Carbon Tax, VMT Fee, and Future Transportation Costs

In November, I wrote “Choose Your Poison: Higher Toll Fees or Higher Fuel Taxes?” where I highlighted the challenges faced by states and the federal government to fund transportation infrastructure projects (click here for other related postings).  Well, based on a couple of developments last week, there are actually more than two poisons available, and you’ll probably end up having a mixed cocktail of them all.

Last Thursday, the National Surface Transportation Infrastructure Financing Commission (NSTIFC) released its Final Report (click here to download it).  First, a little bit of background.  The Commission was formed two years ago by Congress and it was charged with “analyzing future highway and transit needs and the finances of the Highway Trust Fund and making recommendations regarding alternative approaches to financing transportation infrastructure.”  In a nutshell, the Commission was tasked with finding ways to close a $68 billion-per-year gap between the revenues the Highway Trust Fund collects (long-term annual average of $32 billion) and the required infrastructure investments of nearly $100 billion per year.  The table below from the report summarizes the various revenue options the Commission evaluated.

Source: National Surface Transportation Infrastructure Financing Commission

Source: National Surface Transportation Infrastructure Financing Commission

In addition to raising the federal gasoline tax by 10 cents a gallon (15 cents a gallon for diesel) and indexing future increases to inflation, the “consensus choice” of the Commission is the Vehicle Miles Traveled (VMT) fee.  In the words of the Commission:

A federal funding system based on more direct forms of “user pay” charges, in the form of a charge for each mile driven (commonly referred to as a vehicle miles traveled or VMT fee system), has emerged as the consensus choice for the future. The Commission cast a wide net, reviewed many funding alternatives, and concluded that indeed the most viable approach to efficiently fund federal investment in surface transportation in the medium to long run will be a user charge system based more directly on miles driven (and potentially on factors such as time of day, type of road, and vehicle weight and fuel economy) rather than indirectly on fuel consumed. At the same time, this choice for the federal system provides a foundation for state and local governments that choose to use it to develop their own mileage-based systems that piggyback on the federal system in order to raise their share of needed revenues in ways that spur more efficient use of the system.

The concept is modeled after the Oregon VMT Pricing Pilot Project conducted in 2006 (the Commission report briefly summarizes this project, but for all the details, see “Oregon’s Mileage Fee Concept and Road User Fee Pilot Program” by James M. Whitty).  According to the Commission report, “the [Oregon] pilot project demonstrated that the concept of moving to a comprehensive pricing scheme is viable, but it also underscored that a variety of technical, administrative, and public concern hurdles will need to be overcome before comprehensive pricing could be implemented at statewide or national levels.”  For these and other reasons, the American Trucking Associations issued a press release last week critical of VMT.

The other big news last week was President Obama’s proposed budget for 2010, which includes revenues projections (at least $646 billion through 2019) from a “cap-and-trade” program that has yet to pass Congress.  As a leading emitter of carbon dioxide, the transportation industry will surely be in the crosshairs of such a program .  Not surprising, a “carbon tax” is also one of the ideas evaluated by the NSTIFC.

The bottom line: planning and managing your transportation costs will become much more complex down the road.  If you thought dealing with fuel surcharges and toll fees was a challenge, you haven’t seen anything yet.  And this is another reason why “managing transportation with spreadsheets and fax machines” will no longer be an option for most companies, at least those that want greater visibility and control of their transportation costs. 

The assumption, of course, is that transportation management systems (TMS) software vendors are paying attention to these trends and are preparing for the day when their procurement, rating, reporting, and financial settlement solutions account for carbon taxes, VMT fees, and whatever other “revenue options” get introduced. 

This added complexity is also an opportunity for logistics service providers, particularly those with the analytics expertise and tools to help their clients with transportation cost planning and management, and those that develop innovative services to mitigate these increased costs-i.e., develop effective antidotes to these poisons.