Our analysis of tiered mileage-based user fees based on a vehicle’s fuel economy.
As policymakers work to balance transportation funding needs with environmental goals, many wonder: Should the fuel tax be replaced with a mileage-based user fee (MBUF), and should the per-mile rate be based on a vehicle’s fuel economy?
To better understand how fuel economy-based rate setting affects drivers, the Coalition performed a tiered rate analysis in our 2020-2021 National Truck Pilot and State Passenger Vehicle Pilot. Featuring 383 passenger vehicles in Delaware, New Jersey, North Carolina, and Pennsylvania as well as 221 trucks driving throughout the contiguous U.S., the analysis used four-tiered rate structures based on vehicle fuel economy:
| Tiered Rate Category | 2020-2021 State Passenger Vehicle Pilot | National Truck Pilot |
|---|---|---|
| High | 30+ MPG | 7-10 MPG |
| Average | 20-29 MPG | 5.5-7.0 MPG |
| Low | 0-19 MPG | 4-5.5 MPG |
| Very Low or Zero MPG | No MPG | <4 MPG |
In the pilots, vehicles with the highest fuel economy paid the lowest MBUF rates, while vehicles with a lower fuel economy paid a higher MBUF rate. (Note: all fees were simulated payments.)
Our analysis found that a tiered rate based on a vehicle’s miles per gallon (MPG) doesn’t work. That’s because the concept is difficult to explain to drivers, results in drastic differences in fees for vehicles with similar MPGs, and creates winners and losers.
A Difficult Concept to Explain
During our 2020-2021 pilots, participants and transportation officials both expressed the importance of simplicity when it comes to rate setting. However, a tiered rate model would involve complex classifications with separate sets of tiered rates for cars and trucks. This makes an MPG-based tiered rate structure more challenging to communicate to the driving public.
Communications directors within state departments of transportation expressed this concern and questioned how certain aspects of tiered rates may be communicated, including the basis for the categories, the MPG ranges, and the resulting rates.
Drastic Differences for Similar MPGs
Tiered rates that are based on MPG can result in drastically different charges for vehicles with similar fuel economies. These results can be seen among both commercial trucks and passenger vehicles.
For example, the National Truck Pilot included Company M, which had an average MPG of 5.50. This placed the company at the top of the 4.0-5.5 MPG range, or “low” MPG range, and at the bottom of the greater than 5.5/less than 7.0 MPG range, which was the “average” MPG range. Depending upon which category Company M is reported in, the company either pays $35,571 by being in the higher MPG category or $46,862 in the lower MPG category. This difference in MBUF – nearly $11,300 – is significant for a truck that falls on the line between two tiered rate categories.
| Company M | MPG | Total Miles | Total MBUF Calculations | Difference |
|---|---|---|---|---|
| Average MPG (> 5.5 – 7.0 MPG) | 5.50 | 380,009 | $35,571 | ($4,881) |
| Low MPG (4.0 – 5.5 MPG) | 5.50 | 380,009 | $46,862 | $6,410 |
The 2020-2021 State Passenger Vehicle Pilot saw similar results. Passenger vehicles with a small difference in MPG can also pay very different net MBUF values if they’re in different categories. For example, a vehicle with 29 MPG classified as having “average” MPG pays $42 annually while a 31-MPG vehicle with a “high” MPG classification pays just $15. This $27 difference is notable for two vehicles with MPG that are essentially the same.
| MPG | State Fuel Tax Paid | Tiered Rate Classification | Annual MBUF Paid |
|---|---|---|---|
| 29 (Average MPG) | $150 | Average | $42 |
| 31 (High MPG) | $141 | High | $15 |
Creates Winners and Losers
MPG-based tiered rates can potentially create unintended winners and losers. For example, a variable rate structure that charges lower per-mile rates on more fuel-efficient vehicles could cause lower income households and rural drivers to pay more in MBUF than they currently do in fuel tax, as these drivers tend to drive less fuel-efficient vehicles. Similarly, small, independently-owned truck fleets could also be negatively impacted if they are unable to purchase newer and more fuel-efficient trucks.
Future Phases of Work
The 2020-2021 passenger vehicle and truck pilots both identified significant flaws that must be addressed related to a tiered rate structure based on MPG to avoid penalizing certain vehicles. Our next phases of Coalition work will continue our study of the topic by exploring effective and equitable rate setting.
Note: More details about the 2020-2021 tiered rate analysis can be found in our report on the 2020-2021 National Truck Pilot and State Passenger Vehicle Pilot.
