The US has up to now adhered to the user-fee principle in financing transportation infrastructure—i.e., users pay for the construction and maintenance of roads via a federal fuel tax. Revenues from the tax go into the federal Highway Trust Fund, which is independent of the General Fund; every five years or so Congress passes an authorization bill to allocate these revenues. States use similar mechanisms.

The demand for new roads and the cost of expanding and maintaining the transportation system have increased with population and economic growth. But fuel tax revenues have not kept pace because the federal government and most states have not increased gasoline tax rates since early 1990s, while inflation has eroded their real buying power. In the meantime, cars and trucks have become more fuel-efficient. Although this is a favorable trend for the environment and energy security, it poses challenges for transportation finance because motorists consume less fuel per mile traveled and thus pay fewer tax dollars for the same amount of road use.

—Huang et al.

The summary report examines three main categories of user charges: charges based on fuel consumption, on distance traveled, and on congestion levels. It explores the financial and environmental advantages and disadvantages of each option and then discusses a number of policy questions.

User Charges Based on Fuel Consumption (Gasoline and Carbon Taxes). User charges based on fuel consumption have two main advantages, the report notes: (1) the collection mechanism is already in place and is relatively simple and inexpensive, and (2) a fuel tax is effectively a carbon tax. As a result, a fuel tax would be a useful instrument for motivating motorists to reduce their vehicles’ emissions.

Gasoline taxes may be inadequate to pay for transportation infrastructure as fuel economy improves and the link between fuel consumption and road usage weakens. Current gasoline taxes, for example, do not apply to cars running on electricity or most alternative fuels, which raises concerns about revenue generation and equity among road users. Moreover, since fuel consumption cannot be traced by time and location, it is impossible to adjust the taxes in real time to internalize the costs of congestion and local air pollution emissions (two large externalities that motorists impose on others). It is also politically difficult to increase gasoline taxes, as policymakers must go on record to vote for increases.

—Huang et al.

Gasoline taxes also create a contradiction between energy, environmental, and revenue goals, the report notes.

User Charges Based on Distance Traveled (VMT Fees). User charges based on distance travelled and weight can closely approximate user responsibility for highway construction and maintenance costs. Such vehicle–miles-traveled (VMT) fees would not only track maintenance costs of roads more closely, but also provide a more stable revenue stream, immune to changes in vehicle fuel economy, the report says.

VMT charges would not reflect the environmental damage from carbon emissions as well fuel taxes would, but studies show that some other external costs, such as vehicle accident costs, are strongly correlated with total VMT. Hence, VMT fees can be designed to reflect accident costs, as large amounts of transportation funding goes to public safety measures.

...Several concerns about switching to distance-based charges remain. Perhaps the most obvious is the threat of invasion of privacy from the monitoring and reporting of vehicle travel. Other concerns arises from the transaction costs to equip old and new vehicles with monitoring devices, operate a billing network, and enforce VMT fee evasion. These transaction costs are likely much higher the costs of collecting fuel taxes from gasoline wholesalers.

—Huang et al.

User Charges Based on Congestion (Congestion Pricing). Congestion charges vary not just with distance travelled but also with the level of congestion encountered. Congestion fees can often bring in substantial revenues that can be used to improve the existing infrastructure, to subsidize other modes of transportation, and to sponsor environmental initiatives.

Congestion-based revenue options share some of the same concerns as distance-based options, such as privacy and high transaction costs. Another concern is that congestion charges may fall disproportionately on low-income users, but this problem might be addressed by providing subsidies. As for environmental impacts, fuel consumption and air pollution emissions per mile decrease as speeds increase until they reach 50 miles per hour or so when fuel consumption starts to increase again. Some drivers, however, may choose longer routes to avoid the charges and consume more fuel. And the reduction in congestion may re-attract drivers to the roads and in the long run prompt urban sprawl. To date, the literature does not have a definite account of the overall environmental effects of congestion pricing.

—Huang et al.

Most of the workshop participants anticipated that gasoline taxes will continue to be a major source of transportation funding for the next decade. Opinions on how quickly other alternatives might emerge were varied.

However, the short-term viability of the fuel taxes that will still bring in billions of tax dollars buys time for policymakers to evaluate a range of options, the group concluded. Fuel tax rates would, however, have to be indexed to reflect changes in inflation, fuel economy, and environmental externalities such as greenhouse gas emissions.

In the long run, however, this system is unlikely to be sustainable and VMT fees will be needed as gasoline tax revenues decline. Congestion pricing, which heretofore has been limited by political opposition, may become more acceptable as we realize that we cannot deal with congestion and associated emission problems simply by building new highways, especially in situations where high costs and/or local opposition to land takings make highway construction impractical and inefficient. Changing policies is difficult, especially while the economy is weak. Policymakers, however, should take some initial steps, such as redefining the roles of federal and state governments and promoting research and demonstrations of VMT and congestion fees, to ensure that these options are well understood and, when chosen, ready to succeed.

—Huang et al.

Resources

• Edward Huang, Henry Lee, Grant Lovellette, and Jose Gomez- Ibanez, “Transportation Revenue Options: Infrastructure, Emissions, and Congestion.” Discussion Paper 2010-13, Cambridge, Mass.: Belfer Center for Science and International Affairs, September 2010.