Car-sharing is gaining popularity in cities across the United States. The idea is simple: car-share companies or cooperatives park hundreds of cars in convenient locations that any member can rent by the hour. Most car-share programs cost about $8 to $12 per hour, including gas, insurance and maintenance.

On the face of it, car-sharing is a economical and eco-friendly way to get around. Zipcar has about 40 members sharing each car in their national fleet. That’s certainly better than 1 car per person, right? Perhaps. If your goal is to reduce the total area dedicated to parking a vehicle, it does indeed free up valuable urban space. If, however, your goal is to reduce traffic congestion, smog, or reliance on fossil fuels, the jury’s still out.

Car Sharing Increases Mobility - and Traffic - Amongst Urbanites

Car-sharing is most appealing to urbanites who choose to live in densely-populated cities in part to avoid car ownership. Zipcar and Flexcar have both built a business model on enhancing the mobility of these groups. The consequence of increased mobility, unfortunately, is that more urbanites are driving alone. According to a study sponsored by the Federal Transit Administration, 26% of users reported driving more as a result of car sharing.

Flexcar and Zipcar are for-profit companies, and each has recently received $20 million in investments. Those investors expect profit, and that profit will be generated largely by getting more people to drive more of their cars. Most privately-owned cars spend 95% of their time parked. Shared cars have much higher usage rate - most users are unlikely to pay $10 per hour to just to park their car somewhere (which is why commuters who drive to work are unlikely customers for car-sharing). In short, car-share companies generate revenue when people drive those cute little Zipcars around town. (Sorry, but the Flexcars are significantly less attractive. It looks like their marketing department went out for a drive and had a fender-bender with their new logo).

Like public transportation, the economics of car-sharing only make sense with high urban density. In fact, car-sharing is a substitute for other transportation options, many of which are better for the environment. When asked what people would do if a shared car were not available, nearly half of respondents said that they would have taken public transportation or not made the trip at all. It appears that half the time shared cars are used, they have the potential to increase traffic.

This is balanced by another effect of car-sharing: People are more aware of how much they drive. If a user factors in the cost of a Flexcar for a quick trip to the grocery store, the price of a gallon of milk could soar from $3 to more than $10. And that suits the car-sharing business model. Flexcar and Zipcar need high usage rates to remain profitable. But forty members sharing a single car means that each week, a member can only reserve a car for an average of 4 hours. If a member wants a car during premium hours after work or on the weekend, car-share members had better plan ahead: members have an average of about 1 premium hour per week.

Getting Suburbanites Out of Private Vehicles and Into Shared Cars

Although urban car-share members may drive more, suburban users help account for the 46% of drivers who reported that they drove less after they started using car-sharing. Although the FTA report concluded that, “many studies show no statistically significant change (in vehicle miles traveled),” car sharing helps fill a mobility gap created by insufficient public transit in the car-centric suburbs. Suburban two-car households can significantly reduce their expenses by switching to one car plus what Zipcar calls a “fractional second car.” And this may help reduce vehicle miles driven (VMT). Arlington, a northern Virginia suburb of DC, reported that the average car-share member reduced their VMT by 43% between 2005 and 2006.

For now, shared cars are focused on the more densely populated areas with populations that are inherently less reliant on car culture. Flexcar and Zipcar have about 75% of their total fleet in the District of Columbia despite the fact our 515,000 residents make up only 10% of the total DC metro population. Even in close-in suburbs like Arlington, 83% of the 3,500 car share members live in the densely populated Metrorail corridor.

Car Sharing Eases Parking Pressure

Densely populated areas stand to gain the most from car-sharing for a reason that may not be immediately obvious: parking pressure. Despite what urban dwellers may believe, even un-metered street parking is not free. Street parking is public land where private citizens are allowed to store their vehicles. Any taxpayer without a car is effectively subsidizing vehicle owners. All parking spaces have an opportunity cost. That is, there is the opportunity to use that space for something else that is forfeited when we park our cars on the street.

Convenient parking also reinforces America’s car culture. Albuquerque, New Mexico, for example, devotes more land to parking than to all other land uses in the city combined. According to Donald Shoup, the author of The High Cost of Free Parking, 15% of parking spaces must be open at all times or people will be dissuaded from driving. Car share minimizes this problem for neighborhood street parking because its parking spaces are permanently reserved. This means less time, and less traffic, caused by people driving around looking for a spot near home.

How Shared Cars Can Create Bike Lanes

Eliminating the need for free street parking is indeed a worthy goal. Anyone experienced with urban biking has had nightmares about a driver’s door whipping open in front of them. Bike lanes alleviate some risk by granting a wider berth to cars parked curbside, but according to WashCycle, U.S. cities often build bike lanes too close to parked cars. Michael King at University of North Carolina-Chapel Hill advocates at least 14′ from the curb to the edge of the bike lane, but this guideline is ignored by many U.S. cities. This may explain why many cyclists refer to bike lanes as “suicide lanes.”

So what would happen if U.S. cities accepted shared car culture as the norm? Statastic used a Northeast Capitol Hill neighborhood as an informal case study to find out. Assuming that the neighborhood has the same average density as the rest of DC, there are about 4,000 people living in an area about 6 long and 11 blocks wide.

Now for the assumptions. According to census data, about 18% of DC residents drive by themselves to work. We’ll let them keep their cars. Another 28% are car owners who either carpool or don’t drive to work. We’ve decided that one-third of them will be converted to car sharing and will give up their cars. The remaining 32% of DC residents over age 18 don’t have a car, so let’s assume that 100% of them become car share members. The result is that 1,600 of 4,000 residents in this neighborhood are now full-time car share members.

Using the Zipcar ratio of 40 members per car, the neighborhood will need an additional 33 shared cars, bringing the total to 40. Zipcar claims that each shared car replaces 15 to 20 private vehicles, and that means more available street parking. Those 40 shared cars in northeast DC could replace 800 private cars, freeing up twelve miles of street parking. Eliminating street parking on one side of a 44′ wide road would also liberate about 16% of the pavement. Wider bike lanes could be added, existing traffic lanes could be widened, and wider lane for street parking would eliminate risk of getting doored while biking by.

The best part is that by increasing the density of shared cars, there would likely be a tipping point where it would become increasingly popular. As people convert to shared cars, the distance between the average resident and a shared car shrinks. Another way to look at it is that with a high conversion rate, the number of cars within three blocks of any resident would increase from 2 to 15. That means more cars to choose from: hybrids for quick city trips, trucks for hauling, or a convertible Mini for a weekend away.

How could we get to this tipping point? Taxing the free parking along city streets would be a start. To give an idea of how valuable the land is that DC residents park their cars on, consider that the going rate for a private parking spot is about $200 in the Dupont area of DC. Taxing street parking could be done in conjunction with proportionally lowered property taxes to avoid political backlash from homeowners. Although cities won’t necessarily generate more income from street parking taxes, residents would understand the real cost of parking and could make a rational economic decision about car ownership.

Shared cars and biking everywhere. Does the car-free life sound like a pain? It’s easy to get used to - Statastico does it every day.

Today’s announcement that British Petroleum would be taking crude oil production offline to make urgent repairs drove up oil prices to $77 a barrel. So what about those renewable resources we keep hearing about? We want to break the oil addiction!

Ethanol is indeed sparking renewed interest and a flurry of investment in the U.S. Most of the 3.9 billion gallons of ethanol came from corn and was used in the states where it was grown. Impressive until you realize that Brazil produces 4.8 billion gallons of sugarcane-based ethanol, providing about 40% of their annual gasoline needs.

We have been producing ethanol-based fuels in the United States for decades. Most of the Midwestern states (see charts below) that benefit from $4 billion in corn subsidies have an available 10% mix of ethanol in their gasoline. And with low corn commodity prices, high gas prices and a lack of ethanol refining in the Midwest, it has created the perfect investment storm.

Profit from Archer Daniels Midlands’ (ADM) corn bioproducts increased from $259 million to $446 million this year, and they have aggressive expansion plans. According to today’s Barron’s:

“In the past year, the difference between ethanol [prices] and corn prices has soared from less than 50 cents to about $3.10 a gallon…. That’s lifted the annual return on capital for some ethanol plants toward 50% and set off a stampede of new investment in ethanol refining.”

So it will come as no surprise that the ethanol industry has a strong lobby to protect itself. It’s a twisted relationship. The federal government’s price supports and subsidies regularly create overproduction of corn. This drives corn prices lower suppressing world prices (something the developing nation’s rightly bemoan).

Some of this surplus is used for ethanol. Why? Refineries - and consumers - are incentivized by a $.51 per gallon tax credit for 10% ethanol-based gasoline. Ethanol producers also enjoy significant trade protection in the form of a 2.5% ad valorem tariff and import duty of 54¢ per gallon of ethanol.

In August, 2006, Amani Elobeid and Simla Tokgoz from Iowa State University published a paper that analyzed the economic effects of removing these protections:

“The study finds that the removal of trade distortions induces an increase in the world price of ethanol and a decrease in the U.S. domestic ethanol price, which results in a decline in U.S. ethanol production and an increase in consumption. Consequently, U.S. net ethanol imports increase significantly….”

The Iowa State paper shows that if we were to remove trade barriers and the tax credit, we would see a 14.46% price drop in ethanol for consumers. Ethanol currently makes up 10% of our gasoline in a limited number of markets in California and the Midwest. Lifting trade barriers would allow Brazilian ethanol to more easily reach ports on the East Coast.

Yet we continue to protect ethanol refineries. ADM Chief Executive Patricia Woertz told Barron’s that “ethanol demand could triple. ‘It looks like it has room to grow to 14 billion or 15 billion [gallons per year],’ she said, ‘which is a full 10% blend in the gasoline pool in the United States.’”

Barron’s analysis of the ethanol market was about as sheltered as the heavily-protected ethanol refining industry: “Unfortunately, before ethanol refiners can reach that goal [14 billion or 15 billion gallons per year], they might reach the limits of the country’s corn supply. America’s entire corn crop would satisfy just 12% of gasoline consumption, leaving no corn to feed livestock and humans.”

No corn to feed our delicious cows? Once we remove ADM’s trade protections and give the Brazilians a new market for their ethanol, we should have plenty of corn to feed those future Big Macs. It will help our farmers counteract the predicted 1.7% drop in domestic corn prices, and it might help lift some desperate Brazilians out of poverty.

Didn’t most of us learn competitive advantage in econ 101? This may be a good time for Congress to brush up.

Sources: Statastic research; Environmental Working Group - Farm Subsidy Database

Trade model based on scenario 2 in the following paper: “Removal of U.S. Ethanol Domestic and Trade Distortions: Impact on U.S. and Brazilian Ethanol Markets,” Amani Elobeid and Simla Tokgoz, Working Paper 06-WP 427, August 2006, Center for Agricultural and Rural Development, Iowa State University

With crude oil prices hovering around $75 per barrel, big oil companies once again announced record profits yesterday. Congressional inquiries into price fixing went nowhere, primarily because oil companies don’t need to fix prices. They have a U.S. population addicted to driving (never mind what makes the car go), high switching costs, and fuel standards that make China look progressive.

How did this happen? After the record oil prices in the late 1970s - prices that produced the 1981 U.S. historical high of $3.01 per gallon (in 2006 dollars) - Corporate Average Fuel Economy (CAFE) standards were made more stringent. From 1978 to 1981, U.S. car and truck fuel efficiency standards rose by 24%.

Then came the cheap oil of the 1990s and the SUV revolution. As a percentage of income, the average American was able to buy three times more gas in 1998 than they could in 1980. Fuel standards reflected the cheaper oil. CAFE standards in 1983 were 24.8; in 2004 the average was 24.7 miles per gallon (MPG). The U.S. has long lagged behind Europe in fuel efficiency standards, but more surprisingly, even the developing world makes us look bad.

China’s red-hot economy has meant a rapid shift from bicycles to cars, and the government is taking stern measures to increase fuel efficiency. One major difference with the U.S. CAFE standards is that Chinese standards are based on weight rather than class of vehicles. The lightest vehicles in China were required to get 38 MPG in 2005, increasing to 43 MPG by 2008. Contrast that with the U.S. CAFE standard of 27.5 MPG for cars.

The United States fuel efficiency peaked nearly two decades ago, and today the oil companies are posting record profits. But don’t blame the oil companies. They’re just small-brained, carnivorous, profit-making sharks that swim and devour money. It’s the bloated American, SUV-loving consumer that we should blame for willingly wading into these shark-infested waters. Chomp!

Notes & Sources: # Historical Real GDP per capita is in 2006 dollars. 2006 GDP estimated by statastic.com using latest Economist forecasts. Gas prices are the annual average gas price and were adjusted to 2006 dollars.
^CAFE fleet standards for cars and trucks. 2005 and 2006 data unavailable, so 2004 standards of 24.7 MPG were used.