Bringing Transportation into a Cap-and-Trade Regime

Abstract

The U.S. may at some point adopt a national cap-and-trade system for greenhouse gases, and if and when that happens the system of CAFE regulation of vehicle design very likely could still be in place. Imposed independently these two systems can lead to economic waste. One way to avoid the inefficiency is to integrate the two systems by allowing emissions trading between them. Two possible approaches to potential linkage are explored here, along with a discussion of ways to guard against violation under such a trading regime of vehicle standards that may be justified by non-climate objectives. At a minimum, implementation of a U.S. cap-and-trade system is several years in the future, so we also suggest intermediate measures that would gain some of the advantages of an integrated system and smooth the way to ultimate interconnection.