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Comment 42 for Transportation Comments for the GHG Scoping Plan (sp-transport-ws) - 1st Workshop.
First Name: Todd
Last Name: Litman
Email Address: litman@vtpi.org
Affiliation: VTPI
Subject: Pay-As-You-Drive Pricing Analysis
Comment:
The current California draft plan estimates that PAYD could achieve a maximum of 1MMT CO2 emissions reduction. Brookings Institution researchers Jason Bordoff and Pascal Noel estimate much larger impacts in their study, "The Impact of Pay-As-You-Drive Auto Insurance in California" ( http://www.brookings.edu/papers/2008/07_payd_california_bordoffnoel.aspx ). They estimate reductions of 10.5 MMT based on 2006 levels and 11.8 MMT based on 2020 projections, and using life-cycle analysis, include CO2 emitted in drilling, transporting, refining, and blending PAYD would reduce CO2 emissions by 13.4 MMT based on 2006 levels and 15 MMT based on 2020 projections. This is 10-15 times larger than CARB projections. The Draft Plan significantly underestimates potential emission reductions because it uses low elasticity values and participation rates. I therefore recommend the following adjustments to the CARB analysis: First, the short-run elasticity of -0.025 to -0.05 is quite low. Even Hughes, Knittel and Sperling (2006) found somewhat higher short-run fuel price elasticities of -0.034 to -0.077 during 2001-06, and Small and Kurt Van Dender (2005 and 2007) found the gasoline price elasticities was -0.09 in the short run and -0.40% in the long run during 1997-01. Komanoff (2008) estimates that the short-run U.S. fuel price elasticity reached a low of -0.04 in 2004, but this increased to -0.08 in 2005, -0.12 in 2006 and -0.16 in 2007. This suggests that the conditions which resulted in very low price sensitivities during 1985-2005 were anomalies, and that price elasticities are likely to return to more normal levels. I therefore recommend using a range of -0.05 to -0.20 for the short-run and 0.2 to -0.6 in the long-run. References: Jonathan E. Hughes, Christopher R. Knittel and Daniel Sperling (2006), "Evidence of a Shift in the Short-Run Price Elasticity of Gasoline Demand," National Bureau of Economic Research, Working Paper No. 12530 ( http://papers.nber.org/papers/W12530). Charles Komanoff (2008), "We Explain Gasoline Demand (including why it’s sticky)," Carbon Tax Center (www.carbontax.org ); at www.carbontax.org/blogarchives/2008/05/12/we-explain-gasoline-demand-including-why-its-sticky . Todd Litman (2008), "Transportation Elasticities: How Prices and Other Factors Affect Travel Behavior," Victoria Transport Policy Institute (www.vtpi.org); at www.vtpi.org/elasticities.pdf. Kenneth Small and Kurt Van Dender (2005), "The Effect of Improved Fuel Economy on Vehicle Miles Traveled: Estimating the Rebound Effect Using U.S. State Data, 1966-2001," University of California Energy Institute's (UCEI) Energy Policy and Economics Working Paper Series ( www.ucei.berkeley.edu); at www.ucei.berkeley.edu/PDF/EPE_014.pdf. Kenneth A. Small and Kurt Van Dender (2007), “Fuel Efficiency and Motor Vehicle Travel: The Declining Rebound Effect,” Energy Journal, Vol. 28, No. 1, pp. 25-51; at www.econ.uci.edu/docs/2005-06/Small-03.pdf. Second, it is important to model the impacts of universal PAYD (all insurance is priced by the vehicle-mile), as has been proposed by the National Organization for Women Insurance Project ( www.centspermilenow.org ). This is justified for the following reasons: * Insurance is highly regulated for actuarial accuracy, economic efficiency, crash reduction, consumer benefits, and affordability objectives: PAYD helps achieve all of these. Insurance regulators could (I believe should) require universal PAYD based on conventional insurance regulatory objectives (Todd Litman, 2005, “Pay-As-You-Drive Pricing and Insurance Regulatory Objectives,” Journal of Insurance Regulation, Vol. 23, No. 3, National Association of Insurance Commissioners, Spring; at www.vtpi.org/jir_payd.pdf ). * Universal PAYD would be easier and more equitable to implement because it would avoid the complexities and conflicts that would result from self-selection. It is not currently possible to predict which types of drivers, and therefore which risk profiles, would choose optional PAYD, so the insurance industry would need to guess how to respond. To the degree that this complexity is a barrier to PAYD implementation, then universal application to PAYD is an elegant solution. * Universal PAYD represents the upper-bound travel impacts and benefits (energy conservation, emission reductions, crash reductions, consumer savings, congestion reductions, etc.). Decision-makers should be allowed to consider this option. It would be inappropriate to exclude it from the technical analysis. I therefore urge CARB to include analysis showing the impacts and benefits (including monetized estimates of co-benefits such as crash reductions, consumer savings and benefits, congestion reductions, road and parking facility cost savings, etc.) that would result from universal, odometer-based, which would include virtually all motorists. In addition, PAYD insurance is just one of several possible ways to convert fixed vehicle costs into variable costs, thereby increasing transportation system efficiency and equity. Others include distance-based vehicle registration and licensing fees, distance-based purchase taxes and fees, and more mileage-based pricing of vehicle leases, as discussed in the 'Distance-Based Pricing' chapter of the "Online TDM Encyclopedia" (http://www.vtpi.org/tdm/tdm10.htm ). Once a system is established to collect verified annual mileage readings, the incremental costs of these reforms is tiny and they provide additional benefits. I therefore recommend analyzing the impacts and benefits of additional distance-based vehicle pricing strategies.
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Date and Time Comment Was Submitted: 2008-08-01 10:16:40
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