Unfortunately, most of the options for implementing that tax--higher tolls, congestion pricing and gas taxes--are not very politically feasible, especially with today's high gas prices. So what to do? Well, according to Dubner and Levitt, the answer is to be found in automobile insurance. Here's the problem: given two drivers, one that drives 30,000 miles a year, and one that drives only 3,000 miles a year, the first driver is imposing 10 times more costs on society from his driving than is the second driver, yet both pay the same amount for their car insurance. The solution to fixing this imbalance, known as pay-as-you-drive (PAYD) insurance, was first seriously considered by the President's Council of Economic Advisers in the late 90's. At the time, there was a concern that enough research hadn't been on the subject in order to implement it. Well, that research has been completed and the researchers have found that "PAYD insurance would work well, reducing the carbon emissions, congestion and accident risk created by too much driving while leading drivers to pay the true cost of their mileage," with a total societal benefit of $52 billion dollars a year.
And now, Progressive Insurance has begun offering PAYD insurance in six states under the name of MyRate. Here's how MyRate works:
Drivers who sign up for MyRate will install a small wireless device in their cars that transmits to Progressive not just how many miles they drive but also when those miles are driven and, to some extent, how they are driven: the device measures the car’s speed every second, from which Progressive can derive acceleration and braking behavior. Which means that Progressive will not only be able to charge drivers for the actual miles they consume but will also better assess the true risk of each driver.
This plan could, of course, simply result in less revenue for Progressive, since low-milage drivers will pay less for their insurance. If Progressive raises rates on high-milage drivers to compensate, there's nothing to stop them from switching to other insurance companies. However, "if Progressive’s PAYD insurance can induce some of its high-mileage customers to drive less and especially to drive more safely, resulting in smaller claims payouts for Progressive and fewer negative externalities for everyone, then it could truly be a win-win-win situation."
See Also: ::Friedman on "The Green Road Less Traveled", ::Bloomberg Congestion Fee a No-Go, ::The True Price of Oil: Poverty and Death in Nigeria, ::The Oil Drum Looks at Some Transportation Energy Options, and ::Cure Air Traffic Congestion: A Systems Based Solution?