period.17 Whether this is a temporary trend because of high oil prices or a more permanent one is unknown at this point, although if oil prices continue to stay at a high level along with the increase in number of people ages 65 and over as the baby boomer generation ages and the related trend that people over the age of 65 tend to drive less than others, we possibly could be ushering in a new era of low VMT rate increases. The predictions of VMT growth rates in the next twenty years by the U.S. DOT and DOE are well above the 0.5 percent rate however, although lower than the 2.2 percent rate from 1990 to 2005. The U.S. DOT predicts that VMT will grow at an annual rate of 1.92 percent the next twenty years, while the DOE predicts a 1.6 percent annual rate. The 1.6 percent annual rate would equal approximately 4.5 trillion VMT in the year 2030, up from 3 trillion in 2006. With the 1.92 percent annual rate, VMT would rise to about 4.9 trillion by 2030.


See FHWA, Office of Highway Policy Information, “Highway Statistics”, available at: 15 Greene, D. and A. Schafer, “Reducing Greenhouse Gas Emissions from U.S. Transportation” (May 2003), pp. 38-39. 16 R. Ewing, et al., Growing Cooler: The Evidence on Urban Development and Climate Change, Urban Land Institute (Oct. 2007). 17 See FHWA, Office of Highway Policy Information, “Highway Statistics”, available at:


Improving Technology and Operations It is the belief of many transportation agencies that lowering traffic congestion can bring about a large change in GHG emissions. They say that if congestion were reduced, the billions of gallons of fuel burned by vehicles stuck in traffic would decline drastically. Others do not have the belief that congestion reduction is a good strategy, because of the fear that it could encourage more driving and thus increase VMT. The DOE predicts that efficiency will be gained in the coming years by improvements in fuel efficiency and by renewable fuels gaining market share, but at the same time VMT will continue to greatly rise, which would result in a net gradual increase in GHG emissions between now and 2030. These predictions, however, do not take into account major technological breakthroughs, such as significantly more fuel-efficient vehicles or hydrogen-fueled cars, and/or policy changes, such as the government limiting GHG emissions (AASHTO, 2008). European Union’s Emissions Trading Scheme Background The European Union Greenhouse Gas Emission Trading Scheme (EU ETS) began in January 2005 as the largest multi-country, multi-sector greenhouse gas emission trading scheme worldwide. It is also the first international trading system for CO2 emissions in the world. It covers over 11,500 energy-intensive installations across the EU, which include combustion plants, oil refineries, coke ovens, iron and steel plants, and factories making cement, glass, lime, brick, ceramics, pulp and paper. Its goal is to help the Member States of the EU achieve compliance with their commitments under the Kyoto Protocol. Without the ETS, more costly measures would have had to be implemented (European Commission, 2008). The World Wildlife Fund commissioned the Center for European Economic Research (ZEW) to study the impacts the ETS would have. ZEW found that, since a “do nothing” alternative is impossible with the EU having a legal obligation under the Kyoto Protocol, emissions trading is the most cost-effective method over other options such as an eco-tax. If countries had to meet the Kyoto targets without the freedom to participate in emissions trading, the cost would be much higher (WWF, 2006). Allowances Companies with commitments can trade allowances directly with each other, or buy or sell through a third party, e.g., a broker or bank. Allowances traded in the EU ETS will not be printed but held in accounts in electronic registries set up by Member States, with one allowance representing the right to emit one ton of CO2. This registry system keeps track of the ownership of emission allowances as they change hands. Through the Community independent transaction log, these transactions will be checked for irregularities by a Central Administrator at EU level. This allows the system to keep track of the ownership of allowances in the same way as a banking system keeps track of the ownership of money. The price of the allowances is a function of supply and demand as in any other free market.


National Allocation Plans National Allocation Plans (NAPs) exist to determine the total amount of CO2 emissions that Member States grant to their companies, which can then either be bought or sold by the companies themselves. This plan means that each of the Member States must decide beforehand how many allowances to allocate in total for a trading period and how many each plant covered by the Emissions Trading Scheme will receive. The first trading period runs from 2005-2007, the second from 2008-2012, and the third one will start in 2013. The goal is that Member States limit CO2 emissions from the energy and industrial sectors through the allocation of allowances, thereby creating scarcity, so that later a functioning market can develop and overall emissions are reduced. New NAPs have to be created for each trading period. The number of allowances that a Member State can issue is governed by EU-established criteria, which do not list an exact given number of allowances, but each Member State must respect the criteria. Some countries‟ plans were required to be changed by the European Commission. There were three triggers for these required changes: 1. If the allocation plan chosen by a Member State for the 2005-2007 trading period jeopardizes the achievement of its Kyoto target (excessive allocation) 2. If the volume of allowances for the 2005-2007 trading period is inconsistent with assessment of progress towards the Kyoto target, i.e. the allocation exceeds projected emissions 3. If a Member State intends to make so-called “ex-post adjustments” to allocations, which means that the Member States plan to intervene in the market after the allocation is done, and redistribute the issued allowances among the participating companies during the 2005-2007 trading period. There are several cases in which a country can excessively allocate. The first is when a Member State does not reason how the Kyoto target in 2008-2012 would be respected, but left a gap to be closed with measures to be defined later. Second case is when a Member State states the intention to purchase Kyoto credits, but does not demonstrate credible and reliable steps to realize these purchases. Lastly, it can occur when a Member State bases its plan on projections (including economic and emission growth rates) that are inconsistent and exaggerated compared to official growth forecasts by the Member State itself or other impartial sources. Ex-post adjustments are disallowed because they are incompatible with the legal framework and represent interventions that disrupt the market and create uncertainty for companies. For example, if a company faces the possibility that the government may take away allowances after it has reduced its emissions, it will hesitate to do so. Also, if companies believe they can receive additional allowances for free from their governments, they will pursue this route instead of turning to the market and buying allowances. In total, the Commission has approved the allocation of about 6.57 billion allowances to over 11,500 installations for the 2005-2007 trading period. It has required cuts in the number of allowances to be allocated in 14 of the 25 plans. These cuts total over 290 million allowances, which equals about 4% of the notified number of allowances. In addition, the Commission has disallowed intended ex-post adjustments in 13 plans.


If the Commission rejects a plan, for which it must give reasons, the Member State cannot proceed to implement the plan as it stands, i.e. may not allocate the proposed number of allowances. If a plan is partially rejected, and that Member State incorporates the proposed changes, the Member State does not have to submit their plans to the Commission a second time, and instead, they automatically qualify for emissions trading. After Commission approval, Member States have to make a final allocation decision at national level. Before this step, the Member States can make changes to the number of allowances for individual plants as a resulted of improved data, although they cannot, under any circumstance, increase the total number of allowances to be put into circulation. Once the decision is made at the national level and the final plan is published, no more changes can be made to the number of allowances in total or per plant. This step concludes the allocation process, and opens the market for trading allowances in the Member State. The Commission has sole responsibility to assess the plans, although a Climate Change Committee exists consisting of Member State representatives that considers each plan and serves as a forum to debate each plan. The Commission serves as the chair of the Committee and follows these debates and takes the findings into account in its assessments. Role of Involved Parties Participating companies have had to keep track of their emissions since January 1, 2005. At the end of each year, they are required to produce a report on their annual emissions, which is then verified by a third party. The companies also have to make sure they have a sufficient number of allowances to surrender year by year so they are not subject to financial sanctions. Member States have to issue allowances by the end of February each year according to the final allocation decisions, operate the national registry, compile verified emissions data and verify that enough allowances are surrendered by each company. Each Member State also has to produce an annual report to the Commission. The Commission operates the European hub of the registry system, and prepares an annual report based on Member State reports, which closely follows the performance of, and reviews the experience with, the EU ETS. Costs For Reaching Kyoto Targets and Whether European Competitiveness Will Be Jeopardized Recent studies by the Commission estimate the targets of the EU ETS can be achieved at an annual cost of €2.9 to €3.7 billion, which is less than 0.1% of GDP for the EU. One study found that without the Emissions Trading Scheme, costs could be as high as €6.8 billion, thus emissions trading achieves lower costs than other options as discussed earlier. The implementation of Kyoto does bring costs, in addition to the positive, new economic opportunities. This is unavoidable because there cannot be Kyoto compliance for nothing. Europe gets the best value for its money with the ETS. There exists a „linking directive,‟ which allows companies that carry out emissions reduction projects with the Flexible Mechanisms of the Kyoto Protocol – Joint Implementation and the


Clean Development Mechanism – to convert the credits earned from those projects into allowances for the ETS. How Emissions Trading Works and How Companies Benefit As example let us suppose companies A and B both emit 100,000 tons of CO2 annually and that the government gives them 95,000 emissions allowances each. Each allowance allows 1 ton of CO2 to be emitted, thus neither company is fully covered. At the end of each year, each company has to surrender a number of allowances according to their emissions during the year. If they fail to do this, they face a €40 fine for each missing allowance during the 2005-2007 trading period, and €100 during the 2008-2012 period. The companies do not want to pay the fine, so they have two ways of covering 5,000 tons of CO2. They can either reduce their emissions by 5,000 tons, or purchase 5,000 allowances in the market. They will make this decision on an individual basis based on comparing the cost of reducing their emissions with the market price for allowances. For this example, €10 per ton of CO2 will serve as the allowance market price. The reduction costs for 1 ton of CO2 for Company A are €5, which is lower than the market price, thus this company will reduce its emissions because it is cheaper than buying allowances. It can even reduce its emissions by more than 5,000 tons, say 10,000 tons. Company B‟s reduction costs are €15, thus it is in the opposite case as Company A, with costs higher than the market price, and it will buy allowances rather than reducing emissions. Company A spends €50,000 on reducing 10,000 tons at €5 per ton, and receives €50,000 from selling 5,000 tons at €10 each. So Company A fully offsets its emission reduction costs by selling allowances, whereas without the ETS, it would have had a net cost of €25,000. Company B spends €50,000 on buying 5,000 tons at a price of €10. Without the ETS, Company B would have had to spend €75,000. Since only a company that has low reduction costs and thus chooses to reduce its emissions, like Company A, is able to sell, the allowances that Company B buys represent a reduction of emissions, even with Company B not reducing emissions itself. This ensures that the cheapest reductions are made first. Since the ETS is EU-wide, companies will find the cheapest reductions for the entire EU and ensure they are made first. The flexibility in this system makes emissions trading the most cost-effective manner of achieving a given environmental target. If Company B had had to reduce emissions at its own plant at a higher cost, the overall cost to industry would have been greater (European Commission, 2008). The Lieberman-Warner Climate Security Act Background The Lieberman-Warner Climate Security Act (S. 2191) was defeated in the U.S. Senate in June 2008, but its plan was establishing the core of a federal program to substantially reduce U.S. greenhouse gas emissions to avoid catastrophic global warming. The greenhouse-gas emissions cap in the Act covered U.S. electric power, transportation, manufacturing, and natural gas sources that together account for 87% for U.S. greenhouse-gas emissions.


The cap over those sources was to start in 2012 at 4% below the 2005 emission level, and lower year after year, so that it was to reach 19% below the 2005 level in 2020, and 71% below the 2005 level in 2050. The cap along with the other provisions in the act were projected to reduce total U.S. greenhouse-gas emissions by as much as 25% below the 2005 level in 2020 and 66% below the 2005 level by 2050. An EPA study in July 2007 found that if those emission reductions were reached, while making conservative assumptions about the emissions reduction rate for the rest of the world, the concentration of greenhouse gases in the atmosphere would remain under 500 parts per million (ppm) at the end of this century. According to the Intergovernmental Panel on Climate Change, keeping the concentration below 500 ppm will avoid a great risk of global warming that would cause severe impacts. The Act was to control compliance costs by allowing companies to trade, save, and borrow emission allowances, and by allowing them to receive allowances when they got non-covered businesses, farms, and other entities to reduce their greenhouse gas emissions or to capture and store greenhouse gases. The Climate Security Act would have invested set-aside emission allowances and revenue gained by the auction of these allowances in advancing several important public policies including the following: 1) deploying advanced technologies and practices for reducing emissions, 2) protecting low- and middle-income Americans from higher energy costs, 3) keeping good jobs in the U.S., 4) reducing the negative impacts of any unavoidable global warming on low- and middle-income Americans and wildlife, and 5) reducing or preventing political instability and international conflict that can threaten the national security of the U.S., through acts designed to address negative global warming impacts on populations in other countries that have little resources (S. 2191, 2008). Transportation-Related Elements of Act Under a “manager‟s substitute” introduced by Barbara Boxer (D-CA), Chair of the Senate Environment and Public Works Committee, which became the primary text of the Lieberman-Warner legislation when the Act was considered on the Senate floor, the Climate Security Act was to dedicate roughly 2.5% of the total revenues generated by the legislation‟s “cap-and-trade” system to public transportation investment and other activities that can reduce growth in vehicle travel. The Administrator of the Environmental Protection Agency (EPA) was to be directed to deposit part of the revenue from the auction of emissions allowances into a new Transportation Sector Emission Reduction Fund. The Fund was to receive 1% of “cap-and-trade” auction revenues in the first five years of the bill, increasing to 2% starting in the sixth year, and 2.75% from the tenth year on. From EPA estimates, the Fund would have received about $171 billion between 2012 and 2050.
Annual Percentage and Estimated Average Annual Value of Allowance Auction Revenue Dedicated to the Transportation Sector Emission Reduction Fund Years 2012 through 2017 2018 through 2021 2022 through 2050 Percentage 1.00 % 2.00 % 2.75 % Avg. Annual Value $1,163,791,666.67 $2,733,832,000.00 $5,297,024,206.90

Note: assumes emission allowance price under Scenario 10, EPA Analysis of Lieberman-Warner


When the money went into the Transportation Sector Emission Reduction Fund, it would have been broken up as follows: 65% into urbanized area formula grants, 30% for the Capital Investments Grants program (New Starts/Small Starts) which is for the design, engineering and construction of new fixed guideway transit projects or extensions to existing fixed guideway transit programs, and the final 5% for grants for transportation alternatives and travel demand reduction projects. Grant applications would have been evaluated based on the total greenhouse gas emissions reductions that were projected to result from proposed projects. Under Section 621 of the bill, to verify that grants from the Fund achieved significant reductions in greenhouse gas emissions from the transportation sector, Sec. 621-funded projects and activities would have needed to be part of new statewide transportation plans that included the following elements: 1) include all modes of surface transportation; 2) integrate transportation data collection, monitoring, planning, and modeling; 3) report on estimated greenhouse gas emissions; 4) be designed to reduce greenhouse gas emissions from the transportation sector; and 5) be certified by the EPA Administrator as consistent with the purposes of the Lieberman-Warner legislation. Other sections of the legislation where potential transit funding existed were Section 613 and 614. Section 613 was titled Energy Efficiency and Conservation Block Grant Program. This program was authorized by the Energy Independence and Security Act of 2007, and provides funding for a wide range of activities related to energy conservation to state and local governments, and transit systems and their facilities would be eligible for potential grants. Section 614 was titled State Leaders in Reducing Emissions, and was to provide states with a significant new source of funding to reduce greenhouse gas emissions and to lessen the effects of climate change legislation on their citizens. From EPA estimates, this program was to be provided $566 billion through 2050, which was one of the highest totals out of any program in the Lieberman-Warner legislation, increasing to up to 10% of annual auction revenue by the year 2032. One of the 22 purposes the states could have used the funds for was “to improve public transportation and passenger rail service and otherwise promote reductions in vehicle miles traveled.” The “manager‟s substitute” changed the Climate Security Act by increasing public transportation funding from 1% of emissions allowance revenue to around 2 ½%, but more is needed to address transportation-related emissions (APTA, 2008). The bill was effectively killed in early June 2008, by a vote of 48-36, when 60 “yes” votes were needed to move it forward (Baltimore Sun, 2008). Final Thoughts If GHG emissions are reduced, or even completely eliminated in the U.S., it will not solve the problem of climate change if emissions continue to greatly rise in developing countries. It will be difficult to reduce GHG emissions in these developing countries such as China, as their large economic growth and rising incomes will likely raise emissions. Technological innovations are needed for developing countries, along with developed countries, to enjoy economic growth and also greatly reduce GHG emissions. Some of these technologies are already in place to reduce emissions, and new innovations can bring even larger reductions. Other factors that can cut emissions


include policy changes, transit and land-use changes, and operational strategies and driver education to help promote more efficient vehicle operations (AASHTO, 2008). Much work is needed, but it is very possible for greenhouse gas emissions to be greatly reduced.


American Association of State Highway and Transportation Officials (AASHTO) (2008). Primer on Transportation and Climate Change. American Public Transportation Association (APTA) (2008). Public Transportation Provisions in the Lieberman-Warner Climate Security Act (S. 3036). Retrieved from Baltimore Sun (2008). Bay and Environment: Climate Change Bill Stymied. Retrieved from _stymied.html European Commission (2008). Emission Trading Scheme. Retrieved from S. 2191 (2008). The Lieberman-Warner Climate Security Act (S. 2191). Retrieved from World Wildlife Foundation (WWF) (2006). Emissions trading best choice for EU economy and to ensure Kyoto compliance. Retrieved from 0