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Transform U.S. Transportation

Transportation in the United States is currently 96% reliant on petroleum. New technologies, ready for application, must be affordable and become commonplace. Efforts to develop and promote alternative transportation options, including second generation biofuels, plug-in hybrids, and all-electric and hydrogen-powered vehicles, should be based on life cycle cost analysis and incorporate consideration of each technology’s required infrastructure into policy planning. At the same time, we must focus on an improved surface and mass transportation infrastructure to generate efficiency and reduce emissions.

Energy consumption in the transportation sector is used to move people and goods via automobiles, trucks, buses, and motorcycles; trains, subways, and other rail vehicles; aircraft; and ships, barges, and other waterborne vehicles.

Demand in this sector accounts for 28% of total U.S. energy demand. The transportation sector is heavily dependent on petroleum, primarily in the form of gasoline and diesel, jet, and bunker fuels (other transportation fuels include pipeline fuel natural gas, lubricants, aviation gasoline, electricity, compressed natural gas, liquefied petroleum gases, and ethanol). Transportation is responsible for about 70% of all the petroleum used in the United States, and petroleum now supplies 96% of the energy used in the transportation sector. Petroleum use in transportation also is a big source of CO2 emissions from energy use, accounting for about one-third all U.S. CO2 emissions from fossil fuels.

In the short-term, we will still have to purchase, refine, and use large amounts of oil to meet our transportation needs. EIA projects that between 2005 and 2030, energy use in the transportation sector will grow about 18%, while petroleum use will grow about 13%. This disparity in growth rates reflects to some degree greater adoption of alternative vehicles, which is expected to increase from about 4% of all new cars and light trucks in 2005 to 29% in 2030. As welcome as this is, in 2030 transportation still is projected to account for about 28% of total energy use, and petroleum still is projected to account for about 93% of the energy used in the transportation sector. We must do better.

Most of the energy we use for transportation—about 59%—is used to power light-duty cars and trucks, primarily for personal transportation (Figure 12). For that reason, transforming the transportation sector largely means offering new technologies that will appeal to discriminating consumers with the power to choose and an expectation of both fuel availability and vehicle reliability. (A more extensive look at other transportation modes will be part of our forthcoming transition plan.)

Energy use in the transportation sector can be improved and diversified in two ways: (1) by improving the energy efficiency of the vehicles and the transportation system; and (2) by expanding the range of fuel and engine options available to motorists, including alternative fuels, fuel cells, and electricity/batteries. Some options can combine both.

These types of technologies can result in not only lower energy consumption, but in lower emissions of air pollutants and CO2, as well. They can also avoid the safety problems that arise from simply reducing the size of the vehicle, and thus its safety in a collision, to save fuel.

With the passage of EISA2007, the Corporate Average Fuel Economy (CAFE) standards for new passenger cars were raised for the first time since the standards were established in the
1970s. EISA2007 mandates a 40% increase in the combined light-duty vehicle—car and light truck—fuel economy standards to 35 miles per gallon (mpg) by 2020. The form of the standard can be revised from a corporate average standard to one based on vehicle attributes, such as vehicle footprint, similar to the 2006 light truck CAFE rule, which established standards for 2008 to 2011. In April 2008, the U.S. Department of Transportation proposed a rule to implement new standards through 2015. (The proposed rule would establish passenger car fuel economy at 31.2 mpg in model year 2011, increasing to 35.7 mpg in model year 2015. For light trucks, the comparable goals for compliance are 25.0 to 28.6 mpg.)

To meet this ambitious goal, the marketplace must adopt advanced highway vehicle technologies, such as electric/fuel engine hybrids and clean diesel engines, at a greater pace. EIA projects that the share of alternative technology cars and light trucks will rise from about 4% in 2005 to 9% in 2020 and 35% in 2030.

Hybrid vehicles are more expensive than conventional vehicles. EPAct2005 provides tax credits of up to $3,400 per vehicle for hybrids. (Vehicles using fuel cell, lean burn, and alternate fuel technologies also qualify for tax credits under EPAct2005). These credits apply to vehicles purchased before the end of 2010, and the credit amounts begin to phase out for a given manufacturer once it has sold more than 60,000 eligible vehicles. If the cost of efficient vehicles remains high relative to conventional vehicles, it may be necessary to extend this tax credits for advanced vehicles.

In addition to reducing the amount of energy needed to travel each mile, we can reduce the number of vehicle miles traveled through technologies that improve surface and mass transportation infrastructure. A variety of policies, made possible by recent technology development—including time-of-use pricing, telecommuting incentives, intelligent transportation systems, and privately financed infrastructure expansions—could help address fuel-wasting congestion.

Urban and suburban planning that is well integrated with public transportation can reduce energy use, as can alleviating traffic congestion through intelligent transportation systems. Bicycle lanes and paths and pedestrian-friendly development planning can help reduce total vehicle-miles traveled, and new communications technologies may allow fewer commutes to the office.

In the longer term, we need to develop more fuel options for our transportation needs. Bio-based fuels, electricity, and perhaps even hydrogen show promise; however, to be successful in the market, an alternatively fueled vehicle needs to offer attributes that consumers will desire at an attractive price. Unacceptable tradeoffs in performance, drivability, durability, affordability, and safety forced by unrealistic policies or immature technology simply will not succeed in the marketplace—and consequently will have little impact.

The fuels for these vehicles, likewise, must be readily available and meet consumer expectations regarding affordability, reliability, and environmental impacts—a flexfuel vehicle is of little value without E85, and vice versa. As stressed earlier, anything less than simultaneous attention on technologies, policies, and markets will likely fail.

In the near-term, we must pursue a portfolio of alternative technologies that can have a meaningful impact on reducing the demand for oil in the transportation sector, particularly if the alternatives can be used in combination with one another. Just as important, these alternative technologies can create vibrant and competitive markets for varying fuels and provide consumers with a broader range of fuel choices. These alternatives include biofuels, electricity, natural gas, and hydrogen.

Electricity as an Alternative Fuel
Natural Gas


Biofuels have traditionally been more expensive than gasoline, but with the increase in oil prices, the gap is closing. To stimulate the use of biofuels, blender’s tax credits were created by Congress. The tax credit creates an incentive for oil companies to blend ethanol with gasoline or biodiesel with diesel fuel. The tax credit for ethanol, which is authorized through 2020, totals 51 cents per gallon (the 2008 Farm Bill reduces this to 45 cents the year after fuel ethanol demand reaches 7.5 billion gallons.) The biodiesel tax credit, which expires in 2008, is $1.00 per gallon for agri-biodiesel (Defined as first-use vegetable oils and animal fats, including palm and fish oil) and 50 cents per gallon for biodiesel from recycled oils and animal fats. These tax credits are disjointed and inconsistent, and in large part they are passed on to motorists. In addition, ethanol imports are subject to a tariff of 54 cents per gallon. This poses a significant obstacle to ethanol imports.

As a consequence of these incentives and the Renewable Fuels Standard first established in EPAct2005, ethanol production has increased from 1.77 billion gallons in 2001 to an estimated 6.5 billion gallons in 2007. The new Renewable Fuels Standard enacted in the 2007 energy legislation is designed to require as much as 36 billion gallons of renewable fuel produced each year by 2022, with different quotas for renewable, alternative, cellulosic, and biomass-based diesel. Currently, the largest source for biofuels is corn. Our ability to achieve the 36 billion gallon target depends on the development of next generation biofuels, such as cellulosic ethanol from wood, forest residues, corn stalks, and everyday garbage, and the ability to produce and distribute such fuels efficiently to consumers.

Progress toward broad commercialization, particularly for cellulosic ethanol, has been slow, and we should not expect biofuels to replace our need for oil. Even if we are entirely successful in the effort to produce 36 billion gallons of renewable alternative fuels in 2022, that is a fraction of the 138 billion gallons of gasoline and 43 billion gallons of diesel that we currently use in the United States each year. Although biofuels can make an important and useful contribution, they alone cannot be expected to supply our need for liquid transportation fuels.

Moreover, biofuels also pose certain environmental challenges. There is a growing controversy over the sustainability of biofuels and their impact on food production and land use. Some analyses suggest that biofuels production, especially from corn starch, is responsible for a portion of the recent run up in global food prices, which is a legitimate concern. Concerns over the environmental and food impacts of first generation biofuels argue in favor of moving aggressively to develop cost-effective second generation technologies that can use a much broader array of feedstocks, thus reducing the upward pressure on energy and food prices and the need for additional arable land. Best practices and voluntary industry standards should also be developed to encourage sustainable biofuels production.

However, there is significant potential to use the approximately 1.3 billion dry tons of biomass that the United States might one day sustainably produce each year for other purposes as well. For example, it may make more sense to convert these feedstocks to synthetic gas that can be used in the existing refineries and pipelines. It may make sense to consider the prospects for synthetic bio-gasoline and biobutanol, an alcohol with higher energy content than ethanol that can, unlike ethanol, be transported and distributed in existing petroleum pipelines. Indeed, it may ultimately make more sense to convert this biomass resource into electricity for supply to electric vehicles.

While there has been plenty of discussion on what constitutes the highest and best use of the nation’s biomass resource, it is now clear there are finite limits to corn-based ethanol, and while we do not wish to diminish its importance as a transition fuel, there is the need for new and comprehensive forward looking analysis, based on rigorous, “well to wheels” data, to gain a better understanding of the range of possibilities offered by renewable biofuels. Therefore, we believe the DOE, in collaboration with the appropriate national laboratories and universities, must undertake comprehensive analyses on the various uses and resulting effects on the nation’s biomass resources, and how those resources can be best used with existing energy infrastructure while minimizing land use changes and impacts on food production.

As the biofuels market here in the United States grows and matures to meet the requirements of EPAct2005 and EISA2007, we should seek also to “commoditize” biofuels and help create an international market to increase their trade by harmonizing fuel standards. Eventually, free trade of biofuels should be the goal, and we should be prepared to reconsider the tariff on imported ethanol as global demand and markets progress.

Electricity as an Alternative Fuel

Electricity, used in a hybrid gasoline-electric, hybrid diesel-electric, hybrid biofuels-electric, or fully electric vehicles is a potentially important alternative fuel to decrease air emissions and increase supply and competition in the transportation sector. However, for electric and hybrid-electric vehicles to reach their potential, continued technology development on batteries to expand their capacity, lower their cost, improve their durability, and enhance their safety will be necessary.

For future vehicles to be in a position to meaningfully interact with the electricity grid, work remains to allow cars to become “intelligent” participants in peak-load reduction efforts, develop emergency power supply strategies, enhance grid resiliency, and arrange time-of-use pricing arrangements. We recommend that automakers and electricity providers accelerate necessary collaboration on the standards, power electronics, and interfaces that might allow electric drive vehicles to be more fully integrated with the electricity grid.

Natural Gas

There are approximately 120,000 natural gas–powered vehicles (NGV) in operation in the United States, well below 0.1% of all cars and light trucks. While the majority of these NGVs are used in fleets of municipal or commercial entities, they can potentially play a significant role in reducing our dependence on overseas sources of oil. We currently produce about 80% of the natural gas used in this country, and nearly all of our imported natural gas comes from Canada. Additionally, natural gas as a transportation fuel produces significantly less air emissions, including CO2, than gasoline.

Vehicles account for 0.1% of all natural gas consumed in this country. Any effort to replace a significant portion of the 250 million passenger vehicles in the United States with NGVs must be accompanied by policies to significantly increase the supply of natural gas to avoid placing a strain on supply and increasing prices for current uses such as electricity generation, heating, and as an industrial feedstock. Moreover, a substantial expansion of infrastructure necessary to foster widespread market penetration of natural gas as a transportation fuel would be required.


Vehicle fuels from coal provide another option. Fuel from coal gasification and Fischer-Tropsch processes could be an assured source of transportation fuels. Coal-to-liquids (CTL) technology is a proven technology that meets about 30% of South Africa’s transportation fuel needs and is being developed in some emerging economies with large coal reserves, including China. CTL technology could be a competitive and, given the extent of U.S. coal reserves, an assured source of transportation fuels. Coal gasification offers less costly capture and compression of CO2, and with sequestration Fischer-Tropsch fuels can have a lower carbon footprint than traditional petroleum-based fuels. However, to move ahead with CTL with CCS, purchase agreements and incentives for the first few plants will probably be needed. The U.S. Air Force is considering purchase agreements for alternative fuels, including CTL fuels, but it needs multiyear procurement authority. Such purchasing authority is not without risk because of the volatility in fuels markets. Extension of the existing alternative fuels excise credit and loan guarantees are policies that can incentivize new CTL plants.


Hydrogen is not an energy source, but rather an energy carrier in the manner that electricity is an energy carrier. Like electricity, hydrogen can be produced when processing a variety of primary energy resources (such as nuclear, biomass, fossil, and renewable). The conversion of hydrogen to electricity in a fuel cell results in no emissions other than pure water. When hydrogen is burned in an internal combustion engine, only trace amounts of NOx are produced. These characteristics offer the possibility of a fuel that can be produced from a variety of domestically available resources and that results in few if any emissions at the point of use. However, hydrogen is difficult to transport and store in its gaseous state, fuel cells remain expensive and insufficiently durable for widespread consumer use, and hydrogen production currently requires significant amounts of electricity. Although hydrogen may be produced with high-temperature nuclear reactors without emissions in the future, current hydrogen production methods utilize large amounts of electricity, which largely comes from fossil fuel combustion.

There are a number of prototype and demonstration hydrogen fuel cell vehicles on the road today. Although progress has been made in recent years thanks to a well-organized effort by automakers, fuel providers, and U.S. and foreign governments, the pursuit of widely available, affordable, durable consumer hydrogen fuel cell vehicles remains a long-term proposition. The long-term federal R&D effort directed toward hydrogen fuel cell vehicles should continue, but we recommend that investments should correlate with the pace of progress made in plug-in hybrid and fully electric vehicle technology. We also recommend that U.S. government R&D efforts continue to advance cleaner, more efficient methods of producing hydrogen at scale, using novel techniques, and from zero-emission renewable and nuclear technologies.

Many of these alternative fuels cannot readily be utilized with our existing infrastructure. New transport and delivery infrastructure, including pipelines, storage, and fueling pumps, would be needed to ensure market penetration.