Greenhouse Gases

An important long-term threat posed by vehicle emissions is global climate change, which threatens to alter many natural systems in unpredictable ways. Carbon dioxide (CO2), which is produced during the combustion of gasoline, natural gas, and most other fuels, is one of the largest contributors to climate change.

The US Department of Energy releases annual greenhouse gas emissions reports. The 2007 report shows that the majority of greenhouse emissions produced by vehicles are in the form of CO2. Non-CO2 emissions include methane and nitrous oxide emissions from mobile source combustion and hydrofluorocarbon (HFC-134a) emissions from vehicle air-conditioning units. The report notes that the transportation sector has led all sectors in the emission of CO2 since 1999. A general diagram of greenhouse gas emissions in the US economy are shown below.

Emissions Rates

The U.S. Environmental Protection Agency's MOVES model allows analysts to model carbon dioxide (CO2), methane (CH4), and other greenhouse gases as well as estimates for the total CO2 equivalent emissions. This modeling approach can produce the per-mile emission rates for these greenhouse gases for a base case and project alternative. Applying these per-mile emission rates to base case and project alternative travel forecasts produces total emissions for the base case and project alternative, the difference of which becomes the increase or decrease in emission output resulting from the transportation project.

Carbon dioxide (CO2) emissions can also be easily imputed from estimates of fuel consumption. This approach takes the difference in fuel consumption between base case and the project alternative to determine the change in carbon emissions. Fuel is converted into carbon emissions using the known carbon content of fuel, the ratio of the molecular weight of carbon dioxide to carbon, and an oxidation factor, for the proportion of the fuel that is oxidized into emissions during combustion (EPA, 2005).

The California Air Resources Board (CARB) is responsible for maintaining and updating California's Greenhouse Gas (GHG) Inventory. The GHG Inventory provides estimates of GHGs caused by human activities. CARB recently released a query tool for assessing the inventory values. The current GHG Inventory covers the years 1990 to 2004, and includes estimates for carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), sulfur hexafluoride (SF6), hydrofluorocarbons (HFCs), and perfluorocarbons (PFCs) - the “six Kyoto gases.” The GHG inventory provided the basis for developing a 1990 statewide emissions level and 2020 emissions limit required by state legislation.

The California EMFAC model can also produce CO2 and CH4 emission estimates. However, these estimates were not used as the basis for CARB's official GHG inventory. CARB is working towards reconciling the emission estimates from the two sources. Although EMFAC is not the official GHG inventory, the latest version of Cal-B/C uses the EMFAC data when reporting greenhouse gas emissions for internal consistency with other environmental benefit estimates. These figures will be refined when CARB reconciles the GHG inventory and EMFAC.

The UK Department for Environment Food and Rural Affairs (DEFRA) provides global warming potential factors for converting greenhouse gases into carbon dioxide equivalents. These factors could be used if methane or other greenhouse gas emissions need to be included in the benefit-cost analysis.

Social Cost of Greenhouse Emissions

Various climate and economic models and climate change scenarios have been used to monetize greenhouse gases. Integrated assessment models for global climate change combine the geophysical modeling of climate change with models of economic growth and the future cost of the damage attributable to climate change to estimate the social cost of carbon.

In the United States, guidance was issued on the values for the social cost of carbon for use in federal regulatory impact assessments in March 2010. An interagency working group developed a total of four sets of estimates for the social cost of carbon based on the use of different discount rates or different climate change scenarios (United States Interagency Working Group, 2010). For the year 2010, the social cost of carbon from the guidance is $4.70, $21.40, $35.10, and $64.9 ($/tCO2, in 2007 dollars), reflecting discount rates of 5 percent, 3 percent, and 2.5 percent, respectively, and a higher-than-expected climate change scenario. Tol (2008) presents a literature review of 211 estimates of the cost per ton of carbon dioxide. This literature review found that the mean estimates of the social cost of CO2 were between $24 and $35 per metric ton of CO2 ($/tCO2, in 1995 dollars).

In the United Kingdom (UK), the government has required a Carbon Impact Assessment to be included in economic appraisals since 2003, as documented in the UK Treasury’s Appraisal and Evaluation in Central Government (or “Green Book”). In 2005, the UK Treasury sponsored an extensive review of the economics of climate change (the “Stern Review”). The UK Department for Environment Food and Rural Affairs (DEFRA) is tasked with valuing greenhouse gas emissions. With the help of AEA Technology, DEFRA developed an interim value using a social cost of carbon methodology. Since December 2007, DEFRA has adopted a more expansive approach based on the shadow price of carbon. The valuation reflects the full global cost of an incremental ton of CO2 equivalent (CO2e) emissions from the time of production to the damage it imposes over the whole of its time in the atmosphere. DEFRA has estimated future values, subjected the values to academic peer review, and published guidelines on the differences in the social cost and shadow prices as well as how to use the shadow price of carbon in policy appraisals (DEFRA 2007). DEFRA also maintains a website documenting all of its efforts to value greenhouse gas emissions. The DEFRA approach relies on a shadow price per metric ton of CO2e emitted in the Year 2000 and valued in 2000 dollars. Box 13.3 of the Stern Review shows that this price is $30 per metric ton of CO2e.

Over time, the social cost of carbon is expected to increase, reflecting the larger marginal cost per ton emitted due to accumulation of greenhouse gases in the atmosphere. The growth rate in the social cost of carbon is typically given as falling between 2 to 4 percent per year. The U.S. Federal guidance provides a schedule of the future values of the social cost of carbon. The DEFRA estimate of the shadow price per metric ton of CO2e is increased or “uprated” by two percent per year to reflect the increasing cumulative damage to the world environment each year.

Greenhouse Gas Regulatory Measures

To limit the growth of future CO2 emissions, the European Union has operated the Emissions Trading Scheme (ETS) since 2005. Other countries, such as Canada and Australia, have opened “cap-and-trade” schemes in anticipation of future regulation. The United States already has a voluntary carbon market, and regulates CO2 emissions using industry-specific regulations. With respect to automobile travel, the United States regulated motor vehicle fuel consumption (and implicitly CO2 emissions) using Corporate Average Fuel Economy regulations. Carbon values in the carbon markets reflect the cost of mitigation (CO2 abatement) rather than the social costs of greenhouse gases. If greenhouse gas regulations are set at a socially optimal level, the cost of mitigation should not exceed the social costs of the pollution itself.


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