| |
|
|
| The Economic Costs of Fuel Economy
Standards Versus a Gasoline Tax |
| |
December 2003 |
|
JupiterImages and © Photodisc/GettyImages
In recent years, there has been renewed interest in the Congress in policies that would reduce gasoline consumption in the United States. That interest has been motivated primarily by concerns about the nation's energy security and about the risk that carbon emissions, 20 percent of which come from gasoline consumption, may affect the Earth's climate. This Congressional Budget Office (CBO) study--prepared at the request of the Senate Committee on Environment and Public Works--compares the economic costs of two methods for reducing gasoline consumption: raising the corporate average fuel economy (CAFE) standards for passenger vehicles and increasing the federal tax on gasoline. In analyzing CAFE standards, the study also estimates the potential cost savings from allowing automakers to trade fuel economy credits with one another as a way of complying.
The study breaks down the costs that each of the alternative policies would impose on both producers and consumers. Further, it discusses the prospects for CAFE standards to improve social welfare given that the existing gasoline tax also provides consumers an incentive to buy more-fuel-efficient vehicles. In keeping with CBO's mandate to provide objective, impartial analysis, this study makes no recommendations.
David Austin and Terry Dinan of CBO's Microeconomic and Financial Studies Division wrote the study, under the supervision of Roger Hitchner. CBO's Robert Dennis, Richard Farmer, Arlene Holen, Deborah Lucas, and Tom Woodward provided valuable comments, as did Robert Carroll (formerly of CBO); Andrew Kleit of Pennsylvania State University; Kenneth Small of the University of California, Irvine; and Ian Parry of Resources for the Future.
John Skeen edited the study, and Juyne Linger proofread it. Cecil McPherson provided research assistance. Angela Z. McCollough typed the tables in the draft. Maureen Costantino designed the cover and prepared the study for publication, and Annette Kalicki prepared the electronic versions for CBO's Web site.
Douglas Holtz-Eakin
Director
December 2003
| |
Summary
|
| 1 |
Introduction
The Rationale for Decreasing Gasoline Consumption
The Existing CAFE Standards and Gasoline Taxes
Three Policy Alternatives
|
| 2 |
Methods and Data
Analyzing CAFE Standards
Analyzing the Gasoline Tax
Limitations
|
| 3 |
Results
Measurement Concepts
The Relationship Between Increases in CAFE Standards and Reductions in Gasoline Consumption
Total Long-Run Costs
Consumers' and Producers' Shares of the Total Long-Run Costs
Total Long-Run Costs for Firms Buying Credits and Firms Selling Them
Cost Savings and Gasoline Savings in the First 14 Years
The Long-Run Effects of Increasing CAFE Standards on the Passenger Vehicle Market
Could Increases in CAFE Standards or the Gasoline Tax Improve Social Welfare?
|
| Tables |
| |
|
| S-1. |
Total Long-Run Annual Costs to Achieve a 10 Percent Reduction in Gasoline Consumption Under Alternative Policies |
| 3-1. |
Total Long-Run Annual Costs to Achieve a 10 Percent Reduction in Gasoline Consumption Under Alternative Policies |
| |
|
| Figures |
| |
|
| S-1. |
The Effects of CAFE Standards with Trading Versus a Gasoline Tax Over the First 14 Years |
| 3-1. |
Gasoline Savings from Raising CAFE Standards by an Equal Number of Miles per Gallon for Both Cars and Light Trucks |
| 3-2. |
Costs of Reducing Gasoline Consumption Through More Stringent CAFE Standards, With and Without Credit Trading |
| 3-3. |
Costs per Vehicle of More Stringent CAFE Standards, With and Without Credit Trading |
| 3-4. |
Domestic and Foreign Producers' Costs for More Stringent CAFE Standards, With and Without Credit Trading |
| 3-5. |
The Effects of CAFE Standards with Trading Versus a Gasoline Tax Over the First 14 Years |
| 3-6. |
The Effect of More Stringent CAFE Standards on Sales of Cars and Light Trucks |
| |
|
| Boxes |
| |
|
| 2-1. |
Can Higher CAFE Standards Be "Free"? |
| 3-1. |
Effects on Markets Not Included in This Analysis |
|
Skip Navigation
