How much should gasoline be taxed when electric vehicles conquer the market? An analysis of the mismatch between efficient and existing gasoline taxes under emerging electric mobility

The taxation of gasoline is characterized by large variability across countries and recent research has analyzed existing gasoline tax levels from an economic efficiency point of view focusing on conventional internal combustion engine vehicles. Most studies find that existing fuel tax rates do not coincide with economically efficient levels. As long as policymakers do not take action to reduce the resulting efficiency gap, there will be an ongoing welfare loss to the economy. However, the composition of passenger car fleets will probably be subject to fundamental changes in the (near) future due to the emergence of electric mobility. This raises the question of whether the mismatch between current and efficient fuel taxation will persist, shrink, or even exacerbate under emerging electric mobility. This paper aims at answering this question by determining the structure and level of optimal gasoline taxes in the presence of electric vehicles (EVs). First, the optimal (nationwide) gasoline tax is analytically derived employing a general equilibrium approach. It is shown that differences in traffic related marginal external costs among fuel powered cars and EVs affect the corrective Pigouvian component of the optimal gasoline tax while a differential tax treatment influences the fiscal rational of the tax. Second, the model is applied to Germany using differentiated data on e.g. external costs and behavioral responses. Under a wide range of scenarios, the present analyses indicate a strong relationship between optimal gasoline taxes and electric mobility, calling for a downward adjustment of efficient gasoline taxes. The effect is mainly driven by financial incentives for purchasing and using EVs. Since fuel is likely to be undertaxed in many countries, the emergence of electric mobility will therefore close the gap between gasoline taxes in place and economically efficient taxes. On the other side, it will increase the efficiency gap in those countries where gasoline is overtaxed. This also has important implications for policy concerned with environmental objectives. Pushing electric mobility seriously and at the same time taxing gasoline efficiently could actually prevent sufficient CO₂ emission savings. However, at least in the case of Germany, even a downward adjusted optimal gasoline tax under electric mobility is likely to be higher than the current (non-optimal) tax.     

Empirical distributions of vehicle use and fuel efficiency across space: Implications of asymmetry for measuring policy incidence

Concerns about local air pollution and climate change have prompted all levels of government to consider a variety of policies to reduce vehicle dependence and fuel consumption, as the transportation sector is one of the largest sources of local and global emissions. Because many of the policy options under consideration are market-based (e.g., gasoline tax, carbon tax), it is important to consider how the impacts would vary across space and affect different subpopulations. Evaluating incidence is relevant for both the expected costs and benefits of a particular policy, however detailed data on vehicle-miles traveled (VMT) and fuel consumption allowing for the distributions of these variables to be estimated at a fine geographic scale is rarely available. This paper uses a unique dataset with more than 20 million vehicles in California to derive estimates of VMT and fuel consumption in order to examine the spatial distribution of impacts for an increase in the price of gasoline as well as the consequences of using different statistics for policy evaluation. Results show that VMT and fuel consumption distributions are not symmetrically distributed and vary significantly within transportation planning regions. To understand the potential implications of this asymmetry, we do a back of the envelope comparison using the mean and mode of the VMT or fuel consumption distribution for policy analysis. We find that assuming a symmetric distribution can lead to a divergence of 20–40% from the estimates based on the empirical distribution. Our results, therefore, introduce caution in interpreting the incidence of policies targeting the transportation sector based on averages.     

How will we fund our roads? A case of decreasing revenue from electric vehicles

Annual expenditures for transportation infrastructure have recently surpassed the funding available through tax and fee collection. One large source of revenue generation for transportation infrastructure is use fees that are charged through taxes on gasoline both on a federal and state level. A massive adoption of electric vehicles (EVs) in the United States would result in significantly lower gasoline consumption and thus reduce the revenue collected to maintain the U.S. transportation infrastructure. We investigate how different vehicles will change the annual fee collected on a marginal basis. In addition, we assess the effects of adoption of alternative vehicles on revenues using several projections of alternative vehicles adoption, both on a state-by-state basis and at the national level. We find that baseline midsize and compact vehicles such as the Toyota Camry and Honda Civic generate approximately $2500–$4000 in tax revenue over their lifetime. Under the current funding structure, battery-electric vehicles (BEVs) such as the Nissan Leaf generate substantially less at $400–$1300, while plug-in hybrid electric vehicles (PHEVs) such as the Chevrolet Volt generate $1500–$2700. Even in states with high lifetime fees due to fuel taxes, such as California, revenue generation can be upwards of 50% lower than in states with high registration fees such as Colorado. Total annual revenue generation decreases by about $200 million by 2025 as a result of EV adoption in our base case, but in projections with larger adoption of alternative vehicles could lead to revenue generation reductions as large as $900 million by 2025. Potential schemes that charge user fees on alternative fuel vehicles to overcome the decrease in revenue include a flat annual registration fee at 0.6% of the vehicle’s manufacturer suggested retail price (MSRP) or 2

per mile fee.     

Abatement cost functions for incentive-based policies in the automobile market

This paper compares the outcomes of policies that target vehicle holdings with those that target vehicle usage using data from the US Consumer Expenditure Survey. Results show that a higher price of gasoline shifts vehicle holdings towards more fuel efficient vehicles and reduces the annual demand for miles, whereas imposing a fee on vehicles or a feebate program only shifts vehicle holdings towards more fuel efficient vehicles and has little to no impact on the demand for miles. While it is relatively expensive to reduce CO₂ emission through incentive-based policies, achieving any abatement level is more expensive through imposing fees on vehicles than gasoline taxes. In addition, the maximum amount of abatement attainable by a feebate program is relatively small and the same amount could be achieved by imposing a $0.73 gasoline tax per gallon.     

Analyzing voter support for California’s local option sales taxes for transportation

Local and regional governments in the U.S. rely increasingly on voter-approved local option sales taxes (LOSTs) to fund transportation capital investments, maintenance, and operations. LOSTs typically present voters with lists of local transportation projects and programs to be funded by a ¼ to 1 percent sales tax increase. Most research on LOSTs are case studies, which make generalizations about LOSTs difficult. We conducted a comprehensive, multi-jurisdictional analysis of LOST measures in California, the U.S. state with the greatest number of LOST measures. We examined 76 LOST measures put to voters between 1976 and 2016 to assess factors associated with voter support. LOSTs in California are enacted by counties, which we examined in addition to smaller intra-county geographies using both regression models and case studies. We tested several explanatory variables for association with voter support including macroeconomic and political context, planned measure expenditures, voter characteristics, and spatial distribution of proposed projects. We found that funding dedicated to public transit and returned to local jurisdictions predicts support at the county level, and that LOSTs that create new taxes—as opposed to extending or renewing existing taxes—are less popular with voters, all else equal. Our analyses of sub-county geographies revealed that political party affiliation is the strongest predictor of local voter support for LOSTs and that voters living adjacent to funded projects tended to be more supportive of LOSTs.

     

The tax treatment of company cars, commuting and optimal congestion taxes

In Europe, the preferential tax treatment of company cars implies that many employees receive a company car as part of their compensation package. In this paper, we consider a model in which wages and the decision whether or not to provide a company car are the result of direct negotiation between employer and employee. Using this framework, we theoretically and numerically study first- and second-best optimal tax policies on labour and transport markets, focusing on the role of the tax treatment of company cars. We obtain the following results. First, higher labour taxes and a more favourable tax treatment of company cars raise the fraction employees that receives a company car; congestion and congestion tolls reduce it. Second, in countries that provide large implicit subsidies to company cars, eliminating the preferential tax treatment of company cars may be an imperfect but quite effective substitute for currently unavailable congestion tolls. The numerical illustration, calibrated using Belgian data, suggests that it yields about half the welfare gain attainable through optimal congestion taxes. Third, the favourable tax treatment of company cars justifies large public transport subsidies; the numerical results are consistent with zero public transport fares. Finally, we find that earlier models that ignored the preferential tax treatment of company cars may have substantially underestimated optimal congestion tolls in Europe. The numerical illustration suggests that about one third of the optimal congestion toll we obtain can be attributed to the current tax treatment of company cars.     

Long-run relationship among transport demand,income, and gasoline price for the US

Energy used in transport is a particularly important focus for environment-development studies because it is increasing in both developed and developing countries and is largely carbon-intensive. This paper examines whether a systemic, mutually causal, cointegrated relationship exists among mobility demand, gasoline price, income, and vehicle ownership using US data from 1946 to 2006. We find that those variables co-evolve in a transport system; and thus, they cannot be easily disentangled in the short-run. However, estimating a long-run relationship for motor fuel use per capita was difficult because of the efficacy of the CAFE standards to influence fleet fuel economy. The analysis shows that the fuel standards program was effective in improving the fuel economy of the US vehicle fleet and in temporarily lessening the impact on fuel use of increased mobility demand. Among the policy implications are a role for efficiency standards, a limited impact for fuel tax, and the necessity of using a number of levers simultaneously to influence transport systems.     

Feebates, footprints and highway safety

This paper presents an analysis of a market-based policy aimed at encouraging manufacturers to develop more fuel efficient vehicles without affecting the car buyer’s choice of vehicle size. A vehicle’s size is measured by its “footprint”, the product of track width and wheelbase. Traditional market-based policies to promote higher fuel economy, such as higher gasoline taxes or gas guzzler taxes, also induce motorists to purchase smaller vehicles. Whether or not such policies affect overall road safety remains controversial, however. Feebates, a continuous schedule of new vehicle taxes and rebates as a function of vehicle fuel consumption, can also be made a function of vehicle size, thus removing the incentive to buy a smaller vehicle. A feebate system based on a vehicle’s footprint creates the same incentive to adopt technology to improve fuel economy as simple feebate systems while removing any incentive for manufacturers or consumers to downsize vehicles.     

A welfare cost assessment of various policy measures to reduce pollutant emissions from passenger road vehicles

Policy options to reduce passenger transport emissions in Europe are simulated with the EUCARS model. The EUCARS welfare analysis includes changes in consumer surplus, congestion and tax revenues. Simulations also address consumer myopia, i.e., the underestimation of fuel costs by car buyers. The best policy mix to reduce CO₂ consists of fuel taxes that are combined with differentiated purchase taxes to correct for the assumed myopia. This combination could reduce CO₂ emissions of over 25% without reducing contemporaneous well-being. For the reduction of conventional emissions, an equivalent best mix includes an emissions-based kilometre tax combined with a purchase feebate. This mix allows a 60% reduction in toxic emissions without any noticeable welfare reduction. The overall superiority of these two mixes compared to alternative choices is higher when the evaluation includes a broad group of externalities, a premium on public funds, and positive feedbacks across emissions categories. Local traffic management measures are important zero-cost complements for an overall emissions strategy.     

The role of VMT reduction in meeting climate change policy goals

This article evaluates the case for vehicle miles traveled (VMT) reduction as a core policy goal for reducing greenhouse gases (GHGs), concluding the economic impacts and social consequences would be too severe given the modest potential environmental benefits. Attempts to reduce VMT typically rely on very blunt policy instruments, such as increasing urban densities, and run the risk of reducing mobility, reducing access to jobs, and narrowing the range of housing choice. VMT reduction, in fact, is an inherently blunt policy instrument because it relies almost exclusively on changing human behavior and settlement patterns to increase transit use and reduce automobile travel rather than directly target GHGs. It also uses long-term strategies with highly uncertain effects on GHGs based on current research. Not surprisingly, VMT reduction strategies often rank among the most costly and least efficient options. In contrast, less intrusive policy approaches such as improved fuel efficiency and traffic signal optimization are more likely to directly reduce GHGs than behavioral approaches such as increasing urban densities to promote higher public transit usage. As a general principle, policymakers should begin addressing policy concerns using the least intrusive and costly approaches first. Climate change policy should focus on directly targeting greenhouse gas emissions (e.g., through a carbon tax) rather than using the blunt instrument of VMT reduction to preserve the economic and social benefits of mobility in modern, service-based economies. Targeted responses are also more cost effective, implying that the social welfare costs of climate change policy will be smaller than using broad-brushed approaches that directly attempt to influence living patterns and travel behavior.     

Incentivizing alternative fuel vehicles: the influence of transport policies,attitudes and perceptions

This paper aims to evaluate the influence of policies, attitudes and perceptions when incentivizing alternative fuel vehicles. The impact of possible policies such as gasoline taxes increases, purchase price subsidies, tax exemptions, and increases in fuel recharging station availability for alternative fuelled vehicles is evaluated using hybrid choice models. The models also allow assessing the sensitivity of latent variables (i.e., attitudes and perceptions) in the car purchase behaviour. The models are estimated using data from a stated choice survey collected in five Colombian cities. The latent variables are obtained from the rating of statements related to the transport system, environmental concern, vehicle preferences, and technology. The modelling approach includes regression between latent variables. Results show that environmental concern and the support for green transport policies have a positive influence on the intention to purchase alternative fuel vehicles. Meanwhile, people who reveal to be car-dependent prefer to buy standard fuelled vehicles. The analysis among cities shows similar trends in individual behaviour, although there are differences in attribute sensitivities. The policy scenario analysis revealed high sensitivity to capital cost and the need for extensive investments in refuelling stations for alternative fuel vehicles to become attractive. Nevertheless, all policies should not only be directed at infrastructure and vehicles but also be focused on user awareness and acceptance of the alternative fuel vehicles. The analysis suggests that in an environmentally conscious market, people prefer alternative fuels. However, if the transport policies support private transport, the market shares of alternative fuel vehicles will decrease.     

Optimal congestion taxes in a time allocation model

The purpose of this paper is to study optimal congestion taxes in a time-allocation framework. This makes it possible to distinguish taxes on inputs in the production of car trips and taxes on transport as an activity. Moreover, the model allows us to consider the implications of treating transport as a demand, derived from other activities. We extend several well known tax rules from the public finance literature and carefully interpret the implications for the optimal tax treatment of passenger transport services. The main findings of the paper are the following. First, if governments are limited to taxing market inputs into transport trip production, the time-allocation framework: (i) provides an argument for taxing congestion below marginal external cost, (ii) implies a favourable tax treatment for time-saving devices such as GPS, and (iii) provides a previously unnoticed argument for public transport subsidies. Second, if the government has access to perfect road pricing that directly taxes transport as an activity, all previous results disappear. Third, in the absence of perfect road pricing, the activity-specific congestion attracted by employment centres, by shopping centres or by large sports and cultural events should be corrected via higher taxes on market inputs in these activities (e.g., entry tickets, parking fees, etc.).     

Comparison of “Advanced” biofuel cost estimates: Trends during rollout of low carbon fuel policies

Costs of producing “advanced” biofuels (those with the lowest GHG and land use impacts) have not decreased in recent years as envisioned by analysts. Despite aggressive policy incentives, no transition to a lower cost mature industry has occurred. Information about the cost dynamics and slow industry emergence is of major interest to policymakers and others seeking to understand the likely success – and cost – of incentive programs. This paper reviews literature on production cost at the plantgate – without considering taxes or delivery costs – for selected biofuel technology pathways using a levelized cost of fuel approach, applying common financing assumptions for capital amortization and converting all values to year 2016 dollars, and examines results in the current low carbon fuel policy context. The average production cost estimate for cellulosic ethanol was $4 per gallon-gasoline equivalent (gge). For drop-in fuels, the pyrolysis-biocrude-hydro treatment pathway had the lowest average production cost estimate at about $3.25/gge. Biomass to liquid (BTL) production cost estimates averaged $3.80/gge, while hydrotreated esters and fatty acids (HEFA) – the sole fuel studied gaining commercial traction – averaged about $3.70/gge. Estimate ranges did not allow any definitive rank ordering of the fuels by production cost. Production cost estimates are higher in later than in earlier publications for non-HEFA fuels due primarily to higher costs for feedstock and capital expenditure components. This may reflect learning from early but largely unsuccessful commercialization efforts that yielded more realistic (and higher cost) information and detail on feedstock provision and conversion processes.     

Do motor-vehicle users in the US pay their way?

Governments in the US spend over a hundred billion dollars per year to build and maintain roads and provide a variety of services for motor-vehicle users. To pay for these infrastructure and services governments collect revenue from a variety of taxes and fees. The basic objective of this paper is to compare these government expenditures with the corresponding user tax and fee payments in the US. At the outset I argue that the such comparisons tell us something about the equity but not necessarily the economic efficiency of highway financing. I then present four different ways one might tally up government expenditures and user payments, depending on the extent to which one wishes to count “indirect” expenditures (e.g., on prosecuting car thieves) and non-targeted general-tax payments (e.g., severance taxes on oil). I make a comprehensive analysis of all possible expenditures and payments, and then compare them according to three of the four ways of counting expenditures and payments. The analysis indicates that in the US current tax and fee payments to the government by motor-vehicle users fall short of government expenditures related to motor-vehicle use by approximately 20–70 cents per gallon of all motor fuel. (Note that in this accounting we include only government expenditures; we do not include any “external” costs of motor-vehicle use.) The extent to which one counts indirect government expenditures related to motor-vehicle use is a key factor in the comparison.     

Spatial graduation of fuel taxes; consequences for cross-border and domestic fuelling

Substantial differences exist among fuel taxes between various countries. These differences represent a form of fiscal competition that has undesirable side effects because it leads to cross-border fuelling and hence to extra kilometres driven. One possible way of dealing with this problem of low fuel taxes in neighbouring countries is to introduce a spatial differentiation of taxes: low near the border and higher farther away. This paper contains an empirical analysis of the consequences of such a spatial graduation of fuel taxes for The Netherlands. Impacts on fuelling behaviour, vehicle kilometres driven, tax receipts, and sales by owners of gas stations are analysed. The appropriate slope of the graduation curve in order to prevent fuel-fetching trips is also discussed. Our conclusion is that in a small country such as The Netherlands, a spatial graduation of fuel taxes will lead to considerable problems, even when the graduation curve is not steep that fuel-fetching trips are prevented. The reason is that – given their activity patterns – car drivers will change the location of their fuelling activity leading to substantial problems for owners of gas stations in areas with high taxes.     

Accelerating the transformation to a low carbon passenger transport system: The role of car purchase taxes,feebates, road taxes and scrappage incentives in the UK

The transition to a low carbon transport world requires a host of demand and supply policies to be developed and deployed. Pricing and taxation of vehicle ownership plays a major role, as it affects purchasing behavior, overall ownership and use of vehicles. There is a lack in robust assessments of the life cycle energy and environmental effects of a number of key car pricing and taxation instruments, including graded purchase taxes, vehicle excise duties and vehicle scrappage incentives. This paper aims to fill this gap by exploring which type of vehicle taxation accelerates fuel, technology and purchasing behavioral transitions the fastest with (i) most tailpipe and life cycle greenhouse gas emissions savings, (ii) potential revenue neutrality for the Treasury and (iii) no adverse effects on car ownership and use.The UK Transport Carbon Model was developed further and used to assess long term scenarios of low carbon fiscal policies and their effects on transport demand, vehicle stock evolution, life cycle greenhouse gas emissions in the UK. The modeling results suggest that policy choice, design and timing can play crucial roles in meeting multiple policy goals. Both CO₂ grading and tightening of CO₂ limits over time are crucial in achieving the transition to low carbon mobility. Of the policy scenarios investigated here the more ambitious and complex car purchase tax and feebate policies are most effective in accelerating low carbon technology uptake, reducing life cycle greenhouse gas emissions and, if designed carefully, can avoid overburdening consumers with ever more taxation whilst ensuring revenue neutrality. Highly graduated road taxes (or VED) can also be successful in reducing emissions; but while they can provide handy revenue streams to governments that could be recycled in accompanying low carbon measures they are likely to face opposition by the driving population and car lobby groups. Scrappage schemes are found to save little carbon and may even increase emissions on a life cycle basis.The main policy implication of this work is that in order to reduce both direct and indirect greenhouse gas emissions from transport governments should focus on designing incentive schemes with strong up-front price signals that reward ‘low carbon’ and penalize ‘high carbon’. Policy instruments should also be subject to early scrutiny of the longer term impacts on government revenue and pay attention to the need for flanking policies to boost these revenues and maintain the marginal cost of driving.     

Consumers’ willingness to pay for alternative fuel vehicles: A comparative discrete choice analysis between the US and Japan

This paper conducts a comparative discrete choice analysis to estimate consumers’ willingness to pay (WTP) for electric vehicles (EVs) and plug-in hybrid electric vehicles (PHEVs) on the basis of the same stated preference survey carried out in the US and Japan in 2012. We also carry out a comparative analysis across four US states. We find that on average US consumers are more sensitive to fuel cost reductions and alternative fuel station availability than are Japanese consumers. With regard to the comparative analysis across the four US states, consumers’ WTP for a fuel cost reduction in California is considerably greater than in the other three states. We use the estimates obtained in the discrete choice analysis to examine the EV/PHEV market shares under several scenarios. In a base case scenario with relatively realistic attribute levels, conventional gasoline vehicles still dominate both in the US and Japan. However, in an innovation scenario with a significant purchase price reduction, we observe a high penetration of alternative fuel vehicles both in the US and Japan. We illustrate the potential use of a discrete choice analysis for forward-looking policy analysis, with the future opportunity to compare its predictions against actual revealed choices. In this case, increased purchase price subsidies are likely to have a significant impact on the market shares of alternative fuel vehicles.     

The economy of alternative fuels when including the cost of air pollution

In this study, the costs involved in the use of petrol, diesel, natural gas, biogas, and methanol (produced from natural gas and biomass) in cars and heavy trucks are compared. The cost includes fuel cost, extra capital cost for vehicles using alternative fuels, and the environmental cost of VOC, NO_x, particulate and CO₂ emission based on actual 1996 and estimated 2015 emission factors. The costs have been calculated separately for rural, urban and city-centre traffic. A complete macroeconomic assessment of the effect of introducing alternative fuels is not, however, included in the study. The study shows that no alternative fuel can compete with petrol and diesel in rural traffic when the economic valuation of CO₂ emission is taken as current Swedish CO₂ taxes ($200/tonne C). In cities with a natural gas network, natural gas is the fuel with the lowest cost for both cars and heavy trucks, based on 1996 emission factors. Methanol from natural gas and biogas from waste products can also compete with diesel in urban traffic. With predicted improvements in technology and subsequent emission reductions, no alternative fuel can compete with petrol in any of the traffic situations studied by 2015, and only in city-centre traffic will alternative fuels be less costly than diesel in heavy vehicles. Of the biomass-based fuels studied, low-cost biogas from waste products is the most competitive one and is, already at current CO₂ taxes, the fuel with lowest cost for heavy trucks in urban traffic in areas where natural gas networks do not exist. To enable the more widespread use of biomass-based fuels, i.e. using feedstocks such as energy crops or logging residues that are available in larger amounts, the economic valuation of CO₂ emission has to be 2–2.5 times higher than current Swedish CO₂ tax level.     

Use of hybrid vehicles in Japan: An analysis of used car market data

Despite the rapid market penetration of hybrid vehicles (HVs), their usage and contributions to environmental protection have not been examined by vehicle traveling data. In this paper, we analyzed Japan’s used car market data to understand how HVs are used on the street. We find GV drivers with high travel demand switched from GVs to HVs during the transition period. Despite HV owners driving much longer distances than conventional gasoline vehicle (GV) owners, they emit less carbon dioxide (CO₂) emissions, owing to better fuel economy. We also find that HV owners spend roughly the same amount of money annually as GV owners. However, the per-kilometer travel cost of HVs is much lower than that of GVs even if the depreciation cost of the vehicle and vehicle related taxes are included in the analysis.     

Vehicle type choice under the influence of a tax reform and rising fuel prices

Differentiated vehicle taxes are considered by many a useful tool for promoting environmentally friendly vehicles. Various structures have been implemented in several countries, e.g. Ireland, France, The Czech Republic, and Denmark. In many countries the tax reforms have been followed by a steep change in new vehicle purchases toward more diesel vehicles and more fuel-efficient vehicles. The paper analyses to what extent a vehicle tax reform similar to the Danish 2007 reform may explain changes in purchasing behaviour. The paper investigates the effects of a tax reform, fuel price changes, and technological development on vehicle type choice using a mixed logit model. The model allows a simulation of the effect of car price changes that resemble those induced by the tax reform. This effect is compared to the effects of fuel price changes and technology improvements. The simulations show that the effect of the tax reform on fuel efficiency is similar to the effect of rising fuel prices while the effect of technological development is much larger. The conclusion is that while the tax reform appeared in the same year as a large increase in fuel efficiency, it seems likely that it only explains a small part of the shift in fuel efficiency that occurred and that the main driver was the technological development.