Transportation's Role in Reducing U.S. Greenhouse Gas Emissions ...

Transportation’s Role in Reducing U.S. Greenhouse Gas Emissions: Volume 2
The assumption that simply switching from a fixed to a variable price will have a strong
impact on drivers’ behavior is uncertain, and is based primarily on responses measured
among those who might be more interested in achieving insurance cost savings. A
Minnesota study estimated that only 11 percent of households would participate in a
voluntary program (Cambridge Systematics, 2006); therefore the overall VMT reductions
for a voluntary program would be much less.
PAYD systems can be implemented within a few years, as administrative and mileage
tracking systems are established. Once implemented, they can have immediate impacts on
VMT and GHG emissions. The effects will increase somewhat over the first few years of
implementation, as travelers can make more structural adjustments (such as changing
residential or activity locations) in response to price signals.
Cost-Effectiveness
Implementation costs for full nationwide applications of PAYD insurance are estimated to
be of the same magnitude as implementation costs for VMT fees, since the same mileage
information would need to be collected. Based on the similar VMT fee cost estimates,
PAYD would cost $131 billion through 2050 if based on mechanical hubodometers, with a
net present value of $61 billion. Over 40 years, this cost is $3.3 billion per year. More
effective electronic systems are estimated to cost $230 billion through 2050, with a net
present value of $166 billion. Over 40 years, this cost is $5.7 billion per year. These costs
could potentially be borne by private insurance companies and/or vehicle owners, and
would be offset by reduced aggregate premiums (see “cobenefits”).
The cost-effectiveness of PAYD on a nationwide basis, considering only direct
implementation costs, has been estimated to range from a high of $90 to a low of $30 per
ton GHG reduced, with the lower value corresponding to a more aggressive level of
implementation as previously described. Considering vehicle operating cost savings, net
cost-effectiveness is in the range of -$900 per tonne, a net savings (Cambridge Systematics,
2009).
Cobenefits
By shifting more of the insurance costs onto high-mileage drivers, PAYD may benefit
lower-income drivers (who tend to be lower-mileage drivers). Interestingly, since a
minority of high-mileage drivers is responsible for the majority of driving within each risk
class, Bordoff and Noel (2008) estimate that auto insurance premiums would decrease for
two-thirds of households under a PAYD system (while increasing for the remaining onethird).
PAYD insurance is also expected to result in a reduction in crashes and related
insurance claims that are disproportionate (1.34 times) to the mileage reduction (FHWA,
2009). There is also an equity benefit to having those that drive more and therefore are
likelier to have more crashes pay a higher share of insurance costs.
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