How Do We End Subsidies to Auto Driving?

Mark Delucchi, a researcher from UC Davis, has a new paper asking, “do motor-vehicle users in the U.S. pay their way?” His answer is a rehash of work he completed more than a decade ago, but since planners will no doubt start citing it, I might as well preemptively review it.

Should motorists pay for the costs of driving at the pump. . .
Flickr photo by Scott Ingram Photography

Delucchi submitted the article to Transportation Research; at the risk of possibly violating someone’s copyright, I’ve taken the liberty of posting it here. Most of his original research, which dates back more than a decade, can be found at either Delucchi’s site or the University of California Transportation Center.

Delucchi offers three different ways of counting (a term he uses frequently enough to abbreviate it “WOC”) auto user fees and costs. The first is the Federal Highway Administration method, which counts only those gas taxes, tolls, and other user fees that governments dedicate to highways. User fees that are diverted into transit or other non-highway uses are not counted. By this method, which Delucchi calls WOC #1, highway expenses exceed user fees by an average of 27 cents per gallon of fuel.

WOC #2 credits all highway user fees, even those that are diverted to transit or general funds, against highway expenses. By this method, Dulucchi estimates that revenues fall short of expenses by an average of 14 to 16 cents a gallon.

Finally, WOC #3 adds in a bunch of indirect costs, notably pollution, the cost of maintaining the strategic petroleum reserve, and “military expenses related to the use of Persian-Gulf oil.” By this way of counting, Delucchi estimates autos are subsidized to the tune of 24 to 62 cents per gallon.

Since, as I mentioned, Delucchi actually collected these data several years ago, he adjusts them for inflation to the present day and concludes that autos subsidies range somewhere between 20 and 70 cents per gallon.

I don’t have much of a quarrel with the low end of the scale. I do wonder why he expresses the subsidies in terms of pennies per gallon. I think it makes more sense to look at subsidies per mile than per gallon because the latter implies that the best if not the only way to reduce the subsidy is to raise the gas tax.

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Federal Highway Administration photo

Delucchi adds to this implication when he writes, “If the upper end of this 20–70 cent-per-gallon range were added to the price of motor fuel, it likely would have a noticeable effect on fuel consumption and motor-vehicle use.” This may be true (although “noticeable” does not necessarily mean “large.”) But it would make more sense — and could actually reduce long-run highway costs — to eliminate subsidies by tolling instead of by raising gas taxes.

The average American automobile gets about 22 miles per gallon, so at the low end of Delucchi’s range we are talking about a subsidy of less than a penny per mile. Since the average car holds about 1.6 people, we are talking about a subsidy of about a half a penny per passenger mile. That is a little higher than the numbers I have calculated (about a third of a penny per passenger mile), but not enough to worry about.

Even at the high end of his range, the subsidy amounts to only 2 cents per passenger mile. Compare that to subsidies to Amtrak (about 20 cents per passenger mile) and urban transit (about 65 cents per passenger mile). I would like to eliminate all of these subsidies, but obviously doing so would have a much bigger impact on transit than on driving (a point Delucchi makes in an article based on the same research that was published seven years ago).

Is the high end of his range realistic? I am leery of analyses that throw in every conceivable cost, no matter how weird. For example, I roll my eyes every time I hear people blame the Iraq war on oil (if we wanted oil, Saddaam would have been glad to sell it to us — and so would the Iranians). Delucchi is equally skeptical, saying that many assessments of the social costs of driving “rely on outdated, superficial, non-generalizable, or otherwise inappropriate studies.” For his analyses, he has done a pretty good job of documenting his numbers.

For example, his paper on military expenses related to Persian-Gulf oil shows that the military does “indeed plan and budget military operations for the Persian Gulf on account of U.S. oil interests there.” He then tries to separate out the costs of those operations that are due to oil and concludes that they amount to $1 to $10 billion a year.

The high end of that range amounts to 6 cents a gallon (as Delucchi measures it) or a quarter of a penny per passenger mile (as I measure it). That still leaves 40 cents in the difference between Delucchi’s WOC #2 (16 cents) and WOC #3 (62 cents) costs per gallon. What’s the rest? Pollution, congestion, accidents, noise, and free parking account for most of it.

. . . or should we control the costs another way?
Flickr photo by Craig1Black

How do we pay for these things through tolling? Probably we don’t. Instead, we fix the problems in other ways. If the Middle East weren’t unstable for other reasons, we wouldn’t need to spend money protecting oil. If we reduce the amount of pollution coming from vehicles, we won’t have to pay the cost of that pollution. While we could reduce pollution by charging people a direct pollution fee, cars pollute so little today (with the possible exception of greenhouse gases) that the cost of such fee collections would outweigh the benefits. If we do have to reduce greenhouse gases — and I am still not convinced that we do — taxes the emissions makes a lot more sense than taxing driving.

An effective user fee should give both users and producers incentives to find the most efficient use of the good that is being paid for. Indirect fees such as gasoline taxes paid for roads, pollution, or the military don’t do very well at this. More direct fees will encourage users to conserve and producers to meet user demands. If you can’t figure out a way to charge a fee for something, maybe there is a better way of solving the problem.