The transportation industry is being significantly shaped by a variety of environmental targets this decade. The topic of climate change is increasingly present in business and policy, even playing a central role in the 2020 presidential election. To support our readers in navigating this dynamic landscape, this article provides an overview of the origins and key features of landmark environmental policies that have attempted to respond to climate change, which have helped to shape the business environment for transportation in the United States.
The transportation industry is being shaped by a variety of environmental policy targets.
A Foundation for Today’s Environmental Policy
The effect of industrial activity on global warming was identified in the latter half of the 19th century, but what we think of today as environmental policy in the U.S. did not take shape until the late twentieth century. In 1970, the Nixon administration signed the National Environmental Policy Act (NEPA) into law, requiring federal agencies to assess the environmental effects of their proposals during the decision-making process. This laid the foundation for valuing the environment as a whole—not just raw natural resources—as a critical factor of human health and therefore an economic asset. The Environmental Protection Agency (EPA) was formed shortly thereafter by combining the government’s diverse environmental programs under one entity charged with protecting human and environmental health.
In 1970 the EPA was formed to combine the government’s environmental policy programs under one entity.
Although the public health risks of air pollution, primarily produced by the transportation and power production sectors, were well known in the 1970s, no comprehensive policies to manage these pollutants had been passed at that time. In the EPA’s first year (1970), the Clean Air Act (CAA) became the first piece of legislation to regulate air emissions from stationary (i.e. power production) and mobile (i.e. transportation) sources. The CAA authorized the EPA to set National Ambient Air Quality Standards (NAAQS), and effectively required the transportation and power sectors to take responsibility for their operations’ negative effects on public health (which derives from poor air quality). Over time, the Act was enhanced with more specific requirements. Amendments in 1977 and 1990 introduced technology-based standards for major emitters, such as the engine emissions certification standards, in place today. Since 1990, the emissions of key air pollutants have dropped by more than 50 percent nationally, although the transportation and power production sectors remain top polluters.
While U.S. policy made significant strides in reducing air pollution it did not recognize greenhouse gases (GHGs) as pollutants or the concept of climate change. As a result, the EPA had no legal mandate to regulate GHGs. The authority to regulate GHGs was not established until 2009, when after 10 years of petitioning and a ruling by the Supreme Court (Massachusetts v. EPA), the EPA officially determined that GHGs were dangerous to public health and therefore must be regulated under the CAA.
In 2009 the EPA determined that GHGs were dangerous to public health.
This decision prompted the 2012 update to the Corporate Average Fuel Economy (CAFE) standards (created by the National Highway and Transportation Administration in 1975), which were viewed as the primary means for government to regulate mobile emissions. It also informed the EPA’s establishment of GHG emission standards. Both of these standards establish a foundation of performance that vehicle manufacturers are required to follow today.
Setting Technology-Based Standards
As environmental regulations expanded, so did the cost to comply. In many cases, these costs proved prohibitive for industry. To help address this barrier, policymakers introduced New Source Performance Standards (NSPS) under the CAA. More flexible than NAAQS, NSPS set specific technology-based standards to regulate GHG emissions at the sector level, providing guidelines for distinct stationary pollution sources. In recent decades, innovative financing solutions such as cap-and-trade programs have been introduced, such as the federal Renewable Fuel Standard’s RIN transaction program, the Northeast’s Regional Greenhouse Gas Initiative (RGGI), and California’s Low Carbon Fuel Standard (LCFS). These programs—most of which are managed at the state level—allow consumers to access low-carbon fuels at competitive prices.
Innovative financing solutions include programs such as RINs, RGGI, the California LCFS, allow access to low-carbon fuels.
State-Level Environmental Policies
State legislatures play an important role in shaping climate change policy across the country. Although policies vary from state to state, certain mechanisms are common. Today, 34 states and the District of Columbia (DC) have adopted Climate Action Plans (CAPs); 23 states and DC have adopted GHG emission reduction targets; and 29 states, DC and three territories have adopted Renewable Portfolio Standards (RPS) designed to reduce the carbon content of their power. These policies do not carry penalties for failure to achieve targets, but they do align activity in the high-polluting sectors of those states with climate change mitigation.
Echoing Global Commitments
Many states have also leveraged the spirit of several key international climate change agreements, which, while politically significant, are not necessarily binding. The two most notable international agreements are the 2005 Kyoto Protocol establishing mandatory targets for GHG emissions, and the 2015 Paris Agreement aiming to limit the increase of global temperatures to under 2 degrees Celsius. Since the U.S.’ decision to withdraw from the Paris Agreement, 25 governors have formed the U.S. Climate Alliance to uphold the Agreement’s GHG emission reduction goals and align their local efforts with these targets.
Looking forward, regulations anchored in these national and state policies relating industrial activity to climate change and public health will continue to drive carbon reduction requirements for the transportation sector. The development of both innovative technologies and financing solutions remains critical to ensuring stakeholder access to cost-effective pathways to compliance.