Point Of View: Gas Taxes Are Better Than Fuel Economy Rules--Discuss

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With the announcement of final rules for corporate average fuel efficiency of 54.5 mpg by 2025, the NHTSA and EPA have done two things.

The agencies have given carmakers both a major technological challenge--double the effective gas mileage of your vehicles in 12 years--and something they have long wanted: regulatory certainty.

If the definition of a good compromise is that no one is entirely happy with it, then perhaps the new, stiffer CAFE requirements are good indeed.

But many economists, industry executives, and  policy wonks feel that stiffer gas-mileage rules are not the best way to reduce gasoline consumption.

The problem is that they throw the entire burden onto carmakers, rather than getting consumers to change their behavior to demand less of the commodity.

If gasoline prices in the U.S. were in line with those in almost every other industrialized country--closer to $8 a gallon than $4--consumers would be incentivized to cut their consumption, both by buying different cars and by driving less.

You can argue that we've now spent 60 years designing a built suburban environment that requires a car to survive.

Already, Federal gas-tax revenue isn't nearly adequate to cover the road repairs it's supposed to fund to make that suburban Utopia possible.

Certainly, in the currently poisonous political environment, raising gas taxes is a non-starter. Even proponents like GM CEO Dan Akerson and Ford Motor Co. chairman Bill Ford acknowledge that.

Advocating raising any tax for any reason, in fact, appears to be roughly equivalent to proposing government-sponsored matricide.

Nonetheless, yesterday an economic analysis in The New York Times made the case that higher gas taxes would be a better, and more cost-effective, way to cut gasoline consumption than are the new CAFE rules.

Gas prices, San Francisco, CA

Gas prices, San Francisco, CA

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It's a well-reasoned case, with lots of data.

Read that article here, and then give us your reactions. Are the current CAFE regulations really the best way to cut our gasoline use?

Would a predictable, gradual rise in the gas tax be better (especially if the revenue raised were rebated directly to the drivers who paid it)?

Or are the new 54.5-mpg rules the only thing we can practically enact in the current political climate?

Leave us your thoughts in the Comments below.


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Comments (23)
  1. Completely stupid analysis. The truth is that both CAFE and higher gas taxes have an impact on fuel efficiency. The further truth is that no one has run any controlled experiment to see the relative impact of CAFE versus taxes on the fuel efficiency landscape. Either one approach is tried or the other, therefore the result of the alternative choice is unknown.

    Also, how daft are these economists anyway? Why do they think these vehicles will be any more expensive than the current ones? Aren't people already buying the largest most expensive cars they think they can afford (Voelcker rule)? If so, they will be forgoing some options (leather seats) in the future to pay for efficiency (hybrid drive). Therefore no more expensive.

  2. I think the analysis is valid. CAFE rules don't work. Gas price is the ONLY major impact. Here is the perfect example why: Hummer.

    Hummer existed b/c consumer demand. GM wasMORE THAN WILLING to pay the penalty and make up the "CAFE average" by selling small and "cash losing" fuel efficient cars to compensate for the "HUGE PROFIT" generated by the Hummer sales. Was it shortsighted? Absolutely. But it made "short term" business sense at the time.

    Even Toyota did it with FJ Cruiser, Sequoia. Nissan did it with their ARMADA, QX56... Those two company didn't suffer as much b/c they still had profitable small and fuel efficient cars.

    But at the end of day, it was gas price that killed Hummer NOT CAFE rules.

  3. To be fair, Hummer was never a very successful brand and died from low profitability. The death also occurred in an exception environment where annual sales dropped from 16M/year to 6M/year. Not exactly a controlled study.

    But in any case, the goal of CAFE or Gas Taxes isn't kill brands like Hummer, it is to shift the average population of vehicles more to the fuel efficient side.

    Also, to say CAFE rules don't work would be to ignore the rapid rise in fuel efficiency in the early 1980's. Best guess is that is primarily due to CAFE, and secondarily due to gas price (but we just don't know).

    In most cases, I suspect that CAFE accelerates the move to greater efficiency, but there are weaknesses.

  4. Hello...recession helped, probably the primary reason, kill Hummer too. Stupid folks had far less disposable, literally, income to spend on expensive, wasteful, low resale value crap like Hummers immediately before and during the great recession.

  5. Xia you are thinking too black and white here. Read my post for a different perspective on the article n this topic.

  6. John, I don't think you can just assume that consumers will decrease cost elsewhere just because the overall cost of a vehicle will go up. A lot may depend on income levels, of course, but I don't know too many people who are going to pass on options like leather seats to make up for the added costs that better mileage will obviously require.

    Personally, why would I give up anything if my vehicle costs $3k-$4k more but saves me more than that? Most people keep a vehicle for many years and I just don't think as many will sacrifice comfort as you think.

    But perhaps I'm just spoiled and willing to pay more than most...?

  7. The average sale price of a new vehicle in the usa (at least a couple of years ago) was $29,000. This tells me that people are not buying cars at the low end of the market. They are spending as much money as they think they can afford. If they think that $29,000 is the most they can afford, they will get a vehicle in that price range regardless of MPG.

    Personally, I was shopping for a Prius or a Sienna. The Prius was less expensive.

    I just object to the economists having a "static" model of consumer purchasing behavior. It seems unreasonable.

  8. Good comments before John but you screwed up here. Just because the "average" new vehicle in the USA is $29K doesn't mean most are buyers are paying that price or even very near that price. Expensive sport and luxury vehicles probably did pull that average price higher due to their prices being n the $50K+ range as opposed to the many under or near $20K subcompact, compact, and midsize cars.

  9. They woulld buy a used car like they want.

  10. And where is the discussion of the successful FeeBate program used in France? This revenue neutral policy creates incentives for people to buy more fuel efficient vehicles.

    And too, where is the discussion of peer pressure. Why not have the EPA label show a grade from A to F based on efficiency. Hell, have them spray paint the letter on the rear bumper of the car. Who knows, might be more effective than either CAFE or taxes. Taking it one step further, place an MPG gauge on the rear bumper of every vehicle. Perhaps that will get people to pay attention.

  11. John u went overboard here too...like your enthusiasm though....

  12. "It's a well-reasoned case, with lots of data."

    Well, you are assuming the general public have the brains to understand reason and logic.

    Remember that half of the population are on the "other side of the IQ bell curve"...

  13. Most of the data in the article is either wrong, suspect, not cited, or not relevant or supporting the authors claim.

  14. Johnny V,

    Well thanks for bringing about a topic to debate which we can do little if any action about. As admittedly the author Porter relays, the feds raising gas taxes currently or any time soon is VERY unlikely. However, the issue is worthwhile to discuss but the article has flaws and does not include a few relevant items. I also offer a "test" market for the much higher taxes scenario.

    Corrections/problems w/ article:
    1) Most other industralized nations have much higher gas taxes because they must.
    Most of these countries do not produce oil in significant amounts or any at all to supply their oil needs. And many of these countries must import their oil from unstable, undemocratic nations a long distance away.

  15. So, for the industrialized nation to be less dependent on the importing crude, they tax it....heavily. Much of the taxes are spent on incentives or research for renewables to be even less dependent on imported oil.

    The above situation is different for the US. We produce much of our own oil for consumption and most of our imports come from our cozy, immediate neighbors to the north(Canada) n south(Mexico).

    2) Porter assumes US driver behavior is tremendously elastic and that they are not now using fuel efficiency as a primary factor in purchasing new vehicles.
    Many, if not most, Americans are already have changed their driving behavior at $4/gal in terms of driving less as well as purchasing the most efficient vehicles.

  16. Porter assumes that association is causation when gas prices went up in 2008 and gas use/miles driven fell a few points. Hello? The US was in the middle of the great recession n millions of fewer workers were commuting cause they were recently let go.

    3) Porter spouts out many of his numbers w/ no footnotes or even specific names to the groups or "government" agencies he does cite. Where's the proof?

    4) Just BS w/ the 72mpg for the Brit Fiesta.
    Yes, the US Fiesta gets 33mpg combined...which is about tops in its class btw. But show me a Fiesta anywhere that gets 72mpg combined on unleaded! The devil is in the details here I think. I suspect Porter is using just the hwy mpg for the smallest diesel Fiesta. Any one got the facts?

  17. @Erik: Re/your point (4), I haven't checked but I suspect that not only is it highway mileage for the most fuel-efficient Fiesta Econetic diesel, but that Porter may have overlooked the fact that British gallons contain 25 percent more liquid than U.S. gallons (5 quarts, IIRC, not 4), so all U.K. mileage quotes must be adjusted for U.S. comparisons.

    Then there's the difference in test cycles, since the EPA ratings are usually tougher for identical cars than the Euro ratings.

    Moral here: Make sure comparisons are apples to apples.

    FYI, here's a 2011 article on the Focus Econetic:

  18. Finally, even though Porter's article is very flawed, not comprehensive, and does not persuade the reader to honestly believe that vehicle efficiency is worse then raising taxes for lower gas consumption, higher US gas taxes would be another good tool.

    Since the feds won't act soon, why not have some of our fair states deploy the higher gas tax? These states should have most of their driving populations a considerable distance from other nearby lower gas tax states.

    Geographically states like HI, AK, TX, AZ, OR, WA, FL, NV, NM, and many others fit. Politically its likely only HI, CA, OR, WA, and NM could do it soon. Slowly, up 3% a year, raise the gas tax to 50% of cost of a gallon of gas. Gas tax revenue goes to road maintenance only

  19. Well two points come to mind.
    1. Gas taxes haven't kept pace with inflation. Let's face it, asphalt is way more expensive than it was 10 or 20 years ago.
    2. Ask anyone pumping 100$ of gas into their car if they wished their car got better mileage and if they would have paid a couple of hundred bucks for better mpg?

  20. A "Gas and Energy Tax" with $1500/yr TAXPAYER refund (also called "Revenue Neutral Carbon Tax") is much preferable to CAFE standards. A GAS TAX will lose you an election. It is an imputed income tax on non-taxpayers; get it neocons???

    CAFE standards cause more driving, more vehicles, traffic congestion, commute times, accidents, road rage, and obesity, gas taxes less.

    The $1 increase in gas prices 4 years ago resulted in 18% less vehicle miles driven, according to a 2008 news report, and not the recession.

    With GAS TAXES, you and I could drive any car we want, "just pay the gas tax". Less traffic equals better MPGs. It's a boon for bike riders. For the poor, a $12999 new car @35-40mpg is reliable though not for driving hither and yon.

  21. We need less cars on the road, not twice as many, or driving twice as much. Please note the "Taxpayer Refund" means you have to file income taxes. Those who don't file, don't get it: teenagers, scofflaws, unlicensed and uninsured drivers, gray market incomes, tourists, etc .

  22. Gas taxes destroy economies slowly - ie. see Europe.
    High MPG goals are very good becaus companies can design and deliver new products that trickle down through the economy. I'd rather see cheap gas being used for employees to get to work to design something that is high mpg. It's a for-the-positive change rather than a forced cultural negative (the gas tax). A whole lot of poor people are out there and gas prices are impacting them now.

  23. Why not convert the tax from an absolute fixed, per gallon, number to a pretax percentage of cost per gallon, and then, let higher prices do all the raising of the tax’s absolute value)?

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