Is the gas tax a user fee?

Here is my answer for the National Journal Transportation Blog.

"User pays" was the foundational concept and an interesting one to reflect on. The question notes that current gas taxes inadequately cover even simple maintenance requirements on existing roads, yet the phrase resonates strongly with drivers. They sincerely believe that they have paid for all that is required with their gas taxes at the pump.

If the road user really paid what driving costs to maintain, what driving costs to widen and build new, what driving costs in police forces, emergency personnel and equipment, lifetime effects of accident road deaths and injuries, watershed destruction, groundwater and run-off pollution, excess asthma rates, higher incidence of heart disease and negative effects for those living near highways, congestion, and CO2 emissions (etc, my list is truncated), we wouldn't be in the unfunded situation we are in today.

Also, if "user pays" included all those "externalities" (so many things in quotes), it would seem perfectly appropriate for the gas tax to include pedestrian and sidewalk improvements, mass transit, electric charging stations, and environmental remediation efforts because all of those things are attempts to mitigate the real and costly negative impacts caused by the car-driving users.

At the end of the day, if we take political realities into account, the one thing I ask for is for drivers to truly understand what their fuel tax is actually paying for, and what is quietly and covertly being subsidized by their other taxes. Because we haven't included these costs in the gas tax, we are using local, state, and government money brought in from other sources to cover the difference. When we say we don't have enough money for education, or welfare, or parks, or elderly programs, we need to recognize that this shortfall is in part because we are paying for all sorts unfunded car-related expenses with non-gas-tax dollars.

To read how other experts weigh in on this, go to the National Journal Transportation Blog.

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If I were CEO of a Big-Three Car Company

Fast Company, April 2009, published 25 Ways to Jump-Start the Auto Industry. Here is what I sent them, found alongside the other ways.

"Let's assume the bailout solves the immediate cash crisis. Now what? First, I'm going to ask Congress to raise the price of gasoline. I need to be assured that there will be enough demand out there to merit an investment in more fuel-efficient cars. If our gas prices are in line with those of other countries we like to sell cars to (perhaps starting in 2011 when my new cars will be coming off the line), I'll be confident that consumers will embrace these new cars.

Next, I'm going to start experimenting with new product and service models. We recently passed the tipping point of 50% of the world's population living in urban areas. 'One adult, one car' doesn't work in congested and parking-scarce urban environments. Let's expand beyond manufacturing and selling cars to selling transportation as a service.

I'd take 10% of my current R&D budget and put it into a venture fund. I'd finance startups, experimenting in areas where I lack core competency: truly alternative vehicles; services that relate to car maintenance and in-car experience; services that conceive of the car as one node in the larger transportation network; and ideas that leverage my cars and my consumers as a means of collecting data or marketing other in-car services. This is a smart use of my money because I would be investing alongside others instead of financing all the R&D in-house. In the process, I'd gain firsthand insight into a whole realm of business models that might be my future.

Third, I'd definitely stop fiddling with closed, proprietary wireless technology inside my cars and immediately introduce a generic wireless platform into every new car. A standard feature of this platform is the ability for owners to access critical car information remotely. I'd send owners text and email updates telling them about their fuel and battery levels, when it's time to change the oil, and when the car received an unusual bump while parked. This would tie car owners to my company, provide dealers an ongoing revenue stream for maintenance and repair, and give me insight into exactly how consumers use (and abuse) my vehicles. I'd also develop a device that could be easily installed into cars already on the road so I'd have more owners participating.

This wireless platform lets me farm for ideas. As an open system, it would attract the minds, money, and efforts of thousands of innovators to think up desirable applications that a person with a screen in a car might find useful. This platform would be like my PC: Car owners could download any apps they find useful. I'd let the loser applications or those with no revenue model muddle along, and I'd buy up the winners.

By mitigating our investment risk and placing lots of low-cost and low-risk bets, we'd bring the Big Three into the future."

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Leveling the Playing Field for the American Auto Industry

The failure of the American auto industry has lots of root causes, but the difference in cost structures and buying incentives between US and foreign auto makers surely has a lot to do with the industry’s lack of competitiveness.

Lack of universal health care here means that every car manufactured in this country is saddled with $2100 of health costs that aren’t included in European or Japanese cars.

Comparatively low gas prices mean that American consumers have not had the same fuel efficiency incentives buyers in every other country have had. Sure, Toyota was clever about designing and building the Prius. And fully 35% of Prius sales to date have been in Japan alone, a dramatically smaller market than the US. So just how prescient was Toyota? They were designing and building cars that suited their own domestic market.

Human rights and labor requirements are held to much higher (and more costly) standards by US car manufacturers than by their foreign counterparts, so I’ve been told.

As Congress contemplates a bailout for the auto industry, we should consider correcting the underlying causes. Addressing these would mean the industry has a much higher likelihood for competitive success in the long-term. If we really want a thriving car industry in the country, we need to reduce the burden of health care costs for this industry (and all industries), require the same human rights and labor standards for all cars being sold in this country, and raise the cost of gas in this country so that it more closely mirrors those experienced by European and Japanese consumers, and is more aligned toward our goals of energy independence and CO2 reduction.

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10 Things to Like about $4/gallon Gas

Wow. I am so impressed with Amanda Ripley, who wrote this story for Time magazine. She offers sympathy about the suffering and expands on this list:

1. Globalized jobs return home
2. Sprawl stalls
3. Four day workweeks
4. Less pollution
5. More frugality
6. Fewer traffic deaths
"If gas remains at $4 per gal. for a year or more, expect as many as 1,000 fewer fatalities a month, according to professor Michael Morrisey at the University of Alabama at Birmingham and associate professor David Grabowski at Harvard Medical School, who calculated that estimate for TIME. That means annual deaths could be cut by almost one-third — a public-health triumph."

7. Cheaper Insurance
8. Less Traffic
9. More Cops on the Beat
10.Less obesity
"A permanent $1 hike in prices may cut obesity 10%, saving thousands of lives and billions of dollars a year, estimates Charles Courtemanche, an assistant professor of economics at the University of North Carolina at Greensboro."

To read it yourself, see the full article.

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Should Brave Men Die So We Can Drive?

This is one of the headlines used on public service announcement posters during World War II to encourage conservation of fossil fuel. This 2 minute compilation shows how times and values have changed. While we look back at old tobacco ads with horror "Doctors agree that smoking BRAND NAME is the healthiest choice," these ads generate some nostalgia for doing the right thing.

Other headlines include:
"oil is ammunition"
"all fuel is scarce...plan for winter now"
"have you really tried to save gas by getting in a car club?"
"Is your trip necessary?"

This group of ads shows how energy conservation is patriotic. In this election year, and in the next administration, we would do well to encourage Americans to think about their most deeply held values -- a safe, secure, and sustainable future for us and our children. It is high time to push out a new round of PSAs to complement policy at the state and national levels.

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What Does It Cost to Drive?

The IRS formally increased the number it uses for cost per mile car travel, from 50.5 cents per mile, to 58.5 cents per mile. The question for drivers is -- are you sharing that cost or sucking it up all by yourself?

I recently did an analysis of AAA 2007 cost data for driving. I wanted to understand how much the rising cost of gas is actually changing the real costs of driving. [These aren't quite real costs since they don't include any of the externalities associated with driving like global warming, protection of oil resources, asthma, car accidents, among others.] AAA numbers are averaged over five years, assuming you own the car for the first five years of its life.

Today, with gas at $4 a gallon, looking at the two extremes of car types, it costs

$18.60/day for a small sedan ($6,795/year)
$31.00/day for an SUV or pickup truck ($11,309/year)

This covers travel of 41 miles per day (15,000 miles per year), average for Americans.

When -- not if -- gas goes to $5 a gallon, it'll be

$21.66/day for a small sedan ($7,906/year)
$33.32/day for an SUV or pickup truck ($12,161/year)

What was particularly interesting to me is how the rising price of gas has transformed the variable costs of driving. When gas was $1/gallon, it was only 9% of the total cost of owning and operating a small sedan. Today, at $4/gallon, gas ranges between 28 and 30% of the cost of operating a car. When it is at $5/gallon, that'll be 32-35%. With such high variable costs, people are really having to think twice and three times about when and how they drive. [see blog entry on changed driving behaviors]

This is so much money!!!

Back in 2006, 17% of household income went toward cars. I ask myself: if the median household income in the US is $48,000/year, what percent of income is going to car transportation today? A recent study found that in households with cars, they own on average 2.28 cars per household. Now comes some very murky and suspect assumptions, just to get it into the ballpark. Those households are unlikely to have 2.28 new cars, so what if we just round down and say 2 cars that are 0-5 years old are going to stand in for 2.28 cars of unknown age. And that households will have one big car and one little car, which is kind of like saying they have 2 average-sized cars.

OK, if we accept these bad assumptions, the answer to the question:

What percent of household income is going today to car transportation when gas is $4/gallon?

[drumroll]

38%

wow.

Another way to look at this is to use a a report written in September 2005 by Mark Singer of the Consumer Federation of America. His estimates of gas prices for 2005 were about $1.80/gallon. For prices found between 1995-2003 (his baseline) he found little elasticity in demand. Here is his table:



We know that $4/gallon seems to have been a tipping point for demand. And $4 is more than double $1.80. But what if we imagine that people today are spending about double on gas, taking into account some reductions in demand? That would put low income groups spending 20% of their incomes just on the gas.

Washington, I think we have a problem.

Americans need options to traveling around by car all by themselves. Some of those options can happen fast (GoLoco! and for those lucky enough to live in cities feet, bike, transit, train); some will take longer (changing where we choose to live, work, shop, creating dense mixed use communities, adding more transit of all kinds, reducing fossil fuel dependence on all motorized modes).

Next Mr. President: are you listening?

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$4/gallon gas may be a magic number

After years of not caring, Americans are changing their ways, and quickly.

1. Changed driving habits. From the New York Times:

“In March, Americans drove 11 billion fewer miles on public roads than in the same month the previous year, a 4.3 percent decrease — the sharpest one-month drop since the Federal Highway Administration began keeping records in 1942.”

2. Shopping closer to home. Consumers are beginning to question the "savings" gained from driving long distance to malls.

3.When buying cars, shirking the worst offenders. GM sales of SUV and trucks were down 25% in April, and down 37% in May over the previous year.

3. Buying houses where driving can be reduced. David Stiff, an economist who analyses housing prices nationally found that "even as overall sales volume drops, relatively stronger demand for housing will limit price declines in neighborhoods with shorter work commutes, better schools, and easier access to parks, recreation, and retail centers...Prices for homes in outlying neighborhoods will continue their more rapid decline and will be slower to rebound when housing markets finally start to recover." This effect can be seen in New York, metro Washington, Detroit.

4. And finally, choose jobs that are as close to home as possible, accessible by public transit, or can be walked, biked, or telecommuted to. These trends might be harder to spot in such a short period of time. But quoting from a Wall Street Journal article: "A poll earlier this year by California State University, Sacramento, found that high gasoline prices were the No. 1 concern in the area and that 12% of respondents had changed jobs or moved in the past year to shorten their commute to work."

Employers, retailers, developers, planners, governments take notice. Lifestyles that reduce dependence on costly gas – producing even more costly CO2 emissions – are in demand. Those who have been able to make changes quickly, have done so, and more and more people will make these changes as the opportunities present themselves.

If you think you can't afford to make these changes, do the math. It'll cost more to not be energy efficient when gas prices reach $5, $8 and $10/gallon. We all - individuals, companies, and governments -- have a huge budget to work with: the impending increases in fossil fuel prices that they will have to suck up, if we don't reduce demand for it now.

Thanks to Keith Collins who made this case beautifully clear in his presentation at the MassImpact symposium.

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