Introduction
Energy is a $1 trillion industry representing 8 percent of the U.S. economy. The two biggest consumers of energy from fossil and renewable fuels are electric power and transportation. While electricity can be generated from diverse sources—coal, nuclear fission, natural gas, water, petroleum, and increasingly, wind and sun—98 percent of transportation, whether by plane, train, ship or automobile, is currently powered by petroleum. The transportation sector alone accounts for two-thirds of the petroleum consumed in the United States. Thus, key to understanding the transportation sector is understanding the petroleum market, and the ways in which consumers and firms in the transportation sector respond to changes in world oil prices.
The lack of substitutes for oil means that in the short run, oil consumption in transportation is particularly unresponsive to price changes. This makes the economy vulnerable to sudden increases in oil prices. Perhaps more importantly, the world's reliance on oil creates an external cost in terms of national security.
In addition to petroleum, the transportation sector relies on infrastructure. The United States has close to 4 million miles of roads, bridges, and highways to support a wide variety of economic and social activity. Over time, however, demands on this infrastructure have outstripped its capacity. While the miles of urban roadways built have increased by nearly 60 percent since 1980, vehicle miles traveled on urban roadways increased by double that amount. The primary reason for this shortfall is that a well-functioning market that puts a price on roadway use is largely nonexistent. As a result, traffic in most metropolitan areas has become increasingly congested, costing both time and fuel. In 2003 alone, Americans were delayed about 3.7 billion hours and used 2.3 billion extra gallons of fuel (47 hours and 29 gallons per rush-hour commuter) in stop-and-go traffic. Like the costs exacted by oil use on national security and the environment, the full costs of congestion are not taken into account by individuals when they drive: each driver usually decides when and where to drive based on his or her own private needs and ignores the costs imposed on others.
This chapter discusses several developments in the use of energy and infrastructure for transportation, and reviews strategies that have been used to reduce oil use and better manage the existing infrastructure. Key points in this chapter are:
1. Recent increases in the price of oil and the external costs of oil have led to renewed interest by markets and governments in the development of new alternatives. Government can play a role in ensuring that external costs are taken into account by markets, but ultimately markets are best suited to decide how to respond.
2. Cars and light trucks are the largest users of petroleum. As a result, the fuel economy of the vehicles purchased and the number of miles that they are driven have a large effect on oil consumption.
3. Congestion is a growing problem in American urban areas. Cities and states have shown a growing interest in and capacity for setting prices for road use during peak periods to reduce the full economic costs of congestion.