Transportation Carbon Fees: Is Kerry-Lieberman the Answer?

The transportation sector in the United States presents a unique challenge in the effort to address climate change. Currently, oil consumption is taxed to finance the transportation system, meaning that any efforts to decrease consumption will result in decreased funding. The new Kerry-Lieberman bill in the Senate attempts to address this problem by offering several provisions intended to both fund transportation and manage climate change. However, this proposal allocates revenues generated by assessments on transportation fuels to transportation programs not funded out of the Highway Trust Fund (HTF), such as the Department of Transportation’s Transportation Investment Generating Economic Recovery (TIGER) discretionary grants, as well as to non-transportation uses, including deficit reduction and consumer rebates. This allocation scheme has drawn fire from state transportation agencies that claim all revenues from assessments on transportation fuels should be used to improve the solvency of the HTF. This event presented the varying views of the transportation reform community and the American Association of State Highway and Transportation Officials (AASHTO) on this allocation question.

John Horsley of the American Association of State Highway and Transportation Officials, Vicki Arroyo of the Georgetown Climate Center of Georgetown University Law Center, Deron Lovaas of the Natural Resource Defense Council, and Carnegie’s David Burwell, examined the Kerry-Lieberman bill and the opportunities and challenges it presents in the use of transportation carbon pricing as a tool to manage climate change.

The panel agreed that there is no single technology that is going to reduce transportation-related carbon emissions sufficiently to meet the Kerry-Lieberman goals. It is therefore extremely important to explore a broad array of strategies. However, there was strong disagreement as to whether revenues generated from assessments on transportation fuels should support a wide array of strategies to reduce transportation-related carbon, or should rather be completely dedicated to funding projects through traditional HTF processes and procedures.

Transportation Provisions

Arroyo and Lovaas highlighted several transportation-related provisions contained in Kerry-Lieberman that focus on reducing oil reliance and environmental impacts, but also emphasized that Kerry-Lieberman is an energy security and climate bill, not a transportation-only bill:

• Price structure for refined fuels such as gasoline and diesel that is proportionate to the amount of carbon dioxide released when they are burned.
   
• Investing in transportation infrastructure, including developing both pilot projects and infrastructure for plug-in electric vehicles
   
• Funding for:
  • plug-in electric vehicle research and development;
  • retooling automobile plants to produce cleaner vehicles;
  • natural gas vehicles, with a focus on the heavy and medium duty vehicle fleets, rather than the cars and small trucks in the light duty fleet.
  
   
• Developing a national transportation plan.
   
• State mandates to develop targets and plans to reduce transportation-related emissions.
   
• Giving the Environmental Protection Agency (EPA) authority to set standards for certain categories of emissions from mobile sources including vehicles.
   
• Enabling the EPA and Department of Transportation (DOT) to jointly set requirements for the distribution of emission allowances within the transportation sector.

Revenue Use

Arroyo explained that, in its current form, the bill is expected to generate about $20 billion a year in 2013, the first year of allowance auctions, through the purchase of emission allowances by transportation fuel providers. There are already numerous claims on those revenues, prompting concern about whether funding levels are sufficient:

• Transportation sector: Only $6.25 billion of this revenue will be returned to the transportation sector:
  • $2.5 billion will go to the Highway Trust Fund;
  • $1.875 billion will go to the DOT’s Transportation Investment Generating Economic Recovery (TIGER) grant program, which was established by the Recovery Act;
  • $1.875 billion will fund a new competitive grant program available to state and local initiatives with a portion set aside specifically for regional planning initiatives.
  
   
• Dividend programs: The bill contains a provision that will return a portion of the revenue to the public that draws from the proposed Cantwell-Collins bill.
   
• Deficit reduction: Deficit reduction is also a popular use of revenue; lobbyists and legislators have often framed this usage as a form of giving the money back to the children and the next generation. 

Lovaas added that the Kerry-Lieberman bill provides substantially more money for transportation annually than either the Waxman-Markey bill passed by the House in June 2009 or the Kerry-Boxer bill proposed in the Senate last fall. 

Concerns

The panelists expressed a number of concerns about Kerry-Lieberman in its current form: 

• Adaptation: The only provisions in the bill that deal with adapting to the consequences of climate change focus on natural resources – there is no mention of human or infrastructure adaptation, both of which will only become more important as the effects of climate change become more apparent.
   
• Level of transportation funding: There was general agreement among the panelists that despite going beyond previous bills, the level of transportation funding falls well short of many estimates of the cost of improving and updating the U.S. transportation system. Lovaas expressed concern that the bill has been so carefully constructed that there is very little wiggle-room to increase or decrease any funding provisions.
   
• Use of transportation funding: Speaking for the American Association of State Highway and Transportation Officials (AASHTO), Horsley argued that transportation agency support for the bill is dependent on a guarantee that all of the revenue generated from surface transportation fuels will be channeled to the Highway Trust Fund. The 12-cent floor in Kerry-Lieberman is the bare minimum required to sustain current highway and transit programs, and AASHTO feels passing a climate bill would prevent the financing, and thus passage, of a new transportation bill.  Lovaas countered that gas taxes are already next to impossible to get through Congress as a transportation funding mechanism. Instead, the transportation community needs to develop a new means of funding the system and should view climate change and transportation legislation as complementary rather than competing approaches.
   
• Balance of power: Horsley also expressed concern that sharing regulatory power over state development of targets and strategies between the EPA and the DOT could be damaging in the long term. If EPA is given a significant amount of power, AASHTO fears the resulting plans may emphasize environmental protection over long-term economic sustainability.
   
• Inclusion of the transportation community: Horsley emphasized that many in the transportation community feel that they were not consulted closely enough during the drafting of the bill. As Lovaas pointed out, some approaches considered common-sense in the transportation community do not appear in the bill. This could be due to the fact that the bill’s drafters were simply unfamiliar with those approaches, indicating a lack of communication with or knowledge about the transportation community. 

Impact of the Gulf of Mexico Oil Spill

At this point, it may still be too early to tell what effect the oil spill will have on transportation legislation. Arroyo saw several possibilities, including the chance that public outrage may create the opportunity to enact a gas tax if it is visibly linked to oil. Arroyo also posited that the spill could draw funds away from currently proposed programs to new programs framed as a direct response to the spill. Lovaas emphasized that groups such as the Electrification Coalition may be able to use the spill to push for more money to electrify transportation, and pointed out that the fact that the spill, as terrible as it is, represents less than 0.1% of daily U.S. oil consumption. This makes the argument for a high oil pollution tax even more compelling.