Externalities of Transportation Fuels: Assessing Trade-offs Between Petroleum and Alternatives

This research report examines the economic and environmental externalities associated with the US transportation sector. The United States currently accounts for about 25 percent of world oil consumption, about 50 percent of which is imported. Achieving energy security by reducing dependence on imported oil has been the foremost challenge of several major energy-importing countries, including the United States. In this study, we explored the costs associated with energy security/cost of dependence on oil and estimated the environmental externalities associated with different types of transportation fuels based on a set of economic, environmental, and life-cycle analysis models. Our assessment of estimations on oil dependence costs indicates that several elements constitute the true cost of oil and not many studies have attempted to include all of these costs for various reasons. For analyzing the environmental externalities, we used a life-cycle analysis model; the FASOM-GHG model of agriculture and forestry; APEEP—an integrated assessment model to calculate the marginal damage of emissions; GTAP-BIO—a computable general equilibrium model to estimate land use changes; and the OSIRIS model to estimate the species extinctions based on deforestation. This study on assessing the externalities could provide a quantitative basis for policy initiatives pertaining to America’s future transportation infrastructure. This study suggests that there is a need to consider economic, environmental, and other societal costs within a holistic framework to assess relative costs and benefits and suitability of alternative transportation fuels that could play a role in meeting our future energy needs.