Tuesday, February 4, 2020

The $64 Billion Massachusetts Vehicle Economy

Policymakers and budgetary analysts have long argued that roads are heavily subsidized. The diffusion of spending among federal, state, and local government entities, along with the complexity of indirect costs, make it difficult to understand the fully loaded cost of the vehicle economy. Individual families may track the personal costs of car ownership to their budgets, but they rarely consider the total cost of operating and maintaining the vehicle economy because the vast majority of roads and parking areas are provided free at the point of use. This study is intended to increase transparency regarding road-related spending and to provide a comprehensive estimate of the economic cost of Massachusetts’ vehicle economy.
By B137 - Own work, CC BY-SA 4.0, https://commons.wikimedia.org/w/index.php?curid=48998674
The Massachusetts’ vehicle economy is based on nearly 37,000 miles of public roads, adjacent parking areas, and 4.5 million private passenger cars and light trucks. This system provides conduits for exchange and movement for millions of families, businesses, and services in the State.

[The authors] conclude that the total annual cost of the vehicle economy in Massachusetts is approximately $64.1 billion. Over half this amount, some $35.7 billion, is borne by the public in the form of state budgetary costs, social and economic costs (road injuries and deaths, congestion, and pollution), and the value of land set aside for roads and parking. The remaining $28.4 billion falls on private consumers in the form of financing and operating their vehicles.

Several important conclusions follow from [their] analysis. First, the public costs of the vehicle economy are substantial – amounting to $14,000 per family in Massachusetts, regardless of whether they own a vehicle. Second, this cost is highly subsidized by non-road users – just 1/3 of state budgetary costs (amounting to $5.7 billion) are covered by user fees and gas taxes. Third, the economic impact is regressive: non-car owners typically are lower income and disproportionately from minority communities.

The full cost of the vehicle economy should also throw into perspective the cost of investments in public transportation projects, because the counterfactual of simply relying on roads and vehicles is not free. For example, previous studies have found that that the North-South Rail Link would incur a one-time cost of $3.8 to $12.3 billion.

Publicly borne costs are resources, which include money, time, and land. Massachusetts residents incur these costs regardless of whether they own or operate a vehicle. We categorize this $35.7 billion in annual costs into three categories: public budgetary costs, indirect and direct economic costs, and land value commitments.

[Note that GHG emission costs are estimated at $1.28 billion and pollution costs at $1.2 billion.]
The cost of pollution relied on Parry and Small’s research that established a baseline of $0.019 in pollution damages per mile of vehicle traveled (Parry and Small 2005).15 The number of vehicle miles traveled (VMT) in Massachusetts was identified from Federal Highway Administration data (Office of Highway Policy Information 2018). The baseline cost was multiplied by the annual VMT in Massachusetts to arrive at a yearly cost of vehicle-related pollution.

Greenhouse Gas Emissions
The cost of greenhouse gas emission relied on the widely-cited cost of carbon, $40 per metric ton (Parry and Small 2009; “Technical Support Document: Social Cost of Carbon for Regulatory Impact Analysis - Under Executive Order 12866” 2010; “The Social Cost of Carbon” 2017).16 The annual amount of metric tons of carbon dioxide emissions from vehicles in Massachusetts was determined using data from the Federal Highway Administration the Energy Information Administration (“Table MF-21 Highway Statistics 2017 - Policy and Governmental Affairs: Highway Policy Information” 2019; “Greenhouse Gases Equivalencies Calculator - Calculations and References” 2015). The cost of carbon was multiplied by the number of metric tons emitted to determine the cost of greenhouse gas emissions.
Implications for Income Distribution
Policymakers may consider the large subsidy dedicated to the vehicle economy in several dimensions. The public costs of the vehicle economy do not result in equitable access across different social and economic classes in the state. According to the National Equity Atlas, over 90 percent of White households in Massachusetts have access to a vehicle. This compares to 74.3 percent for Black households and 73.7 percent for Latino households (“Car Access - Massachusetts” 2018).

Paris Climate Agreement passes the cost-benefit test

The Paris Climate Agreement aims to keep temperature rise well below 2 °C. This implies mitigation costs as well as avoided climate damages. Here we show that independent of the normative assumptions of inequality aversion and time preferences, the agreement constitutes the economically optimal policy pathway for the century. To this end we consistently incorporate a damage-cost curve reproducing the observed relation between temperature and economic growth into the integrated assessment model DICE [ Dynamic Integrated Climate-Economy model]. We thus provide an inter-temporally optimizing cost-benefit analysis of this century’s climate problem. We account for uncertainties regarding the damage curve, climate sensitivity, socioeconomic future, and mitigation costs. The resulting optimal temperature is robust as can be understood from the generic temperature-dependence of the mitigation costs and the level of damages inferred from the observed temperature-growth relationship. Our results show that the politically motivated Paris Climate Agreement also represents the economically favourable pathway, if carried out properly.
[The authors] find that the 2 °C target represents the cost-benefit optimal temperature for the base calibration (Fig. 2a). This calibration involves the best estimate8 of the temperature–economic growth relation in the past and the original ECS [equilibrium climate sensitivity] value in DICE-2013 of 2.9 °C, which is at the centre of estimates for several decades. Higher ECS values shift the level of target warming for which the mitigation-cost curve diverges to infinity to higher values (Fig. 1), i.e. they incur substantially higher mitigation costs. For ECS of 4 °C, for instance, the 2 °C target becomes too costly. Yet, with an optimal target warming of 2.4 °C the deviation from this target is not large. For smaller ECS values, e.g. of 2 °C, limiting warming further to well below 2 °C is economically optimal. Regardless of the exact ECS, the optimal mitigation efforts promise a significant damage reduction compared to the BAU [business-as-usual] scenario (~14% for ECS of 4 °C, ~10% for ECS of 2.9 °C, and ~8% for ECS of 2 °C). These efforts are, as also claimed by the Paris Agreement, ambitious (Article 3)1 and involve very stringent measures from the outset (Fig. 2c).
Fig. 1: Illustration of universality of the cost-benefit climate analysis.

Cumulative mitigation costs (green curve) and climate damages (black curve) as a function of Earthʼs warming level give the total climate costs (red curve). Mitigation costs diverge for present-day warming and converge to zero for unmitigated warming. The damages are zero for zero warming and increase with temperature. The characteristic steepness of the mitigation curve implies that beyond a certain damage level the economically optimal temperature (which minimizes the total costs) becomes insensitive to a further increase in damages. For example, increasing (black dashed) or decreasing (black dotted) the damage level by half of the initial damage level does not change the economically optimal warming level significantly (grey area).
Fig. 2: Temperature increase, damage costs, and carbon emissions under cost-benefit optimal policy for three different climate sensitivities.
The black curves are associated with the original calibration of the climate sensitivity of 2.9°C; the blue curves with a 2°C climate sensitivity and the red curve with a 4°C climate sensitivity. The inset figures allow comparing the economically optimal temperature development and damage costs with their corresponding values in the BAU scenario.
by Nicole Glanemann, Sven N. Willner & Anders Levermann 
Nature Communications https://www.nature.com/ncomms/
Volume 11, Article Number: 110; (2020); Open Access; Published: 27 January 2020