Environmental Pricing Policies for Transportation: A Distributional Analysis of the Twin Cities

Abstract

As the cost of transporting people increases, questions about paying for the accompanying air and noise pollution increase. This report investigates the distribution impacts of environmental pricing policies on groups in the Twin Cities. The study uses data on travel behavior in the Twin Cities to examine the distributional impacts of three types of environmental pricing policies: a $.65 optimal downtown, peak period congestion fee; a 10 percent gasoline tax; and a 50 percent transit fare reduction. It evaluates each policy in terms of aggregate welfare costs, revenues, emissions reductions, and cost-effectiveness and looks at distributional impacts by using four groupings--income, region, gender, and age. The study found that the congestion fee and gasoline tax are regressive, with the burdens of these taxes increasing with income and decreasing as shares of income. The transit subsidy, on the other hand, disproportionately benefits low-income individuals. Other findings show the advantages and disadvantages to urban and suburban commuters and noncommuters and senior citizens.