New Metric Could Be Key in Reducing Transportation Greenhouse Gas Emissions
Many governments and organizations, including the Massachusetts Department of Transportation (MassDOT), are required to reduce greenhouse gas (GHG) emissions and would like to do this in an efficient and cost-effective manner. However, resources available to agencies are limited both in terms of the ability to invest in GHG reduction projects and in terms of time and resources available for making investment and policy decisions. UMTC Research Affiliate Professor Erin Baker, working with graduate student Seyedeh Nazanin Khatami, has conducted research to develop a new GHG-reduction cost-effectiveness metric and investigate the theoretical and practical implications of this method to rank transportation projects and other projects.
Their research was presented at the 2017 MassDOT Innovation & Tech Transfer Exchange 2017 in Worcester. Their metric, the Levelized Cost of Carbon (LCC), provides a cost per ton of carbon dioxide (CO2) avoided. This metric is useful because it can be compared to a carbon tax, the price of carbon in a cap-and-trade market, or the Social Cost of Carbon (SCC), to determine if a project is worth doing. If the LCC is lower than these other values, the project should be invested in.
Transportation is now the fastest-growing cause of greenhouse gas emissions.
Photo source: Flickr user SounderBruce
The LCC incorporates the time value to money, which recognizes that money spent now and money spent 10 years from now are not equivalent. This needs to play a role in calculating the cost of carbon. For example, imagine two projects, both with a current cost of $1,000. One project reduces by 100 tons 10 years from now; the other project reduces by 100 tons now. One could prefer the second project, since it could be delayed for ten years and produce the same outcome as the first project. Since there is time value to money, the second project delayed 10 years is less costly than the first.
Professor Baker’s and Ms. Khatami’s research applied the LCC metric to evaluate a number of transportation and non-transportation projects from Massachusetts and other states. They identified the types of projects which are most cost-effective in terms of reducing GHG. This process can help MassDOT to identify cost-effective projects if they are faced with making investments aimed at meeting state emissions reduction mandates. Three potential decision situations are discussed in which the LCC concept could be implemented at MassDOT, to help contribute to achieving a cap on emissions in the transportation sector.
• First, MassDOT may face a cap on emissions from MassDOT-owned sources. Developing marginal abatement cost curves for MassDOT-owned sources would allow MassDOT to choose the most cost-effective measures for reducing its own emissions. Furthermore, to the degree that reducing emissions from MassDOT-owned sources is very costly, MassDOT can make an informed decision on whether to buy emission reduction permits from other agencies.
• Second, MassDOT may contribute to achieving an overall transportation sector cap through MassDOT investments. This report indicates that the current set of MassDOT investments are quite expensive (ignoring co-benefits), with most projects having an LCC of over $200/t. Thus, MassDOT may want to investigate different types of projects—those aimed more specifically at reducing . In particular, using this methodology, MassDOT may be able to identify types of projects that are scalable and have much lower LCCs. Of most interest are projects that could be pilot tested within Massachusetts.
• Third, it may be most efficient to achieve an overall transportation sector cap in the presence of policy instrument flexibility. The LCC can be used to compare a wide range of investments, regulations, policies, and pricing, to identify those instruments that are most cost-effective. In this case, the LCC would need to be calculated using the full net social costs of the instruments. Different instruments may vary significantly on how they allocate costs and benefits across different stakeholders
This research was sponsored by the Federal Highway Administration State Planning and Research (SPR) program.
Written by UMass-Amherst Professor Erin Baker, with edits by One Center Research staff.