Environmental Economics

"Volkswagen to Pay $14.7 Billion to Settle Diesel Claims in U.S."

Again, if you haven't realized it yet, this little bit of deception by VW was not a very smart thing to do:

Volkswagen has agreed to pay up to $14.7 billion to settle claims stemming from its diesel emissions cheating scandal, in what would be one of the largest consumer class-action settlements ever in the United States.

The proposed settlement involving the federal government and lawyers for the owners of about 475,000 Volkswagen vehicles, includes a maximum of $10.03 billion to buy back affected cars at their pre-scandal values, and additional cash compensation for the owners, according to two people briefed on the settlement’s terms.

The cash compensation offered to each car owner will range from $5,100 to $10,000. Both the buyback price and amount of the additional compensation will depend on the cars’ value before Volkswagen’s public admission last September that its supposed “clean diesel” cars had been deliberately designed to cheat on air-quality tests.

Despite the scope of the deal, which would still require the approval of the federal judge overseeing the case, the settlement would cover only a small fraction of the 11 million diesel cars worldwide — most of them in Europe — that Volkswagen has acknowledged contained the cheating software. ...

The size of the settlement would approach the $18.7 billion agreement that BP reached last year meant to resolve all federal, state and local claims against the oil giant arising from the 2010 Gulf of Mexico oil spill, which at the time was the largest civil settlement with any single entity in the nation’s history.

via www.nytimes.com

This is much higher than my back-of-the-envelope damage estimate of $1000 per car. I suppose you must pay top dollar when you are selling a differentiated product with reputational effects (I've been teaching MBA managerial economics, can you tell?).

 

RFF on the Issues: The VW Scandal and Diesel Fuel Cars

From the inbox:

The Volkswagen emissions scandal is putting pressure on many countries to take a closer look at their vehicle emissions testing for cars that run on diesel fuel. It seems that such engines are actually worse for the environment than previously thought, and this issue is particularly important in Europe, where about half of new vehicles run on diesel fuel.

RFF’s Joshua Linn and Virginia McConnell conclude that “meeting strict standards for nitrogen oxide emissions from vehicles alone might not be so difficult.” Diesel-powered cars emit less carbon dioxide but more nitrogen oxides than gasoline-powered cars, and reducing both nitrogen oxides and greenhouse gas emissions “will be challenging for vehicles, and especially for diesel vehicles.” Illustrating this tension, Linn’s research, “Explaining the Adoption of Diesel Fuel Passenger Cars in Europe,” suggests that many consumers are attracted to diesel-powered cars because of their higher fuel economy. RFF’s Casey Wichman weighs in in a new blog post, “Valuing Private Goods with Public Benefits: Confessions of a ‘Clean’ Diesel Owner,” noting: “The weight I initially placed on the environmental bona fides of my car is now more of a burden than a benefit.”

"Poll: Voters would support 10-cent gas tax hike"

The Hill:

A majority of voters would support a 10-cent increase in the federal gas tax if the money is used for specific transportation improvements, according to a new poll released on Wednesday. 

The poll, which was conducted by the San Jose, Calif. Mineta Transportation Institute, found that 71 percent of voters would be willing to pay a dime more than the current 18.4 cents-per-gallon gas tax if the money is spent on “projects to maintain streets, roads, and highways.” 

Another 64 percent would support a 10-cent gas tax hike if the money is spent on “projects to reduce accidents and improve safety,” while 59 percent said they would approve of the increase if it was used to pay for “projects to add modern, technological systems.” 

By contrast, the poll found only 31 percent would support a 10-cent gas tax with no additional qualifiers. 

The director of the study said the findings show voters are willing to support a gas tax increase if they can be assured the money will be used to pay for transportation projects. 

via thehill.com

For every 10,000 miles in a 20 mpg car you buy 500 gallons of gas. If $0.09 per gallon is passed on to consumers then the total cost would be about $45.

"Pricing Freight Transport to Account for External Costs"

From CBO Working Paper 2015-03 (by David Austin):

Although freight transport contributes significantly to the productivity of the U.S. economy, it also involves sizable costs to society. Those costs include wear and tear on roads and bridges; delays caused by traffic congestion; injuries, fatalities, and property damage from accidents; and harmful effects from exhaust emissions. No one pays those external costs directly—neither freight haulers, nor shippers, nor consumers. The unpriced external costs of transporting freight by truck (per ton-mile) are around eight times higher than by rail; those costs net of existing taxes represent about 20 percent of the cost of truck transport and about 11 percent of the cost of rail transport.

This study examines policy options to address those unpriced external costs. The options would impose taxes based on the weight or distance of each shipment, increase the existing tax on diesel fuel, implement a tax on the transport of shipping containers, or increase the existing tax on truck tires. The analysis estimates what would have occurred in 2007 had the simulated policies already been in place and had any initial, short-term transitions in response to the policies already occurred.

Adding unpriced external costs to the rates charged by each mode of transport—via a weight-distance tax plus an increase in the tax on diesel fuel—would have caused a 3.6 percent shift of ton-miles from truck to rail and a 0.8 percent reduction in the total amount of tonnage transported. Such a policy would have eliminated 3.2 million highway truck trips per year and saved about 670 million gallons of fuel annually (including the increase in fuel used for rail freight). On net, accounting for the effect of fuel savings on revenue from the fuel tax, such a policy would also have generated about $68 billion per year in new tax revenue and reduced external costs by $2.3 billion. Adopting instead the other policy options that were studied would have resulted in smaller changes in tonnage and ton-miles and smaller increases in tax revenue. All of the policy options would have narrowed the gap in the share of external costs paid in taxes by truck versus rail.

via www.cbo.gov

What is so wrong about the consumer paying the true cost of grain, coal and oil?

Maybe it would mean that I wouldn't eat so dang much:

Locks are intended to make it easy for ... barges, with their cargoes of grain, coal and oil, to navigate the uneven waters of the Mississippi, Kentucky [1] and Ohio Rivers.

But largely out of sight of most Americans, the locks are crumbling. There are 192 locks on 12,000 miles of river across the country; most were built in the 1930s, even earlier than Kentucky Lock and Dam, and have long outlived their life expectancy. ...

President Obama has asked Congress for billions of dollars for infrastructure improvements, and last year, he signed a $12.3 billion water resources bill with money to complete construction of a major lock and dam project near Olmsted, Ill. But the president has also called for cuts in the United States Army Corps of Engineers budget, which includes money for repairs of locks and dams.

Transportation advocates say the funding is vastly insufficient to deal with the construction backlogs of locks and dams. The Corps of Engineers, which maintains most of the system, says it will take $13 billion through 2020 just to fix the decaying locks. Without the money, Corps officials say it will take until 2090 to complete all the projects.

In the United States, the equivalent of 51 million truckloads of goods move by river each year. ...

Rick Calhoun, the marine and terminal division president for [Minnesota-based food giant] Cargil, said the company could still get its products to market by using trucks or trains. But he said barges were cheaper: 15 barges can carry the same amount of cargo as 1,050 tractor-trailers or one train with 216 cars.

“We prefer that all three modes of transportation be robust in order to maintain healthy competition and keep shipping costs down,” Mr. Calhoun said. “Otherwise, there is a rise in price for transportation that is passed on to the consumer.”

via mobile.nytimes.com

I'm sure Cargil prefers the subsidy of federally supported river, rail and road transportation. On the other hand, putting money to fix locks into the federal budget isn't the most efficient way to pay for their repair. The cost of maintenance would be better supported with user fees.

If the maintenance cost is $13 billion annually (or is it one-time, I can't tell from the article), 51 million truckloads move by river and 15 barges equal 1050 trucks then a toll of about $18,000 [2] per barge trip through the lock would fund the system ($255 per truckload). The goods that travel by barge would cost more and we would consume less of them (grain, coal and oil). Still, that seems like a better system than taxing most everyone to fund river transportation. 

[1] Most of ya'll are familiar with the Ohio and Mississippi Rivers but what is the Kentucky River? It moves from southeastern Kentucky (i.e., the coal region) north to the Ohio River. The Kentucky River 
Authority says that the locks are used by recreational boaters but the article suggests coal as well. 

[2] Did I get that number correct? One truck carries 1.43% of a barge (15/1050), so 51 million trucks equals 728,571 thousand barges. $13 billion divided by 728,571 barge trips is $17,843 per barge. 

Cognitive dissonance

Because transportation infrastructure is a gift from god?

A trio of state polls released this week show voters in states such as Georgia, New Jersey and Utah do not support an increase in their gas taxes to pay for new transportation projects. 

The surveys come as lawmakers in Washington are indicating a willingness to raise the 18.4-cents-per-gallon federal gas tax for the first time in 20 years. 

In Georgia, where drivers pay an additional 7.5 cents per gallon on top of the federal gas tax, according to the America Petroleum Institute (API), 60 percent of voters said they are opposed to paying more at the pump to pay for new transportation projects in a poll conducted by Landmark Communications, according to a report from Atlanta’s WSB. 

Similarly, 68 percent of New Jersey voters said they are opposed to a gas tax increase in that state, where drivers currently are paying an extra 10.5 cents per gallon to fill local transportation coffers, according to a Trenton Times report. 

Finally, in Utah, where drivers pay an extra 24.5 cents per gallon at the pump, only 35 percent of voters said they supported a gas tax increase, according to a report from Salt Lake City TV station KSL about a poll that was conducted by the Exoro Group. 

via thehill.com

In other survey questions respondents indicated:

• that they strongly agreed with the statement: the thrill of paying 40% less to fill up the car is close to the intense high that can only be received from illegal and highly addictive drugs,
• they were strongly dissastisfied with the amount road congestion during rush hour, the deterioration in quality of roads, the riskiness of bridges and levels of air pollution, and
• they strongly agreed that it is a damn shame when people experience no discomfort when holding two or more contradictory beliefs, ideas, or values at the same time, a damn shame. 

Something else is wrong with your Hyundai and Kia

Just a few millions:

The Justice Department and the Environmental Protection Agency announced today that the Hyundai Motor Company and the Kia Motors Corporation would pay a combined $100 million penalty as part of a settlement for overstating vehicle fuel economy standards on 1.2 million vehicles, a violation of the Clean Air Act.

The penalty is the largest ever paid for violation of the Clean Air Act, government officials said.

via www.nytimes.com

Since the travel cost variable depends on the cost of fuel per mile and the cost of fule per mile depends on miles per gallon, all of the cost per mile estimates in recreation demand models suffer from measurement error. Proceed to retract your travel cost method journal papers.

Or, nevermind, the travel cost variable is so loaded with measurement error that this addition doesn't matter. 

Local foodies can't park

Surprise: Congress ignores the obvious

The Federal Highway Trust Fund will live on for another 6 months or so:

In April, Mr. Obama sent Congress a proposed transportation program that would spend $302 billion over four years, financed both by traditional gasoline taxes and the elimination of some corporate tax breaks. Senator Bob Corker, Republican of Tennessee, and Senator Christopher S. Murphy, Democrat of Connecticut, also proposed an increase in the gas tax to make up for more efficient cars and trucks that have sapped tax revenues as infrastructure needs have soared.

But Republican leaders have adamantly opposed anything that looks like a tax increase. Few Democrats have embraced Mr. Obama’s plan in an election year either.

The path to averting a funding crisis now appears clear, Senate Democratic and Republican aides say. With legislative days running short, Senator Harry Reid, Democrat of Nevada, the majority leader, is likely to ignore the bipartisan highway funding bill that emerged last week from the Senate Finance Committee and put the House’s version to a vote, likely just before the long August recess. That would obviate the need for House-Senate negotiations to iron out the differences between the bills.

The House’s overwhelming passage — 181 Republicans joined 186 Democrats to vote yes — was another in a series of defeats for conservative groups like Club for Growth and Heritage Action, the political arm of the Heritage Foundation, both of which had said they would score lawmakers negatively for voting for it. The most ardent conservatives have said the highway fund should go broke and responsibility for highways and bridges should return to state and local governments.

via www.nytimes.com

An increase in the gas tax is one of the more economically efficient policies that Congress could pursue. User fees, aka tolls, are also an efficient way to pay for roads. 

Two other things:

1. According to Josh Barro 3 days ago (This road work made possible by underfunding pensions), the new funding will lead to long term problems:

The latest proposal [for the Federal Highway Trust Fund ], which passed the Republican-controlled House Ways and Means Committee on Thursday, works like this: If you change corporate pension funding rules to let companies set aside less money today to pay for future benefits, they will report higher taxable profits. And if they have higher taxable profits, they will pay more in taxes over the 10-year budget window that Congress uses to write laws. Those added taxes can be diverted to the Federal Highway Trust Fund

Unfortunately, this gimmick will also result in corporations paying less in taxes in later years, when they have to make up for the pension payments they’re missing now. But if it happens more than 10 years in the future, it doesn’t count in Congress’s method for calculating budget balance. “Fiscal responsibility,” as popularly defined in Washington, ignores anything that happens after 2024.

A higher gas tax and tolls also happen to be fiscally responsible. 

2. Remember when states were in charge of environmental policy? I don't either since it was before 1970, but I've read and taught that it didn't work so well. States competed for firms by having low environmental standards. So, how would this work if states were in charge of their portion of interstate highways? My guess is that it wouldn't work out well as some states competed to attract firms with better roads and others competed with by having crappy roads (the motivation for this is something I don't really understand). 

Tax Miles? I still think I have a better idea...

The California Legislature is looking at a voluntary program that would tax motorists for every mile they drive.

KCAL9’s Bobby Kaple reports that Sen. Mark DeSaulnier, D-Concord, introduced a bill to test out the vehicle miles traveled (VMT) tax because the state’s gas tax was no longer bringing in the revenue it used to due to people driving more fuel efficient vehicles.

via losangeles.cbslocal.com

It's been almost exactly 7 years now (May 8, 2007) and people still aren't listening to me. 

Taxing miles creates perverse incentives for fuel efficiency.  A $0.015/mile tax (the size of the tax mentioned in the article) is the equivalent of a $0.015 * X tax per gallon where X is mpg.  In words, a mileage tax increases the tax per gallon the more fuel efficient the car.  Now granted, with higher mpg you use fewer gallons to drive an equivalent number of miles, and in the end, everyone driving 100 miles will pay the same tax.  And from a revenue perspective, that might be OK.  But there might be a way to kill fewer birds with one stone.

As I have written a number of times, a more straightforward proposal is to simply raise the gas tax.  Reaising the gas tax accomplishes a number of things 1) It raises revenue, 2) It discourages miles driven, and 3) It increases the incentive for higher fuel efficiency. 

Because my previous posts on this have been written with an ironic twist (I propose a mileage tax that is inversely proportional to fuel efficiency and then show that such a tax is the equivalent of a $1/gallon gas tax), here's the direct, non-ironic version:  A $1/gallon gas tax...

...places a higher burden on those driving less fuel efficient vehicles--that should satisfy those blaming the SUV drivers for all of the problems*.

...places a higher burden on those driving more.  By increasing the marginal cost per mile driven, total miles driven should decrease.

...assuming fuel efficiency and income are negatively correlated--that is, the rich tend to drive larger, more expensive, less fuel efficient cars--[higher gas taxes] place a higher burden on higher incomes.

...provides an incentive for drivers to switch to more fuel efficient vehicles.

It's really simple.  Why worry about complicated milage programs?  The gas tax infrastructure is in place.  Raise the gas tax and meet multiple public policy and economic goals simultaneously.