How to road price in a world with electric vehicles and government budget constraints |
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| Affiliation: | 1. Oak Ridge Institute for Science and Education, at the Office of Transportation and Air Quality, U.S. Environmental Protection Agency, 2000 Traverwood Dr, Ann Arbor, MI 48105, USA;2. Assessment and Standards Division, Office of Transportation and Air Quality, U.S. Environmental Protection Agency, 2000 Traverwood Dr, Ann Arbor, MI 48105, USA;3. RTI International, 3040 E. Cornwallis Rd, Research Triangle Park, NC 27709, USA;1. Louvain School of Management, Place de Doyens 1 bte L2.01.01, 1348 Louvain-la-Neuve, Belgium;2. CORE & Louvain School of Management, 1348 Louvain-la-Neuve, Belgium;1. ESTECO S.p.A, AREA Science Park, Padriciano 99, Trieste 34149, Italy;2. University Lille Nord de France, F-59000 Lille, IFSTTAR, COSYS, LEOST, Rue Élisée Reclus, BP-70317, F-59650 Villeneuve d’Ascq, F-59666, France;3. University of Salento, Via per Arnesano, Lecce 73100, Italy;1. ITEM-HSG, University of St. Gallen, Dufourstrasse 40a, 9000 St. Gallen, Switzerland;2. Information Management, ETH Zurich, Weinbergstrasse 58, 8092 Zurich, Switzerland;1. Department of Civil Engineering, Indian Institute of Science (IISc), Bangalore 560012, India;2. Department of Civil Engineering and Centre for Infrastructure, Sustainable Transport, and Urban Planning (CiSTUP), Indian Institute of Science (IISc), Bangalore 560012, India |
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| Abstract: | In this paper we examine what characterizes second-best road prices targeting external costs from driving electric (EV) and conventional (ICEV) vehicles when there are distortionary labor taxes and binding government budget constraints. Further, we examine how this second-best pricing fits with government set goals of reducing CO2 emissions. The paper further develops an analytical framework for assessing first- and second-best road prices on vehicle kilometers, extending it to include EVs and externalities that vary geographically and by time of day. We find that optimal road prices largely vary with external cost, but are also significantly affected by the interactions with the rest of the fiscal system. Not surprisingly, the highest road prices should be for ICEVs in large cities during peak hours due to high external costs. More surprisingly, we find that the road price for ICEVs in rural areas should be lower than that for EVs due to large fiscal interaction effects. These road prices give large welfare gains, but they lead to no reduction in carbon emissions when applying the currently recommended social cost of carbon. |
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| Keywords: | Road pricing Road transport externalities Electric vehicles Government budget constraints Tax interaction |
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