Marginal-Cost Vehicle Mileage Fee

The vehicle mileage fee is a strong candidate to mitigate the funding gap in surface transportation caused by the declining purchasing power of fuel tax revenue, the emergence of hybrid and electric vehicles, and more restrictive corporate average fuel economy standards. This study computes the vehicle mileage fee on the basis of the marginal cost of travel and internalizes various externalities such as congestion, infrastructure deterioration, pollution emissions, and greenhouse gas emissions. Multiple regression models and discrete choice models are developed on the basis of the 2009 National Household Travel Survey data to analyze the impacts of the proposed marginal-cost vehicle mileage fee on vehicle ownership, fuel efficiency, vehicle miles traveled, energy consumption, emissions, and equity. In addition, the sensitivity of these impacts to exogenous fuel price volatility is estimated quantitatively. Results show that with consideration of all aforementioned externalities, the marginal-cost vehicle mileage fee by vehicle make and model would range from 7.7 to 9.1 cents/mi, which is much higher than the per mile equivalent of the current fuel taxes (about 1.2 cents/mi). Household vehicle use behavior is much more sensitive to the marginal-cost vehicle mileage fee than vehicle ownership decisions, with a significant (27.1%) reduction in vehicle miles traveled, but a minor increase in vehicle fuel efficiency (up to 4.2%). Nevertheless, the marginal-cost vehicle mileage fee can reduce energy consumption and pollution or greenhouse gas emissions by about a fourth. These sustainability benefits are even more significant if fuel prices continue to increase. Without consideration of the benefits from revenue redistribution, lower-income households, as expected, would be hurt more than higher-income households (1.3%).