[sustran] Re: fwd: The Real Price Of Gas

[Todd Litman]

At 07:38 AM 5/12/99 -0700, Wendell Cox wrote:
>Where does one find the full report?

The report's full title is: "The Real Price of Gasoline; An Analysis of the
Hidden External Costs Consumers Pay to Fuel Their Automobiles," Center for
Technology Assessment, 1998. It can be downloaded at their website:
www.icta.org.

I'd like to make a few comments about this report, particularly since it
cites some of our research on the full costs of transportation. Like many
such studies, it makes a mistake by suggesting that the full costs of
automobile use should be internalized through a fuel tax. This is done
because fuel taxes are the traditional way to charge for vehicle use, and
is a better pricing instrument than a fixed charge (such as vehicle
registration fees). But there are a number of problems with fuel taxes.

Fuel taxes can not effectively represent costs that vary depending on when
and where driving occurs, vehicle or driver characteristics. They are not
an effective way to represent marginal congestion, road use, parking,
accident or even some polltion emission costs. They are therefore neither
particularly efficient (i.e., prices do not accurately reflect marginal
costs) or equitable (some motorists would pay far more than they costs they
impose, while others would pay far less). In addition, they are easily
avoided by cross-border or illegal fuel purchases.

An optimal pricing structure requires a number of pricing reforms,
including direct charges for parking and congestion, and mileage-based fees
for insurance, registration, road use (weight-distance charges and
mileage-based registration fees), and emissions. Our research indicates
that fuel prices would only increase a small amount, fixed costs
(particularly insurance and registration fees) would decline, while
per-mile costs would increase significantly. The combination of
internalizing external costs and converting fixed costs into variable costs
would increase the percieved financial cost of driving from the current 10¢
per mile to 25-35¢ per mile, resulting in a significant (25-35%, and more
if matched with other TDM strategies) reduction in vehicle use, and even
greater reductions in pollution and accidents (since high polluting and
high-risk driving would have an even greater incentive to reduce mileage). 

To put this another way, a quarter to a third of current motor vehicle use
results from market distortions that encourage consumers to use motor
vehicles more than they would under a more neutral market. Reforming these
distortions would give consumers an incentive to reduce their mileage and
be better off overall. Most of our current transportation problems
(excessive congestion, roadway expenses, pollution, accidents, consumer
costs), would be greatly reduced with such reforms.

For discussions of these issues see the following reports:

"Socially Optimal Transport Prices and Markets", VTPI
(http://www.islandnet.com/~litman)

"Mileage-Based Fees; A Practical Strategy for More Optimal Pricing," VTPI
(http://www.islandnet.com/~litman), forthecoming in the Transportation
Research Record.

"Transport Market Distortions - A Survey" VTPI
(http://www.islandnet.com/~litman)

Todd Litman, Charles Komanoff and Douglas Howell, "Road Relief; Tax and
Pricing Shifts for a Fairer, Cleaner, and Less Congested Transportation
System in Washington State," Energy Outreach Center (Olympia;
http://www.eoc.org), 1998.


I'd appreciate hearing any feedback anybody has on these ideas.


Sincerely,

Todd Litman, Director
Victoria Transport Policy Institute
"Efficiency - Equity - Clarity"
1250 Rudlin Street
Victoria, BC, V8V 3R7, Canada
Phone & Fax: 250-360-1560
E-mail:  litman at islandnet.com
Website: http://www.islandnet.com/~litman



>-----Original Message-----
>From: SUSTRAN Resource Centre <sustran at po.jaring.my>
>To: sustran-discuss at jca.ax.apc.org <sustran-discuss at jca.ax.apc.org>
>Date: Tuesday, May 11, 1999 7:52 PM
>Subject: [sustran] fwd: The Real Price Of Gas
>
>
>>[forwarded from the kabelvag list on sustainable consumption]
>>
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>>From: "Nat" <drnat at tm.net.my>
>>To: "kabelvag" <kabelvag at egroups.com>
>>Date: Tue, 11 May 1999 14:16:57 +0800
>>Subject: [kabelvag] The Real Price Of Gas
>>
>>The Real Price Of Gas
>>Executive Summary
>>----------
>>
>>This report by the International Center for Technology Assessment (CTA)
>>identifies and quantifies the many external costs of using motor vehicles
>>and the internal combustion engine that are not reflected in the retail
>>price Americans pay for gasoline. These are costs that consumers pay
>>indirectly by way of increased taxes, insurance costs, and retail prices in
>>other sectors.
>>
>>The report divides the external costs of gasoline usage into five primary
>>areas: (1) Tax Subsidization of the Oil Industry; (2) Government Program
>>Subsidies; (3) Protection Costs Involved in Oil Shipment and Motor Vehicle
>>Services; (4) Environmental, Health, and Social Costs of Gasoline Usage;
>>and (5) Other Important  Externalities of Motor Vehicle Use. Together,
>>these external costs total $558.7 billion to $1.69 trillion per year,
>>which, when added to the retail price of gasoline, result in a per gallon
>>price of $5.60 to $15.14.
>>
>>
>>TAX SUBSIDIES
>>
>>The federal government provides the oil industry with numerous tax breaks
>>designed to ensure that domestic companies can compete with international
>>producers and that gasoline remains cheap for American consumers. Federal
>>tax breaks that directly benefit oil companies include: the Percentage
>>Depletion Allowance (a subsidy of $784 million to $1 billion per year), the
>>Nonconventional Fuel Production Credit
>>($769 to $900 million), immediate expensing of exploration and development
>>costs ($200 to $255 million), the Enhanced Oil Recovery Credit ($26.3 to
>>$100 million), foreign tax credits ($1.11 to $3.4 billion), foreign income
>>deferrals ($183 to $318 million), and accelerated depreciation allowances
>>($1.0 to $4.5 billion).
>>
>>Tax subsidies do not end at the federal level. The fact that most state
>>income taxes are based on oil firms' deflated federal tax bill results in
>>undertaxation of $125 to $323 million per year. Many states also impose
>>fuel taxes that are lower than regular sales taxes, amounting to a subsidy
>>of $4.8 billion per year to gasoline retailers and users. New rules under
>>the Taxpayer Relief Act of 1997 are likely to provide the petroleum
>>industry with additional tax subsidies of $2.07 billion per year. In total,
>>annual tax breaks that support gasoline production and use amount to $9.1
>>to $17.8 billion.
>>
>>
>>PROGRAM SUBSIDIES
>>
>>Government support of US petroleum producers does not end with tax breaks.
>>Program subsidies that support the extraction, production, and use of
>>petroleum and petroleum fuel products total $38 to $114.6 billion each
>>year. The largest portion of this total is federal, state, and local
>>governments' $36 to $112 billion worth of spending on the transportation
>>infrastructure, such as the construction, maintenance, and repair of roads
>>and bridges. Other program subsidies include funding of research and
>>development ($200 to $220 million), export financing subsidies ($308.5 to
>>$311.9 million), support from the Army Corps of Engineers ($253.2 to $270
>>million), the Department of Interior's Oil Resources Management Programs
>>($97 to $227 million), and government expenditures on regulatory oversight,
>>pollution cleanup, and liability costs ($1.1 to $1.6 billion).
>>
>>
>>
>>PROTECTION SUBSIDIES
>>
>>Beyond program subsidies, governments, and thus taxpayers, subsidize a
>>large portion of the protection services required by petroleum producers
>>and users. Foremost among these is the cost of military protection for
>>oil-rich regions of the world. US Defense Department spending allocated to
>>safeguard the world's petroleum resources total some $55 to $96.3 billion
>>per year. The Strategic Petroleum Reserve, a federal government entity
>>designed to supplement regular oil supplies in the event of disruptions due
>>to military conflict or natural disaster, costs taxpayers an additional
>>$5.7 billion per year. The Coast Guard and the
>>Department of Transportation's Maritime Administration provide other
>>protection services totaling $566.3 million per year. Of course, local and
>>state governments also provide protection services for oil industry
>>companies and gasoline users. These externalized police, fire, and
>>emergency response expenditures add up to $27.2 to $38.2 billion annually.
>>
>>
>>ENVIRONMENTAL, HEALTH AND SOCIAL COSTS
>>
>>Environmental, health, and social costs represent the largest portion of
>>the externalized price Americans pay for their gasoline reliance. These
>>expenses total some $231.7 to $942.9 billion every year. The internal
>>combustion engine contributes heavily to localized air pollution. While the
>>amount of damage that automobile fumes cause is certainly very high, the
>>total dollar value is rather difficult to quantify. Approximately
>>$39 billion per year is the lowest minimum estimate made by researchers in
>>the field of transportation cost analysis, although the actual total is
>>surely much higher and may exceed $600 billion.
>>
>>Considering that researchers have conclusively linked auto pollution to
>>increased health problems and mortality, the CTA report's estimate of $29.3
>>to $542.4 billion for the annual uncompensated health costs
>>associated with auto emissions may not adequately reflect the value of lost
>>or diminished human life. Other costs associated with localized air
>>pollution attributable to gasoline-powered automobiles include decreased
>>agricultural yields ($2.1 to $4.2 billion), reduced visibility ($6.1 to
>>$44.5 billion), and damage to buildings and materials ($1.2 to $9.6
>>billion). Global warming ($3 to $27.5 billion), water pollution ($8.4 to
>>$36.8 billion), noise pollution ($6 to $12 billion), and improper disposal
>>of batteries, tires, engine fluids, and junked cars ($4.4 billion) also add
>>to the environmental consequences wrought by automobiles.
>>
>>Some of the costs associated with the real price of gasoline go beyond the
>>effects of acquiring and burning fuel to reflect social conditions
>>partially or wholly created by the automobile's preeminence in the culture
>>of the United States. Chief among these conditions is the growth of urban
>>sprawl. While monetizing the impact of sprawl may prove a challenging
>>endeavor, several researchers have done significant work on the subject.
>>The costs of sprawl include: additional environmental degradation (up to
>>$58.4 billion), aesthetic degradation of cultural sites (up to $11.7
>>billion), social deterioration (up to $58.4 billion), additional municipal
>>costs (up to $53.8 billion), additional transportation costs (up to $145
>>billion), and the barrier effect ($11.7 to $23.4 billion). Because
>>assessment of the costs of sprawl is somewhat subjective and because study
>>of the  topic remains in a nascent stage, the CTA report follows the lead
>>of other researchers in field of transportation cost analysis and reduces
>>the total of the potential cost of sprawl by 25% to 50% to arrive at a
>>total of $163.7 to $245.5 billion per year.
>>
>>
>>OTHER EXTERNAL COSTS
>>
>>Finally, external costs not included in the first four categories amount to
>>$191.4 to $474.1 billion per year. These include: travel delays due to road
>>congestion ($46.5 to $174.6 billion), uncompensated damages
>>caused by car accidents ($18.3 to $77.2 billion), subsidized parking
>>($108.7 to $199.3 billion), and insurance losses due to automobile-related
>>climate change ($12.9 billion). The additional cost of $5.0 to $10.1
>>billion associated with US dependence on imported oil could rise
>>substantially, totaling $7.0 to $36.8 billion, in the event of a sudden
>>price increase for crude oil.
>>
>>
>>RECOMMENDATIONS
>>
>>The ultimate result of the externalization of such a large portion of the
>>real price of gasoline is that consumers have no idea how much fueling
>>their cars actually costs them. The majority of people paying just over $1
>>for a gallon of gasoline at the pump has no idea that through increased
>>taxes, excessive insurance premiums, and inflated prices in other retail
>>sectors that that same gallon of fuel is actually costing them between
>>$5.60 and $15.14. When the price of gasoline is so drastically
>>underestimated in the minds of drivers, it becomes difficult if not
>>impossible to convince them to change their driving habits, accept
>>alternative fuel vehicles, support mass transit, or consider progressive
>>residential and urban development strategies.
>>
>>The first step toward getting the public to recognize the damage caused by
>>the United States' gasoline dependance is getting the public to recognize
>>how much they are paying for this damage. The best way, in turn, to
>>accomplish this goal is to eliminate government tax subsidies, program
>>subsidies, and protection subsidies for petroleum companies and users, and
>>to internalize the external environmental, health, and social
>>costs associated with gasoline use. This would mean that consumers would
>>see the entire cost of burning gasoline reflected in the price they pay at
>>the pump. Drivers faced with the cost of their gasoline usage up
>>front may have a more difficult time ignoring the harmful effects that
>>their addiction to automobiles and the internal combustion engine have on
>>national security, the environment, their health, and their quality
>>of life.
>>
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