Drivers wanted

Oregon tests out an alternative to the gas tax—pay-by-the-mile taxes 5

There was a bunch of comment in the blogosphere yesterday about hiking gas taxes, with the rough consensus that it's OK environmental policy, tough on the poor, and politically risky (though perhaps not quite as unthinkable as it once was).

So it's interesting to note that Oregon -- often considered a policy innovator among U.S. states -- is in the middle of an experiment that could eventually lead to a repeal of the state gas tax.

Oregon's transportation department is recruiting volunteers to test a system that would charge people based on how far they drive, not on how much gas they use. The trial will test two rate structures: some participants will pay a flat rate of 1.2 cents per mile, while others will pay a variable rate depending on whether they're driving during rush hour; a control group would continue to pay normal gas taxes. (See here for details, or if you're interested in volunteering.)

The state is interested in this sort of approach for a bunch of reasons, but if I read things correctly, they're mostly worried that gas-tax revenues are poised to fall, perhaps significantly, over the upcoming years.

Here's the issue: If gas prices remain relatively high, or keep rising over time, economists project a gradual per-capita decline in gas consumption, as people replace their cars with more efficient ones. And if cars keep getting more and more fuel efficient, then total gas revenues could actually fall, even as the demands on the road network increase. Ultimately, states may be forced to choose between continual gas-tax hikes and persistent funding shortfalls for roads -- both of which are bound to make lots of people unhappy. Under a pay-by-the-mile system, however, transportation funding would be keyed to how much people actually drive, so the state would keep up its funding no matter how efficient the cars get.

Obviously, shifting from gas taxes to mileage-based taxes has some significant downsides. First, the gas tax does create a slight incentive for fuel-efficient cars; getting rid of it could put Hummers on a more even footing with hybrids. And second, it's not entirely clear that a falloff in highway funding would be a bad thing. Obviously, most drivers want the roads maintained in good working order but, in my mind at least, a lot of highway spending seems pretty wasteful.

That said, Northwest Environment Watch (my day job) has been pretty interested in the pay-by-the-mile idea, despite the potential downsides. Fully developed, the technology could facilitate two innovations far more powerful at promoting fuel conservation than the existing gas tax. First, the same technology used to track mileage for taxing purposes could also be used for a more comprehensive congestion pricing system -- which could simultaneously clear up congestion, reduce driving, and promote bus ridership by keeping streets and highways flowing. And second, it could pave the way for Pay-As-You-Drive car insurance, which would have the same effect on driving overall as roughly doubling the cost of gas.

If you want to get really fancy, you could even fine tune the pay-by-the-mile taxes to increase fees for cars with the worst pollution or CO2 emissions, the most road space (SUVs require longer stopping distances, and tend to use up a little more space on streets and highways), or the worst safety records.

Of course, pay-by-the-mile taxes suffer from one huge drawback: They're much more complicated than gas taxes, not just because they require special technology but also because a properly "fine tuned" system -- one that accounts for all the different externalities of driving, ranging from pollution to congestion -- could be pretty incomprehensible to the average driver. And mileage-based taxes would be vulnerable to all sorts of political shenanigans, as car manufacturers would jockey for special exemptions or rates for certain kinds of vehicles. All of which means that, even though I'm very excited by the tests, I'm not yet ready to support the idea -- and certainly not until we see how drivers really react to the system.

Clark Williams-Derry is research director for the Seattle-based Sightline Institute, a nonprofit sustainability think tank working to promote smart solutions for the Pacific Northwest. He was formerly the webmaster for Grist.

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  1. jdhlax Posted 1:45 pm
    01 Mar 2006

    Oregon Is Not Always Environmentally ProgressiveThat state just passed a landowners' rights initiative that's very anti-environmental.  There are many pro-environmnet types in Oregon, but probably at least as many anti-environment types.  I wouldn't base any decisions on what that state does.

    Jeff Hoffman

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  2. accel2 Posted 11:21 pm
    01 Mar 2006

    User fees are the way to goAll goods and services in our economy should be priced based on their MARGINAL SOCIAL COST, that is, the total cost they are imposing on society at any given moment.  But this cost must include ALL costs, not just the obvious ones.  In our current economy there are massive market distortions whereby our society (and the planet) subsidize unsustainable goods and services, thereby making them unrealistically cheap, for example by not including costs such as pollution, resource depletion, infrastructure wear caused by so much cheap freight shipping, socio-political costs of maintaining a petroleum economy, etc.
    Road pricing is the ideal way to tax driving.  However, as Clark pointed out, simply taxing by distance does NOT reflect marginal social cost.  If you read the literature on ideal (called "first-best" by economists) road pricing, you will see that this cost would include a whole range of factors:



    Distance driven

    Weight of the car - i.e. how much wear it puts on the road (for example, 18-wheelers can do 10,000 times more damage to a road than a normal car - boy, rail shipping starts to seem a lot more economical)

    Pollution generated (air, noise, etc)

    Energy used

    Space used (after all, roads can be valuable real estate and single-occupancy cars sure amount to a big government subsidy via land that could go to better uses than big open roads)


    ...and on and on.  See, if the price of driving more accurately reflected the TRUE COST of driving, it wouldn't seem like such an easy option.
    -Mike
    Here's another crucial book I recommend everyone read, to see how the market can actually be the tool to turn things around, rather than the problem, if government plays the correct role:

    http://www.amazon.com/gp/product/1886093075/qid=1141308603/sr=1-1/ref=sr_1_1/002-4304082-1812844?s=b
    ooks&v=glance&n=283155

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  3. kduble Posted 11:39 pm
    05 Apr 2006

    Cents-per-mile vs. motor fuels taxThe argument cited against a motor fuels tax is declining revenue over time due to declining consumption. Yet, wouldn't cents-per-mile similarly discourage driving?  Indeed, higher taxes on tobacco products likewise result in declining revenues over time.  Isn't that the desired end result?
    After tweaking cents-per-mile for the factors cited -- emissions, road space, safety -- what one ends up with is a fee which works exactly like a motor fuels tax, so why not keep the motor fuels tax?



    Ken Duble

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  4. TubbyC Posted 6:56 pm
    06 Apr 2006

    practicalitiesYou mentioned pay-as-you-drive before but never talked about how it would actually be implemented.  How do you see the practical side of things?  How would those collecting the payment know how far you've driven?  As I've mentioned before, there has been talk of similar things here in the UK, using GPS systems to track mileage.  But serious privacy implications leave it a controversial issue.

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  5. accel2 Posted 11:46 pm
    06 Apr 2006

    Motor fuels tax IS differentThe fundamental difference between a motor fuels tax and pay-as-you-drive is that a motor fuels tax doesn't charge you at the point of use.  You pay the gas tax when you fill your tank, not as you're driving.  So it doesn't offer as much incentive to drive less, because you don't "feel the pain" as directly.  Think of it like paying with a credit card -- in the end, it's the same money as if you paid with cash, but it doesn't feel like it.  It feels a bit detached.
    The other major differences are, like I said, that a gas tax doesn't account for how big or efficient your car is, whether you are driving in congestion (in which case you're creating a whole set of new costs to society thru time delay and increased pollution), and those other "externalities".
    However, a gas tax is much simpler to implement, and, as Ken Duble alluded to, there are serious practical issues.  One major one is that, the technology currently exists for pay-as-you-drive by equipping all new cars with a GPS (Global Positioning System) unit.  However, this raises serious privacy hackles among most people in this country.

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