Executive Summary

By any measure, the Infrastructure Investment and Jobs Act (IIJA),^{See footnote 1} the bipartisan infrastructure package signed into law by President Biden on November 15, represents a historic investment in the underpinnings of our economy, especially when it comes to transportation. The bill authorizes roughly $1 trillion over five years, nearly $600 billion of which is surface-transportation related.^{See footnote 2}  That infusion of money over the next five years has the potential to catalyze transformative changes in the ways people and goods move, and to help make our transportation system safer, more reliable, more affordable and more equitable. It will also have a lasting effect on U.S. greenhouse gas emissions. The White House and congressional leaders have cited addressing climate change and equity among the goals of the IIJA.^{See footnote 3}   

To understand how the IIJA’s historic investments in transportation infrastructure could help — or hinder — efforts to achieve the GHG reduction goals that states and the federal government have set, the Georgetown Climate Center analyzed the bill using our Transportation Investment Strategy Tool and assessed the potential effects of each of the bill’s surface transportation provisions.  

We found IIJA could be an important part of the U.S. response to climate change. Or it could lead to more greenhouse gas pollution than the trajectory we are currently on. Where the actual outcome falls within that range will depend on the decisions made by state, federal, and local governments about how to spend the money made available by IIJA. 

• If transportation investment decisions prioritize a “fix it first” approach and emphasize maintenance of existing roadways, along with investments in transit, electric vehicles and charging infrastructure, and other low-carbon transportation options, this historic infusion of federal funding has the potential to accelerate reductions in GHG emissions from surface transportation relative to business as usual.

• But if investments instead flow mostly to adding more lanes and building more roads, the IIJA funding could result in an increase in emissions over what we’d expect without this additional investment. That’s because building more roads consistently results in more traffic — an “if you build it, they will come” effect known as “induced demand.” In short, traffic expands to fill the new lanes within a few short years, bringing with it more pollution.

Background

Transportation generates one third of U.S. greenhouse gas pollution

The transportation sector is responsible for roughly a third of the country’s carbon dioxide pollution, with roughly 80 percent of that tally coming from cars and trucks on the nation’s roadways. Because motor vehicles (especially diesel trucks and buses) also generate other dangerous air pollution, and communities of color are disproportionately exposed to that air pollution,^{See footnote 4} reducing pollution from vehicles is important to achieving equity and environmental justice goals, as well as climate targets.

States and the federal government have made ambitious commitments to reducing greenhouse gas emissions and leaders have acknowledged that achieving those goals, and addressing long-standing inequities and environmental justice issues, will require real cuts in pollution from the transportation sector.^{See footnote 5} Transportation emission reductions are expected from federal and state emissions standards for cars and trucks, electric vehicle incentives, and from other existing policies — our baseline projects a decline in emissions due to the impacts of these efforts — but additional policies and programs will be needed to achieve federal or state climate targets.

Federal surface transportation legislation provides funding for federal and state agencies to invest in transportation priorities

Federal funding for highways, transit, and other transportation programs is regularly reauthorized through comprehensive, multi-year transportation legislation — a process known as “surface transportation reauthorization.”^{See footnote 6} These bills are the primary mechanism by which Congress shapes federal funding for transportation, including modifying, adding, or eliminating programs.

When Congress establishes a transportation funding program, it also provides a set of statutory parameters for implementing that program, including the amount of funding available under the program for each fiscal year, instructions for how those funds will be distributed, the share of project costs to be provided by the federal government, and lists of eligible recipients and uses for the money. 

Under the current statutory framework, surface transportation funding for highways, transit, and other programs is distributed through “formula funded” and “discretionary” programs. Importantly, the method of distribution for a given program determines which party — often either a state or federal transportation agency — will decide how those funds are invested. For both formula and discretionary programs, a state or local government is typically required to provide matching funds.^{See footnote 7} 

Formula funded programs distribute federal transportation aid to states based on statutory formulas that apportion the funding between states. Once authorized, formula funding can be obligated^{See footnote 8} by states, subject to certain statutory and regulatory requirements, and states have long had significant flexibility to use these funds to meet their various transportation needs or priorities.^{See footnote 9} The National Highway Performance Program and the Surface Transportation Block Grant Program are the two largest highway formula programs and, taken together, represent more than 70% of total highway formula funding in IIJA.^{See footnote 10}  The major transit formula programs include the Urbanized Area Formula Funding program and State of Good Repair Grants Program.

Alternatively, for discretionary programs, including competitive grant programs, federal administrators have discretion regarding how to distribute funding among states and other eligible entities, subject to statutory criteria.^{See footnote 11} Examples of discretionary programs include the Federal Highway Administration’s Infrastructure For Rebuilding America grant program and the Federal Transit Administration’s Low or No Emission Vehicle Program.

The split in the proportion of funding distributed to states between formula and discretionary programs varies from one transportation reauthorization to another.

IIJA Provides Historic Levels of Transportation Funding

The IIJA includes a five-year transportation reauthorization for 2022-2026, and significantly increases U.S. transportation investments, nearly doubling the annual amounts provided in the Fixing America’s Surface Transportation (FAST) Act of 2015, the previous transportation reauthorization.^{See footnote 12}  

As in past transportation authorizations, most of IIJA’s surface transportation funding is passed along to states and localities, and they decide what to spend it on.^{See footnote 13}  Some funding is directed for specific investments, like EV charging infrastructure (Sec. 11401), and low- or no-emission buses (Sec. 30018). But for much of the funding — for formula-funded highway programs, in particular — state and local decision makers have significant flexibility to choose how to spend it.^{See footnote 14}  Of the transportation reauthorization funding in IIJA, approximately 70% is formula funding, and 30% is discretionary funding.^{See footnote 15}  Within IIJA’s formula funding programs, approximately 82% is for highway programs, while 18% is for mass transit.^{See footnote 16} 

A primary example of states’ flexibility is the Surface Transportation Block Grant (STBG) Program, through which the bill will distribute approximately $70 billion over 5 years. STBG funds can be used by states and localities for a range of projects, from road and bridge construction to transit projects. The IIJA added new eligible low-carbon uses of STBG funding (e.g., electric vehicle charging stations), but maintained state and local government flexibility regarding how the funds are spent. 

If a state receives $1 billion in STBG funding through IIJA, the law allows the state to direct that funding to maintaining existing roads and the installation of electric vehicle charging stations and safer bicycle lanes — leading to GHG emission reductions. However, the state could alternatively choose to spend STBG funds primarily on highway construction and expansion, which would increase GHG emissions.

The upshot of this flexibility is that the impact of the IIJA on greenhouse gas pollution will be determined by how decision makers choose to use that flexibility, and the balance they strike among the various options before them.

Analysis

Our approach: Two investment scenarios illustrate a range of possible outcomes

To evaluate the potential impact of the $600 billion dollars in the IIJA package that is surface-transportation related,^{See footnote 17} GCC started by reviewing over 120 relevant IIJA bill sections and translating each into potential investment levels over 5 years, from 2022 to 2026.

For each of these sections of the bill, we mapped the various ways the funds might be spent, and on what kinds of transportation projects or strategies (e.g., switching from diesel to electric transit buses, investments in biking infrastructure, or highway maintenance).The legislation funds some existing programs, so we were able to look at historical evidence when developing potential uses for these funds. The legislation also creates some new programs. In those cases, we relied on legislative text and public statements to determine what sorts of strategies and projects each is likely to fund.

To reflect the flexibility the law incorporates, we developed two scenarios for potential uses of the $600 billion. Since it is not feasible to evaluate every possible combination of choices, we designed these scenarios to approximate the upper and lower bounds for some of the options that we would expect to lead to higher or lower emissions, within the funding options permissible in the legislation’s program requirements.

Each scenario directs the funds toward a different combination of the 30 different investment strategies in our Investment tool.^{See footnote 18} 

• The high-emission scenario, on the left, assumes that 27% of all surface transportation investments that we modeled go to highway expansion, with relatively less emphasis on highway maintenance and other low-carbon transportation strategies.
• The low-emission scenario, on the right, reflects a world in which decision makers prioritize low-carbon transportation strategies^{See footnote 19} and maintenance of existing roads, with only 4% of the surface transportation investments that we modeled going to new highway construction or highway expansion.

For each investment strategy, the Transportation Investment Strategy Tool includes a unique “impact factor” that reflects the change in GHG emissions expected per dollar invested.^{See footnote 20} The Tool then totals those impacts for each scenario to determine the net impact in each year.

Results: IIJA has the potential to "bend the curve" in either direction

Comparing the results of these two scenarios makes it clear that the IIJA has the potential to bend the curve down on transportation emissions, but it could also result in emissions that are higher than business as usual, or “Baseline GHG.”

In the above chart, both scenarios are compared to a “Baseline GHG” scenario^{See footnote 21} — the dashed line in the chart — which projects a decline in GHG emissions through 2032. This baseline assumes that the Biden Administration’s proposed Corporate Average Fuel Economy Standards for Model Years 2024-2026 Passenger Cars and Light Trucks are fully implemented, and that current battery cost trends continue to improve the affordability of electric vehicles.

For the high-emission scenario — the red line on this chart^{See footnote 22} — the first few years begin with additional emission reductions compared to the baseline, but by 2026, emissions start to trend upward relative to the baseline. This is driven by investments in highway expansion and the effect of induced demand, which becomes even more pronounced over time.

In contrast, the low-emission scenario — the blue line on this chart — could cut emissions by 1.6% below the baseline within just 5 years. This may not sound like much, but it’s roughly equivalent to the annual emissions from 4.5 million passenger vehicles.^{See footnote 23} It also underscores how hard it is to move the needle for transportation-sector emissions.

We are not predicting that either extreme of these bounding cases is likely, but they are certainly both possible. In the end, we expect that actual investment levels for most strategies will fall between these approaches, and will depend on the choices state, local, and federal policymakers make about how to spend these funds, given the discretion and flexibility that they are afforded under the law. Importantly, decision makers looking to achieve climate goals have the opportunity to steer decisions in the direction of the lower-emission scenario.

Proportion of funding invested in highway expansion vs. other strategies is main driver of emissions outcomes

Looking at how the various investment strategies factor into these results, we found that the percentage of funding invested in highway expansion relative to other strategies is the main driver of emissions outcomes.

The Infrastructure Investment and Jobs Act includes hundreds of billions of dollars available for a range of low-carbon transportation investments: new and improved transit, EV charging infrastructure, highway resurfacing and other strategies can all help to reduce emissions. However, if a substantial portion of IIJA funding is directed toward highway expansion, emissions increases from induced demand^{See footnote 24} associated with highway expansion have the potential to reverse the benefits of the low-carbon transportation investments. For context, according to the Federal Highway Administration, since 2010, on average roughly 15% of obligated federal funds administered by FHWA have been used for highway expansion projects.^{See footnote 25} 

The results of this analysis point to a number of questions that warrant further exploration:

What are the obstacles to implementing IIJA in ways that are closer to the low-emission scenario than to the high-emission scenario?

• While the IIJA gives the states statutory flexibility to make the kinds of investment decisions required to achieve the low emissions scenario, other factors may make it difficult. What are the obstacles in place in and across decision making bodies to greater use of funding for low-carbon strategies?

• Those may include structural factors: state-specific regulations or planning processes/timelines already in place, existing contracts, or statutory requirements that favor one type of investment over another. They may also include other factors: political pressures, cultural factors that favor highway investments over alternatives, institutional inertia, project backlogs, and economic pressures to invest the dollars quickly.

How can federal agencies and states work together to implement the IIJA in a climate-conscious way? 

• State departments of transportation and metropolitan planning organizations have critical roles to play in planning and implementing transportation projects funded by IIJA. State and local governments will have opportunities to provide input to inform the shape of new federal regulations and programs.
• For example, state and local governments can provide input into the development of a GHG emissions performance measure by FHWA, which would establish measuring and reporting requirements for GHG emissions associated with transportation and could guide transportation investment planning and evaluation. FHWA announced it is developing a proposed rulemaking to establish a GHG emissions measure as one of the performance measures used by state and local governments to measure and assess the National Highway System.^{See footnote 26} 

How can federal agencies and states work together to ensure that IIJA funding advances equity and environmental justice, including achieving the Justice40 commitments? 

• Justice40 is a “whole-of-government” commitment, established by Executive Order,^{See footnote 27} that at least 40 percent of “the overall benefits from Federal investments in climate and clean energy” go to “disadvantaged communities.”^{See footnote 28} 
• State and local governments will also play an important role in implementing aspects of the Justice40 Initiative, as many of the covered programs included in Justice40 are implemented at the state and local level.^{See footnote 29} Coordination across all levels of government and active community engagement will be important.
• For example, the White House Council on Environmental Quality and the Office of Management and Budget are developing a Climate and Economic Justice Screening Tool, which could be a valuable resource for state and local governments as they work to identify disadvantaged communities and prioritize equitable low-carbon transportation investments. 

Where are the opportunities for collaboration among states and regions to make the most of IIJA funding?

• The IIJA makes certain pots of funding available for multistate collaborations. For example, the Nationally Significant Freight and Highway Projects program authorizes $150 million per year for competitive grants to eligible entities, including “multistate corridor organizations.”^{See footnote 30} Comments made by Secretary Pete Buttigieg suggest that the U.S. Department of Transportation will be looking for proposals incorporating regional collaboration when making competitive awards.^{See footnote 31} 

How do matching funds play into the outcomes? 

• State legislatures often play an important role in transportation funding. With most of the new federal dollars requiring matching state and local funds, state legislatures may need to supply additional resources. New funding authorizations could also present opportunities for legislatures to provide direction to state agencies and local governments that encourage climate-oriented approaches to transportation planning.^{See footnote 32} 

How does the proposed Build Back Better Act interact with and affect implementation of the IIJA?^{See footnote 33} 

• While not included in the modeling results shared in this analysis, the proposed Build Back Better Act includes significant investments in vehicle electrification and other strategies to reduce transportation-sector emissions.
• The Build Back Better Act also includes programs to reduce emissions from the industrial and electric power sectors, which will affect the embodied carbon in transportation infrastructure construction materials and lifecycle emissions from battery-electric cars, trucks, and buses.^{See footnote 34} 

In the coming months, the Georgetown Climate Center looks forward to engaging with policymakers, communities, transportation experts, and other stakeholders, to explore questions related to the implementation of IIJA and other potential investments in low-carbon transportation.