Analysis of impacts of alternative policies aimed at increasing US energy independence and reducing GHG emissions Eric G. O'Rear n , Kemal Sarica, Wallace E. Tyner Department of Agricultural Economics, Purdue University, 403W. State Street, West Lafayette, IN 47907-2056, USA article info Article history: Received 15 April 2013 Received in revised form 1 June 2014 Accepted 23 October 2014 Keywords: Energy security CAFE Fuel tax Emissions Light-duty vehicles Climate change abstract The primary objectives of recent energy initiatives have been: (1) lowering greenhouse gas (GHG) emissions; and (2) increasing US energy security by reducing oil imports for the purposes of making the US less vulnerable to the actions of other countries. The concern is that relying on sometimes adversarial, sometimes unstable countries for a quarter of our oil carries certain risks. For that reason, reducing the external oil dependence has been of interest to policy makers. This paper examines the impacts and costs of transportation-based policies on light-duty vehicle fleet energy usage and emissions. Using the 2010 elastic version of the US Environmental Protection Agency's Market Allocation (MARKAL) model, recent increases in US Corporate Average Fuel Economy (CAFE) Standards are compared to what some econo- mists suggest would be a much more “efficient” alternative-asystem-wide oil tax internalizing a number of environmental externalities. We discover that our series of oil taxes produce larger and more cost- effective reductions in economy-wide emissions than CAFE. The same cannot be said in regards to net oil imports. Stricter fuel economy regulations result in much larger cutbacks in imports than the oil tax. In fact, we found that in 2040 import demands are roughly 250 million BOE (barrels of oil equivalent) higher with our oil tax regime than they are with CAFE. The additional import reductions achieved with stricter CAFE Standards do come, however, at a much larger cost to society. A great deal of these addi- tional economic costs stems from greater usage of more energy-efficient automobiles and the higher initial capital costs associated with their adoption. In our supplementary analysis, we find that even if the costs of these types of vehicles are lowered by as much as 75%, oil taxes would still be able to maintain their competitive edge over CAFE standards in regards to cost-effectiveness. & 2014 Elsevier Ltd. All rights reserved. 1. Introduction The primary objectives of recent US energy initiatives have been: (1) lowering greenhouse gas (GHG) emissions; and (2) in- creasing US energy security by reducing oil imports (Tyner and Taheripour, 2007). The question is what is the relative effective- ness of different policies in achieving these objectives? Energy security is often measured by the additional military costs of protecting Middle Eastern oil supplies (Knittel, 2011). This study refers to improvements in energy security as continued reductions in demands for foreign oil for the purposes of making the US less vulnerable to the actions of other countries. The majority of the world’s oil reserves are controlled by members of the Organization of the Exporting Petroleum Countries (OPEC), many of whom are found in the Middle East (e.g. Saudi Arabia). In total, about 40% of US oil is imported with about 15% coming from Canada and Mexico, which leaves 25% from the rest of the world (Energy Ef- ficiency & Renewable Energy (EERE), 2014). The concern is that relying on sometimes adversarial, sometimes unstable countries for a quarter of our oil carries certain risks. For that reason, re- ducing the external oil dependence has been of interest to policy makers. Close to 70% of the total US petroleum use is in the transpor- tation sector, with cars and light-trucks responsible for roughly 60% of sector petroleum use (Davis et al., 2012). Because light-duty vehicles, followed by medium- and heavy-duty vehicles, are the largest consumers of fuel by the sector, it is no surprise that ga- soline and diesel are the most heavily used fuels by the sector (Center for Climate Change and Energy Solutions, 2011). Measures like Corporate Average Fuel Economy (CAFE) standards and fuel taxes, which target these vehicles, could have a rather large in- fluence on petroleum demands. Reducing oil demands generally coincides with emission re- ductions. Approximately 27% of US emissions come from Contents lists available at ScienceDirect journal homepage: www.elsevier.com/locate/tranpol Transport Policy http://dx.doi.org/10.1016/j.tranpol.2014.10.016 0967-070X/& 2014 Elsevier Ltd. All rights reserved. n Corresponding author. E-mail addresses: eorear@purdue.edu (E.G. O'Rear), ksarica@purdue.edu (K. Sarica), wtyner@purdue.edu (W.E. Tyner). Transport Policy 37 (2015) 121–133