Cost-effectiveness of greenhouse gas mitigation in transport: A review of methodological approaches and their impact

A review is given of methodological practices for ex ante cost-effectiveness analysis (CEA) of transport greenhouse gas (GHG) mitigation measures, e.g. fuel economy and CO2 standards for road vehicles in the US and EU. Besides the fundamental differences between different types of policies and abatement options which inherently result in different CEA outcomes, differences in methodological choices and assumptions are another important source of variation in CEA outcomes. Fourteen methodological issues clustered into six groups are identified on which thirty-three selected studies are systematically reviewed. The potential variation between lower and upper cost-effectiveness estimates for GHG mitigation measures in transport, resulting from different methodological choices and assumptions, lies in the order of $400 per tonne CO2-eq. The practise of using CEA for policy-making could improve considerably by clearly indicating the specific purpose of the CEA and its strengths and limitations for policy decisions. Another improvement is related to the dominant approach in transport GHG mitigation studies: the bottom-up financial technical approach which assesses isolated effects, implying considerable limitations for policy-making. A shift to welfare-economic approaches using a hybrid model has the potential to establish an improved assessment of transport GHG mitigation measures based on realistic market responses and behavioural change.

► We identify fourteen important methodological issues clustered into six groups. ► We systematically review thirty-three selected transport GHG mitigation studies. ► Methodological choices can lead to a difference by up to $400 per tonne CO2-eq. ► The dominant bottom-up approach has limitations for policy-making. ► Welfare-economic approaches could improve cost-effectiveness analysis.