Wednesday, November 18, 2009

Instruments to optimize on private vehicle use

A few days back, I had blogged about California's plans to implement pay-as-you-drive insurance policies that allow motorists to buy insurance based on the miles they drive.

Now the Dutch government has announced plans to introduce a miles driven based "green" road tax from 2012 by equipping each vehicle with a GPS device that would track how many kilometres are driven and when and where and use it to calculate the net tax payable. The proposal, aimed at cutting the carbon dioxide emissions by 10%, seeks to scrap ownership and sales taxes, about a quarter of the cost of a new car, and replace them with the "price per kilometre" system. The tax for a standard family saloon would start at 3 euro cents per kilometre (seven US cents per mile) in 2012 and would increase to 6.7 cents (16 US cents per mile) in 2018.

Per-mile pricing of auto insurance and road tax are aimed at optimizing on private vehicle use and more effectively internalizing externalities. It is hoped that such marginal pricing will increase the efficiency in private vehicle usage, relieve traffic congestion and increase road safety, besides reduction in carbon emissions.

(HT: Greg Mankiw)

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