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Posts Tagged ‘Transportation’

Will natural gas ever catch on as an important transportation fuel?

Yes, argues MIT Professor Christopher Knittel, in a new discussion paper for the Hamilton Project. Given the now-enormous spread between gasoline and natural gas prices, Knittel thinks that natural gas vehicles should become increasingly popular. Here, for example, are his calculations of the lifetime operating costs for various vehicles using gasoline or natural gas (click to enlarge, and be sure to read the caveat in the footnote): 

As you would expect, the biggest potential savings accrue to the most fuel-guzzling vehicles, heavy-duty trucks in particular.

Knittel does not believe, however, that the private market will exploit this potential as fast or extensively as it should. He thus proposes policies to accelerate refueling infrastructure build-out and to encourage natural gas vehicles. Here’s his abstract:

Technological advances in horizontal drilling deep underground have led to large-scale discoveries of natural gas reserves that are now economical to access. This, along with increases in oil prices, has fundamentally changed the relative price of oil and natural gas in the United States. As of December 2011, oil was trading at a 500 percent premium over natural gas. This ratio has a number of policy goals related to energy. Natural gas can replace oil in transportation through a number of channels. However, the field between natural gas as a transportation fuel and petroleum-based fuels is not level. Given this uneven playing field, left to its own devices, the market is unlikely to lead to an efficient mix of petroleum- and natural gas-based fuels. This paper presents a pair of policy proposals designed to increase the nation’s energy security, decrease the susceptibility of the U.S. economy to recessions caused by oil-price shocks, and reduce greenhouse gas emissions and other pollutants. First, I propose improving the natural gas fueling infrastructure in homes, at local distribution companies, and along long-haul trucking routes. Second, I offer steps to promote the use of natural gas vehicles and fuels.

His “steps to promote the use of natural gas vehicles and fuels” are subsidies and regulations. Regular readers will recall that I believe environmental taxes would be a better way of addressing environmental concerns and, in particular, of promoting natural gas over gasoline. Of course, that view hasn’t gained much traction among policymakers. As least not yet.

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The Highway Trust Fund will soon be broke. Gasoline tax revenues haven’t kept up with spending, and it’s likely that demands for new highway infrastructure will grow in the future.

Joseph Kile, head of the microeconomics studies division at the Congressional Budget Office, discussed various policy options to deal with this funding gap in his testimony to the Senate Finance Committee on Tuesday. Most news coverage of Joe’s testimony emphasized his suggestion that taxes based on miles traveled, rather than gasoline consumption, might be a better way to finance America’s highways. After all, miles traveled is, along with weight, the primary driver of wear and tear on the roads. And it’s a decent proxy for the benefit that drivers get from having functioning roads.

That’s an interesting idea, but I’d like to highlight another important point that Joe made: the amount of infrastructure America should build depends very much on how we price it.

If a six-lane highway gets congested, that doesn’t necessarily mean that we need to build new lanes or lay out parallel roads.

We could charge congestion fees instead. That would discourage driving at peak times and thus speed traffic without new construction. That’s what London and Singapore famously do to limit traffic in their downtowns. And it’s something we should more here in the United States.

Joe reports estimates from the Federal Highway Administration (FHWA) that congestion pricing could decrease highway spending needs by 25 to 33 percent:

The federal government spent about $43 billion on highway investment in 2010. To maintain the same quality of highway performance would require an average of $57 billion in annual federal spending in coming years, according to the FHWA. That price tag drops to only $38 billion, however, if we make good use of congestion pricing. Congestion pricing would thus save federal taxpayers almost $20 billion per year; state and local governments would save even more, since they pay for more than half the costs of these projects.

Congestion pricing can make our roadways work better, save Americans precious time, and reduce federal, state, and local budget pressures. That a great combination in this time of growing infrastructure needs and tightening budgets.

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