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A Survey on living with the car: Taming the beast - The hidden costs (part 3 of 7)
22-Jun-96
Why politicians handle cars with great care
IAIN CARSON
THE invisible hand of the market finds it harder to get a proper grip on private motoring than on almost anything else. Space on the roads is allocated largely without help from market mechanisms (traffic jams are simply old-fashioned queues on wheels), and clean air comes free for the polluting motorist. Although cars are responsible for phenomena such as air pollution, noise and congestion, 'it is neither travel nor the automobile per se that is a problem, but rather the externalities that arise in transportation itself,' according to Lee Schipper of the International Energy Agency in Paris, one of the OECD's traffic experts.
There is no clear relationship between the benefits of a car trip and the social costs incurred. Car-related taxes paid by motorists often add up to much more than government spending on roads, but the taxes are usually levied on the car itself, not on its use. If drivers were made to pay more of the true cost of each trip, they might either travel less or use public transport, which usually causes less pollution per passenger. Either outcome, or a mixure of both, would make it easier to live with the car.
Studies by the World Resources Institute (WRI), an environmental research group, put the social costs of driving in the United States - that is, those not paid directly by motorists - at $ 300 billion a year, or 5.3% of GDP. That works out at about $ 2,000 a year for each car and covers items such as building and repairing roads, loss of economic activity from congestion, the cost of illnesses caused by air pollution and medical care for the victims of 2m accidents a year. Other estimates range up to 12% of GDP for America and 4.6% for Europe. A limited OECD analysis concluded that typical social costs of land transport in most developed countries were at least 2.5% of GDP, with accidents responsible for four-fifths of the costs and air pollution for the remainder. Road vehicles account for nine-tenths of the total. The study excluded congestion and wider aspects of pollution such as acid rain.
The urge to splurge
Not only is the car not paying for the social costs of its use, but economic forces are at work to ensure that these costs keep rising. Economic growth promotes car ownership and travel. The increase in mileage has probably been helped by the fall nearly everywhere in the inflation-adjusted price of petrol, back to its level before the first oil shock in 1973. Since real incomes over the past quarter-century or so have risen by 20-40%, depending on the country, the fuel cost of motoring has dropped dramatically for most people. Predictably, attempts to make cars more economic have fallen by the wayside. Once the OPEC oil producers' cartel had collapsed in 1986, the improvement in fuel economy made over the previous decade went into reverse. Europeans in particular have been buying larger and heavier cars with bigger, more powerful engines, spurred by the subsidies employers offer on company cars. Engines of all sizes are still becoming more efficient and economical, but people are increasingly choosing more power rather than smaller fuel bills.
In a more roundabout way, the same has been happening in America. At first sight Americans seem to have junked all their old gas-guzzlers for cars not much more than half the size, half the weight and with half the fuel consumption of the bad old days. But that is only half the picture. One private vehicle in two sold in America today is a big, chunky off-road model, such as a Jeep or a pick-up. Federal fuel-economy regulations (known as Corporate Average Fuel Economy, or CAFE) set a limit of only 20 miles per American gallon for pick-ups, compared with 27.5 mpg for the saloon cars in a manufacturer's fleet.
The cars of the big three makers (General Motors, Ford and Chrysler) look so alike because virtually all of them have a compact, sideways-mounted engine driving the front wheels to meet the CAFE rules. But light trucks can still have big engines at the front driving the back wheels, the closest Americans can get these days to the feel of the big 'muscle cars' Detroit was so famous for until OPEC ran them off the road. All that the federal fuel-economy rules have done is distort the market.
America's fuel regulations are a blatant example of political fears protecting cars from being taxed more heavily. In the absence of such protection, price signals to the consumer would soon spur the technological innovation that could quickly halve fuel consumption and pollution. The CAFE rules, for example, were introduced in 1975 as a response to OPEC's oil-price increases because American politicians were afraid that voters would react badly to a hike in fuel prices caused by higher tax. Studies have shown that a 10% rise in fuel prices cuts consumption by only 3%, so any tax increase would have to be hefty to reduce fuel consumption.
Driving ambition
No wonder, then, that American cars consume on average twice as much fuel as those in Europe and Japan, where fuel taxes are higher but there are no regulations along CAFE lines. Americans continue to own more cars and drive more miles in them: the average American car driver travels almost 20,000km (about 12,400 miles) a year, whereas the European one does only 14,000km. This does not have much to do with the size of the country: most trips are urban, with an average length of about 14km, the same as in Britain and somewhat less than in Germany. Part of the answer is that buses and trains in America account for barely 3% of travel mileage, whereas in Europe the figure is over 15%. The rest of the answer lies in the sprawling low-density structure of American suburbs, which involve greater distances between home and shops, schools and other amenities.
'Cheap gasoline forever, whatever' is an unwritten part of the American constitution, as demonstrated by the furore last spring over a 20% rise in petrol prices (caused largely by a cold winter and hiccups in the oil market). Hence the paradox that the freest market in the world eschews the price mechanism and applies command-and-control regulation to a central aspect of its economy. Jean-FranHcois Poncet, a former French foreign minister, once said that 'it's hard to take seriously ? the proposition) that a nation has deep problems if they can be fixed with a 50-cent-a-gallon gasoline tax.' His view was that if only American politicians had the nerve to tax petrol more heavily they could trim their consumption of imported oil, while at the same time balancing the government's books.
In general terms, most western governments are coming round to the environmental-control principle that the polluter pays. However, until now this principle has been hard to apply to road transport. There is much talk about road pricing, but its role in limiting pollution is mainly an indirect one: it reduces congestion, which in turn adds to pollution and poor fuel economy (of which more below).
Tax increases on fuel provide a crude link between pollution and payment; they work insofar as they encourage drivers to travel less or to switch to a vehicle with better fuel economy, which is less polluting. In America, where petrol costs less than bottled water, large tax rises are unlikely to be acceptable. However, new technology (smart-card electronics and the growing computerisation of car and lorry engines) could now provide more sophisticated ways to make the polluter pay: the levy could be directly related to the amount of pollution caused by each particular vehicle.
For example, environmentalists in Germany have suggested installing a smart card in the electronic engine-management system that would record the pollution emitted by a vehicle. It would be read during periodic inspections, and the information passed on to the tax authorities, which would send the motorist a bill.
Another method is being tried in Sacramento County in California. Surveys have shown that over half the pollution is caused by only about 10% of the car fleet, smoking old clunkers that are either not inspected at all or taken to garages where bribes can procure a certificate. In Sacramento, roadside sensors will run an infra-red beam across the tail-pipes of passing cars. Excessive levels of smoke or pollutants will distort the beam and trigger a camera to take a picture of the offender's licence plate. The problem will be to make the measurements accurate enough to avoid a flood of disputed cases.
Given enough time and experimentation, it should eventually be possible to provide systems that close the loop between pollution caused and payment made by the polluting driver. But this will not happen unless politicians make some perhaps unpalatable choices. As long as they dither, the incentives to introduce less-polluting alternatives to the internal-combustion engine will be slight.
© 1996 The Economist Newspaper Limited. All rights reserved
