Streetsblog Capitol Hill

The prospect of an eventual move away from the gas tax and towards a fee on vehicle miles traveled (VMT) has sparked consternation from some well-known bloggers this week, with Matt Yglesias asserting that "a VMT [tax] has no advantages whatsoever over higher gasoline taxes" and Andrew Samwick suggesting that declining fuel tax revenues mean that tax rates need to go even higher.

Leaving aside the political challenges facing a 10-cent gas tax increase, as suggested last year by the National Commission on Surface Transportation Infrastructure Financing (a similar panel of experts called for a gradual 40-cent hike in 2008), significant questions surround the gas tax's viability as a long-term revenue raiser for infrastructure improvements -- regardless of how high it goes.

Take the example of Oregon, the first state to levy a fuel tax in the year 1919. Now the state's gas tax ranks 21st in the nation, but it began planning ahead for a VMT tax nine years ago after repeated attempts to raise fuel fees ran into political opposition. In its final report on the state's "road user fee pilot program," the Oregon DOT noted that gas tax revenue couldn't keep pace with the rise in fuel-efficient autos (see the above chart).

The state DOT's report, written by James Whitty of the innovative partnerships office, took a candid look at the upsides and downsides of the gas tax (emphasis mine):

Read more...

The Obama administration's proposal to raise auto fuel-efficiency (CAFE) standards to 35.5 miles per gallon by 2016 could have gone even further in order to reap the maximum environmental and economic benefits of cleaner cars, according to a new analysis [PDF] released today by the Consumer Federation of America.

In his analysis, Consumer Federation research director Mark Cooper used data from federal regulators to compare the pollution and cost savings achieved by the Obama CAFE plan -- which would yield an actual average standard of 34.1 mpg if automakers take advantage of available "credits" -- to a hypothetical standard of 38.1 mpg by 2016.

Cooper found that a 38.1 mpg standard would achieve a net societal benefit of $50 billion, including considerable gas savings for drivers and reductions in pollution (visible in the below chart). Setting that higher standard, Cooper added, would pay for itself within four years and yield a 9 percent return on buyers' investment as the higher cost of more efficient cars was offset by fuel savings.

Cooper wrote in the Consumer Federation report:

The proposed [Obama CAFE] rule delivers far smaller benefits than could be achieved, if the [auto] industry were not holding the agencies back. ... Read more...

A major step towards more fuel-efficient U.S. vehicles is being taken today in Detroit, where the Environmental Protection Agency (EPA) and the U.S. DOT are holding their first in a series of public hearings on the new emissions standards the Obama administration released in May.

Domestic automakers testifying today emphasized their willingness to comply with the new rules, though not necessarily with a smile on their faces. The fine print of the EPA and DOT's final efficiency rule contains several potent loopholes long sought by car companies, and the Detroit News found General Motors vice president Michael Robinson stressing the downside of cleaner cars: "The proposal will not be easy nor will it be inexpensive, but we are up to the challenge." 

But the most compelling aspect of today's hearing has yet to show up in the mainstream media: testimony from Walter McManus, a veteran GM economist who now leads the automotive analysis division at the University of Michigan's Transportation Research Institute.

Since leaving Detroit's inner sanctum, McManus has candidly admitted that his former colleagues failed to comprehend consumers' desire to burn less fuel; in a November column for the Daily Beast, he described GM as filled with "individually brilliant people who are collectively stupid."

Today in Detroit, McManus put his data where his mouth is by testifying on a report he released last week [PDF] that shows the new fuel-efficiency rules will lead to an annual profit increase of $3 billion at the three U.S. automakers (GM, Ford, and Chrysler), compared with an $800 million annual profit gain for the so-called "Japan 3" (Toyota, Nissan, and Honda).

McManus' report found that consumers' prioritization of fuel costs over total vehicle prices, as well as the likelihood of gas price increases in future years, would turn the costs of complying with the administration's new efficiency standard by 2016 into a net upside. "Most importantly," the report states, "complying with the [35.5 mpg fuel standard by 2016] renders the vehicles in the majority of segments more cost effective for consumers; the present value of the fuel saved will be greater than the increase in purchase price associated with the new fuel saving technology."

Interestingly, McManus' research, conducted with Citigroup's investment research department, Ceres, and the Investor Network on Climate Risk, does not take into account two factors that could further boost the economic benefit of less fuel consumption:

the economic savings of reduced foreign energy dependence or the direct savings of reduced military expenditures necessary to protect that dependence.

So why have U.S. automakers fought higher fuel-efficiency standards for decades? Read more...

Seven months after first trying to re-brand congressional climate change legislation as an "energy tax," Senate Republicans were back at it today with a new report and op-ed that attempts to expose the climate bill as a "$3.6 trillion gas tax."

Sens. Kay Bailey Hutchison (R-TX) and Kit Bond (R-MO) gathered outside the Capitol today, flanked by aides wearing black stickers imprinted with the slogan "CAP & TRADE = GAS TAX," to promote a new report [PDF] that presents their "gas tax" assertions.

How did Hutchison and Bond get to their $3.6 trillion total, which their report calls "relatively simple and straightforward to calculate"? They simply multiplied their estimate of how much fuel the U.S. would consume between now and 2050 by their estimate of the per-gallon gas price increase that would result from an economy-wide emissions cap.

Hutchison and Bond got their numbers from the National Black Chamber of Commerce (NBCC), a business group that released projections on the cost of the House climate legislation at around the same time it joined the official astro-turf lobbying campaign against the bill. The NBCC's analysis, produced by consulting firm CRA International, is one of many competing cost estimates for the climate bill, each of them relying on different assumptions and models that claim to predict the future price of carbon under the pending legislation.

In fact, the NBCC analysis states (in Appendix C) that it has assumed higher CO2 allowance prices than the Environmental Protection Agency (EPA) analysis of the same House climate bill, thus resulting in higher estimates for the plan's impact on real-world carbon prices.

What does the EPA say about the House climate bill's likely effect on fuel prices? Its analysis found a 25-cent per-gallon increase by 2030, or less than three pennies per gallon per year -- small potatoes compared to the oil price swings of recent years, as the Pew Center on Global Climate Change pointed out.

Center for American Progress senior fellow Joe Romm has delved further into the claim, promoted by the oil industry, that a cap on carbon emissions would increase gas prices. Using the non-partisan Congressional Budget Office's estimate of allowance prices, Romm found a per-gallon gas price increase similar to the EPA's.

Still, it's unlikely that Hutchison and Bond would be fazed by economic models that discredit their case. Although they told reporters at today's event that they support cutting carbon emissions, the first page of their report makes clear that they dislike the very idea of more moderate energy consumption:

Advocates of climate change legislation want to increase the price of traditional forms of carbon-based energy, such as coal and oil, so that consumers are forced to respond by using less of those forms of energy. Policy-makers call this putting a price on carbon. Economists call this sending a price signal. The bottom line is that the price of energy will go up.

More expensive energy from climate legislation can be seen as a new national energy tax on American consumers and workers.

Late Update: Senate Foreign Relations Committee Chairman John Kerry (D-MA), the lead sponsor of the upper chamber's climate bill, came out swinging in response to Hutchison and Bond's report.

"Let’s actually have a debate based on reality,” he said in a statement that accompanied a rebuttal from his office. Check it out after the jump.

Read more...

We tend to have a few good laughs when Randal O'Toole fires up his Cato computer and weighs in on transportation issues. It's hard to take seriously a man who thinks that having the government tax people to build something which it then gives away for free is the libertarian ideal.

But occasionally O'Toole provides an opportunity to discuss some interesting aspects of the transportation planning process and learn from his errors. And so we turn to his latest policy paper, which was released yesterday. Therein, he writes:

The Interstate Highway System accomplished all of this [construction of the system] without any subsidies. Federal highway user fees paid for 90 percent of the cost of the system, and state highway user fees covered virtually all of the remaining 10 percent.

This brings up an interesting question: What is a user fee? Common sense would suggest that a user fee is a fee paid by a user of something in order to use that something. A common example might be a train fare. When one wants to ride a train, one purchases a ticket. One doesn't purchase a ticket if one doesn't want to ride the train, and one doesn't ride the train without a ticket. A ticket is specifically meant to extract a fee from a potential user, that that user might then be allowed to use the train.

So do gas taxes count as highway user fees? Well, one might pay gas taxes even if one never uses highways. You pay the gas tax on gas used to drive down local roads or private driveways, or to power lawnmowers and tractors that never even see publicly-funded blacktop.

And one can use highways without ever paying gas taxes. Anyone able to obtain a vehicle powered by natural gas or electric batteries or canola oil can ride on the federal highway system for thousands of miles and never pay one cent to do so.

So gas taxes are not user fees. Indeed, the lack of actual user fees is one reason American highways suffer from severe congestion problems; when you give away something valuable for free -- like scarce highway space -- it ends up seriously over-consumed.

As a thought experiment, let's consider a world in which federal gas taxes functioned more like a user fee. That is, let's imagine that when drivers fill up, they pay a federal gas tax only on the gasoline consumed while driving on federal highways. That's still not really a user fee, but it's a little closer.

Read more...

One thing the government's CARS program -- a.k.a. "cash for clunkers" -- has clearly stimulated is commentary. For a policy involving a shade under $3 billion in federal spending, it has enjoyed no shortage of media coverage.

In part this is because the program looks like a big success, and certainly congressional leaders and the White House have not been bashful about touting it as such. The original $1 billion allocation for the program was exhausted within days, and as sales data for August begins to emerge it is clear that car sales experienced a banner month.

Was CARS a good policy, all things considered? Let's look at a few of the latest numbers on the program.

There were approximately 1.17 million vehicle sales in August, which works out to a seasonally adjusted annual rate of about 14 million vehicles. June's sales rate was under 10 million and near the recession low, while last August's rate was also about 14 million. Meanwhile, the August norm in good times was about 16 million.

What does that say about the value of the program? Well, let's say that August sales would have matched June's sales in the absence of CARS. They almost certainly would have been higher given economic improvements between June and August, but for argument's sake, let's say they were the same. We can then estimate how many additional sales CARS produced and the actual subsidy per new sale.

Here's economics blogger Calculated Risk:

If Edmunds.com is correct, and total sales were 1.17 million...in August, then the tax credit only generated about 320 thousand extra sales. Of course some regular car buyers might have put off a purchase to avoid the rush in August, so this isn't perfect, but instead of costing taxpayers $4,170 per car (as announced by DOT), the cost to taxpayers per additional car sold was close to $7,200.

In other words, CARS just didn't generate that many new sales. Much of the subsidy went to buyers who would have purchased anyway.

As it turns out, much of the subsidy also went to people who weren't interested in purchasing GM or Chrysler vehicles. While year-over-year sales figures rose in August for Ford, Honda, and Toyota, sales declined by 15 percent and 20 percent respectively for Chrysler and GM. To the extent that CARS was designed to help struggling American automakers, it doesn't seem to have had the desired effect.

Particularly worrisome is today's report that sales fell precipitously in the last week of August -- after the CARS program ended. Rather than generate momentum for the automobile industry, CARS may have primarily moved sales around. To a certain extent, it might also have been counterproductive. How so?

Read more...

The New York Times has now turned loose writers at two of its economics blogs to make weak arguments against the construction of high-speed rail lines.

I have been following Ed Glaeser's attempt to do a back-of-the-envelope assessment of the costs and benefits of a hypothetical rail line (catch up here and here). Now, Freakonomics' Eric Morris seems to want to get in on the act, via a lame post comparing the effects of high-speed rail with the fruits of "cash for clunkers."

Let me just begin by pointing out how utterly ridiculous this comparison is. The Obama administration's vision for high-speed rail essentially involves a multi-decade effort to significantly upgrade transportation infrastructure along several of the country's most economically important metropolitan corridors.

"Cash for clunkers," on the other hand, is a $3 billion, roughly two-month program of automobile purchase incentives.

Given this, it's hard to know what Morris is aiming to prove. That "cash for clunkers" makes for a better short-term stimulus? Okay, I'll accept that; high-speed rail is not going to provide much of an economic boost over the next 18 months.

On the other hand, the Kansas City Fed is warning that unemployment might not get below 6 percent again until 2018. If we're looking at a decade's worth of slack in the labor force, which is likely to be a better salve -- a major infrastructure investment program, or ten years' worth of "cash for clunkers"?

Over a longer time frame, the comparison between the policies ceases to be of much use. They're not remotely designed to do the same things. So instead, let's just talk about what each means for the environment.

Read more...

The story so far: Ed Glaeser recently began an effort to assess the costs and benefits of constructing high-speed rail lines at the New York Times' Economix blog. Last week, he posted his first substantive take on the issue, an attempt to estimate direct costs and benefits from a hypothetical line between Houston and Dallas.

This effort was riddled with errors. First among them was the choice of route: a Dallas to Houston line that doesn't appear on the administration's plan for high-speed rail construction.

In this week's post he responds to that complaint by saying he picked a "mythical" 240-mile span between Dallas and Houston "to avoid giving the impression that this back-of-the-envelope calculation represents a complete evaluation of any actual proposed route" -- which should lead one to wonder exactly what he's doing here.

He's unwilling to put his figures on the line as representing a complete analysis, and yet he's fairly immodest in detailing his conclusions. He at least owes his readers an assessment of what is being left out, how important it is, and how its inclusion might alter his findings.

Glaeser's analysis assumes no population growth -- he bases ridership on current metropolitan populations -- and no shift in mode share over time, despite the fact that both Houston and Dallas have rates of transit ridership well below similar-sized cities (suggesting that with growth, transit's share will increase) and are rapidly constructing new systems to facilitate greater transit use.

If one adjusts anticipated ridership figures to correct for these errors, and if one uses a more realistic figure for the value of business traveler time, then benefits appear to come quite close to or exceed costs of construction.

Today, Glaeser seeks to estimate the environmental and congestion benefits of high-speed rail, and he quickly stumbles into error once again. Once more, he fails to take into account population growth, despite that variable's crucial importance to this analysis.

Read more...

General Motors made a media splash this morning by announcing that its Chevy Volt would get 230 miles per gallon in city driving, but the claim quickly began proving little more than a broad estimate.

GM based its Volt claim on draft rules from the Environmental Protection Agency (EPA). The agency promptly noted that the 230-mpg estimate -- which does not include less fuel-efficient highway driving -- could not be confirmed in a statement to the AP.

So how did GM obtain its eye-popping number? The plug-in hybrid Volt can travel for 40 miles using electric battery power before switching to a gasoline engine as it recharges. The 230-mpg estimate comes from an assumption that the majority of drivers would travel in the neighborhood of 50 miles per day.

As the distance traveled rises, the Volt's fuel-efficiency would shrink, as CNN points out: a 300-mile trip would get about 62.5 mpg. (Electric high-speed rail in Europe, by contrast, gets upwards of 300 passenger-miles per gallon for trips of a similar distance.)

In an unwitting illustration of the car's uncertain efficiency, the Washington Post's Green blog headlined one post: "The EPA Gives Could Give the Chevy Volt a 230 MPG Rating. What?"

Regardless of its veracity, the 230-mpg claim gives GM the new marketing tool it craves to help boost its prospects of repaying $50 billion in government loans by 2015. Whether Volt sales will begin sales next year as planned, however, remains to be seen.

In a regulatory update filed last week but caught by Bloomberg, GM admitted that the plug-in hybrid technology "has not yet proven to be commercially viable." GM continued:

Our competitors and others are pursuing similar technologies and other competing technologies, in some cases with more money available There can be no assurance that they will not acquire similar or superior technologies sooner than we do.