Better MPG Would Come Via Gas Tax, Not Fuel Economy Standards, MIT Study Says

Better MPG Would Come Via Gas Tax, Not Fuel Economy Standards, MIT Study Says


Gas taxes will reduce fuel consumption

The best way to get more MPG out of cars is to tax fuel, according to researchers at the Massachusetts Institute of Technology. They published a study in the journal Energy Economics (Volume 36, March 2013, Pages 322–333) that showed that fuel economy standards (such as the ones now in force in the U.S. ) cost at least six times as much (and up to 14 times as much) to reduce gasoline use as would a tax on the fuel. They added that a fuel economy standard is an expensive mechanism to reduce greenhouse gas emissions (GHG) and raises the cost of a cap-and-trade policy, such as the one just starting in California.

The MIT researchers (from the Joint Program on the Science and Policy of Global Change) used their own model to test different policy impacts on fuel use and came to some clear-cut conclusions – “this analysis underscores the potentially large costs of a fuel economy standard relative to alternative policies aiming at reducing petroleum use and GHG emissions. It further emphasizes the need to consider sensitivity to vehicle technology and alternative fuel availability and costs as well as economy-wide responses when forecasting the energy, environmental, and economic outcomes of policy combinations.” The goal was to generate a 20% reduction in gasoline use using different policies.

The study also found that with a cap-and-trade policy, the key to its effectiveness is the availability of cost-competitive, low-carbon biofuels that would help deliver GHG reductions.

While many in the environmental community have lauded the fuel economy standards passed by EPA to reduce GHG and increase fuel efficiency through 2025, the MIT researchers found that the broader costs to the economy were not taken into consideration. Of course, the political fallout from a rise in the gas tax remains to be seen. Conventional wisdom says that a gas tax hike, however small, is the third rail of politics – attempt it only at the risk of your career as a politician. The logic behind that is that this is a tax that hits almost every voter and voters will be reminded of it every time they fill up.

With increased fuel economy standards, consumers get positive reinforcement as their new vehicles deliver better MPG than their old ones. But that requires a substantial financial outlay to purchase the latest technology and the vehicle in which it is encapsulated, which keeps many in the economy out of the range of fuel economy that fits their budget.

The researchers found that with their model it took longer to reduce GHG emission with vehicle efficiency standards. One logical finding they had: with more efficient vehicles, it costs less to drive, so Americans tend to drive more. This is born out in the ever-increasing VMT (vehicle miles traveled) numbers recording by the Department of Transportation.


Prius hybrid – now one of the Top 10 best-selling vehicles

My view is that is a classic case of political reality out of sync with changing reality. While taxes in general and gasoline taxes in particular may be a hot topic of discussion, this is a country that has dealt with rapid and extreme price fluctuations during the past decade. Check out this graph from the government Energy Information Administration. I believe the experience of the past decade had created a different type of consumers; the ones who now value fuel efficiency more than other factors when purchasing a car. The ones that have changed the landscape of automobile size and shape during the past decade. The ones that have made the Toyota Prius hybrid one of the top 10 best-selling cars in the country. These are consumers buying hybrids, clean diesel, plug-in cars and high-mileage gasoline cars in ever-increasing numbers. These are consumers choosing to “right-size” their fleet to maximize efficiency and fuel economy. Consumers that see 10 to 50 cent daily fluctuations in gasoline prices are beyond knee-jerk reactions to a nickel- or dime-a-year taxes on fuel. That’s not to say it couldn’t become a potent political issue, but properly presented, with a clean explanation of where and how the money raised will be used (for infrastructure maintenance and upgrades and support for those struggling to afford new, higher-mileage vehicles, for example) should make it more palatable.

Of course, skeptics might look at the same data and say that fluctuating prices have dulled consumers to the real impact of what the proposed tax increases might have. The same attitude that would lead drivers to ignore small increases might lead them to not change behavior, whether it’s buying more fuel efficient vehicles or driving less.

What do you think?

People-Oriented Development

By John Addison (1/22/09)

Enlightened communities are in the transition from being car-centric to being people-centric. Homes, public transportation, and businesses that serve neighborhoods are designed in close proximity. A people-oriented development often has a rapid transit station at its center, or at least a bus stop that is frequently served. Nearest to the station are higher density apartments and condos. Streets are alive with people and convenient shops. A short walk from the station is less density and single family homes. Walking is the easiest way to get around.

While the sprawl of many cities forces long commutes, there are three United States cities where at least 30 percent of employment is within 3 miles of the central business district: New York, San Francisco, and Portland. In these cities, people find it easy to take light rail or buses between work and home. A surprising number walk. For those that drive, they save by traveling fewer miles. People-oriented development increases real estate values.

In California, there is a strong interest in integrating transportation planning, regional development, and climate solution planning. Last week, 240 leaders of government, private industry, and non-profit leaders converged at CALSTART’s Target 2030 conference. Vehicles, fuels, and transportation planning were themes for many speakers and discussions.

Shelley Poticha, CEO of Reconnecting America, sited the statistic that if someone can walk to transit, they are 5 times more likely to use public transit and only drive half the miles of those who cannot walk to transit. Reconnecting America works with real estate developers and transit agencies to develop more housing within walking distance from transit, services, and shopping.

Mary Nichols, Chairwoman, California Air Resources Board, took center stage as a key executive in implementing California’s Climate Solutions law – one of the world’s most comprehensive approaches to reducing global warming. Some of the implementations are complex, such as the low carbon fuel standard. Other solutions are more straightforward. She observed that California could reduce its petroleum consumption by 5 percent if everyone walked an extra half-mile daily instead of covering the distance in a car.

Some cities with intelligent urban planning make it easy for people to live near work, friends, and fun. Portland has limited the boundaries of the city and invested in rapid transit. The results are impressive. The citizens of Portland save $2.6 billion per year, estimates economist Joe Cortright, Senior Fellow with The Brookings Institute.

Mr. Cortright identifies that a billion less going from Portland to foreign oil, is a billion more that is being spent on local goods and services, and being invested in local homes and businesses. For Portland, sustainable development and efficient transportation are good investments.

Learning from the success of cities such as Portland, California passed a law (SB 375) requiring regions to develop integrated urban and transportation plans that reduce long commutes and reduce regional greenhouse gas emissions.

Michael McKeever, Executive Director, Sacramento Area Council of Governments, identified a major opportunity for Boomers who want smaller homes with more community services. Fifty percent of new California home sales could be for this target market.

Baby Boomers, specifically 78 million Americans born between 1946 and 1964, are starting to shift to work that requires less travel and provides more fulfillment. Some will retire in the next few years; most will reinvent how they live and earn money. Millions of these Boomers will accelerate the shift to new urbanization as they move from the suburbs to cities. Freed from the demands of needing individual cars for long daily commutes to work, they will discover that it is easier to live “car-light” or car free in a city.

New urban development could create millions of jobs in construction, public transportation, and infrastructure. Making it a reality is not easy. California is facing a $40 billion budget deficit, creating tough choices such as new gasoline or sales tax, or major cuts in education, health care, and emergency services. The 480 cities which need to plan for the future lack funds for comprehensive planning. More urban density requires infrastructure upgrades from sewer pipes to reliable electric grids.

City living is not for everyone. Many prefer to raise families in the suburbs with their dream homes inside gated communities and their jobs located miles away. In the suburbs, the environmentally conscious share rides in hybrid vehicles, work at home at least a day per week, and are clever about letting their fingers do the walking. Others enjoy rural living near communities oriented around farming, ranching, mountains, and water.

Sixty-five percent of Americans live in the top 100 metropolitan areas. In cities, millions find work and play convenient. Some estimate that two-thirds of the urban areas that will exist in 2030 do not exist today. This gives us an incredible opportunity to develop in a sustainable way with near-zero emission transportation.

As I interviewed countless people, gathering their stories and ideas for Save Gas, Save the Planet, urbanites delivered a consistent message – people living in cities burn less gas and cause less global warming than those living in suburbs and rural areas. In cities, trips to grocery stores, friends, and work are often done by walking. Light rail and bus service is predictable and fast in cities. In cities, everything is closer together.

Copyright © 2009 John Addison. This article includes excerpts from John’s new book – Save Gas, Save the Planet. Last year, John and his wife moved from suburbia to the city, living 2 blocks from public transportation, now John’s primary mode of travel.