CAFE Standards and the Federal Gas Tax: Impact on Private Transit CO2 Emissions

The United States is the largest contributor to greenhouse gas (GHG) emissions per capita in the world, and the majority of those emissions are created in the transportation sector. Two policies are often debated in regards to reducing gasoline consumption, and therefore CO₂emissions: Corporate Average Fuel Economy Standards (CAFE) and the Federal Gasoline Tax. Additionally, there are many policies that been considered at the federal level but not yet enacted, which may be effective at achieving the same goal. The CAFE Standards, alone, are not entirely successful. They place a significant burden on auto manufacturers to produce fuel-efficient vehicle technologies that are not valued by American consumers at the current gasoline tax rate. The Federal Gasoline Tax incentivizes consumers to purchase more fuel-efficient vehicles produced by manufacturers. An increase in the tax is needed as less fuel-efficient vehicles are growing in popularity in response to low gas prices. However, the political feasibility of a substantially increased Federal Gasoline Tax is improbable. The CAFE Standards have proven effective at reducing gasoline consumption, however are contingent on American’s want to purchase fuel efficient vehicles. An increase in the Federal Gas Tax creates an effective economic incentive for American’s to purchase fuel-efficient vehicles. Therefore, the combination of the two policies are optimal, thereby mandating increased supply and increasing consumer demand.