Fuel Subsidies and the Greening of Transport

| David Levinson

Stephen Leahy interviewed me about transport subsidies and their effect on demand. He wound up writing this article for China Dialogue: US fossil fuel subsidies a brake on sustainable transport (which doesn’t cite me), so I will post the interview questions and my answers:

Sources report the US oil industry gets approx $20 billion in production subsidies annually.  This keeps many high-cost operations like fracking profitable.
1. Do these subsidies have an impact on mass transit use?
Yes, but not much, the US purchases like 374 million gallons per day,  or
136,510,000,000 gallons per year, which is about $ 273,020,000,000 ($273B) per year at $2/gallon. So if your estimate of subsidy is right, that is about 10% of the price. The price of fuel varies that much on weekly basis.
2. How does such subsidies impair efforts to improve/expand mass transit systems?
The more demand for driving, the less for other modes. The lower the price of driving, the more demand for driving.  Transit use rises when the price of fuel rises.
3. How does low gas prices affect political priorities given to transit
Even if the price of fuel were two times higher (like it was 8 or 9 years ago), transit demand would only be somewhat higher.
In 2008 US ridership was  10,597,931,000
In 2015 it was  10,609,605,000. According to APTA.

Which is a 0.1% increase. Over the same period, US population increased about 5%. (320M in 2015, 304.09 million in 2008) So if fuel prices were the same as 2008, one would expect transit ridership would have at least kept pace with population (say 5% higher). Obviously that would increase the political pressure for more transit service, but that’s a more than 100% increase the price of fuel gets you a 5% increase in ridership. A 10% increase in fuel prices (the magnitude of the subsidy) might get you a tenth of that increase (in the neighborhood of 0.5%). Of course there is no guarantee that eliminating the subsidy would increase the price of fuel by the same amount, since the price of fuel at the pump is determined by global market forces, and the US is one player among many, and not the low cost producer.

4. Any impacts on greening transit systems?
If the price of fuel were higher, systems would have a greater incentive to invest in electrical or natural gas fleets, but again, this is a really small effect given the relatively small size of the subsidy.
5. What are the main barriers to greater transit use and better transit systems?
Demand is low because transit is inconvenient (especially compared to the alternative) for most people in the US making most trips. It is a positive feedback system, but this works two ways. More transit service begets more ridership begets more transit service. Less service begets less ridership begets less service. We have followed the second pattern since the late 1940s, and transit ridership has been a very small share for most of a century now. There is no reason to believe that, outside large central cities, transit is a viable transportation alternative for most people in the US. And with cars set to get cheaper and more convenient (see point 2), it will remain that way. Certainly in large cities, particularly those places developed in the transit era of before 1930, transit could have a larger market share than it does now. Most of the US is not like that though.
6. Also if the US taxed gasoline as much as most European countries would the EV market take off?
It would help accelerate things, but the EV market will take off anyway because EVs will be cheaper than ICE engines to both build and operate.