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Federalism and the California waiver decision

Posted by Daniel Hall on January 30, 2009

Time will tell whether the Obama administration’s announcement is merely a symbolic reversal meant to signify greater attention to climate change, or a meaningful commitment to facilitating state leadership in environmental policy. If the former, the decision will be of little consequence, as it will take far more to impose meaningful limits on the nation’s contributions to climate change. If the latter, it could signify a long-overdue change in the shape of environmental law.

That is Jonathan Adler, writing at the NYTimes Room for Debate blog earlier this week about the decision by the new administration to make EPA reconsider granting California a waiver to pass tough vehicle emissions (read: fuel efficiency) standards.  Here is a bit more I liked:

While widely criticized, the Bush administration was well within its legal authority to reject California’s greenhouse gas regulation waiver request. However much Californians are concerned about global warming, it is difficult to argue that the state “needs” these rules to prevent climate effects there. Global climate change is a global phenomenon. The relevant airshed is not the greater Los Angeles basin, but the earth’s atmosphere as a whole, and California’s rules — even once adopted in a dozen states more — will have no meaningful effect on the climate-related threats that California fears. The Obama administration is also operating well within its legal authority to reverse course and grant the waiver. Elections have consequences.

Do check out the entire thing, with interesting contributions from several different experts.

Posted in Political Economy, Transportation | Leave a Comment »

Cash for clunkers

Posted by Daniel Hall on January 30, 2009

One of the proposals being floated in the stimulus package involves a so-called “cash for clunkers” program where the federal government would purchase older, more polluting, less fuel efficient vehicles and retire them.  RFF Senior Fellow Winston Harrington has done some previous research on these types of programs, which have been employed by various states for many years.  One of the upshots of his previous research — here is a (gated) paper from The Review of Eonomics and Statistics and here is an ungated discussion paper — is that these state- and local-level programs are unlikely to produce very much in the way of emissions reductions for local pollutants.  I was curious if his results would also apply in the context of a national policy for scrapping gas guzzlers.  Winston was kind enough to offer a long and interesting reply, which with his permission I’ve posted in its entirety here.

Scrappage programs for gas guzzlers wouldn’t be as bad as they were in a local emissions context.  In the latter case, the programs were reasonably cost effective (at least compared to many of the local alternatives available) as long as you had a short-term program, although the emissions reductions weren’t very large in any event and very difficult to quantify (it would depend on how vehicle replacement affected the fleet).  In a continuous program there were some incentive problems that would be hard to overcome:

  1. All cars of the same vintage had the same emission standards, as did all light trucks (which were slightly higher).  So you couldn’t target vehicles based on their new-vehicle standards very efficiently.  You could, of course, base acceptance on the program on current emission rate, as determined by an emission test on the used vehicle, but you would risk creating incentives to tamper with the vehicle to increase its emissions, and therefore its eligibility.
  2. Another way around the targeting problem was to base eligibility on age, and most programs did this.  But again, there is a perverse incentive to hold a dirty vehicle that you otherwise might get rid of until it’s old enough to be eligible.
  3. You had to be careful that the program wasn’t “retiring” vehicles that weren’t being used anyway.  There were safeguards against this in most programs (e.g. vehicle had to be registered to be retired)
  4. Finally, all programs were limited in geographic extent, because they were used to help meet local SIP [DH: state implementation plan] requirements.  But then, there was nothing to prevent owners from going outside the area to replace the vehicle with one as dirty or worse.  For that matter, if vehicles have a higher scrap value inside a region than outside, it might suck dirty vehicles in from the outside.

I don’t think a gas guzzler program would suffer from these incentive problems, with the possible exception of 3 above. You really can target gas guzzlers. The eligible vehicles would still probably be pretty old, not worth very much and therefore not driven very much.  I guess this raises the question of whether owners of old gas guzzlers that aren’t driven very much would replace them with newer gas sippers that they would drive more.  You really might not be that much better off.  Still, it’s probably better than corn ethanol.

Here is a recent discussion paper from Winston, suggesting a (large) VMT tax for the DC area would be highly welfare improving.

Posted in Transportation | Leave a Comment »

Taxing mileage

Posted by Daniel Hall on January 14, 2009

Over at the NYT Green Inc. blog, Kate Galbraith asks whether mileage taxes will replace gas taxes.  The post is interesting and it has some arguments for and against.  But it misses what economists would probably consider the main point: the taxes should be used to reduce the externalities associated with driving.  In other words, rather than forcing society to bear the cost of extra pollution, congestion, oil dependence, etc., we should use taxes to force drivers to pay the dollar-equivalent of those costs.  In response to the taxes, drivers will their behavior so that we get the socially optimal level of driving/fuel use (and the socially optimal level of pollution, congestion, etc.).

The next question then is whether the externalities associated with driving are more correlated with fuel use, or mileage.  And it turns out the mileage-related externalities are much larger.  Consider this paper, which estimates that mileage-related externalities are an order of magnitude larger (see Table 2 on page 36).  Even if you would quibble with the specific numbers, the general direction is clear: mileage taxes would more directly address the major causes of external social costs from automobile use.  And as an added bonus, the types of systems used to assess mileage taxes could be easily used to impose congestion-specific fees — a major benefit, since congestion is the single largest externality associated with automobile travel.

H/T: Tim Haab.

Posted in Transportation | 3 Comments »

Travel tips from the UCS

Posted by Evan Herrnstadt on January 2, 2009

Having just returned from holiday celebrations, perhaps it’s time to begin planning summer vacation. The Union of Concerned Scientists released a report that helps travelers choose the least carbon-intensive mode of transport for their trips, based on a number of factors. There is a nice “rules of thumb” section at the end, though they are mostly fairly intuitive.  However, there are some counter-intuitive results, such as the finding that groups of three or more in an average car emit less carbon than three seats on an average train.  Although I imagine most travel is solo, this type of information is especially important to consider as we move toward potentially large transit expansions.

The most interesting points, IMO, involve the timing of travel:

Congestion has a noticeable effect on your fuel consumption and carbon footprint. When a car or SUV is stuck in traffic, its fuel consumption rate can be double the rate it gets at steady cruising speeds. So think about getting a GPS unit for your car that can alert you to traffic hot spots in real time and suggest ways to avoid them. (Some sell for as little as $150.) And think about changing your vacation schedule to avoid peak travel periods that keep you stuck in traffic…

Planes sitting on the tarmac emit 25 pounds of carbon dioxide per gallon of fuel burned, causing the report’s authors to recommend flying at the least congested times of the week or day.

This whole discussion also made me think of this graphic, from LAist, showing what the same number of commuters looks like in cars, a bus, and on bikes:


H/T: RFF Library Blog.

Posted in Climate Change, Transportation | Leave a Comment »

Pay-as-you-drive insurance

Posted by Daniel Hall on December 19, 2008

Just as an all-you-can-eat restaurant encourages more eating, all-you-can-drive insurance pricing encourages more driving. That means more accidents, congestion, carbon emissions, local pollution, and dependence on oil. This pricing system is inequitable because low-mileage drivers subsidize insurance costs for high-mileage drivers, and low-income people drive fewer miles on average.

In this discussion paper, we propose and evaluate a simple alternative: pay-as-you-drive (PAYD) auto insurance. If all motorists paid for accident insurance per mile rather than in a lump sum, they would have an extra incentive to drive less. We estimate driving would decline by 8 percent nationwide, netting society the equivalent of about $50 billion to $60 billion a year by reducing driving-related harms. This driving reduction would reduce carbon dioxide emissions by 2 percent and oil consumption by about 4 percent. To put it in perspective, it would take a $1-per-gallon increase in the gasoline tax to achieve the same reduction in driving.

In order to facilitate the spread of PAYD, we propose a three-part strategy. First, states should pass legislation permitting mileage-based insurance premiums. Second, the federal government should increase the funding available to PAYD pilot programs by $15 million over five years. Finally, since the monitoring costs may exceed the expected benefit of PAYD to insurance firms but are much smaller than the social benefit, the federal government should offer a $100 tax credit for each new mileage-based policy that an insurance company writes, to be phased out once 5 million vehicles nationwide are covered by PAYD policies.

Here is the paper from Jason Bordoff and Pascal Noel.  The pointer is from this week’s RFF Policy Commentary, where they add:

Our research also shows that low-income families would especially benefit from PAYD, because low-income people tend to drive fewer miles. Every household income group making less than $52,500 (in 2001) would save money on average. Further, the savings for low-income groups are significant as a share of their total income, whereas any losses by high-income groups are not significant.

Yes, more like this, please.

Posted in Transportation | 12 Comments »

Batteries not included

Posted by Rich Sweeney on December 18, 2008

For some reason, we’ve reached a point in this country where no policy is supportable unless it promises to kill at least two birds with one stone. Even if an individual goal, like say mitigating climate change or boosting employment, is worthwhile on its own, we need to tie its solution to some other end before we’ll support it, even if the marriage reduces the policy’s effectiveness along both dimensions. As someone who’s clearly pro “green” (whatever that is) this has been my main problem with the green jobs movement. If jobs become an acceptable metric of climate policy success, we’re all in big trouble.

Which brings me to batteries. One of scarier shotgun marriages being tossed around liberal circles lately has been the green auto bailout. This is the idea that we can save Detroit by giving them money in exchange for their commitment to build a fleet of electric vehicles. The only problem is that they don’t currently know how to do that. Specifically, the battery technology is years away, while Detroit needs the money yesterday. But many of the true believers remain undeterred, suggesting that we can pay Detroit to build the car “shells” now, and store them until the batteries are ready. [I’ll let you insert your own 5 year plan joke here.]

So I was already thinking about this today when Tmoney emailed me a Wall Street Journal article (sub. required) reporting on a consortium of US battery manufactures seeking $1 billion in US loans to manufacture batteries in the United States. Now I’m all for subsidizing R&D, but there were some unsettling justifications for the program subtly weaved into the narrative. It’s not that electric car batteries don’t exist, they just don’t exist at a competitive price. Tesla will gladly sell you an electric roadster for $100K. So you’d think that if we really want a fleet of electric cars, we’d be trying to get the batteries from the cheapest source available. Think again. The battery industry has largely migrated from the US to Asia over the past two decades because of cheaper costs and locational spillovers (where do all of your electronics come from?). But this loan would stipulate that all of the money be spent in the US, creating green jobs (there’s bird number two). There is also the vague warning from unspecified “experts” that “battery technology and manufacturing capacity could become as strategically important as oil is today” (and there’s the third bird, national security). I’m no battery expert, but I fail to see the parallels with oil, a geographically concentrated, finite natural resource.

Posted in Green Collar Jobs, Political Economy, Transportation | 6 Comments »

NIMBY sentence of the day

Posted by Daniel Hall on December 17, 2008

NIMBYs who fight development around transit may have good intentions, but they may as well be spending their time lobbying for new highways and coal plants.

That is Ryan Avent, trumpeting a new book (online and free) from Ed Glaeser and Joseph Gyourko.  Glaeser and Gyourko explain their research briefly here.  Perhaps Ryan is applying for the position of Glaeser’s nice, progressive translator.

Posted in Transportation, Urban | Leave a Comment »

Smart stimulus

Posted by Daniel Hall on December 9, 2008

I don’t know if Ryan Avent and Alex Tabarrok would find a lot to agree on politically if they sat down for a chat but they are singing the same tune in the blogosphere this morning.  I’d like to add my voice to the chorus.

First, Alex says some smart things this morning about infrastructure stimulus:

The first thing people think about when someone says “infrastructure” is roads and bridges.  That’s unfortunate because we already spend over $100 billion a year on transportation infrastructure and the truth is we don’t need that much more.  Peter Orzag, President-Elect Obama’s choice for OMB estimated – when Director of the CBO – that an additional $20 billion in spending, mostly to maintain current transportation infrastructure, would achieve 83% of the net benefits to be had from more transportation infrastructure spending.  Moreover, in many cases, congestion pricing would be both greener and more efficient than greater spending. …

Even more valuable than transportation infrastructure would be greater investment in  electricity infrastructure, a smart grid. … Overall, blackouts cost the U.S. on the order of $100 billion a year. [DH: Alex does not source this, but Mike Giberson suggests a source.]

The smart gird is a not one idea but many technologies such as real-time pricing (smart meters), superconductive smart cable, and plug-n-play architecture that combine to produce a grid that is decentralized, self-healing, robust, and smart for both producers and consumers.

Alex is right on here: we already spend a lot on roads but not much on the electric grid, and the marginal returns to more spending on the latter are likely higher than the former.  Further, we need smarter policies for managing both resources, particularly congestion and real-time pricing to efficiently allocate demand to high-value uses.

Meanwhile, Ryan talks about how to spend money on roads (recommended) and then adds:

let me draw your attention to the Center for American progress’ $350 billion stimulus proposal. It includes $18 billion in spending on roads and bridges, and a total of $19 billion for transit. The former is about 50% of average annual spending on highways, while the latter is about 200% of average annual spending on transit (and the money allocated for New Starts is about 300% the annual average for that line item). I think it’s safe to say that these kinds of numbers are probably getting a good look from (soon-to-be) administration officials.

Wow, $18 billion for roads, huh?  It is almost like someone out there* was listening when Peter Orszag suggested $20 billion was about the right number.

Finally, if you do actually check the details of that CAP stimulus proposal, guess what else you find?  You guessed it, stimulus money for upgrading the electric transmission grid, $10 billion in all.

All that should be music to the ears of economists — now if we could just convince folks to try out this congestion pricing plan….

*For anyone who has been totally ignoring the news recently, this is the ‘Center for American Progress’ as in the ‘heart and soul of Obama’s transition team’.

Posted in Electricity, Government Policy, Infrastructure, Transportation | Leave a Comment »

The Future of Aviation

Posted by Evan Herrnstadt on August 15, 2008

Let’s put it this way: things aren’t looking so good.  Maybe I ought to be looking for grad programs a bit closer to home…

Posted in Transportation | Leave a Comment »

Zipcar + PHEVs = Awesomeness

Posted by Rich Sweeney on August 5, 2008

Last month I read an article in Slate on how gas prices are affecting Zipcar’s profits (actually, losses). One of the perks of Zipcar is that fuel costs are included in the flat hourly rate. This of course encourages people to drive more. Now this pricing scheme made a lot more sense back in 1999 when the company started, as gas prices were under $2 a gallon. Yet as the Slate article reports, Zipcar has been reluctant to raise its prices for fear of alienating it’s young and fragile customer base, especially at a time when many people are probably considering getting rid of their cars. The result is that Zipcar has only raised its prices 3-5% in the past year, while gas prices have increased by 36%. That’s pretty remarkable for a company still trying to turn its first profit.

Fortunately I have a solution. Zipcar should team up with Chevy (or some other electric car manufacturer) to convert their fleet entirely to PHEVs. This would solve Zipcar’s gas cost problem, and would probably reduce the variance in variable costs per rental, allowing the company to better price its product. It would also reinforce (justify?) the company’s “green” image. PHEVs are obviously going to be relatively expensive in the short term, but I think it might make sense for Chevy to provide Zipcar with a fleet of Volts at substantially reduced price. The only meaningful thing I learned from Who Killed The Electric Car? is the importance of visibility and trial in promoting electric vehicles. People are skeptical about the cars’ reliability, power, appearance, etc. Marketing alone won’t be good enough as fears like this can only really be allayed through experience. A partnership with Zipcar would go a long way toward getting people familiar with Chevy’s new product. Given the long term potential of PHEVs it seems worth it to incur some up front costs.

Posted in Transportation | 2 Comments »

Assorted links

Posted by Daniel Hall on July 8, 2008

Sometimes I wish the internet would slow down. There is just too much interesting stuff out there.

1. I don’t think I would want Bryan Caplan as a neighbor, since he seems to think pissing on my front steps is A-OK. Mike Moffatt snaps back.

2. Quiz time! See if you can spot all of the errors in this horribly glib Megan McArdle post on emissions permit allocation. Bonus points for citing previous CT posts that provide rebuttals in the comments.

3. RealClimate puts concerns about the global warming impacts from flat screen TVs in perspective.

4. “Free” roads — available for only $2.22 in gases taxes per gallon! What a steal!

5. Free Exchange is hosting a discussion on global inflation this week. Many interesting comments on the rise in energy and food prices.

6. Speaking of the food crisis, here are some sensible policy recommendations, starting with the no-brainer (and non-starter) idea of making U.S. food aid cash rather than crops.

7. I discussed the G-8 summit last week while guest-blogging at Free Exchange. Leaders at the summit have pledged to cut greenhouse gas emissions by 50% from current levels by 2050. Cue muffled laughterAddendum: Creative ambiguity — whether the 50% cut is from current or 1990 levels was left undefined.

Posted in Agriculture, Cap and Trade, Climate Change, Externalities, International, Transportation | 3 Comments »

Many happy returns!

Posted by Daniel Hall on June 26, 2008

Joshua Gans suggests one possible benefit of McCain’s battery prize — the U.S. can have its cake and eat it too:

One real possiblility is that someone outside of the US invents this (perhaps quicker because they have to race with US based researchers who get a prize kick). In that case, the US can send whomever does it a thank you card. They have put competitive pressure on them and haven’t spent a cent!

Posted in Prizes, Technology Policy, Transportation | Leave a Comment »

Assault the battery

Posted by Daniel Hall on June 24, 2008

There’s a fair amount of skepticism in the econoblogosphere about McCain’s proposed $300 million prize for an auto battery. Tim Haab wonders:

But, why does the government have to provide the incentive? Shouldn’t markets do that? What am I missing?

Well, one potential reason, and something we’ve mentioned here before, is that much economic research finds that the existence of knowledge spillovers means that the socially optimal level of R&D investment is (conservatively) two to four times the level of actual investment. In other words, we as society get more than we pay for when we fund R&D.

Other commenters argue that the prize is unnecessary on more practical grounds. Tom Lee says:

But if someone were to invent a better [battery] they’d already be poised to make a huge amount of money through its commercialization. Offering prizes for innovation isn’t always a terrible idea — for pharmaceuticals with a limited market of potential users it can make sense due to the huge costs associated with developing and testing a new drug. But everyone in the developed world needs better energy storage technology, and they need it right now. … So sweetening the pot is unnecessary. Anyone who has a good idea about how to build a better battery is already working on the problem.

I’ll admit this argument sounds pretty convincing. Given the price of oil there’s a strong existing incentive to develop better batteries. Still, the possibility of knowledge spillovers lurks in the background…

Which brings us to a comment from a Free Exchange blogger, who argues that the structure of a prize doesn’t fit the problem:

The question is, will the prize induce an increase in research activity? Where batteries are concerned, this seems highly unlikely. Prizes are better suited to areas where there is not yet a clear market application for a discovery…

I can think of one arena where better energy storage could be put to very good use, and yet simultaneously lacks a clear market signal: electricity. The grid is still essentially a regulated environment. Energy storage would greatly increase the attractiveness of many renewable generation technologies which are inherently intermittent, but the “market” for such an innovation is a fragmented patchwork of regulatory agencies.

I suspect that energy storage for the grid might be a socially desirable spillover from McCain’s auto battery prize. This means that his proposal is less bad than many seem to think — but also less good than either a direct prize for grid-based energy storage, or a reform of our transmission policies.

Posted in Electricity, Prizes, Technology Policy, Transportation | 4 Comments »

Counterintuitive economics result of the day

Posted by Daniel Hall on June 16, 2008

Payback For Many Hybrids Grows As Gas Costs Rise:

Higher demand has stiffened sales prices for hybrids and other cars and crossover SUVs with decent fuel economy while dealers and manufacturers are discounting less-efficient conventional gasoline models to try to move them off the lots.

That boosts the difference between the retail price of a hybrid and the equivalent gasoline model in a manufacturer’s lineup, and makes it harder for the hybrid to earn back its price premium from fuel savings alone.

The pointer is from the new RFF Library Blog, a great resource for new studies and reports, particularly from government sources.

Posted in Transportation | 1 Comment »

My favorite webcomic goes green

Posted by Daniel Hall on June 16, 2008

Here is the link.

Just as interesting is the alternate text (an xkcd signature):

Electric skateboards, by cost, get the equivalent of about 300 miles per gallon. Lithium batteries just need to get cheaper.

Is this right?  I wonder if he did the calculation.  Any readers want to chime in on this?

Posted in Random, Transportation | Leave a Comment »

Assorted links

Posted by Daniel Hall on June 7, 2008

1. The Lieberman-Warner bill dies in the Senate. The vote represents a “giant step forward” according to one sponsor.

2. Ryan Avent is a real live journalist now.  Here’s a new piece about the lack of political leadership on public transit issues.

3. The carbon footprint of food — buying local may not be the answer after all.

4. Pay by the pound — the future of air travel?

Posted in Agriculture, Cap and Trade, Climate Change, Transportation | Leave a Comment »

Where’s your network?

Posted by Daniel Hall on June 3, 2008

Ryan Avent wants to know if carbon and congestion pricing will boost the case for regional rail:

I’m of the opinion that a carbon pricing scheme would give a boost to rail travel over both driving and short-haul flying. But a potentially more important factor in some regions might be the runway congestion charges under consideration. I suspect that auctioned spots would tend to go toward long-distance flights, for which there are few good substitutes (question to the gallery: what are the high margin flights–where do airlines make their money?). Were that the case, demand for regional rail should significantly increase.

Aviation policy wonk Evan Sparks replies that short hop flights are a valuable underpinning of the airline industry:

An airline hub offers positive network effects up to the point of congestion, which varies by airport. Without the network effects of hubbing, few cities could support much air service on their own — especially long-haul international service. Sure, New York, Chicago, Los Angeles, Boston, and Miami might be OK, but even they would see cuts. Without sufficient short hops to feed the hub, marginal international destinations would face the axe. Therefore, you can’t discourage simply limit short-hops without seeing network effects. … policymakers must be cautious when tampering with the ability of airlines to take advantage of network effects in offering air service widely and efficiently. (emphasis added)

Evan knows more about the practical in-and-outs of the airline industry than I do about any subject whatsoever, so I want to be careful with my reply. But I think he is assuming that the existence of network effects implies that there are positive externalities, and it’s unclear to me that this is the case here. The examples Evan cites in his post involve private benefits that are being captured in market prices, e.g., Delta decides to use a hub-and-spoke service model because that is how it is most profitable. Network effects sometimes do have associated positive externalities. For example, if many different actors own or operate the network then each may have insufficient incentive to invest in it — the free rider problem — and so there is a case for regulatory intervention to encourage the socially optimal level of investment. But in this case it sounds like a single actor (i.e., the airline firm) operates the network.

Congestion, on the other hand, generally involves an unpriced negative externality — Delta’s use of runway space doesn’t only delay Delta’s other planes but also those of competitors — and hence there is a case for regulatory intervention.

The original question concerned which flights were high margin and if you read Evan’s response it does indeed sound like it is long-haul international flights that are most profitable. This seems intuitive to me since there are just not any good substitutes available. So I’d expect to see these flights to continue even once we price carbon and congestion. It’s also reasonable to think that pricing these externalities will decrease demand for short flights. This worries Evan:

Airlines have gradually centered themselves around hubs. … This tends to be more efficient, even if some individual flights defy logic. A couple personal examples: whenever I go to New York, I take surface transportation. But last year I flew through JFK from DC (thirty minutes) to catch a flight to London. On a trip to New Orleans last month, I flew first from Baltimore to Philadelphia — a fifteen minute flight. Such options maximized efficiency and provided me with much cheaper options than had I relied on nonstops.

Two things about this: First, I suspect that neither Evan nor any of you really care that much which mode you take to reach your nearby intermediate destination. If a flight is better — faster, cheaper, more convenient — then you’ll fly Baltimore to Philly, but if a train is better you’ll hop on board. Right now flying is cheap because it involves lots of things that neither you nor the airline pay for, like a warmer world, or other delayed passengers. If you have to pay the price for those things, however, rail might look a lot better. Second, what are these 15 and 30 minute flights Evan is talking about? I can’t imagine that these are the actual marginal increment of travel time that his short flights added to his trip. Let’s talk about boarding, taxiing, etc.

But these brings me to my final point, which is that as much as airline travel can be a hassle, it is very often even more inconvenient — or even downright impossible — to switch modes within a single trip. One of Evan’s commenters makes a very smart observation about this point:

What we really need is more of what Continental does with Amtrak – intermodal codesharing. You’ll notice that Continental doesn’t fly EWR-PHL. You have to take an Amtrak train with a Continental code on it. …

Of course, that requires a convenient plane to train connection and not many hub airports offer that. Sure, US Airways could do it in Philly if we could get a station built near PHL. That’s a long ways away and it will require a lot of money, but it’s ideal.

Which goes right back to a point which you can read Ryan making nearly every day on his blog: once we start pricing carbon and congestion, it will be much less painful if we have transportation options that are not carbon- and congestion-intensive. Rail is one of those options. This means that rail would be a smart infrastructure investment, and it also means we should get the institutional structure right to allow travelers to transfer between modes.

Posted in Carbon Tax, Transportation | 1 Comment »

Assorted links

Posted by Daniel Hall on May 9, 2008

1.  The Lieberman-Warner bill has a rough road ahead.

2. CBO Director Peter Orszag testifies on infrastructure spending.  Ryan Avent summarizes.

3. Why isn’t transit a bigger part of the national discussion on energy/climate change/congestion?

4. The 230 MPG car.

Posted in Cap and Trade, Climate Change, Transportation | Leave a Comment »

Short run vs. long run

Posted by Evan Herrnstadt on May 5, 2008

A brief anecdote:

Yesterday, I was spending time with a friend who lives in rural Maryland, and he mentioned that he’d just sent his resume out in DC looking for a job so he could move into the city. His reason? High gas prices. Driving around Montgomery County every day has simply become too pricey.

We discussed this as he filled up with $3.81/gal gas. It was fascinating seeing short run price inelasticity juxtaposed so immediately on long run price elasticity.

Posted in Gasoline, Transportation, Urban | 1 Comment »

Path dependency

Posted by Daniel Hall on May 4, 2008

Geoffrey Styles makes a great observation about the recent run-up in gas prices:

A big part of our problem is that most Americans are still driving cars that were purchased when gasoline was under $1.50/gal., to commute between work and home locations that were chosen when fuel was even cheaper.

He also makes a nice comparison:

As of this week, nominal US retail gasoline prices have gone up by 25% in the last year and by 130% in the last five years. How does that compare to other countries? Well, motorists in the UK are experiencing prices that are now 25% higher than the average of last year, and 42% higher than five years ago, but gas hasn’t been cheap in Europe for more than a generation. Buffered by the strong Euro, gasoline in Germany has increased by a smaller percentage, 19% vs. the 2007 average and 29% over five years.

Hear that? Gas hasn’t been cheap in Europe for more than a generation. Europe’s development path — decisions about land use and urban planning and transit decisions — was determined in an environment with much higher gas prices. Not only are current price increases in Europe smaller in relative terms, but consumers there live within a system that makes it easier absorb the absolute increases as well.*

America could do its future self a big favor by realizing that expensive gas is very likely here to stay. Pricing carbon — a near inevitability in the near future — will make gas prices higher. Consumers can switch to more fuel-efficient cars but the big changes — in how we plan our communities or develop our transportation infrastructure — are going to require some policy changes. And these policy changes should include the recognition that gas will — and should — be much more expensive in the future.

You can read great arguments for these types of policies — more density in development, more investment in mass transit, etc. — almost every day over at Ryan Avent’s superb blog. Or to grab a great suggestion from Matt Yglesias,

if we were to raise the gas tax, then rebate half the revenues to citizens on some kind of flat per person basis, and make the other half available to fund transit projects, there’d be no net burden on the population, you’d create an incentive to use alternative forms of transportation where they exist, and you’d have a pool of revenue available to create alternative forms of transportation.

*Of course I realize there is an endogeneity problem here: higher gas taxes in Europe were politically tractable in the first place because Europe was already more dense and less car-based. But it doesn’t alter the fact that a counterfactual Europe with much lower gas taxes for the last 25 years would look very different.

Posted in Land Use, Transportation | 2 Comments »