Cohen-Roth (2018) Carbon Tax Study
For Immediate Release:
April 10, 2018
Paper Presented at TRF
Shows Carbon Taxes May Increase Road Infrastructure Costs
A study presented at this week’s Annual Transportation Research Forum (TRF) in Minneapolis finds that, while carbon taxes reduce vehicle-miles traveled for trucks, and hence reduce fuel consumption and greenhouse gases, they also lead to increases in vehicle weights, which increase highway pavement damage and road maintenance costs. Under plausible assumptions, the increase in road maintenance costs can exceed the benefits in reduced greenhouse gas emissions.
As the price of fuel rises (either because of market forces or because of fuel tax increases), trucking companies economize on fuel by “dispatching” fewer trucks but filling each truck closer to its maximum capacity. Because road damage increases exponentially with the weight per axle, one fully loaded truck causes more road damage than two half-loaded trucks (but uses less fuel).
This paper estimates that the rising fuel prices cause an increase in vehicle weights of 3.2 percent for every 10-percent increase in fuel prices, per year. As a result, if the price of diesel fuel were increased by $0.37/gallon (which corresponds to the social cost of carbon estimated by the Interagency Working Group on the Social Cost of Carbon in 2015), fuel consumption would fall by 850 million gallons, and the benefits in reduced carbon emissions would be $311 million. Reduced vehicle-miles of trucks also reduce congestion, improve safety, and reduce other pollutants, so overall benefits of the reduction in vehicle-miles are $1,044 million.
However, most of that freight will still be moved – it will just be moved in fewer, heavier trucks. On an annual basis, the increase in truck weights increases road damage by $1,213 million, so the net cost is $169 million.
This paper uses data on differences in diesel fuel prices between New York and California (caused by seasonal differences in the demand for heating oil in New York – heating oil is essentially identical to diesel fuel) and data from Weigh-in-Motion monitors in both states to estimate the effect of fuel price changes on average truck weights.
This paper concludes that a fuel-efficiency standard for trucks could achieve a similar reduction in greenhouse gases without encouraging trucking companies to increase the weight of each truck and hence increase road damage. While economists generally consider pricing methods like a carbon tax to be a “best” way to reduce harmful externalities (like greenhouse gases), in this case the “second-best” solution – fuel efficiency standards – actually has the greater net benefits.
The Transportation Research Forum (TRF) is an independent organization of transportation professionals founded in 1958 to provide an impartial meeting ground for carriers, shippers, government officials, consultants, university researchers, suppliers, and others seeking an exchange of information and ideas on both passenger and freight transportation. TRF conducts a national Annual Forum, and has chapters in New York, Washington DC, Chicago, Minneapolis-St. Paul, St. Louis, and South Korea. www.trf.org
Ian Savage, TRF President
Ann Warner LLC, TRF VP Public Relations
About the Author
The authors of the paper are Linda R. Cohen with the Department of Economics at the University of California at Irvine and Kevin D. Roth, Economist, Christensen Associates. The paper is entitled “A Second-Best Dilemma: Freight Trucks, Externalities, and the Dispatch Effect.”