| Abstract: |
I. Overview For close to a century fuel taxes have been used to finance the
building, operations, and maintenance of the US transportation system. The
contributions of tax revenues in real terms, however, have been consistently
declining in the recent decade as average national tax rates have not budged
since 1993 and failed to keep up with inflation – resulting in substantial
losses in purchasing power. This coupled with the fact that average fuel
economy levels for newer light-duty vehicles continues to improve given recent
government legislation, fewer tax revenues can be recouped. Costs associated
with constructing and maintaining transportation systems have increased over
time, growing at faster rates than fuel tax revenues. The impacts of declining
revenue streams on US highways have led to almost $130 billion in economic
losses (in the form of increased vehicle repair and time costs). In order to
correct the problem of eroding tax revenues groups such as the National
Surface Transportation Infrastructure Finance Commission support the
replacement of the current tax system with a tax on vehicle miles traveled
(VMT) with hopes of encouraging less driving and creating more sustainable
streams of revenue. Unlike a fuel tax, mileage charges directly target miles
driven by consumers, which helps to lower fuel use and driving externality
costs. One of the primary issues with the tax, however, is that it does not
encourage the use of more fuel-efficient vehicles. So any reductions in
emissions achieved by less driving could be displaced by the emissions of more
heavily used, dirtier conventional automobiles. Our study compares a national
VMT tax with the existing volumetric fuel tax system, observing the
interaction between mileage charges and enacted policies such as the Renewable
Fuels Standard (RFS) and the Corporate Average Fuel Economy (CAFE) Standard.
II. Methodology The responsiveness of LDVs to a series of mileage taxes is
observed using an elastic version of the US EPA MARKAL model. MARKAL is a
bottom-up, demand-driven, partial equilibrium model that relies on linear
optimization techniques to simultaneously minimize total system costs and
maximize net total surplus. Exogenous end-use demands are satisfied using the
most efficient and least-cost combination of technologies and primary resource
usage rates chosen by the model. It operates on data supplied by the EPA
National MARKAL database, which includes information on the five primary
economic sectors. Existing fuel taxes are compared with three versions of a
mileage-based tax. The first is a VMT charge ($/mile) set equivalent to the
baseline national average gasoline tax ($0.49/gallon) and increases 1%
annually. The second tax is tuned to achieve similar tax revenues as our
series of baseline volumetric fuel taxes over time. The final VMT charge
internalizes congestion, air pollution, oil dependency, and other
driving-related externality costs. It is imperative that consideration for
current environmental regulations and programs that either directly or
indirectly impact the transportation sector is given to better understand
differences in the ways mileage taxes interact with these policies. The
current Renewable Fuels Standard is modeled alongside President Obama’s recent
increases in CAFE standards which require that average fuel economy reach 54.5
miles per gallon by 2025 for LDVs. Plug-in hybrid-electric vehicles (PHEV)
purchased after 2010 are eligible for a tax credit worth up to $7,500 based on
the battery capacity. For simplicity, we assume that the $7,500 credit is
applicable to all PHEVs and is deducted from annual investment costs for each
type of plug-in hybrid vehicle III. Results Our first series of results in
which we compare current fuel taxes to VMT tax rates set according to baseline
fuel economy levels (Case 1), suggest that mileage charges begin to generate
more revenue after complete implementation of newer CAFÉ standards in year
2025. Consumers respond to higher CAFE standards by driving more
energy-efficient vehicles like PHEVs. These vehicles escape paying fuel taxes
either partially or completely by using electricity instead of gasoline –
thereby resulting in fewer fuel tax revenues. Under mileage taxes they face
similar taxes as conventional vehicles and will now have a greater
contribution to tax revenues. Case 2 directly contrasts fuel taxes and
revenue-neutral mileage taxes. We discover that the revenue-neutral taxes fail
to achieve any additional reductions in VMT. And the LDV fleet will experience
an average loss in energy-efficiency as the tax structure switches from fuel
to mileage taxes. CAFE increases and PHEV credits modeled help ensure that
minimum fleet average efficiency will be achieved. However, VMT taxes prevent
efficiency levels from improving much beyond this point partly due to their
discouraging of the use of plug-in hybrid vehicles. Market responses to VMT
taxes urge the substitution of the heavier gasoline-ethanol blend E85 (15%
gasoline/85% ethanol) to one comprised of only 10% ethanol (E10). The
implications of lower ethanol demands on the RFS are significant, as
cellulosic ethanol is no longer used to meet fuel demands. However, there is a
ramp up in the production of cheaper thermochemical fuels in order to satisfy
RFS biofuel requirements. Similar to Case 2, internalizing driving
externalities within VMT rates (Case 3) produce far greater reductions in
miles driven, fuel use, and transportation sector emissions than fuel taxes
internalizing similar externality costs. The switch from E85 to E10 occurs as
well but at a much larger magnitude given higher VMT tax rates. IV. Conclusion
Our work removes some of the ambiguity surrounding VMT taxes by confirming
that mileage taxes have the ability to produce more revenues at both the state
and federal levels at the expense of the overall LDV fleet becoming less
fuel-efficient; and depending on their level of stringency, they can produce
rather noticeable reductions in miles driven, total energy use, and greenhouse
gas emissions. There exists potential for economic losses which continue to
deepen as VMT tax rates increase. In other words, the higher VMT tax rates
become, the more harmful they will be to US economic performance. Switching
tax schemes showcased the possibility of spurring variations in the types of
“green” fuels consumed. Mileage taxes have proven that they could potentially
jumpstart the production of thermochemical gasoline and diesel replacing
cellulosic ethanol as a part of the cellulosic biofuel requirement identified
under the national RFS. |