Reason Foundation

http://reason.org
http://reason.org/news/show/surface-transportation-innovat-67

Reason Foundation

Surface Transportation Innovations #69

Cash-for-clunkers, CO2 and transportation and transit capital costs

Robert Poole
July 16, 2009

In this issue:

CO2 and Transportation


One of the major ongoing debates over surface transportation policy in this country concerns the role of motor vehicle emissions—and for purposes of this discussion, I’m referring to “light vehicles” such as cars, pickup trucks, and SUVs. This subset of transportation accounts for about 17% of CO2 emissions, according to the EPA, not the “one-third” often carelessly bandied about (which includes trains, planes, ships, trucks, and all other transportation). So while personal vehicles are part of the problem, they are not as large a fraction as many people would like us to think.

The main misconception among many environmentalists and planners is that, when it comes to personal vehicles, carbon taxation “does not work.” What they mean by that is that the elasticity of demand for motor fuel is low. The Congressional Budget Office’s Oct. 6, 2008 analysis estimates that a carbon tax of $28 per metric ton of CO2 would add about 25 cents to the price of a gallon of gas, which would have only a small impact on driving, fuel consumption, and CO2 emissions from those vehicles. Whereas the average reduction in CO2 emissions across the economy from a carbon tax of that level would be 10%, CBO estimates that it would be only 2.5% from motor vehicles (and this would be a somewhat long-term effect based on vehicle replacement decisions, not driving cutbacks).

But think back to your Economics 101 course. The elasticity of demand for goods and services requiring carbon varies greatly, depending on the availability of reasonably priced substitutes. Electricity, for example, has many alternative sources, and much potential for conservation (e.g., by insulating and by changing light bulb types). But petroleum-based motor fuel is still by far the best means of obtaining energy for vehicle propulsion—in terms of high energy density (lots of BTUs per pound and per cubic foot) and low cost. So doesn’t it make sense to first seek the largest reductions in CO2 use in sectors of our economy where we have plentiful substitutes?

That is what a number of recent studies have proposed, such as last year’s McKinsey report (which I covered in Issue No. 57, July 2008), and a new one from an ad-hoc group called the Climate Task Force. This report, “Addressing Climate Change without Impairing the U.S. Economy,” by Robert Shapiro, Nam Pham, and Arun Malik, proposes a gradually increasing carbon tax, beginning at $14 per metric ton in 2010 rising gradually to $50/ton in 2030. They modeled the impact using the Energy Department’s National Energy Modeling System (NEMS); the model estimates that U.S. CO2 emissions would be reduced 30% by 2030 compared with a business-as-usual scenario. The average cost impact per household would be $1,563/year over this time period; to make the program politically feasible, the authors propose rebating 83% of the proceeds on a per-household basis, averaging $1,275 per year. GDP in 2030 would be 0.8% less than under business-as-usual conditions. (www.climatetaskforce.org/pdf/CTF_CarbonTax_Earth_Spgs.pdf)

Both McKinsey and CTF accept the fact that this level of carbon tax would have only modest effects on personal vehicle driving, on the economic grounds discussed above. But that’s not good enough for some people. For example, a new report from the Center for Clean Air Policy concludes that vehicle and fuel technology changes “will not be enough to reach our climate goals without initiatives that address VMT (vehicle miles of travel) as well.” The CCAP report, “Cost-Effective GHG Reductions through Smart Growth & Improved Transportation Choices,” (www.ccap.org) seems to base its position on the premise that every sector of the economy must achieve equal percentage reductions in CO2 emissions, regardless of the relative cost and inconvenience of doing so. The main thrust of their report is that Americans must change their lifestyles to live in high-density, smart growth communities so that they don’t drive as much. Addressing all the problems with that approach is a topic for another time. But the idea that all sectors must reduce their carbon intensity by equal percentages is economically illiterate.

The Transit Capital Cost Debacle

The terrible crash on the Washington, DC Metro Red Line last month has led to a whole raft of calls for increased taxpayer support for rail transit systems, especially the very expensive heavy rail systems like Metro. Late in April, well before the Red Line crash, a report from the Federal Transit Administration on the seven largest heavy rail systems estimated that just those seven need $50 billion in capital investment to bring them back into good repair, and then an additional $5.9 billion per year to properly maintain them. Those seven systems (serving Boston, Chicago, New Jersey, New York, Philadelphia, the San Francisco Bay Area, and Washington, DC) carry 80% of the nation’s rail transit passengers. And similar capital investment shortfalls plague the smaller heavy rail systems of Atlanta and Miami.

Instead of focusing on the magnitude of these needs, I think we first need to step back and ask “How come?” How did these vital transit systems get into such dire straits? Transit expert Tom Rubin assures me that these systems do keep their books via a version of generally accepted accounting principles (GAAP), meaning they do have capital budgets and do depreciate their assets like businesses do. But when it comes time to make decisions, their boards evidently make the politically popular decisions to do things like expand services, build new lines, and increase payrolls rather than making responsible decisions to ensure proper preventive maintenance and to repair or replace aging assets on a timely basis.

An extreme case in point is the Miami Metrorail system, a 24-mile heavy rail system that opened in 1984. Miami Herald reporter Larry Lebowitz has been chronicling this sad tale for several years now, in a superbly researched series of articles. Elected officials and transit leaders in Miami-Dade County have long had plans for a series of additional north-south and east-west rail lines. Funding them was one of the major selling points of a new half-cent transit sales tax, approved by the voters in 2002. But instead of building the new lines, the transit agency first provided large-scale pay and benefit increases, added large numbers of low-ridership bus lines (further increasing payroll costs), eliminated fares for senior citizens, and took other actions that also increased operating costs and reduced revenues. By 2008, the original rail cars were worn out, with an estimated replacement cost of $700 million—but no funds had been set aside for this purpose. So now instead of the new lines, what remains of the sales tax money is going to be spent on replacement railcars.

I don’t have either the space or the details to assess the specifics of how the larger systems got into their current fix. It has recently been revealed that the Washington Metro board ignored a 2006 warning from the National Transportation Safety Board that the 293 oldest cars (Series 1000) were unsafe (not meeting today’s crashworthiness standards) and should be replaced. It was a Series 1000 car that slammed into another train last month, killing nine people.

In short, instead of simply focusing on funding shortfalls, I think we are long overdue for a hard look at the governance model of our large urban transit agencies. The cost of rail transit—when all costs are fully considered, including proper ongoing maintenance and capital replacement costs—is so enormous that these systems make economic sense only in the most high-density corridors. But because rail systems are considered politically sexy and hence necessary to obtain voter support for transit taxes, there are enormous pressures on transit leadership to disguise the true costs. This is more than just dishonest; it leads to bad investments of money that could provide more real transportation benefits if used in other ways; and in some cases (as in DC) it can put real lives in danger.

A Worthwhile Cash-for-Clunkers Program

I was appalled at the mis-named “cash for clunkers” program recently enacted by Congress, offering thousands of dollars in subsidies for people to go out and buy new cars with slightly better gas mileage than what they trade in. A June 23, 2009 letter to the Wall Street Journal described far more cost-effective program, run by oil company Unocal in the early 1990s.

This highly targeted program was aimed at reducing the very serious smog problem in greater Los Angeles by removing thousands of pre-1971 cars from the road. Emissions from those cars were 99 times greater than the then-new 1990 vehicles. Called the South Coast Recycled Auto Program (SCRAP), it offered owners of such clunkers $700 to turn them in to be crushed. Over the three years of the program, over 8,000 vehicles were removed entirely from the fleet, not re-sold as used cars as under the current federal program. Unocal’s interest was to obtain mobile-source emission-reduction credits in order to keep its L.A. refineries in operation. A given amount of hydrocarbon reduction cost Unocal far less at $700/car than what it would have had to spend on refinery fixes.

Living in Los Angeles at the time, I followed SCRAP with great interest. It was a great example of creative, cost-effective emission reduction—which bears no resemblance to the subsidy program created this year by Congress under the same banner.

A Near-Term Approach to VMT Charging

While I’m a proponent of replacing fuel taxes with a charge per mile driven, collected electronically, I’ve been a skeptic of any near-term implementation of this concept. Proposals to do this by means of add-on equipment (analogous to installing an upgraded audio system in your car) struck me (and many others) as far too vulnerable to hacking, motivated by the idea of getting to drive for free while everyone else paid. But the alternative--requiring all new vehicles to come equipped from the factory with tamper-proof on-board units--runs up against the low turnover rate of vehicles. It takes about 20 years for 95% of the vehicle fleet to be replaced with new vehicles. That would mean a very long transition period, beginning after however long it would take to reach some kind of political consensus on mandating the start of the switchover.

But a new proposal from researchers at the University of Minnesota might change all that, by offering an add-on approach that could do (most of) the job while apparently being highly tamper-resistant. As summarized by Peter Samuel (www.tollroadsnews.com/node/4256 ), what Max Donath and his engineering colleagues have proposed is an on-board unit that would plug directly into the vehicle data bus that has been standard on all vehicles sold in the United States since 1996—the On-Board Data link 2 (OBD2). This is the device your mechanic plugs into to run diagnostics on the engine and other vehicle systems; it’s why you can’t do your own vehicle maintenance like your dad did when cars were simple. And rather than relying on GPS satellites to figure out its location (which works poorly in mountains and among urban buildings), the box would identify the nearest cell phone tower, the same way cell phones do. And it would use cell phone-based text messaging to upload its accumulated mileage-travelled and payment-due data periodically.The details are spelled out in a research report, “Technology Enabling Near-Term Nationwide Implementation of Distance Based Road User Fees,” by Max Donath, et al.
(www.its.umn.edu/Publications/ResearchReports/reportdetail.html?id=1790 ) The on-board unit would read the vehicle speed and, using an electronic clock signal, calculate the distance traveled. By using cell-tower data to identify the vehicle’s general location, it would be able to identify a zone of travel, but not individual streets. That would make it possible for per-mile charges to be applied by state and county governments. For toll roads, transponders would still be needed to pay facility-specific tolls.

Peter Samuel, who is often critical of transportation proposals that are not fully thought out, comments that “This seems to be an important concept that has considerable credibility as a first-generation technology for nationwide road use charging,” as recommended by the National Infrastructure Financing Commission earlier this year.

Note: I’m aware of two forthcoming reports on the VMT-charging issue, which will add to the debate and discussion. One is from RAND Corporation, looking at various possible near-term measures (including, I’m told, one along the lines of the Donath proposal). The other, forthcoming from the Transportation Research Board, is a comprehensive assessment of all the issues that must be addressed, both near-term and long-term, in transitioning to a VMT charge replacement of fuel taxes.

Is “Job Sprawl” a Problem?

As described in a news article by Mike Smith in the San Jose Mercury-News, a recent report from the Brookings Institution (“Job Sprawl Revisited,” www.brookings.edu) “sounds the alarm about the oozing spread of commercial development far from downtown areas served by transit.”  I’m not sure if the term “job sprawl” was in common use before this report came out in April, but advocates of smart growth like the Greenbelt Alliance have quickly picked up on it.

My immediate reaction to this report and this term was great skepticism that “job sprawl” represents any kind of a problem. So I turned to my Reason colleague, urban policy director Sam Staley, for his take. His blog posting on the report (http://reason.org/blog/show/1007261.html) pointed out numerous problems. First, the report makes no attempt to demonstrate what it claims to be the case—namely, that metro areas with significant suburbanization of jobs have longer commutes and less economic growth. It provides no correlation between centralization and economic growth; for example, only two of the top five centralized metros are fast-growing, while three of the most decentralized (Chicago, Dallas/Ft. Worth, and Los Angeles) are.

Sam also points out that the report presumes it is distance from home to work that affects regional growth. He cites the evidence presented in his book, Mobility First, that it is actually travel time (providing easier access to labor and resources) that affects regional productivity. He also takes issue with the idea that the traditional central business district is the center of income and regional job growth, which he terms “a quaint 20th century notion of the urbanized area,” which “ignores all the relevant changes to urban spatial structure of the past hundred years.”

The Brookings report also relies on the reader assuming that “Living in a central city means living closer to work, shopping, recreation, schools, and other amenities,” as bizarrely asserted in the Center for Clean Air Policy’s report “Cost-Effective GHG Reductions through Smart Growth & Improved Transportation Choices.” Yet neither report presents any evidence to back up that claim.

In fact, the suburbanization of jobs is part of the natural evolution of urban areas, quite likely increasing job choice (in addition to choices of shopping, recreation, schools, and other amenities), in many cases reducing average commute times, and in some cases even reducing average commute lengths. As noted commuting analyst Alan Pisarski said in a recent lecture, “There is really nothing special or beneficial about a process in which suburbanites rush to the center each morning and return at night. A lower jobs/worker ratio in the center and a higher ratio in the suburbs as jobs shift outward would seem, at least on the surface, to provide a more positive context for work travel.”

Our decisions about urban transportation policy need to be based on solid data, not assertions and wishful thinking. “Job sprawl” is a kind of junk term, which does more to muddy our thinking than to clarify it.

Upcoming Conferences

Note: I don’t have space to list all the transportation conferences going on; below are only those that I or a Reason colleague are speaking at:

2009 Transportation Research Board Joint Summer Conference, Seattle, WA, July 19-22, 2009, Seattle Sheraton. Details at: www.trb.org/calendar.

ARTBA Public-Private Ventures Conference, Washington, DC, Sept. 24-25, 2009, Loew’s L’Enfant Plaza Hotel. Details at www.artba.org.

News Notes

New Pricing Report from FHWA
Another in FHWA’s series of primers on congestion pricing has appeared. “Technologies that Complement Congestion Pricing” is just what its title suggests. Go to: http://ops.fhwa.dot.gov/publications/fhwahop08043/cp_prim_00.htm.

FHWA Guidebook on HOV to HOT Conversion
I only recently came across FHWA’s June 2007 report, “Considerations for High Occupancy Vehicle (HOV) to High Occupancy Toll (HOT) Lane Conversion Guidebook,” with lots of useful information based on the first generation of such conversions. Go to: http://ops.fhwa.dot.gov/resources/news/news_detail.asp?ID=552.

CRS Carbon Tax Report Availability
The excellent report from the Congressional Research Service that I wrote about in the May issue of this newsletter can be downloaded from:
http://assets.opencrs.com/rpts/R40242_20090223.pdf.

Mileage-Based User Fee Proceedings Available

A symposium on mileage-based user fees (also known as VMT fees) was organized by the Texas Transportation Institute in April, in Austin, TX (and my Reason colleague Adrian Moore was one of the speakers). The proceedings are now online at:
http://utcm.tamu.edu/mbuf/proceedings/.

Moore Appointed to California PIAC

Speaking of Adrian Moore, last month he was appointed as a member of the new Public Infrastructure Advisory Commission, created by the enabling legislation for California’s new PPP toll roads law. PIAC is charged with identifying privatization opportunities, developing best practices and lessons learned from elsewhere, reviewing proposed privatization agreements, and providing advice and services to the Business, Transportation and Housing Agency (parent of Caltrans). Further information at: www.publicinfrastructure.ca.gov.

Corrections to URLs in June Issue

Two errors crept into URLs that I provided in the June issue; my apologies. For the FHWA report on equity and congestion pricing (part of the Congestion Pricing Primer series), go to:
www.ops.fhwa.dot.gov/publications/fhwahop08040/cp_prim5_00.htm

And for the report on federal transit subsidies by mode, go to:
www.heritage.org/Research/SmartGrowth/bg2283.cfm

Follow-up on Katy Managed Lanes

Last month I reported on the changes in operating policy that took place between the initial planning for the new managed lanes on the expanded Katy Freeway (I-10) in Houston and its opening to paying customers this spring. Mark Burris of Texas Transportation Institute emailed to say that the decision to allow HOV-2 vehicles to use the lanes at no charge during peak periods came from a county judge, rather than from the transportation agencies involved.

First Express Lanes Demonstration Program Agreements

Four years after Congress created the Express Lanes Demonstration Program, authorizing states to add electronically tolled express lanes on federal-aid highways, Texas DOT and FHWA have signed agreements for two such projects. Both are in the Dallas/Ft. Worth area and both are being developed under long-term toll concession agreements. The projects will add congestion-priced managed lanes to the LBJ Freeway (I-635) and create the North Tarrant Express lanes on I-820 and SH 183.

Toronto Highway 407ETR Wins PPP Award

The Canadian Council for Public-Private Partnerships in June announced its 2008 National Awards for Innovation and Excellence in PPPs. Four of the five were highway projects, including the highly successful 407ETR in Toronto, the world’s first all-electronic toll road. Profiles of the winning projects are available in a 145-page softcover book at $79.95 for non-CCPPP members. Details at: www.pppcouncil.ca/pdf/pubflyer.pdf

World Bank Report on Avoiding Infrastructure Boondoggles

This is not a new report, but I only recently came across it. “Avoiding Customer and Taxpayer Bailouts in Private Infrastructure Projects,” by David Ehrhardt and Timothy Irwin is a thoughtful and well-researched report on how to address questions such as leverage, risk allocation, and bankruptcy in large PPP infrastructure projects. It is illustrated with case studies of four transport projects and one electricity project. Go to: www-wds.worldbank.org

Quotable Quotes

“While high speed rail will generally have superior travel times compared with automobile or bus travel for trips greater than 100 miles—depending on the service—it is difficult for a high speed rail service to compete with the low price of bus travel and the convenience of automobile travel and, therefore, it is not likely to attract a sufficient number of these travelers to have a significant effect on highway congestion and capacity in a corridor.”
--“High Speed Passenger Rail: Future Development Will Depend on Addressing Financial and Other Challenges and Establishing a Clear Federal Role,” Government Accountability Office, March 2009 (GAO-09-317)

“Under a mammoth carbon-emissions bill now working its way through Congress, 85% of valuable permits to emit carbon dioxide (which might all have been auctioned) will be given away free. This creates a huge new pot of favors for government to hand out, and new incentives for businesses to lobby. It will be costlier to fix climate change, while harder to avoid political favor-trading.”
--“Piling On,” The Economist, May 30, 2009.

“If you didn’t auction the permits, it would represent the largest corporate welfare program that has ever been enacted in the history of the United States.”
--Peter Orszag, Director, Office of Management & Budget, in congressional testimony March 2009, quoted in “The Carbonated Congress,” Wall Street Journal, July 3, 2009.

“The current accepted wisdom about the need for a ‘performance-driven, outcome-oriented’ transportation program brings to mind a piece of advice I once received from a wise colleague: Do not advocate a policy that you could never hope to put into effect. Do not ask policy makers to do something outside the range of practical feasibility. . . . [S]ome of the goals advocated for the surface transportation program reflect more the advocates’ wishful thinking than achievable objectives. For example, the National Transportation Objectives Act of 2009 (HR 2724) proposes as one of its objectives a 16% reduction in per capita vehicle miles and a tripling of ‘walking, biking, and public transportation usage.’ There is no attempt by the authors of that bill to explain how and why they have chosen these particular targets, nor to provide even prima facie evidence of the feasibility of achieving these objectives.”
--C. Kenneth Orski, National Journal Transportation Blog, week of June 15, 2009

“Suppressing travel is not an answer; if your transportation goals can be met by everyone staying home, you have the wrong goals.”
--Alan Pisarski, author of the Commuting in America series, collected wisdom, July 2009.


Robert Poole is Searle Freedom Trust Transportation Fellow and Director of Transportation Policy


Print This