Assessing the Impact of TCI

November 2020 Cars and trucks are a major source of greenhouse gases and other pollutants detrimental to public health. To minimize these baleful emissions, Massachusetts is working with other Northeast states on a collective approach known as the Transportation Climate Initiative, or TCI. Under TCI, participating states would place a limit on total carbon emissions from motor vehicles. Then they would set up an auction, where fuel suppliers bid for the right to sell gasoline and diesel with a certain amount of carbon. This auction process has two main benefits. By putting a price on carbon emissions, the auctions would encourage fuel efficiency and reduce pollution. At the same time, the money raised would be used by states to fund green investments, climate justice, and other TCI priorities.

Determining the precise, real-world impact of TCI is complicated, both because the exact terms of the program are still being negotiated and because much depends on the future path of global oil prices and overall economic growth. To do justice to this uncertainty, we model a variety of different assumptions and present a range of scenarios showing how TCI could affect overall emissions, state revenues, public health, and gasoline prices. We find that:

Without TCI, emissions from motor fuels are likely to fall between 2022 and 2032. Our central estimates suggest a decline of 14.2 percent (in our moderate-economic-growth scenario) or 17.5 percent (in our low-economic-growth scenario).
TCI aims to generate additional reductions on top of this baseline, producing overall declines of 20, 22, or 25 percent, with the exact target as yet undecided.
These additional, TCI-generated emissions reductions could bring significant benefits, including in the realm of public health. Preliminary estimates from a multi-university group suggest that TCI could eliminate several hundred cases of childhood asthma each year in Massachusetts.
TCI’s auctions would generate substantial revenue for participating states. While each state would ultimately make its own spending decisions, this revenue is intended to support green initiatives and environmental justice, with states recently proposing to devote at least 35 percent to underserved and overburdened communities. In our moderate-growth scenario, a 22 percent emissions target would generate $775 million for Massachusetts in 2022; in the low-growth scenario, it would raise $406 million.
TCI would almost certainly result in higher gas prices, and the size of the increase would depend on the stringency of the emissions target. In our moderate-growth scenario, a 22 percent reduction in emissions would generate a 24-cent-per-gallon increase in gas prices in 2022; in our lowgrowth scenario, gas prices would rise 13 cents per gallon.
TCI also includes a price ceiling, which would prevent auction prices and gas prices from rising beyond established limits. Many of our estimates — including the central estimates noted here — may be above the price ceiling. In that case, real-world prices would not rise as much as we predict; instead, the emissions cap would be loosened, allowing higher emissions as a way to check prices.
Not all regions of Massachusetts would be similarly affected by TCI. More diverse urban areas currently have the worst pollution, and therefore stand to gain the most from reduced tailpipe emissions. Meanwhile, communities in Central and Western Massachusetts spend the highest share of their income on gasoline, making them more vulnerable to price increases.