Over at the Harper’s Magazine blog,economist and author Dean Baker discusses pay-as-you-drive car insurance.
[T]here is one thing we could do now that would change how people consume gasoline. We could switch from the current way in which people pay for auto insurance to a pay-by-the-mile system. Such a switch might reduce annual gasoline consumption by as much as 10 percent, without raising the cost of insurance for an average driver. The key is to change the way that people view the cost of driving their car.
I’ve got nothing to add to that—except that, given the recent rise in gasoline prices, the estimate for a 10 percent reduction from shifting to PAYD might be a bit too high.
We are a nonprofit. Donate now to support more research like this!
Also relevant to PAYD is this news from The Oregonian, about the state’s experiment in replacing the state gas tax with a pay-by-the-mile system.
I’m of 2 minds about this idea. On the minus side, replacing the gas tax with a per-mile tax means that hummers pay no more tax for driving a mile than hybrids do—which hardly seems fair, given that hummers pollute more and use more road space than hybrids.
Also on the minus side, the per-mile tax is designed to maintain highway funding even if the average fuel economy of the vehicle fleet rises. Money for maintaining highways is fine, but I’m not so sanguine about a tax system that guarantees new money for roads. (I’ve also got some privacy concerns with per-mile systems, but don’t know enough about the technology to know if those are justified.)
On the plus side, though, the same technology that’s used for a per-mile system can be leveraged for other sorts of innovative ideas—smarter insurance pricing, comprehensive road and congestion pricing, and so forth—that could reduce driving far more than a relatively piddling gas tax of 24 cents-per-gallon. After all, that works out to only about a cent per mile—maybe a cent and a half if you drive a gas guzzler.
Generally speaking, reducing how much people drive is a good thing, since driving has all sorts of “external costs“—noise, accident risk, road space and maintenance costs, barrier effects for pedestrians, etc.—that generally accrue by the mile. Even in a world full of efficient hybrids, we’d probably be doing ourselves a favor by creating the incentives to ensure that drivers—all of us—pay our fair share.