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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.

Attachment:

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Date and Time Comment Was Submitted: 2008-08-01 10:16:40



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