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MIT study finds fuel economy standards are 6-14 times less cost effective than fuel tax for reducing gasoline use

In a study published in the journal Energy Economics, MIT researchers have found that a fuel economy standard is at least six to fourteen times less cost effective than a fuel tax when targeting an identical reduction in cumulative gasoline use (20% by 2050). The researchers also found that a binding fuel economy standard, combined with a cap-and-trade (CAT) policy, increases the cost of meeting the GHG emissions constraint by forcing expensive reduction in passenger vehicle gasoline use, displacing more cost-effective abatement opportunities.

The impact of adding a fuel economy standard to the CAT policy depends on the availability and cost of abatement opportunities in transport—if advanced biofuels provide a cost-competitive, low carbon alternative to gasoline, the fuel economy standard does not bind and the use of low carbon fuels in passenger vehicles makes a significantly larger contribution to GHG emissions abatement relative to the case when biofuels are not available.

This analysis underscores the potentially large costs of a fuel economy standard relative to alternative policies aimed at reducing petroleum use and GHG emissions. It further emphasizes the need to consider sensitivity to vehicle technology and alternative fuel availability and costs as well as economy-wide responses when forecasting the energy, environmental, and economic outcomes of policy combinations.

—Karplus et al.

The team used a modified computable general equilibrium model, the MIT Emissions Prediction and Policy Analysis (EPPA) model, to investigate the effect of combining a fuel economy standard with an economy-wide GHG emissions constraint in the United States. (Their modifications to the model were recently published in the January 2013 issue of the journal Economic Modelling.)

Tighter vehicle efficiency standards through 2025 were seen as an important political victory. However, the standards are a clear example of how economic considerations are at odds with political considerations. If policymakers had made their decision based on the broader costs to the economy, they would have gone with the option that was least expensive—and that’s the gasoline tax.

A tax on gasoline has proven to be a nonstarter for many decades in the US, and I think one of the reasons is that it would be very visible to consumers every time they go to fill up their cars. With a vehicle efficiency standard, your costs won’t increase unless you buy a new car, and even better than that, policymakers will tell you you’re actually saving money. As my colleague likes to say, you may see more money in your front pocket, but you’re actually financing the policy out of your back pocket through your tax dollars and at the point of your vehicle purchase.

—Valerie Karplus, the lead author of the study and a researcher with the MIT Joint Program on the Science and Policy of Global Change

Karplus and her colleagues found that it takes longer to reduce emissions under the vehicle efficiency standards. With more efficient vehicles, it costs less to drive, so Americans tend to drive more. Meanwhile, the standards have no direct impact on fuel used in the 230 million vehicles currently on the road. Karplus also points out that how quickly the standards are phased in can make a big difference. The sooner efficient vehicles are introduced into the fleet, the sooner fuel use decreases and the larger the cumulative decrease would be over the period considered, but the timing of the standards will also affect their cost.


  • Should a vehicle fuel economy standard be combined with an economy-wide greenhouse gas emissions constraint? Implications for energy and climate policy in the United States Karplus, V.J., S. Paltsev, M. Babiker, J.M. Babiker (2013) Energy Economics, 36: 322–333 doi: 10.1016/j.eneco.2012.09.001



No $hit! If we had done this 30 years ago when Lee Ioacoco had suggested, maybe GM and Chyrsler would have been making high quality smaller cars decades ago and we would not have had the late financial unpleasantness.


I read this again and am even madder at our worthless CYA politicians. Just put in a carbon tax and get rid of the subsidies for wind and solar, etc. The market will fix things in an efficient manner. Also, sorry Lee, it should have been spelled Iacocca.


We need both. Gasoline tax and higher fuel standards will ensure the we move in the right direction. The standards should be aimed at car electrification. We are very close to commercializing car batteries. Making more efficient Internal Combustion Engines is a spend of resources at this stage.


"MIT researchers have found that a fuel economy standard is at least six to fourteen times less cost effective than a fuel tax" and "With a vehicle efficiency standard, your costs won’t increase unless you buy a new car"

Well duh, I could have told them that. I've always managed to hold on to every car I've ever owned for at least 15 years - and then I've replaced them with another used car. Not this time though, this time I could afford to treat myself so my new car is a NEW car.




I don't know about Lee Iaccoca, but Ross Perot wanted a 5 cent per gallon tax every year for 10 years. By 2002 there would have been a 50 cent per gallon tax. I think Ross had that one right.


Common sense doesn't seem to attract enough voters to get elected? Ross Perot was on the right track but 5 cents/year/gal is no where high enough to make the majority think. Something like 2 to 5 cents per month per gallon with a $4/gal extra tax ceiling could do it.

Other ways would be:

1. variable (0% to 25%) purchase/sale tax based on car emission or fuel consumption..

2. variable registration fees ($0.0 to $1000+) also based on vehicle emissions or fuel consumption.

3. distance traveled road maintenance fee of $0.0 to $0.02 per mile) also base on vehicle emission or fuel consumption.

In other words, make the purchase and use of large gas guzzlers so costly that only the 1% or the 3% would use those monsters.

The huge new revenues generated could be used to promote electrified vehicles and pay off the national DEBT.

All above should be introduced and applied progressively to reduce the negative effects on the national economy.

With reduction of the national debt, income taxes for everybody making less than $60k/year could be progressively and selectively reduced by up to 50%.


Taxes were never intended to punish.


Ever hear of a sin tax?

However this fits better;


There is no hope that the US Congress will pass major incentive taxes or laws to favor electrified vehicles and reduce the use of ICEVs.

Politicians need all the $$B they get from Oil, NG and Coal lobbies to be re-elected.

Governance by the people for the people may have been true 200 years ago but has become completely meaningless since.


There is a hard limit on gas taxes simply because of rural areas.


Lower wages earners and rural areas would be compensated with lower income taxes. Diesel fuel could be taxed less.


All our rural areas pay only $0.053/kWh or (5.3 cents per kWh) like all urban centers for clean Hydro electricity. Everybody could use a mix of HEVs, PHEVs and/or BEVs and use an average of 70% less liquid fuels.

Real fuel cost would drop to ($4 + $4 tax = $8/gal x 0.30 = $2.40/gal) equivalent.

Diesel fuel for farms tractors, trucks and machines could be partly or fully new tax exempt.

People driving 4 x 4 very large pick-ups could buy smaller units or hybrid version.


If it's really a rural area they could grow their own fuel. Convert large trucks and farm equipment to run on methane and turn waste biomass into gas.

Kit P

“There is no hope that the US Congress will pass major incentive taxes or laws to favor electrified vehicles and reduce the use of ICEVs. ”

The reason is that BEV are a bad idea 99% of the time. It is like smoking. I do not smoke and I do not want to pay for others to smoke. I think smoking is a bad idea.

The ICE is a great invention. That is why we all use then even Harvey. I have no objection to limited incentives because 100% - 99% = 1%. When you look at all the cars on the road 1% is a lot of cars.

Take the money from Obama and his wife taking separate holidays that involved using lots of energy and buy BEV for the poor.

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