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

##### 21 February 2013

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.

Resources

• 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. However; http://www.youtube.com/watch?v=uBnlXGvA1Wk 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; http://en.wikipedia.org/wiki/Pigovian_tax 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.

“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.

By placing a tax on Gasoline your placing a tax on those most vulnerable to its fluctuations. On average its 8.4%($4155) of a families income. For the working poor its it's even higher. Most people work with fixed incomes, having a "necessity" that increases year over year would leave many destitute. Don't give me a spiel about mass transit/ buses, or any tax refunds for the lower classes, because in most cities in the US mass transit isn't even close to being effective, and refunds come but once a year, and we all know how great people are with budgeting and preparing for rough-times that we mandated healthcare and other programs. The average age of vehicle ownership is increasing because of the costs associated with purchasing a new car. To place an additional burden on families would weaken their chance of making such a purchase. Prices fluctuate all the time, and people are beholden to it, but to have it artificially increased would put a large unnecessary burden on those middle class and lower households. It not only affects the pump, but everything: food included. I truly wish owning a car wasn't such a need. Its one of the biggest expense that one can have, but alas there is no viable alternative. Until there is such an alternative, I don't think it should be taxed like most on here are suggesting... Maybe they can do an oil importation fee or something like that. “I truly wish owning a car wasn't such a need. ” A car is not a need, Billions do fine without them. A car represents freedom. With a car you are free to come and go as you please. The alternative to a car is finding a lifestyle that does not need a car. I do have a problem with taxing lifestyle. Those who make up the rules generally exclude themselves from following those rules. The second problem I have with those who make up rules for other to solve some problem is that the rules are ineffective at solving the problem. BEV produce more ghg than ICE and you loose the freedom that the ICE provides. I've ridden a bicycle to work once, I was off of work and wanted to see how long it would actually take. I am more than fit enough to do it but it is not practical and is extremely dangerous. When I have to be at work at 6am or stay past 11pm, or it rains, snows, or is below 40 degrees I am taking extraordinary risks... not to mention my time is worth something to me, two hours+ to get to work is not ideal, let alone riding at night. The only alternative would be to leave my job in search of something closer, or move closer to my job. Selling then purchasing a new house would take an excruciatingly long time, like 9 months maybe 2-4 if I sell well below what its worth. Leaving a job for a closer one is not always an option either, availably and wages are a huge factor why I chose my one job. There isn't a bus service(even if there were I doubt it would meet my schedule), there isn't a feasible way for me to get there under my own power, and its not practical that I leave my place of employment. Billions may be fine without personal transportation, but they don't live here in the US under these suburban influences. My job isn't my only obligation, I have school and familial obligations... I cannot satiate these without a vehicle at my disposal. Even if there were bus routes to all of these the distance and the timing would be so great that I would have to pick and choose between work or school. For most there simply isn't a choice in the matter, a car is needed. Rural areas especially, when the market/town is 20 miles away, either you have to be self-sufficient or you go hungry I wish H2 and BEV vehicles would become viable and commonplace sooner... Both scream for automation of energy production, if wind farms and solar arrays can ultimately grow with(or faster than) demand for these, then we'll see a net benefit. Local production, lower overhead, energy that is limited domestically(you cant sell electricity made in the USA to China as far as I am aware)-- which in turn allows for stability, predictability and a net benefit.(not saying renewables are THE way, but we could better utilize excess production) The ability to have solar or wind 100% utilized 100% of the time to produce H2 onsite, could help curve our import of oil... If the government mandated Big oil to provide gas stations with BEV chargers, and H2 pumps to be installed at a certain rate per year... sure this would drive prices up at the pump, but it would also lay the infrastructure down, this would instill confidence in consumers, manufacturers and suppliers, while not being seen as an attack on the poor/industry. Even if we gave incentives on top of the mandate...dirty word (but the 1%ers pay 33%+ of all income tax... top 5% pays 50%+ ) it would have less of an effect on the average joe than by raising taxes on gasoline, or placing a mandate by itself. I do have problems with the current BEV incentives we have now, as it take money from all and allows the privileged few to take advantage of it. ($40-110K cars.)
Infrastructure and other long term improvements circumvent this stigmatism I have, we know with almost a certainty that gasoline will not be cost competitive with H2 or battery vehicles in the upcoming years 5-10-20, but we all know its coming... when these pumps and charges are in place, a lot of the worries and concerns that most people have wont be an issue... sure you can buy a 200+mile range BEV now, but you still cant go cross county in it without dedicating a lot of time for charging. my idea could change this, move the infrastructure first then the car can follow.

@CheeseEater88

“For most there simply isn't a choice in the matter, a car is needed. ”

Of course there is a choice to use less energy, Cheese just chose to make a different one. I love how rich people invent justifications for being unethical.

I work in the energy production industry and I think it is great that our products give you choices.

I have a problem with the silly things people say when the expose one thing and do another. CheeseEater88 would stop being unethical if only we engineers would get around to inventing perpetual motion machines.

“I wish H2 and BEV vehicles ”

Why?

“Both scream for automation of energy production ”

Making electricity is automated.

“Local production ”

The you will have to make a choice to move where the renewable energy resources are. Just try to put a wind farm in CheeseEater88 backyard. Talk about the justifications the rich make.

“If the government mandated Big oil ...”

How about big government mandate CheeseEater88 only use 20 gallons of gasoline a month as long as we are importing oil? It is called rationing and it works very well.

If fact CheeseEater88 could start living a more ethical lifestyle right now instead of waiting for government to think of ineffective solutions.

“we know with almost a certainty ”

I am 100% certain that CheeseEater88 is wrong. What will we learn from all the R&D and applied incentives? We will learn that Kit is right and BEV & HFCV are a very bad idea.

The reason is obvious. The ICE is a marvelous idea. I am not sure who came up with the idea that ICE and the car in general is bad. I suspect it people who want to control the choices poor people can make.

"Tax me!, Tax me!" is not in my vocabulary, period. As many here know, I am fascinated with optimizing efficiency. However, doing it via an inflated energy tax is unfair, unconstitutional and incorrect. Consider what the additional tax will fund... It's not representing me as a motorist. It's funding welfare, public housing, war, or some other undesirable program.

We've made incredible strides in many fields. Cars today are more efficient and the trend will continue to improve, rapidly. Our programs often lead the world. (remember the Prius hybrid is based solidly on a TRW invention)

I drove an 85KWH, performance package, Model S the other day. Amazing car! That's what I am talking about. Big, comfortable, fast, efficient, capable. I want one, badly. Unfortunately, I don't have the means.

Don't drive costs up for everyone to fit your agenda. There is no reason to tax people in a confiscatory manner. The tax revenue should match the proper expenditures. Anything else is criminal.

Fuel taxes can work but they need to be quite modest to avoid having an overly regressive effect on people on lower incomes.

Look to the UK and similar countries in Europe and fuel prices, due to higher tax levels (60-65% of the pump price is made of taxes), is causing fuel poverty, especially for people who have to rely on their own transport to support their own lives. The majority of these people will drive cars that can achieve 40-50 mpg but they will still be screwed by the very high costs of fuel. Yet at the same time the landed gentry with a V8 petrol Range Rover will regard $10 per gallon as small change and a good thing as long as it rids the roads of the peasants. So, fuel taxes are only good if they are fair. So how about a$6 tax then? Would it be fair? I don't think so!

@cujet
“I am fascinated with optimizing efficiency. ”

Have you sought professional help for that compulsive disorder? Very rarely do you see someone with this disorder actually calculate the efficiency of something.

Rational people are interested in minimizing the cost of doing something. A simple example is the \$10 low flow shower nozzle that was mandated in 1996 by code. Very cost effective!

When you add up all the thing we do to conserve hot water use in a modern home, expensive hot water heat pumps are not very cost effective.

“I drove an 85KWH, performance package ”

You mean 85 kw! The amount of power you use depends on how you drive.

“Big, comfortable, fast, efficient, capable. ”

What a silly statement. You optimize efficiency by not 'big'. Is it more 'comfortable' than my recliner? Can you drive to work and back 'faster'? What do you want to do get speeding tickets or optimize efficiency The Tesla is not more 'capable' than my old pickup. It has been getting me back and forth to work and sometimes I haul a load of wood chips home.

“I don't have the means ”

What cujet lacks is imagination. Next time you are at stop light, pretend that you are at the drag strip. Make varoom, varoom sounds from deep in your throat. This is more fun when you have a teenage child with you because embarrassing your kids is a bonus.

Umm, Kit P,

The Tesla Model S I drove was the one equipped with the 85KWH battery. It's peak battery draw indicated at 315KW, or just over 400HP. The acceleration was quite impressive, and no "drag strip" noises were present or necessary. Just a very nice, quiet and significant rate of acceleration.

Not a chance that you and your ilk will shoehorn me into a tiny vehicle, just to fit your agenda. This is not Europe, I am not a subject and won't be party to that. Today, we can make large, comfortable vehicles that consume less energy than in the past.

And, you can't fool me. There is no shortage of energy. There is, however, much wasted energy. Big difference.

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