Here’s a chart from an excellent ten-year-old report out of the Victoria Transport Policy Institute called “Socially Optimal Transport Prices and Markets” that stands up pretty well today. The 50-page report goes into detail about different country’s incentives for driving, walking, transit, and bicycling in an effort to explain why country’s transportation systems are so different from each other. For example, the US has woefully small transit and bicycling “mode shares” compared to many European nations…
One big piece of the puzzle is the cost for driving, and how we end up paying for our car habits. Here’s the relevant breakdown of the costs of your car:
As the fine print explains, the costs fall into a few different categories. Sometimes we pay directly for driving (gas), sometimes we pay once up front in a “fixed” cost (the car itself), and other times the costs are external/free to the driver (pollution).
The report breaks down the impact of this pricing system, where so much of the “cost” of driving has nothing to do with how much you drive. Here’s the list of policies that might shape this relationship [from page 23]:
This indicates that more than half of vehicle costs are either external or internal-fixed. Both external and internal-fixed costs are forms of underpricing that tend to be inefficient and inequitable. For example, parking subsidies are unfair because they force households that own fewer than average vehicles to subsidize others that own more than average vehicles, and fixed automobile insurance premiums are inefficient because the costs they represent (accidents and therefore insurance claim) increase with annual vehicle travel. Such pricing encourages motorists to maximize their driving in order to get their money’s worth, and so increases external costs. Several specific market distortions contribute to this underpricing:
A portion of roadway costs (about a third in the U.S.) are funded by general taxes (which people pay regardless of how much they travel) rather than user fees. Fuel tax rates, which are generally a fixed amount per unit of fuel sold, have not increased with inflation or increased vehicle fuel efficiency, so revenue per vehicle-mile has declined.
User fees and taxes often fail to accurately reflect factors such as the type of vehicle, driver ability, time and location. This creates cross-subsidies among vehicle users, and fails to encourage the most efficient vehicle and travel behavior.
Insurance and registration fees are fixed, and so fail to reflect the degree to which crash and roadway costs increase with mileage. Fixed fees encourage motorists to maximize their mileage in order to “get their money’s worth” from their fixed investments.
Most parking is provided free or underpriced. This results, in part, from zoning codes and development practices which require generous amounts of parking to be bundled with building costs, rather than charged directly to parking facility users.
Roadway land is treated as a sunk cost. User fees seldom include the equivalent of rent or taxes on transport facility land. This underprices transport relative to other land uses, and space-intensive modes relative to space-efficient modes.
Current tax policies stimulate mobility and favor automobile travel over other modes by making subsidized parking and company cars attractive employee benefits (Dutzik and Inglis 2014). A typical employee would need to earn about $2,000 in pretax income to pay for a parking space that costs their employer $1,000 as a business expense. A significant portion of company car mileage (typically 15-20% according to Runzheimer International surveys) is for personal use.
When we’re thinking about the different levels of subsidy we might give to transit (for example), putting in parking meters, or whether or not a gas tax makes sense, keep in mind that so much of the cost of our car culture remains invisible.
Check out the whole document if you’re curious about this issue. Meanwhile, is there anything missing on this list?
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