The Economic Costs of Fuel Economy Standards Versus a Gasoline Tax
12/1/2003
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) studyprepared at the request of the Senate Committee on Environment and Public Workscompares 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.
Authors: Austin, D.; Dinan, T.
Notes: Copies of this document can be downloaded from the Congressional Budget Office Website at: ftp://ftp.cbo.gov/49xx/doc4917/12-24-03_CAFE.pdf.