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CAFE versus gas taxes – which works?

Higher gas taxes aren’t particularly regressive, and they work better than CAFE at reducing consumption.

Kevin Drum likes CAFE. He believes that gas taxes are highly regressive. He’s wrong. But which one ‘works’ better? His argument rests on the last 5 years of generally rising fuel prices versus vehicle sales.

The problem is that the rise in fuel prices recently has been seen by most Americans as the result of gouging, or the result of storms, or hippie environmentalists or <insert other crazy reason>. Key here is that all of those things are temporary. Now, if you’re one of the few people who follows the real oil situation you know that we’re probably in for a period of ever-higher spikes and plateaus (with intervening drops due to recessions, perhaps), but most people don’t know this stuff.

If you think the last couple of years are an anomaly, it doesn’t make sense to invest in a fuel-efficient car. Therefore, using that period as an example of how higher fuel prices don’t affect vehicle choice as much as CAFE did is foolish. Better to look at Europe, where CAFE-like standards don’t really exist; but at the time of vehicle purchase, it is understood that gas taxes are very high and likely to stay that way.

Anyways, CAFE doesn’t work half as well as a high baseline for gas prices does. The real reason? Once you buy your car, if gas prices/taxes are low, there’s no real incentive to leave it in the driveway on any given day. With higher gas prices/taxes, however, there is an incentive to leave it at home and take the bus, or carpool, or whatever.
Addressed as a quickie since so many people around the interweb keep repeating this canard.

3 replies on “CAFE versus gas taxes – which works?”

The question of whether gas taxes or CAFE “works better” can only be defined once you’ve specified what “works better” means. What are your goals? Less driving? Reduced fuel consumption? Increased tax collection?
If the goal is less driving or reduced fuel consumption, then I am not sold that gas taxes are more effective than CAFE. The demand for gas is incredibly inelastic.
What we are beginning to see is that some people are replacing low-MPG vehicles with high-MPG ones–the demand is not perfectly inelastic. I’m not aware that people are actually driving less, and because that involves matters of housing selection, public infrastructure, zoning, development patterns, etc, any such trend would take much longer to be evidenced. In a city like Austin, it is conceivable that a central-city resident could wind up driving *more* than someone strategically situated in a suburb. It’s going to take a long time for that to change.
The argument that CAFE results in more SUVs may have some truth to it, but that merely points out the glaring loophole in the CAFE standard, not a fundamental weakness in the idea of regulating mileage.

Gas taxes work better for encouraging fuel economy – as long as the gas taxes form a relatively high ‘floor’ for the price of gas. This is what worked in Europe. I DON’T mean another nickel here or there – we’re talking a buck or two.
They also work better for encouraging people to leave their car at home on any individual trip. Basically, they shift more of the cost of driving to each individual trip rather than to the initial purchase of the vehicle (all sorts of price shifts occur right now because of CAFE – making some vehicles cheaper than they would normally be and others more expensive).
Essentially, CAFE works ONCE – when you buy the car. Gas taxes work a little bit every day – one day you might ride your bike, the next day the bus, the next day you might drive, the day after that you might carpool.

I think M1EK’s comment that “CAFE works ONCE – when you buy the car” is overly optimistic about CAFE.
Not only does CAFE not work to reduce driving, it actually makes people drive more. If you have a more fuel-efficient car, the cost of any given driving trip is lower than if you have a less efficient car. So CAFE encourages more driving. That makes CAFE less effective at reducing gas use. And it means that CAFE actually WORSENS some other problems, such as traffic congestion.

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