Long Run Trends in Transport Demand, Fuel Price Elasticities and Implications of the Oil Outlook for Transport Policy

This paper discusses the role of transportation in policies to address energy security and climate change. It focuses on three elements: the impact of energy prices on transport demand, the potential contributions of the transport sector to energy policies, and the interaction between energy and other policy concerns in transport. Transport is relatively unresponsive to broad-based price signals, in particular to changes in prices of fuels, but there nevertheless is considerable scope to improve the fuel efficiency of vehicle fleets. As a result, we should not expect energy policies to trigger dramatic changes in the nature of transport systems. Furthermore, this unresponsiveness suggests that it is relatively costly to reduce energy use in transport, and thus that efficient policies will probably not extract as much energy savings (in percentage terms) from transport as from other sectors. Reducing energy use in transport can be done with price incentives or with regulatory measures. But if reducing climate change is a primary goal, measures that mandate conservation need to be accompanied by others that make fossil fuels economically unattractive – for example broad-based carbon taxes. Otherwise, fossil-fuel reserves will remain economically usable and therefore will constitute a future source of carbon dioxide emissions. We argue that other transport problems, notably congestion, local air pollution, and accidents, are associated with considerably higher marginal external costs than are climate change and energy security. It follows that policies to deal directly with these other problems deserve high priority, regardless of energy policies.