THE ECONOMIC COSTS OF FUEL ECONOMY STANDARDS VERSUS A GASOLINE TAX

Some Members of Congress and public interest groups have recently proposed raising the corporate average economy (CAFE) standards for automobiles. Proponents of CAFE standards see them as a way to decrease the United States' dependence on oil and its emissions of carbon dioxide (the predominant greenhouse gas). In this study, the Congressional Budget Office (CBO) estimates the costs that raising CAFE standards would impose on automobile producers and consumers. This study also extends previous research by examining the potential cost savings from instituting a system in which producers could trade fuel economy credits. Under that system, producers with high costs of complying with CAFE standards could meet the new standards by applying credits bought from producers that exceeded the standards. CBO also compares the costs of CAFE standards with those of a higher gasoline tax, an alternative policy for reducing gasoline consumption. Finally, CBO examines the available evidence on whether changing CAFE standards or the gasoline tax could improve social welfare, a general measure of society's well-being that includes not only the value derived from the goods and services that people consume but also factors that diminish the quality of life, such as pollution and traffic congestion.