Analysis: Study raises tax vs. CAFE issue

Jan. 6, 2004 at 4:31 PM
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SAN DIEGO, Jan. 6 (UPI) -- Doubling gasoline taxes would likely be a more efficient means than higher automobile mileage standards of cutting the nation's consumption of gasoline, although chances are slim that Congress would going along with such a politically unpalatable move, a group of economists concluded.

The Congressional Budget Office concluded in a recent study that raising Corporate Average Fuel Economy standards by 3 miles per gallon, enough to cut U.S. gasoline consumption by 10 percent, would cost automakers $3.6 billion while bumping up the gasoline tax by a theoretical 46 cents would cost $2.9 billion, which would come out of the pockets of consumers.

"While older cars are on the road, the gas tax increase will be much more effective because it causes immediate changes in driving habits," David Austin, one of the authors of the CBO report, said this weekend at the annual meeting of the American Economic Association.

"Overall fuel economy could rise on its own if Americans lose their love affair with SUVs (sports utility vehicles)," he added.

Raising CAFE standards is seen as both an effective environmental tool to reduce air pollution, and a step toward reducing the United States' dependence on foreign oil imports from the Middle East.

The National Highway Traffic Safety Administration announced Dec. 22 it would take comments on proposed changes to CAFE standards for cars that have been in place for 20 years. No specific mileage target was proposed, however the CBO report calculated raising the current level of 27.5 mpg to 31.3 mpg would achieve a 10-percent cut in gasoline use over 14 years, the estimated time it would take for the lower-standard vehicles to gradually be replaced by the higher-mileage models.

"The gasoline tax alters the makeup of the vehicle fleet from newer large cars to newer small cars," observed Antonio Bento, an economist from the University of California at Santa Barbara and a speaker at the session.

But there was not much optimism at the AEA session that the laborious report, which some attendees called one of the more sophisticated and detailed looks ever taken at the economic side of the CAFE controversy, would change the current debate in Washington.

"There are political reasons why Congress will want CAFE before a gas tax increase, but that doesn't mean it's OK," University of Texas economist Don Fullerton told the session. "It's up to academics to keep pointing out that there are ways that are better."

American automakers enjoyed a boost in recent years from the return to popularity of larger, more powerful vehicles packed with muscular V-8 engines that were once synonymous with the gas-guzzlers that went out of vogue after the Arab oil boycott in the 1970s.

Austin pointed out Saturday that the average horsepower of passenger cars had doubled since 1981 and vehicles also had quicker acceleration and were heavier. Advances in technology, however, had offset the increased power and size.

"Those gains have all been made while fuel economy has not suffered," he said.

The CBO report, which Austin said was released without fanfare on Christmas Eve, comes at the time of year when the world's carmakers descend upon Detroit and other major cities for their annual auto shows.

This year, the idea of bigger and faster has been largely overshadowed by a more efficient and greener attitude with a focus on alternative-fuel vehicles that only a few years ago were considered a curiosity.

"We are not focusing on a single technology," Mark Chernoby, vice president of Advance Vehicle Engineering at Chrysler, said in a release prior to Sunday's opening of the big Detroit show. "All of these technologies -- gasoline and diesel engines, electric vehicles, hybrids, and fuel cells -- will play a role in various market segments."

At the same time, however, Detroit has been waging a tough fight against increasing CAFE standards, and won a controversial victory when SUVs were classified as trucks rather than cars, putting them under weaker CAFE rules.

Light truck CAFE standards were raised in April from 20.7 mpg to 22.2 mpg by 2007, however the lower limits for SUVs continue to be seen as a loophole by environmentalists.

The economists largely agreed that making fuel efficiency increases voluntary would water down their effectiveness due to consumer wariness or apathy, and because companies might not want to invest in the development of high-mileage technology if their competitors aren't doing so as well.

Implementing higher CAFE standards across the board would end the uncertainty for Detroit, which would presumably work to increase fuel efficiency. It would also put a damper on the argument that a major bump in the gasoline tax is needed to slash both oil consumption and smog right away, which would be a major relief for Congress.

"It starts to become clearer," said Bento, "that the CAFE standards are probably the easiest to pass followed by the gasoline tax."

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