Virginia Transportation: Externalities, Policies and Outcomes

Bess Ruff

11/1/12

Proposal Draft #2

Virginia Transportation: Externalities, Policies and Outcomes

As transportation has become a major component of social and economic activity, urban transport and the policies put in place around it have become a point of contention in the social consciousness. Policies are implemented in order to address problems such as congestion, accidents, and pollution, which represent market failures, specifically externalities, in urban transport. An externality is a case of market failure when “a person does not bear all the costs or receive all the benefits of his or her action” (Hanley, Shogren, & White, 2001). According to Alex Anas and Robin Lindsey (2011) in their paper on reducing urban transportation externalities, “individual motorists increase these costs (of congestion, accidents, and infrastructure damage) for other motorists” and “do not bear the full social marginal costs of driving.” In addition to accidents and air pollution, individuals who drive very little or not at all, such as children and people who utilize other forms of transportation, bear the costs of CO2 emissions and noise pollution. Congestion, accidents, CO2 emissions, and other forms of pollution represent market failures because of the disproportionate distribution of costs within the population.

The existence of these externalities demonstrates the need for urban transport policy that reduces their impact on motorists and non-motorists alike. The focus of this paper will be to assess various urban transport policies and their impact on CO2 emissions. The reasoning for addressing congestion is that this focus will address other externalities that are correlated with increased cars on the roadsuch as CO2 emissions, noise pollution, and accidents. For example, as traffic congestion increases, fuel consumption and CO2 emissions rise accordingly (Barth & Boriboonsomsin, 2010). Therefore, policies aimed at reducing congestion will concurrently address CO2 emissions.

In 2010, the state of Virginia had 50.91 million metric tons of CO2 emissions from transportation alone. Neighboring states North Carolina and Maryland had transportation CO2 emissions of 49.09 and 29.94 million metric tons, respectively (EPA 2012). In addition to reviewing the literature on various transport policies’ impacts on CO2 emissions, this paper will make an argument as to which policies would best fit the state of Virginia given its infrastructure, geography, and other demographics. I will begin by using previous literature to outline the impacts of and difficulties associated with policies such as fuel efficiency standards, fuel taxes, and road pricing. Then, I will discuss the data necessary to determine which policy or policies would be optimal given the characteristics of Virginia drivers.

Fuel efficiency refers to the amount of energy harnessed per gallon of fuel combustion, i.e. miles per gallon. As such, applying fuel efficiency standards would require new automobiles to have higher mpg ratings.Higher fuel efficiency standards will result in the production of cars that can travel farther on less gas. Lower gas consumption per mile reduces the amount of CO2 emissionsper mile. In addition to reducing the costs of the CO2 externality, fuel efficiency standards address the issue of accidents and fatalities.

In order to meet fuel efficiency standards, manufacturers tend to develop cars that are smaller and lighter, “which are less safe in single-vehicle collisions but can reduce injury risks to others in multi-vehicle collisions” (Anderson et al., 2011). The smaller and lighter cars that result from fuel efficiency standards reduce the externalities of accidents because “external costs exclude the risk of injuring oneself in an accident but include injuries to others” (Anderson et al., 2011). The reduced size and weight of cars manufactured under higher fuel efficiency standards not only protects other drivers but also pedestrians and cyclists. A car with a smaller mass reacts much quicker to brakes, a feature that could make the difference between striking a non-motorist and stopping just in time.

While fuel efficiency standards affect some externalities, other problems exist to implementing them as the only urban transport policy. Improvements to efficiency results in cars that are able to travel farther on less fuel. From an economic perspective, this means the marginal cost of driving decreases, making it cheaper for motorists to drive. This would not be a problem if motorists drove the same amount in a fuel-efficient car as they did in a less efficient vehicle. However, improvements to fuel efficiency often encourage more driving, resulting in a “rebound effect” (Anas & Lindsey, 2011). Furthermore, fuel efficiency standards fail to address the externality of congestion because it does not reduce the number of cars on the road and in some instances they might even exacerbate the issue.

Taxes impact the externalities that fuel standards fail to correct. Fuel efficiency standards only affect automobiles manufactured after they are put in place. On the other hand, fuel taxes raise the price for all individuals involved in the extraction, production, and consumption of oil, thusly “discourag(ing) driving by owners of new and used vehicles alike, and reduc(ing) emissions and oil use beyond the automobile sector” (Anderson et al., 2011). With fuel efficiency standards alone, motorists pay a one-time fixed price for the added efficiency when they purchase their car and benefit from not having to fill up on gas as much. However, fuel taxes inflict a hit on the motorist wallet every time they fill up their tank, making them constantly aware of the increased cost of travel. Taxes also provide an incentive for people to adjust their transportation patterns. In his study “Sustainable Urban Transportation Policies-New Zealand and Overseas”, Glen Koorey explains, “a lot of people’s existing travel patterns are due to inertia, rather than specific dislike of alternative options” (Koorey, 2003). In his paper “Automobile Fuel; Economy and CO2 Emissions in Industrialized Countries”, Lee Schipper utilizes findings from the International Energy Agency thatrevealedsubstantial price elasticity for fuel economy between -.5 and -.7, meaning “a 10% rise in fuel prices leads to a 5-7% decline in fleet fuel intensity over time” (Schipper 2008). Paul Krugman cited the same findings in a piece for The New York Times, explaining that “4 (percentage) points come from shifting to cars with better mileage, 3 (percentage) points from driving less” (Schipper2008). Given this data, it appears that while increasing gas prices through taxes reduces fuel consumption; however, switching to more fuel-efficient cars that can drive equivalent distances on less fuel negates part of this decrease.

Unlike fuel efficiency standards, taxes encourage motorists to drive less which ultimately leads to fewer cars on the roads. Fewer cars on the road means lower CO2 emissions, less congestion, and fewer opportunities for accidents with other motorists as well as non-motorists. In terms of implementation, taxes face the issue of public scrutiny because the population is generally loath to “transfer a large amount of revenue to the government”(Anderson et al., 2011). The word “tax” has a negative connotation so it would be much more difficult to get tax policy passed.

Road pricing works best when it is “implemented in cities with good public transport” (Anas & Lindsey, 2011). Tolls are an example of road pricing where drivers pay for their usage of the roads. Road pricing requires a vast amount of information in order to properly price usage, and even then, the variables are volatile, changing daily and in some cases hourly. Establishing a road pricing system would incur a large amount of upfront costs, which would be paid for by people’s taxes. Taxes are already a sensitive issue. Add the fact that once people pay taxes for the system they’re going to be taxed by the system, and I do not think the Virginia population would be too keen to support the policy. Furthermore, studies show limited effects on externalities compared to the costs incurred of road pricing (Anas & Lindsey, 2011). Also, the impact of road pricing has only been studied in large cities and studies have yet to examine the effects on entire states. Given that Virginia has multiple metropolitan areas, road pricing could be tailored to these specific regions instead of applied to the state as a whole. Currently, Virginia has six toll facilities in the DC, Richmond, and Hampton Roads regions.

In order to make an argument for the optimal road policy/policies for Virginia, I would use data on the distribution of vehicles on the road. Excluding freight transport, which for the purposes of my research I would assume is inelastic, I would use data provided by the Virginia Department of Transportation on households. Data on the types of cars that are on the roads in Virginia will be necessary to determine the impact fuel-efficiency standards would have on CO2 emissions. Given that Virginia is mostly rural, I would assume that much of the distribution trends toward trucks and SUVs, with a lower distribution of hybrids and cars that use alternative fuels. Vehicle distribution would also be used to reference the pollution control equipment of vehicles as listed on the EPA website. Data from the 2009 National Household Survey will also be required. The NHTS serves as an inventory of the nation’s daily travel. The data includes:

Purpose of the trip (work, shopping, etc.);
Means of transportation used (car, bus, subway, walk, etc.);
How long the trip took, i.e., travel time;
Time of day when the trip took place;
Day of week when the trip took place; and
If a private vehicle trip:
Number of people in the vehicle, i.e., vehicle occupancy;
Driver characteristics (age, sex, worker status, education level, etc.); and
Vehicle attributes (make, model, model year, amount of miles driven in a year)(NHTS 2009).

This data will help determine the distances drivers are traveling and more importantly the nature of their travel. Recreational driving is elastic so an increase in the marginal cost of driving would cause a decline in recreational travel requiring automobile use. If the data reveals a significant amount of recreational driving, then a policy such as taxes would help to curb this superfluous driving.

Data from the current toll facilities will be necessary to determine the cost effectiveness of tolls in terms of road pricing. This data would include average revenues from tolls as well as the costs of administration.